-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UPU5Iz1/AyKfOXcFuITvywkFXzmaK48S+l9nEp52Q7nyx2A433BfiIwEws8j3jXd qeaLYhO8cXO179FNkqjX/w== 0000898430-00-000313.txt : 20000209 0000898430-00-000313.hdr.sgml : 20000209 ACCESSION NUMBER: 0000898430-00-000313 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN PACIFIC CORP CENTRAL INDEX KEY: 0000350832 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 596490478 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08137 FILM NUMBER: 527271 BUSINESS ADDRESS: STREET 1: 3770 HOWARD HUGHES PKWY STE 300 CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027352200 MAIL ADDRESS: STREET 1: 3770 HOWARD HUGHES PKWY STE 300 STREET 2: 3770 HOWARD HUGHES PKWY STE 300 CITY: LAS VEGAS STATE: NV ZIP: 89109 10-Q 1 FORM 10-Q (PERIOD ENDED 12-31-99) 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, 1999 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: 7,078,637 as of January 31, 2000. PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements. ------------------------------------------- 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 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. --------------------------------------------------------- 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. ----------------------------------------- None. ITEM 3. Defaults Upon Senior Securities. ------------------------------- None. ITEM 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- None. ITEM 5. Other Information. ----------------- None. ITEM 6. Exhibits and Reports on Form 8-K. -------------------------------- a) 10.1 Consulting Agreement (as amended) between the Registrant and Fred D. Gibson, Jr. dated January 1, 2000. 27. Financial Data Schedules. This Exhibit is filed in connection with the Registrant's electronic filing. b) None. 2 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 8, 2000 /s/ JOHN R. GIBSON ------------------ John R. Gibson Chief Executive Officer and President Date: February 8, 2000 /s/ DAVID N. KEYS ----------------------------------- David N. Keys Executive Vice President, Chief Financial Officer, Secretary and Treasurer; Principal Financial and Accounting Officer 3 AMERICAN PACIFIC CORPORATION Condensed Consolidated Statements of Operations For the Three Months Ended December 31, (Unaudited)
========================================================================================== 1999 1998 - ------------------------------------------------------------------------------------------ Sales and Operating Revenues $20,976,000 $18,854,000 Cost of Sales 12,403,000 11,588,000 -------------------------------------- Gross Profit 8,573,000 7,266,000 Operating Expenses 2,425,000 2,492,000 -------------------------------------- Operating Income 6,148,000 4,774,000 Net Interest and Other Expense 1,124,000 1,473,000 -------------------------------------- Income Before Provision for Income Taxes 5,024,000 3,301,000 Provision for Income Taxes -------------------------------------- Net Income $ 5,024,000 $ 3,301,000 -------------------------------------- Basic Net Income Per Share $ .64 $ .40 -------------------------------------- Average Shares Outstanding 7,802,000 8,189,000 -------------------------------------- Diluted Net Income Per Share $ .64 $ .40 -------------------------------------- Diluted Shares 7,878,000 8,244,000 --------------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements. 4 AMERICAN PACIFIC CORPORATION Condensed Consolidated Balance Sheets (Unaudited)
===================================================================================================== December 31, September 30, 1999 1999 - ----------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and Cash Equivalents $ 48,318,000 $ 40,434,000 Accounts and Notes Receivable 11,457,000 8,859,000 Related Party Notes Receivable 435,000 447,000 Inventories 9,512,000 9,577,000 Prepaid Expenses and Other Assets 1,327,000 680,000 Restricted Cash 1,195,000 ---------------------------------------------- Total Current Assets 71,049,000 61,192,000 Property, Plant and Equipment, Net 16,324,000 17,254,000 Intangible Assets, Net 33,103,000 34,210,000 Real Estate Equity Investments 9,620,000 11,237,000 Development Property 6,177,000 6,440,000 Other Assets, Net 2,428,000 2,549,000 ---------------------------------------------- TOTAL ASSETS $138,701,000 $132,882,000 ----------------------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements. 5 AMERICAN PACIFIC CORPORATION Condensed Consolidated Balance Sheets (Unaudited)
========================================================================================================= December 31, September 30, 1999 1999 - --------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable and Accrued Liabilities $ 9,655,000 $ 6,909,000 Current Portion of Long-Term Debt 1,195,000 ----------------------------------------------- Total Current Liabilities 9,655,000 8,104,000 Long-Term Debt 67,000,000 67,000,000 Long-Term Payables 1,650,000 2,005,000 ----------------------------------------------- TOTAL LIABILITIES 78,305,000 77,109,000 ----------------------------------------------- Commitments and Contingencies Warrants to Purchase Common Stock 3,569,000 3,569,000 Shareholders' Equity: Common Stock 852,000 847,000 Capital in Excess of Par Value 80,073,000 79,757,000 Accumulated Deficit (18,255,000) (23,279,000) Treasury Stock (5,776,000) (5,034,000) Receivable from the Sale of Stock (67,000) (87,000) ----------------------------------------------- Total Shareholders' Equity 56,827,000 52,204,000 ----------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $138,701,000 $132,882,000 -----------------------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements. 6 AMERICAN PACIFIC CORPORATION Condensed Consolidated Statements of Cash Flows For the Three Months Ended December 31, (Unaudited)
- ------------------------------------------------------------------------------------------------------------- 1999 1998 - ------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities $ 8,049,000 $ 11,261,000 ---------------------------------------- Cash Flows From Investing Activities: Capital Expenditures (166,000) (1,705,000) Return of Capital on Real Estate Equity Investments 1,617,000 464,000 ---------------------------------------- Net Cash From Investing Activities 1,451,000 (1,241,000) ---------------------------------------- Cash Flows From Financing Activities: Debt Related Payments (1,195,000) Issuance of Common Stock 321,000 Treasury Stock Acquired (742,000) (300,000) ---------------------------------------- Net Cash From Financing Activities (1,616,000) (300,000) ---------------------------------------- Net Change in Cash and Cash Equivalents 7,884,000 9,720,000 Cash and Cash Equivalents, Beginning of Period 40,434,000 20,389,000 ---------------------------------------- Cash and Cash Equivalents, End of Period $ 48,318,000 $ 30,109,000 ----------------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements 7 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, 1999, was derived from the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 1999. 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, 1999. 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, 1999 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 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, the estimated valuation allowance for deferred tax assets, 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 PER COMMON SHARE Basic per share amounts are computed by dividing net income by average shares outstanding during the period. Diluted 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 2.9 million shares of common stock were not included in diluted per share calculations during the three-month periods ended December 31, 1999 and 1998, 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, 1999 1999 ------------ ------------- Work-in-process $ 6,362,000 $ 5,938,000 Raw materials and supplies 3,150,000 3,639,000 ------------ ------------ Total $ 9,512,000 $ 9,577,000 ------------ ------------
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 8 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. 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. The Company is a party to an agreement with Utah Power and Light Company ("UPL") for its electrical requirements. The agreement provides for the supply of power for a minimum of a ten-year period, which began in 1988, and obligates the Company to purchase minimum amounts of power, while assuring the Company competitive pricing for its electricity needs for the duration of the agreement. Under the terms of the agreement, the Company's minimum monthly charge for firm and interruptible demand is approximately $22,000. The agreement has a three year notice of termination provision and, on April 7, 1999, UPL provided written notice of termination effective April 7, 2002. The Company is in the process of negotiating for its expected power requirements beyond April 7, 2002. 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, 1999, the balance of the valuation allowance was approximately $9.5 million. The Company's effective tax rate will be approximately 0% until its net operating losses expire or the Company believes the valuation allowance is no longer required. 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 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, 1999 and 1998 was as follows:
December 31, 1999 December 31, 1998 ---------------------- ----------------------- Income Statement: Revenues $12,838,000 $13,550,000 Gross Profit 1,533,000 1,059,000 Operating Expenses 417,000 419,000 Net Income $ 1,125,000 $ 662,000
7. 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 9 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, 1999, the Company's real estate operating segment had approximately 73 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 6). Additional information about the Company's operations in different segments for the three months ended December 31, is provided below.
============================= 1999 1998 ----------------------------- Revenues: Specialty chemicals $ 19,354,000 $ 16,486,000 Environmental protection 472,000 707,000 Real estate 1,150,000 1,661,000 ----------------------------- Total revenues $ 20,976,000 $ 18,854,000 ----------------------------- Operating income (loss): Specialty chemicals $ 5,676,000 $ 3,713,000 Environmental protection (38,000) (7,000) Real estate 728,000 1,311,000 ----------------------------- Total segment operating income 6,366,000 5,017,000 Unallocated net expenses (principally net interest) 1,342,000 1,716,000 ----------------------------- Income before income taxes $ 5,024,000 $ 3,301,000 =============================
10 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, a chemical used in fire extinguishing 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 believes that North American AP demand is currently approximately 20 to 25 million pounds annually. However, supply capacity was previously substantially in excess of these estimated demand levels. In an effort to rationalize the economics of the 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 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 - ---------------------------- products, consisting mostly of AP sales, accounted for approximately 74% and 66% of revenues during the three-month periods ended December 31, 1999 and 1998, 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 15% and 20% of revenues during the three-month periods ended December 31, 1999 and 1998, respectively. The Company's principal sodium azide customer accounted for approximately 85% of such revenues. Sales of Halotron amounted to approximately 3% and 1% of revenues during the three-month periods ended December 31, 1999 and 1998, respectively. Halotron is designed to replace halon-based fire extinguishing systems. Accordingly, demand for Halotron 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 5% and 9% of revenues during the three-month periods ended December 31, 1999 and 1998, 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 3% and 4% of revenues during the three-month periods ended December 31, 1999 and 1998, respectively. Cost of Sales. The principal elements comprising the Company's cost of sales - -------------- 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, 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 of the raw materials used in the Company's manufacturing processes have historically been available in commercial quantities with 11 relatively stable pricing, and the Company has had no difficulty obtaining necessary raw materials. The costs of operating the Company's specialty chemical plants are, however, largely fixed. Income Taxes. The Company's effective income tax rates were 0% during the - ------------ three-month periods ended December 31, 1999 and 1998. The Company's effective income tax rate was 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 valuation allowance is no longer necessary. Net Income. Although the Company's net income and diluted net income 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 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; and (v) the magnitude, pricing and timing of AP, sodium azide, Halotron, and environmental protection equipment orders in the future is uncertain. (See "Forward Looking Statements/Risk Factors" below.) RESULTS OF OPERATIONS Three Months Ended December 31, 1999 Compared to Three Months Ended December 31, 1998 Sales and Operating Revenues. Sales increased $2.1 million, or 11%, during the - ---------------------------- three months ended December 31, 1999, to $21.0 million from $18.9 million in the corresponding period of the prior year. This increase was principally attributable to increased sales of specialty chemicals. Specialty chemical sales increased approximately $2.9 million principally due to increased AP and Halotron(TM) shipments. AP shipments during the first quarter of this year were particularly strong and are not expected to continue at this relative level during the remainder of fiscal 2000. The increase in specialty chemical sales was partially offset by decreases in real estate and environmental protection equipment sales. Cost of Sales. Cost of sales increased $0.8 million, or 7%, in the three months - ------------- ended December 31, 1999, to $12.4 million from $11.6 million in the corresponding period of the prior year. Such increase was principally due to an increase in costs associated with specialty chemical sales resulting primarily from increased sales volumes as discussed above. Operating Expenses. Operating (selling, general and administrative) expenses - ------------------ decreased $0.1 million, or 4%, in the three months ended December 31, 1999, to $2.4 million from $2.5 million in the corresponding period of 1998. Net Interest Expense. Net interest and other expense decreased to $1.1 million - -------------------- in the three months ended December 31, 1999, from $1.5 million in the corresponding period of the prior year, as a result of lower average debt balances and higher average cash and equivalents balances. 12 Segment Operating Income (Loss). Operating income (loss) of the Company's - ------------------------------- industry segments during the three-month periods ended December 31, 1999 and 1998 was as follows:
1999 1998 --------------- ---------------- Specialty chemicals $ 5,676,000 $ 3,713,000 Environmental protection equipment (38,000) (7,000) Real Estate 728,000 1,311,000 --------------- --------------- Total $ 6,366,000 $ 5,017,000 =============== =============
The increase in operating income in the Company's specialty chemical industry segment was attributable to the increase in perchlorate and Halotron(TM) sales referred to 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 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, 1999 or 1998. 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. In June 1999 and September 1998, the Company purchased and retired $3.0 million and $5.0 million, respectively, in principal amount of Notes. The Company incurred extraordinary losses on debt extinguishment of approximately $0.2 million on each of these transactions principally as a result of writing off costs associated with the issuance of the Notes. Cash flows provided by operating activities were $8.0 million and $11.3 million during the three-months ended December 31, 1999 and 1998, respectively. Cash flows from operating activities decreased principally as a result of an increase in certain working capital asset balances. 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 litigation, and the timing, pricing and magnitude of orders for AP, sodium azide and Halotron, may have an effect on the use and availability of cash. Capital expenditures were $0.2 million during the three months ended December 31, 1999, compared to $1.7 million during the same period last year. Capital expenditures are budgeted to amount to approximately $3.0 million in fiscal 2000 and are expected to relate primarily to specialty chemical segment capital improvement projects. During the three-month period ended December 31, 1999, the Company received cash of approximately $1.6 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. In December 1999, in accordance with the requirements of the applicable indenture, the Company made an offer to purchase $8.4 million in principal amount of Notes at 102% of par, plus accrued interest. 13 Approximately $2.6 million in principal amount of Notes were tendered in connection with this offer and, in January 2000, the Company paid approximately $2.7 million (including accrued interest) to purchase these Notes. During the three-month period ended December 31, 1999, the Company spent approximately $0.7 million on the repurchase of its Common Stock. In early January 2000, the Company repurchased 710,000 shares of its Common Stock for a total cost of approximately $5.9 million. 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. During 1999, the Company completed a review of its major manufacturing and computing systems to identify areas that could be affected by Year 2000 issues. Management believes that the Company's critical systems were Year 2000 compliant as of December 31, 1999. The Company believes that no material adverse impact has occurred relating to its production capabilities, processes or other operational departments reliant on computer systems resulting from the Year 2000 issues. The Company also believes that there has been no material impact from the Year 2000 issues on its consolidated financial position, results of operations or cash flows. However, certain ongoing risks may exist relative to the non-compliance of third parties with operational significance to the Company, such as key suppliers to its manufacturing operations. Accordingly, there can be no assurance that the Company will not be adversely impacted in the future by Year 2000 issues. As of January 31, 2000, the Company has incurred approximately $0.3 million of costs directly associated with the Year 2000 issues. 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 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, (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 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 the development or penetration of competing new products, particularly in the propulsion, airbag inflation and fire extinguishing businesses. 14 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 (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. 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. 10. Provisions of the Company's Certificate of Incorporation and By- laws and recently-adopted 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. 15 EX-10.1 2 CONSULTING AGREEMENT EXHIBIT 10.1 CONSULTING AGREEMENT (Fred D. Gibson, Jr.) This Consulting Agreement (the "Agreement") is made and entered into this 1st day of January, 2000, by and between American Pacific Corporation, a Delaware corporation having its principal place of business at 3770 Howard Hughes Parkway, Suite 300, Las Vegas, Nevada 89109 (the "Company"), and Fred D. Gibson, Jr., an individual residing in Clark County, Nevada (the "Executive"). RECITALS: A. The Company, through its subsidiary corporations, is engaged in the manufacture of specialty chemicals, including perchlorate chemicals, sodium azide and Halotron fire suppression agents, and is engaged in the design and manufacture of environmental protection products and real estate development. B. The Executive is currently serving as a director of the company. C. The Executive is willing to agree to provide consulting services to the Company, upon the terms and conditions set forth in this Agreement. Now, therefore, in consideration of promises and agreements herein contained, and intending to be legally bound, the Company and the Executive agree as follows: 1. Provision of Consulting Services. The Company and the Executive -------------------------------- agree that, for a term commencing on the Commencement Date and continuing thereafter throughout the period or periods of time provided in this Agreement, the company will retain the Executive as a consultant, and the Executive will provide consulting services to the Company. 2. Scope of Services. After the Commencement Date the Executive shall ----------------- provide from time to time such consulting services to the Company and its subsidiary corporations as the company may request, and that the Executive shall be willing and able to provide. If, during the term of this Agreement the Executive is acting as a director of the company, the Executive's service as a director shall additionally be governed by the bylaws from time to time in effect and by the laws of the state of incorporation of the company. The Executive shall at all times perform his duties and discharge his responsibilities under this agreement diligently and conscientiously, and to the best of his ability, and shall direct his best efforts to further and maximize the business and interests of the Company and its stockholders, in accordance with sound business practices and applicable laws and regulations. Page 1 of Exhibit 10.1 3. Conflicts of Interest. The Executive agrees that, during the term of --------------------- this Agreement, he shall not act in any advisory or other capacity for any individual, firm, association or corporation other than the Company and its subsidiary corporations in matters in any way pertaining to any business or undertaking in any way similar to or competitive with the business or activities of the Company and its subsidiary corporation. 4. Commencement and duration of Consulting Services. The Executive's ------------------------------------------------ service to the company as a consultant shall commence on January 1, 2000. 5. Term and Termination of Agreement. This Agreement shall have a term --------------------------------- of nine (9) months and the Executive's service as a consultant hereunder shall terminate on September 30, 2000, or earlier, upon the first to occur of the following events: (a) The death or total and permanent disability of the Executive: (b) The Company's election to terminate the Executive's service as a consultant due to the material breach by the executive of any of the Executive's covenants under this Agreement, including, but not limited to, those covenants set forth in Sections 7 through 9 hereof; or (c) Notice from the Executive that the Executive elects to discontinue his service as a consultant to the Company. 6. Compensation. ------------ (a) In consideration of the services to be provided by the Executive pursuant to this Agreement, the Company shall pay to the Executive, $250.00 per hour. (b) The Company shall reimburse the Executive for all expenses such as travel to and from, hotel, rental car, meals and other incidental expenses. 7. Noncompetition. -------------- (a) The Executive shall not at any time during the period of the Executive's service to the company as a consultant or for a period of two years thereafter render any services, directly or indirectly for any competitor. (b) The Executive shall not, at any time during the period of the Executive's service to the company as a consultant or for a period of two years thereafter, influence or attempt to influence, either directly or indirectly, any employee of the Company or of any affiliated entity to leave or terminate such individual's employment with the Company or with an affiliate of the Company. (c) The Executive shall not, at any time during the period of the Executive's service to the Company as a consultant or for a period of two years thereafter, Page 2 of Exhibit 10.1 influence or attempt to influence, either directly or indirectly, any customer or client of the Company or of any affiliated entity to discontinue purchasing or using the products or services of, or to cancel or fail to renew a contract with, the Company or an affiliate of the company. (d) For purposes of this agreement, the term "Competitor" shall mean any individual (including the Executive) or entity that at any time is directly or indirectly (for example, through an affiliated or controlled individual or entity) engaged in or about to engage in the manufacture of perchlorate chemicals, sodium azide, fire suppression agents competitive with Halotron fire suppression agents, or environmental protection products competitive with those designed or manufactured by the Company and its subsidiaries. (e) The Executive agrees and acknowledges that the breach by the Executive of any of the provisions of this Section will cause company irreparable damage, that the remedy at law for any such breach could be inadequate, and that the Company, in addition to any other relief available to it, shall be entitled to appropriate temporary and permanent injunctive relief restraining Executive from committing or continuing such breach, without the necessity of proving actual damages. The Executive agrees to pay all costs and attorneys' fees incurred by the company in obtaining such injunctive or other relief. 8. Confidential Information. ------------------------ (a) The Executive shall never, either during the period of the Executive's service to the Company as a consultant or thereafter, use or employ for any purpose or disclose to any other individual or entity any Confidential Information. The Executive acknowledges and agrees that all Confidential Information is proprietary to the Company, is extremely important to the Company's business, and that the use by or disclosure of such Confidential Information to a competitor could materially and adversely affect the Company, its business and its customers. (b) Upon any termination of the period of the Executive's service to the Company, the Executive shall leave with or return immediately to the Company any and all records and any and all compositions, articles, devices and other similar or related items that disclose or contain any Confidential Information, including all copies or specimens thereof, whether in the Executive's possession or under the Executive's control, or whether prepared by the Executive or by others. (c) For purposes of this Agreement, the term "Company" shall refer to the company and each of its subsidiary corporations, and to any other corporation or entity that is owned or controlled, directly or indirectly, by Company or that is under common ownership or control with the Company. (d) For purposes of this Agreement, the term "Confidential Information" shall mean information in any form that is not generally known to the Page 3 of Exhibit 10.1 public that relates to the company's past, present or future operations, processes, products or services, or to any research, development, manufacture, purchasing, accounting, engineering, marketing, merchandising, advertising, selling, leasing, financing or business methods or techniques (including without limitation customer lists, records of customer services, usages and requirements, sketches and diagrams of Company or customer facilities and like and similar information relating to actual or prospective customers) that is or may be related thereto. All information disclosed to the Executive or to which the Executive obtains access during any period of the Executive's service to the Company, whether pursuant to this Agreement or otherwise, or to which the Executive obtains access by reason of any such service to the Company, that the Executive has a reasonable basis to believe is or may be Confidential Information, shall be presumed for purposes of this Agreement to be Confidential Information. 9. Inventions. ---------- (a) Immediately upon its discovery or completion, the Executive shall promptly and fully disclose each Invention in writing to the Company. The Executive shall make this disclosure regardless of whether an Invention is discovered, conceived or completed by the Executive alone or jointly with others, and regardless of whether or not the Invention is discovered, conceived or completed in furtherance of the Executive's duties in the service of the Company, whether pursuant to this Agreement or otherwise, and regardless of whether or not the Invention was discovered, conceived or completed during normal working hours or on the premises of Company. (b) The Executive hereby assigns, and agrees to assign, to the Company all of the Executive's rights in and to all Inventions and in and to any and all letters patent or copyrights or applications therefor at any time granted or made, whether in the United State of America or in any foreign nation, upon or with respect to any Invention. (c) The Executive shall from time to time execute, acknowledge and deliver promptly to the Company (without charge to the Company but at the expense of the Company) such written instruments and documents, and shall take such other and further action with respect to any invention, as may be necessary or desirable in order to enable the Company to obtain and maintain patents and/or copyrights therein, or to vest the entire right title and interest thereto in the company. (d) The Executive shall not assert any rights under any Inventions as having been made or acquired by the Executive prior to the commencement of the Executive's employment by or service to the Company. (e) For purposes of this Agreement, the term "Inventions" means discoveries, developments, improvements and ideas (whether or not shown or described in writing or reduced to practice) and works of authorship (including computer software), whether or not patentable or copyrightable, (i) that are or may be related to the manufacture of perchlorate chemicals, sodium azide, fire suppression agents competitive Page 4 of Exhibit 10.1 with Halotron fire suppression agents, or environmental protection products competitive with those designed or manufactured by the Company and its subsidiaries, or to any research, development, manufacture, purchasing, accounting, engineering, marketing, merchandising, advertising, selling, leasing, financing or business methods or techniques or any improvements to any of the foregoing; (ii) that relate to the Company's actual or demonstrably anticipated research or development with respect to any of the foregoing; (iii) that result from any services at any time performed by the Executive for the company, whether pursuant to this Agreement or otherwise; (iv) for which equipment, supplies, facilities or trade secret information of the Company is used; or (v) that are developed on any company time with respect to any activity referred to above. 10. Survival. The Executive's obligations set forth in Sections 7 -------- through 9 hereof shall survive the expiration or other termination of this Agreement and the period of the Executive's service to the Company. 11. Notices. Any notice permitted or required to be given pursuant to ------- this Agreement shall deemed to have been given when appropriate notice thereof has been validly given or served in writing and delivered personally or sent by registered or certified mail, postage prepaid, to the following address: If to the Company or to any American Pacific Corporation subsidiary corporation: 3770 Howard Hughes Parkway, Suite 300 Las Vegas, NV 89109 If to the Executive, to: The Executive's address as set forth on the signature page to this Agreement Or to such other addresses as either party may hereafter designate to the other in writing. 12. Governing Law. This Agreement is made and entered into, and is ------------- executed and delivered, in Clark County, Nevada, and shall be construed and enforced in accordance with and shall be governed by the laws of the State of Nevada. 13. Entire Understanding. This Agreement constitutes the entire -------------------- understanding and agreement between the Company and the Executive with regard to all matters herein, and there are no other agreements, conditions, or representations, oral or written, expressed or implied, with regard thereto other than as referred to herein. This Agreement may be amended only in writing, signed by both parties hereto. 14. Severability. If any term or provision of this Agreement shall be ------------ held to be invalid or unenforceable for any reason, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without invalidating the remaining terms and provisions hereof, and this Agreement shall be construed as if such invalid or unenforceable term or provision has not been contained herein. Page 5 of Exhibit 10.1 15. Successors. This Agreement shall be binding upon and inure to the ---------- benefit of the parties hereto and their respective heirs, administrators, executors, and successors. Neither party may assign any of its rights hereunder, except that the Company and any subsidiary corporation may assign its rights and delegate its duties hereunder to any entity that succeeds (whether by merger, purchase or otherwise) to the assets or business of the Company or any subsidiary corporation. 16. Consent to Jurisdiction. The Executive agrees that any action or ----------------------- proceeding to enforce, or that arises out of, this Agreement may be commenced and maintained in the district courts of the State of Nevada, or in the United States District Court for the District of Nevada, and Executive hereby waives any objection to the jurisdiction of said courts in any litigation arising hereunder on the basis that such court is an inconvenient forum or otherwise. 17. Attorneys' Fees. In the event that this Agreement is breached by --------------- either party, the breaching party shall be liable for all costs and attorneys' fees incurred by the non-breaching party as a result of the breach or in enforcing the terms of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "Company" American Pacific Corporation, a Delaware corporation By_________________________________ Title______________________________ "Executive" ____________________________________ Fred D. Gibson, Jr. Address: 3204 Plaza de Rafael Las Vegas, NV 89102 Page 6 of Exhibit 10.1 EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-30-2000 DEC-31-1999 48,318,000 0 11,892,000 0 9,512,000 71,049,000 26,506,000 10,182,000 138,701,000 9,655,000 67,000,000 0 0 852,000 55,975,000 138,701,000 20,976,000 20,976,000 12,403,000 14,828,000 0 0 1,124,000 5,024,000 0 5,024,000 0 0 0 5,024,000 .64 .64
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