<PAGE>
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 MARCH 31, 1996
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: 8,105,621 AS OF APRIL 30,
1996.
<PAGE>
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 9 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 10 through 14 of this Report on Form 10-Q.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
The information required by Item 103 of Regulation S-K is provided on
pages 8 through 9 of this Report on Form 10-Q.
ITEM 2. Changes in Securities
---------------------
None.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The following Class B Directors were elected on March 12, 1996 at the
Registrant's 1996 Annual Stockholders' Meeting:
NAME VOTES FOR VOTES WITHELD
Norval F. Pohl 7,828,726 70,145
C. Keith Rooker 7,829,026 69,845
Jane L. Williams 7,829,026 69,845
ITEM 5. Other Information
-----------------
A cautionary statement for purposes of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 is provided in
pages 15 through 16.
ITEM 6. Exhibits and Reports on Form 8 -K
---------------------------------
a) The following Exhibit is filed in connection with the Registrant's
electronic filing:
27. Financial Statement Schedules.
b) None.
2
<PAGE>
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
/s/ C. Keith Rooker
Date: May 14, 1996 ------------------------
C. Keith Rooker
Executive Vice President
Secretary/General Counsel
/s/ David N. Keys
Date: May 14, 1996 ---------------------------
David N. Keys
Vice President,
Chief Financial Officer and
Treasurer; Principal
Financial and Accounting
Officer
3
<PAGE>
AMERICAN PACIFIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
FOR THE THREE-MONTHS FOR THE SIX-MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales and Operating Revenues $10,980,000 $8,908,000 $20,756,000 $18,217,000
Cost of Sales 8,150,000 6,720,000 16,053,000 14,456,000
----------------------------------------------------------
Gross Profit 2,830,000 2,188,000 4,703,000 3,761,000
Operating Expenses 2,556,000 2,903,000 4,906,000 5,511,000
----------------------------------------------------------
Operating Income (Loss) 274,000 (715,000) (203,000) (1,750,000)
Net Interest and Other
Expense (Income) 443,000 (468,000) 858,000 (775,000)
----------------------------------------------------------
Loss Before Credit for
Income Taxes (169,000) (247,000) (1,061,000) (975,000)
Credit for Income Taxes (57,000) (83,000) (361,000) (331,000)
----------------------------------------------------------
Net Loss $ (112,000) $ (164,000) $ (700,000) $ (644,000)
----------------------------------------------------------
Net Loss Per Common Share $ (.01) $ (.02) $ (.09) $ (.08)
----------------------------------------------------------
Weighted Average Common
and Common Equivalent
Shares Outstanding 8,106,000 8,242,000 8,105,000 8,243,000
---------------------------------------------------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 19,943,000 $ 24,540,000
Short-term Investments 2,000,000 2,000,000
Accounts and Notes Receivable 2,066,000 2,534,000
Income Tax Receivable 2,570,000 2,570,000
Related Party Notes Receivable 888,000 888,000
Inventories 10,237,000 7,094,000
Prepaid Expenses and Other Assets 1,049,000 986,000
----------------------------
TOTAL CURRENT ASSETS 38,753,000 40,612,000
Property, Plant and Equipment, Net 79,562,000 80,944,000
Development Property 9,459,000 10,296,000
Real Estate Equity Investments 19,748,000 17,725,000
Other Assets 4,183,000 4,469,000
Restricted Cash 1,677,000 3,743,000
----------------------------
TOTAL ASSETS $153,382,000 $157,789,000
----------------------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Liabilities $ 7,157,000 $ 5,672,000
Current Portion of Long-Term Debt 8,500,000 8,500,000
-----------------------------
TOTAL CURRENT LIABILITIES 15,657,000 14,172,000
Long-Term Debt 29,213,000 34,054,000
Deferred Income Taxes 10,207,000 10,568,000
Minimum Pension Liability 1,175,000 1,175,000
-----------------------------
TOTAL LIABILITIES 56,252,000 59,969,000
-----------------------------
Commitments and Contingencies
Warrants to Purchase Common Stock 3,569,000 3,569,000
SHAREHOLDERS' EQUITY:
Common Stock 823,000 822,000
Capital in Excess of Par Value 78,323,000 78,285,000
Retained Earnings 15,489,000 16,189,000
Treasury Stock (818,000) (789,000)
Receivable from the Sale of Stock (97,000) (97,000)
Excess Additional Pension Liability (159,000) (159,000)
-----------------------------
TOTAL SHAREHOLDERS' EQUITY 93,561,000 94,251,000
-----------------------------
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $153,382,000 $157,789,000
-----------------------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FOR THE THREE-MONTHS FOR THE SIX-MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Provided by
Operating Activities $10,073,000 $ 1,589,000 $ 5,015,000 $ 1,642,000
-----------------------------------------------------------
Cash Flows Used for
Investing Activities:
Capital Expenditures,
Development Property
Additions and Real Estate
Equity Investments (3,228,000) (2,978,000) (4,622,000) (5,582,000)
Treasury Stock Acquired (29,000) (370,000)
-----------------------------------------------------------
Net Cash Used For
Investing Activities (3,228,000) (2,978,000) (4,651,000) (5,952,000)
-----------------------------------------------------------
Cash Flows From
Financing Activities:
Principal Payments on Debt (5,000,000) (5,000,000)
Issuance of Common Stock 16,000 39,000 42,000
-----------------------------------------------------------
Net Cash Provided By (Used
For) Financing Activities (5,000,000) 16,000 (4,961,000) 42,000
-----------------------------------------------------------
Net Increase (Decrease) in
Cash and Cash Equivalents 1,845,000 (1,373,000) (4,597,000) (4,268,000)
Cash and Cash Equivalents,
Beginning of Period 18,098,000 19,989,000 24,540,000 22,884,000
-----------------------------------------------------------
Cash and Cash Equivalents,
End of Period $19,943,000 $18,616,000 $19,943,000 $18,616,000
-----------------------------------------------------------
Supplemental Disclosure of
Cash Flow Information:
Interest Paid (net of amounts
capitalized) $ 1,230,000 $ 1,230,000
-----------------------------------------------------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
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, 1995 was derived
from the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1995. The Condensed
Consolidated Financial Statements for the three-month and six-month periods
ended March 31, 1996 and 1995 are unaudited. 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, 1995. In the opinion of Management, however,
all adjustments (consisting only of normal recurring accruals) necessary for
a fair presentation have been included.
2. NET LOSS PER COMMON SHARE
Net loss per common share for the three-month and six-month periods ended
March 31, 1996 and 1995 is determined based upon the weighted average number
of common and common equivalent shares (if such shares are dilutive)
outstanding. Common share equivalents consist of outstanding stock options
and warrants.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
----------- -------------
<S> <C> <C>
Work-in-process $ 6,094,000 $3,828,000
Raw materials and supplies 4,143,000 3,266,000
----------- ----------
Total $10,237,000 $7,094,000
----------- ----------
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
In fiscal 1993, three shareholder lawsuits, purporting to be class actions,
were filed in the United States District Court for the District of Nevada
against the Company and certain of its directors and officers. The
complaints, which were consolidated, alleged that the Company's public
statements violated Federal securities laws by inadequately disclosing
information concerning its agreements with Thiokol Corporation ("Thiokol")
and the Company's operations. On November 27, 1995, the U.S. District Court
granted in part the Company's motion for summary judgment, ruling that the
Company had not violated the federal securities laws in relation to
disclosures concerning the Company's agreements with Thiokol. The remaining
claims, which related to allegedly misleading or inadequate disclosures
regarding Halotron, were the subject of a jury trial that ended on January
17, 1996. The jury reached a unanimous verdict that neither the Company nor
its directors and officers made misleading or inadequate statements regarding
Halotron. The plaintiff's have appealed the summary judgment ruling and
portions of the trial proceedings to the
8
<PAGE>
Ninth Circuit of the United States District Court of Appeals. The specific
appeal process is currently expected to take between one and two years
although the duration is subject to significant change based on factors
beyond the Company's control.
As a result of the above-described shareholder lawsuits, the Company has
incurred legal and other costs and may incur material legal and other costs
associated with the ultimate resolution of the shareholder lawsuits in future
periods. Certain of these costs may be reimbursable under policies providing
for insurance coverage. The Company has adopted certain policies in its
Charter and Bylaws as a result of which the Company may have the obligation
to indemnify its affected officers and directors to the extent, if at all,
the existing insurance coverages are insufficient. The Company's insurance
carriers have reserved the right to exclude or disclaim coverage under
certain circumstances. The Company is currently unable to predict or
quantify the amount or the range of such costs, if any, or the period of time
during which such costs will be incurred.
The Company was served with a complaint on December 10, 1993 in a lawsuit
brought by limited partners in a partnership of which one of the Company's
former subsidiaries, divested in 1985, was a general partner. The plaintiffs
allege that the Company is liable to them in the amount of approximately $5.9
million, plus interest, on a guarantee executed in 1982. The Company
believes that the claim against it is wholly without merit.
The Company and its subsidiaries are also involved in other lawsuits. The
Company believes that these other lawsuits, individually or in the aggregate,
will not have a material adverse effect on the Company or any of its
subsidiaries.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
SALES AND OPERATING REVENUES AND GROSS PROFIT
Sales and operating revenues were $10,980,000 and $8,908,000 during the three-
month periods ended March 31, 1996 and 1995, and $20,756,000 and $18,217,000
during the six-month periods ended March 31, 1996 and 1995. Gross profit as a
percentage of sales and operating revenues was 23 percent in the first six
months of fiscal 1996 compared to 21 percent in the same period last year. A
discussion of sales and operating revenues and gross profit percentages relating
to the Company's principal operating activities is provided below.
PERCHLORATE CHEMICAL OPERATIONS
In May 1994, Western Electrochemical Company ("WECCO"), an indirect wholly-owned
subsidiary of the Company, and Thiokol executed an amendment (the "Amendment")
to an existing long-term purchase contract for the sale of ammonium perchlorate
("AP"). The Amendment confirmed that the purchase contract had a continuous
term commencing with the first production of AP at the WECCO plant in August
1989 and ending September 30, 1996, (approximately two months subsequent to the
estimated original term of the Advance Agreement). The Amendment provides for
WECCO to receive revenues from sales of AP of approximately $33 million, $28
million and $20 million during the fiscal years ended and ending September 30,
1994, 1995 and 1996, respectively.
Sales of all perchlorate chemicals amounted to approximately $5,344,000 and
$7,366,000 during the three-month periods ended March 31, 1996 and 1995, and
$10,489,000 and $14,487,000 during the six-month periods ended March 31, 1996
and 1995. In October 1995, WECCO received a purchase order for the delivery of
AP from October 1996 through 1999 having a value in the range of $8 million to
$10 million. This contract includes options that could increase the total order
substantially during the 1997-1999 period, and that could extend the contract to
the year 2005. Other than this purchase order, WECCO has no significant backlog
of perchlorate chemical sales subsequent to September 30, 1996.
SODIUM AZIDE OPERATIONS
Sodium azide sales (net of a five percent royalty and certain commissions) were
$2,685,000 and $1,024,000 during the three-month periods ended March 31, 1996
and 1995, and $6,003,000 and $2,135,000 during the six-month periods ended March
31, 1996 and 1995. Commercial shipments of sodium azide began in April 1994.
The level of sodium azide sales has not been sufficient to absorb operational
costs associated with the production and sale of sodium azide. The Company's
plans with respect to its sodium azide project continue to be grounded in the
Company's objective of becoming the primary supplier to the U.S. automotive
airbag inflator market. The Company believes that the level of sodium azide
sales will increase. There can be no assurance in that regard however, and, as
a consequence, the Company cannot predict over what period of time, if at all,
such increases in sales levels will occur. In addition, by reason of a highly
competitive market environment there continues to be considerable market
pressure on the price of sodium azide. At the time the Company began this
project in 1990, prices for sodium azide to the airbag market were approximately
$8.00 per pound. Prices currently appear to be in the
10
<PAGE>
range of $4.50 to $6.00 per pound. The Company believes the price reduction in
sodium azide is due to the unlawful pricing practices of Japanese producers. In
response to such practices, in January 1996, the Company filed an antidumping
petition with the United States International Trade Commission and the United
States Department of Commerce. The Company currently expects a finding in this
matter in the summer of 1996.
Depreciation expense relating to sodium azide production increased in the third
quarter of fiscal 1995 as the sodium azide facility completed its transition
from construction to production activities. On an annualized basis, cost of
sales associated with sodium azide activities increased by approximately $3
million beginning April 1, 1995, as a result of this increase in depreciation
expense. The Company expects depreciation expense related to sodium azide
production to approximate $6 million in fiscal 1996.
REAL ESTATE OPERATIONS
The Company's real estate development properties consist of approximately 4,700
acres in Iron County, Utah near Cedar City, Utah and a 400-acre tract (Gibson
Business Park) in Clark County, Nevada. All development property is held in fee
simple. Substantially all of the Gibson Business Park land is pledged as
collateral for certain debt (the "Azide Notes"). The Company is actively
marketing its Nevada property for sale and development. About 240 acres of its
Clark County land has been transferred to a limited liability corporation for
the purpose of residential development, construction, and sale. The Iron County
site is primarily dedicated to the Company's growth and diversification. Real
estate and related sales amounted to $2,887,000 and $88,000 during the six-month
periods ended March 31, 1996 and 1995, 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.
ENVIRONMENTAL PROTECTION EQUIPMENT OPERATIONS
Environmental protection equipment sales were approximately $964,000 and
$1,417,000 during the six-month periods ended March 31, 1996 and 1995,
respectively. The Company is continuing its evaluation of future operating
activities in this business segment. Effective December 31, 1994, the Company
laid off the work force associated with assembly activities (approximately four
hourly employees) and terminated the assembly facility lease (saving $67,000 in
annual operating rents). Operating activities in this segment are now being
conducted at the Company's Iron County facilities. As of May 10, 1996, this
segment had a backlog of approximately $2,500,000. In addition, the Company has
submitted a number of bids, although there can be no assurance that any of these
bids will result in future orders.
HALOTRON OPERATIONS
Sales of Halotron amounted to approximately $273,000 in the first six months of
fiscal 1996 compared to $67,000 in the same period last year. In December 1995,
the Company, in concert with Buckeye Fire Equipment Company, successfully
completed Underwriters Laboratories (UL) fire tests of a line of portable fire
extinguishers using Halotron I. Domestic distribution of the Buckeye Halotron
extinguisher line began in February, 1996. The Company and Buckeye signed an
agreement that calls for the Company to supply Buckeye's requirements of
Halotron I during calendar 1996. This agreement includes Buckeye's estimate of
its requirements, which approximate sales of Halotron I of $2.2 million
11
<PAGE>
per calendar quarter, although actual requirements to date have been
substantially less than these estimates.
OPERATING EXPENSES
Operating expenses were $2,556,000 and $2,903,000 during the three-month periods
ended March 31, 1996 and 1995, and $4,906,000 and $5,511,000 during the six-
month periods ended March 31, 1996 and 1995. The decreases are primarily due to
the Company's implementation of cost control, containment and reduction
measures. The decreases were partially offset by legal fees associated with the
shareholder lawsuits discussed in Note 4 of Notes to Condensed Consolidated
Financial Statements. Such fees amounted to approximately $531,000 during the
six months ended March 31, 1996.
During the third quarter of fiscal 1995, the Company reduced total full-time
employee equivalents by approximately ten percent through involuntary
terminations and an offering of enhanced retirement benefits to a certain class
of employees. The Company recognized a charge to operating expense of
approximately $226,000 as a result of these terminations and the acceptance of
the offer of enhanced retirement benefits by certain employees.
NET INTEREST AND OTHER EXPENSE (INCOME)
The increase in net interest and other expense in the first six months of fiscal
1996 compared to the first six months of fiscal 1995 is primarily due to the
fact, in the third quarter of fiscal 1995, that interest capitalization ceased
on the remaining portion of the sodium azide facility undergoing construction
activities.
CREDIT FOR INCOME TAXES
The Company's effective income tax rates were approximately 34% during the
three-month and six-month periods ended March 31, 1996 and 1995.
NET LOSS PER COMMON SHARE AND OPERATING RESULTS
Although the Company's net loss and net loss per common share have not been
subject to seasonal fluctuations, they have been and are expected to continue to
be subject to variations from quarter to quarter and year to year due to the
following factors, among others; (i) as discussed in Note 4, the Company may
incur material legal and other costs associated with litigation; (ii) the timing
of real estate and related sales is not predictable; (iii) the recognition of
revenues from environmental protection equipment orders not accounted for as
long-term contracts depends upon the timing of shipment of the equipment; (iv)
weighted average common and common equivalent shares for purposes of calculating
net income (loss) 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) as discussed above, the magnitude of
AP, sodium azide, and Halotron orders in the future is uncertain.
The Company's efforts to produce, market and sell Halotron are dependent upon
the political climate and environmental regulations that exist and may vary from
country to country. Although the Company is satisfied with the progress and
performance characteristics of Halotron, the magnitude of orders received, if
any, in the future will be
12
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dependent to a large degree upon political issues and environmental regulations
that are not within the Company's control, as well as additional testing and
qualification in certain jurisdictions and the ultimate extent of market
acceptance.
As a result of the uncertainties with respect to volume and price of sodium
azide and the outcome of the antidumping petition referred to above, the Company
may experience significant variations in sodium azide sales and related
operating results from quarter to quarter. The Company continues to believe,
however, that, notwithstanding these uncertainties, revenues and associated cash
flows from its sodium azide operations will be sufficient to recover the
Company's investment in its sodium azide facility, although there can be no
assurance in that regard.
LITIGATION
See Note 4 of Notes to Condensed Consolidated Financial Statements for a
discussion of litigation.
INFLATION
Inflation did not have a significant effect on the Company's sales and operating
revenues or costs during the six-month periods ended March 31, 1996 or 1995.
The Company does not expect inflation to have a material effect on gross profit
in the future, because any increases in production costs should be recovered
through increases in product prices, although there can be no assurance in that
regard.
LIQUIDITY AND CAPITAL RESOURCES
On July 29, 1994, the Board of Directors of the Company authorized the
repurchase of up to 1.5 million shares of the Company's common stock through
open market purchases and private transactions. Such authorization was briefly
suspended. As of April 30, 1996, the Company had repurchased approximately
116,000 shares through this program.
As a result of the litigation described in Note 4 of Notes to Condensed
Consolidated Financial Statements, the Company may incur material legal and
other costs associated with the resolution of this matter in future periods.
Certain of these costs may be reimbursable under policies providing for
insurance coverage. The Company has adopted certain policies in its Charter and
Bylaws as a result of which the Company may be required to indemnify its
affected officers and directors to the extent, if at all, that existing
insurance coverages are insufficient. The Company has in force substantial
insurance covering this risk. The Company's insurance carriers have reserved
the right to exclude or disclaim coverage under certain circumstances. Defense
costs and any potential settlement or judgment costs associated with this
litigation, to the extent borne by the Company and not recovered through
insurance, would adversely affect the Company's liquidity. The Company is
currently unable to predict or quantify the amount or range of such costs, if
any, or the period of time that such costs will be incurred.
Cash flows provided by operating activities were $5,015,000 during the first six
months of fiscal 1996 compared to $1,642,000 during the first six months of
fiscal 1995. The increase in cash flows is principally due to an increase in
sodium azide operating income before depreciation and the increase in real
estate sales referred to above. The Company believes that its cash flows from
operations and existing cash balances will be adequate for
13
<PAGE>
the foreseeable future to satisfy the needs of its operations. However, the
satisfactory resolution of the lawsuits discussed in Note 4, the timing, pricing
and magnitude of the receipt of orders for AP, sodium azide and Halotron, and
the Company's ability to achieve further cost reductions may have an effect on
the use and availability of cash.
In February 1992, the Company concluded a $40,000,000 financing for the design,
construction and start-up of a sodium azide facility. As a result of the
Company's decision to increase the production capacity of the plant and
construction cost overruns, the Company's cost estimates for the sodium azide
facility increased significantly during the construction process. The majority
of the increase relates to the Company's decision to increase the productive
capacity of the plant, as discussed above. In addition, certain estimates
increased throughout the construction process as a result of the highly
automated and technical nature of the operation. Design and construction also
occurred over a longer period of time than was originally estimated, which
increased actual expenditures. Although production and sales have recently
increased, the facility has not been operated at significant production levels
in comparison to capacity and greater-than-expected capital costs have been and
may continue to be incurred. Subject to the ongoing receipt and magnitude of
orders for sodium azide, the avoidance of further erosion of the selling price
per pound of sodium azide, and the outcome of the Company's antidumping petition
the Company believes that the increased costs associated with the sodium azide
facility will be recovered through future sodium azide sales, although there can
be no assurance in this regard.
14
<PAGE>
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
American Pacific Corporation (the "Company") may in the future make statements
("Statements") that are, or may be construed to be, "forward looking" within the
meaning of applicable provisions of the Private Securities Litigation Reform Act
of 1995, the Securities Exchange Act of 1934, the Securities Act of 1933, or
other statutes (including state statutes), or within the meaning of applicable
provisions or regulations adopted by the Securities and Exchange Commission,
state regulatory agencies, or self-regulating bodies within the securities
industry such as the National Association of Securities Dealers, Inc., or
various stock exchanges. Statements may be made directly by authorized
representatives of the Company either in written or oral form (e.g., press
releases, periodic conference calls with the investment community, conferences
or discussions with analysts or investors), or may be made by analysts or other
third parties based in whole or in part on information provided to such persons
by the Company.
The Company takes this opportunity to identify to all persons who may receive
Statements, important risk factors that could cause the Company's actual results
to differ materially from results predicted by Statements, whether the
predictive character of Statements is direct, implied, or inferred, and whether
any such predictive quality is in the form of a forecast, a projection, an
estimate, or otherwise. The Company therefore cautions recipients of Statements
that the following important risk factors, among others, in some cases have
caused, and in the future may cause, the Company's results to differ materially
from results predicted in or on the basis of Statements relating to the Company:
- - Declining demand or downward pricing pressure for the Company's products as a
result of general or specific economic conditions, governmental budget
decreases affecting DOD or NASA which would cause a continued decrease in
demand for AP, technological advances and improvements or new competitive
products causing a reduction or elimination of demand for AP, sodium azide or
Halotron, the ability and desire of purchasers to substitute other products
for the Company's products based upon perceived quality and pricing, and the
fact that perchlorate chemicals, sodium azide, Halotron and the Company's
environmental products have limited applications and highly concentrated
customer bases.
- - 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.
- - Underutilization of the Company's manufacturing facilities resulting in
production inefficiencies and increased costs, the inability to recover
facility costs and reductions in margins.
- - Difficulties in procuring raw materials, supplies, power and natural gas used
in the production of perchlorates, sodium azide and Halotron products and
used in the engineering and assembly process for environmental protection
equipment products.
- - The Company's ability to contol the amount of operating expenses and the
impact of any non-renewing or unusual items resulting from the Company's
continuing evaluation of its strategies, plans, organizational structure and
asset valuations.
15
<PAGE>
- - Risk's associated with the Company's real estate activities, including but
not limited to, dependence upon the Las Vegas commercial, industrial and
residential real estate market, changes in general or specific economic
conditions, interest rate fluctuations affecting the availability and the
cost of financing, the performance of the managing partner of the Gibson
Ranch L.L.P. (Ventana Canyon Joint Venture) and regulatory and environmental
matters that may have a negative impact on sales.
- - 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.
- - The cost and affects of legal and administrative proceedings, settlements and
investigations, and assertions made by or against the Company relative to
patents or property rights.
- - The adoption of new or changes in existing accounting policies and practices.
16
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