SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q\A
(AMENDMENT NO. 1)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED DECEMBER 31, 1997
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: 8,137,537 as of
January 31, 1998.
<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 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 16 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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 -K
a) The following Exhibit was filed in connection with the
Registrant's original electronic filing:
27. Financial Data Schedule.
b) None.
2
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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: June 12, 1998 /S/ JOHN R. GIBSON
----------------------
John R. Gibson
Chief Executive Officer and
President
Date: June 12, 1998 /S/ DAVID N. KEYS
---------------------
David N. Keys
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)
- ----------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------
Sales and Operating Revenues $ 11,268,000 $ 8,396,000
Cost of Sales 8,106,000 7,083,000
------------ -----------
Gross Profit 3,162,000 1,313,000
Operating Expenses 2,183,000 2,363,000
Equity in Earnings of Real Estate Venture 300,000
------------ -----------
Operating Income (Loss) 1,279,000 (1,050,000)
Net Interest and Other Expense 713,000 240,000
------------ -----------
Income (Loss) Before Provision
(Credit) for Income Taxes 566,000 (1,290,000)
Provision (Credit) for Income Taxes (440,000)
------------ -----------
Net Income (Loss) $ 566,000 $ (850,000)
------------ -----------
Basic Net Income (Loss) Per Share $ .07 $ (.10)
------------ --------------
Average Shares Outstanding 8,138,000 8,099,000
------------ -------------
Diluted Net Income (Loss) Per Share $ .07 $ (.10)
------------ --------------
Diluted Shares 8,217,000 8,099,000
------------ --------------
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,
1997 1997
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $12,989,000 $18,881,000
Accounts and Notes Receivable 9,905,000 5,551,000
Related Party Notes Receivable 612,000 637,000
Inventories 10,880,000 11,116,000
Prepaid Expenses and Other Assets 1,511,000 979,000
----------------------------------
TOTAL CURRENT ASSETS 35,897,000 37,164,000
Property, Plant and Equipment, Net 19,632,000 19,314,000
Development Property 7,053,000 7,362,000
Real Estate Equity Investments 18,535,000 20,248,000
Other Assets 2,329,000 2,413,000
Restricted Cash 6,408,000 3,580,000
----------------------------------
TOTAL ASSETS $89,854,000 $90,081,000
----------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements.
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1997 1997
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable and Accrued Liabilities $ 7,229,000 $ 7,519,000
Current Portion of Long-Term Debt 5,000,000 6,166,000
------------------------------
TOTAL CURRENT LIABILITIES 12,229,000 13,685,000
Long-Term Debt 25,006,000 24,900,000
Long-Term Payables 2,933,000 2,376,000
------------------------------
TOTAL LIABILITIES 40,168,000 40,961,000
------------------------------
Commitments and Contingencies
Warrants to Purchase Common Stock 3,569,000 3,569,000
SHAREHOLDERS' EQUITY:
Common Stock 829,000 829,000
Capital in Excess of Par Value 78,561,000 78,561,000
Accumulated Deficit (32,141,000) (32,707,000)
Treasury Stock (1,035,000) (1,035,000)
Receivable from the Sale of Stock (97,000) (97,000)
------------------------------
TOTAL SHAREHOLDERS' EQUITY 46,117,000 45,551,000
------------------------------
------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $89,854,000 $90,081,000
------------------------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
6
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Used For Operating Activities $ (5,365,000) $ (963,000)
---------------- --------------
Cash Flows Provided by (Used for) Investing Activities:
Capital Expenditures (969,000) (912,000)
Real estate equity investment capital activity 1,713,000 (163,000)
---------------- --------------
Net Cash Provided by (Used For) Investing Activities 744,000 (1,075,000)
---------------- --------------
Cash Flows From Financing Activities:
Principal Payment on Debt (1,166,000)
Treasury Stock Acquired (156,000)
Issuance of Common Stock 70,000
---------------- --------------
Net Cash Used For Financing Activities (1,166,000) (86,000)
---------------- --------------
Net Decrease in Cash and Cash Equivalents (5,892,000) (2,124,000)
Cash and Cash Equivalents, Beginning of Period 18,881,000 18,501,000
---------------- --------------
Cash and Cash Equivalents, End of Period $ 12,989,000 $16,377,000
---------------- --------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
7
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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, 1997 was derived from the Consolidated
Financial Statements included in the Company's Annual Report on Form
10-K for the year ended September 30, 1997. 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, 1997. 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, 1997 are not necessarily indicative of the
results that will be achieved for the full fiscal year or for future
periods.
2. NET INCOME (LOSS) PER COMMON SHARE
During the first quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings per Share." SFAS No. 128 requires the presentation of
basic net income (loss) per share and diluted net income (loss) per
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 period ended December 31, 1996, both basic and diluted
per share calculations are based upon average shares outstanding of
8,099,000 during this period. The effect of options and warrants
outstanding to purchase 3,230,000 shares was not included in diluted
calculations during this period. Diluted net income per share during
the first quarter of fiscal 1998 is determined considering the
dilutive effect of outstanding stock options and warrants. The
effect of options and warrants outstanding to purchase 3,160,000
shares was not included in diluted calculations during the first
quarter of fiscal 1998 since the exercise price of such options and
warrants was greater than the average price of the Company's common
shares.
3. INVENTORIES
Inventories consist of the following:
December 31, September 30,
1997 1997
---- ----
Work-in-process 7,517,000 $ 3,349,000
Raw materials and supplies 3,363,000 7,767,000
-------------- ------------
Total 10,880,000 $ 11,116,000
-------------- ------------
8
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4. COMMITMENTS AND CONTINGENCIES
In fiscal 1993, three shareholder lawsuits were filed in the United
States District Court for the District of Nevada against the Company
and certain of its directors and officers (the "Company
Defendants"). 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 none of the Company Defendants made misleading or inadequate
statements regarding Halotron. The District Court thereafter entered
judgment in favor of the Company Defendants on the Halotron claims.
The plaintiffs appealed the summary judgment ruling and the judgment
on the jury verdict to the Ninth Circuit of the United States Court
of Appeals. On June 5, 1997, the Court of Appeals affirmed the
judgments of the United States District Court in favor of the
Company Defendants. On June 19, 1997, the plaintiffs filed an
Appellants Petition for Rehearing and Suggestion of Rehearing En
Banc with the Court of Appeals. On September 3, 1997, the Court of
Appeals denied the Petition for Rehearing. In October 1997, the
plaintiffs filed a Petition for Writ of Certiorari with the Supreme
Court of the United States.
Trace amounts of perchlorate chemicals have been found in Lake Mead.
Clark County, Nevada, where Lake Mead is situated, is the location
of Kerr-McGee Chemical Corporation's ("Kerr-McGee") ammonium
perchlorate ("AP") operations, and was the location of the Company's
AP operations until May 1988. The Company is cooperating with State
and local agencies, and with Kerr-McGee and other interested firms,
in the investigation and evaluation of the source or sources of
these trace amounts, possible environmental impacts, and potential
remediation 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 impacts, if any, of such cooperation,
contributions or assistance.
5. INCOME TAXES
The Company established a valuation allowance for deferred tax
assets in the amount of $10,431,000 as of September 30, 1997. The
Company's effective tax rate will be 0% until its net operating
losses expire or the Company has taxable income necessary to
eliminate the need for the valuation allowance.
6. ASSET PURCHASE AGREEMENT
On October 10, 1997, the Company entered into an Asset Purchase
Agreement (the "Agreement") with Kerr-McGee. The Agreement
contemplates that the Company will acquire certain process data,
technical information, customer lists, marketing
9
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contacts, and related expertise used by Kerr-McGee primarily in the
AP industry. The Agreement calls for a purchase price of $39
million, and grants the Company the option to purchase limited AP
inventory of Kerr-McGee for additional consideration.
Closing of the transaction is subject to a number of conditions,
including the Company's securing of financing for 100 percent of the
purchase price and Board of Director approvals by both parties. In
December 1997, the Company received notification that the Federal
Trade Commission ("FTC") had determined to grant early termination
of the waiting period relating to the Company's and Kerr-McGee's
premerger notification filings with the FTC and the Department of
Justice under the Hart-Scott-Rodino Antitrust Improvements Act of
1976. The Company has entered into long-term pricing agreements for
AP with certain major customers that are contingent upon the closing
of the transaction and, on a continuing basis, that will be
contingent upon agreement on the terms of specific purchase orders.
There can be no assurance that the conditions to closing of the
transaction will be satisfied, or that the transaction will close.
The management of the Company will, however, make all reasonable
efforts to meet all conditions, and to conclude successfully this
transaction.
7. REAL ESTATE EQUITY INVESTMENTS
The Company's interest in Gibson Ranch Limited Liability Company
("GRLLC") is accounted for using the equity method. GRLLC operates
on a calendar year. The Company recognizes its share of the equity
in GRLLC on a current quarterly basis. Summarized financial
information for GRLLC as of and for the three-month period ended
December 31, 1997 was as follows:
Income Statement:
Revenues $ 7,871,000
Gross Profit 1,865,000
Operating Expenses 394,000
Net Income 1,466,000
Balance Sheet:
Assets $27,659,000
Liabilities 13,334,000
Equity $14,325,000
GRLLC's balance sheet is not classified. Assets consist principally
of inventories and liabilities consist principally of Notes and
accounts payable. Inventories were $25,751,000 at December 31, 1997.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company is principally engaged in the production of AP for the aerospace and
national defense industries. In addition, the Company produces and sells sodium
azide, the primary component of a gas generant used in automotive airbag safety
systems, and Halotron, a chemical used in fire suppression systems ranging from
portable fire extinguishers to airport firefighting vehicles. The perchlorate,
sodium azide and Halotron facilities are located on the Company's property in
Southern Utah and the chemicals produced and sold at these facilities
collectively represent the Company's specialty chemical segment. The Company's
other lines of business include the development of real estate in Nevada and the
production of environmental protection equipment, including waste and seawater
treatment systems.
The Company has incurred net losses during its last three fiscal years and
operating losses during the fiscal years ended September 30, 1997 and 1995. As a
result, pre-tax income has not been sufficient to recover interest charges.
The Company believes that North American AP demand is currently approximately 22
to 24 million pounds annually. However, supply capacity is substantially in
excess of these estimated demand levels. In an effort to rationalize the
economics of the existing AP market, the Company entered into the Agreement with
Kerr-McGee. The Agreement contemplates that the Company will acquire certain
process data, technical information, customer lists, marketing contracts, and
related expertise used by Kerr-McGee primarily in the AP industry. The Agreement
calls for a purchase price of $39 million, and grants the Company the option to
purchase limited AP inventory of Kerr-McGee for additional consideration.
Closing of the transaction is subject to a number of conditions, including the
Company's securing of financing for 100 percent of the purchase price and Board
of Director approvals by both parties. In December 1997, the Company received
notification that the FTC had determined to grant early termination of the
waiting period relating to the Company's and Kerr-McGee's premerger notification
filings with the FTC and the Department of Justice. The Company has entered into
long-term pricing agreements for AP with certain of its major customers that are
contingent upon the closing of the transaction and, on a continuing basis, that
will be contingent upon agreement on terms of specific purchase orders. There
can be no assurance that the conditions to closing of the transaction will be
satisfied, or that the transaction will close.
SALES AND OPERATING REVENUES. Sales of the Company's perchlorate chemical
products, consisting almost entirely of AP sales, accounted for approximately
50% and 49% of revenues during the three-month periods ended December 31, 1997
and 1996, 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 32% and 37% of revenues during
the three-month periods ended December 31, 1997 and 1996, respectively. The
Company has incurred significant operating losses in its sodium azide operation
during the last three fiscal years. Although the Company has achieved
significant gains in market share that appear to relate to an anti-dumping
petition filed by the Company against three Japanese sodium azide producers and
the resulting suspension agreement, the Company believes that these factors were
fully incorporated into the market by the end of fiscal 1997. The Company's
evaluation of the sodium
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azide market indicated that the cash flows associated with sodium azide
operations would not be sufficient to recover the Company's investment in sodium
azide related fixed assets and, as a result, the Company recognized an
impairment charge with respect to those assets of $52.6 million in the fourth
quarter of fiscal 1997. Depreciation expense is expected to decrease annually by
approximately $4.0 million as a result of the impairment charge.
Sales of Halotron amounted to approximately 1% and 5% of revenues during the
three-month periods ended December 31, 1997 and 1996, respectively. Halotron is
designed to replace halon-based fire suppression 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 15% and 1% of revenues
during the three-month periods ended December 31, 1997 and 1996, respectively.
The nature of real estate development and sales is such that the Company is
unable to reliably to predict any pattern of future real estate sales or the
recognition of the equity in earnings of real estate ventures.
Environmental protection equipment sales accounted for approximately 2% and 7%
of revenues during the three-month periods ended December 31, 1997 and 1996,
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 the raw materials used in the Company's
manufacturing processes have historically been available in commercial
quantities, and the Company has had no difficulty obtaining necessary raw
materials.
Raw material, electric power and labor costs have not changed significantly
recently. The costs of operating the Company's specialty chemical plants are,
however, largely fixed. Accordingly, the Company believes that the potential
additional AP sales volume resulting from the acquisition from Kerr-McGee should
generate significant incremental cash flow because of the operating leverage
associated with the perchlorate plant. However, amortization of costs associated
with the acquisition is expected to amount to approximately $4.0 million
annually.
INCOME TAXES. The Company's effective income tax rates were 0% during the
three-month period ended December 31, 1997 and 34% during the three-month period
ended December 31, 1996. The Company's effective income tax rate decreased to
17% for the entire 1997 fiscal year as a result of the establishment of a $10.4
million deferred tax valuation allowance in the fourth quarter. The Company's
effective tax rate will be 0% until the Company's net operating losses expire or
the Company has taxable income in an amount sufficient to eliminate the need for
the valuation allowance.
NET INCOME (LOSS). Although the Company's net income (loss) and diluted net
income (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 of Notes to Condensed Consolidated Financial
Statements, the Company may incur material costs associated with certain
contingencies; (ii) timing of real estate and related sales and equity in
earnings of real estate ventures is not predictable; (iii) the recognition of
revenues from environmental protection equipment orders not accounted for as
long-term contracts depends upon orders generated
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and the timing of shipment of the equipment; (iv) weighted average common and
common equivalent shares for purposes of calculating diluted 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) the magnitude, pricing and timing of AP, sodium azide,
Halotron, and environmental protection equipment sales in the future is
uncertain.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1996
SALES AND OPERATING REVENUES. Sales increased $2.9 million, or 35% during the
three months ended December 31, 1997 to $11.3 million from $8.4 million in the
corresponding period of the prior year. This increase was attributable to
increased sales of perchlorate, sodium azide and real estate. Such increase was
partially offset by decreases in Halotron and environmental protection equipment
sales.
COST OF SALES. Cost of sales increased $1.0 million, or 14%, in the three months
ended December 31, 1997 to $8.1 million from $7.1 million in the corresponding
period of the prior year. This increase was principally due to increases in
perchlorate and sodium azide sales volume. As a percentage of sales, cost of
sales decreased in the three months ended December 31, 1997 to 72% as compared
to 84% in the corresponding period of the prior year. This decrease was due
principally to the increase in perchlorate and sodium azide sales volume and a
reduction in depreciation expense as a result of the sodium azide impairment
charge referred to above.
OPERATING EXPENSES. Operating (selling, general and administrative) expenses
decreased $.2 million, or 8%, in the three months ended December 31, 1997 to
$2.2 million from $2.4 million in the corresponding period of 1996.
NET INTEREST EXPENSE. Net interest and other expense increased to $.7 million in
the three months ended December 31, 1997 from $.3 million in the corresponding
period of the prior year principally as a result of the cessation of interest
capitalization on the Company's Ventana Canyon residential joint venture
project.
EQUITY IN EARNINGS OF REAL ESTATE VENTURE. The Company's share of equity in its
Ventana Canyon joint venture was $.3 and $0 million during the three-month
periods ended December 31, 1997 and 1996. The joint venture has historically
operated at or near a break-even point on residential activity and generated net
income on sales of improved land. The increase in the equity in earnings of the
venture relates principally to the sale of improved land to an outside developer
in the first quarter of fiscal 1998.
Statement Operating Income (Loss). Operating income (loss) of the Company's
industry segments during the three-month periods ended December 31, 1997 and
1996 was as follows:
1997 1996
---------- -------------
Specialty chemicals $ 95,000 $ (870,000)
Environmental protection equipment (164,000) (139,000
Real Estate 1,168,000 (76,000)
---------- -------------
Total $1,099,000 $ (1,085,000)
========== =============
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The increase in operating income in the Company's specialty chemical industry
segment was primarily attributable to a decrease in depreciation expense
associated with sodium azide operations as a result of the impairment charge
discussed above. The increase in operating income in the Company's real estate
segment relates principally to an increase in sales from $.1 million during the
three months ended December 31, 1996 to $1.7 million during the three months
ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used by operating activities were $5.4 million and $1.0 million
during the three-month periods ended December 31, 1997 and 1996, respectively.
Cash flows from operating activities declined in the first quarter of fiscal
1998 principally as a result of changes in certain working capital balances,
most notably a significant increase in receivables related to AP shipments in
late December, 1997. Such receivables are scheduled to be collected in the
second quarter of fiscal 1998. 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
litigation and contingencies, 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.
13-A
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Capital expenditures were $1.0 million during the three months ended December
31, 1997 compared to $.9 million during the same period last year. Capital
expenditures are budgeted to amount to approximately $2.5 million in fiscal 1998
and relate principally to specialty chemical segment capital improvement
projects.
During the three-month period ended December 31, 1997, the Company received cash
of approximately $1.7 million relating to the return of capital invested in the
Ventana Canyon joint venture. The Company currently anticipates that cash
returns of invested capital and equity in earnings will continue through the
conclusion of the project currently projected by the end of calendar 2001.
As a result of the litigation and contingencies described in Note 4 of Notes to
Condensed Consolidated Financial Statements, the Company has incurred legal and
other costs and may incur material legal and other costs associated with the
resolution of these matters in future periods. Certain of the costs, if any, 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 relating to the shareholder
lawsuits 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 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 litigation
related costs will be incurred.
The Company is currently in the process of evaluating its computer software and
databases to determine whether or not modifications will be required to prevent
problems related to the Year 2000. These problems, which have been widely
reported in the media, could cause malfunctions in certain software and
databases with respect to dates on or after January 1, 2000, unless corrected.
Based upon its evaluation to date, the Company does not believe that the costs
of any modifications required to correct for Year 2000 problems will have a
material impact on operations, although there can be no assurance given with
respect thereto.
As a condition of the Agreement with Kerr-McGee, the Company will be required to
obtain financing for 100 percent of the purchase price. The Company currently
expects that such financing will be available on customary commercial terms,
although there can be no assurance given with respect thereto.
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 important risk
factors, among others, may cause the Company's operating results and/or
financial position to be adversely affected from time to time:
1. Declining demand or downward pricing pressure for the Company's
products as a result of general or specific economic conditions,
further governmental budget decreases affecting the Department of
Defense or NASA which would cause a continued decrease in demand
for AP, the results achieved by the Suspension Agreement
resulting from the Company's anti-dumping petition and the
possible
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termination of such agreement, 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 change existing products or
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.
2. Competitive factors including, but not limited to, the Company's
limitations respecting financial resources and its ability to
compete against companies with substantially greater resources,
significant excess market supply in the AP and sodium azide
markets and the development or penetration of competing new
products, particularly in the propulsion, airbag inflation and
fire suppression businesses.
3. Underutilization of the Company's manufacturing facilities
resulting in production inefficiencies and increased costs, the
inability to recover facility costs and reductions in margins.
4. 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.
5. The Company's ability to control the amount of operating expenses
and/or the impact of any non-recurring or unusual items resulting
from the Company's continuing evaluation of its strategies,
plans, organizational structure and asset valuations.
6. 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 the cost of
financing, the performance of the managing partner of its
residential real estate joint venture (Ventana Canyon Joint
Venture) and regulatory and environmental matters that may have a
negative impact on sales or costs.
7. 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.
8. The cost and effects of legal and administrative proceedings,
settlements and investigations, particularly those 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.
9. The adoption of new, or changes in existing, accounting policies
and practices.
10. Closing of the Agreement to acquire the Kerr-McGee AP business.
11. The results of the Company's periodic review of impairment issues
under the provision of SFAS No. 121.
12. The dependence upon a single facility for the production of most
of the Company's products.
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