<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 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.
<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 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
<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
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
<PAGE>
AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Operations
For the Three Months Ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
==========================================================================================
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
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
--------------------------------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
=====================================================================================================
December 31, September 30,
1999 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
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
----------------------------------------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
=========================================================================================================
December 31, September 30,
1999 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
-----------------------------------------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
----------------------------------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements
7
<PAGE>
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:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
<S> <C> <C>
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
------------ ------------
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------- -----------------------
<S> <C> <C>
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
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
=============================
1999 1998
-----------------------------
<S> <C> <C>
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
=============================
</TABLE>
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 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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
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
=============== =============
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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