LAS VEGAS, Aug. 8 /PRNewswire/ -- American Pacific Corporation (Nasdaq: APFC) today reported financial results for its fiscal 2001 third quarter and provided information on the Company's operations.
Operating Activities. Sales were $15.4 million during the three-month period ended June 30, 2001, compared to $17.0 million during the same period last year. Sales decreased $1.6 million, or 9%, in the third quarter compared to the same quarter last year. Net income before extraordinary losses was $1.9 million or $0.28 diluted per share, compared to $2.8 million or $0.40 diluted per share, during the third quarter of fiscal 2000. After an extraordinary loss on debt extinguishment of $1.0 million, net income was $1.8 million or $0.26 diluted per share, in the third quarter of fiscal 2000.
For the first nine months of this year, sales decreased $12.2 million, or 22%, to $42.1 million from $54.3 million in the first nine months of fiscal 2000. Net income before extraordinary losses was $3.0 million or $0.43 diluted per share, compared to $9.1 million or $1.22 diluted per share, during the same period last year. After extraordinary losses, net income during the nine-month period ended June 30, 2000 was $7.5 million or $1.00 diluted per share.
Perchlorate chemical sales decreased approximately 32% in the first nine months of fiscal 2001, compared to the first nine months of fiscal 2000. The Company estimates sales volumes for ammonium perchlorate ("AP") in fiscal 2001 to range between 12.5 million and 13.0 million pounds. The recent weakness in sales volumes is primarily attributable to lower requirements for applications in certain commercial space launch vehicles used primarily in satellite launches, particularly telecommunication satellites. In addition, purchases of AP for use in the solid rocket motors for the Space Shuttle have declined recently as a result of excess inventory levels. The Company believes that such excess should be reduced over the next few years by reason of the number of shuttle flights planned for the construction and servicing of the International Space Station. The Company also understands that existing plans call for significant AP requirements over the next several years for use in the Minuteman program. Accordingly, the Company believes that the estimated future AP requirements for these two programs should bring North American demand for AP back to an annual level of between 16.0 million and 20.0 million pounds over the next few years, although there can be no assurance given with respect to these estimates. The Company has no ability to influence the demand for AP.
Sodium azide sales decreased approximately $1.8 million, or 19%, during the first nine months of this year compared to the same period last year. The decreases in perchlorate and sodium azide sales were partially offset by an increase in Halotron(TM) sales. Halotron(TM) sales increased $1.1 million, or 52%, during the nine-month period ended June 30, 2001, compared to the same period in fiscal 2000.
Earnings before interest, taxes, depreciation, and amortization ("EBITDA") was approximately $6.0 million during the third quarter compared to EBITDA of approximately $6.3 million during the third quarter of last year. EBITDA was approximately $12.1 million in the first nine months of this year compared to $19.1 million during the same period last year. The decrease in EBITDA was primarily attributable to lower sales and the significant increase in power costs (particularly in the first quarter of this year) discussed below.
Net interest expense was $0.7 million during the three-month periods ended June 30, 2001 and 2000. Net interest expense was $2.0 million during the first nine months of this year, compared to $2.9 million during the same period last year. The decrease in net interest expense was primarily attributable to lower average outstanding balances of the Company's Senior Unsecured Notes (the "Notes").
The Company's effective income tax rate during the first nine months of fiscal 2001 was approximately 37%. The Company's effective income tax rate was approximately 0% during the first half of fiscal 2000, as the result of the establishment of a deferred tax valuation allowance. During the fourth quarter of fiscal 2000, and in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the Company released its deferred tax valuation allowance and recognized the benefits of its net deferred tax assets. As a result, the Company recorded a credit for income taxes of approximately $15.4 million in fiscal 2000.
Electrical Power Developments
Electric energy is one of the Company's primary raw material costs for the production of AP. The Company is a party to an agreement with Utah Power ("UP") for its electrical requirements. The agreement provided for the supply of power for a minimum of a ten-year period, which began in 1989. This agreement had a three year notice of termination provision and, on April 7, 1999, UP provided written notice of termination, effective April 7, 2002.
The Company recently experienced unusual increases in its monthly power bills at its Utah production facilities as compared to average historical monthly amounts. For the months of November and December 2000, and January 2001, the Company received power bills from UP totaling approximately $1.9 million, which were approximately $1.5 million in excess of average historical monthly amounts. The Company claimed that UP improperly calculated replacement energy costs and breached the agreement by failing to comply with the advance notice provisions of the agreement. Accordingly, the Company disputed all power bills received from UP since January 1999, claiming it had been overcharged by approximately $2.9 million through January 2001.
A partial settlement of this dispute was reached in which the Company and UP entered into an amendment of the electric supply agreement dated February 21, 2001. Under the terms of the amendment, the Company has been placed on the equivalent of Utah's Electric Service Schedule No. 9. Under this rate schedule, the Company's estimated monthly power bills will be approximately 20% to 30% higher than historical monthly amounts prior to the dispute. As a result, the Company will experience an estimated annual increase in power costs that could be as much as $0.6 million. This amendment has been approved by the Utah Public Service Commission.
In May 2001, the Company and UP reached a settlement on the remaining disputed matters. The settlement includes both a cash payment from UP to the Company and a demand curtailment arrangement under Utah's Electric Service Schedule No. 71. Under the curtailment, the Company has accepted UP's offer to curtail demand during the months of June, July and August 2001. As a result of the Company's lower perchlorate sales volumes expected in fiscal 2001, the Company believes it can operate at lower total and peak electric energy consumption levels during these months and, at the same time, operate efficiently and meet its customers' product delivery requirements. The Company estimates that the settlement and curtailment arrangement will result in approximately an additional $2.0 million in cash flow (over the amount which would otherwise be expended on monthly power bills under the February 21, 2001 amendment described above) to the Company. However, there can be no assurances given with respect to this estimate. Through June 30, 2001, the Company had realized and recognized (initially as an adjustment to inventories) approximately $1.1 million resulting from the settlement and curtailment arrangement. The ultimate amount of incremental cash flow to the Company will depend upon the Company's ability to effectively operate under the curtailment arrangement.
Financing and Investing Activities. The Company made no repurchases of Notes during the first nine months of fiscal 2001. During the fiscal year ended September 30, 2000, the Company repurchased and retired approximately $22.8 million in principal amount of its Notes.
During the first nine months of fiscal 2001, the Company expended approximately $0.3 million on the repurchase of its Common Stock. During fiscal 2000, the Company expended approximately $6.7 million on the repurchase of its Common Stock. Shares outstanding decreased approximately 10% during the twelve-month period ended September 30, 2000. The Company may (but is not obligated to) continue to repurchase its Common Stock and is limited in its ability to use cash to repurchase stock by certain covenants contained in the Indenture associated with the Notes.
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") 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. Accordingly, no accrual for potential costs has been made in the Company's financial statements. |
