- American Pacific Corporation (Nasdaq: APFC - News) today reported financial results for its fiscal 2002 third quarter and provided information on the Company's operations.
Operating Activities. The Company reported an increase in sales of $3.1 million, or 20%, in the third quarter compared to the same quarter last year. Sales were $18.5 million during the three-month period ended June 30, 2002, compared to $15.4 million during the same period last year. Net income was $2.0 million or $0.27 diluted per share, compared to $1.9 million or $0.28 diluted per share, during the third quarter of fiscal 2001.
For the first nine months of this year, sales increased $9.6 million, or 23%, to $51.7 million from $42.1 million in the first nine months of fiscal 2001. Net income before extraordinary losses was $4.7 million or $0.64 diluted per share, compared to $3.0 million or $0.43 diluted per share, during the same period last year. After an extraordinary loss, net income for the nine-month period ended June 30, 2002 was $4.6 million or $0.63 diluted per share.
Perchlorate chemical sales increased approximately 48% during the nine months ended June 30, 2002 compared to the same period last year. The Company expects ammonium perchlorate ("AP") sales volumes to increase substantially in fiscal 2002 as compared to fiscal 2001. The Company currently estimates that AP sales volumes will be in a range of between 17.0 and 18.0 million pounds during 2002. This compares to AP shipments of approximately 12.6 million pounds in fiscal 2001. The expected increase in AP sales volumes in fiscal 2002 as compared to fiscal 2001 results principally from an increase in AP used in the Minuteman program and AP used in commercial space launch vehicles. However, not all of the expected AP sales volume in fiscal 2002 is subject to existing purchase orders and, accordingly, there can be no assurance given with respect to the AP sales volume estimate for fiscal 2002. The Company has no ability to influence the demand for AP.
Sodium azide sales decreased $0.4 million, or approximately 6% during the first nine months of this year compared to the same period last year. Halotron® sales decreased $1.1 million, or 35%, during the nine-month period ended June 30, 2002, compared to the same period in fiscal 2001.
The Company closed three real estate sales in the first nine months of fiscal 2002. Real estate sales were $4.7 million during the nine-month period ended June 30, 2002, compared to $2.6 million during the same period last year.
As previously reported, during the first six months of fiscal 2001, the Company incurred electric power costs that were approximately $1.5 million in excess of average historical quarterly amounts. In the second half of fiscal 2001, the Company recovered these excessive power costs through a settlement and curtailment arrangement with Utah Power.
Operating expenses were $9.7 million during the nine months ended June 30, 2002, compared to $7.2 million during the same period last year. The increase in operating expenses was primarily attributable to costs incurred in connection with facility security reviews and certain corporate and product development activities, and an increase in costs associated with most areas of insurance coverage. Most of the increase in operating expenses relates to costs incurred in connection with corporate and product development activities. The Company has incurred increased costs relating to the evaluation and investigation of the potential for alternative uses and applications of certain of its existing and related products. Some of these opportunities may involve partnering or possible joint venture arrangements with others. In addition, during the nine-month period ended June 30, 2002, the Company has experienced increases in operating expenses as a result of detailed due diligence activities directly related to corporate development opportunities.
Earnings before interest, taxes, depreciation, and amortization ("EBITDA") was approximately $5.5 million during the third quarter compared to EBITDA of approximately $6.0 million during the third quarter of last year. EBITDA was approximately $15.8 million in the first nine months of this year compared to $12.1 million during the same period last year. The increase in EBITDA for the nine months ended June 30, 2002, was primarily attributable to increased specialty chemicals and real estate sales. These increases were partially offset by the increase in operating expenses discussed above.
Net interest expense was $0.8 million during the three-month period ended June 30, 2002, compared to $0.7 million during the same period last year. Net interest expense was $2.5 million during the first nine months of this year, compared to $2.0 million during the same period last year. The increases in net interest expense were primarily attributable to lower average interest rates earned on cash and cash equivalents balances.
Financing and Investing Activities. In December 2001, the Company made an offer to purchase approximately $3.6 million of its Senior Unsecured Notes (the "Notes") at 102% of par. In January 2002, the offer was accepted and the Company purchased approximately $3.6 million in principal amount of Notes at a cost of approximately $3.7 million. The Company incurred an extraordinary loss of approximately $0.1 million on this transaction.
In the first nine months of fiscal 2002, the Company expended approximately $0.3 million on the repurchase of its Common Stock. The Company may (but is not obligated to) continue to repurchase its Common Stock but 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 LLC's ("Kerr-McGee") former AP operations, and was the location of the Company's AP operations until May 1988. Lake Mead is a source of drinking water for the City of Las Vegas, neighboring areas and certain areas of metropolitan Southern California and Arizona. Since 1998, the Company has spent in excess of $4.5 million on the investigation and evaluation of the source or sources of these trace amounts, possible environmental impacts, and potential remediation methods. The Company's ground water characterization investigations indicate that the ground water containing trace amounts of perchlorate at and around its former AP manufacturing site has not reached Lake Mead and, accordingly, has not been introduced into any source of drinking water. Based upon flow rates and modeling techniques, such ground water is not expected to reach a source of drinking water for at least 10 years.
The Environmental Protection Agency ("EPA") is conducting a risk assessment for the purpose of recommending a maximum standard for perchlorate levels in drinking water. The EPA has recommended a preliminary standard of 4 to 18 parts per billion ("ppb"). Certain states have set levels as low as 1 ppb. Virtually all independent and qualified experts believe that such preliminary levels have been arbitrarily established and are not based upon credible science. The Company understands that the EPA intends to complete its risk assessment and make a maximum standard recommendation in the fall of 2002. The Company is cooperating with Federal, 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 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 January 2002, American Azide Corporation ("AAC"), an indirect wholly- owned subsidiary of the Company, was named as a defendant in a complaint filed in the Superior Court of the State of California for the County of Los Angeles - Southwest District. The complaint names in excess of forty defendants, including AAC's principal sodium azide customer, Autoliv ASP, Inc. ("Autoliv"). The complaint alleges, among other things, "toxic injuries" as a result of the deployment of an airbag. The plaintiffs have submitted a Statement of Damages to the Court for approximately $10.2 million. In March 2002, AAC filed a motion to quash service of summons with the Court that has been denied. AAC has not determined whether its sodium azide was actually a raw material used by the manufacturer of the airbag inflator device subject to the complaint. The Company believes the allegations in the complaint are wholly without merit.
In January 2002, the Company received a demand for payment from Frontier Insurance Company ("Frontier") of approximately $1.7 million as a result of the failure of a local developer to complete a project that had been bonded by Frontier. The local developer was an owner of a company that is the managing member of a Limited Liability Company ("LLC") in which the Company is also a member. The LLC recently completed development of a residential project. In 1995, a subsidiary of the Company entered into indemnity agreements relating to the development of this residential project. In February 2002, the Company (along with other plaintiffs) filed a complaint for declaratory relief in District Court, Clark County, Nevada. The complaint seeks a judgment declaring that the indemnity agreements have been terminated and that the Company has no liability to Frontier.
As previously reported, on April 11, 2002, an accident occurred at the Company's sodium azide plant that resulted in the death of an employee. No other employees were involved and there was no significant damage to the facility. The Company is working with Utah OSHA to gather evidence of the exact cause and origin of the incident. The Company believes that it has statutory immunity as an employer under the applicable worker's compensation laws of the State of Utah. However, depending upon the outcome of the Utah OSHA investigation, the Company may be subject to regulatory fines. |
