American Pacific Corporation News
American Pacific Reports Revenue Increase of 11% and Net Income of $1.6 Million for Fiscal 2008 Second Quarter
We provide non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in the accompanying supplemental data.
FINANCIAL HIGHLIGHTS Quarter Ended March 31, 2008 Compared to Quarter Ended March 31, 2007 * Revenues increased 11% to $48.3 million from $43.6 million. * Operating income declined 12% to $5.4 million compared to $6.1 million. * Adjusted EBITDA decreased to $9.7 million compared to $10.7 million. * Net income increased to $1.6 million from $0.1 million. * Diluted earnings per share was $0.22 compared to $0.02.
Six Months Ended
* Revenues increased 21% to $95.2 million from $78.5 million. * Operating income increased 20% to $12.6 million compared to $10.5 million. * Adjusted EBITDA increased to $22.1 million compared to $20.4 million. * Net income increased to $4.5 million from $0.8 million. * Diluted earnings per share was $0.59 compared to $0.10. CONSOLIDATED RESULTS OF OPERATIONS
Revenues - Revenues for our fiscal 2008 second quarter increased 11% compared to the prior fiscal year second quarter, reflecting a 36% increase in Fine Chemicals segment revenues and a 21% decrease in Specialty Chemicals segment revenues. For the six months ended
See further discussion under our Segment Highlights.
Cost of Revenues and Gross Margins - For our fiscal 2008 second quarter, cost of revenues was
One of the significant factors that affects, and should continue to affect, the comparison of our consolidated gross margins from period to period is the change in product mix between our two largest segments. Measured in terms of total revenues, our Fine Chemicals segment has grown as a percentage of total revenues, comprising 63% and 60% of consolidated revenues for the second quarter and six months ended
In addition, consolidated gross margins for our fiscal 2008 second quarter and six-months ended
* A decrease in Fine Chemicals segment gross margin percentage relating to a reduction in manufacturing overhead absorption. * Improvements in Specialty Chemicals segment gross margin percentage primarily due to a reduction in amortization expense. * An increase in Aerospace Equipment segment gross margin percentage. See further discussion under our Segment Highlights.
Operating Expenses - For our fiscal 2008 second quarter, operating expenses increased
* An increase in Fine Chemicals segment operating expenses of $0.5 million for the fiscal 2008 second quarter and $1.0 million for the six months ended March 31, 2008 due to additional personnel costs. * An increase in Specialty Chemicals segment operating expenses of $0.4 million for the six months ended March 31, 2008 primarily due to increases in environmental compliance related expenses and product development costs * An increase in corporate operating expenses of $0.6 million for the fiscal 2008 second quarter and $1.3 million for the six months ended March 31, 2008, which latter increase is comprised primarily of $0.5 million increase in retirement benefit expenses, $0.3 million increase in corporate development costs, and $0.3 million increase in Sarbanes-Oxley compliance costs. SEGMENT HIGHLIGHTS
Fine Chemicals Segment
Our Fine Chemicals segment reflects the operating results of our wholly-owned subsidiary Ampac Fine Chemicals LLC ("AFC").
Quarter Ended March 31, 2008 Compared to Quarter Ended March 31, 2007 * Revenues were $30.5 million compared to revenues of $22.4 million. * Operating income was $4.1 million, or 14% of revenue, compared to $2.9 million, or 13% of revenue. * Segment EBITDA was $7.2 million, or 23% of revenue, compared to Segment EBITDA of $6.0 million, or 27% of revenue.
Six Months Ended
* Revenues were $57.3 million compared to revenues of $40.0 million. * Operating income was $8.8 million, or 15% of revenue, compared to $5.8 million, also 15% of revenue. * Segment EBITDA was $15.2 million, or 27% of revenue, compared to Segment EBITDA of $12.6 million, or 32% of revenue.
The increases in Fine Chemicals segment revenues for the fiscal 2008 second quarter and six months ended
Operating income was consistent at 15% of revenue for each of the six-month periods ended
* A decrease in the gross margin percentage of approximately two points for the fiscal 2008 second quarter and approximately three points for the six months ended March 31, 2008, each compared to the comparable prior fiscal year period. The reductions in the gross margin percentages result from a decrease in manufacturing facility utilization during the fiscal 2008 periods as compared to the fiscal 2007 periods. Lower manufacturing facility utilization results in a reduction in gross margin percentages due to the effect of applying manufacturing overhead costs to a smaller base. Although the manufacturing utilization rates were less when compared to the fiscal 2007 periods, they remained at high levels in the fiscal 2008 periods. The utilization rates variances we are experiencing are within our expectations for normal plant operations. * A decrease in depreciation of $0.4 million for the six months ended Mach 31, 2008. * An increase in operating expenses of $1.0 million for the six months ended March 31, 2008 and $0.5 million for the fiscal 2008 second quarter due to additional research and development and business development personnel costs and the related recruiting and relocation expenses.
In
Specialty Chemicals Segment
Our Specialty Chemicals segment revenues include the operating results from our perchlorate, sodium azide and Halotron product lines, with perchlorates comprising 92% and 90% of Specialty Chemicals revenues in the fiscal 2008 and 2007 six-month periods, respectively.
Quarter Ended March 31, 2008 Compared to Quarter Ended March 31, 2007 * Revenues decreased 21% to $12.8 million from $16.1 million. * Operating income was $4.9 million, or 38% of revenues compared to $6.4 million, or 40% of revenues. * Segment EBITDA was $5.7 million, or 45% of revenues, compared to $7.7 million, or 48% of revenues.
Six Months Ended
* Revenues increased 1% to $28.3 million from $27.9 million. * Operating income was $10.8 million, or 38% of revenues compared to $9.9 million, or 35% of revenues. * Segment EBITDA was $12.9 million, or 45% of revenues, compared to $12.5 million, also 45% of revenues.
The variances in Specialty Chemicals revenues reflect the following factors:
* A 17% decrease in perchlorate volume and an 11% decrease in the related average price per pound in the fiscal 2008 second quarter. * An 18% increase in perchlorate volume, offset partially by a 13% decrease in the related average price per pound for the six months ended March 31, 2008. * Sodium azide revenues decreased 68% in the fiscal 2008 six-month period compared to the prior year period. * Halotron revenues increased 13% in the fiscal 2008 six-month period compared to the prior year six month period.
For the six months ended
Over the longer term, we expect demand for Grade I AP to be within the ranges of fiscal years 2006 and 2007. In addition, Grade I AP revenues are typically derived from a relatively few large orders. As a result, quarterly revenue amounts can vary significantly depending on the timing of individual orders throughout the year. Average price per pound may continue to fluctuate somewhat in future periods, depending upon product mix and volume.
The decrease in sodium azide revenues in the fiscal 2008 periods is due to a reduction in volume for sodium azide used in a pharmaceutical application. We do not anticipate an increase in demand for sodium azide in the near future.
The increase in Halotron revenues is driven by timing of customer orders. Halotron volumes are expected to be relatively consistent in fiscal 2008 as compared to fiscal 2007.
Specialty Chemicals operating income for the six months ended
* Specialty Chemicals segment gross margin percentage improved two points for the fiscal 2008 second quarter and four points for the six months ended March 31, 2008, compared to the respective prior year periods. Mid fiscal 2008 second quarter, the Specialty Chemicals segment completed the amortization of the value assigned to the perchlorate customer list acquired in fiscal 1998. This reduction in amortization expense, which represents the largest component in the total change in Specialty Chemicals segment gross percentage, improved the Specialty Chemical segment gross margin percentage by three points for the fiscal 2008 second quarter and two points for the six months ended March 31, 2008, compared to the respective prior year periods. * Specialty Chemicals segment operating expenses increased $0.4 million for the six months ended March 31, 2008. This is primarily due to increases in environmental compliance related expenses and product development costs. For the fiscal 2008 second quarter, operating expenses were consistent with the prior year quarter.
Aerospace Equipment Segment
Our Aerospace Equipment segment reflects the operating results of our wholly-owned subsidiary Ampac-ISP Corp. ("ISP").
Quarter Ended March 31, 2008 Compared to Quarter Ended March 31, 2007 * Revenues decreased 5% to $4.2 million from $4.5 million. * Operating income was $0.4 compared to $0.1 million. Six Months Ended March 31, 2008 Compared to Quarter Ended March 31, 2007 * Revenues decreased 6% to $8.0 million from $8.4 million. * Operating income was $0.6 compared to $0.3 million.
The decreases in Aerospace Equipment revenues of
The improvement in operating income for both fiscal 2008 periods reflects gross margin improvement due to favorable performance on the segment's primary production contracts.
Our Aerospace Equipment segment was recently awarded a contract to develop a liquid divert and attitude control system (DACS) for the Ballistic Missile Defense System. The work will apply proven component and subsystem design to develop a modular and scalable DACS. The program will leverage ISP's design for manufacturing experience to develop a low cost, low risk propulsion system for interceptor kill vehicles. The cost-plus-fixed-fee contract, of approximately
CAPITAL AND LIQUIDITY HIGHLIGHTS
Liquidity - As of
Operating Cash Flows - Cash flows from operating activities during the first six months of fiscal 2008 improved by
Significant components of the change in cash flow from operating activities include:
* An increase in cash provided by Adjusted EBITDA of $1.7 million. * An improvement in cash flow from working capital accounts of $4.1 million, excluding the effects of interest and income taxes. * An increase in cash taxes paid of $0.8 million. * An increase in cash used for interest payments of $1.4 million. * A reduction in cash used for environmental remediation of $0.9 million. * Other decreases in cash used for operating activities of $0.1 million.
Cash provided by working capital accounts improved during the first six months of fiscal 2008 primarily due to a reduction in rate of inventory growth, primarily at AFC, compared to the prior fiscal year six-month period. The improvement in the inventory growth rate provided
Cash tax payments have increased due to our improved profitability.
Cash used for interest increased primarily due to the timing of our interest payments. Our current debt instruments require semi-annual interest payments in February and August compared to the debt instruments in place through February of the prior fiscal year period which required interest payments at the end of each quarter.
Cash used for environmental remediation decreased because during the fiscal 2007 first quarter we were in the construction phase of our
Capital Expenditures - Cash used for capital expenditures increased for the six months ended
OUTLOOK
Our results for fiscal 2008 to date are consistent with our expectations. Accordingly, we are maintaining our guidance for fiscal 2008. For fiscal 2008, we are anticipating consolidated revenues of at least
INVESTOR TELECONFERENCE
We invite you to participate in a teleconference with our executive management covering our fiscal 2008 second quarter financial results. The investor teleconference will be held
RISK FACTORS/FORWARD-LOOKING STATEMENTS
Statements contained in this earnings release that are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements concerning or relating to our future financial results and guidance, statements regarding factors that will affect our consolidated gross margins, statements regarding our expectations with respect to our contract with Gilead Sciences, Inc. and our contract to develop a DACS for the Ballistic Missile Defense System, statements regarding our beliefs about future demand and average prices for Grade I AP, statements regarding our expectations for demand for sodium azide, statements regarding our expectations for Halotron volumes, statements relating to our expectations for year-over-year revenue growth in our Aerospace Equipment segment, statements regarding our working capital changes and future variations, and all statements in the "Outlook" section of this earnings release. Words such as "anticipate", "expect", "should", "may", "can", "will" and similar expressions are intended to identify forward-looking statements. The inclusion of forward-looking statements should not be regarded as a representation by the Company that any of its expectations will be achieved. Actual results may differ materially from those set forth in the release due to risks and uncertainties inherent in the Company's business. Factors that might cause such differences include, but are not limited to, the following:
* We depend on a limited number of customers for most of our sales in our Specialty Chemicals, Aerospace Equipment and Fine Chemicals segments and the loss of one or more of these customers could have a material adverse affect on our revenues. * The inherent limitations of our fixed-price or similar contracts may impact our profitability. * The numerous and often complex laws and regulations and regulatory oversight to which our operations and properties are subject, the cost of compliance, and the effect of any failure to comply could reduce our profitability and liquidity. * A significant portion of our business depends on contracts with the government or its prime contractors and these contracts are impacted by governmental priorities and are subject to potential fluctuations in funding or early termination, including for convenience, any of which could material adversely effect our operating results, financial condition or cash flows. * We may be subject to potentially material costs and liabilities in connection with environmental liabilities. * Although we have established reserves for certain of our environmental liabilities, given the many uncertainties involved in assessing such liabilities, our reserves may not be sufficient. * For each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments, most production is conducted in a single facility and any significant disruption or delay at a particular facility could have a material adverse effect on our business, financial position and results of operations. * The release or explosion of dangerous materials used in our business could disrupt our operations and cause us to incur additional costs and liability. * Disruptions in the supply of key raw materials and difficulties in the supplier qualification process, as well as increases in prices of raw materials, could adversely impact our operations. * Each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments may be unable to comply with customer specifications and manufacturing instructions or may experience delays or other problems with existing or new products, which could result in increased costs, losses of sales and potential breach of customer contracts. * Successful commercialization of pharmaceutical products and product line extensions is very difficult and subject to many uncertainties. If a customer is not able to successfully commercialize its products for which AFC produces compounds or if the product is subsequently recalled, then the operating results of AFC may be negatively impacted. * A strike or other work stoppage, or the inability to renew collective bargaining agreements on favorable terms, could have a material adverse effect on the cost structure and operational capabilities of AFC. * The pharmaceutical fine chemicals industry is a capital-intensive industry and if AFC does not have sufficient financial resources to finance the necessary capital expenditures, its business and results of operations may be harmed. * We may be subject to potential product liability claims that could affect our earnings and financial condition and harm our reputation. * Technology innovations in the markets that we serve may create alternatives to our products and result in reduced sales. * We are subject to competition in certain industries where we participate and therefore may not be able to compete successfully. * Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating results to fluctuate. * The volatility of the chemical industry affects our capacity utilization and causes fluctuations in our results of operations. * A loss of key personnel or highly skilled employees could disrupt our operations. * We may continue to expand our operations through acquisitions, which could divert management's attention and expose us to unanticipated liabilities and costs. We may experience difficulties integrating the acquired operations, and we may incur costs relating to acquisitions that are never consummated. * We have a substantial amount of debt, and the cost of servicing that debt could adversely affect our ability to take actions, our liquidity or our financial condition. * If we are unable to generate sufficient cash flow to service our debt and fund our operating costs, our liquidity may be adversely affected. * Our shareholder rights plan, Restated Certificate of Incorporation, as amended, and Amended and Restated By-laws discourage unsolicited takeover proposals and could prevent stockholders from realizing a premium on their common stock. * Our proprietary rights may be violated or compromised, which could damage our operations.
Readers of this earnings release are referred to our Annual Report on Form 10-K for the year ended
ABOUT AMERICAN PACIFIC CORPORATION
American Pacific is a leading manufacturer of specialty and fine chemicals within its focused markets, as well as propulsion products sold to defense, aerospace and pharmaceutical end markets. Our products provide access to, and movement in, space via solid fuel and propulsion thrusters and represent the registered or active pharmaceutical ingredient in drug applications such as HIV, epilepsy and cancer. We also produce specialty chemicals utilized in various applications such as fire extinguishing systems, as well as manufacture water treatment equipment. Our products are designed to meet customer specifications and often must meet certain governmental and regulatory approvals. Additional information about American Pacific can be obtained by visiting the Company's web site at http://www.apfc.com.
AMERICAN PACIFIC CORPORATION Consolidated Statements of Operations (Unaudited, Dollars in Thousands, Except per Share Amounts) Three Months Ended Six Months Ended March 31, March 31, 2008 2007 2008 2007 Revenues $48,347 $43,589 $95,237 $78,477 Cost of Revenues 31,737 27,378 61,198 49,358 Gross Profit 16,610 16,211 34,039 29,119 Operating Expenses 11,242 10,091 21,447 18,604 Operating Income 5,368 6,120 12,592 10,515 Interest and Other Income, Net 268 90 646 184 Interest Expense 2,687 3,157 5,391 6,460 Debt Repayment Charges - 2,714 - 2,714 Income before Income Tax 2,949 339 7,847 1,525 Income Tax Expense 1,316 221 3,351 768 Net Income $1,633 $118 $4,496 $757 Earnings per Share: Basic $0.22 $0.02 $0.60 $0.10 Diluted $0.22 $0.02 $0.59 $0.10 Weighted Average Shares Outstanding: Basic 7,440,000 7,335,000 7,437,000 7,330,000 Diluted 7,592,000 7,429,000 7,588,000 7,398,000 AMERICAN PACIFIC CORPORATION Consolidated Balance Sheets (Unaudited, Dollars in Thousands, Except per Share Amounts) March 31, September 30, 2008 2007 ASSETS Current Assets: Cash and Cash Equivalents $27,403 $21,426 Accounts Receivable, Net 25,385 25,236 Inventories 49,489 47,023 Prepaid Expenses and Other Assets 4,286 2,258 Deferred Income Taxes 5,504 2,101 Total Current Assets 112,067 98,044 Property, Plant and Equipment, Net 116,244 116,965 Intangible Assets, Net 3,631 5,767 Deferred Income Taxes 18,591 19,385 Other Assets 9,279 9,246 TOTAL ASSETS $259,812 $249,407 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $13,606 $10,867 Accrued Liabilities 5,227 7,829 Accrued Interest 1,650 1,686 Employee Related Liabilities 5,346 7,222 Deferred Revenues and Customer Deposits 13,044 7,755 Current Portion of Environmental Remediation Reserves 613 726 Current Portion of Long-Term Debt 234 252 Total Current Liabilities 39,720 36,337 Long-Term Debt 110,247 110,373 Environmental Remediation Reserves 14,262 14,697 Pension Obligations and Other Long-Term Liabilities 17,594 12,311 Total Liabilities 181,823 173,718 Commitments and Contingencies Shareholders' Equity Preferred Stock - $1.00 par value; 3,000,000 authorized; none outstanding - - Common Stock - $0.10 par value; 20,000,000 shares authorized, 9,482,541 and 9,463,541 issued 948 946 Capital in Excess of Par Value 87,763 87,513 Retained Earnings 11,501 7,296 Treasury Stock - 2,034,870 shares (16,982) (16,982) Accumulated Other Comprehensive Loss (5,241) (3,084) Total Shareholders' Equity 77,989 75,689 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $259,812 $249,407 AMERICAN PACIFIC CORPORATION Consolidated Statements of Cash Flow (Unaudited, Dollars in Thousands) Six Months Ended March 31, 2008 2007 Cash Flows from Operating Activities: Net Income $4,496 $757 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 8,837 9,643 Non-cash interest expense 320 1,819 Share-based compensation 53 67 Non-cash component of debt repayment charges - 2,309 Excess tax benefit from stock option exercises (82) - Deferred income taxes (24) - Changes in operating assets and liabilities: Accounts receivable, net (192) 3,893 Inventories (2,466) (15,977) Prepaid expenses and other current assets (2,176) (144) Accounts payable 2,282 (505) Accrued expenses (2,557) (19) Accrued interest (36) 1,381 Employee related liabilities (1,876) (91) Deferred revenues and customer deposits 5,289 5,218 Environmental remediation reserves (548) (1,454) Pension obligations, net 461 19 Other (562) (269) Net Cash Provided by Operating Activities 11,219 6,647 Cash Flows from Investing Activities: Capital expenditures (5,297) (2,565) Earnout payment for acquisition of AFC Business - (6,000) Discontinued operations - collection of note receivable - 7,510 Net Cash Used by Investing Activities (5,297) (1,055) Cash Flows from Financing Activities: Proceeds from the issuance of long-term debt - 110,000 Payments of long-term debt (144) (108,472) Debt issuance costs - (4,574) Issuances of common stock 117 195 Excess tax benefit from stock option exercises 82 - Net Cash Provided (Used) by Financing Activities 55 (2,851) Net Change in Cash and Cash Equivalents 5,977 2,741 Cash and Cash Equivalents, Beginning of Period 21,426 6,872 Cash and Cash Equivalents, End of Period $27,403 $9,613 AMERICAN PACIFIC CORPORATION Supplemental Data (Unaudited, Dollars in Thousands) Three Months Ended Six Months Ended March 31, March 31, 2008 2007 2008 2007 Operating Segment Data: Revenues: Fine Chemicals $30,504 $22,366 $57,266 $39,957 Specialty Chemicals 12,787 16,132 28,336 27,922 Aerospace Equipment 4,235 4,465 7,970 8,441 Other Businesses 821 626 1,665 2,157 Total Revenues $48,347 $43,589 $95,237 $78,477 Segment Operating Income (Loss): Fine Chemicals $4,144 $2,926 $8,805 $5,845 Specialty Chemicals 4,891 6,418 10,770 9,911 Aerospace Equipment 405 111 578 297 Other Businesses 17 154 (1) 747 Total Segment Operating Income 9,457 9,609 20,152 16,800 Corporate Expenses (4,089) (3,489) (7,560) (6,285) Operating Income $5,368 $6,120 $12,592 $10,515 Depreciation and Amortization: Fine Chemicals $3,018 3,048 $6,390 6,745 Specialty Chemicals 832 1,286 2,090 2,568 Aerospace Equipment 39 34 96 66 Other Businesses 3 3 6 6 Corporate 130 128 255 258 Total Depreciation and Amortization $4,022 $4,499 $8,837 $9,643 Segment EBITDA (a): Fine Chemicals $7,162 $5,974 $15,195 $12,590 Specialty Chemicals 5,723 7,704 12,860 12,479 Aerospace Equipment 444 145 674 363 Other Businesses 20 157 5 753 Total Segment EBITDA 13,349 13,980 28,734 26,185 Less: Corporate Expenses, Excluding Depreciation (3,959) (3,361) (7,305) (6,027) Plus: Share-based Compensation 24 16 53 67 Plus: Interest Income 268 90 646 184 Adjusted EBITDA (b) $9,682 $10,725 $22,128 $20,409 Reconciliation of Net Income to Adjusted EBITDA (b): Net Income $1,633 $118 $4,496 $757 Add Back: Income Tax Expense 1,316 221 3,351 768 Interest Expense 2,687 3,157 5,391 6,460 Debt repayment charges - 2,714 - 2,714 Depreciation and Amortization 4,022 4,499 8,837 9,643 Share-based Compensation 24 16 53 67 Adjusted EBITDA $9,682 $10,725 $22,128 $20,409 (a) Segment EBITDA is defined as segment operating income (loss) plus depreciation and amortization. (b) Adjusted EBITDA is defined as net income before income tax expense, interest expense, debt repayment charges, depreciation and amortization, and share-based compensation.
Segment EBITDA and Adjusted EBITDA are not financial measures calculated in accordance with GAAP and should not be considered as an alternative to income from operations as performance measures. Each EBITDA measure is presented solely as a supplemental disclosure because management believes that each is a useful performance measure that is widely used within the industry. In addition, EBITDA measures are significant measurements for covenant compliance under our credit facility. Each EBITDA measure is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure for comparison.
SOURCE American Pacific Corporation
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