American Pacific Reports Fiscal 2009 First Quarter Results; Reaffirms Fiscal 2009 Guidance
Posted on: Thursday, 5 February 2009, 15:02 CST
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 SUMMARY
Quarter Ended
- Revenues decreased
$1.3 million to $45.6 million from$46.9 million . - Operating income decreased
$3.8 million to $3.4 million compared to$7.2 million . - Adjusted EBITDA decreased to
$7.6 million compared to$12.4 million . - Net income decreased
$2.4 million to $0.5 million from$2.9 million . - Diluted earnings per share was
$0.06 compared to$0.38 .
ACQUISITION
Effective
AMPAC ISP Holdings designs, develops and manufactures high performance valves, pressure regulators, cold-gas propulsion systems, and precision structures for space applications, especially in the European space market. These products are used on various satellites and spacecraft, as well as on the Ariane 5 launch vehicle. The business has two locations,
CONSOLIDATED RESULTS OF OPERATIONS
Revenues - For our fiscal 2009 first quarter, revenues decreased 3%, reflecting increases of 12% and 54% in Specialty Chemicals segment and Aerospace Equipment segment revenues, respectively, offset by a 24% decrease in Fine Chemicals segment revenues.
See further discussion under Segment Highlights.
Cost of Revenues and Gross Margins - For our fiscal 2009 first quarter, cost of revenues was
One of the most significant factors that affects, and should continue to affect, the comparison of our consolidated gross margins from period to period is the change in revenue mix between our two largest segments. The revenue contribution by each of our segments is indicated in the following table.
Three Months Ended December 31, 2008 2007 Fine Chemicals 45% 57% Specialty Chemicals 38% 33% Aerospace Equipment 13% 8% Other Businesses 4% 2% Total Revenues 100% 100%In addition, consolidated gross margins for our fiscal 2009 first quarter reflect:
- A decrease in Fine Chemicals segment gross margin percentage relating primarily to a reduction in gross margin for an anti-viral product.
- Improvements in Specialty Chemicals segment gross margin percentage primarily due to a reduction in amortization expense.
See further discussion under Segment Highlights.
Operating Expenses - For our fiscal 2009 first quarter, operating expenses increased
- A
$0.3 million decrease in Fine Chemicals segment operating expenses reflecting a reduction in incentive compensation. - A
$0.6 million increase in Aerospace Equipment segment operating expenses primarily due to the acquisition of AMPAC ISP Holdings. - A
$0.6 million increase in corporate operating expenses, including increases in rent of$0.2 million , consulting and professional services of$0.1 million , and stock-based compensation expense of$0.1 million . The remaining increases in corporate expenses are individually insignificant.
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
- Revenues were
$20.4 million compared to revenues of$26.8 million . - Operating loss of
$1.0 million compared to operating income of$4.7 million . - Segment EBITDA was
$2.2 million , or 11% of revenue, compared to Segment EBITDA of$8.0 million , or 30% of revenue.
The decrease in Fine Chemicals segment revenues for the fiscal 2009 first quarter compared to the prior fiscal year period is due to a decline in revenues from our anti-viral products offset partially by revenue increases from our oncology and central nervous system products.
Consistent with our prior disclosures, Fine Chemicals segment revenues are anticipated to decline in fiscal 2009, as compared to fiscal 2008, reflecting an approximately 85% reduction in volume for the anti-viral product that was our largest product in fiscal 2008. We recorded no revenues from this product during the fiscal 2009 first quarter. The fiscal 2009 decline in volume for this product is due to our customer's supply chain strategy and their desire to reduce their current levels of inventory.
Our Fine Chemicals segment reported an operating loss of
- Lower segment revenue levels for the fiscal 2009 first quarter than we are expecting for subsequent quarters in fiscal 2009. This lower revenue level provides less gross margin contribution in the fiscal 2009 first quarter to cover general and administrative expenses which tend to occur more evenly between quarters.
- A decrease in the gross margin percentage of approximately nineteen points. Factors that contributed to the decline in gross margin percentage include:
- During the fourth quarter of fiscal 2008, we implemented a new process for a large-volume anti-viral product and experienced start-up difficulties that negatively impacted margins for this product. During the fiscal 2009 first quarter, gross margins for this product improved somewhat as we continued to strive to improve the production process. However, despite progress, gross margins for this product remain significantly below historical levels.
- During the fiscal 2008 first quarter, an atypical mix of starting materials resulted in unusually high gross margin for our central nervous system products. In the fiscal 2009 first quarter, gross margins for these products were at a more normalized level. As a result, the quarter over quarter comparison reflects a decline.
- A decrease in operating expenses of
$0.3 million primarily due to a decrease in incentive compensation.
We anticipate that Fine Chemicals segment quarterly gross margins and quarterly operating income will improve for the remaining quarters in fiscal 2009, as compared to the fiscal 2009 first quarter, due to expected increases in quarterly revenues and the related improvement in absorption of fixed costs.
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 95% of Specialty Chemicals revenues in the fiscal 2009 and fiscal 2008 first quarters, respectively.
Quarter Ended
- Revenues increased 12% to
$17.4 million from$15.5 million . - Operating income was
$7.6 million , or 44% of revenues, compared to$5.9 million , or 38% of revenues. - Segment EBITDA was
$7.9 million , or 46% of revenues, compared to$7.1 million , also 46% of revenues.
The variances in Specialty Chemicals revenues reflect the following factors:
- A 7% decrease in perchlorate volume and a 17% increase in the related average price per pound.
- Sodium azide revenues increased
$0.2 million . - Halotron revenues increased
$0.4 million .
The decline in perchlorate volume is primarily due to lower volume on our non-Grade I perchlorate products. The average price per pound of perchlorate product increased because lower-priced, non-Grade I products comprised a smaller percentage of revenues in the fiscal 2009 first quarter than in the comparable prior year quarter.
For the fiscal 2009 first quarter, the greatest contribution to segment revenue was product for the Space Shuttle Reusable Solid Rocket Motor ("RSRM") program. We currently expect annual demand for Grade I ammonium perchlorate ("AP") in fiscal 2009 to be consistent with fiscal 2008. Increases in demand in fiscal 2009 for the Space Shuttle RSRM program, the Atlas V Solid Rocket Booster (SRB) program and the Guided Multiple Launch Rocket System ("MLRS") program should offset declines from the completion in fiscal 2008 of the three-year Minuteman III propulsion replacement program.
Over the longer term, we expect annual demand for Grade I AP to be within the range of 6 million to 9 million pounds based on current NASA and U.S. Department of Defense production programs. However, Grade I AP demand could increase if there is an extension of the Space Shuttle program and/or an acceleration of the Ares program.
Specialty Chemicals operating income for the fiscal 2009 first quarter was 44% of Specialty Chemicals revenue compared to 38% for the prior fiscal year first quarter primarily due to a reduction in amortization expense from
Aerospace Equipment Segment
Our Aerospace Equipment segment reflects the operating results of our wholly-owned subsidiary Ampac-ISP Corp. ("ISP") and its wholly-owned subsidiaries, which include the recently acquired AMPAC ISP Holdings beginning on
Quarter Ended
- Revenues increased 54% to
$5.8 million from$3.7 million . - Operating income was
$0.4 million compared to$0.2 million . - Segment EBITDA was
$0.7 million compared to$0.2 million .
Aerospace Equipment segment revenues increased
AMPAC ISP Holdings contributed approximately breakeven operating income and segment EBITDA of approximately
CAPITAL AND LIQUIDITY HIGHLIGHTS
Liquidity - As of
Operating Cash Flows - Operating activities provided cash of
Significant components of the change in cash flow from operating activities include:
- A decrease in cash provided by Adjusted EBITDA of
$4.9 million . - A decrease in cash provided by working capital accounts of
$7.1 million , excluding the effects of interest and income taxes. - An increase in cash taxes paid of
$0.2 million . - A decrease in cash paid for interest of
$0.1 million . - An increase in cash used for environmental remediation of
$0.1 million . - Other increases in cash provided by operating activities of
$0.9 million .
The decrease in cash provided by working capital accounts is primarily due to the timing of accounts receivable invoicing and collections. Reductions in accounts receivable provided cash of
We consider these working capital changes to be routine and within the normal production cycle of our products. The production of certain fine chemical products requires a length of time that exceeds one quarter. Therefore, in any given quarter, accounts receivable, work-in-progress inventory or deferred revenues can increase or decrease significantly. We expect that our working capital may vary normally by as much as
Cash used for interest payments was consistent at
Investing Cash Flows -
- Capital expenditures increased by
$0.3 million in the fiscal 2009 first quarter as compared to prior fiscal year first quarter. - Cash used for acquisition of business reflects the purchase of AMPAC ISP Holdings for
$7.1 million , net of cash acquired of$0.4 million .
OUTLOOK
Our results for fiscal 2009 to date are consistent with our expectations. Accordingly, we are maintaining our guidance for fiscal 2009. For fiscal 2009, 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 2009 first 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 the statement regarding one of the significant factors that will affect our consolidated gross margins in the future, statements regarding expected Fine Chemicals segment revenue, and related effect on gross margin and operating income, for the remainder of fiscal 2009, statements regarding our beliefs about future demand for perchlorates, in particular Grade I AP, 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", "could", "should", "may", "can" 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 future results or outcomes expressed or implied by forward-looking statements set forth in the release due to risks, uncertainties and other important factors inherent in the Company's business. Factors that might cause actual results to differ 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 financial position, results of operations and cash flows.
- 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 have a material adverse effect on 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 an environmental reserve for remediation activities in
Henderson ,Nevada , given the many uncertainties involved in assessing such liabilities, our environmental-related risks may from time to time exceed any related reserves. - 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 a 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 liability claims for our products or services 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 strong competition in certain industries in which 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 inherent 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 in part 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.
- Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could affect our future earnings, equity and pension funding requirements.
- 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 and intellectual property rights may be violated, compromised, circumvented or invalidated, 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 Corporation (AMPAC) is a leading custom manufacturer of fine chemicals, specialty chemicals and propulsion products within its focused markets. We supply active pharmaceutical ingredients and advanced intermediates to the pharmaceutical industry. For the aerospace and defense industry we provide specialty chemicals used in solid rocket motors for space launch and military missiles. AMPAC also designs and manufactures liquid propulsion systems, valves and structures for space and missile defense applications. We produce clean agent chemicals for the fire protection industry, as well as electro-chemical equipment for the water treatment industry. Our products are designed to meet customer specifications and often must meet certain governmental and regulatory approvals. Additional information about us can be obtained by visiting our web site at www.apfc.com.
AMERICAN PACIFIC CORPORATION Consolidated Statements of Operations (Unaudited, Dollars in Thousands, Except per Share Amounts) Three Months December 31, 2008 2007 Revenues $45,629 $46,890 Cost of Revenues 30,895 29,461 Gross Profit 14,734 17,429 Operating Expenses 11,309 10,205 Operating Income 3,425 7,224 Interest and Other Income, Net 61 378 Interest Expense 2,694 2,704 Income before Income Tax 792 4,898 Income Tax Expense 335 2,035 Net Income $457 $2,863 Earnings per Share: Basic $0.06 $0.39 Diluted $0.06 $0.38 Weighted Average Shares Outstanding: Basic 7,480,000 7,434,000 Diluted 7,573,000 7,584,000 AMERICAN PACIFIC CORPORATION Consolidated Balance Sheets (Unaudited, Dollars in Thousands, Except per Share Amounts) December 31, September 30, 2008 2008 ASSETS Current Assets: Cash and Cash Equivalents $25,308 $26,893 Accounts Receivable, Net 23,007 27,445 Inventories 42,983 40,357 Prepaid Expenses and Other Assets 3,443 3,392 Income Taxes Receivable 1,802 1,804 Deferred Income Taxes 6,859 6,859 Total Current Assets 103,402 106,750 Property, Plant and Equipment, Net 118,134 118,608 Intangible Assets, Net 4,962 3,013 Goodwill 3,063 - Deferred Income Taxes 13,851 13,849 Other Assets 10,102 9,193 TOTAL ASSETS $253,514 $251,413 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $8,889 $10,554 Accrued Liabilities 6,368 5,526 Accrued Interest 4,159 1,650 Employee Related Liabilities 4,296 6,917 Income Taxes Payable 425 111 Deferred Revenues and Customer Deposits 5,131 3,091 Current Portion of Environmental Remediation Reserves 959 996 Current Portion of Long-Term Debt 300 254 Total Current Liabilities 30,527 29,099 Long-Term Debt 110,181 110,120 Environmental Remediation Reserves 12,952 13,282 Pension Obligations 16,268 15,692 Other Long-Term Liabilities 531 258 Total Liabilities 170,459 168,451 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, 9,550,541 and 9,523,541 issued 955 952 Capital in Excess of Par Value 88,666 88,496 Retained Earnings 16,413 15,956 Treasury Stock - 2,045,950 and 2,045,950 shares (17,175) (17,175) Accumulated Other Comprehensive Loss (5,804) (5,267) Total Shareholders' Equity 83,055 82,962 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $253,514 $251,413 AMERICAN PACIFIC CORPORATION Consolidated Statements of Cash Flow (Unaudited, Dollars in Thousands) Three Months Ended December 31, 2008 2007 Cash Flows from Operating Activities: Net Income $457 $2,863 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 3,969 4,815 Non-cash interest expense 159 164 Share-based compensation 132 29 Excess tax benefit from stock option exercises (3) (28) Deferred income taxes (58) (13) Loss on sale of assets 53 - Changes in operating assets and liabilities: Accounts receivable, net 6,661 11,238 Inventories (3,052) (3,071) Prepaid expenses and other current assets (12) (283) Accounts payable (2,627) (265) Income taxes 325 2,140 Accrued liabilities 631 (131) Accrued interest 2,509 2,439 Employee related liabilities (2,739) (2,079) Deferred revenues and customer deposits 415 1,027 Environmental remediation reserves (367) (293) Pension obligations, net 576 227 Other (79) (560) Net Cash Provided by Operating Activities 6,950 18,219 Cash Flows from Investing Activities: Capital expenditures (1,809) (1,500) Acquisition of business, net of cash acquired (6,653) - Net Cash Used by Investing Activities (8,462) (1,500) Cash Flows from Financing Activities: Payments of long-term debt (108) (62) Issuances of common stock, net 32 49 Excess tax benefit from stock option exercises 3 28 Net Cash Provided (Used) by Financing Activities (73) 15 Net Change in Cash and Cash Equivalents (1,585) 16,734 Cash and Cash Equivalents, Beginning of Period 26,893 21,426 Cash and Cash Equivalents, End of Period $25,308 $38,160 AMERICAN PACIFIC CORPORATION Supplemental Data (Unaudited, Dollars in Thousands) Three Months Ended December 31, 2008 2007 Operating Segment Data: Revenues: Fine Chemicals $20,384 $26,762 Specialty Chemicals 17,359 15,549 Aerospace Equipment 5,756 3,735 Other Businesses 2,130 844 Total Revenues $45,629 $46,890 Segment Operating Income (Loss): Fine Chemicals $(1,024) $4,661 Specialty Chemicals 7,606 5,879 Aerospace Equipment 410 173 Other Businesses 545 (18) Total Segment Operating Income 7,537 10,695 Corporate Expenses (4,112) (3,471) Operating Income $3,425 $7,224 Depreciation and Amortization: Fine Chemicals $3,208 3,372 Specialty Chemicals 304 1,258 Aerospace Equipment 331 57 Other Businesses 3 3 Corporate 123 125 Total Depreciation and Amortization $3,969 $4,815 Segment EBITDA (a): Fine Chemicals $2,184 $8,033 Specialty Chemicals 7,910 7,137 Aerospace Equipment 741 230 Other Businesses 548 (15) Total Segment EBITDA 11,383 15,385 Less: Corporate Expenses, Excluding Depreciation (3,989) (3,346) Plus: Share-based Compensation 132 29 Plus: Interest and Other Income, Net 61 378 Adjusted EBITDA (b) $7,587 $12,446 Reconciliation of Net Income to Adjusted EBITDA (b): Net Income $457 $2,863 Add Back: Income Tax Expense 335 2,035 Interest Expense 2,694 2,704 Depreciation and Amortization 3,969 4,815 Share-based Compensation 132 29 Adjusted EBITDA $7,587 $12,446 (a) Segment EBITDA is defined as segment operating income plus depreciation and amortization. (b) Adjusted EBITDA is defined as net income before income tax expense, interest expense, 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 industries in which we operate. In addition, EBITDA measures are significant measurements for covenant compliance under our revolving 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
Source: PR Newswire
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