Advertisement
We provide non-GAAP measures as a supplement to financial results based onGAAP. A reconciliation of the non-GAAP measures to the most directlycomparable GAAP measures is included in the accompanying supplemental data.
Advertisement
FINANCIAL HIGHLIGHTS
Quarter Ended September 30, 2008 Compared to Quarter Ended September 30,2007
The prior year includes a charge of $0.24 per diluted share related to ourrefinancing activities in February 2007.
CONSOLIDATED RESULTS OF OPERATIONS
Revenues -- For our fiscal 2008 fourth quarter, revenues increased 15%,reflecting a 40% increase in Fine Chemicals segment revenues offset by a 17%decrease in Specialty Chemicals segment revenues. Our revenues increased 10%in fiscal 2008 primarily due to a 19% increase in revenues for our FineChemicals segment.
See further discussion under our Segment Highlights.
Cost of Revenues and Gross Margins -- For our fiscal 2008 fourth quarter,cost of revenues was $50.2 million compared to $40.5 million for the priorfiscal year fourth quarter. The consolidated gross margin percentage was 29%and 34% for our fiscal 2008 and 2007 fourth quarters, respectively. Forfiscal 2008, cost of revenues was $135.4 million compared to $120.2 millionfor the prior fiscal year. The consolidated gross margin percentage was 33%and 35% for fiscal 2008 and fiscal 2007, respectively.
One of the most significant factors that affects, and should continue toaffect, the comparison of our consolidated gross margins from period to periodis the change in revenue mix between our two largest segments because ourSpecialty Chemicals segment typically has higher gross margins than our FineChemicals segment. The revenue contribution by each of our segments isindicated in the following table.
In addition, consolidated gross margins for our fiscal 2008 fourth quarterand fiscal 2008 reflect:
Operating Expenses -- For our fiscal 2008 fourth quarter, operatingexpenses decreased $0.6 million to $11.0 million from $11.6 million in thefourth quarter of the prior fiscal year primarily due to a reduction inincentive compensation expenses for our Fine Chemicals segment.
For fiscal 2008, operating expenses increased $3.1 million to$42.9 million from $39.8 million for the prior fiscal year. The variances areprimarily due to:
Fine Chemicals Segment
Our Fine Chemicals segment reflects the operating results of ourwholly-owned subsidiary Ampac Fine Chemicals LLC ("AFC").
Quarter Ended September 30, 2008 Compared to Quarter Ended September 30,2007
The increase in Fine Chemicals revenues for the fourth quarter of fiscal2008 compared to the prior fiscal year fourth quarter is primarily due to thetiming of the completion of customer orders and satisfaction of the relatedrevenue recognition criteria, as well as the factors affecting the fiscal 2008revenue increases discussed below.
Fine Chemicals segment revenues increased $19.7 million, or 19%, in fiscal2008 compared to the prior fiscal year primarily driven by increased volumefor anti-viral products. Specifically,
Operating income was 14% of revenue for the fiscal 2008 fourth quartercompared to 18% for the prior fiscal year quarter and 13% of revenue forfiscal 2008 compared to 16% for the prior fiscal year period. Segmentoperating income for fiscal 2008 periods reflects:
Specialty Chemicals Segment
Our Specialty Chemicals segment revenues include the operating resultsfrom our perchlorate, sodium azide and Halotron product lines, withperchlorates comprising 91% and 89% of Specialty Chemicals revenues in fiscal2008 and fiscal 2007, respectively.
Quarter Ended September 30, 2008 Compared to Quarter Ended September 30,2007
The variances in Specialty Chemicals revenues reflect the followingfactors:
For fiscal 2008, our largest programs were the Minuteman III propulsionreplacement program, the Space Shuttle Reusable Solid Rocket Motor (RSRM), theGuided Multiple Launch Rocket System (GMLRS) missile and the ARESnext-generation space exploration vehicles. The average price per pound ofperchlorate sold in fiscal 2008 decreased compared to fiscal 2007 due tohigher total sales volume of Grade I AP in fiscal 2008 compared to fiscal2007.
We expect Grade I AP demand in fiscal 2009 to be less than fiscal 2008,primarily due to the completion of the three year Minuteman III propulsionreplacement program. The expected decline in volume is not expected to have acorresponding effect on revenues due to the pricing under our contractualprice-volume matrix. Over the longer term, we expect annual demand for GradeI AP to be within the range of 6 million to 9 million pounds based on currentNASA and U.S. Department of Defense production programs. However, AP demandcould increase if there is an extension of the Space Shuttle program and/or anacceleration of the Ares program,
The decrease in sodium azide revenues in fiscal 2008 reflects a continuedreduction in demand for sodium azide used in pharmaceutical applications. Wedo not anticipate a significant increase in demand for sodium azide.
Increases in Halotron revenues are driven by volume changes which havebeen and are expected to be consistent year over year.
Specialty Chemicals operating income for fiscal 2008 was 41% of SpecialtyChemicals revenue compared to 32% for the prior fiscal year, and for thefiscal 2008 fourth quarter was 38% compared to 31% for the fiscal 2007 fourthquarter, reflecting the following:
Aerospace Equipment Segment
Our Aerospace Equipment segment reflects the operating results of ourwholly-owned subsidiary Ampac-ISP Corp. ("ISP").
Quarter Ended September 30, 2008 Compared to Quarter Ended September 30,2007
The decreases in Aerospace Equipment revenues during fiscal 2008 isprimarily due to the awards of new contracts occurring in the later part offiscal 2008, and accordingly did not produce as much revenue within fiscal2008. The increase in revenues for the fiscal 2008 fourth quarter reflectsthe inception of revenue generated from these new contract awards. AerospaceEquipment segment gross margin percentage was the same in fiscal 2008 andfiscal 2007. Aerospace Equipment segment operating expenses increased$0.5 million due to various individually insignificant increases in staffingand marketing expenses.
CAPITAL AND LIQUIDITY HIGHLIGHTS
Liquidity -- As of September 30, 2008, we had cash balances of$26.9 million and no cash borrowings against our $20.0 million revolvingcredit line. In addition, we were in compliance with the various covenantscontained in our credit agreements.
Operating Cash Flows -- Cash flows from operating activities during fiscal2008 decreased by $3.8 million compared to the prior fiscal year. Operatingactivities provided cash of $20.3 million for fiscal 2008 compared toproviding cash of $24.1 million for the prior fiscal year.
Significant components of the change in cash flow from operatingactivities include:
Cash used by working capital accounts improved during fiscal 2008primarily due to reductions in inventory levels, primarily at AFC. Thebenefit to cash from reductions in inventory levels was partially offset byreductions in accrued liabilities and deferred revenues.
We consider these working capital changes to be routine and within thenormal production cycle of our products. The production of certain finechemical products requires a length of time that exceeds one quarter.Therefore, in any given quarter, work-in-progress inventory or deferredrevenues can increase or decrease significantly. We expect that our workingcapital may vary normally by as much as $10.0 million from quarter to quarter.
Cash tax payments have increased due to the improvement in our pre-taxincome and the negative effects of tax-basis inventory adjustments.
Cash used for interest increased primarily due to the timing of ourinterest payments. Our current debt instruments require semi-annual interestpayments in February and August compared to the debt instruments in placethrough February 2007 which required interest payments at the end of eachquarter.
Cash used for environmental remediation decreased because during thefiscal 2007 first quarter we were in the construction phase of our Henderson,Nevada remediation project compared to the lower cash requirements of theoperating and maintenance phase which began in the fiscal 2007 second quarter.
Capital Expenditures -- Capital expenditures increased by $6.9 million infiscal 2008. This includes an increase in capital expenditures at ourcorporate offices of $2.2 million primarily due to the relocation of ourheadquarters and an increase in capital expenditures by our Fine Chemicalssegment that included the upgrade of an existing production line to betterhandle new projects and the installation of equipment in support of along-term project.
OUTLOOK
Looking to fiscal 2009 and beyond, we believe our long-term growthopportunities remain strong. We remain committed to our strategy to providelong-term value through the growth of our Fine Chemicals and AerospaceEquipment segments.
For fiscal 2009, we expect consolidated revenue of at least$195.0 million, reflecting the following:
Our guidance for fiscal 2009 Adjusted EBITDA is at least $37.0 million andnet income of at least $6.0 million. Our fiscal 2009 guidance for AdjustedEBITDA is computed by adding estimated amounts for depreciation andamortization of $15.0 million, interest expense of $11.0 million, share-basedcompensation expense of $1.0 million and income taxes of $4.0 million toestimated net income of $6.0 million. We are anticipating our capitalexpenditures for fiscal 2009 to be approximately $14.0 million.
INVESTOR TELECONFERENCE
We invite you to participate in a teleconference with our executivemanagement covering our fiscal 2008 financial results. The investorteleconference will be held Thursday, December 11, 2008 at 1:30 p.m., PacificStandard Time. The teleconference will include a presentation by managementfollowed by a question and answer session. The teleconference can be accessedby dialing (973) 582-2852 between 1:15 and 1:30 p.m., Pacific Standard Time.Please reference conference ID# 76570053. As is our customary practice, alive webcast of the teleconference is being provided by Thomson Financial'sFirst Call Events. A link to the webcast and the earnings release isavailable at our website at http://www.apfc.com, and will be available forreplay until a few days before our next quarterly investor teleconference.
RISK FACTORS/FORWARD-LOOKING STATEMENTS
Statements contained in this earnings release that are not purelyhistorical are forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995, Section 27A of the Securities Act of1933 and Section 21E of the Securities Exchange Act of 1934, including withoutlimitation statements regarding factors that will affect our consolidatedgross margins, statements regarding the effects on margins resulting from ourFine Chemicals segment's implementation of a new process for a large-volumeanti-viral product, statements regarding our beliefs about future demand, andrelated revenues for perchlorates, in particular Grade I AP, statementsregarding our expectations for demand for sodium azide, statements regardingour expectations for Halotron volumes, statements regarding our workingcapital changes and future variations, and all statements in the "Outlook"section of this earnings release. Words such as "anticipate", "expect","could", "should", "may", "can", "will" and similar expressions are intendedto identify forward-looking statements. The inclusion of forward-lookingstatements should not be regarded as a representation by the Company that anyof its expectations will be achieved. Actual results may differ materiallyfrom those set forth in the release due to risks and uncertainties inherent inthe Company's business. Factors that might cause such differences include,but are not limited to, the following:
Readers of this earnings release are referred to our Annual Report on Form10-K for the year ended September 30, 2007, our Form 10-Q for the quarterended June 30, 2008 and our other filings with the Securities and ExchangeCommission for further discussion of these and other factors that could affectour future results. The forward-looking statements contained in this earningsrelease are made as of the date hereof and we assume no obligation to updatefor actual results or to update the reasons why actual results could differmaterially from those projected in the forward-looking statements, except asrequired by law. In addition, the operating results for the three-months andyear ended September 30, 2008 and cash flows for the year ended September 30,2008 are not necessarily indicative of the results that will be achieved forfuture periods.
ABOUT AMERICAN PACIFIC CORPORATION
American Pacific Corporation is a leading manufacturer of specialty andfine chemicals within its focused markets, as well as propulsion products soldto defense, aerospace and pharmaceutical end markets. Our products provideaccess to, and movement in, space via solid fuel and propulsion thrusters andrepresent the registered or active pharmaceutical ingredient in drugapplications such as HIV, epilepsy and cancer. We also produce specialtychemicals utilized in various applications such as fire extinguishing systems,as well as manufacture water treatment equipment. Our products are designed tomeet customer specifications and often must meet certain governmental andregulatory approvals. Additional information about us can be obtained byvisiting our web site at http://www.apfc.com.
Segment EBITDA and Adjusted EBITDA are not financial measures calculatedin accordance with GAAP and should not be considered as an alternative toincome from operations as performance measures. Each EBITDA measure ispresented solely as a supplemental disclosure because management believes thateach is a useful performance measure that is widely used within the industriesin which we operate. In addition, EBITDA measures are significant measurementsfor covenant compliance under our revolving credit facility. Each EBITDAmeasure is not calculated in the same manner by all companies and,accordingly, may not be an appropriate measure for comparison.-- Revenues increased 15% to $71.2 million from $61.7 million. -- Operating income increased 3% to $9.9 million compared to $9.6 million. -- Adjusted EBITDA decreased to $14.1 million compared to $14.9 million. -- Net income increased 19% to $4.3 million from $3.6 million. -- Diluted earnings per share was $0.57 compared to $0.48. Year Ended September 30, 2008 Compared to Year Ended September 30, 2007 -- Revenues increased 10% to $203.1 million from $183.9 million. -- Operating income increased 4% to $24.9 million compared to $23.9 million. -- Adjusted EBITDA decreased to $42.8 million compared to $44.0 million. -- Net income increased 80% to $9.0 million from $5.0 million. -- Diluted earnings per share was $1.18 compared to $0.67.
SOURCE American Pacific Corporation
