Advertisement
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.
Advertisement
FINANCIAL SUMMARY
Quarter Ended June 30, 2010 Compared to Quarter Ended June 30, 2009
Nine Months Ended June 30, 2010 Compared to Nine Months Ended June 30, 2009
CONSOLIDATED RESULTS OF OPERATIONS
Revenues - For our third quarter of the fiscal year ending September 30, 2010 ("Fiscal 2010"), revenues increased 18% to $37.2 million as compared to the third quarter of the fiscal year ended September 30, 2009 ("Fiscal 2009"), primarily reflecting revenue increases of 28% and 30% for our Fine Chemicals and Specialty Chemicals segments, respectively. For the Fiscal 2010 nine-month period, revenues decreased 2% to $130.7 million as compared to the Fiscal 2009 nine-month period, reflecting an increase of 23% for our Aerospace Equipment segment revenues, offset by decreases of 7% and 14% in our Fine Chemicals segment and Specialty Chemicals segment revenues, respectively.
See further discussion under Segment Highlights.
Cost of Revenues and Gross Margins - For our Fiscal 2010 third quarter, cost of revenues was $28.9 million compared to $24.2 million for the prior fiscal year third quarter. The consolidated gross margin percentage was 22% and 23% for our Fiscal 2010 and Fiscal 2009 third quarters, respectively. For the Fiscal 2010 nine-month period, cost of revenues was $93.1 million compared to $94.3 million for the prior fiscal year nine-month period. The consolidated gross margin percentage was 29% for both the Fiscal 2010 and Fiscal 2009 nine-month periods.
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 segments. The revenue contribution by each of our segments is indicated in the following table.
In addition, consolidated gross margins for our Fiscal 2010 periods reflect:
See further discussion of these factors under the heading Segment Highlights.
Operating Expenses - For our Fiscal 2010 third quarter, operating expenses increased $1.0 million to $11.9 million from $10.9 million for the prior fiscal year third quarter. For our Fiscal 2010 nine-month period, operating expenses increased $2.4 million to $35.7 million from $33.3 million for the prior fiscal year nine-month period. The increases in operating expenses are associated with our Fine Chemicals and Aerospace Equipment segments. See further discussion of these factors under the heading Segment Highlights.
RECENT EVENTS
In May 2010, our board of directors approved amendments to our U.S. defined benefit plans which effectively closed these plans to participation by any new employees. Retirement benefits for existing U.S. employees and retirees through June 30, 2010 are not affected by this change. Beginning July 1, 2010, new U.S. employees will participate solely in one of the Company's 401(k) plans.
In June 2010, we repurchased and cancelled $5.0 million in principal amount of our 9% Senior Notes for $4.9 million, which approximated our carrying value of the notes, net of deferred financing costs.
In July 2010, our Fine Chemicals segment successfully completed the renegotiation and extension of its collective bargaining agreement to June of 2013.
In July 2010, our Aerospace Equipment segment, AMPAC-ISP, finalized a two year contract with OHB-System AG of Bremen, Germany, to produce fourteen Propulsion Modules for the Full Operational Capability portion of the satellite-supported European navigation system program. The constellation of navigation satellites will provide GPS-type coverage for a wide variety of users throughout the world.
SEGMENT HIGHLIGHTS
Fine Chemicals Segment
Our Fine Chemicals segment reflects the operating results of our wholly-owned subsidiaries Ampac Fine Chemicals LLC and AMPAC Fine Chemicals Texas, LLC (collectively, "AFC").
Quarter Ended June 30, 2010 Compared to Quarter Ended June 30, 2009
Nine Months Ended June 30, 2010 Compared to Nine Months Ended June 30, 2009
The increase in Fine Chemicals segment revenues for the Fiscal 2010 third quarter compared to the prior fiscal year third quarter primarily reflects an increase in revenues from our development products. Development product revenues include revenues from research products, products which are not yet commercialized, and products which are commercial but for which we are not the current commercial producer. Typically, development product activities are the source for future core products.
The decrease in Fine Chemicals segment revenues for the Fiscal 2010 nine-month period reflects reductions in orders for our antiviral products, offset partially by increases in revenues from development products. The decline in segment revenues for the Fiscal 2010 nine-month period is consistent with our expectation that annual Fiscal 2010 revenues for this segment will decline in the range of 20% to 25% as compared to Fiscal 2009.
Operating income and Segment EBITDA for the Fiscal 2010 third quarter and nine-month period declined compared to the prior fiscal year periods. For the Fiscal 2010 third quarter, the gross margin percentage declined ten points. The primary reason for the reduction in the third quarter gross margin percentage is higher than anticipated costs associated with validating a process change for a core product. In addition, the third quarter experienced other general manufacturing inefficiencies. On a year-to-date basis, Fiscal 2010 gross margins improved two points. Manufacturing improvements from the first two quarters of Fiscal 2010 were substantially offset by the Fiscal 2010 third quarter performance. Fine Chemicals segment operating expenses increased approximately $0.5 million for the Fiscal 2010 third quarter as compared to the prior fiscal year third quarter. The increase is largely attributed to incremental costs associated with the successful three-year renewal of our collective bargaining agreement, as well as additional costs associated with our recently acquired facility in Texas. For the Fiscal 2010 nine-month period, as compared to the prior fiscal year nine-month period, operating expenses increased $0.8 million reflecting the above-mentioned third quarter increases and an increase in business development activities.
Specialty Chemicals Segment
Our Specialty Chemicals segment revenues include the operating results from our perchlorate, sodium azide and Halotron product lines, with our perchlorate product lines comprising 87% and 89% of Specialty Chemicals segment revenues in Fiscal 2010 and Fiscal 2009 nine-month periods, respectively.
Quarter Ended June 30, 2010 Compared to Quarter Ended June 30, 2009
Nine Months Ended June 30, 2010 Compared to Nine Months Ended June 30, 2009
The variances in Specialty Chemicals segment revenues reflect the following factors:
For the Fiscal 2010 third quarter, the increase in perchlorate volume as compared to the prior year third quarter, reflects a difference in timing of perchlorate sales between the quarterly periods within each fiscal year. The decrease in volume for the Fiscal 2010 nine-month period is consistent with our expectation that, for the full Fiscal 2010 year, perchlorate volume will be down approximately 50% compared to the prior fiscal year.
The increases in average prices per pound reflect two offsetting factors:
Tactical missile programs accounted for a significant portion of perchlorate revenues in the Fiscal 2010 third quarter. In addition to the Fiscal 2010 third quarter activity, perchlorate revenues for the Fiscal 2010 nine-month period include space related programs, primarily the Ares program. For the Fiscal 2009 nine-month period, the greatest contributor to segment revenues was product for the Space Shuttle Reusable Solid Rocket Motor ("RSRM") program.
Operating income as a percentage of segment revenues was substantially lower in both the Fiscal 2010 and 2009 third quarters, each as compared to the nine-month periods in the corresponding fiscal years. This quarterly decline in operating margin occurs because segment revenues do not occur evenly between the quarters as compared to general and administrative expenses, which tend to be more consistent from quarter to quarter. As a result, quarters with lower volume, as was the case with the Fiscal 2010 and 2009 third quarters, report lower operating margin percentages.
Operating income as a percentage of segment revenues improved three points for the Fiscal 2010 nine-month period as compared to the prior fiscal year nine-month period. This improvement reflects the absorption of manufacturing overhead to inventory which is currently being produced to support early fiscal 2011 orders.
Aerospace Equipment Segment
Our Aerospace Equipment segment reflects the operating results of our wholly-owned subsidiary Ampac-ISP Corp. and its wholly-owned subsidiaries.
Quarter Ended June 30, 2010 Compared to Quarter Ended June 30, 2009
Nine Months Ended June 30, 2010 Compared to Nine Months Ended June 30, 2009
Aerospace Equipment segment revenues decreased 5% for the Fiscal 2010 third quarter compared to the prior year third quarter because quarterly Fiscal 2010 segment revenues are expected to be weighted more to the first two quarters of Fiscal 2010. This differs from quarterly Fiscal 2009 segment revenues which were weighted more to the last two quarters of Fiscal 2009. Aerospace Equipment segment revenues increased 23% for the Fiscal 2010 nine-month period as compared to the prior fiscal year nine-month period. Revenue growth for the Fiscal 2010 nine-month period was driven by revenues for in-space propulsion engines. We expect that Aerospace Equipment segment revenues for the full Fiscal 2010 year will grow by approximately 10% compared to the prior fiscal year.
Operating profit and Segment EBITDA declined as a percentage of segment revenues for both the Fiscal 2010 third quarter and nine-month period. The gross margin percentage declined by one point for the Fiscal 2010 third quarter and seven points for the Fiscal 2010 nine-month period. These declines are attributed primarily to increases in estimated costs to complete certain systems contracts, as well as the impact on contract margins that results from late deliveries. Aerospace Equipment segment operating expenses increased $1.5 million primarily as a result of additional management and organization structure which was added to support the segment's European growth strategy, as well as increases in research and development expenses in both the U.S. and Europe.
CAPITAL AND LIQUIDITY HIGHLIGHTS
Liquidity - As of June 30, 2010, we had cash balances of $32.2 million and no cash borrowings against our $20.0 million revolving credit line. In addition, we were in compliance with the various covenants contained in our credit agreements.
Operating Cash Flows - Operating activities provided cash of $23.0 million for the Fiscal 2010 nine-month period compared to $11.4 million for the prior fiscal year nine-month period, resulting in an increase of $11.6 million.
Significant components of the change in cash flow from operating activities include:
The increase in cash provided by working capital accounts for the Fiscal 2010 nine-month period reflects timing, and in particular as of June 30, 2010, the lower business volume and associated working capital requirements. We consider these working capital changes to be routine and within the normal production cycle of our products. The production of most fine chemical products requires a length of time that exceeds one quarter. In addition, the timing of Aerospace Equipment segment revenues recognized under the percentage-of-completion method differs from the timing of the related billings to customers. 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 $10.0 million from quarter to quarter.
Investing Cash Flows - Capital expenditures increased by $1.1 million in the Fiscal 2010 nine-month period compared to the prior fiscal year nine-month period due to the timing of expenditures. In April 2010, our Fine Chemicals segment expanded its manufacturing capacity through the purchase of a fine chemical facility in La Porte, Texas at a total cost of approximately $1.2 million, including direct purchase costs. The purchase of this facility is accounted for as a capital expenditure and accounts for the increase in capital expenditures as compared to the prior fiscal year period. Remaining capital expenditures in both periods were primarily maintenance capital related.
Financing Cash Flows - In June 2010, we repurchased and cancelled $5.0 million in principal amount of our 9% Senior Notes for $4.9 million, which approximated our carrying value of the notes, net of deferred financing costs.
OUTLOOK
We are updating our guidance for Fiscal 2010. We expect consolidated revenues of approximately $170.0 million and Adjusted EBITDA to range from $23.0 million to $25.0 million. The low end of our Fiscal 2010 guidance for Adjusted EBITDA is computed by adding estimated amounts for depreciation and amortization of $16.0 million, interest expense of $11.0 million, share-based compensation expense of $1.0 million and income tax benefit of $2.0 to estimated net loss of $3.0 million. We are anticipating our capital expenditures, which do not include environmental remediation spending, for Fiscal 2010 to be approximately $14.0 million.
The changes in our guidance primarily reflect our updated expectation that Fine Chemicals segment revenues will decline by approximately 20% to 25% in Fiscal 2010 as compared to Fiscal 2009, and the corresponding effects on Adjusted EBITDA and net loss. The current reduction in our expectation for Fiscal 2010 Fine Chemicals segment revenues reflects lower than anticipated development product revenues and the movement of certain projects into the next fiscal year.
INVESTOR TELECONFERENCE
We invite you to participate in a teleconference with our executive management covering our Fiscal 2010 third quarter financial results. The investor teleconference will be held Wednesday August 4, 2010 at 1:30 p.m., Pacific Daylight Time. The teleconference will include a presentation by management followed by a question and answer session. The teleconference can be accessed by dialing 866-700-5192 between 1:15 and 1:30 p.m., Pacific Daylight Time. Please reference passcode #24996585. As is our customary practice, a live webcast of the teleconference is being provided by Thomson Reuters. A link to the webcast and the earnings release is available at our website at www.apfc.com, and will be available for replay until a few days before our next quarterly investor teleconference.
RISK FACTORS/FORWARD-LOOKING STATEMENTS
The unaudited financial results included in this release are preliminary. 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 comparisons of our consolidated gross margins in the future, the statement regarding anticipated Fiscal 2010 Fine Chemicals segment revenues, the statement regarding the anticipated total volume of perchlorate products to be sold in Fiscal 2010, the statements regarding the timing and anticipated amount of Fiscal 2010 revenues for our Aerospace Equipment segment, statements regarding our working capital changes and future variations, and statements in the "Outlook" section of this earnings release. Words such as "expect", "should", "will", "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 us that any of our 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 our business. Factors that might cause actual results to differ include, but are not limited to, the following:
Readers of this earnings release are referred to our Annual Report on Form 10-K for Fiscal 2009, our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2009 and March 31, 2010 and our other filings with the Securities and Exchange Commission for further discussion of these and other factors that could affect our future results. The forward-looking statements contained in this earnings release are made as of the date hereof and we assume no obligation to update for actual results or to update the reasons why actual results could differ materially from those projected in the forward-looking statements, except as required by law. In addition, the operating results for the quarter and nine months ended June 30, 2010 and cash flows for the nine months ended June 30, 2010 are not necessarily indicative of the results that will be achieved for future periods.
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.
-- Revenues increased $5.8 million, or 18%, to $37.2 million from $31.4 million. -- Operating loss was $3.6 million compared to $3.7 million. -- Adjusted EBITDA was $0.0 million compared to $0.6 million. -- Net loss was $4.6 million compared to $3.6 million. -- Diluted loss per share was $0.61 compared to $0.48.
SOURCE American Pacific Corporation
