United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
September 30, 2010
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or
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
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Commission file number
001-08137
AMERICAN PACIFIC
CORPORATION
(Exact name of registrant as
specified in its charter)
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Delaware
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59-6490478
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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3883 Howard Hughes Parkway,
Suite 700
Las Vegas, Nevada
89169
(Address of principal executive
offices) (Zip Code)
(702) 735-2200
(Registrants telephone
number, including area code)
Securities registered pursuant to
Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common Stock, Par Value $0.10 Per Share
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The NASDAQ Stock Market LLC
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Securities registered pursuant to
section 12(g) of the Act:
None
(Title of class)
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Indicate by check
mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
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o Yes x No
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Indicate by check
mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.
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o Yes x No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. x Yes o No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). o Yes o No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting company x
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Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Act).
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o Yes x No
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The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of March 31, 2010 (the
last business day of the registrants most recently
completed second fiscal quarter), was approximately
$47.2 million. Solely for the purposes of this calculation,
shares held by directors and officers of the registrant have
been excluded. Such exclusion should not be deemed a
determination by the registrant that such individuals are, in
fact, affiliates of the registrant.
The number of shares of common stock, $.10 par value,
outstanding as of November 30, 2010, was 7,543,091.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain portions of the registrants definitive proxy
statement for its 2011 annual meeting of stockholders, to be
filed with the Securities and Exchange Commission (the
SEC) within 120 days after September 30,
2010, are incorporated by reference into Part III of this
report.
PART I
FORWARD LOOKING
STATEMENTS
This annual report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, which are subject to the safe harbor created by those
sections. These forward-looking statements include, but are not
limited to, statements about our business strategy and
anticipated areas of, and basis for, growth, expectations of
anticipated market conditions, competition, competitive
advantages, and the business environment in which we operate,
our expectations and estimates for, and the future actions
associated with, our environmental remediation efforts, the
effect of accounting-related judgments and recent accounting
standards on our financial statements, statements regarding our
future operating results and profitability, anticipated sources
of, and trends in, revenue as well as expectations of timing,
pricing, magnitude, nature, and delivery of orders for our
products, and all plans, expectations and intentions contained
in this report that are not historical facts. Forward-looking
statements are generally written in the future tense
and/or are
preceded or accompanied by words such as can,
could, may, should,
will, would, expect,
plan, anticipate, believe,
estimate, future, or intend
or the negative of these terms or similar words or expressions.
Discussions containing such forward-looking statements may be
found throughout this report. Moreover, statements in Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Results of Operations and
elsewhere in this report that speculate about future events are
forward-looking statements. Forward-looking statements involve
certain risks and uncertainties, and actual results may differ
materially from those discussed in any such statement. Factors
that could cause actual results to differ materially from such
forward-looking statements include the risks described in
greater detail in Risk Factors in Item 1A of
this report. All forward-looking statements in this document are
made as of the date hereof, based on current information
available to us and based on our current expectations as of the
date hereof, and, while they are our best prediction at the time
that they are made, you should not rely on them. Except as
otherwise required by law, we undertake no obligation to update
or revise any forward-looking statement to reflect new
information, events or circumstances after the date hereof.
The terms Company, we, us,
and our are used herein to refer to American Pacific
Corporation and, where the context requires, one or more of the
direct and indirect subsidiaries or divisions of American
Pacific Corporation. References to Fiscal 2012,
Fiscal 2011, Fiscal 2010, Fiscal
2009, Fiscal 2008, Fiscal 2007,
Fiscal 2006, and Fiscal 2005 correspond
to each of the eight fiscal years in the period ending
September 30, 2011.
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Item 1.
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Business
(Dollars in Thousands)
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OUR
COMPANY
American Pacific Corporation 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. We also design and manufacture 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. Our technical and
manufacturing expertise and customer service focus has gained us
a reputation for quality, reliability, technical performance and
innovation. Given the mission critical nature of our products,
we maintain long-standing strategic customer relationships and
generally sell our products through long-term contracts under
which we are the sole-source or limited-source supplier.
1
We are the only North American producer of ammonium perchlorate
(AP) which is the predominant oxidizing agent for
solid propellant rockets, booster motors and missiles used in
space exploration, commercial satellite transportation and
national defense programs. Our Fine Chemicals segment is a
leading custom manufacturer of active pharmaceutical ingredients
(APIs) and registered intermediates for
pharmaceutical and biotechnology companies. Our
U.S.-based
Aerospace Equipment operation is one of two major North American
manufacturers of monopropellant and bipropellant liquid
propulsion systems and thrusters for satellites, launch
vehicles, and interceptors. Our European-based Aerospace
Equipment operation designs, develops and manufactures liquid
propulsion thrusters, high performance valves, pressure
regulators, cold-gas propulsion systems, and precision
structures for space applications, especially in the European
space market.
Through our various operations, we service four primary
industries. Industry specialization, as well as common business
characteristics such as custom manufacturing expertise,
including hazardous chemistries, and a customer
relationship-driven business model, provide a foundation on
which we leverage our strengths across our business segments.
The following table summarizes our significant industries and
product lines.
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Size (as a %
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of Fiscal 2010
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Industry / Market
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Products
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Business Segments
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Revenues)
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Pharmaceuticals
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Active
Pharmaceutical Ingredients
Registered
Intermediates
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Fine
Chemicals
Specialty
Chemicals (Sodium
Azide)
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41
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%
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Aerospace & Defense
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Perchlorates
Satellite
Thrusters
Propulsion
Systems
Aerospace
Valves
Launch
Vehicle
Structures
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Specialty
Chemicals
(Perchlorates) Aerospace
Equipment
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53
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%
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Fire Suppression
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Specialty
Chemicals (Halotron)
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2
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%
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Water Treatment
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On-site
Hypochlorite Generation Systems
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Other
Businesses (PEPCON Systems)
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4
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%
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The Company and its predecessors have been engaged in the
manufacture of specialty chemicals since 1955. The Company was
incorporated in Delaware in December 1980. The address of our
principal executive offices is 3883 Howard Hughes Parkway,
Suite 700, Las Vegas, Nevada 89169. Our telephone number is
(702) 735-2200
and our website is located at www.apfc.com. The contents
of our website are not part of this report.
2
OUR BUSINESS
SEGMENTS
Our operations comprise four reportable business segments:
(i) Fine Chemicals, (ii) Specialty Chemicals,
(iii) Aerospace Equipment and (iv) Other Businesses.
The following table reflects the revenue contribution percentage
from our business segments and each of their major product lines
for the years ended September 30:
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2010
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2009
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2008
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Fine Chemicals
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40%
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48%
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61%
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Specialty Chemicals:
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Perchlorates
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32%
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28%
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26%
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Sodium azide
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1%
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2%
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0%*
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Halotron
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2%
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2%
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2%
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Total specialty chemicals
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35%
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32%
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28%
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Aerospace Equipment
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21%
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17%
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8%
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Other Businesses:
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Real estate
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0%*
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0%*
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1%
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Water treatment equipment
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4%
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3%
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2%
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Total other businesses
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4%
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3%
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3%
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Total revenues
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100%
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100%
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100%
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Please see Note 11 to our consolidated financial statements
included in Item 8 of this report for a discussion on
financial information for our segments and financial information
about geographic areas for the past three fiscal years.
FINE CHEMICALS. Our Fine Chemicals segment is a
custom manufacturer of APIs and registered intermediates. The
pharmaceutical ingredients we manufacture are used by our
customers in drugs with indications in three primary areas:
anti-viral, oncology, and central nervous system. We generate
nearly all of our Fine Chemicals sales from manufacturing
chemical compounds that are proprietary to our customers. We
operate in compliance with the U.S. Food and Drug
Administrations (the FDA) current Good
Manufacturing Practices (cGMP) and the requirements
of certain other regulatory agencies such as the European
Unions European Medicines Agency (EMEA) and
Japans Pharmaceuticals and Medical Devices Agency
(PMDA). Our Fine Chemicals segments strategy
is to focus on high growth markets where our technological
position, combined with our chemical process development and
engineering expertise, leads to strong customer allegiances and
limited competition.
We have distinctive competencies and specialized engineering
capabilities in performing chiral separations, manufacturing
chemical compounds that require high containment and performing
energetic chemistries at commercial scale. We have invested
significant resources in our facilities and technology base. We
believe we are the U.S. leader in performing chiral
separations using commercial-scale simulated moving bed, or
SMB, technology and own and operate two large-scale
SMB machines, both of which are among the largest in the world
operating under cGMP. We believe our distinctive competency in
manufacturing chemical compounds that require specialized high
containment facilities and handling expertise provide us a
significant competitive advantage in competing for various
opportunities associated with high potency, highly toxic and
cytotoxic products. Many oncology drugs are made with APIs that
are high potency or cytotoxic. Ampac Fine Chemicals LLC and
AMPAC Fine Chemicals Texas, LLC (collectively, AFC)
together constitute one of the few companies in the world that
can manufacture such compounds at a multi-ton annual rate.
Moreover, our significant experience and specially engineered
facilities make us one of the few companies in the world with
the capability to use energetic chemistry on a commercial-scale
under cGMP. We use this capability in development and production
of products such as those used in anti-viral drugs, including
HIV-related and influenza-combating drugs. In addition, our
unique location in Rancho Cordova, California provides us with
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advantages for producing chemicals for pharmaceutical controlled
substances. We believe that this will be an area of expansion
for us.
We have established long-term, sole-source and limited-source
contracts. In addition, the inherent nature of custom
pharmaceutical fine chemicals manufacturing encourages stable,
long-term customer relationships. We work collaboratively with
our customers to develop reliable, safe and cost-effective,
custom solutions. Once a custom manufacturer has been qualified
as a supplier on a cGMP product, there are several potential
barriers that discourage transferring the manufacturing of the
product to an alternative supplier, including the following:
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Alternative Supply May Not Be Readily Available. We
are currently the sole-source supplier on several of our fine
chemicals products.
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Regulatory Approval. Applications to and approvals
from the FDA and other regulatory authorities generally require
the chemical contractor to be named. Switching contractors may
require additional regulatory approvals and could take as long
as two years to complete.
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Significant Financial Costs. Switching contractors
and amending various filings can result in significant costs
associated with technology transfer, process validation and
re-filing with the FDA and other regulatory authorities around
the world.
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We believe the pharmaceutical industry provides us with an
opportunity for long-term growth. The pharmaceutical markets are
being driven by strong demand for products that use our core
technologies, including HIV-related drugs and oncology drugs,
most of which are expected to use energetic and high-potency
compounds. Since a large percentage of new drugs is anticipated
to be based on chirally pure material, we believe our investment
in SMB technology may be a strong competitive advantage for us
in the future. In addition, we see a continuing trend toward
more outsourcing by the pharmaceutical industry. AFCs
pipeline of development products presently continues to grow,
reflecting this trend. Development products are research
products, products which are not yet commercialized, and
products which are commercial but for which we are not the
current commercial producer. Prior to Fiscal 2010, revenues from
development products were approximately 5% of Fine Chemicals
segment revenues. In Fiscal 2010, revenues from development
products increased to 15% of segment revenues and we anticipate
that this percentage will trend upward in future years,
supported by our recent investments in facilities and equipment.
Typically, development product activities are the source for
future core products.
SPECIALTY CHEMICALS. Our Specialty Chemicals segment
is principally engaged in the production of AP, which is a type
of perchlorate. Sales of perchlorates represented 90% of the
segments revenues for Fiscal 2010. In addition, we produce
and sell sodium azide, a chemical used in pharmaceutical
manufacturing, and
Halotron®,
a series of clean fire extinguishing agents used in fire
extinguishing products ranging from portable fire extinguishers
to total flooding systems.
We have supplied AP for use in space and defense programs for
over 50 years and we have been the only AP supplier in
North America since 1998, when we acquired the AP business of
our principal competitor, Kerr-McGee Chemical Corporation, or
KMCC. A significant number of existing and planned
space launch vehicles use solid propellant and thus depend, in
part, upon our AP. Many of the rockets and missiles used in
national defense programs are also powered by solid propellant.
Alliant Techsystems Inc. or ATK is a significant AP
customer. We sell Grade I AP to ATK under a long-term contract
that requires us to maintain a ready and qualified capacity for
Grade I AP and that requires ATK to purchase its Grade I AP
requirements from us, subject to certain terms and conditions.
The contract, which expires in 2013, provides fixed pricing in
the form of a price-volume matrix for annual Grade I AP volumes
ranging from 3 million to 20 million pounds. Pricing
varies inversely to volume and includes annual escalations.
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AEROSPACE EQUIPMENT. Our Aerospace Equipment segment
is one of two major North American manufacturers of
monopropellant and bipropellant liquid propulsion systems and
thrusters for satellites, launch vehicles, and interceptors. Our
products are utilized on various satellite and launch vehicle
programs such as Space Systems/Lorals 1300 series
geostationary satellites.
Effective October 1, 2008, our Aerospace Equipment segment
completed the acquisition of Marotta Holdings Limited
(subsequently renamed Ampac ISP Holdings Limited) and its
wholly-owned subsidiaries (collectively AMPAC ISP
Holdings) for a cash purchase price, including direct
expenses and net of cash acquired, of $6,725. The business has
two locations, Dublin, Ireland and Cheltenham, U.K. Combined
with our existing in-space propulsion operations in Westcott,
U.K., these operations constitute AMPAC ISP Europe.
AMPAC ISP Europe designs, develops and manufactures liquid
propulsion thrusters, 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.
Our Aerospace Equipment segment is expected to grow over the
next several years as a result of our customer relationships,
competitive pricing and focus on technologies. Growth areas
should include the commercial satellite segment, space
exploration and launch vehicles.
OTHER BUSINESSES. Our Other Businesses segment
contains our water treatment equipment division and real estate
activities. Our water treatment equipment business markets,
designs, and manufactures electrochemical On Site Hypochlorite
Generation, or OSHG systems. These systems are used in the
disinfection of drinking water, control of noxious odors, and
the treatment of seawater to prevent the growth of marine
organisms in cooling systems. We supply our equipment to
municipal, industrial and offshore customers. Our real estate
activities are not material.
OUR
STRENGTHS
LEADING MARKET POSITIONS WITH SIGNIFICANT BARRIERS TO
ENTRY. We maintain a leading market position in each of
our focused markets, which are characterized by high barriers to
entry. Generally, these barriers include strategic customer
relationships and long-term contracts, high switching costs due
to intertwined technology between manufacturer and customer, a
highly-specialized workforce, proprietary processes and
technologies, Underwriters Laboratories regulated products,
regulatory factors, and manufacturing facilities that possess
the necessary infrastructure to support potentially hazardous
and technically challenging work.
Fine Chemicals. Through our Fine Chemicals
segment acquisition, we have been involved in the development
and manufacture of APIs and registered intermediates for over
20 years and have developed long-term customer
relationships with several of the worlds largest
pharmaceutical and biotechnology companies. We have distinctive
competencies in performing chiral separations, manufacturing
chemical compounds that require high containment and performing
energetic chemistries at commercial scale. Our pharmaceutical
and biotechnology customers are dependent on the APIs and
registered intermediates we produce for the efficacy of their
drugs. Our customers commitment, in most cases, to use us
as the sole or limited-source supplier of these ingredients
demonstrates their trust in our ability to continually deliver
high quality products on a timely basis.
We have invested significant resources in our facilities and
technology base and we are one of the few companies in the world
with the capability to use energetic chemistry on a commercial
scale under cGMP. We are also a world leader in the use of SMB
technology for performing chiral separations and purifications,
and manufacturing products that require high containment.
Manufacturing APIs and registered intermediates requires unique
experience in chemistry and engineering as well as compliance
with various regulatory requirements. For many of our products,
few other manufacturers
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have the technological capability, experience or facilities to
supply a competing product. Also, the regulatory approval
process for our customers generally requires the manufacturer of
specific chemicals to be named. In these cases, switching
contractors usually requires additional regulatory approvals for
our customers, which can be a lengthy and expensive process.
Further, our unique facilities enable our expansion into
controlled substance chemicals for pharmaceutical products.
Specialty Chemicals. We have been
manufacturing AP for over 50 years and have been the only
North American supplier of AP since 1998. AP is a key component
of solid propellant rockets, booster motors and missiles that
are utilized in U.S. Department of Defense
(DOD) tactical and strategic missile programs, as
well as various space programs such as the Delta and Atlas
families of commercial space launch vehicles and NASA space
exploration programs. There is currently no domestic alternative
to these solid rocket motors. As a result, we believe that the
U.S. government views us as a strategic national asset.
Based on the current size of the AP market, the rigorous and
time-consuming requirements to qualify as an AP supplier for
government or commercial launch vehicles and the high capital
requirements for building an AP manufacturing facility, we
believe building a competing facility in North America is not a
viable option for a potential competitor.
Aerospace Equipment. We are one of two major
North American manufacturers of monopropellant and bipropellant
liquid propulsion systems and thrusters for satellites, launch
vehicles, and interceptors. Our Aerospace Equipment
segments relationships with our customers vary from a few
years to over 20 years. Our experience partnering with our
customers enables us to provide additional value in assessing
project requirements and scope. We believe that, along with our
established technology base and long-term customer
relationships, the investment in product qualification,
reliability standards required by the market, and competitive
pricing represent a significant barrier to entry.
STRATEGIC CUSTOMER RELATIONSHIPS. Our focused
markets require technically advanced, high quality products
along with a strong service component as a result of the
critical nature of the products that we supply. Often our
mission critical products are imbedded within the final
end-product and some of our products have been supported through
customer-funded product development investments. As a result, we
have developed strategic relationships with our targeted
customer base, which has led to our portfolio of sole-source and
limited-source contracts. As the sole-source or limited-source
supplier, we are generally the only contractor or one of only
two contractors that has been qualified by the customer
and/or
regulatory agency to provide the particular product. We believe
these relationships enable us to maintain leading market
positions in our respective target markets and will allow our
business to grow significantly in the future through the
successful re-compete
and/or
expansion of existing contracts and the award of new contracts.
MANUFACTURING EXCELLENCE. We believe that our
manufacturing facilities for each of our core business segments
provide us with a significant competitive advantage.
Fine Chemicals. Our Fine Chemicals segment
facilities are operated in compliance with FDA and international
cGMP standards. Our highly skilled team of experienced chemists,
engineers, operators and other professionals provides assurance
of supply of high quality products to our customers. Significant
investments in new equipment and infrastructure since the
acquisition of AFC have enhanced our manufacturing capability,
efficiency and capacity. We believe the combination of our
highly skilled workforce and our unique technology platforms has
led to our advanced technological position within our targeted
markets and positions us to capitalize on the expected industry
growth within our fine chemicals core competencies. Our recent
expansion into La Porte, Texas adds to this capability.
Specialty Chemicals. Our AP manufacturing
facility, which utilizes our proprietary technology and is ISO
9001 certified, is the only one of its kind in North America and
its financing was supported in 1988 by the U.S. government
due to the strategic importance of AP to the
U.S. governments access to space and for military
applications. We believe building a competing facility in North
America is not a viable business option for a potential
competitor.
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Aerospace Equipment. Our specially-engineered
manufacturing facilities allow us to provide a wide array of
services to our customers, including gas welding, electron beam
welding, final thruster assembly, clean room assembly, water
flushing, water calibration, vibration testing and vacuum
altitude simulated hot fire testing. Our hot fire test bed
acceptance capability uses real-time infrared techniques to
record temperature profiles in the thruster hardware during
testing. We believe this capability is a significant advantage
in assessing both the quality of existing designs and provides
critical information to improve thruster performance in new
designs. We also possess a world-class machining facility for
special metals such as Inconel, columbium and other aerospace
alloys.
LONG-TERM CONTRACTS. Our revenues are primarily
derived from multi-year contracts with major defense and
aerospace contractors and large pharmaceutical and biotechnology
companies. Within the Specialty Chemicals segment, we generate
revenues from contracts that require our customers to purchase
all of their AP requirements from us, subject to certain
exceptions. In addition, our ATK contract provides for higher
unit prices at lower volumes and contains annual price
increases. Our Fine Chemicals segment generated nearly all of
its sales in Fiscal 2010 from contracts related to existing
ethical drug products that are FDA-approved and commercially
available. Some of our contracts within the Fine Chemicals
segment also have
take-or-pay
terms or required minimum purchase volumes, which guarantees a
minimum revenue amount under those contracts.
ATTRACTIVE PORTFOLIO OF PRODUCTS. We believe that we
have a balanced product portfolio. Our APIs and registered
intermediates are components of various drug applications
primarily in the areas of anti-viral, oncology, and central
nervous system. Our AP and aerospace equipment products are key
components of various DOD, NASA and European Space Agency
programs, as well as commercial satellites.
OUR
STRATEGY
LEVERAGE OUR EXISTING EXPERTISE TO MAINTAIN OUR LEADERSHIP
POSITIONS. We plan to continue leveraging our extensive
technical and manufacturing expertise in order to maintain our
leadership positions within our existing markets. We believe the
characteristics of each of our segments, combined with our
history of manufacturing excellence, can lead to a higher level
of profitability than many other chemicals companies.
Fine Chemicals. We are focused on building
upon our core competencies in segments of the pharmaceutical
market that are expected to generate sustained long-term growth.
We believe this strategy will provide us growth opportunities
from our existing customers as well as select new customers. We
continue to pursue opportunities that require the technologies
in which we have a competitive advantage or expertise. We work
very closely with customers in developing ingredients for drugs
in the clinical phases of development. We believe that being
involved with a drug during its development allows us to
introduce our technology into the manufacturing process as well
as generate revenue prior to commercialization of the end
product. We are currently working with customers on a number of
products that are in various stages of pre-commercial
development. We continue to focus our business development
efforts on increasing the number of new business opportunities
in our pipeline that fit our core competencies and technology
offerings. We also work closely with customers in further
developing drugs post-commercialization. These projects can help
solidify our position in the supply chain for a drug, especially
when we can introduce one of our core technologies.
Specialty Chemicals. We intend to maintain
our established leadership in AP production through a continued
focus on existing programs, as well as on the award of new
programs utilizing AP. Several DOD and NASA programs that would
utilize solid rocket propellants are under consideration.
Examples of potential opportunities include refurbishment of
defense missile systems through programs such as the Trident-D5
propulsion replacement program, increased defense and commercial
satellite launch activity and the long-term development of the
new heavy lift vehicles described in the latest NASA
authorization
7
act. We believe we are well positioned to benefit from programs
using solid rocket propellant, due to our status as the only
producer of AP in North America.
Aerospace Equipment. We intend to continue to
grow our revenues in this market through a focus on existing
programs, as well as on the award of new programs in expected
growth areas such as satellites, launch vehicles and missile
defense. With our focus on advanced products and our low cost
emphasis, we intend to increase our market share with the major
satellite and launch vehicle suppliers. In addition, we continue
to pursue new market opportunities for our products. In recent
years, we have focused on the kill vehicle and propulsion system
markets. Each is now expected to make significant contributions
to our revenue growth. With the expansion of our European
presence, we plan to grow our business through greater
penetration into the European space market.
PRESERVE AND BUILD STRONG CUSTOMER RELATIONSHIPS. We
plan to continue to build upon our existing customer
relationships and develop select new customer relationships
through our focus on technical expertise, manufacturing
capabilities and customer service. Because of the custom nature
of our products, we target customers with whom we can become a
strategic partner. By focusing on a select customer base where
we can provide value-added, technical expertise, we believe we
are able to generate relationships in which our products and
manufacturing know-how are imbedded within the final
end-product. We believe this strategy has led to our portfolio
of sole-source and limited-source contracts with significant
barriers to entry and positions us to create additional business
opportunities with existing customers.
PURSUE ORGANIC GROWTH OPPORTUNITIES AND SELECTIVE
ACQUISITIONS. We plan to selectively pursue expansion
opportunities, thereby capitalizing on the expected growth
within our core competencies. We may evaluate and select
strategic acquisitions within our existing markets that
complement our existing product lines and technologies,
particularly within our Fine Chemicals and Aerospace Equipment
segments. We believe selective acquisitions enable us to
capitalize on growth opportunities within our markets, gain
manufacturing economies of scale, broaden our customer and
product bases, and access complementary technologies. When
evaluating organic investment opportunities, we focus on
projects that are either supported by long-term contracts,
improve our profitability under existing contracts through
increased efficiency, or exhibit technology or intellectual
property market advantages.
We actively search for opportunities to apply our core
competencies and technologies to develop new revenue generating
activities. In addition to our internal research and product
development activities and our strong relationships with our
customers, we maintain collaborative research relationships with
some of the leading science and engineering universities in the
U.S.
OUR FINE
CHEMICALS SEGMENT
AFC is a custom manufacturer of APIs and registered
intermediates for commercial customers in the pharmaceutical
industry. AFC generates nearly all of its sales from
manufacturing chemical compounds that are proprietary to its
customers. AFCs customers include some of the worlds
largest pharmaceutical and biotechnology companies. Most of the
products AFC sells are proprietary to our customers and used in
existing drugs that are FDA approved and commercially available.
AFC is a pharmaceutical fine chemicals manufacturer that
operates in compliance with the FDAs cGMP. AFC has
distinctive competencies in performing chiral separations,
manufacturing products that require high containment and
performing energetic chemistries at commercial scale.
In April 2010, we acquired a multi-purpose chemical
manufacturing facility in La Porte, Texas for approximately
$1,200 including other direct costs. The facility, which was
completed in 2001, specializes in the production of registered
intermediates and APIs. The facility was idled in early 2010
prior to our acquisition of the facility. We are currently
evaluating options related to when and to what extent this
facility will be returned to operations. Activity associated
with this facility is included in our Fine Chemicals segment.
8
Energetic and Specialty Processes. Energetic
chemistry offers a higher purity, high-yield route to producing
certain chemical compounds. This is an important attribute since
purity specifications for pharmaceutical products are extremely
stringent. At present, numerous drugs currently on the market
employ energetic chemistry platforms similar to those offered by
AFC. Safe and reliable operation of a facility that practices
energetic chemistry requires a great deal of expertise and
experience. AFC is one of a few companies in the world with the
experience, facilities and the know-how to use energetic
chemistry on a commercial-scale under cGMP. One of the fastest
growing applications for energetic chemistry in pharmaceutical
fine chemicals is anti-viral drugs. The majority of this growth
has resulted from the increase in HIV-related drugs. For Fiscal
2010, approximately 56% of AFC sales were derived from products
that involved energetic and other specialty processes. Specialty
processes includes technically challenging processes, primarily
the manufacture of chemical compounds referred to as nucleosides
and nucleotides.
High Containment. Chemical compounds that
require specialized high containment facilities and handling
expertise are a growing segment of the pharmaceutical fine
chemicals industry. The manufacture of high potency, highly
toxic and cytotoxic chemical compounds requires high-containment
manufacturing facilities and a high degree of expertise to
ensure safe and reliable production. AFC has the expertise and
experience to design processes and facilities to minimize and
control potential exposure. High potency and cytotoxic APIs are
used to make many commercial oncology drugs. In addition, we
believe there are a large number of oncology drugs in the drug
development pipeline that are made with high potency or
cytotoxic APIs.
There is currently limited competition in the market for
manufacturing chemical compounds that require high containment,
in particular at high volumes, as it requires highly-engineered
facilities and a high level of expertise to safely and
effectively manufacture these chemicals at commercial scale.
Entry into this market also requires a significant capital
investment for specialized facilities and personnel if the
market entrant does not already have access to such facilities
and expertise. For Fiscal 2010, approximately 22% of AFC
sales were derived from sales of high potency and cytotoxic
compounds.
Simulated Moving Bed. Many chemicals used in
the pharmaceutical industry are chiral in nature. Chiral
chemicals exist in two different forms, or enantiomers, which
are mirror images of each other (an analogy is the human hand
where one hand is the mirror image of the other). The different
enantiomers can have very different properties, including
efficacy as a drug substance and side effects. As a result, the
FDA encourages pharmaceutical companies to separate the
enantiomers of a new drug and study their respective biological
activities. If they are found to be different and especially if
one is found to cause harmful side effects, then to obtain the
FDA approval the FDA may require that the desired enantiomer be
chirally pure (i.e. separated from its counterpart). Several
techniques are available to achieve this chiral purity. The
desired single enantiomer can be isolated from the other one by
techniques such as chromatography or it can be produced by more
conventional means (e.g., chemical reactions) such as chemical
resolution and asymmetric synthesis.
SMB chromatography is a continuous separation technique based on
the principles of chromatography. SMB technology was developed
in the early 1960s for the petroleum industry and was applied to
pharmaceutical manufacturing in the 1990s. Since SMB is a
technique for separating binary mixtures, it is ideally suited
for the separation of enantiomers. SMB has been successfully
used and approved by the FDA for the preparation of
chirally-pure drugs. SMB technology allows the separation of two
enantiomers with high purity and in high yield. In many cases,
the use of SMB technology results in a reduction and a
simplification of the synthesis resulting in an economic gain.
Other uses of SMB technology for the preparation of
pharmaceutical ingredients include the purification of a mixture
of chemicals. The primary application in this area is the
purification of naturally-derived chemical compounds.
For Fiscal 2010, approximately 19% of AFC sales were derived
from products that rely on SMB technology.
Customers and Markets. AFC has established
long-term relationships with key customers, the specific
identities of which are contractually restricted as
confidential, subject to certain terms and conditions such
9
as consent or regulatory requirements. Its current customers
include both multi-national pharmaceutical companies as well as
emerging and development-stage pharmaceutical companies. AFC
maintains multi-year manufacturing agreements with several large
pharmaceutical and biopharmaceutical companies for annual supply
of products. In addition, the inherent nature of custom
pharmaceutical fine chemicals manufacturing encourages stable,
long-term customer relationships.
In March 2008, AFC and Gilead Sciences, Inc.
(Gilead) entered into a three-year manufacturing
supply agreement for a chemical compound referred to as
Tenofovir DF, an active pharmaceutical ingredient in
VIREAD®,
TRUVADA®,
and
ATRIPLAtm.
Under the terms of the agreement, Gilead is obligated to
purchase minimum quantities of bulk Tenofovir DF from our Fine
Chemicals segment through 2010, subject to certain terms within
the agreement. For Fiscal 2010, revenues from Gilead exceeded
10% of our consolidated revenues.
Competition. The pharmaceutical fine
chemicals industry is fragmented. Based on available data, AFC
believes the 20 largest manufacturers worldwide control less
than 20% of the market with the largest manufacturer holding
less than 5% of market share. A number of other manufacturers,
including AFC, constitute the remaining approximately 80% of the
industry. Pharmaceutical fine chemicals manufacturers generally
compete based on their breadth of technology base, research and
development and chemical expertise, flexibility and scheduling
of manufacturing capabilities, safety record, regulatory
compliance history and price.
To compete successfully in the pharmaceutical fine chemicals
manufacturing business, we believe that manufacturers must have
a broad base of core technologies, world-class manufacturing
capabilities and the ability to deliver products timely and at
competitive prices. We believe they must also augment their
capabilities with a complete line of complementary services,
including process development/engineering and process
improvement (from initial synthesis of a new drug candidate
through market launch and into commercialization). As new
projects and products have become increasingly complex and
incorporate more challenging timelines, greater importance is
being placed on the development of strong customer-supplier
relationships.
To a large extent, our success is tied to the success of the
drugs our products are used to make; in general, the more
successful the drug is, the more likely our customer is to order
additional product from us to support the drug. The success of a
customers drugs in the marketplace depends on a number of
factors, almost all of which are outside our control. However,
we can be affected by competitive pressures and other influences
faced by our customers including, for example, competition from
newly introduced drugs.
Many large pharmaceutical and biotechnology companies have
internal manufacturing capabilities that act as the first layer
of competition for custom manufacturers like AFC. When a
pharmaceutical or biotechnology company outsources a product, it
typically selects from a relatively small number of companies,
particularly for projects that involve hazardous materials,
specialty chemistries or unique production equipment. AFCs
primary competitors vary in size and capabilities, and are all
located in the United States or Western Europe. The table below
lists AFCs current primary competitors by each of
AFCs technology niches.
|
|
|
|
|
|
|
|
Energetic and Specialty
|
|
|
High Containment
|
|
Processes
|
|
Simulated Moving Bed
|
|
|
SAFC (1)
|
|
Group Novasep SAS
|
|
Group Novasep SAS
|
Helsinn (2)
|
|
OmniChem (3)
|
|
SAFC (1)
|
Cambrex Corp.
|
|
Orgomol (4)
|
|
Diacel Chemical Industries, Ltd.
|
OmniChem (3)
|
|
|
|
|
|
|
|
(1) |
|
the fine chemicals division of Sigma-Aldrich Corporation |
(2) |
|
the chemicals operations division of Helsinn Group |
(3) |
|
a component of the pharmaceuticals division of Ajinomoto Company |
(4) |
|
a subsidiary of BASF |
10
OUR SPECIALTY
CHEMICALS SEGMENT
PERCHLORATE CHEMICALS. In March 1998, we acquired
certain assets and rights of KMCC related to its production of
AP. By virtue of this acquisition, we became the sole commercial
producer of perchlorate chemicals in North America.
Market. AP is the predominant oxidizing agent
for solid propellant rockets, booster motors and missiles used
in space exploration, commercial satellite transportation and
national defense programs. A significant number of existing and
planned launch vehicles providing access to space use solid
propellant and thus depend, in part, upon AP. Many of the
rockets and missiles used in national defense programs are also
powered by solid propellant.
We have supplied AP for use in space and defense programs for
over 50 years. Today, our principal space customers are ATK
for the Ares and the Delta family of commercial rockets, and
Aerojet General Corporation for the Atlas family of commercial
rockets. We also supply AP for use in a number of defense
programs, including the Armys Guided Multiple Launch
Rocket System (GMLRS) program and the Navys Standard
Missile and D5 Fleet Ballistic Missile programs. We have
supplied AP to certain foreign defense programs and commercial
space programs, although export sales of AP are not significant.
The exporting of AP is subject to federal regulation that
strictly limits our foreign sales of AP. We obtain export
licenses on a case by case basis which are dependent upon the
ultimate use of our product.
We expect Grade I AP demand in Fiscal 2011 to be less than
Fiscal 2010, primarily due to the upcoming retirement of the
NASA Space Shuttle and uncertainties in the NASA budget for
large solid rockets to be used on the new heavy lift vehicle.
The expected decline in revenue will be less than the expected
decline in volume due to the pricing under our contractual price
volume matrix with ATK and a corresponding increase in our
commercial perchlorate catalog pricing. Over the longer term, we
expect annual demand for Grade I AP to be within the range of
4 million to 9 million pounds based on NASA and DOD
production programs. We believe that AP demand for DOD programs
will be stable over the next several years. NASA demand for
space-related programs may vary depending on congressional and
NASA decisions regarding the direction of the space program.
In February 2010, the Obama administration released its fiscal
year 2011 budget which included the proposed cancellation of
NASAs Constellation space exploration program. The Ares
rocket, produced by our customer ATK, is a major part of the
Constellation program. We are a major supplier of chemicals for
this program, and it is a significant portion of the perchlorate
demand. Congress recently passed the NASA Authorization Act
which strongly recommends the use of large solid rockets, and
therefore AP, for the new heavy lift vehicle. Congress will
ultimately determine as part of the fiscal year 2011
authorization and appropriation legislative process the policy
and funding levels for NASA and will decide on the future
funding level for the heavy lift vehicle.
We have little ability to influence the demand for Grade I AP.
In addition, demand for Grade I AP is program specific and
dependent upon, among other things, governmental appropriations.
Any decision to delay, reduce or cancel programs could have a
significant adverse effect on our results of operations, cash
flow and financial condition.
We also produce and sell a number of other grades of AP and
different types and grades of sodium and potassium perchlorates
(collectively other perchlorates). Other
perchlorates have a wide range of prices per pound, depending
upon the type and grade of the product. Other perchlorates are
used in a variety of applications, including munitions,
explosives, propellants, perchloric acid and initiators. Some of
these applications are in a development phase, and there can be
no assurance of the success of these initiatives.
Customers and Markets. Prospective purchasers
of Grade I AP consist principally of contractors in programs of
NASA and the DOD. The specialized nature of the activities of
these contractors restricts competitive entry by others.
Therefore, there are relatively few potential customers for
Grade I AP, and
11
individual Grade I AP customers account for a significant
portion of our revenues. Prospective customers also include
companies providing commercial satellite launch services and
agencies of foreign governments and their contractors.
ATK is a significant AP customer. We sell Grade I AP to ATK
under a long-term contract that requires us to maintain a ready
and qualified capacity for Grade I AP and that requires ATK to
purchase its Grade I AP requirements from us, subject to certain
terms and conditions. The contract, which expires in 2013,
provides fixed pricing in the form of a price volume matrix for
annual Grade I AP volumes ranging from 3 million to
20 million pounds. Pricing varies inversely to volume and
includes annual escalations.
For Fiscal 2010, revenues from ATK and Aerojet-General
Corporation each exceeded 10% of our consolidated revenues.
Manufacturing Capacity and
Process. Production of AP at our manufacturing
facility in Iron County, Utah commenced in July 1989. This
facility, as currently configured, is capable of producing
30.0 million pounds of perchlorate chemicals annually and
is readily expandable to 40.0 million pounds annually.
Grade I AP produced at the facility and propellants
incorporating such AP have been qualified for use in all
programs for which testing has been conducted, including the
Space Shuttle, Titan, Minuteman, Multiple Launch Rocket System,
and the Delta, Pegasus, Atlas and Ares programs.
Our perchlorate chemicals facility is designed to locate
particular components of the manufacturing process in discrete
areas of the facility. It incorporates modern equipment and
materials-handling systems designed, constructed and operated in
accordance with the operating and safety requirements of our
customers, insurance carriers and governmental authorities.
Perchlorate chemicals are manufactured by electrochemical
processes using our proprietary technology. The principal raw
materials used in the manufacture of AP (other than electricity)
are sodium chlorate, ammonia and hydrochloric acid. Graphite is
used in the fabrication of the electrolytic cells which are
replaced on a periodic basis. All of the raw materials used in
the manufacturing process are available in commercial quantities.
Competition. Upon consummation of the
acquisition of certain assets and rights of KMCC in 1998, we
became the sole North American commercial producer of
perchlorate chemicals. We are aware of production capacity for
perchlorate chemicals (including AP) in France, Japan, Brazil,
and possibly China and Taiwan. Although we have limited
information with respect to these facilities, we believe that
these foreign producers are not approved as AP suppliers for
NASA or DOD programs, which represent the majority of domestic
AP demand. In addition, we believe that the rigorous and
sometimes costly NASA and DOD program qualification processes,
the strategic nature of such programs, the high cost of
constructing a perchlorate chemicals facility, and our
established relationships with key customers, constitute
significant hurdles to entry for prospective competitors.
SODIUM AZIDE. In July 1990, we entered into
agreements with Dynamit Nobel A.G. under which it licensed to us
its technology and know-how for the production of sodium azide.
Thereafter, commencing in 1992, we constructed a production
facility for sodium azide adjacent to our perchlorate
manufacturing facility in Iron County, Utah and began selling
sodium azide in 1993.
Market. The total demand for sodium azide is
very limited and primarily from
non-U.S. markets.
Currently, sodium azide made by the Company is sold for use
principally in pharmaceutical fine chemicals and other smaller
niche markets.
We have an on-going program to evaluate our participation in
other markets which currently or might in the future use sodium
azide or other sodium-based products.
Customers. Pharmaceutical businesses comprise
the majority of end users.
12
Competition. We believe that current
competing sodium azide production capacity includes at least one
producer in Japan and at least two producers in India, including
Alkali Metals.
HALOTRON. Halotron is a series of halocarbon-based
clean fire extinguishing agents that incorporate both
proprietary and patented blends of chemicals and hardware.
Conventional fire extinguishing agents, such as those based on
sodium bicarbonate and
mono-ammonium
phosphate (ABC dry chemical) consist of finely
divided solid powders. These agents leave a coating upon
discharge that is typically costly to remove after a fire event.
In contrast, the Halotron clean agents add value to the user
since they are discharged either as a rapidly evaporating liquid
or a gas that leaves no residue, which minimizes or eliminates
possible moderate or severe damage to valuable assets (such as
electronic equipment, machinery, motors and most materials of
construction).
Halotron I was designed to replace severe ozone depleting halon
1211 in all applications and Halotron II to replace halon
1301 in limited applications. Halon 1211 and 1301, both
brominated chlorofluorocarbon chemicals, were widely used
worldwide as clean fire extinguishing agents. In 1987 the
Montreal Protocol on Substances that Deplete the Ozone Layer
(the Protocol) was signed by more than 50 countries,
including the U.S., and it stipulated restrictions on the new
production (which ended in developed countries at the end of
1993) and use of halons.
Halon 1211 is a streaming agent (where the agent is discharged
manually toward a target) used in
hand-held
fire extinguishers. Halon 1301 is used in fixed total flooding
systems (where discharges are made automatically to
flood a space to a pre-determined concentration
within a confined space), for example, in computer rooms and
engine compartments. Both halon 1211 and 1301 are still used in
the U.S. and elsewhere on a much more limited basis than in
the periods prior to 1994.
Halotron I is based on a class II substance (as defined by
the Protocol) raw material which has a near zero ozone depletion
potential. Class II substances are, according to current
adjustments and amendments to the Protocol (which evolve over
time), subject to a new production phase out between 2015 and
2030, depending on the country.
Customers and Market. Our largest Halotron I
customer is Amerex Corporation. Since 1998, Amerex Corporation
has incorporated bulk Halotron I manufactured by us into a full
line of Underwriters Laboratories Inc. (UL) listed
portables. We also sell Halotron I to other large Original
Equipment Manufacturers (OEMs), including Buckeye
Fire Equipment and Kidde/Badger. In addition, over 90 commercial
airports in the U.S. have 500 lb type FAA approved Halotron
I systems on their aircraft rescue and fire fighting vehicles.
The end-user market for non-halon clean fire extinguishing
agents is generally divided into five application segments:
(i) industrial, (ii) commercial, (iii) military,
(iv) civil aviation and (v) maritime, with industrial
and commercial being the largest. The industrial segment
includes manufacturing plants, computer component clean rooms,
and telecommunications facilities. The commercial segment
includes office buildings, wholesale and retail sales
facilities, warehouses, and computer rooms.
We also actively market Halotron I into foreign countries which
include Indonesia, Brazil, Canada, Pakistan, the Philippines,
and Singapore, among others. The primary market for Halotron II,
which is sold in limited volume, is Scandinavia. Additional
markets for Halotron II are under development.
Competition. The primary competing product to
Halotron I is
FE36tm
manufactured by DuPont. It is a hydrofluorocarbon-based
(HFC-based) product that is sold in portable fire extinguishers
through one major OEM. There remains a small recycled halon 1211
market that competes with Halotron I. The other principal
competing product to Halotron I in the conventional agent
category (not clean agents) is an ABC dry chemical (mono
ammonium phosphate) which is the highest volume product
component in portable fire extinguishers and is offered by all
fire extinguisher manufacturers in the U.S. This agent is
substantially less expensive than Halotron I. Carbon dioxide is
a clean agent and competitor; however, it is much less
13
effective. Another competing product is
Novectm
1230 from
3Mtm
which has a limited market share of the total flooding market
but is not currently used broadly in UL-listed portable fire
extinguishers.
Clean agents compete based primarily on performance
characteristics (including fire rating and throw range),
toxicity, and price. The environmental and human health effects
that are evaluated include ozone depletion potential, global
warming potential and toxicity.
OUR AEROSPACE
EQUIPMENT SEGMENT
Customers and Market. Our wholly-owned
subsidiary Ampac-ISP Corp. and its wholly-owned subsidiaries
(collectively, ISP) are a leading supplier of
propulsion products to the commercial and government satellite
and launch vehicle market. ISP strives to develop products to
meet our customers needs in the future. These needs can
vary from high performance high cost items to lower performance
inexpensive products. Some customers order thrusters and some
order complete systems. Our customer base is primarily
U.S. based, with a growing group of customers in Europe and
Japan. This customer list has expanded over the last several
years as ISP has penetrated new product markets and increased,
both organically and through acquisition, its participation in
existing product markets.
Competition. The U.S. suppliers for
monopropellant and bipropellant thrusters is highly concentrated
with ISP and GenCorp Inc. being the prime competitors for
commercial, civil and defense customers in the U.S. Foreign
suppliers of in-space propulsion thrusters are not significant
competitors in the U.S. The foreign competitors provide a
significant amount of competition for European opportunities.
The primary competitors are EADS Astrium (formerly DASA), Rafael
in Israel, IHI in Japan and smaller competitors in Eastern
Europe. The large installed capital base and the long-standing
operating history of ISP provide a significant barrier to entry
into this market.
Recent Acquisition. Effective October 1,
2008, our Aerospace Equipment segment completed the acquisition
of AMPAC ISP Holdings for a cash purchase price, including
direct expenses and net of cash acquired, of $6,725. The
business has two locations, Dublin, Ireland and Cheltenham, U.K.
Combined with our existing in-space propulsion operations in
Westcott, U.K., these operations constitute AMPAC ISP Europe.
AMPAC ISP Europe 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.
We believe that the combined operations of AMPAC ISP Europe form
a very competitive European operation that can supply propulsion
systems and components to European space customers that are
designed, developed and manufactured in Europe with no
U.S. content. The U.S. International Traffic in Arms
Regulations or ITAR restricts and controls the
U.S. export of commercial satellite components, including
propulsion systems. European satellite companies have a strong
preference for products not restricted by ITAR, so-called
ITAR-free products, and from time to time, have specified such
in requests for proposals. With this acquisition, our Aerospace
Equipment segment has been, and will be, able to address new
opportunities in the European aerospace markets.
OUR OTHER
BUSINESSES SEGMENT
WATER TREATMENT EQUIPMENT. PEPCON Systems, an
operating division, is a leading manufacturer and supplier of
on-site
hypochlorite generation systems. We design, manufacture and
service equipment used to purify water or air in municipal,
industrial and power generation applications. The systems are
marketed under the
ChlorMastertm
and
Odormastertm
names. Sodium hypochlorite is used by: (i) municipalities
and sewage plants for the disinfection of drinking water,
effluent and waste
14
water; (ii) power plants, desalination plants, chemical
plants and on-shore/off-shore crude oil facilities for the
control of marine growth in seawater used in cooling water
circuits; and (iii) composting plants for the deodorizing
of malodorous compounds in contaminated air.
Our technology to produce sodium hypochlorite on site involves a
proprietary bi-polar electrochemical cell which uses brine or
seawater and electricity to produce sodium hypochlorite. For
drinking water applications, these cells are supplied with a
certification from the National Sanitation Foundation.
Our systems are marketed domestically and internationally by
independent sales representatives and licensees. We also receive
a significant amount of direct sales leads as a result of
advertising and through attendance at key trade shows.
PEPCON Systems competes with companies that utilize other
technologies and those that utilize technologies similar to
ours. Some of these companies are substantially larger than we
are. Our success depends principally on our ability to be cost
competitive and, at the same time, to provide a quality product.
A significant portion of our water treatment equipment sales are
to overseas customers, specifically in the Middle and Far East.
REAL ESTATE. Our real estate operations are not
significant. In Fiscal 2005 we completed the sale of all our
Nevada real estate assets that were targeted for sale.
REGULATORY
COMPLIANCE
FEDERAL ACQUISITION REGULATIONS. As a supplier to
U.S. government projects, we have been and may be subject
to audit
and/or
review by the government of the negotiation and performance of,
and of the accounting and general practice relating to,
government contracts. Most of our contracts for the sale of AP
are in whole or in part subject to the commercial sections of
the Federal Acquisition Regulations. Our AP pricing practices
have been and may be reviewed by our customers and by certain
government agencies.
FDA AND SIMILAR REGULATORY AGENCIES. AFC produces
pharmaceutical chemicals in accordance with cGMP. Its facilities
are designed and operated to satisfy regulatory agencies such as
the FDA, the EMEA, and Japans PMDA. AFCs regulatory
status is maintained via comprehensive quality systems in
compliance with FDA requirements set forth in the U.S. Code
of Federal Regulations (21 CFR Parts 210 and 211).
Regulatory authorities mandate, by law, the use of cGMP
throughout the production of APIs and registered intermediates.
cGMP guidelines cover a broad range of quality systems,
including manufacturing activities, quality assurance,
facilities, equipment and materials management, production and
in-process controls, storage and distribution, laboratory
control, validation and change control, as well as the
documentation and maintenance of records for each. All of these
functions have a series of critical activities associated with
them. In addition, manufacturing equipment, scientific
instruments and software must be validated and their use
documented.
ENVIRONMENTAL MATTERS. Our operations are subject to
extensive federal, state and local regulations governing, among
other things, emissions to air, discharges to water and waste
management. We believe that we are currently in compliance in
all material respects with all applicable environmental, safety
and health requirements and, subject to the matters discussed
below, we do not anticipate any material adverse effects from
existing or known future requirements. To meet changing
licensing and regulatory standards, we may be required to make
additional significant site or operational modifications,
potentially involving substantial expenditures or the reduction
or suspension of certain operations. In addition, the operation
of our manufacturing plants entails risk of adverse
environmental and health effects (which may not be covered by
insurance) and there can be no assurance that material costs or
liabilities will not be incurred to rectify any past or future
occurrences related to environmental or health matters.
15
Regulatory Review of Perchlorates. Our
Specialty Chemicals segment manufactures and sells products that
contain perchlorates. Federal and state regulators continue to
review the effects of perchlorate, if any, on human health and
the related allowable maximum level of contaminant from
perchlorate. While the presence of regulatory review presents
general business risk to the Company, we are currently unaware
of any regulatory proposal that would have a material effect on
our results of operations and financial position or that would
cause us to significantly modify or curtail our business
practices, including our remediation activities discussed below.
Perchlorate Remediation Project in Henderson,
Nevada. We commercially manufactured perchlorate
chemicals at a facility in Henderson, Nevada (AMPAC
Henderson Site) from 1958 until the facility was destroyed
in May 1988, after which we relocated our production to a new
facility in Iron County, Utah. Kerr-McGee Chemical Corporation
(KMCC) also operated a perchlorate production
facility in Henderson, Nevada (the KMCC Site) from
1967 to 1998. In addition, between 1956 and 1967, American
Potash operated a perchlorate production facility and, for many
years prior to 1956, other entities also manufactured
perchlorate chemicals at the KMCC Site. As a result of a longer
production history in Henderson, KMCC and its predecessor
operations manufactured significantly greater amounts of
perchlorate over time than we did at the AMPAC Henderson Site.
In 1997, the Southern Nevada Water Authority (SNWA)
detected trace amounts of the perchlorate anion in Lake Mead and
the Las Vegas Wash. Lake Mead is a source of drinking water for
Southern Nevada and areas of Southern California. The Las Vegas
Wash flows into Lake Mead from the Las Vegas valley.
In response to this discovery by SNWA, and at the request of the
Nevada Division of Environmental Protection (NDEP),
we engaged in an investigation of groundwater near the AMPAC
Henderson Site and down gradient toward the Las Vegas Wash. The
investigation and related characterization, which lasted more
than six years, employed experts in the field of hydrogeology.
This investigation concluded that although there is perchlorate
in the groundwater in the vicinity of the AMPAC Henderson Site
up to 700 parts per million, perchlorate from this site does not
materially impact, if at all, water flowing in the Las Vegas
Wash toward Lake Mead. It has been well established, however, by
data generated by SNWA and NDEP, that perchlorate from the KMCC
Site did impact the Las Vegas Wash and Lake Mead. KMCCs
successor, Tronox LLC, operates an above ground perchlorate
groundwater remediation facility at their Henderson site.
Notwithstanding these facts, and at the direction of NDEP and
the U.S. Environmental Protection Agency (the
EPA), we conducted an investigation of remediation
technologies for perchlorate in groundwater with the intention
of remediating groundwater near the AMPAC Henderson Site. The
technology that was chosen was in situ bioremediation
(ISB). ISB reduces perchlorate in the groundwater by
precise addition of an appropriate carbon source to the
groundwater itself while it is still in the ground (as opposed
to an above ground, more conventional, ex situ process). This
induces naturally occurring organisms in the groundwater to
reduce the perchlorate among other oxygen containing compounds.
In 2002, we conducted a pilot test in the field of the ISB
technology and it was successful. On the basis of the successful
test and other evaluations, in Fiscal 2005, we submitted a work
plan to NDEP for the construction of a remediation facility near
the AMPAC Henderson Site. The conditional approval of the work
plan by NDEP in our third quarter of Fiscal 2005 allowed us to
generate estimated costs for the installation and operation of
the remediation facility to address perchlorate at the AMPAC
Henderson Site. We commenced construction in July 2005. In
December 2006, we began operations of the permanent facility.
The location of this facility is several miles, in the direction
of groundwater flow, from the AMPAC Henderson Site.
At the request of NDEP, in the summer of 2009, we began renewed
discussions with them to formalize our remediation efforts in an
agreement that, if executed, would provide more detailed
regulatory guidance on environmental characterization and
remedies at the AMPAC Henderson Site and vicinity. The agreement
under discussion would be expected to be similar to others
previously executed by NDEP with other
16
companies under similar circumstances. Typically, such
agreements generally cover such matters as the scope of work
plans, schedules, deliverables, remedies for non compliance, and
reimbursement to the State of Nevada for past and future
oversight costs.
Henderson Site Environmental Remediation
Reserve. We accrue for anticipated costs associated
with environmental remediation that are probable and estimable.
On a quarterly basis, we review our estimates of future costs
that could be incurred for remediation activities. In some
cases, only a range of reasonably possible costs can be
estimated. In establishing our reserves, the most probable
estimate is used; otherwise, we accrue the minimum amount of the
range.
During our Fiscal 2005 third quarter, we recorded a charge for
$22,400 representing our estimate of the probable costs of our
remediation efforts at the AMPAC Henderson Site, including the
costs for capital equipment, operating and maintenance
(O&M), and consultants. The project consisted
of two primary phases: the initial construction of the
remediation equipment phase and the O&M phase. During
Fiscal 2006, we increased our total cost estimate of probable
costs for the construction phase by $3,600 due primarily to
changes in the engineering designs, delays in receiving permits
and the resulting extension of construction time.
Late in Fiscal 2009, we gained additional information from
groundwater modeling that indicates groundwater emanating from
the AMPAC Henderson Site in certain areas in deeper zones (more
than 150 feet below ground surface) is moving toward our
existing remediation facility at a much slower pace than
previously estimated. Utilization of our existing facilities
alone, at this lower groundwater pace, could, according to this
more recently created groundwater model, extend the life of our
remediation project to well in excess of fifty years. As a
result of this additional data, related model interpretations
and consultations with NDEP, we re-evaluated our remediation
operations at the end of Fiscal 2009 and during Fiscal 2010 as
new data was generated. This evaluation indicates that we should
be able to significantly reduce the total project time, and
ultimately the total cost of the project, by installing
additional groundwater extraction wells in the deeper, more
concentrated areas, thereby providing for a more aggressive
remediation treatment. The additional wells and related
remediation equipment will incorporate above ground treatment to
supplement or possibly replace by consolidation our existing ISB
process. With the additional extraction wells and equipment, we
estimated that the total remaining project life for the existing
and new, more aggressive deep zone systems could range from 10
to 29 years, beginning with Fiscal 2010. Within that range,
we estimated that a range of 13 to 23 years is more likely.
Groundwater speed, perchlorate concentrations, aquifer
characteristics and forecasted groundwater extraction rates
continue to be key variables underlying our estimate of the life
of the project and these variables are updated on a regular
basis. If additional information becomes available in the future
that lead to a different interpretation of the model, thereby
dictating a change in equipment and operations, our estimate of
the resulting project life could change significantly.
In our Fiscal 2009 fourth quarter, we accrued approximately
$9,600 representing our estimate of the cost to engineer,
design, and install this additional equipment. We anticipate
that these amounts will be spent through and the new equipment
operational by 2012. We are in the pre-construction, design and
engineering steps, and as a result, this estimate involves a
number of significant assumptions. Due to uncertainties inherent
in making estimates, our estimate may later require significant
revision as new facts become available and circumstances change.
In addition to accruing approximately $9,600 for engineering,
design, installation and cost of additional equipment, in our
Fiscal 2009 fourth quarter, we increased our estimate of total
remaining O&M costs by $4,100 due primarily to incremental
O&M costs to operate and maintain the additional equipment
once installed. Total O&M expenses are currently estimated
at approximately $1,000 per year and estimated to increase to
approximately $1,300 per year after the additional equipment
becomes operational. To estimate O&M costs, we consider,
among other factors, the project scope and historical expense
rates to develop assumptions regarding labor, utilities,
repairs, maintenance supplies and professional services costs.
If additional information becomes available in the future that
is different than information currently
17
available to us and thereby leads us to different conclusions,
our estimate of O&M expenses could change significantly.
In addition, certain remediation activities are conducted on
public lands under operating permits. In general, these permits
require us to return the land to its original condition at the
end of the permit period. Estimated costs associated with
removal of remediation equipment from the land are not material
and are included in our range of estimated costs.
As of September 30, 2010, the aggregate range of
anticipated environmental remediation costs was from
approximately $20,100 to approximately $44,000 based on a
possible total remaining life of the project ranging from 9 to
28 years. As of September 30, 2010, the accrued amount
was $23,870, based on an estimate of 12 remaining years, or the
low end of the more likely range of the expected life of the
project. These estimates are based on information currently
available to us and may be subject to material adjustment upward
or downward in future periods as new facts or circumstances may
indicate.
AFC Environmental Matters. The primary
operations of our Fine Chemicals segment are located on land
leased from Aerojet-General Corporation (Aerojet).
The leased land is part of a tract of land owned by Aerojet
designated as a Superfund site under the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA). The tract of land
had been used by Aerojet and affiliated companies to manufacture
and test rockets and related equipment since the 1950s. Although
the chemicals identified as contaminants on the leased land were
not used by Aerojet Fine Chemicals LLC as part of its
operations, CERCLA, among other things, provides for joint and
severable liability for environmental liabilities including, for
example, environmental remediation expenses.
As part of the agreement by which we acquired the business of
AFC from GenCorp Inc., an Environmental Indemnity Agreement was
entered into whereby GenCorp Inc. agreed to indemnify us against
any and all environmental costs and liabilities arising out of
or resulting from any violation of environmental law prior to
the effective date of the sale, or any release of hazardous
substances by Aerojet Fine Chemicals LLC, Aerojet or GenCorp
Inc. on the AFC premises or Aerojets Sacramento site prior
to the effective date of the sale.
On November 29, 2005, EPA Region IX provided us with a
letter indicating that the EPA does not intend to pursue any
clean up or enforcement actions under CERCLA against future
lessees of the Aerojet property for existing contamination,
provided that the lessees do not contribute to or do not
exacerbate existing contamination on or under the Aerojet
Superfund site.
OTHER
MATTERS
BACKLOG. Agreements with our Fine Chemicals segment
customers typically include multi-year supply agreements. These
agreements may contain provisional order volumes, minimum order
quantities,
take-or-pay
provisions, termination fees and other customary terms and
conditions, which we do not include in our computation of
backlog. Fine Chemicals segment backlog includes unfulfilled
firm purchase orders received from a customer, including both
purchase orders which are issued against a related supply
agreement and stand-alone purchase orders. Fine Chemicals
segment backlog was $49,700 and $28,200 as of September 30,
2010 and 2009, respectively. We anticipate order backlog as of
September 30, 2010 to be substantially filled during Fiscal
2011.
Our Aerospace Equipment segment is a government contractor, and
accordingly, total backlog includes both funded backlog
(contracts, or portions of contracts, for which funding is
contractually obligated by the customer) and unfunded backlog
(contracts, or portions of contracts, for which funding is not
currently contractually obligated by the customer). We compute
Aerospace Equipment segment total and funded backlog as the
total contract value less revenues that have been recognized
under the
percentage-of-completion
method of accounting. Aerospace Equipment segment total backlog
and funded backlog were approximately $67,900 and $61,100,
respectively, as of September 30, 2010,
18
compared to total backlog and funded backlog of $46,800 and
$38,900, respectively, as of September 30, 2009. We
anticipate the majority of funded backlog as of
September 30, 2010 to be completed during Fiscal 2011, with
any remainder to be completed in Fiscal 2012.
Backlog is not a meaningful measure for our other business
lines. While a substantial portion of our anticipated revenues
for Fiscal 2011 is currently in our backlog, the timing of our
customer product requirements should result in at least a
majority of our expected annual revenues for Fiscal 2011
occurring in the second half of the fiscal year.
INTELLECTUAL PROPERTY. Most of our intellectual
property consists of trade secrets, patents, and know-how. In
addition, our intellectual property includes our name, exclusive
and non-exclusive licenses to other patents, and trademarks. The
following are registered U.S. trademarks and service marks
pursuant to applicable intellectual property laws and are the
property of the Company: AMPAC (with
logo)®,
HALOTRON®,
SEP®,
ODORMASTER®,
CHLORMASTER®,
PEPCON®,
EXCEEDING CUSTOMER
EXPECTATIONS®,
and
POLYFOX®.
In addition, we have various foreign registrations for AMPAC
(with logo) and HALOTRON.
RAW MATERIALS AND MANUFACTURING COSTS. The principal
elements comprising our cost of sales are raw materials,
processing aids, component parts, utilities, direct labor,
manufacturing overhead (purchasing, receiving, inspection,
warehousing, safety, and facilities), depreciation and
amortization. A substantial portion of the total cash costs of
operating our Specialty Chemicals and Fine Chemicals plants,
consisting mostly of labor and overhead, are largely fixed in
nature.
The major raw materials used in our Specialty Chemicals segment
production processes are graphite, sodium chlorate, ammonia,
hydrochloric acid, sodium metal, nitrous oxide and HCFC-123. Our
operations consume a significant amount of power (electricity
and natural gas); the pricing of these power costs can be
volatile. Significant increases in the cost of raw materials or
component parts may have an adverse impact on margins if we are
unable to pass along such increases to our customers. All raw
materials used in our manufacturing processes typically are
available in commercial quantities.
Our Fine Chemicals segment raw materials consist primarily of
chemicals, including specialty and bulk chemicals, which include
petroleum-based solvents. AFC maintains supply contracts with a
small number of well-established bulk commodity chemical
manufacturers and distributors. Although the contracts do not
protect against price increases, they do help to ensure a
consistent supply of high-quality chemicals. In addition, for
chemicals that are not considered commodities or otherwise
readily available in bulk form, AFC has supply agreements with
multiple sources, when possible, to help ensure a constant and
reliable supply of these chemicals. However, some customers
require AFC to purchase only from the supplier designated by the
customer. In at least one instance where a chemical is a key
ingredient to a process and is only available from one or a very
small number of suppliers, AFC itself is an alternative supply
source and can manufacture the chemical in-house if necessary.
GOVERNMENT CONTRACTS SUBJECT TO
TERMINATION. U.S. government contracts are
dependent on the continuing availability of congressional
appropriations. Congress usually appropriates funds for a given
program on a fiscal year basis even though contract performance
may take more than one year. As a result, at the outset of a
major program, the contract is usually incrementally funded, and
additional monies are normally committed to the contract by the
procuring agency only as Congress makes appropriations for
future fiscal years. In addition, most U.S. government
contracts are subject to modification if funding is changed. Any
failure by Congress to appropriate additional funds to any
program in which we or our customers participate, or any
contract modification as a result of funding changes, could
materially delay or terminate the program for us or for our
customers. Since our significant customers in our Specialty
Chemicals and Aerospace Equipment segments are mainly
U.S. government contractors subject to this yearly
congressional appropriations process, their purchase of our
products are also dependent on their U.S. government
contracts not being materially curtailed. In addition, to the
extent we are acting as a subcontractor to U.S. government
contractors, we are subject to the risk that the
19
U.S. government may terminate its contracts with its
contractors, either for its convenience or in the event of a
default by the applicable contractor. Furthermore, since our
significant customers are U.S. government contractors, they
may cease purchasing our products if their contracts are
terminated, which may have a material adverse effect on our
operating results, financial condition or cash flow.
INSURANCE. We maintain liability and property
insurance coverage at amounts that management believes are
sufficient to meet our anticipated needs in light of historical
experience to cover future litigation and claims. There is no
assurance, however, that we will not incur losses beyond the
limits of, or outside the coverage of, our insurance.
EMPLOYEES. At September 30, 2010, we employed
approximately 595 persons in executive, administrative,
sales and manufacturing capacities. We consider our
relationships with our employees to be satisfactory.
At September 30, 2010, 118 employees of our Fine
Chemicals segment were covered by collective bargaining or
similar agreements which expire in June 2013.
AVAILABLE INFORMATION. We are subject to the
informational requirements of the Securities Exchange Act of
1934, as amended, and file or furnish reports, proxy statements,
and other information with the SEC. We make our annual reports
on
Form 10-K,
our quarterly reports on
Form 10-Q,
our current reports on
Form 8-K
and all amendments to these reports, if any, available free of
charge on our corporate website at
http://www.apfc.com
as soon as reasonably practicable after such reports are filed
with, or furnished to, the SEC. The information contained on our
website is not part of this report or incorporated by reference
herein.
|
|
Item 1A.
|
Risk Factors
(Dollars in Thousands)
|
Our business, financial condition and operating results can be
affected by a number of factors, including those described
below, any one of which could cause our actual results to vary
materially from recent results or from our anticipated future
results. Any of these risks could also materially and adversely
affect our business, financial condition or the price of our
common stock or other securities.
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 effect on our financial
position, results of operations and cash flows.
Most of the perchlorate chemicals we produce, which accounted
for 90% of our total revenues in the Specialty Chemicals segment
for Fiscal 2010 and approximately 32% of our total revenues for
Fiscal 2010, are purchased by two customers. Should our
relationship with one or more of our major Specialty Chemicals
or Aerospace Equipment customers change adversely, the resulting
loss of business could have a material adverse effect on our
financial position, results of operations and cash flows. In
addition, if one or more of our major Specialty Chemicals or
Aerospace Equipment customers substantially reduced their volume
of purchases from us or otherwise delayed some or all of their
purchases from us, it could have a material adverse effect on
our financial position, results of operations and cash flows.
Should one of our major Specialty Chemicals or Aerospace
Equipment customers encounter financial difficulties, the
exposure on uncollectible receivables and unusable inventory
could have a material adverse effect on our financial position,
results of operations and cash flows.
Furthermore, our Fine Chemicals segments success is
largely dependent upon the manufacturing by Ampac Fine Chemicals
LLC (AFC) of a limited number of registered
intermediates and active pharmaceutical ingredients for a
limited number of key customers. One customer of AFC accounted
for 18% of our consolidated revenue and the top four customers
of AFC accounted for approximately 85% of its revenues, and 34%
of our consolidated revenues, in Fiscal 2010. Negative
development in these customer relationships or in the
customers business, or failure to renew or extend certain
contracts, may
20
have a material adverse effect on the results of operations of
AFC. Moreover, from time to time key customers have reduced
their orders, and one or more of these customers might reduce
their orders in the future, or one or more of them may attempt
to renegotiate prices, any of which could have a similar
negative effect on the results of operations of AFC. For
example, in Fiscal 2010, Fine Chemicals segment revenues
declined as compared to Fiscal 2009, in part due to reductions
in orders from certain primary customers for our core products.
In addition, if the pharmaceutical products that AFCs
customers produce using its compounds experience any problems,
including problems related to their safety or efficacy, delays
in filing with or approval by the U.S. Food and Drug
Administration, or FDA, failures in achieving success in the
market, expiration or loss of patent/regulatory protection, or
competition, including competition from generic drugs, these
customers may substantially reduce or cease to purchase
AFCs compounds, which could have a material adverse effect
on the revenues and results of operations of AFC.
The inherent limitations of our fixed-price or similar
contracts may impact our profitability.
A substantial portion of our revenues are derived from our
fixed-price or similar contracts. When we enter into fixed-price
contracts, we agree to perform the scope of work specified in
the contract for a predetermined price. Many of our fixed-price
or similar contracts require us to provide a customized product
over a long period at a pre-established price or prices for such
product. For example, when AFC is initially engaged to
manufacture a product, we often agree to set the price for such
product, and any time-based increases to such price, at the
beginning of the contracting period and prior to fully testing
and beginning the customized manufacturing process. Depending on
the fixed price negotiated, these contracts may provide us with
an opportunity to achieve higher profits based on the
relationship between our total estimated contract costs and the
contracts fixed price. However, we bear the risk that
increased or unexpected costs, or external factors that may
impact contract costs, fixed prices or profit yields, such as
fluctuations in international currency exchange rates, may
reduce our profit or cause us to incur a loss on the contract,
which could reduce our net sales and net earnings. Ultimately,
fixed-price contracts and similar types of contracts present the
inherent risk of un-reimbursed cost overruns and unanticipated
external factors that negatively impact contract costs, fixed
prices or profit yields, any of which could have a material
adverse effect on our operating results, financial condition, or
cash flows. Moreover, to the extent that we do not anticipate
the increase in cost or the effect of external factors over time
on the production or pricing of the products which are the
subject of our fixed-price contracts, our profitability could be
adversely affected.
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.
The nature of our operations subject us to extensive and often
complex and frequently changing federal, state, local and
foreign laws and regulations and regulatory oversight, including
with respect to emissions to air, discharges to water and waste
management as well as with respect to the sale and, in certain
cases, export of controlled products. For example, in our Fine
Chemicals segment, modifications, enhancements or changes in
manufacturing sites of approved products are subject to complex
regulations of the FDA, and, in many circumstances, such actions
may require the express approval of the FDA, which in turn may
require a lengthy application process and, ultimately, may not
be obtainable. The facilities of AFC are periodically subject to
scheduled and unscheduled inspection by the FDA and other
governmental agencies. Operations at these facilities could be
interrupted or halted if such inspections are unsatisfactory and
we could experience fines
and/or other
regulatory actions if we are found not to be in regulatory
compliance. AFCs customers face similarly high regulatory
requirements. Before marketing most drug products, AFCs
customers generally are required to obtain approval from the FDA
based upon pre-clinical testing, clinical trials showing safety
and efficacy, chemistry and manufacturing control data, and
other data and information. The generation of these required
data is regulated by the FDA and can be time-consuming and
expensive, and the results might not justify approval. Even if
AFCs customers are successful in obtaining all required
pre-marketing approvals, post-marketing requirements and any
failure
21
on either AFCs or its customers part to comply with
other regulations could result in suspension or limitation of
approvals or commercial activities pertaining to affected
products.
Because we operate in highly regulated industries, we may be
affected significantly by legislative and other regulatory
actions and developments concerning or impacting various aspects
of our operations and products or our customers. To meet
changing licensing and regulatory standards, we may be required
to make additional significant site or operational
modifications, potentially involving substantial expenditures or
the reduction or suspension of certain operations. For example,
in our Fine Chemicals segment, any regulatory changes could
impose on AFC or its customers changes to manufacturing methods
or facilities, pharmaceutical importation, expanded or different
labeling, new approvals, the recall, replacement or
discontinuance of certain products, additional record keeping,
testing, price or purchase controls or limitations, and expanded
documentation of the properties of certain products and
scientific substantiation. AFCs failure to comply with
governmental regulations, in particular those of the FDA, can
result in fines, unanticipated compliance expenditures, recall
or seizure of products, delays in, or total or partial
suspension or withdrawal of, approval of production or
distribution, suspension of the FDAs review of relevant
product applications, termination of ongoing research,
disqualification of data for submission to regulatory
authorities, enforcement actions, injunctions and criminal
prosecution. Under certain circumstances, the FDA also has the
authority to revoke previously granted drug approvals. Although
we have instituted internal compliance programs, if regulations
or the standards by which they are enforced change
and/or
compliance is deficient in any significant way, such as a
failure to materially comply with the FDAs current Good
Manufacturing Practices or cGMP guidelines, or if a
regulatory authority asserts publically or otherwise such a
deficiency or takes action against us whether or not the
underlying asserted deficiency is ultimately found to be
sustainable, it could have a material adverse effect on us. In
our Specialty Chemicals and Fine Chemicals segments, changes in
environmental regulations could result in requirements to add or
modify emissions control, water treatment, or waste handling
equipment, processes or arrangements, which could impose
significant additional costs for equipment at and operation of
our facilities.
Moreover, in other areas of our business, we, like other
government and military contractors and subcontractors, are
subject directly or indirectly in many cases to government
contracting regulations and the additional costs, burdens and
risks associated with meeting these heightened contracting
requirements. Failure to comply with government contracting
regulations may result in contract termination, the potential
for substantial civil and criminal penalties, and, under certain
circumstances, our suspension and debarment from future
U.S. government contracts for a period of time. For
example, these consequences could be imposed for failing to
follow procurement integrity and bidding rules, employing
improper billing practices or otherwise failing to follow cost
accounting standards, receiving or paying kickbacks or filing
false claims. In addition, the U.S. government and its
principal prime contractors periodically investigate the
U.S. governments contractors and subcontractors,
including with respect to financial viability, as part of the
U.S. governments risk assessment process associated
with the award of new contracts. Consequently, for example, if
the U.S. government or one or more prime contractors were
to determine that we were not financially viable, our ability to
continue to act as a government contractor or subcontractor
would be impaired. Further, a portion of our business involves
the sale of controlled products overseas, such as supplying AP
to various foreign defense programs and commercial space
programs. Foreign sales subject us to numerous additional
complex U.S. and foreign laws and regulations, including
laws and regulations governing import-export controls applicable
to the sale and export of munitions and other controlled
products and commodities, repatriation of earnings, exchange
controls, the Foreign Corrupt Practices Act, and the
anti-boycott provisions of the U.S. Export Administration
Act. The costs of complying with the various and often complex
and frequently changing laws and regulations and regulatory
oversight applicable to us and the businesses in which we
engage, and the consequences should we fail to comply, even
inadvertently, with such requirements, could be significant and
could reduce our profitability and liquidity.
In addition, we are subject to numerous federal laws and
regulations due to our status as a publicly traded company, as
well as rules and regulations of The NASDAQ Stock Market LLC.
Any changes in these legal and regulatory requirements could
increase our compliance costs and negatively affect our results
of operations.
22
A significant portion of our business depends on contracts
with the government or its prime contractors or subcontractors
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.
Sales to the U.S. government and its prime contractors and
subcontractors represent a significant portion of our business.
In Fiscal 2010, our Specialty Chemicals segment generated
approximately 29% of consolidated revenues, primarily sales of
Grade I AP, and our Aerospace Equipment segment generated
approximately 5% of consolidated revenues, each from sales to
the U.S. government, its prime contractors and
subcontractors. One significant use of Grade I AP historically
has been in NASAs Space Shuttle program. Consequently, the
long-term demand for Grade I AP may be driven by the timing of
the retirement of the Space Shuttle fleet as well as by the
development of next-generation space exploration vehicles,
including the development and testing of a new heavy launch
vehicle used to transport materials and supplies to the
International Space Station, and potentially elsewhere, and the
number of space exploration launches. Accordingly, demand for AP
remains subject to potential changes in space exploration
program direction and budgetary restrictions, which may result
in changes in
next-generation
space exploration vehicles and the timing associated with their
development. If the use of AP as the oxidizing agent for solid
propellant rockets or the use of solid propellant rockets in
NASAs space exploration programs are discontinued or
significantly reduced, it could have a material adverse effect
on our operating results, financial condition, or cash flows.
The funding of U.S. governmental programs is generally
subject to annual congressional appropriations, and
congressional priorities are subject to change. In the case of
major programs, U.S. government contracts are usually
incrementally funded. In addition, U.S. government
expenditures for defense and NASA programs may fluctuate from
year to year and specific programs, in connection with which we
may receive significant revenue, may be terminated or curtailed.
Recent economic crises, and the U.S. governments
corresponding actions, may result in cutbacks in major
government programs. A decline in government expenditures or any
failure by Congress to appropriate additional funds to any
program in which we or our customers participate, or any
contract modification as a result of funding changes, could
materially delay or terminate the program for us or for our
customers. Moreover, the U.S. government may terminate its
contracts with its suppliers either for its convenience or in
the event of a default by the supplier. Since a significant
portion of our customer base is either the U.S. government
or U.S. government contractors or subcontractors, we may
have limited ability to collect fully on our contracts when the
U.S. government terminates its contracts. If a contract is
terminated by the U.S. government for convenience, recovery
of costs typically would be limited to amounts already incurred
or committed, and our profit would be limited to work completed
prior to termination. Moreover, in such situations where we are
a subcontractor, the U.S. government contractor may cease
purchasing our products if its contracts are terminated. We may
have resources applied to specific government-related contracts
and, if any of those contracts were terminated, we may incur
substantial costs redeploying these resources. Given the
significance to our business of U.S. government contracts
or contracts based on U.S. government contracts,
fluctuations or reductions in governmental funding for
particular governmental programs
and/or
termination of existing governmental programs and related
contracts may have a material adverse effect on our operating
results, financial condition or cash flow.
We may be subject to potentially material costs and
liabilities in connection with environmental or health
matters.
Some of our operations may create risks of adverse environmental
and health effects, any of which might not be covered by
insurance. In the past, we have been required to take remedial
action to address particular environmental and health concerns
identified by governmental agencies in connection with the
production of perchlorate. It is possible that we may be
required to take further remedial action in the future in
connection with our production of perchlorate, whether at our
former facility in Henderson, Nevada, or at our current
production facility in Iron County, Utah, or we may enter
voluntary agreements with
23
governmental agencies to take such actions. Moreover, in
connection with other operations, we may become obligated in the
future for environmental liabilities if we fail to abide by
limitations placed on us by governmental agencies. There can be
no assurance that material costs or liabilities will not be
incurred or restrictions will not be placed upon us in order to
rectify any past or future occurrences related to environmental
or health matters. Such material costs or liabilities, or
increases in, or charges associated with, existing environmental
or health-related liabilities, also may have a material adverse
effect on our operating results, earnings or financial condition.
Review of Perchlorate Toxicity by the
EPA. Perchlorate is not currently included in the list
of hazardous substances compiled by the U.S. Environmental
Protection Agency, or EPA, but it is on the EPAs
Contaminant Candidate List 3. The National Academy of Sciences,
the EPA and certain states have set or discussed certain
guidelines on the acceptable levels of perchlorate in water. The
outcome of the federal EPA action, as well as any similar state
regulatory action, will influence the number, if any, of
potential sites that may be subject to remediation action, which
could, in turn, cause us to incur material costs. While the
presence of regulatory review presents general business risk to
our company, we are currently unaware of any regulatory proposal
that would have a material effect on our results of operations
and financial position or that would cause us to significantly
modify or curtail our business practices. It is possible that
the regulatory agencies may change existing, or establish new,
standards for perchlorate, which could lead to additional
expenditures for environmental remediation in the future,
and/or
additional, potentially material costs to defend against new
claims resulting from such regulatory agency actions.
Perchlorate Remediation Project in Henderson,
Nevada. We commercially manufactured perchlorate
chemicals at a facility in Henderson, Nevada, or the AMPAC
Henderson Site, until May 1988. In 1997, the Southern
Nevada Water Authority, or SNWA, detected trace amounts of the
perchlorate anion in Lake Mead and the Las Vegas Wash. Lake Mead
is a source of drinking water for Southern Nevada and areas of
Southern California. The Las Vegas Wash flows into Lake Mead
from the Las Vegas valley. In response to this discovery by
SNWA, and at the request of the Nevada Division of Environmental
Protection, or NDEP, we engaged in an investigation of
groundwater near the AMPAC Henderson Site and down gradient
toward the Las Vegas Wash. At the direction of NDEP and the EPA,
we conducted an investigation of remediation technologies for
perchlorate in groundwater with the intention of remediating
groundwater near the AMPAC Henderson Site. In Fiscal 2005, we
submitted a work plan to NDEP for the construction of a
remediation facility near the AMPAC Henderson Site. The
permanent plant began operation in December 2006. Late in Fiscal
2009, we gained additional information from groundwater modeling
that indicates groundwater emanating from the AMPAC Henderson
Site in certain areas in deeper zones (more than 150 feet
below ground surface) is moving toward our existing remediation
facility at a much slower pace than previously estimated. As a
result of this additional data and related model
interpretations, we re-evaluated our existing remediation
operations and, working with NDEP, installed additional
groundwater extraction wells in the deeper, more concentrated
areas, thereby providing for a more aggressive remediation
treatment. We currently anticipate that related new equipment
including such extraction wells will become operational by 2012.
Henderson Site Environmental Remediation
Reserve. During Fiscal 2005 and Fiscal 2006, we
recorded charges totaling $26,000 representing our estimate of
the probable costs of our remediation efforts at the AMPAC
Henderson Site, including the costs for capital equipment,
operating and maintenance (O&M), and
consultants. The project consisted of two primary phases: the
initial construction of the remediation equipment phase and the
O&M phase. We commenced the construction phase in late
Fiscal 2005, completed an interim system in June 2006, and
completed the permanent facility in December 2006. In Fiscal
2007, we began the O&M phase. Following the receipt of new
data regarding groundwater movement and our determination in
late Fiscal 2009 to install additional groundwater extraction
wells, we increased our accruals by approximately $9,600 for the
engineering, design, installation and cost of additional
remediation equipment. We separately increased our accruals by
$4,100 for our estimate of total remaining O&M costs, due
primarily to incremental O&M costs to operate and maintain
the additional equipment once installed. The amount of $13,700,
representing the sum of the estimated costs for the additional
equipment and the anticipated incremental O&M costs, was
recorded as a charge to earnings in
24
our Fiscal 2009 fourth quarter. For future periods, total
O&M expenses are currently estimated at approximately
$1,000 per year and estimated to increase to approximately
$1,300 per year after the additional above-ground remediation
equipment becomes operational. With the additional extraction
wells and equipment, we estimated that the total remaining
project life for the existing and new, more aggressive deep zone
systems could range from 10 to 29 years, beginning with
Fiscal 2010. Within that range, we estimated that a range of 13
to 23 years was more likely. We are unable to predict over
the longer term the most probable life. Key factors in
determining the total estimated cost of our remediation efforts
include groundwater speed, perchlorate concentrations, aquifer
characteristics and forecasted groundwater extraction rates and
annual O&M costs.
As of September 30, 2010, the aggregate range of
anticipated environmental remediation costs was from
approximately $20,100 to approximately $44,000 based on a
possible total remaining life of the project ranging from 9 to
28 years. As of September 30, 2010, the accrued amount
was $23,870, based on an estimate of 12 remaining years, or the
low end of the more likely range of the expected life of the
project. These estimates are based on information currently
available to us and may be subject to material adjustment upward
or downward in future periods as new facts or circumstances may
indicate.
Other Environmental Matters. As part of our
acquisition of the fine chemicals business of GenCorp Inc., AFC
leased approximately 240 acres of land on a Superfund site
in Rancho Cordova, California, owned by Aerojet-General
Corporation, a wholly-owned subsidiary of GenCorp Inc. The
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, or CERCLA, has very strict joint and
several liability provisions that make any owner or
operator of a Superfund site a
potentially responsible party for remediation
activities. AFC could be considered an operator for
purposes of CERCLA and, in theory, could be a potentially
responsible party for purposes of contribution to the site
remediation, although we received a letter from the EPA in
November 2005 indicating that the EPA does not intend to pursue
any clean up or enforcement actions under CERCLA against future
lessees of the Aerojet property for existing contamination,
provided that the lessees do not contribute to or do not
exacerbate existing contamination on or under the Superfund
site. Additionally, pursuant to the EPA consent order governing
remediation for this site, AFC will have to abide by certain
limitations regarding construction and development of the site
which may restrict AFCs operational flexibility and
require additional substantial capital expenditures that could
negatively affect the results of operations for AFC.
Although we have established an environmental reserve for
remediation activities in Henderson, Nevada, given the many
uncertainties involved in assessing environmental liabilities,
our environmental-related risks may from time to time exceed any
related reserves.
As of September 30, 2010, we had established reserves in
connection with the AMPAC Henderson Site of approximately
$23,870, which we believe to be sufficient to cover our
estimated environmental liabilities for that site as of such
time. However, as of such date, we had not established any other
environmental-related reserves. Given the many uncertainties
involved in assessing environmental liabilities, our
environmental-related risks may, from time to time, exceed any
related reserves, as we may not have established reserves with
respect to such environmental liabilities, or any reserves we
have established may prove to be insufficient. We continually
evaluate the adequacy of our reserves on a quarterly basis, and
they could change. For example, as of the end of Fiscal 2009, we
increased our environmental reserves in connection with the
AMPAC Henderson Site by approximately $13,700 as a result of an
increase in anticipated costs associated with remediation
efforts at the site. In addition, reserves with respect to
environmental matters are based only on known sites and the
known contamination at those sites. It is possible that
additional remediation sites will be identified in the future or
that unknown contamination, or further contamination beyond that
which is currently known, at previously identified sites will be
discovered. The discovery of additional environmental exposures
at sites that we currently own or operate or at which we
formerly operated, or at sites to which we have sent hazardous
substances or wastes for treatment, recycling or disposal, could
lead us to have additional expenditures for environmental
remediation in the future and, given the many uncertainties
involved in assessing environmental liabilities, we may not have
adequately reserved for such liabilities or any reserves we have
established may prove to be insufficient.
25
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.
Most of our Specialty Chemicals segment products are produced at
our Iron County, Utah facility. Most of our Fine Chemicals
segment products are produced at our Rancho Cordova, California
facility and most of our Aerospace Equipment segment products
are produced at our Niagara Falls, New York facility. Our
Aerospace Equipment segment also has small manufacturing
facilities in Ireland and the U.K. Any of these facilities could
be disrupted or damaged by fire, floods, earthquakes, power
loss, systems failures or similar events. Although we have
contingency plans in effect for natural disasters or other
catastrophic events, these events could still disrupt our
operations. Even though we carry business interruption
insurance, we may suffer losses as a result of business
interruptions that exceed the coverage available under our
insurance policies. A significant disruption at one of our
facilities, even on a
short-term
basis, could impair our ability to produce and ship the
particular business segments products to market on a
timely basis, which 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 liabilities.
Our operations involve the handling, production, storage, and
disposal of potentially explosive or hazardous materials and
other dangerous chemicals, including materials used in rocket
propulsion. Despite our use of specialized facilities to handle
dangerous materials and intensive employee training programs,
the handling and production of hazardous materials could result
in incidents that shut down (on a short-term basis or for longer
periods) or otherwise disrupt our manufacturing operations and
could cause production delays. Our manufacturing operations
could also be the subject of an external or internal event, such
as a terrorist attack or external or internal accident, that,
despite our security, safety and other precautions, results in a
disruption or delay in our operations. It is possible that a
release of hazardous materials or other dangerous chemicals from
one of our facilities or an explosion could result in death or
significant injuries to employees and others. Material property
damage to us and third parties could also occur. For example, on
May 4, 1988, our former manufacturing and office facilities
in Henderson, Nevada were destroyed by a series of massive
explosions and associated fires. Extensive property damage
occurred both at our facilities and in immediately adjacent
areas, the principal damage occurring within a
three-mile
radius. Production of AP ceased for a
15-month
period. Significant interruptions were also experienced in our
other businesses, which occupied the same or adjacent sites.
There can be no assurance that another incident would not
interrupt some or all of the activities carried on at our
current AP manufacturing site. The use of our products in
applications by our customers could also result in liability if
an explosion, fire or other similarly disruptive event were to
occur. Any release or explosion could expose us to adverse
publicity or liability for damages or cause production delays,
any of which could have a material adverse effect on our
reputation and profitability and could cause us to incur
additional costs and liabilities.
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.
Key raw materials used in our operations include sodium
chlorate, graphite, ammonia, sodium metal, nitrous oxide,
HCFC-123, and hydrochloric acid. We closely monitor sources of
supply to assure that adequate raw materials and other supplies
needed in our manufacturing processes are available. In
addition, as a U.S. government contractor or subcontractor,
we are frequently limited to procuring materials and components
from sources of supply that can meet rigorous government
and/or
customer specifications. In addition, as business conditions,
the U.S. defense budget, and congressional allocations
change, suppliers of specialty chemicals and materials sometimes
consider dropping low volume items from their product lines,
which may require, as it has in the past, qualification of new
suppliers for raw materials on key programs. The qualification
process may impact our profitability or ability to meet
26
contract deliveries
and/or
delivery timelines. Moreover, we could experience inventory
shortages if we are required to use an alternative supplier on
short notice, which also could lead to raw materials being
purchased on less favorable terms than we have with our regular
suppliers. We are further impacted by the cost of raw materials
used in production on fixed-price contracts. The increased cost
of natural gas and electricity also has a significant impact on
the cost of operating our Specialty Chemicals segment facility.
AFC uses substantial amounts of raw materials in its production
processes, in particular chemicals, including specialty and bulk
chemicals, which include petroleum-based solvents. Increases in
the prices of raw materials which AFC purchases from third party
suppliers could adversely impact operating results. In certain
cases, the customer provides some of the raw materials which are
used by AFC to produce or manufacture the customers
products. Failure to receive raw materials in a timely manner,
whether from a third party supplier or a customer, could cause
AFC to fail to meet production schedules and adversely impact
revenues and operating results. Certain key raw materials are
obtained from sources from outside the U.S. Factors that
can cause delays in the arrival of raw materials include weather
or other natural events, political unrest in countries from
which raw materials are sourced or through which they are
delivered, terrorist attacks or related events in such countries
or in the U.S., and work stoppages by suppliers or shippers. A
delay in the arrival of the shipment of raw materials from a
third party supplier could have a significant impact on
AFCs ability to meet its contractual commitments to
customers.
Prolonged disruptions in the supply of any of our key raw
materials, difficulty completing qualification of new sources of
supply, implementing use of replacement materials or new sources
of supply, or a continuing increase in the prices of raw
materials and energy could have a material adverse effect on our
operating results, financial condition or cash flows.
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.
Each of our Specialty Chemicals, Fine Chemicals and Aerospace
Equipment segments produces products that are highly customized,
require high levels of precision to manufacture and are subject
to exacting customer and other requirements, including strict
timing and delivery requirements. For example, our Fine
Chemicals segment produces chemical compounds that are difficult
to manufacture, including highly energetic and highly toxic
materials. These chemical compounds are manufactured to exacting
specifications of our customers filings with the FDA and
other regulatory authorities worldwide. The production of these
chemicals requires a high degree of precision and strict
adherence to safety and quality standards. Regulatory agencies,
such as the FDA and the European Medicines Agency, or EMEA, have
regulatory oversight over the production process for many of the
products that AFC manufactures for its customers. AFC employs
sophisticated and rigorous manufacturing and testing practices
to ensure compliance with the FDAs current Good
Manufacturing Practices or cGMP guidelines and the
International Conference on Harmonization Q7A. Because the
chemical compounds produced by AFC are so highly customized,
they are also subject to customer acceptance requirements,
including strict timing and delivery requirements. If AFC is
unable to adhere to the standards required or fails to meet the
customers timing and delivery requirements, the customer
may reject the chemical compounds. In such instances, AFC may
also be in breach of its customers contract.
Like our Fine Chemicals segment, our Specialty Chemicals and
Aerospace Equipment segments face similar production demands and
requirements. In each case, a significant failure or inability
to comply with customer specifications and manufacturing
requirements or delays or other problems with existing or new
products could result in increased costs, losses of sales and
potential breaches of customer contracts, which could affect our
operating results and revenues.
27
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.
Successful commercialization of pharmaceutical products and
product line extensions requires accurate anticipation of market
and customer acceptance of particular products, customers
needs, the sale of competitive products, and emerging
technological trends, among other things. Additionally, for
successful product development, our customers must complete many
complex formulation and analytical testing requirements and
timely obtain regulatory approvals from the FDA and other
regulatory agencies. When developed, new or reformulated drugs
may not exhibit desired characteristics or may not be accepted
by the marketplace. Complications can also arise during
production
scale-up. In
addition, a customers product that includes ingredients
that are manufactured by AFC may be subsequently recalled or
withdrawn from the market by the customer. The recall or
withdrawal may be for reasons beyond the control of AFC.
Moreover, products may encounter unexpected, irresolvable patent
conflicts or may not have enforceable intellectual property
rights. If the customer is not able to successfully
commercialize a product for which AFC produces compounds, or if
there is a subsequent recall or withdrawal of a product
manufactured by AFC or that includes ingredients manufactured by
AFC for its customers, it could have an adverse impact on
AFCs operating results, including its forecasted or actual
revenues.
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.
As of September 30, 2010, AFC had approximately
118 employees that were covered by collective bargaining or
similar agreements. We consider our relationships with our
unionized employees to be satisfactory. In July 2010, AFCs
collective bargaining and similar agreements were renegotiated
and extended to June 2013. If we are unable to negotiate
acceptable new agreements with the union representing these
employees upon expiration of the existing contracts, we could
experience strikes or work stoppages. Even if AFC is successful
in negotiating new agreements, the new agreements could call for
higher wages or benefits paid to union members, which would
increase AFCs operating costs and could adversely affect
its profitability. If the unionized workers were to engage in a
strike or other work stoppage, or other non-unionized operations
were to become unionized, AFC could experience a significant
disruption of operations at its facilities or higher ongoing
labor costs. A strike or other work stoppage in the facilities
of any of its major customers or suppliers could also have
similar effects on 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.
The pharmaceutical fine chemicals industry is a
capital-intensive industry. Consequently, AFCs capital
expenditures consume cash from our Fine Chemicals segment and
our other operations and from borrowings. Increases in capital
expenditures may result in low levels of working capital or
require us to finance working capital deficits, which may be
potentially costly or even unavailable given on-going conditions
of the credit markets in the U.S. Changes in the
availability, terms and costs of capital or a reduction in
credit rating or outlook could cause our cost of doing business
to increase and place us at a competitive disadvantage. These
factors could substantially constrain AFCs growth,
increase AFCs costs and negatively impact its operating
results.
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.
We may face potential liability claims based on our products or
services in our several lines of business under certain
circumstances, and any such claims could result in significant
expenses, disrupt sales and affect our reputation and that of
our products. For example, a customers product may include
ingredients
28
that are manufactured by AFC. Although such ingredients are
generally made pursuant to specific instructions from our
customer and tested using techniques provided by our customer,
the customers product may, nevertheless, be subsequently
recalled or withdrawn from the market by the customer, and the
recall or withdrawal may be due in part or wholly to product
failures or inadequacies that may or may not be related to the
ingredients we manufactured for the customer. In such a case,
the recall or withdrawal may result in claims being made against
us. Although we seek to reduce our potential liability through
measures such as contractual indemnification provisions with
customers, we cannot assure you that such measures will be
enforced or effective. We could be materially and adversely
affected if we were required to pay damages or incur defense
costs in connection with a claim that is outside the scope of
the indemnification agreements, if the indemnity, although
legally enforceable, is not applicable in accordance with its
terms or if our liability exceeds the amount of the applicable
indemnification, or if the amount of the indemnification exceeds
the financial capacity of our customer. In certain instances, we
may have in place product liability insurance coverage, which is
generally available in the market, but which may be limited in
scope and amount. In other instances, we may have self-insured
the risk for any such potential claim. There can be no assurance
that our insurance coverage, if available, will be adequate or
that insurance coverage will continue to be available on terms
acceptable to us. Given the current economic environment, it is
also possible that our insurers may not be able to pay on any
claims we might bring. Unexpected results could cause us to have
financial exposure in these matters in excess of insurance
coverage and recorded reserves, requiring us to provide
additional reserves to address these liabilities, impacting
profits. Moreover, any claim brought against us, even if
ultimately found to be insignificant or without merit, could
damage our reputation, which, in turn, may impact our business
prospects and future results.
Technology innovations in the markets that we serve may
create alternatives to our products and result in reduced
sales.
Technology innovations to which our current and potential
customers might have access could reduce or eliminate their need
for our products, which could negatively impact the sale of
those products. Our customers constantly attempt to reduce their
manufacturing costs and improve product quality, such as by
seeking out producers using the latest manufacturing techniques
or by producing component products themselves, if outsourcing is
perceived to be not cost effective. To continue to succeed, we
will need to manufacture and deliver products, and develop
better and more efficient means of manufacturing and delivering
products, that address evolving customer needs and changes in
the market on a timely and cost-effective basis, using the
latest
and/or most
efficient technology available. We may be unable to respond on a
timely basis to any or all of the changing needs of our customer
base. Separately, our competitors may develop technologies that
render our existing technology and products obsolete or
uncompetitive. Our competitors may also implement new
technologies before we are able to do so, allowing them to
provide products at more competitive prices. Technology
developed by others in the future could, among other things,
require us to write-down obsolete facilities, equipment and
technology or require us to make significant capital
expenditures in order to stay competitive. Our failure to
develop, introduce or enhance products and technologies able to
compete with new products and technologies in a timely manner
could have an adverse effect on our business, results of
operations and financial condition.
We are subject to strong competition in certain industries
in which we participate and therefore may not be able to compete
successfully.
Other than the sale of AP, for which we are the only North
American provider, we face competition in all of the other
industries in which we participate. Many of our competitors have
financial, technical, production, marketing, research and
development and other resources substantially greater than ours.
As a result, they may be better able to withstand the effects of
periodic economic or business segment downturns. Moreover,
barriers to entry, other than capital availability, are low in
some of the product segments of our business. Consequently, we
may encounter intense bidding for contracts. Capacity additions
or technological advances by existing or future competitors may
also create greater competition, particularly in pricing.
Further, the pharmaceutical fine chemicals market is fragmented
and competitive. Pharmaceutical fine chemicals manufacturers
generally compete based on their breadth
29
of technology base, research and development and chemical
expertise, flexibility and scheduling of manufacturing
capabilities, safety record, regulatory compliance history and
price. AFC faces increasing competition from pharmaceutical
contract manufacturers, in particular competitors located in the
Peoples Republic of China and India, where facilities,
construction and operating costs are significantly less. If AFC
is unable to compete successfully, its results of operations may
be materially adversely impacted. Furthermore, there is a
worldwide over-capacity of the ability to produce sodium azide,
which creates significant price competition for that product.
Maintaining and improving our competitive position will require
continued investment in our existing and potential future
customer relationships as well as in our technical, production,
and marketing operations. We may be unable to compete
successfully with our competitors and our inability to do so
could result in a decrease in revenues that we historically have
generated from the sale of our products.
Due to the nature of our business, our sales levels may
fluctuate causing our quarterly operating results to
fluctuate.
Our quarterly and annual sales are affected by a variety of
factors that could lead to significant variability in our
operating results. In our Specialty Chemicals segment, the need
for our products is generally based on contractually defined
milestones that our customers are bound by and these milestones
may fluctuate from quarter to quarter resulting in corresponding
sales fluctuations. In our Fine Chemicals segment, some of our
products require multiple steps of chemistry, the production of
which can span multiple quarterly periods. Revenue is typically
recognized after the final step and when the product has been
delivered and accepted by the customer. As a result of this
multi-quarter process, revenues and related profits can vary
from quarter to quarter. Consequently, due to factors inherent
in the process by which we sell our products, changes in our
operating results may fluctuate from quarter to quarter and
could result in volatility in our common stock price.
The inherent volatility of the chemical industry affects
our capacity utilization and causes fluctuations in our results
of operations.
Our Specialty Chemicals and Fine Chemicals segments are subject
to volatility that characterizes the chemical industry
generally. Thus, the operating rates at our facilities will
impact the comparison of
period-to-period
results. Different facilities may have differing operating rates
from period to period depending on many factors, such as
transportation costs and supply and demand for the product
produced at the facility during that period. As a result,
individual facilities may be operated below or above rated
capacities in any period. We may idle a facility for an extended
period of time because an oversupply of a certain product or a
lack of demand for that product makes production uneconomical.
The expenses of the shutdown and restart of facilities may
adversely affect quarterly results when these events occur. In
addition, a temporary shutdown may become permanent, resulting
in a write-down or write-off of the related assets. Moreover,
workforce reductions in connection with any short-term or
long-term shutdowns, or related cost-cutting measures, could
result in an erosion of morale, affect the focus and
productivity of our remaining employees, including those
directly responsible for revenue generation, and impair our
ability to retain and recruit talent, all of which in turn may
adversely affect our future results of operations.
A loss of key personnel or highly skilled employees, or
the inability to attract and retain such personnel, could
disrupt our operations or impede our growth.
Our executive officers are critical to the management and
direction of our businesses. Our future success depends, in
large part, on our ability to retain these officers and other
capable management personnel. From time to time we have entered
into employment or similar agreements with our executive
officers and we may do so in the future, as competitive needs
require. These agreements typically allow the officer to
terminate employment with certain levels of severance under
particular circumstances, such as a change of control affecting
our company. In addition, these agreements generally provide an
officer with severance benefits if we terminate the officer
without cause. Although we believe that we will be able to
attract and
30
retain talented personnel and replace key personnel should the
need arise, our inability to do so or to do so in a timely
fashion could disrupt the operations of the segment affected or
our overall operations. Furthermore, our business is very
technical and the technological and creative skills of our
personnel are essential to establishing and maintaining our
competitive advantage. For example, customers often turn to AFC
because very few companies have the specialized experience and
capabilities and associated personnel required for energetic
chemistries and projects that require high containment. Our
future growth and profitability in part depends upon the
knowledge and efforts of our highly skilled employees, in
particular their ability to keep pace with technological changes
in the fine chemicals, specialty chemicals and aerospace
equipment industries, as applicable. We compete vigorously with
various other firms to recruit these highly skilled employees.
Our operations could be disrupted by a shortage of available
skilled employees or if we are unable to attract and retain
these highly skilled and experienced employees.
We may continue to expand our operations through
acquisitions, but the acquisitions could divert
managements 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.
Our business strategy includes growth through future possible
acquisitions, in particular in connection with our Fine
Chemicals segment. Our future growth is likely to depend, in
significant part, on our ability to successfully implement this
acquisition strategy. However, our ability to consummate and
integrate effectively any future acquisitions on terms that are
favorable to us may be limited by the number of attractive and
suitable acquisition targets, internal demands on our resources
and our ability to obtain or otherwise facilitate cost-effective
financing, especially during difficult and unsettled economic
times in the credit market. Any future acquisitions would
currently challenge our existing resources. To the extent that
we were to implement a new acquisition, if we did not properly
meet the increasing expenses and demands on our resources
resulting from such future growth, our results could be
adversely affected. Our success in integrating newly acquired
businesses will depend upon our ability to retain key personnel,
avoid diversion of managements attention from operational
matters, integrate general and administrative services and key
information processing systems and, where necessary, requalify
our customer programs. In addition, future acquisitions could
result in the incurrence of additional debt, costs and
contingent liabilities. We may also incur costs and divert
managements attention to acquisitions that are never
consummated. Integration of acquired operations may take longer,
or be more costly or disruptive to our business, than originally
anticipated. It is also possible that expected synergies from
past or future acquisitions may not materialize.
Although we undertake a diligence investigation of each
acquisition target that we pursue, there may be liabilities of
the acquired companies or assets that we fail to or are unable
to discover during the diligence investigation and for which we,
as a successor owner, may be responsible. In connection with
acquisitions, we generally seek to minimize the impact of these
types of potential liabilities through indemnities and
warranties from the seller, which may in some instances be
supported by deferring payment of a portion of the purchase
price. However, these indemnities and warranties, if obtained,
may not fully cover the ultimate actual liabilities due to
limitations in scope, amount or duration, financial limitations
of the indemnitor or warrantor or other reasons.
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.
As of September 30, 2010, we had outstanding debt totaling
$105,172, for which we are required to make interest payments.
Subject to the limits contained in some of the agreements
governing our outstanding debt, we may incur additional debt in
the future or we may refinance some or all of this debt. Our
level of debt places significant demands on our cash resources,
which could:
|
|
|
make it more difficult for us to satisfy any other outstanding
debt obligations;
|
|
require us to dedicate a substantial portion of our cash flow
from operations to payments on our debt, reducing the amount of
our cash flow available for working capital, capital
expenditures, acquisitions, developing our real estate assets
and other general corporate purposes;
|
31
|
|
|
limit our flexibility in planning for, or reacting to, changes
in the industries in which we compete;
|
|
place us at a competitive disadvantage compared to our
competitors, some of which have lower debt service obligations
and greater financial resources than we do;
|
|
limit our ability to borrow additional funds; or
|
|
increase our vulnerability to general adverse economic and
industry conditions.
|
We are obligated to comply with various ongoing covenants
in our debt, which could restrict our operations, and if we
should fail to satisfy any of these covenants, the payment under
our debt could be accelerated, which would negatively impact our
liquidity.
We are obligated to comply with financial and other covenants in
our debt that could restrict our operating activities, and the
failure to comply could result in defaults that accelerate the
payment under our debt. Our outstanding debt generally contains
various restrictive covenants. These covenants include
provisions restricting our ability to, among other things:
|
|
|
incur additional debt;
|
|
pay dividends or make other restricted payments;
|
|
create liens on assets to secure debt;
|
|
incur dividend or other payment restrictions with regard to
restricted subsidiaries;
|
|
transfer or sell assets;
|
|
enter into transactions with affiliates;
|
|
enter into sale and leaseback transactions;
|
|
create an unrestricted subsidiary;
|
|
enter into certain business activities; or
|
|
effect a consolidation, merger or sale of all or substantially
all of our assets.
|
Any of the covenants described above may restrict our operations
and our ability to pursue potentially advantageous business
opportunities. Our failure to comply with these covenants could
also result in an event of default that, if not cured or waived,
could result in the acceleration of all or a substantial portion
of our debt, which would negatively impact our liquidity. In
light of our recent financial performance, continued working
capital requirements, and challenging market conditions, there
is a risk that we may be unable to continue to comply with one
or more of our debt covenants in the future. Such noncompliance
could require us to re-negotiate new terms with our lenders
which, in all likelihood, would lead to the incurrence of
transaction costs and potentially other less favorable terms and
conditions being placed upon us, thereby further negatively
impacting our liquidity and results of operations.
Significant changes in discount rates, rates of return on
pension assets, mortality tables and other factors could affect
our estimates of pension obligations, which in turn could affect
future funding requirements and related costs and impact our
future earnings.
As of September 30, 2010, we had unfunded pension
obligations, including the current and non-current portions, of
$37,688. Pension obligations, periodic pension expense, and
funding requirements are determined using actuarial valuations
that involve several assumptions. The most critical assumptions
are the discount rate and the long-term expected return on
assets. Other assumptions include salary increases and
retirement age, mortality and turnover. Some of these
assumptions, such as the discount rate and return on pension
assets, are largely outside of our control. Changes in these
assumptions could affect our estimates of pension obligations,
which in turn could affect future funding requirements and
related costs and impact our future earnings. Moreover, pension
obligations can also be affected by changes in legislation and
other governmental regulatory actions.
32
Our suspended 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.
We have a shareholder rights plan that, although currently
suspended, may have the effect of discouraging unsolicited
takeover proposals. The rights issued under the shareholder
rights plan would cause substantial dilution to a person or
group which attempts to acquire us on terms not approved in
advance by our board of directors. In addition, our Restated
Certificate of Incorporation, as amended, and Amended and
Restated By-laws contain provisions that may discourage
unsolicited takeover proposals that stockholders may consider to
be in their best interests. These provisions include:
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a classified board of directors;
|
|
the ability of our board of directors to designate the terms of
and issue new series of preferred stock;
|
|
advance notice requirements for nominations for election to our
board of directors; and
|
|
special voting requirements for the amendment, in certain cases,
of our Restated Certificate of Incorporation, as amended, and
our Amended and Restated By-laws.
|
We are also subject to anti-takeover provisions under Delaware
law, which could delay or prevent a change of control. Together,
our charter provisions, Delaware law and the shareholder rights
plan may discourage transactions that otherwise could involve
payment of a premium over prevailing market prices for our
common stock.
Our proprietary and intellectual property rights may be
violated, compromised, circumvented or invalidated, which could
damage our operations.
We have numerous patents, patent applications, exclusive and
non-exclusive licenses to patents, and unpatented trade secret
technologies in the U.S. and certain foreign countries.
There can be no assurance that the steps taken by us to protect
our proprietary and intellectual property rights will be
adequate to deter misappropriation of these rights. In addition,
independent third parties may develop competitive or superior
technologies that could circumvent the future need to use our
intellectual property, thereby reducing its value. They may also
attempt to invalidate patent rights that we own directly or that
we are entitled to exploit through a license. If we are unable
to adequately protect and utilize our intellectual property or
proprietary rights, our results of operations may be adversely
affected.
Our common stock price may fluctuate substantially, and a
stockholders investment could decline in value.
The market price of our common stock has been highly volatile
during the past several years. For example, during the
12 months ended September 30, 2010, the highest sale
price for our common stock was $9.15 and the lowest sale price
for our common stock was $3.84. The realization of any of the
risks described in these Risk Factors or other unforeseen risks
could have a dramatic and adverse effect on the market price of
our common stock. Moreover, the market price of our common stock
may fluctuate substantially due to many factors, including:
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|
|
actual or anticipated fluctuations in our results of operations;
|
|
events or concerns related to our products or operations or
those of our competitors, including public health, environmental
and safety concerns related to products and operations;
|
|
material public announcements by us or our competitors;
|
|
changes in government regulations or policies, such as new
legislation, laws or regulatory decisions that are adverse to us
and/or our
products;
|
|
changes in key members of management;
|
|
developments in our industries;
|
|
changes in investors acceptable levels of risk;
|
|
trading volume of our common stock; and
|
|
general economic conditions.
|
33
In addition, the stock market in general has experienced extreme
price and volume fluctuations that have often been unrelated or
disproportionate to companies operating performance. In
addition, the global economic environment and potential
uncertainty have created significant additional volatility in
the United States capital markets. Broad market and
industry factors may materially harm the market price of our
common stock, regardless of our operating performance. In the
past, following periods of volatility in the market price of a
companys securities, stockholder derivative lawsuits
and/or
securities class action litigation has often been instituted
against that company. Such litigation, if instituted against us,
and whether with or without merit, could result in substantial
costs and divert managements attention and resources,
which could harm our business and financial condition, as well
as the market price of our common stock. Additionally,
volatility or a lack of positive performance in our stock price
may adversely affect our ability to retain key employees or to
use our stock to acquire other companies at a time when use of
cash or financing for such acquisitions may not be available or
in the best interests of our stockholders.
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|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
The following table sets forth certain information regarding our
properties at September 30, 2010 (dollars in thousands):
|
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|
|
|
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|
|
|
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|
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|
|
Approximate Area
|
|
|
|
Approximate
|
|
|
Location
|
|
Principal Use
|
|
or Floor Space
|
|
Status
|
|
Annual Rent
|
|
|
(a)
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Iron County, UT
|
|
Specialty Chemicals and Water Treatment Equipment Manufacturing
Facilities
|
|
258 Acres
|
|
Owned
|
|
N/A
|
(b)
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|
Rancho Cordova, CA
|
|
Fine Chemicals Manufacturing Facility
|
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241 Acres
|
|
Owned/Leased
|
|
$1
|
(c)
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|
Niagara Falls, NY
|
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Aerospace Equipment Manufacturing
|
|
81,425 sq. ft.
|
|
Leased
|
|
$147
|
(d)
|
|
Chatsworth, CA
|
|
Aerospace Equipment Offices
|
|
3,495 sq. ft.
|
|
Leased
|
|
$107
|
(e)
|
|
Dublin, Ireland
|
|
Aerospace Equipment Manufacturing
|
|
13,600 sq. ft.
|
|
Leased
|
|
$163
|
(e)
|
|
Westcott, Buckinghamshire, UK
|
|
Aerospace Equipment Manufacturing
|
|
40 Acres
|
|
Leased
|
|
$218
|
(e)
|
|
Cheltenham, Gloucestershire, UK
|
|
Aerospace Equipment Manufacturing
|
|
4,112 sq. ft.
|
|
Leased
|
|
$52
|
(f)
|
|
Las Vegas, NV
|
|
Executive Offices
|
|
22,531 sq.ft.
|
|
Leased
|
|
$972
|
(g)
|
|
Henderson, NV
|
|
Groundwater Remediation Site
|
|
1.75 Acres
|
|
Owned
|
|
N/A
|
|
|
|
(a) |
|
This facility is shared by the Specialty Chemicals segment and
our Other Businesses segment for the production of perchlorate,
sodium azide and Halotron products and water treatment
equipment. Presently, this facility has significant remaining
capacity. We own approximately 5000 acres of land that is
utilized and adjacent to our Utah facilities. The acreage
indicated in the chart represents land currently utilized by our
manufacturing facilities. |
(b) |
|
This facility is used by the Fine Chemicals segment for the
production of active pharmaceutical ingredients and registered
intermediates. All buildings and improvements are owned. The
land is leased under a capital lease arrangement with a bargain
purchase option. Presently, this facility has adequate remaining
capacity. |
(c) |
|
This facility is used for the design, manufacture and test of
our Aerospace Equipment segment products. Presently, this
facility has adequate capacity available to support its
operations and expand, as may be required, through the addition
of multiple labor shifts. |
34
|
|
|
(d) |
|
These offices are used for certain Aerospace Equipment segment
business development and engineering personnel. |
(e) |
|
These facilities are used for the design, manufacture and test
of our Aerospace Equipment segment products. Presently, these
facilities have adequate remaining capacity. |
(f) |
|
These offices are used for our corporate office functions. |
(g) |
|
This facility is used for the groundwater remediation activities
of the Company. |
We consider our facilities to be adequate for our present needs
and suitable for their current use.
|
|
Item 3.
|
Legal
Proceedings
|
Although we are not currently party to any material pending
legal proceedings, we are from time to time subject to claims
and lawsuits related to our business operations. Any such claims
and lawsuits could be costly and time consuming and could divert
our management and key personnel from our business operations.
In connection with any such claims and lawsuits, we may be
subject to significant damages or equitable remedies relating to
the operation of our business. Any such claims and lawsuits may
materially harm our business, results of operations and
financial condition.
|
|
Item 4.
|
(Removed and
Reserved)
|
Not applicable.
PART II
Item 5. Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
STOCK LISTING. Our common stock trades on the Nasdaq
Global Market of The NASDAQ Stock Market LLC under the symbol
APFC. The table below sets forth the high and low
sales prices of our common stock for the periods indicated in
our fiscal years ended September 30:
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|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
First Quarter
|
|
$
|
9.15
|
|
|
$
|
6.32
|
|
|
$
|
13.58
|
|
|
$
|
7.58
|
|
Second Quarter
|
|
|
8.17
|
|
|
|
5.70
|
|
|
|
8.64
|
|
|
|
3.90
|
|
Third Quarter
|
|
|
7.38
|
|
|
|
5.02
|
|
|
|
7.44
|
|
|
|
4.55
|
|
Fourth Quarter
|
|
|
5.66
|
|
|
|
3.84
|
|
|
|
8.81
|
|
|
|
6.44
|
|
At November 30, 2010, there were approximately
754 shareholders of record of our common stock. The closing
price of our common stock on November 30, 2010 was $6.09.
DIVIDENDS, UNREGISTERED SALES OF STOCK AND STOCK
REPURCHASES. No dividends were declared during Fiscal
2010 and Fiscal 2009. Our ability to pay dividends is subject to
restrictions, as set forth in the discussion of our
Long-Term Debt and Revolving Credit Facilities under
the heading Liquidity and Capital Resources in
Item 7 of this report. During the fiscal year ended
September 30, 2010, we did not sell any equity securities
that were not registered under the Securities Act of 1933, as
amended. During the quarter ended September 30, 2010, we
did not repurchase any shares of our common stock.
TRANSFER AGENT. Our stock transfer agent is American
Stock Transfer & Trust Company, 59 Maiden Lane,
New York, New York, 10007,
(800) 937-5449.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS. See Part III, Item 12 of this annual
report on
Form 10-K
for information regarding securities authorized for issuance
under our equity compensation plans.
35
|
|
Item 6.
|
Selected
Financial Data
|
Not applicable.
Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations (Dollars in Thousands)
The following discussion and analysis is intended to provide a
narrative discussion of our financial results and an evaluation
of our financial condition and results of operations with
respect to the fiscal years ended September 30, 2010
(Fiscal 2010), September 30, 2009 (Fiscal
2009) and September 30, 2008 (Fiscal
2008). The discussion should be read in conjunction with
our consolidated financial statements and notes thereto included
in Item 8 of this annual report on
Form 10-K.
A summary of our significant accounting policies is included in
Note 1 to our consolidated financial statements included in
Item 8 of this report. In addition to discussing historical
information, we make statements relating to the future, called
forward-looking statements, which are provided under
the safe harbor protection of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are
generally written in the future tense
and/or are
preceded or accompanied by words such as can,
could, may, should,
will, would, expect,
anticipate, believe,
estimate, future, forecast,
intend or the negative of these terms or other
similar words or expressions. Moreover, statements that
speculate about future events are forward-looking statements
such as with respect to the fiscal year ending
September 30, 2011 (Fiscal 2011). These
forward-looking statements involve a number of known and unknown
risks, uncertainties and other important factors that could
cause the actual results and outcomes to differ materially from
any future results or outcomes expressed or implied by such
forward-looking statements. You should carefully review the
Risk Factors section set forth in Item 1A of
this annual report on
Form 10-K
and in any more recent filings with the SEC, each of which
describes these risks, uncertainties and other important factors
in more detail. All forward-looking statements in this document
are made as of the date hereof, based on current information
available to us and based on our current expectations as of the
date hereof, and, while they are our best prediction at the time
that they are made, you should not rely on them. We undertake no
obligation, unless as otherwise required by law, to update or
revise any forward-looking statements in order to reflect new
information, events or circumstances that may arise after the
date of this annual report on
Form 10-K.
The SEC adopted regulations that apply to any public disclosure
or release of material information that includes a financial
measure that is not provided for under U.S. generally
accepted accounting principles (GAAP). The following
Managements Discussion and Analysis of Financial Condition
and Results of Operations contains a non-GAAP financial measure
for Consolidated EBITDA that is computed in connection with our
revolving credit facility covenant compliance. Consolidated
EBITDA, as defined in our revolving credit agreement, is
presented solely as a supplemental disclosure to provide
additional information about our debt covenant compliance. This
measure is not calculated in the same manner by all companies
and, accordingly, may not be an appropriate measure for
comparison. Non-GAAP financial measures should not be considered
in isolation from, or as a substitute for, financial information
presented in compliance with GAAP, and non-GAAP financial
measures we report may not be comparable to similarly titled
amounts reported by other companies.
OUR
COMPANY
We are a leading custom manufacturer of fine chemicals,
specialty chemicals and propulsion products within our focused
markets. Our fine chemicals products represent the active
pharmaceutical ingredient (API) or registered
intermediate in certain anti-viral, oncology and central nervous
system drugs. Our specialty chemicals and aerospace equipment
products are utilized in national defense programs and provide
access to, and movement in, space, via solid propellant and
propulsion thrusters. Our technical and manufacturing expertise
and customer service focus has gained us a reputation for
quality, reliability, technical performance and innovation.
Given the mission critical nature of our products, we maintain
long-standing strategic
36
customer relationships. We work collaboratively with our
customers to develop customized solutions that meet rigorous
federal and international regulatory standards. We generally
sell our products through
long-term
contracts under which we are the sole-source or limited-source
supplier.
We are the only North American producer of ammonium perchlorate,
or AP, which is the predominant oxidizing agent for
solid propellant rockets, booster motors and missiles used in
space exploration, commercial satellite transportation and
national defense programs. In order to diversify our business
and leverage our strong technical and manufacturing
capabilities, we have made three strategic acquisitions in
recent years. Each of these acquisitions provided long-term
customer relationships with sole-source and limited-source
contracts and leadership positions in growing markets. On
October 1, 2004, we acquired the former Atlantic Research
Corporations liquid in-space propulsion business from
Aerojet-General Corporation, which became our Aerospace
Equipment segment. Effective October 1, 2008, we further
expanded our Aerospace Equipment segment with the acquisition of
Marotta Holdings Limited (subsequently renamed Ampac ISP
Holdings Limited) and its wholly-owned subsidiaries
(collectively AMPAC ISP Holdings). Our
U.S.-based
Aerospace Equipment operation is one of two major North American
manufacturers of monopropellant and bipropellant liquid
propulsion systems and thrusters for satellites, launch
vehicles, and interceptors. 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. On
November 30, 2005, we acquired GenCorp Inc.s fine
chemicals business, through our wholly-owned subsidiary Ampac
Fine Chemicals LLC, which is now our Fine Chemicals segment. Our
Fine Chemicals segment is a leading custom manufacturer of
certain active pharmaceutical ingredients, or APIs, and
registered intermediates for pharmaceutical and biotechnology
companies.
OUR BUSINESS
SEGMENTS
Our operations comprise four reportable business segments:
(i) Fine Chemicals, (ii) Specialty Chemicals,
(iii) Aerospace Equipment and (iv) Other Businesses.
The following table reflects the revenue contribution percentage
from our business segments and each of their major product lines
for the years ended September 30:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Fine Chemicals
|
|
|
40%
|
|
|
|
48%
|
|
|
|
61%
|
|
|
|
|
|
|
|
Specialty Chemicals:
|
|
|
|
|
|
|
|
|
|
|
|
|
Perchlorates
|
|
|
32%
|
|
|
|
28%
|
|
|
|
26%
|
|
Sodium azide
|
|
|
1%
|
|
|
|
2%
|
|
|
|
0%*
|
|
Halotron
|
|
|
2%
|
|
|
|
2%
|
|
|
|
2%
|
|
|
|
|
|
|
|
Total specialty chemicals
|
|
|
35%
|
|
|
|
32%
|
|
|
|
28%
|
|
|
|
|
|
|
|
Aerospace Equipment
|
|
|
21%
|
|
|
|
17%
|
|
|
|
8%
|
|
|
|
|
|
|
|
Other Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
0%*
|
|
|
|
0%*
|
|
|
|
1%
|
|
Water treatment equipment
|
|
|
4%
|
|
|
|
3%
|
|
|
|
2%
|
|
|
|
|
|
|
|
Total other businesses
|
|
|
4%
|
|
|
|
3%
|
|
|
|
3%
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
FINE CHEMICALS. Our Fine Chemicals segment, operated
through our wholly-owned subsidiaries Ampac Fine Chemicals LLC
and AMPAC Fine Chemicals Texas, LLC (collectively
AFC), is a custom manufacturer of APIs and
registered intermediates for commercial customers in the
pharmaceutical industry. The products we manufacture are used by
our customers in drugs with indications in three primary areas:
anti-viral, oncology, and central nervous system. We generate
nearly all of our Fine Chemicals segment sales from
manufacturing chemical compounds that are proprietary to our
customers. We operate in compliance with the U.S. Food and
Drug Administrations (the FDA) current Good
Manufacturing Practices (cGMP) and the requirements
of certain other regulatory agencies such as
37
the European Unions European Medicines Agency and
Japans Pharmaceuticals and Medical Devices Agency. Our
Fine Chemicals segments strategy is to focus on high
growth markets where our technological position, combined with
our chemical process development and engineering expertise,
leads to strong customer allegiances and limited competition. In
addition, our unique location in Rancho Cordova, California
provides us with advantages for the production of chemicals for
pharmaceutical controlled substances. We believe that this will
be an area of expansion for us.
We have distinctive competencies and specialized engineering
capabilities in performing chiral separations, manufacturing
chemical compounds that require high containment and performing
energetic chemistries at commercial scale. We have invested
significant resources in our facilities and technology base. We
believe we are the U.S. leader in performing chiral
separations using commercial-scale simulated moving bed, or
SMB, technology and own and operate two large-scale
SMB machines, both of which are among the largest in the world
operating under cGMP. We believe our distinctive competency in
manufacturing chemical compounds that require specialized high
containment facilities and handling expertise provide us a
significant competitive advantage in competing for various
opportunities associated with high potency, highly toxic and
cytotoxic products. Many oncology drugs are made with APIs that
are high potency or cytotoxic. AFC is one of the few companies
in the world that can manufacture such compounds at a multi-ton
annual rate. Moreover, our significant experience and specially
engineered facilities make us one of the few companies in the
world with the capability to use energetic chemistry on a
commercial-scale under cGMP. We use this capability in
development and production of products such as those used in
anti-viral drugs, including HIV-related and influenza-combating
drugs.
We have established long-term, sole-source and limited-source
contracts, which help provide us with earnings stability and
visibility. In addition, the inherent nature of custom
pharmaceutical fine chemicals manufacturing encourages stable,
long-term customer relationships. We work collaboratively with
our customers to develop reliable, safe and cost-effective,
custom solutions. Once a custom manufacturer has been qualified
as a supplier on a cGMP product, there are several potential
barriers that discourage transferring the manufacturing of the
product to an alternative supplier, including the following:
|
|
|
Alternative Supply May Not Be Readily
Available. We are currently the sole-source
supplier on several of our fine chemicals products.
|
|
Regulatory Approval. Applications to and
approvals from the FDA and other regulatory authorities
generally require the chemical contractor to be named. Switching
contractors may require additional regulatory approvals and
could take as long as two years to complete.
|
|
Significant Financial Costs. Switching
contractors and amending various filings can result in
significant costs associated with technology transfer, process
validation and re-filing with the FDA and other regulatory
authorities.
|
SPECIALTY CHEMICALS. Our Specialty Chemicals segment
is principally engaged in the production of AP, which is the
predominant oxidizing agent for solid propellant rockets,
booster motors and missiles used in space exploration,
commercial satellite transportation and national defense
programs. In addition, we produce and sell sodium azide, a
chemical primarily used in pharmaceutical manufacturing, and
Halotron®,
a series of clean fire extinguishing agents used in fire
extinguishing products ranging from portable fire extinguishers
to total flooding systems.
We have supplied AP for use in space and defense programs for
over 50 years and we have been the only AP supplier in
North America since 1998, when we acquired the AP business of
our principal competitor, Kerr-McGee Chemical Corporation. A
significant number of existing and planned space launch vehicles
use solid propellant and thus depend, in part, upon our AP. Many
of the rockets and missiles used in national defense programs
are also powered by solid propellant.
Alliant Techsystems Inc. or ATK is a significant AP
customer. We sell Grade I AP to ATK under a long-term contract
that requires us to maintain a ready and qualified capacity for
Grade I AP and that requires ATK to purchase its Grade I AP
requirements from us, subject to certain terms and conditions.
The contract, which
38
expires in 2013, provides fixed pricing in the form of a price
volume matrix for annual Grade I AP volumes ranging from
3 million to 20 million pounds. Pricing varies
inversely to volume and includes annual escalations.
AEROSPACE EQUIPMENT. Our Aerospace Equipment segment
reflects the operating results of our wholly-owned subsidiary
Ampac-ISP Corp. and its wholly-owned subsidiaries.
Our
U.S.-based
Aerospace Equipment operation is one of two major North American
manufacturers of monopropellant and bipropellant liquid
propulsion systems and thrusters for satellites, launch
vehicles, and interceptors. Our products are utilized on various
satellite and launch vehicle programs such as Space
Systems/Lorals 1300 series geostationary satellites.
Our European-based Aerospace Equipment operation designs,
develops and manufactures liquid propulsion thrusters, 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.
OTHER BUSINESSES. Our Other Businesses segment
contains our water treatment equipment division and real estate
activities. Our water treatment equipment business markets,
designs, and manufactures electrochemical On Site Hypochlorite
Generation, or OSHG systems. These systems are used in the
disinfection of drinking water, control of noxious odors, and
the treatment of seawater to prevent the growth of marine
organisms in cooling systems. We supply our equipment to
municipal, industrial and offshore customers. Our real estate
activities are not material.
RESULTS OF
OPERATIONS
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
Percentage Change
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 vs. 09
|
|
09 vs. 08
|
|
|
|
|
Fine Chemicals
|
|
$
|
69,632
|
|
|
$
|
95,484
|
|
|
$
|
124,187
|
|
|
|
(27%)
|
|
|
(23%)
|
Specialty Chemicals
|
|
|
62,611
|
|
|
|
62,210
|
|
|
|
57,097
|
|
|
|
1%
|
|
|
9%
|
Aerospace Equipment
|
|
|
37,608
|
|
|
|
33,488
|
|
|
|
16,435
|
|
|
|
12%
|
|
|
104%
|
Other Businesses
|
|
|
6,341
|
|
|
|
5,966
|
|
|
|
5,410
|
|
|
|
6%
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
176,192
|
|
|
$
|
197,148
|
|
|
$
|
203,129
|
|
|
|
(11%)
|
|
|
(3%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fine Chemicals. For Fiscal 2010, the decrease
in Fine Chemicals segment revenues, compared to the prior fiscal
year, primarily reflects declines in core product revenues from
anti-viral products of 37%, central nervous system
(CNS) products of 44%, and oncology products of 14%.
Anti-viral product revenues declined in Fiscal 2010, as compared
to Fiscal 2009, as a result of an approximately 38% reduction in
volume for the anti-viral product that was our largest core
product in Fiscal 2009. The volume decline for this product is
due to the timing of completing the development of a new
manufacturing process that is the basis for a new three-year
supply agreement with the customer. Deliveries of this product
under the new agreement are expected to begin in early calendar
year 2011. The new contract, which includes a take or
pay provision, has a lower unit price for the product but
at higher annual volumes. The decrease in CNS product revenues
resulted from a customer advising us in May 2010 that they were
deferring additional orders until calendar year 2011. We have
received orders for this product for deliveries in the first
quarter of calendar year 2011 and the customer has recently
provided us with a non-binding forecast for orders for calendar
year 2011 that reflects improvement over Fiscal 2010 levels.
This contract includes a take or pay provision that
results in payments that help offset lower order volumes. The
decrease in oncology product revenues is primarily attributable
to using certain manufacturing capacity for development
products, described below. Certain of these development products
are APIs used to make drugs with oncology indications.
39
Fiscal 2010 revenues from development products increased 130% as
compared to Fiscal 2009. Historically, including both Fiscal
2009 and Fiscal 2008, revenues from development products were
approximately 5% of Fine Chemicals segment revenues. In Fiscal
2010, development product revenues increased to 15% of Fine
Chemicals segment revenues and we anticipate that this
percentage will trend upward in future years, supported by our
recent investments in facilities and equipment. 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 products categorized as
development products are used by our customers primarily for
drugs with indications in anti-viral, CNS, oncology and pain
management. Revenues in this category also include the milling
of cytotoxic materials, a capability we added in Fiscal 2010.
In February 2010, the FDA inspected the Fine Chemicals
segments Rancho Cordova facility and subsequently issued a
Form 483 noting five observations. In June 2010, the FDA
issued a Warning Letter indicating managements written
response to the Form 483 lacked specific corrective
action. Since the Warning Letter was issued, we have taken
additional corrective actions, including upgrades to certain
facilities and equipment. These actions resulted in the
intentional idling of certain production lines while equipment
upgrades were performed, as well as increased maintenance costs
and capital expenditures. Our corrective actions continued into
the first quarter of Fiscal 2011.
For Fiscal 2011, we anticipate that Fine Chemicals segment
revenues will increase as compared to Fiscal 2010, representing
significant increases in both core product and development
product revenues.
More generally, the pharmaceutical markets are being driven by
strong demand for products that use our core technologies,
including HIV-related drugs and oncology drugs, most of which
are expected to use energetic and high-potency compounds. Since
a large percentage of new drugs is anticipated to be based on
chirally pure material, we believe our investment in SMB
technology may be a strong competitive advantage for us in the
future.
For Fiscal 2009, the decrease in Fine Chemicals segment
revenues, compared to the prior fiscal year, primarily reflected
declines in core product revenues from anti-viral products of
30%, central nervous system products of 14%, and oncology
products of 13%.
Anti-viral product revenues declined in Fiscal 2009, as compared
to Fiscal 2008, as a result of an approximately 82% reduction in
volume for the anti-viral product that was our largest core
product in Fiscal 2008. Volume decline for this product was due
to our customers supply chain strategy and their desire to
reduce their then current levels of inventory. Revenue declines
for this product were partially offset by increases in revenues
from one of our other core anti-viral products. The decrease in
central nervous system product revenues resulted from a customer
reducing its orders for the product until calendar year 2010.
Specialty Chemicals. Specialty Chemicals
segment revenues include revenues from our perchlorate, sodium
azide and Halotron product lines, with perchlorates comprising
90%, 88%, and 91% of Specialty Chemicals revenues in Fiscal
2010, 2009 and 2008, respectively. The year over year variances
in Specialty Chemicals revenues reflect the following factors:
|
|
|
A 17% decrease in perchlorate volume offset by a 24% increase in
the related average price per pound for Fiscal 2010.
|
|
A 17% decrease in perchlorate volume and a 27% increase in the
related average price per pound for Fiscal 2009.
|
|
Sodium azide revenues decreased 24% in Fiscal 2010 and increased
398% in Fiscal 2009, each compared to the prior fiscal year.
|
|
Halotron revenues decreased 1% in Fiscal 2010 and decreased 14%
in Fiscal 2009, each compared to the prior fiscal year.
|
40
The decrease in total perchlorate volume for Fiscal 2010
reflects an approximately 50% decrease in AP volume for
space-related programs, offset by increases in volume for our
other perchlorate products. The Ares program was the most
significant space program for Fiscal 2010, while the Space
Shuttle Reusable Solid Rocket Motor (RSRM) program
was the most significant space program in Fiscal 2009. Volumes
for tactical and strategic missiles were consistent between
Fiscal 2010 and Fiscal 2009.
The increase in average price per pound of perchlorates in
Fiscal 2010 reflects two offsetting factors:
|
|
|
The average price per pound of Grade I AP increased
approximately proportionate and inverse to the decrease in Grade
I AP volume consistent with the contractual Grade I AP
price-volume matrix and comparable catalog pricing.
|
|
This was offset, in part, by our other lower-priced perchlorate
products, such as sodium perchlorate and potassium perchlorate,
which accounted for a greater percentage of all perchlorate
product volume in the Fiscal 2010 periods. This change in the
mix of perchlorate product sales had a reducing effect on the
overall average price per pound of all perchlorate products.
|
The decrease in perchlorate volume for Fiscal 2009 was primarily
due to the completion of the Minuteman III propulsion
replacement program in Fiscal 2008 offset partially by increases
in demand for space and tactical missile programs. The average
price per pound increased for Fiscal 2009 primarily due to the
effect of our contractual price-volume matrix. In addition, we
sold more specialized blend product than in the comparable prior
fiscal year periods.
We expect Grade I AP demand in Fiscal 2011 to be less than
Fiscal 2010, primarily due to the upcoming retirement of the
NASA Space Shuttle and uncertainties in the NASA budget for
large solid rockets to be used on the new heavy lift vehicle. We
believe that such segment revenues will remain in Fiscal 2011
within the expected stable range for this non-growth segment.
Over the longer term, we expect annual demand for Grade I AP to
be within the range of 4 million to 9 million pounds
based on NASA and U.S. Department of Defense
(DOD) production programs. We believe that AP demand
for DOD programs will be stable over the next several years.
NASA demand for space-related programs may vary depending on
congressional and NASA decisions regarding the direction of the
space program.
In February 2010, the Obama administration released its fiscal
year 2011 budget which included the proposed cancellation of
NASAs Constellation space exploration program. The Ares
rocket, produced by our customer ATK, is a major part of the
Constellation program. We are a major supplier of chemicals for
this program, and it is a significant portion of the perchlorate
demand. Congress recently passed the NASA Authorization Act
which strongly recommends the use of large solid rockets, and
therefore AP, for the new heavy lift vehicle. Congress will
ultimately determine as part of the fiscal year 2011
authorization and appropriation legislative process the policy
and funding levels for NASA and will decide on the future
funding level for the heavy launch vehicle.
In addition, Grade I AP revenues are typically derived from
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 changes in sodium azide revenues in Fiscal 2010 and Fiscal
2009 are due primarily to fluctuation in demand for sodium azide
used in pharmaceutical applications. We do not anticipate a
significant increase in demand for sodium azide in Fiscal 2011.
Changes in Halotron revenues have been driven by volume changes
which have been and are expected to be relatively consistent
year over year.
Aerospace Equipment. Our Aerospace Equipment
segment reflects the operating results of our wholly-owned
subsidiary Ampac-ISP Corp. and its wholly-owned subsidiaries
(collectively, ISP).
41
As noted above, effective as of October 1, 2008, we
acquired Marotta Holdings Limited (subsequently renamed Ampac
ISP Holdings Limited) and its wholly-owned subsidiaries.
Combined with our existing Aerospace Equipment segment
operations in Westcott, U.K., these operations constitute AMPAC
ISP Europe.
Revenue growth of 12% for the Aerospace Equipment segment during
Fiscal 2010, as compared to Fiscal 2009, was generated from both
its U.S. and European operations. The primary growth
component was revenue from sales of space propulsion engines,
which increased 57% in Fiscal 2010 due largely to growth in the
communication and commercial satellite markets.
The Aerospace Equipment segment concluded Fiscal 2010 with a
record high level of funded backlog of approximately $61,100 as
of September 30, 2010. In July 2010, our Aerospace
Equipment segment 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.
For Fiscal 2011, we anticipate that the Aerospace Equipment
segment revenues should continue to grow as compared to Fiscal
2010, supported by this segments record backlog level as
of September 30, 2010.
For Fiscal 2009, Aerospace Equipment segment revenues increased
$17,053 due to both organic growth and the AMPAC ISP Holdings
acquisition. AMPAC ISP Holdings contributed $6,003 in revenues.
The remainder of the revenue increase was primarily attributed
to this segments U.S. operations which experienced
success with new contract awards, beginning in the latter part
of Fiscal 2008. This improvement in backlog resulted in
significant revenue increases for propulsion systems in Fiscal
2009.
Other Businesses. Other Businesses segment
revenues include PEPCON Systems water treatment equipment
and related spare parts sales and real estate revenues. Water
treatment equipment sales increased $537 in Fiscal 2010 and
$1,265 in Fiscal 2009, each compared to the prior fiscal years.
The revenue increases were driven by new system sales.
COST OF REVENUES
AND GROSS MARGIN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
Percentage Change
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 vs. 09
|
|
09 vs. 08
|
|
|
|
|
Revenues
|
|
$
|
176,192
|
|
|
$
|
197,148
|
|
|
$
|
203,129
|
|
|
|
(11%)
|
|
|
(3%)
|
Cost of Revenues
|
|
|
121,477
|
|
|
|
136,295
|
|
|
|
135,388
|
|
|
|
(11%)
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
54,715
|
|
|
$
|
60,853
|
|
|
$
|
67,741
|
|
|
|
(10%)
|
|
|
(10%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin Percentage
|
|
|
31%
|
|
|
|
31%
|
|
|
|
33%
|
|
|
|
|
|
|
|
In addition to the factors detailed below, 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.
Fiscal 2010 cost of revenues decreased $14,818, or 11%, to
$121,477 from $136,295 for the prior fiscal year. The
consolidated gross margin percentage was 31% for both Fiscal
2010 and Fiscal 2009. The following factors affect our Fiscal
2010 consolidated gross margin comparisons:
|
|
|
The Fine Chemicals segment gross margin percentage declined six
points compared to the prior fiscal year. Reduced volume was the
primary contributor to the reduction. In addition, the segment
experienced several manufacturing inefficiencies including
increases in cycle times for certain core products, higher than
anticipated costs associated with validating a process change
for a core product, and higher than anticipated efforts
associated with certain development products.
|
42
|
|
|
The Specialty Chemicals segment gross margin percentage improved
six points because Fiscal 2010 included a greater percentage of
non-Grade I AP volume and Fiscal 2010 benefited from unique cost
items such as lower utilities and production variances which are
not expected to recur.
|
|
|
The Aerospace Equipment segment gross margin percentage declined
seven points primarily due to increases in estimated costs to
complete certain systems contracts. These cost increases
occurred primarily because engineering and design work required
more efforts than anticipated, as well as because there were
certain quality issues with supplier product.
|
For Fiscal 2011, we anticipate improvements in Fine Chemicals
segment and Aerospace Equipment segment margins as they are
expected to recover in the latter half of Fiscal 2011 from the
profit impacts of the Fiscal 2010 operational and capacity
issues, as well as the anticipated benefits from implementation
of our cost reduction and operational excellence initiative.
However, low Fine Chemicals segment manufacturing volume during
the second half of calendar 2010 is anticipated to continue to
have a negative impact on expected margins for the first half of
Fiscal 2011. Specialty Chemicals segment margins are expected to
remain strong in Fiscal 2011 but decline in Fiscal 2011 as
compared to Fiscal 2010 Specialty Chemicals segment margins. We
anticipate that this will be partially due to the anticipated
reduction in Specialty Chemicals segment revenues in Fiscal 2011
and partially because unique items that benefitted Fiscal 2010
margins will not recur in Fiscal 2011.
Fiscal 2009 cost of revenues increased $907, or 1%, to $136,295
from $135,388 for the prior fiscal year. The consolidated gross
margin percentage declined to 31% compared to 33% for the prior
fiscal year. The following factors affected our Fiscal 2009
consolidated gross margin comparisons:
|
|
|
Fine Chemicals segment gross margin percentage for Fiscal 2009
declined by approximately eight points, reflecting the following:
|
|
|
|
|
¡
|
A decrease in the gross margin percentage due to lower
production volume and the related impact on gross margin due to
less absorption of fixed manufacturing costs.
|
|
¡
|
During the fourth quarter of Fiscal 2008, the implementation of
a new process for a large-volume core anti-viral product which
experienced
start-up
difficulties that negatively impacted margins for this product
for the first half of Fiscal 2009.
|
|
¡
|
A decrease in revenues for central nervous system products,
including a price reduction for a large-volume core product.
|
|
|
|
Specialty Chemicals segment gross margin percentage improved two
points for Fiscal 2009 compared to the prior fiscal year
primarily due to a reduction in amortization expense from $1,517
for Fiscal 2008 to zero for Fiscal 2009. In mid-Fiscal 2008
second quarter, the Specialty Chemicals segment completed the
amortization of the value assigned to the perchlorate customer
list acquired in the fiscal year ended September 30, 1998.
|
|
Aerospace Equipment segment gross margin percentage improved two
points for Fiscal 2009 compared to the prior fiscal year. The
improvement was primarily driven by the AMPAC ISP Europe
operations which experienced gross margin increases due to
greater volumes. This improvement was offset somewhat by lower
aggregate margins due to a change in product mix to a greater
portion of propulsion systems in Fiscal 2009 as compared to
engines in Fiscal 2008.
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
Percentage Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
10 vs. 09
|
|
09 vs. 08
|
|
|
|
|
Operating Expenses
|
|
$
|
48,045
|
|
|
$
|
45,325
|
|
|
$
|
42,865
|
|
|
|
6%
|
|
|
6%
|
Percentage of Revenues
|
|
|
27%
|
|
|
|
23%
|
|
|
|
21%
|
|
|
|
|
|
|
|
43
Fiscal 2010 operating expenses increased $2,720 to $48,045 from
$45,325 for Fiscal 2009 primarily as a result of:
|
|
|
A $1,299 increase in Fine Chemicals segment operating expenses
that is largely attributed to enhanced business development
activities, as well as $425 in additional costs associated with
our recently acquired facility in Texas.
|
|
An increase in Aerospace Equipment segment operating expenses of
$1,708 that includes additional research and development
expenses and additional management and organizational structure
required to support the business growth. Research and
development activities, which amounted to approximately $1,000,
are focused in the area of product development, including
aerospace valves and enhancements to our thruster engines.
|
|
A decrease in corporate operating expenses of $320. The most
significant components of this decrease include a reduction in
corporate development expenses of $542, an increase in costs
associated with our board of directors of $406, and other
individually insignificant increases and decreases which
aggregate to a decrease of $184.
|
Fiscal 2009 operating expenses increased $2,460 to $45,325 from
$42,865 for Fiscal 2008 primarily as a result of:
|
|
|
A $914 decrease in Fine Chemicals segment incentive
compensation, as a result of recording no incentive compensation
in Fiscal 2009.
|
|
An increase in Specialty Chemicals segment operating expenses
primarily due to an increase of $329 in employee benefit costs
and an increase of $305 in lab and research and development
costs.
|
|
An increase in Aerospace Equipment segment operating expenses
primarily due to additional operating expenses in the amount of
$2,496 resulting from the acquisition of AMPAC ISP Holdings.
|
|
|
A decrease in corporate expenses, primarily including a decrease
in incentive compensation of $1,382 as a result of recording no
incentive compensation in Fiscal 2009, offset partially by
increases in payroll and related costs of $718, rent of $593 and
stock-based compensation of $639.
|
|
Other decreases of $324.
|
ENVIRONMENTAL REMEDIATION CHARGES. During Fiscal
2009, we recorded an environmental remediation charge of $13,700
reflecting increases in our total cost estimate of probable
costs for our Henderson, Nevada groundwater remediation
operations. See detailed discussion under the heading
Environmental Remediation AMPAC Henderson
Site below.
SEGMENT OPERATING
PROFIT (LOSS) AND OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
Percentage Change
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 vs. 09
|
|
09 vs. 08
|
|
|
|
|
Fine Chemicals
|
|
$
|
(7,583)
|
|
|
$
|
2,299
|
|
|
$
|
16,246
|
|
|
|
(430%)
|
|
|
(86%)
|
Specialty Chemicals
|
|
|
30,571
|
|
|
|
26,189
|
|
|
|
23,128
|
|
|
|
17%
|
|
|
13%
|
Aerospace Equipment
|
|
|
(265)
|
|
|
|
3,012
|
|
|
|
736
|
|
|
|
(109%)
|
|
|
309%
|
Other Businesses
|
|
|
(206)
|
|
|
|
195
|
|
|
|
1,022
|
|
|
|
(206%)
|
|
|
(81%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Operating Profit
|
|
|
22,517
|
|
|
|
31,695
|
|
|
|
41,132
|
|
|
|
(29%)
|
|
|
(23%)
|
Corporate Expenses
|
|
|
(15,847)
|
|
|
|
(16,167)
|
|
|
|
(16,256)
|
|
|
|
(2%)
|
|
|
(1%)
|
Environmental Remediation Charges
|
|
|
-
|
|
|
|
(13,700)
|
|
|
|
-
|
|
|
|
(100%)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
6,670
|
|
|
$
|
1,828
|
|
|
$
|
24,876
|
|
|
|
265%
|
|
|
(93%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income or loss includes all sales and expenses
directly associated with each segment. Environmental remediation
charges, corporate general and administrative costs and interest
are not allocated to segment operating results. Fluctuations in
segment operating income or loss are driven by changes in
segment revenues, gross margins and operating expenses, each of
which is discussed in greater detail above.
44
BACKLOG
Agreements with our Fine Chemicals segment customers typically
include multi-year supply agreements. These agreements may
contain provisional order volumes, minimum order quantities,
take-or-pay
provisions, termination fees and other customary terms and
conditions, which we do not include in our computation of
backlog. Fine Chemicals segment backlog includes unfulfilled
firm purchase orders received from a customer, including both
purchase orders which are issued against a related supply
agreement and stand-alone purchase orders. Fine Chemicals
segment backlog was $49,700 and $28,200 as of September 30,
2010 and 2009, respectively. We anticipate order backlog as of
September 30, 2010 to be substantially filled during Fiscal
2011.
Our Aerospace Equipment segment is a government contractor, and
accordingly, total backlog includes both funded backlog
(contracts, or portions of contracts, for which funding is
contractually obligated by the customer) and unfunded backlog
(contracts, or portions of contracts, for which funding is not
currently contractually obligated by the customer). We compute
Aerospace Equipment segment total and funded backlog as the
total contract value less revenues that have been recognized
under the
percentage-of-completion
method of accounting. Aerospace Equipment segment total backlog
and funded backlog were approximately $67,900 and $61,100,
respectively, as of September 30, 2010, compared to total
backlog and funded backlog of $46,800 and $38,900, respectively,
as of September 30, 2009. We anticipate the majority of
funded backlog as of September 30, 2010 to be completed
during Fiscal 2011, with any remainder to be completed in the
fiscal year ending September 30, 2012.
Backlog is not a meaningful measure for our other business
lines. While a substantial portion of our anticipated revenues
for Fiscal 2011 is currently in our backlog, the timing of our
customer product requirements should result in at least a
majority of our expected annual revenues for Fiscal 2011
occurring in the second half of the fiscal year.
INTEREST AND
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
Percentage Change
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 vs. 09
|
|
|
09 vs. 08
|
|
|
|
|
|
|
Interest and Other Income (Expense), Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
58
|
|
|
$
|
150
|
|
|
$
|
937
|
|
|
|
(61%)
|
|
|
|
(84%)
|
|
Gain on Sale of Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
429
|
|
|
|
-
|
|
|
|
(100%)
|
|
Other
|
|
|
(13)
|
|
|
|
(4)
|
|
|
|
-
|
|
|
|
225%
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45
|
|
|
$
|
146
|
|
|
$
|
1,366
|
|
|
|
(69%)
|
|
|
|
(89%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
$
|
10,656
|
|
|
$
|
10,735
|
|
|
$
|
10,803
|
|
|
|
(1%)
|
|
|
|
(1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We earn interest income on our cash and cash equivalents
balances. Interest income varies with these balances and the
applicable interest rate.
In Fiscal 2008, the gain on sale of assets relates to the final
recognition of a deferred gain from a sale-lease back
transaction in October 2005. In Fiscal 2008, the lease was
terminated and the associated deferred gain was recognized.
Interest expense was consistent between Fiscal 2010, Fiscal 2009
and Fiscal 2008 because the interest rate for our primary credit
facility is fixed.
INCOME TAXES. Our income tax expense (benefit) rate
differs from the federal statutory rate due to state income
taxes, amounts that were expensed for book purposes that are not
deductible for income tax purposes, changes in our valuation
allowances, and other adjustments to our estimates of tax
liabilities.
45
A reconciliation of the federal statutory rate to our effective
tax (benefit) rate is as follows for the years ended September
30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Federal income tax at the statutory rate
|
|
|
(35.0%)
|
|
|
|
(35.0%)
|
|
|
|
35.0%
|
State income tax, net of federal benefit
|
|
|
(5.4%)
|
|
|
|
(5.0%)
|
|
|
|
5.2%
|
Nondeductible expenses
|
|
|
8.5%
|
|
|
|
3.9%
|
|
|
|
1.5%
|
Valuation allowance
|
|
|
1.4%
|
|
|
|
0.0%
|
|
|
|
1.0%
|
Change in effective state income tax rate
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
(2.3%)
|
Interest and penalties
|
|
|
9.4%
|
|
|
|
0.6%
|
|
|
|
1.4%
|
Foreign tax rate differential
|
|
|
5.5%
|
|
|
|
2.4%
|
|
|
|
0.0%
|
Other
|
|
|
(1.2%)
|
|
|
|
1.1%
|
|
|
|
0.2%
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(16.8%)
|
|
|
|
(32.0%)
|
|
|
|
42.0%
|
|
|
|
|
|
|
Deferred tax assets are comprised of the following at September
30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Environmental remediation reserves
|
|
$
|
11,058
|
|
|
$
|
11,955
|
|
Pension obligations
|
|
|
15,005
|
|
|
|
10,400
|
|
Tax credits and carryforwards
|
|
|
3,137
|
|
|
|
3,589
|
|
Intangible assets
|
|
|
2,349
|
|
|
|
2,899
|
|
Inventory
|
|
|
8,678
|
|
|
|
4,660
|
|
Accrued expenses
|
|
|
2,214
|
|
|
|
1,997
|
|
Other
|
|
|
917
|
|
|
|
590
|
|
|
|
|
|
|
|
Subtotal
|
|
|
43,358
|
|
|
|
36,090
|
|
Valuation allowance
|
|
|
(1,186)
|
|
|
|
(1,157)
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
42,172
|
|
|
|
34,933
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(10,671)
|
|
|
|
(6,698)
|
|
Prepaid expenses
|
|
|
(461)
|
|
|
|
(623)
|
|
Other
|
|
|
(114)
|
|
|
|
(302)
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(11,246)
|
|
|
|
(7,623)
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
30,926
|
|
|
$
|
27,310
|
|
|
|
|
|
|
|
The following summarizes our tax credits and carryforwards as of
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Federal operating losses
|
|
$
|
1,251
|
|
|
$
|
1,382
|
|
Federal R&D credits
|
|
|
160
|
|
|
|
160
|
|
Federal AMT credits
|
|
|
1,412
|
|
|
|
1,684
|
|
State operating losses
|
|
|
1,205
|
|
|
|
1,205
|
|
U.K. operating losses
|
|
|
2,753
|
|
|
|
2,514
|
|
Ireland operating losses
|
|
|
3,989
|
|
|
|
3,548
|
|
Federal operating loss carryforwards, expiring in 2029, federal
R&D credits and federal AMT credits are available to reduce
future federal taxable income. We do not anticipate future
taxable income in the states that have operating loss
carryforwards and have provided a full valuation allowance of
$66 as of September 30, 2010 and 2009. Because of a history
of losses in foreign tax jurisdictions, we have concluded that
it is more likely than not that we will not utilize these
operating loss carryforwards and, accordingly, have provided
aggregate valuation allowances of $1,120 and $1,091 as of
September 30, 2010 and 2009, respectively. We have not
provided a U.S. federal income tax for our foreign
operations because we intend to permanently reinvest any foreign
earnings.
46
LIQUIDITY AND
CAPITAL RESOURCES
CASH
FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
Percentage Change
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 vs. 09
|
|
|
09 vs. 08
|
|
|
|
|
|
|
Cash Provided (Used) By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
20,775
|
|
|
$
|
11,142
|
|
|
$
|
20,333
|
|
|
|
86%
|
|
|
|
(45%)
|
|
Investing activities
|
|
|
(13,352)
|
|
|
|
(16,183)
|
|
|
|
(15,284)
|
|
|
|
(17%)
|
|
|
|
6%
|
|
Financing activities
|
|
|
(5,053)
|
|
|
|
(316)
|
|
|
|
418
|
|
|
|
1,499%
|
|
|
|
(176%)
|
|
Effect of changes in exchange rates on cash
|
|
|
(66)
|
|
|
|
145
|
|
|
|
-
|
|
|
|
(146%)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash for period
|
|
$
|
2,304
|
|
|
$
|
(5,212)
|
|
|
$
|
5,467
|
|
|
|
(144%)
|
|
|
|
(195%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Fiscal 2010
compared to Fiscal 2009
Operating activities provided cash of $20,775 for Fiscal 2010
compared to $11,142 for the prior fiscal year, resulting in an
increase of $9,633.
Significant components of the change in cash flow from operating
activities include:
|
|
|
A decrease in cash due to a decline in cash profits generated by
our operations.
|
|
An increase in cash provided by working capital accounts of
$20,310, excluding the effects of interest and income taxes.
|
|
An increase in cash taxes refunded of $98.
|
|
An increase in cash paid for interest of $70.
|
|
An increase in cash used for environmental remediation of $1,532.
|
|
Other decreases in cash provided by operating activities of $506.
|
The increase in cash provided by working capital is comprised
primarily of the following factors. The Fine Chemicals segment
accounted for approximately $6,000 of the increase as working
capital needs were reduced as a result of the lower business
volume in Fiscal 2010. We anticipate that this trend will
reverse as the Fine Chemicals segment business volume is
expected to increase in Fiscal 2011. The Aerospace Equipment
segment accounted for approximately $6,000 of the increase,
reflecting improvements in working capital management. The Other
Businesses segment accounted for approximately $6,000 of the
increase as unusually high working capital balances as of
September 30, 2009 returned to more normalized levels as of
September 30, 2010.
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 $10,000 from quarter to quarter.
In late Fiscal 2009, we commenced a project to engineer, design,
and install additional equipment at our Henderson, Nevada
remediation site. The increase in environmental remediation
spending in Fiscal 2010 is due to this project. See additional
discussion under the heading Environmental
Remediation AMPAC Henderson Site below.
47
Fiscal 2009
compared to Fiscal 2008
Operating activities provided cash of $11,142 for Fiscal 2009
compared to $20,333 for the prior fiscal year, resulting in a
decrease of $9,191.
Significant components of the change in cash flow from operating
activities include:
|
|
|
A decrease in cash due to a decline in cash profits generated by
our operations.
|
|
An increase in cash used for working capital accounts of $7,572,
excluding the effects of interest and income taxes.
|
|
A decrease in cash taxes paid of $5,743.
|
|
A decrease in cash interest of $113.
|
|
An increase in cash used for environmental remediation of $143.
|
|
Other increases in cash provided by operating activities of
$2,884.
|
The increase in cash used for working capital accounts was
primarily due to an increase in working capital requirements to
support the revenue growth of our Aerospace Equipment segment.
In addition, accounts receivable balances for our Specialty
Chemicals segment were higher as of September 30, 2009 due
to higher revenues in September 2009. These higher accounts
receivable balances were substantially collected in October 2009.
For Fiscal 2009, we did not pay federal income taxes based on
the reduction in income and the effects of timing differences in
expense deductions. As a result, cash tax requirements were
significantly reduced in Fiscal 2009 compared to Fiscal 2008.
Other increases in cash provided by operating activities
primarily reflected the timing of contributions to our defined
benefit pension plans.
Investing Activities
Fiscal 2010
compared to Fiscal 2009
Fiscal 2010 capital expenditures of $13,362 reflect an increase
of $3,904 from capital expenditures of $9,458 in Fiscal 2009. In
April 2010, our Fine Chemicals segment expanded its
manufacturing capacity through the purchase of a fine chemicals
facility in La Porte, Texas at a total cost of
approximately $1,200, including direct purchase costs. The
purchase of this facility is accounted for as a capital
expenditure.
We are anticipating our capital expenditures, which do not
include environmental remediation spending, for Fiscal 2011 to
be approximately $16,000. Our expected capital expenditures in
Fiscal 2011 include approximately $5,000 for Fine Chemicals
segment equipment that is required to support a
recently-awarded, three-year, core product contract and
approximately $2,000 for facility upgrades in our Fine Chemicals
segment to satisfy recent FDA standards.
Fiscal 2009
compared to Fiscal 2008
Capital expenditures decreased by $5,826 in Fiscal 2009 compared
to the prior fiscal year primarily due to reductions in growth
capital spending for our Fine Chemicals segment.
Cash used for acquisition of business reflects the
purchase of AMPAC ISP Holdings for $7,196, net of cash acquired
of $471.
Financing Activities
In June 2010, we repurchased and cancelled $5,000 in principal
amount of our 9% Senior Notes for $4,900, which
approximated the carrying value of the notes, net of deferred
financing costs. Remaining financing cash flows for Fiscal 2010
and Fiscal 2009 primarily reflect capital lease payments and
cash flows associated with stock option exercises.
48
Fiscal 2008 also includes purchases of treasury stock.
LIQUIDITY AND CAPITAL RESOURCES. As of
September 30, 2010, we had cash of $23,985. Our primary
source of working capital is cash flows from operations. In
addition, we have available funds under our committed revolving
credit line, which matures in February 2012. Our revolving line
of credit had availability of $18,170 as of September 30,
2010. Availability is computed as the total commitment of
$20,000 less outstanding borrowings and outstanding letters of
credit, if any. We believe that changes in cash flow from
operations during our Fiscal 2010 periods reflect short-term
timing and as such do not represent significant changes in our
sources and uses of cash. Because our revenues, and related
customer invoices and collections, are characterized by
relatively few individually significant transactions, our
working capital balances can vary normally by as much as $10,000
from period to period.
We may incur additional debt to fund capital projects, strategic
initiatives or for other general corporate purposes, subject to
our existing leverage, the value of our unencumbered assets and
borrowing limitations imposed by our lenders. The availability
of our cash inflows is affected by the timing, pricing and
magnitude of orders for our products. From time to time, we may
explore options to refinance our borrowings.
The timing of our cash outflows is affected by payments and
expenses related to the manufacture of our products, capital
projects, pension funding, interest on our debt obligations and
environmental remediation or other contingencies, which may
place demands on our short-term liquidity. Although we are not
currently party to any material pending legal proceedings, we
are from time to time subject to claims and lawsuits related to
our business operations and we have incurred legal and other
costs as a result of litigation and other contingencies. We may
incur material legal and other costs associated with the
resolution of litigation and contingencies in future periods,
and, to the extent not covered by insurance, they may adversely
affect our liquidity.
In contemplating the adequacy of our liquidity and available
capital, we consider factors such as:
|
|
|
current results of operations, cash flows and backlog;
|
|
anticipated changes in operating trends, including anticipated
changes in revenues and margins;
|
|
cash requirements related to our debt agreements and pension
plans; and
|
|
cash requirements related to our remediation activities,
including amounts that we expect to spend through fall 2011 for
the engineering, design, installation and cost of additional
remediation equipment (Remediation Capital). See
further discussion under the heading Environmental
Remediation AMPAC Henderson Site below.
|
We do not currently anticipate that the factors noted above will
have material effects on our ability to meet our future
liquidity requirements. We anticipate funding Remediation
Capital with cash on hand. We continue to believe that our cash
flows from operations, existing cash balances and existing or
future debt arrangements will be adequate for the foreseeable
future to satisfy the needs of our operations on both a
short-term and long-term basis. Further, accounting charges for
environmental remediation and cash spent for Remediation Capital
do not impact our bank covenant compliance charges.
LONG TERM DEBT
AND REVOLVING CREDIT FACILITIES
Senior Notes. In February 2007, we issued and
sold $110,000 aggregate principal amount of 9.0% Senior
Notes due February 1, 2015 (collectively, with the exchange
notes issued in August 2007 as referenced below, the
Senior Notes). Proceeds from the issuance of the
Senior Notes were used to repay our former credit facilities.
The Senior Notes accrue interest at an annual rate of 9.0%,
payable semi-annually in February and August. The Senior Notes
are guaranteed on a senior unsecured basis by all of our
existing and future material U.S. subsidiaries. The Senior
Notes are:
|
|
|
ranked equally in right of payment with all of our existing and
future senior indebtedness;
|
|
ranked senior in right of payment to all of our existing and
future senior subordinated and subordinated indebtedness;
|
49
|
|
|
effectively junior to our existing and future secured debt to
the extent of the value of the assets securing such
debt; and
|
|
structurally subordinated to all of the existing and future
liabilities (including trade payables) of each of our
subsidiaries that do not guarantee the Senior Notes.
|
The Senior Notes may be redeemed by us, in whole or in part,
under the following circumstances:
|
|
|
at any time prior to February 1, 2011 at a price equal to
100% of the purchase amount of the Senior Notes plus an
applicable premium as defined in the related indenture;
|
|
at any time on or after February 1, 2011 at redemption
prices beginning at 104.5% of the principal amount to be
redeemed and reducing to 100% by February 1, 2013; and
|
|
under certain changes of control, we must offer to purchase the
Senior Notes at 101% of their aggregate principal amount, plus
accrued interest.
|
The Senior Notes were issued pursuant to an indenture which
contains certain customary events of default, including
cross-default provisions if we default under our existing and
future debt agreements having, individually or in the aggregate,
a principal or similar amount outstanding of at least $10,000,
and certain other covenants limiting, subject to exceptions,
carve-outs and qualifications, our ability to:
|
|
|
incur additional debt;
|
|
pay dividends or make other restricted payments;
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create liens on assets to secure debt;
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incur dividend or other payment restrictions with regard to
restricted subsidiaries;
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transfer or sell assets;
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enter into transactions with affiliates;
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enter into sale and leaseback transactions;
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create an unrestricted subsidiary;
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enter into certain business activities; or
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effect a consolidation, merger or sale of all or substantially
all of our assets.
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In connection with the closing of the sale of the Senior Notes,
we entered into a registration rights agreement which required
us to file a registration statement to offer to exchange the
Senior Notes for notes that have substantially identical terms
as the Senior Notes and are registered under the Securities Act
of 1933, as amended. In July 2007, we filed a registration
statement with the SEC with respect to an offer to exchange the
Senior Notes as required by the registration rights agreement,
which registration statement was declared effective by the SEC.
In August 2007, we completed the exchange of 100% of the Senior
Notes for substantially identical notes which are registered
under the Securities Act of 1933, as amended.
Revolving Credit Facility. In February 2007,
we entered into an Amended and Restated Credit Agreement, as
amended as of July 7, 2009 and September 17, 2010 (the
Revolving Credit Facility), with Wachovia Bank,
National Association (predecessor by merger to Wells Fargo Bank,
National Association), and certain other lenders, which provides
a secured revolving credit facility in an aggregate principal
amount of up to $20,000 with an initial maturity of
5 years. We may prepay and terminate the Revolving Credit
Facility at any time. The annual interest rates applicable to
loans under the Revolving Credit Facility are, at our option,
either the Alternate Base Rate or LIBOR Rate (each as defined in
the Revolving Credit Facility) plus, in each case, an applicable
margin. The applicable margin is tied to our total leverage
ratio (as defined in the Revolving Credit Facility). In
addition, we pay commitment fees, other fees related to the
issuance and maintenance of letters of credit, and certain
agency fees.
The Revolving Credit Facility is guaranteed by and secured by
substantially all of the assets of our current and future
domestic subsidiaries, subject to certain exceptions as set
forth in the Revolving Credit Facility. The Revolving Credit
Facility contains certain negative covenants restricting and
limiting our ability to, among other things:
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incur debt, incur contingent obligations and issue certain types
of preferred stock;
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create liens;
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50
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pay dividends, distributions or make other specified restricted
payments;
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make certain investments and acquisitions;
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enter into certain transactions with affiliates;
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enter into sale and leaseback transactions; and
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merge or consolidate with any other entity or sell, assign,
transfer, lease, convey or otherwise dispose of assets.
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Financial covenants under the Revolving Credit Facility include
quarterly requirements for total leverage ratio of less than or
equal to 5.25 to 1.00 (Total Leverage Ratio), and
interest coverage ratio of at least 2.00 to 1.00 through
quarters ended June 30, 2011 and 2.50 to 1.00 for quarters
thereafter (Interest Coverage Ratio). The Revolving
Credit Facility defines Total Leverage Ratio as the ratio of
Consolidated Funded Debt to Consolidated EBITDA and Interest
Coverage Ratio as the ratio of Consolidated EBITDA to
Consolidated Interest Expense. With respect to these covenant
compliance calculations, Consolidated EBITDA, as defined in the
Revolving Credit Facility (hereinafter, referred to as
Credit Facility EBITDA), differs from typical EBITDA
calculations and our calculation of Adjusted EBITDA, which is
used in certain of our public releases and in connection with
our incentive compensation plan. The most significant difference
in the Credit Facility EBITDA calculation is the inclusion of
cash payments for environmental remediation as part of the
calculation. The following statements summarize the elements of
those definitions that are material to our computations.
Consolidated Funded Debt generally includes principal amounts
outstanding under our Senior Notes, Revolving Credit Facility,
capital leases and notional amounts for outstanding letters of
credit. Credit Facility EBITDA is generally computed as
consolidated net income (loss) plus income tax expense
(benefit), interest expense, depreciation and amortization, and
stock-based compensation expense and less cash payments for
environmental remediation and other non-recurring gains in
excess of $50. In accordance with the definitions contained in
the Revolving Credit Facility, as of September 30, 2010,
our Total Leverage Ratio was 4.71 to 1.00 and our Interest
Coverage Ratio was 2.25 to 1.00.
The Revolving Credit Facility also contains usual and customary
events of default (subject to certain threshold amounts and
grace periods), including cross-default provisions that include
our Senior Notes. If an event of default occurs and is
continuing, we may be required to repay the obligations under
the Revolving Credit Facility prior to its stated maturity and
the related commitments may be terminated.
As of September 30, 2010, under our Revolving Credit
Facility, we had no borrowings outstanding, availability of
$18,170, and we were in compliance with its various financial
covenants. Availability is computed as the total commitment of
$20,000 less outstanding borrowings and outstanding letters of
credit, if any.
PENSION BENEFITS. We maintain three defined benefit
pension plans which cover substantially all of our
U.S. employees, excluding employees of our Aerospace
Equipment segment: the Amended and Restated American Pacific
Corporation Defined Benefit Pension Plan, the Ampac Fine
Chemicals LLC Pension Plan for Salaried Employees, and the Ampac
Fine Chemicals LLC Pension Plan for Bargaining Unit Employees,
each as amended to date. Collectively, these three plans are
referred to as the Pension Plans. In May 2010, our
board of directors approved amendments to our Pension Plans
which effectively closed the Pension 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
Companys 401(k) plans. Pension Plan benefits are paid
based on an average of earnings, retirement age, and length of
service, among other factors.
Benefit obligations are measured annually as of
September 30. As of September 30, 2010, the Pension
Plans had an unfunded benefit obligation of $30,005. For Fiscal
2010, we made contributions to the Pension Plans in the amount
of $3,300. We anticipate making Pension Plan contributions in
the amount of approximately $6,500 during Fiscal 2011. We are
required to make minimum contributions to our Pension Plans
pursuant to the minimum funding requirements of the Internal
Revenue Code of 1986,
51
as amended, and the Employee Retirement Income Security Act of
1974, as amended. In accordance with federal requirements, our
minimum funding obligations are determined annually based on a
measurement date of October 1. The fair value of Pension
Plan assets is a key factor in determining our minimum funding
obligations. Holding all other variables constant, a 10% decline
in asset value as of September 30, 2010 would increase our
minimum funding obligations for Fiscal 2011 by approximately
$200.
In addition, we maintain the American Pacific Corporation
Supplemental Executive Retirement Plan, as amended and restated
(the SERP) that includes five participants comprised
of active and former executive officers. The SERP is an unfunded
plan and as of September 30, 2010, the SERP obligation was
$7,683. For Fiscal 2010, we paid SERP retirement benefits of
$427. We anticipate contributing the amount of approximately
$500 to the SERP during Fiscal 2011 for the payment of
retirement benefits. Payments for retirement benefits should
increase in future years when each of the three current active
participants retires. The future increase in such retirement
benefits will be determined based on certain variables including
each participating individuals actual retirement date,
rate of compensation and years of service.
During Fiscal 2010, our aggregate Pension Plans and SERP
liability increased significantly primarily due to changes in
actuarial assumption such as the discount rate. The change was
recorded as an increase in Pension Obligations and a
corresponding decrease in Shareholders Equity (Accumulated
Other Comprehensive Loss). The effect of the change in the
discount rate increased our anticipated Fiscal 2011 funding
requirements by approximately $2,800.
ENVIRONMENTAL REMEDIATION AMPAC HENDERSON
SITE. During our Fiscal 2005 third quarter, we recorded
a charge for $22,400 representing our estimate of the probable
costs of our remediation efforts at our former perchlorate
chemicals manufacturing facility in Henderson, Nevada (the
AMPAC Henderson Site), including the costs for
capital equipment, operating and maintenance
(O&M), and consultants. The project consisted
of two primary phases: the initial construction of the
remediation equipment phase and the O&M phase. During the
fiscal year ended September 30, 2006, we increased our
total cost estimate of probable costs for the construction phase
by $3,600 due primarily to changes in the engineering designs,
delays in receiving permits and the resulting extension of
construction time.
Late in Fiscal 2009, we gained additional information from
groundwater modeling that indicates groundwater emanating from
the AMPAC Henderson Site in certain areas in deeper zones (more
than 150 feet below ground surface) is moving toward our
existing remediation facility at a much slower pace than
previously estimated. Utilization of our existing facilities
alone, at this lower groundwater pace, could, according to this
more recently created groundwater model, extend the life of our
remediation project to well in excess of fifty years. As a
result of this additional data, related model interpretations
and consultations with the Nevada Division of Environmental
Protection, we re-evaluated our remediation operations at the
end of Fiscal 2009 and during Fiscal 2010 as new data was
generated. This evaluation indicates that we should be able to
significantly reduce the total project time, and ultimately the
total cost of the project, by installing additional groundwater
extraction wells in the deeper, more concentrated areas, thereby
providing for a more aggressive remediation treatment. The
additional wells and related remediation equipment will
incorporate above ground treatment to supplement or possibly
replace by consolidation our existing in situ bioremediation
process. With the additional extraction wells and equipment, we
estimated that the total remaining project life for the existing
and new, more aggressive deep zone systems could range from 10
to 29 years, beginning with Fiscal 2010. Within that range,
we estimated that a range of 13 to 23 years is more likely.
Groundwater speed, perchlorate concentrations, aquifer
characteristics and forecasted groundwater extraction rates
continue to be key variables underlying our estimate of the life
of the project and these variables are updated on a regular
basis. If additional information becomes available in the future
that lead to a different interpretation of the model, thereby
dictating a change in equipment and operations, our estimate of
the resulting project life could change significantly.
In our Fiscal 2009 fourth quarter, we accrued approximately
$9,600 representing our estimate of the cost to engineer,
design, and install this additional equipment. We anticipate
that these amounts will be spent
52
through and the new equipment operational by 2012. We are in the
pre-construction, design and engineering steps, and as a result,
this estimate involves a number of significant assumptions. Due
to uncertainties inherent in making estimates, our estimate may
later require significant revision as new facts become available
and circumstances change.
In addition to accruing approximately $9,600 for engineering,
design, installation and cost of additional equipment, in our
Fiscal 2009 fourth quarter, we increased our estimate of total
remaining O&M costs by $4,100 due primarily to incremental
O&M costs to operate and maintain the additional equipment
once installed. Total O&M expenses are currently estimated
at approximately $1,000 per year and estimated to increase to
approximately $1,300 per year after the additional equipment
becomes operational. To estimate O&M costs, we consider,
among other factors, the project scope and historical expense
rates to develop assumptions regarding labor, utilities,
repairs, maintenance supplies and professional services costs.
If additional information becomes available in the future that
is different than information currently available to us and
thereby leads us to different conclusions, our estimate of
O&M expenses could change significantly.
In addition, certain remediation activities are conducted on
public lands under operating permits. In general, these permits
require us to return the land to its original condition at the
end of the permit period. Estimated costs associated with
removal of remediation equipment from the land are not material
and are included in our range of estimated costs.
As of September 30, 2010, the aggregate range of
anticipated environmental remediation costs was from
approximately $20,100 to approximately $44,000 based on a
possible total remaining life of the project ranging from 9 to
28 years. As of September 30, 2010, the accrued amount
was $23,870, based on an estimate of 12 remaining years, or the
low end of the more likely range of the expected life of the
project. These estimates are based on information currently
available to us and may be subject to material adjustment upward
or downward in future periods as new facts or circumstances may
indicate.
OTHER
ARRANGEMENTS
Operating Leases. We lease our corporate
offices and production facilities for our Aerospace Equipment
segment under operating leases with lease periods extending
through 2025. Certain of our operating leases contain step rent
provisions and escalation clauses and also provide for cash
allowances toward the funding of capital improvements. Our
minimum lease payments include these considerations.
Minimum lease payments are recognized as rental expense on a
straight-line basis over the minimum lease term. Estimated
future minimum lease payments under operating leases as of
September 30, 2010, are as follows:
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Years ending September 30:
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2011
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$
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1,814
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2012
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1,722
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2013
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1,577
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2014
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1,566
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2015
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1,466
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Thereafter
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4,933
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Total
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$
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13,078
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Letters of Credit. As of September 30,
2010, we had $1,830 in outstanding standby letters of credit
which mature through July 2013. These letters of credit
principally secure performance of certain water treatment
equipment sold by us and payment of fees associated with the
delivery of natural gas and power.
Employee Agreements. We have an employment
agreement with our Chief Executive Officer. The term of the
employment agreement currently ends on September 30, 2013,
unless amended or extended in accordance with the terms of the
agreement or otherwise. Significant contract provisions include
annual base salary, health care benefits, and non-compete
provisions. The employment agreement is primarily an at
will employment agreement, under which we may terminate
the executive officers employment for any
53
or no reason. Generally, the agreement provides that a
termination without cause obligates us to pay certain severance
benefits specified in the contract.
We maintain severance agreements with each of our Vice
President, Administration and our Chief Financial Officer,
which, generally, provide that a termination of the executive
without cause obligates us to pay certain severance benefits
specified in the contract. In addition, certain other key
divisional executives are eligible for severance benefits.
Estimated minimum aggregate severance benefits under all of
these agreements and arrangements was approximately $4,900 as of
September 30, 2010.
INFLATION. Generally, inflation did not have a
material or significant effect on our sales and operating
revenues or costs during the three-year period ended
September 30, 2010.
CRITICAL
ACCOUNTING POLICIES
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of
America requires that we adopt accounting policies and make
estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenue and expenses.
Application of the critical accounting policies discussed below
requires significant judgment, often as the result of the need
to make estimates of matters that are inherently uncertain. If
actual results were to differ materially from the estimates
made, the reported results could be materially affected.
However, we are not currently aware of any reasonably likely
events or circumstances that would result in materially
different results.
SALES AND REVENUE RECOGNITION. Revenues from
our Specialty Chemicals segment, Fine Chemicals segment, and
Other Businesses segment are recognized when persuasive evidence
of an arrangement exists, delivery has occurred or services have
been rendered, title passes, the price is fixed or determinable
and collectability is reasonably assured. Almost all products
sold by our Fine Chemicals segment are subject to customer
acceptance periods. Specifically, these customers have
contractually negotiated acceptance periods from the time they
receive certificates of analysis and compliance
(Certificates) to reject the material based on
issues with the quality of the product, as defined in the
applicable agreement. At times we receive payment in advance of
customer acceptance. If we receive payment in advance of
customer acceptance, we record deferred revenues and deferred
costs of revenue upon delivery of the product and recognize
revenues in the period when the acceptance period lapses or the
customers acceptance has occurred.
Some of our perchlorate and fine chemicals products customers
have requested that we store materials purchased from us in our
facilities (Bill and Hold transactions or
arrangements). We recognize revenue prior to shipment of these
Bill and Hold transactions when we have satisfied the applicable
revenue recognition criteria, which include the point at which
title and risk of ownership transfer to our customers. These
customers have specifically requested in writing, pursuant to a
contract, that we invoice for the finished product and hold the
finished product until a later date. For our Bill and Hold
arrangements that contain customer acceptance periods, we record
deferred revenues and deferred costs of revenues when such
products are available for delivery and Certificates have been
delivered to the customers. We recognize revenue on our Bill and
Hold transactions in the period when the acceptance period
lapses or the customers acceptance has occurred. The sales
value of inventory, subject to Bill and Hold arrangements, at
our facilities was $19,606 and $25,882 as of September 30,
2010 and 2009, respectively.
Revenues from our Aerospace Equipment segment are derived from
contracts that are accounted for using the
percentage-of-completion
method and measure progress on a
cost-to-cost
basis. Contract revenues include change orders and claims when
approved by the customer. The
percentage-of-completion
method recognizes revenue as work on a contract progresses.
Revenues are calculated based on the percentage of total costs
incurred in relation to total estimated costs at
54
completion of the contract. For fixed-price and
fixed-price-incentive contracts, if at any time expected costs
exceed the value of the contract, the loss is recognized
immediately. We do not incur material pre-contract costs.
DEPRECIABLE OR AMORTIZABLE LIVES OF LONG-LIVED
ASSETS. Our depreciable or amortizable long-lived
assets include property, plant and equipment and intangible
assets, which are recorded at cost. Depreciation or amortization
is recorded using the straight-line method over the shorter of
the assets estimated economic useful life or the lease
term, if the asset is subject to a capital lease. Economic
useful life is the duration of time that we expect the asset to
be productively employed by us, which may be less than its
physical life. Significant assumptions that affect the
determination of estimated economic useful life include: wear
and tear, obsolescence, technical standards, contract life, and
changes in market demand for products.
The estimated economic useful life of an asset is monitored to
determine its appropriateness, especially in light of changed
business circumstances. For example, changes in technological
advances, changes in the estimated future demand for products,
or excessive wear and tear may result in a shorter estimated
useful life than originally anticipated. In these cases, we
would depreciate the remaining net book value over the new
estimated remaining life, thereby increasing depreciation
expense per year on a prospective basis. Likewise, if the
estimated useful life is increased, the adjustment to the useful
life decreases depreciation expense per year on a prospective
basis.
IMPAIRMENT OF LONG-LIVED ASSETS. We test our
property, plant and equipment and amortizable intangible assets
for recoverability when events or changes in circumstances
indicate that their carrying amounts may not be recoverable.
Examples of such circumstances include, but are not limited to,
operating or cash flow losses from the use of such assets or
changes in our intended uses of such assets. To test for
recovery, we group assets (an Asset Group) in a
manner that represents the lowest level for which identifiable
cash flows are largely independent of the cash flows of other
groups of assets and liabilities. Our Asset Groups are typically
identified by facility because each facility has a unique cost
overhead and general and administrative expense structure that
is supported by cash flows from products produced at the
facility. The carrying amount of an Asset Group is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the
Asset Group.
If we determine that an Asset Group is not recoverable, then we
would record an impairment charge if the carrying value of the
Asset Group exceeds its fair value. Fair value is based on
estimated discounted future cash flows expected to be generated
by the Asset Group. The assumptions underlying cash flow
projections would represent managements best estimates at
the time of the impairment review. Some of the factors that
management would consider or estimate include: industry and
market conditions, sales volume and prices, costs to produce and
inflation. Changes in key assumptions or actual conditions which
differ from estimates could result in an impairment charge. We
would use reasonable and supportable assumptions when performing
impairment reviews but cannot predict the occurrence of future
events and circumstances that could result in impairment charges.
When we review Asset Groups for recoverability, we also consider
depreciation estimates and methods or the amortization period,
in each case as required by applicable accounting standards. Any
revision to the remaining useful life of a long-lived asset
resulting from that review also is considered in developing
estimates of future cash flows used to test the Asset Group for
recoverability.
GOODWILL. Goodwill is not amortized. We test
goodwill for impairment at the reporting unit level on an annual
basis, as of September 30, or more frequently if an event
occurs or circumstances change that indicate that the fair value
of a reporting unit could be below its carrying amount. The
impairment test consists of comparing the fair value of a
reporting unit with its carrying amount including goodwill, and,
if the carrying amount of the reporting unit exceeds its fair
value, comparing the implied fair value of goodwill with its
carrying amount. An impairment loss would be recognized for the
carrying amount of goodwill in excess of its implied fair value.
55
ENVIRONMENTAL COSTS. We are subject to
environmental regulations that relate to our past and current
operations. We record liabilities for environmental remediation
costs when our assessments indicate that remediation efforts are
probable and the costs can be reasonably estimated. On a
quarterly basis, we review our estimates of future costs that
could be incurred for remediation activities. In some cases,
only a range of reasonably possible costs can be estimated. In
establishing our reserves, the most probable estimate is used;
otherwise, we accrue the minimum amount of the range. Estimates
of liabilities are based on currently available facts, existing
technologies and presently enacted laws and regulations. These
estimates are subject to revision in future periods based on
actual costs or new circumstances. Accrued environmental
remediation costs include the undiscounted cost of equipment,
operating and maintenance costs, and fees to outside law firms
and consultants, for the estimated duration of the remediation
activity. Estimating environmental cost requires us to exercise
substantial judgment regarding the cost, effectiveness and
duration of our remediation activities. Actual future
expenditures could differ materially from our current estimates.
We evaluate potential claims for recoveries from other parties
separately from our estimated liabilities. We record an asset
for expected recoveries when recoveries of the amounts are
probable.
INCOME TAXES. We account for income taxes
under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured,
separately for each tax-paying entity in each tax jurisdiction,
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period
that includes the enactment date.
When measuring deferred tax assets, we assess whether a
valuation allowance should be established. A valuation allowance
is established if, based on the weight of available evidence, it
is more likely than not that some portion or all of the deferred
tax assets will not be realized. The assessment of valuation
allowance requirements, if any, involves significant estimates
regarding the timing and amount of reversal of taxable temporary
differences, future taxable income and the implementation of tax
planning strategies. We rely on deferred tax liabilities in our
assessment of the realizability of deferred tax assets if the
temporary timing difference is anticipated to reverse in the
same period and jurisdiction and the deferred tax liabilities
are of the same character as the temporary differences giving
rise to the deferred tax assets. We weigh both positive and
negative evidence in determining whether it is more likely than
not that a valuation allowance is required.
As of September 30, 2010, recovery of our
U.S. jurisdiction deferred tax assets, net of applicable
deferred tax liabilities, required that we generate
approximately $75,000 in taxable income in periods ranging from
one to at least 12 years in the future. To determine
whether a valuation allowance is required, we project our future
taxable income. The projections require us to make assumptions
regarding our product revenues, gross margins and operating
expenses.
For our U.S. tax jurisdictions, the most significant
positive evidence is our historical long-term trend of
profitable operations and our forecast that such trend will
continue in future periods when temporary differences are
anticipated to reverse. Positive evidence also includes the lack
of reliance on success in implementing tax planning strategies,
utilization of short carry-back periods or appreciated asset
values. Further, we do not have a history of tax credits
expiring unused. For foreign tax jurisdictions, the most
compelling negative evidence is a history of unprofitable
operations. Accordingly, we have fully reserved our foreign
deferred tax assets.
We account for uncertain tax positions in accordance with an
accounting standard which creates a single model to address
uncertainty in income tax positions and prescribes the minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. The standard also
56
provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods,
disclosure and transition.
Under this standard, we may recognize tax benefits from an
uncertain position only if it is more likely than not that the
position will be sustained upon examination by taxing
authorities based on the technical merits of the issue. The
amount recognized is the largest benefit that we believe has
greater than a 50% likelihood of being realized upon settlement.
Actual income taxes paid may vary from estimates depending upon
changes in income tax laws, actual results of operations, and
the final audit of tax returns by taxing authorities. Tax
assessments may arise several years after tax returns have been
filed.
PENSION BENEFITS. We sponsor four defined
benefit pension plans in various forms for employees who meet
eligibility requirements. Applicable accounting standards
require that we make assumptions and use statistical variables
in actuarial models to calculate our pension obligations and the
related periodic pension expense. The most significant
assumptions are the discount rate and the expected rate of
return on plan assets. Additional assumptions include the future
rate of compensation increases, which is based on historical
plan data and assumptions on demographic factors such as
retirement, mortality and turnover. Depending on the assumptions
selected, pension expense could vary significantly and could
have a material effect on reported earnings. The assumptions
used can also materially affect the measurement of benefit
obligations.
The discount rate is used to estimate the present value of
projected future pension payments to all participants. The
discount rate is generally based on the yield on AAA/AA-rated
corporate long-term bonds. At September 30 of each year, the
discount rate is determined using bond yield curve models
matched with the timing of expected retirement plan payments.
Our discount rate assumption was 5.80 percent as of
September 30, 2010. Holding all other assumptions constant,
a hypothetical increase or decrease of 25 basis points in
the discount rate assumption would increase or decrease annual
pension expense by approximately $400.
The expected long-term rate of return on plan assets represents
the average rate of earnings expected on the plan funds invested
in a specific target asset allocation. The expected long-term
rate of return assumption on pension plan assets was
8.00 percent in Fiscal 2010. Holding all other assumptions
constant, a hypothetical 25 basis point increase or
decrease in the assumed long-term rate of return would increase
or decrease annual pension expense by approximately $100.
RECENTLY ISSUED OR ADOPTED ACCOUNTING
STANDARDS. In September 2006, the Financial
Accounting Standards Board (the FASB) issued a new
standard which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles
in the United States of America, and expands disclosures about
fair value measurements. In February 2008, the FASB deferred
this standard for one year as it applied to certain items,
including assets and liabilities initially measured at fair
value in a business combination, reporting units and certain
assets and liabilities measured at fair value in connection with
goodwill impairment tests, and long-lived assets measured at
fair value for impairment assessments. The standard applies
under other accounting pronouncements that require or permit
fair value measurements, the FASB having previously concluded in
those accounting pronouncements that fair value is the relevant
measurement attribute. This standard was effective for us on
October 1, 2008; however, we did not adopt all the
provisions of the standard as the FASB delayed the effective
date of its application to non-financial assets and liabilities.
The remaining provisions became effective for us beginning
October 1, 2009. The adoption of this standard did not have
a material impact on our results of operations, financial
position or cash flows.
In December 2007, the FASB issued a new standard that
significantly changed the accounting for business combinations.
Under the standard, an acquiring entity is required to recognize
all the assets acquired and liabilities assumed in a transaction
at the acquisition-date fair value with limited exceptions. The
standard also includes a substantial number of new disclosure
requirements. The standard applies to us for business
combinations with acquisition dates on or after October 1,
2009. We expect that the new standard
57
will have an impact on our accounting for future business
combinations, but the effect is dependent upon acquisitions at
that time.
In December 2007, the FASB issued a new standard that
establishes revised accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, the standard
requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and
separate from the parents equity. The amount of net income
attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. It
also clarifies that changes in a parents ownership
interest in a subsidiary that do not result in deconsolidation
are equity transactions if the parent retains its controlling
financial interest. The standard requires that a parent
recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the
fair value of the noncontrolling equity investment on the
deconsolidation date. The standard also includes expanded
disclosure requirements regarding the interests of the parent
and its noncontrolling interest. The standard was effective for
us beginning on October 1, 2009. We currently have no
entities or arrangements that were affected by the adoption of
this standard.
In April 2008, the FASB issued a new standard which amends the
factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset. The standard for determining the
useful life of a recognized intangible asset shall be applied
prospectively to intangible assets acquired after the effective
date. However, the disclosure requirements must be applied
prospectively to all intangible assets recognized in the
Companys financial statements as of the effective date.
The standard was effective for us beginning on October 1,
2009. The adoption of this standard did not have a material
impact on our results of operations, financial position or cash
flows.
In December 2008, the FASB issued a new standard that provides
guidance on an employers disclosures about plan assets of
a defined benefit pension or other postretirement plan. The
objectives of the disclosures include disclosure of investment
allocation decisions, major categories of plan assets, inputs
and valuation techniques used to measure the fair value of plan
assets, the effect of certain fair value measurements, and
significant concentrations of risk within plan assets. The
expanded disclosure requirements were effective for our fiscal
year ended September 30, 2010. The adoption of this
standard is not expected to have a material impact on our
results of operations, financial position or cash flows.
In April 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-17,
which provides guidance on defining a milestone under Topic 605
and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or
development transactions. Consideration that is contingent on
achievement of a milestone in its entirety may be recognized as
revenue in the period in which the milestone is achieved only if
the milestone is judged to meet certain criteria to be
considered substantive. Milestones should be considered
substantive in their entirety and may not be bifurcated. An
arrangement may contain both substantive and nonsubstantive
milestones that should be evaluated individually. We adopted
this ASU on October 1, 2010. We anticipate that the
adoption of this standard will affect the timing of revenue
recognition on certain existing and future research and
development contracts for our Fine Chemicals segment. However,
because the term of these contracts are typically less than six
months and the amount of revenues generated from such contracts
are not material to our consolidated revenues, the adoption of
this standard is not expected to have a material impact on our
results of operations, financial position or cash flows.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Not applicable.
58
Item 8. Financial
Statements and Supplementary Data
Financial statements called for hereunder are included herein on
the following pages:
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Page
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F-1
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F-3
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F-4
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F-5
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F-6
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F-8
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Item 9. Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls
and Procedures
DISCLOSURE CONTROLS AND PROCEDURES. The
Companys management evaluated, with the participation of
the Companys principal executive and principal financial
officers, the effectiveness of the Companys disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934) as of
September 30, 2010. Based on their evaluation, our
principal executive and principal financial officers have
concluded that our disclosure controls and procedures were
effective as of such date to ensure that information required to
be disclosed by us in the reports that we file or submit under
the Securities Exchange Act of 1934, as amended, is accumulated
and communicated to our management, including our principal
executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure, and is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms.
CHANGES IN OUR INTERNAL CONTROL OVER FINANCIAL
REPORTING. There were no changes in our internal
control over financial reporting that occurred during the fiscal
quarter ended September 30, 2010 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING. Our management is responsible for
establishing and maintaining adequate internal control over our
financial reporting and the presentation of our issued financial
statements. Internal control over financial reporting is a
process to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of
our issued financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States of America. Internal control over financial
reporting includes policies and procedures that:
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Companys assets that could have a material effect on the
financial statements. Because of its inherent limitations,
internal control over financial reporting is not intended to
provide absolute assurance that a misstatement of our financial
statements would be prevented or detected. Also, projections of
any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk
59
that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate. Our management evaluated the
effectiveness of our internal control over financial reporting
based on the framework in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based upon that
evaluation, management concluded that the Companys
internal control over financial reporting was effective as of
September 30, 2010.
Item 9B. Other
Information
Not applicable.
PART III
Item 10. Directors,
Executive Officers and Corporate Governance
The information required by this item is incorporated herein by
reference from the information provided under the sections
entitled Board Nominations, Board
Nominees, Board of Directors, the Audit
Committee subsection of the section entitled Board
of Directors Meetings and Committees and Governance
Matters, Named Executive Officers, and
Section 16(a) Beneficial Ownership Reporting
Compliance of our definitive proxy statement for the 2011
annual meeting of stockholders, to be filed with the SEC within
120 days after September 30, 2010.
Code of Ethics. We have adopted a code of ethics
that applies to all of our directors and employees, including
our principal executive officer, principal financial officer and
principal accounting officer, entitled Standards of
Business Conduct that is posted on our website at
www.apfc.com on the Corporate Governance page of the
Investors section. In addition, we will provide to
any person without charge a copy of the Standards of Business
Conduct upon written request to our Secretary at our principal
executive offices at 3883 Howard Hughes Parkway, Suite 700,
Las Vegas, Nevada 89169. In the event that we make any amendment
to, or grant any waiver from, a provision of the Standards of
Business Conduct that requires disclosure under applicable SEC
rules and regulations
and/or the
rules of The NASDAQ Stock Market LLC, we will disclose such
amendment or waiver and the reasons therefor as required by SEC
rules and regulations
and/or the
rules of The NASDAQ Stock Market LLC on our website.
Item 11. Executive
Compensation
The information required by this item is incorporated herein by
reference from the information provided under the sections
entitled Director Compensation Determinations and
Considerations, Director Compensation (Fiscal
2010), Summary Compensation (Fiscal 2010),
Retirement Benefits, Employment,
Change-of-Control
and Severance Agreements, Plan-Based
Compensation, Equity Compensation Plans, and
Outstanding Equity Awards at Fiscal Year-End (Fiscal
2010), of our definitive proxy statement for the 2011
annual meeting of stockholders, to be filed with the SEC within
120 days after September 30, 2010.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this item is incorporated herein by
reference from the information provided under the sections
entitled Equity Compensation Plans and
Ownership of Certain Beneficial Owners and
Management of our definitive proxy statement for the 2011
annual meeting of stockholders, to be filed with the SEC within
120 days after September 30, 2010.
60
Item 13. Certain
Relationships and Related Transactions, and Director
Independence
The information required by this item is incorporated herein by
reference from the information provided under the sections
entitled Director Meetings and Independence and
Certain Relationships and Related Transactions of
our definitive proxy statement for the 2011 annual meeting of
stockholders, to be filed with the SEC within 120 days
after September 30, 2010.
Item 14. Principal
Accounting Fees and Services
The information required by this item is incorporated herein by
reference from the information provided under the sections
entitled Audit and Non-Audit Fees and Policy
on Audit Committee Pre-Approval of Audit and Non-Audit Services
of Independent Registered Public Accounting Firm of our
definitive proxy statement for the 2011 annual meeting of
stockholders, to be filed with the SEC within 120 days
after September 30, 2010.
PART IV
Item 15. Exhibits
and Financial Statement Schedules
(a) (1) Financial Statements
See Part II, Item 8 of the report for an index to the
registrants financial statements.
(2) Financial Statement Schedules
None applicable.
(3) Exhibits
The following exhibits are filed as part of, or incorporated by
reference into, this report (reference to an exhibit number is
to the number assigned to the exhibit pursuant to Item 601
of
Regulation S-K):
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Exhibit
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Number
|
|
Description
|
|
|
|
|
3.1
|
|
Restated Certificate of Incorporation, as amended, of American
Pacific Corporation (incorporated by reference to
Exhibit 4.(a) to the registrants Registration
Statement on
Form S-3
(File
No. 33-15674)).
|
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3.2
|
|
Articles of Amendment to the Restated Certificate of
Incorporation of American Pacific Corporation, as filed with the
Secretary of State, State of Delaware, on October 7, 1991
(incorporated by reference to Exhibit 4.3 to the
registrants Registration Statement on
Form S-3
(File
No. 33-52196)).
|
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|
3.3
|
|
Articles of Amendment to the Restated Certificate of
Incorporation of American Pacific Corporation, as filed with the
Secretary of State, State of Delaware, on April 21, 1992
(incorporated by reference to Exhibit 4.4 to the
registrants Registration Statement on
Form S-3
(File
No. 33-52196)).
|
|
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|
3.4
|
|
American Pacific Corporation Amended and Restated By-laws
(incorporated by reference to Exhibit 3.1 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on September 20, 2010).
|
61
|
|
|
|
|
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3.5
|
|
Rights Agreement, dated as of August 3, 1999, between
American Pacific Corporation and American Stock
Transfer & Trust Company (incorporated by
reference to Exhibit 1 to the registrants
Registration Statement on
Form 8-A
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on August 6, 1999).
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3.6
|
|
Form of Letter to Stockholders that accompanied copies of the
Summary of Rights to Purchase Preferred Shares (incorporated by
reference to Exhibit 2 to the registrants
Registration Statement on
Form 8-A
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on August 6, 1999).
|
|
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|
3.7
|
|
Amendment, dated as of July 11, 2008, between American
Pacific Corporation and American Stock Transfer &
Trust Company (incorporated by reference to
Exhibit 4.1 to the registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on July 11, 2008).
|
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3.8
|
|
Amendment No. 2 to Rights Agreement, dated as of
September 14, 2010, between American Pacific Corporation
and American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 4.1 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on September 20, 2010).
|
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4.1
|
|
Form of 9% Senior Note due 2015 (incorporated by reference
to Exhibit A of Exhibit 4.2 to the registrants
Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on February 6, 2007).
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4.2
|
|
Indenture, dated as of February 6, 2007, by and among
American Pacific Corporation, certain subsidiaries thereof and
Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 4.2 to the registrants Current
Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on February 6, 2007).
|
|
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10.1+
|
|
Employment Agreement, effective October 15, 2006, between
American Pacific Corporation and Joseph Carleone, as amended and
restated on November 14, 2008 (incorporated by reference to
Exhibit 10.1 to the registrants Annual Report on
Form 10-K
(File
No. 001-08137)
for the fiscal year ended September 30, 2008).
|
|
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|
10.2+
|
|
Notice of Eligibility for Dr. Aslam Malik under Ampac Fine
Chemicals LLC Severance Pay Plan, dated January 24, 2007
(incorporated by reference to Exhibit 10.2 to the
registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended March 31, 2007).
|
|
|
|
10.3+
|
|
Ampac Fine Chemicals LLC Severance Pay Plan (incorporated by
reference to Exhibit 10.1 to the registrants
Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended March 31, 2007).
|
|
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|
10.4+
|
|
Form of Indemnification Agreement between American Pacific
Corporation and each Director of American Pacific Corporation
(incorporated by reference to Exhibit 3.6 to the
registrants Annual Report on
Form 10-K
(File
No. 001-08137)
for the fiscal year ended September 30, 2000).
|
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10.5+
|
|
Amended and Restated American Pacific Corporation Defined
Benefit Pension Plan, as Amended and Restated Effective
October 1, 2008, executed by American Pacific Corporation
on June 12, 2009 (incorporated by reference to
Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2009).
|
62
|
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10.6+
|
|
American Pacific Corporation Supplemental Executive Retirement
Plan, amended and restated and effective on and after
October 1, 2007 (incorporated by reference to
Exhibit 10.1 to the registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on November 15, 2007).
|
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10.7+
|
|
Trust Agreement for American Pacific Corporation
Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit 10.6 to the registrants Annual
Report on
Form 10-K
(File No. 001-08137)
for the fiscal year ended September 30, 1999).
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10.8++
|
|
Long-Term Pricing Agreement, dated as of December 12, 1997,
between Thiokol Corporation-Propulsion Group and American
Pacific Corporation (incorporated by reference to
Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended March 31, 1998).
|
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10.9++
|
|
Modification No. 1 to Long Term Pricing Agreement, dated
September 13, 2000, between Thiokol Propulsion and American
Pacific Corporation (incorporated by reference to
Exhibit 10.14 to the registrants Annual Report on
Form 10-K
(File
No. 001-08137)
for the fiscal year ended September 30, 2000).
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10.10
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|
Ground Lease, dated as of November 30, 2005, by and between
Aerojet-General Corporation and Ampac Fine Chemicals LLC
(incorporated by reference to Exhibit 10.5 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on December 1, 2005).
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10.11++
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Modification #3 to the Thiokol Long Term Pricing Agreement,
dated April 5, 2006 (incorporated by reference to
Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q
(File No. 001-08137)
for the fiscal quarter ended March 31, 2006).
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10.12+
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Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit
Employees, as Amended and Restated Effective October 1,
2007, executed by American Pacific Corporation on June 12,
2009 (incorporated by reference to Exhibit 10.2 to the
registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2009).
|
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10.13+
|
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Ampac Fine Chemicals LLC Pension Plan for Salaried Employees, as
Amended and Restated Effective October 1, 2007, executed by
American Pacific Corporation on June 12, 2009 (incorporated
by reference to Exhibit 10.3 to the registrants
Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2009).
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10.14
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Amended and Restated Credit Agreement, dated as of
February 6, 2007, among American Pacific Corporation,
certain subsidiaries thereof, the lenders party thereto,
Wachovia Bank, National Association and Bank of America, N.A.
(incorporated by reference to Exhibit 10.3 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on February 6, 2007).
|
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10.15
|
|
First Amendment to Credit Agreement, dated as of July 7,
2009, by and among American Pacific Corporation, certain
subsidiaries thereof, the lenders party thereto, and Wachovia
Bank, National Association and Bank of America, N.A.
(incorporated by reference to Exhibit 10.4 to the
registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2009).
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10.16
|
|
Second Amendment to Credit Agreement, dated as of
September 17, 2010, by and among American Pacific
Corporation, certain subsidiaries thereof, Wells Fargo Bank,
National Association as Administrative Agent, and the lenders
party thereto (incorporated by reference to Exhibit 10.1 to
the registrants Current Report on
Form 8-K
(File No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on September 27, 2010).
|
63
|
|
|
|
|
|
10.17+
|
|
American Pacific Corporation Amended and Restated 2001 Stock
Option Plan (incorporated by reference to Exhibit 4.1 to
the registrants Registration Statement on
Form S-8
(File No. 333-104732)
filed by the registrant with the Securities and Exchange
Commission on April 24, 2003).
|
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10.18+
|
|
Form of Option Agreement under the American Pacific Corporation
Amended and Restated 2001 Stock Option Plan (incorporated by
reference to Exhibit 4.3 to the registrants
Registration Statement on
Form S-8
(File
No. 333-104732)
filed by the registrant with the Securities and Exchange
Commission on April 24, 2003).
|
|
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10.19+
|
|
American Pacific Corporation 2002 Directors Stock Option
Plan, as amended and restated (incorporated by reference to
Exhibit 99.1 to the registrants Current Report on
Form 8-K
(File No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on October 25, 2005).
|
|
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|
10.20+
|
|
Form of Option Agreement under the American Pacific Corporation
2002 Directors Stock Option Plan (incorporated by reference
to Exhibit 4.4 to the registrants Registration
Statement on
Form S-8
(File
No. 333-104732)
filed by the registrant with the Securities and Exchange
Commission on April 24, 2003).
|
|
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|
10.21+
|
|
American Pacific Corporation 2008 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on March 17, 2008).
|
|
|
|
10.22+
|
|
Form of Notice of Stock Option Award and Stock Option Award
Agreement under the American Pacific Corporation 2008 Stock
Incentive Plan (incorporated by reference to Exhibit 10.2
to the registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on March 17, 2008).
|
|
|
|
10.23+
|
|
Form of Notice of Restricted Stock Bonus Award and Restricted
Stock Bonus Award Agreement under the American Pacific
Corporation 2008 Stock Incentive Plan (incorporated by reference
to Exhibit 10.3 to the registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on March 17, 2008).
|
|
|
|
10.24+
|
|
American Pacific Corporation Incentive Compensation Plan
(incorporated by reference to Exhibit 10.4 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on March 17, 2008).
|
|
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|
10.25+
|
|
Severance Agreement, dated as of July 8, 2008, between
American Pacific Corporation and Linda G. Ferguson (incorporated
by reference to Exhibit 10.1 to the registrants
Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on July 11, 2008).
|
|
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|
10.26+
|
|
Severance Agreement, dated as of July 8, 2008, between
American Pacific Corporation and Dana M. Kelley (incorporated by
reference to Exhibit 10.2 to the registrants Current
Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on July 11, 2008).
|
|
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|
10.27+
|
|
First Amendment to American Pacific Corporation Defined Benefit
Pension Plan, executed by American Pacific Corporation on
June 28, 2010 (incorporated by reference to
Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2010).
|
64
|
|
|
|
|
|
10.28+
|
|
First Amendment to Ampac Fine Chemicals LLC Pension Plan for
Salaried Employees, executed by American Pacific Corporation on
June 28, 2010 (incorporated by reference to
Exhibit 10.2 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2010).
|
|
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|
10.29+
|
|
First Amendment to Ampac Fine Chemicals LLC Pension Plan for
Bargaining Unit Employees, executed by American Pacific
Corporation on June 28, 2010 (incorporated by reference to
Exhibit 10.3 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2010).
|
|
|
|
10.30+
|
|
Second Amendment to Ampac Fine Chemicals LLC Pension Plan for
Bargaining Unit Employees, executed by American Pacific
Corporation on July 15, 2010 (incorporated by reference to
Exhibit 10.4 to the registrants Quarterly Report on
Form 10-Q
(File No. 001-08137)
for the fiscal quarter ended June 30, 2010).
|
|
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|
*10.31+
|
|
Consulting Agreement, dated November 14, 2009, by and
between American Pacific Corporation and Discovery Partners
International LLC.
|
|
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|
10.32
|
|
Settlement Agreement, dated as of December 14, 2010, by and
among American Pacific Corporation, Golconda Capital Portfolio,
L.P., Golconda Capital Management, LLC and William D.
Summitt (incorporated by reference to Exhibit 10.1 to the
registrants Current Report on Form 8-K (File No.
001-08137) filed by the registrant with the Securities and
Exchange Commission on December 15, 2010).
|
|
|
|
*21
|
|
Subsidiaries of the registrant.
|
|
|
|
*23.1
|
|
Consent of Independent Registered Public Accounting Firm (BDO
USA, LLP).
|
|
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|
*23.2
|
|
Consent of Independent Registered Public Accounting Firm
(Deloitte & Touche LLP).
|
|
|
|
*31.1
|
|
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*31.2
|
|
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.1
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.2
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Filed herewith. |
|
+ |
|
Management contract or compensatory plan or arrangement. |
++ Confidential treatment has been
requested and obtained with regard to certain portions of this
document. Such portions have been omitted from filing and have
been filed separately with the Securities and Exchange
Commission.
(b) See (a)(3) above.
(c) None applicable.
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
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|
Dated: December 20, 2010
|
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AMERICAN PACIFIC CORPORATION
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(Registrant)
|
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By:
|
|
|
/s/ JOSEPH
CARLEONE
|
|
|
|
|
|
|
Joseph Carleone
President and Chief Executive Officer
(Principal Executive Officer)
|
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|
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By:
|
|
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/s/ DANA
M. KELLEY
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|
|
Dana M. Kelley
Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial and Accounting Officer)
|
66
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
|
/s/ JOSEPH
CARLEONE
Joseph
Carleone, President and
Chief Executive Officer, and Director
(Principal Executive Officer)
|
|
Date: December 20, 2010
|
|
|
|
/s/ DANA
M. KELLEY
Dana
M. Kelley, Vice President,
Chief Financial Officer, and Treasurer
(Principal Financial and Accounting Officer)
|
|
Date: December 20, 2010
|
|
|
|
/s/ JOHN
R. GIBSON
John
R. Gibson, Chairman of the Board
|
|
Date: December 20, 2010
|
|
|
|
/s/ BARBARA
SMITH CAMPBELL
Barbara
Smith Campbell, Director
|
|
Date: December 20, 2010
|
|
|
|
/s/ FRED
D. GIBSON, JR.
Fred
D. Gibson, Jr., Director
|
|
Date: December 20, 2010
|
|
|
|
/s/ JAN
H. LOEB
Jan
H. Loeb, Director
|
|
Date: December 20, 2010
|
|
|
|
/s/ BERLYN
D. MILLER
Berlyn
D. Miller, Director
|
|
Date: December 20, 2010
|
|
|
|
/s/ WILLIAM
F. READDY
William
F. Readdy, Director
|
|
Date: December 20, 2010
|
|
|
|
/s/ C.
KEITH ROOKER
C.
Keith Rooker, Director
|
|
Date: December 20, 2010
|
|
|
|
/s/ CHARLOTTE
E. SIBLEY
Charlotte
E. Sibley, Director
|
|
Date: December 20, 2010
|
|
|
|
/s/ BART
WEINER
Bart
Weiner, Director
|
|
Date: December 20, 2010
|
|
|
|
/s/ DEAN
M. WILLARD
Dean
M. Willard, Director
|
|
Date: December 20, 2010
|
|
|
|
/s/ JANE
L. WILLIAMS
Jane
L. Williams, Director
|
|
Date: December 20, 2010
|
67
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
|
3.1
|
|
Restated Certificate of Incorporation, as amended, of American
Pacific Corporation (incorporated by reference to
Exhibit 4.(a) to the registrants Registration
Statement on
Form S-3
(File
No. 33-15674)).
|
|
|
|
3.2
|
|
Articles of Amendment to the Restated Certificate of
Incorporation of American Pacific Corporation, as filed with the
Secretary of State, State of Delaware, on October 7, 1991
(incorporated by reference to Exhibit 4.3 to the
registrants Registration Statement on
Form S-3
(File
No. 33-52196)).
|
|
|
|
3.3
|
|
Articles of Amendment to the Restated Certificate of
Incorporation of American Pacific Corporation, as filed with the
Secretary of State, State of Delaware, on April 21, 1992
(incorporated by reference to Exhibit 4.4 to the
registrants Registration Statement on
Form S-3
(File
No. 33-52196)).
|
|
|
|
3.4
|
|
American Pacific Corporation Amended and Restated By-laws
(incorporated by reference to Exhibit 3.1 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on September 20, 2010).
|
|
|
|
3.5
|
|
Rights Agreement, dated as of August 3, 1999, between
American Pacific Corporation and American Stock
Transfer & Trust Company (incorporated by
reference to Exhibit 1 to the registrants
Registration Statement on
Form 8-A
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on August 6, 1999).
|
|
|
|
3.6
|
|
Form of Letter to Stockholders that accompanied copies of the
Summary of Rights to Purchase Preferred Shares (incorporated by
reference to Exhibit 2 to the registrants
Registration Statement on
Form 8-A
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on August 6, 1999).
|
|
|
|
3.7
|
|
Amendment, dated as of July 11, 2008, between American
Pacific Corporation and American Stock Transfer &
Trust Company (incorporated by reference to
Exhibit 4.1 to the registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on July 11, 2008).
|
|
|
|
3.8
|
|
Amendment No. 2 to Rights Agreement, dated as of
September 14, 2010, between American Pacific Corporation
and American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 4.1 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on September 20, 2010).
|
|
|
|
4.1
|
|
Form of 9% Senior Note due 2015 (incorporated by reference
to Exhibit A of Exhibit 4.2 to the registrants
Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on February 6, 2007).
|
|
|
|
4.2
|
|
Indenture, dated as of February 6, 2007, by and among
American Pacific Corporation, certain subsidiaries thereof and
Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 4.2 to the registrants Current
Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on February 6, 2007).
|
|
|
|
10.1+
|
|
Employment Agreement, effective October 15, 2006, between
American Pacific Corporation and Joseph Carleone, as amended and
restated on November 14, 2008 (incorporated by reference to
Exhibit 10.1 to the registrants Annual Report on
Form 10-K
(File
No. 001-08137)
for the fiscal year ended September 30, 2008).
|
|
|
|
10.2+
|
|
Notice of Eligibility for Dr. Aslam Malik under Ampac Fine
Chemicals LLC Severance Pay Plan, dated January 24, 2007
(incorporated by reference to Exhibit 10.2 to the
registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended March 31, 2007).
|
68
|
|
|
|
|
|
10.3+
|
|
Ampac Fine Chemicals LLC Severance Pay Plan (incorporated by
reference to Exhibit 10.1 to the registrants
Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended March 31, 2007).
|
|
|
|
10.4+
|
|
Form of Indemnification Agreement between American Pacific
Corporation and each Director of American Pacific Corporation
(incorporated by reference to Exhibit 3.6 to the
registrants Annual Report on
Form 10-K
(File
No. 001-08137)
for the fiscal year ended September 30, 2000).
|
|
|
|
10.5+
|
|
Amended and Restated American Pacific Corporation Defined
Benefit Pension Plan, as Amended and Restated Effective
October 1, 2008, executed by American Pacific Corporation
on June 12, 2009 (incorporated by reference to
Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2009).
|
|
|
|
10.6+
|
|
American Pacific Corporation Supplemental Executive Retirement
Plan, amended and restated and effective on and after
October 1, 2007 (incorporated by reference to
Exhibit 10.1 to the registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on November 15, 2007).
|
|
|
|
10.7+
|
|
Trust Agreement for American Pacific Corporation
Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit 10.6 to the registrants Annual
Report on
Form 10-K
(File No. 001-08137)
for the fiscal year ended September 30, 1999).
|
|
|
|
10.8++
|
|
Long-Term Pricing Agreement, dated as of December 12, 1997,
between Thiokol Corporation-Propulsion Group and American
Pacific Corporation (incorporated by reference to
Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended March 31, 1998).
|
|
|
|
10.9++
|
|
Modification No. 1 to Long Term Pricing Agreement, dated
September 13, 2000, between Thiokol Propulsion and American
Pacific Corporation (incorporated by reference to
Exhibit 10.14 to the registrants Annual Report on
Form 10-K
(File
No. 001-08137)
for the fiscal year ended September 30, 2000).
|
|
|
|
10.10
|
|
Ground Lease, dated as of November 30, 2005, by and between
Aerojet-General Corporation and Ampac Fine Chemicals LLC
(incorporated by reference to Exhibit 10.5 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on December 1, 2005).
|
|
|
|
10.11++
|
|
Modification #3 to the Thiokol Long Term Pricing Agreement,
dated April 5, 2006 (incorporated by reference to
Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q
(File No. 001-08137)
for the fiscal quarter ended March 31, 2006).
|
|
|
|
10.12+
|
|
Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit
Employees, as Amended and Restated Effective October 1,
2007, executed by American Pacific Corporation on June 12,
2009 (incorporated by reference to Exhibit 10.2 to the
registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2009).
|
|
|
|
10.13+
|
|
Ampac Fine Chemicals LLC Pension Plan for Salaried Employees, as
Amended and Restated Effective October 1, 2007, executed by
American Pacific Corporation on June 12, 2009 (incorporated
by reference to Exhibit 10.3 to the registrants
Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2009).
|
|
|
|
10.14
|
|
Amended and Restated Credit Agreement, dated as of
February 6, 2007, among American Pacific Corporation,
certain subsidiaries thereof, the lenders party thereto,
Wachovia Bank, National Association and Bank of America, N.A.
(incorporated by reference to Exhibit 10.3 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on February 6, 2007).
|
69
|
|
|
|
|
|
10.15
|
|
First Amendment to Credit Agreement, dated as of July 7,
2009, by and among American Pacific Corporation, certain
subsidiaries thereof, the lenders party thereto, and Wachovia
Bank, National Association and Bank of America, N.A.
(incorporated by reference to Exhibit 10.4 to the
registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2009).
|
|
|
|
10.16
|
|
Second Amendment to Credit Agreement, dated as of
September 17, 2010, by and among American Pacific
Corporation, certain subsidiaries thereof, Wells Fargo Bank,
National Association as Administrative Agent, and the lenders
party thereto (incorporated by reference to Exhibit 10.1 to
the registrants Current Report on
Form 8-K
(File No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on September 27, 2010).
|
|
|
|
10.17+
|
|
American Pacific Corporation Amended and Restated 2001 Stock
Option Plan (incorporated by reference to Exhibit 4.1 to
the registrants Registration Statement on
Form S-8
(File No. 333-104732)
filed by the registrant with the Securities and Exchange
Commission on April 24, 2003).
|
|
|
|
10.18+
|
|
Form of Option Agreement under the American Pacific Corporation
Amended and Restated 2001 Stock Option Plan (incorporated by
reference to Exhibit 4.3 to the registrants
Registration Statement on
Form S-8
(File
No. 333-104732)
filed by the registrant with the Securities and Exchange
Commission on April 24, 2003).
|
|
|
|
10.19+
|
|
American Pacific Corporation 2002 Directors Stock Option
Plan, as amended and restated (incorporated by reference to
Exhibit 99.1 to the registrants Current Report on
Form 8-K
(File No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on October 25, 2005).
|
|
|
|
10.20+
|
|
Form of Option Agreement under the American Pacific Corporation
2002 Directors Stock Option Plan (incorporated by reference
to Exhibit 4.4 to the registrants Registration
Statement on
Form S-8
(File
No. 333-104732)
filed by the registrant with the Securities and Exchange
Commission on April 24, 2003).
|
|
|
|
10.21+
|
|
American Pacific Corporation 2008 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on March 17, 2008).
|
|
|
|
10.22+
|
|
Form of Notice of Stock Option Award and Stock Option Award
Agreement under the American Pacific Corporation 2008 Stock
Incentive Plan (incorporated by reference to Exhibit 10.2
to the registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on March 17, 2008).
|
|
|
|
10.23+
|
|
Form of Notice of Restricted Stock Bonus Award and Restricted
Stock Bonus Award Agreement under the American Pacific
Corporation 2008 Stock Incentive Plan (incorporated by reference
to Exhibit 10.3 to the registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on March 17, 2008).
|
|
|
|
10.24+
|
|
American Pacific Corporation Incentive Compensation Plan
(incorporated by reference to Exhibit 10.4 to the
registrants Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on March 17, 2008).
|
|
|
|
10.25+
|
|
Severance Agreement, dated as of July 8, 2008, between
American Pacific Corporation and Linda G. Ferguson (incorporated
by reference to Exhibit 10.1 to the registrants
Current Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on July 11, 2008).
|
70
|
|
|
|
|
|
10.26+
|
|
Severance Agreement, dated as of July 8, 2008, between
American Pacific Corporation and Dana M. Kelley (incorporated by
reference to Exhibit 10.2 to the registrants Current
Report on
Form 8-K
(File
No. 001-08137)
filed by the registrant with the Securities and Exchange
Commission on July 11, 2008).
|
|
|
|
10.27+
|
|
First Amendment to American Pacific Corporation Defined Benefit
Pension Plan, executed by American Pacific Corporation on
June 28, 2010 (incorporated by reference to
Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2010).
|
|
|
|
10.28+
|
|
First Amendment to Ampac Fine Chemicals LLC Pension Plan for
Salaried Employees, executed by American Pacific Corporation on
June 28, 2010 (incorporated by reference to
Exhibit 10.2 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2010).
|
|
|
|
10.29+
|
|
First Amendment to Ampac Fine Chemicals LLC Pension Plan for
Bargaining Unit Employees, executed by American Pacific
Corporation on June 28, 2010 (incorporated by reference to
Exhibit 10.3 to the registrants Quarterly Report on
Form 10-Q
(File
No. 001-08137)
for the fiscal quarter ended June 30, 2010).
|
|
|
|
10.30+
|
|
Second Amendment to Ampac Fine Chemicals LLC Pension Plan for
Bargaining Unit Employees, executed by American Pacific
Corporation on July 15, 2010 (incorporated by reference to
Exhibit 10.4 to the registrants Quarterly Report on
Form 10-Q
(File No. 001-08137)
for the fiscal quarter ended June 30, 2010).
|
|
|
|
*10.31+
|
|
Consulting Agreement, dated November 14, 2009, by and
between American Pacific Corporation and Discovery Partners
International LLC.
|
|
|
|
10.32
|
|
Settlement Agreement, dated as of December 14, 2010, by and
among American Pacific Corporation, Golconda Capital Portfolio,
L.P., Golconda Capital Management, LLC and William D.
Summitt (incorporated by reference to Exhibit 10.1 to the
registrants Current Report on Form 8-K (File No.
001-08137) filed by the registrant with the Securities and
Exchange Commission on December 15, 2010).
|
|
|
|
*21
|
|
Subsidiaries of the registrant.
|
|
|
|
*23.1
|
|
Consent of Independent Registered Public Accounting Firm (BDO
USA, LLP).
|
|
|
|
*23.2
|
|
Consent of Independent Registered Public Accounting Firm
(Deloitte & Touche LLP).
|
|
|
|
*31.1
|
|
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*31.2
|
|
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.1
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of
|
|
|
|
*32.2
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
++ Confidential treatment has been requested and obtained
with regard to certain portions of this document. Such portions
have been omitted from filing and have been filed separately
with the Securities and Exchange Commission.
|
|
|
(b) |
|
See (a)(3) above. |
|
(c) |
|
None applicable. |
71
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
American Pacific Corporation
We have audited the accompanying consolidated balance sheet of
American Pacific Corporation and subsidiaries (the
Company) as of September 30, 2010 and the
related consolidated statements of operations, changes in
stockholders equity, and cash flows for the year then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of American Pacific Corporation and subsidiaries at
September 30, 2010, and the results of its operations and
its cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United
States of America.
/s/ BDO USA, LLP
Las Vegas, Nevada
December 20, 2010
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
American Pacific Corporation:
We have audited the accompanying consolidated balance sheet of
American Pacific Corporation and subsidiaries (the
Company) as of September 30, 2009, and the
related consolidated statements of operations, changes in
stockholders equity, and cash flows for each of the two
years in the period ended September 30, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
American Pacific Corporation and subsidiaries as of
September 30, 2009, and the results of their operations and
their cash flows for each of the two years in the period ended
September 30, 2009, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Las Vegas, Nevada
December 29, 2009
F-2
AMERICAN PACIFIC
CORPORATION
September 30, 2010 and 2009
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
23,985
|
|
|
$
|
21,681
|
|
Accounts Receivable, Net
|
|
|
51,900
|
|
|
|
44,028
|
|
Inventories
|
|
|
36,126
|
|
|
|
36,356
|
|
Prepaid Expenses and Other Assets
|
|
|
1,542
|
|
|
|
1,811
|
|
Income Taxes Receivable
|
|
|
2,802
|
|
|
|
2,148
|
|
Deferred Income Taxes
|
|
|
10,672
|
|
|
|
6,317
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
127,027
|
|
|
|
112,341
|
|
Property, Plant and Equipment, Net
|
|
|
113,873
|
|
|
|
114,645
|
|
Intangible Assets, Net
|
|
|
1,420
|
|
|
|
3,553
|
|
Goodwill
|
|
|
2,933
|
|
|
|
3,144
|
|
Deferred Income Taxes
|
|
|
20,254
|
|
|
|
21,121
|
|
Other Assets
|
|
|
10,236
|
|
|
|
10,037
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
275,743
|
|
|
$
|
264,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
9,197
|
|
|
$
|
7,444
|
|
Accrued Liabilities
|
|
|
8,062
|
|
|
|
5,295
|
|
Accrued Interest
|
|
|
1,575
|
|
|
|
1,650
|
|
Employee Related Liabilities
|
|
|
6,472
|
|
|
|
6,930
|
|
Income Taxes Payable
|
|
|
193
|
|
|
|
189
|
|
Deferred Revenues and Customer Deposits
|
|
|
18,769
|
|
|
|
6,911
|
|
Current Portion of Environmental Remediation Reserves
|
|
|
8,694
|
|
|
|
2,522
|
|
Current Portion of Long-Term Debt
|
|
|
70
|
|
|
|
151
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
53,032
|
|
|
|
31,092
|
|
Long-Term Debt
|
|
|
105,102
|
|
|
|
110,097
|
|
Environmental Remediation Reserves
|
|
|
15,176
|
|
|
|
24,168
|
|
Pension Obligations
|
|
|
37,161
|
|
|
|
27,720
|
|
Other Long-Term Liabilities
|
|
|
1,615
|
|
|
|
667
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
212,086
|
|
|
|
193,744
|
|
|
|
|
|
|
|
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, 7,543,091 and 7,504,591 issued and outstanding
|
|
|
754
|
|
|
|
750
|
|
Capital in Excess of Par Value
|
|
|
73,091
|
|
|
|
72,322
|
|
Retained Earnings
|
|
|
6,720
|
|
|
|
9,997
|
|
Accumulated Other Comprehensive Loss
|
|
|
(16,908
|
)
|
|
|
(11,972
|
)
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
63,657
|
|
|
|
71,097
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
275,743
|
|
|
$
|
264,841
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-3
AMERICAN PACIFIC
CORPORATION
For the Years Ended September 30, 2010, 2009, and
2008
(Dollars in Thousands, Except per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Revenues
|
|
$
|
176,192
|
|
|
$
|
197,148
|
|
|
$
|
203,129
|
|
Cost of Revenues
|
|
|
121,477
|
|
|
|
136,295
|
|
|
|
135,388
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
54,715
|
|
|
|
60,853
|
|
|
|
67,741
|
|
Operating Expenses
|
|
|
48,045
|
|
|
|
45,325
|
|
|
|
42,865
|
|
Environmental Remediation Charges
|
|
|
-
|
|
|
|
13,700
|
|
|
|
-
|
|
|
|
|
|
|
|
Operating Income
|
|
|
6,670
|
|
|
|
1,828
|
|
|
|
24,876
|
|
Interest and Other Income, Net
|
|
|
45
|
|
|
|
146
|
|
|
|
1,366
|
|
Interest Expense
|
|
|
10,656
|
|
|
|
10,735
|
|
|
|
10,803
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes
|
|
|
(3,941
|
)
|
|
|
(8,761
|
)
|
|
|
15,439
|
|
Income Tax Expense (Benefit)
|
|
|
(664
|
)
|
|
|
(2,802
|
)
|
|
|
6,488
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(3,277
|
)
|
|
$
|
(5,959
|
)
|
|
$
|
8,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.44
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
1.20
|
|
Diluted
|
|
$
|
(0.44
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,490,000
|
|
|
|
7,482,000
|
|
|
|
7,451,000
|
|
Diluted
|
|
|
7,490,000
|
|
|
|
7,482,000
|
|
|
|
7,599,000
|
|
See Notes to Consolidated Financial Statements
F-4
AMERICAN PACIFIC
CORPORATION
For the Years Ended September 30, 2010, 2009 and 2008
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Outstanding,
|
|
|
Par
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Net of
|
|
|
Value of
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
Compre-
|
|
|
Stock-
|
|
|
|
Treasury
|
|
|
Common
|
|
|
Excess of
|
|
|
Retained
|
|
|
Treasury
|
|
|
hensive
|
|
|
holders
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Stock
|
|
|
Loss
|
|
|
Equity
|
|
|
|
|
|
|
BALANCES, October 1, 2007
|
|
|
7,428,671
|
|
|
$
|
946
|
|
|
$
|
87,513
|
|
|
$
|
7,296
|
|
|
$
|
(16,982
|
)
|
|
$
|
(3,084
|
)
|
|
$
|
75,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,951
|
|
|
|
|
|
|
|
|
|
|
|
8,951
|
|
Currency Translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127
|
)
|
|
|
(127
|
)
|
Change in Unamortized Benefit Plan Costs, Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
|
|
296
|
|
Retirement Plan Amendments,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,352
|
)
|
|
|
(2,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adoption of new accounting standard
(Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
(291
|
)
|
Purchase of Treasury Stock
|
|
|
(11,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
(193
|
)
|
Issuance of Common Stock
|
|
|
60,000
|
|
|
|
6
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
381
|
|
Tax Benefit From Stock Options
|
|
|
|
|
|
|
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
481
|
|
Share-based Compensation
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
BALANCES, September 30, 2008
|
|
|
7,477,591
|
|
|
|
952
|
|
|
|
88,496
|
|
|
|
15,956
|
|
|
|
(17,175
|
)
|
|
|
(5,267
|
)
|
|
|
82,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,959
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,959
|
)
|
Currency Translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83
|
)
|
|
|
(83
|
)
|
Change in Unamortized Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Costs, Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,622
|
)
|
|
|
(6,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of Treasury Stock
|
|
|
|
|
|
|
(205
|
)
|
|
|
(16,970
|
)
|
|
|
|
|
|
|
17,175
|
|
|
|
|
|
|
|
-
|
|
Issuance of Common Stock
|
|
|
5,000
|
|
|
|
1
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Share-based Compensation
|
|
|
22,000
|
|
|
|
2
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
767
|
|
|
|
|
|
|
|
BALANCES, September 30, 2009
|
|
|
7,504,591
|
|
|
|
750
|
|
|
|
72,322
|
|
|
|
9,997
|
|
|
|
-
|
|
|
|
(11,972
|
)
|
|
|
71,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,277
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,277
|
)
|
Currency Translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(335
|
)
|
|
|
(335
|
)
|
Change in Unamortized Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Costs, Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,601
|
)
|
|
|
(4,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock, Net of Tax
|
|
|
2,500
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Share-based Compensation
|
|
|
36,000
|
|
|
|
4
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
780
|
|
|
|
|
|
|
|
BALANCES, September 30, 2010
|
|
|
7,543,091
|
|
|
$
|
754
|
|
|
$
|
73,091
|
|
|
$
|
6,720
|
|
|
$
|
-
|
|
|
$
|
(16,908
|
)
|
|
$
|
63,657
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-5
AMERICAN PACIFIC
CORPORATION
For the Years Ended September 30, 2010, 2009 and 2008
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(3,277
|
)
|
|
$
|
(5,959
|
)
|
|
$
|
8,951
|
|
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,445
|
|
|
|
16,166
|
|
|
|
16,454
|
|
Non-cash interest expense
|
|
|
572
|
|
|
|
632
|
|
|
|
637
|
|
Share-based compensation
|
|
|
780
|
|
|
|
767
|
|
|
|
127
|
|
Deferred income taxes
|
|
|
(565
|
)
|
|
|
(2,405
|
)
|
|
|
3,355
|
|
Excess tax benefit from stock option exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
(481
|
)
|
Loss (Gain) on sale of assets
|
|
|
12
|
|
|
|
76
|
|
|
|
(416
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(7,834
|
)
|
|
|
(14,437
|
)
|
|
|
(2,317
|
)
|
Inventories
|
|
|
270
|
|
|
|
2,974
|
|
|
|
6,666
|
|
Prepaid expenses and other current assets
|
|
|
281
|
|
|
|
1,620
|
|
|
|
(1,510
|
)
|
Accounts payable
|
|
|
1,434
|
|
|
|
(3,474
|
)
|
|
|
(349
|
)
|
Income taxes
|
|
|
(635
|
)
|
|
|
(266
|
)
|
|
|
(919
|
)
|
Accrued liabilities
|
|
|
2,775
|
|
|
|
(359
|
)
|
|
|
(1,765
|
)
|
Accrued interest
|
|
|
(75
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
Employee related liabilities
|
|
|
(490
|
)
|
|
|
(461
|
)
|
|
|
(431
|
)
|
Deferred revenues and customer deposits
|
|
|
11,932
|
|
|
|
2,195
|
|
|
|
(4,664
|
)
|
Environmental remediation reserves
|
|
|
(2,820
|
)
|
|
|
12,412
|
|
|
|
(1,145
|
)
|
Pension obligations, net
|
|
|
1,819
|
|
|
|
1,346
|
|
|
|
277
|
|
Other
|
|
|
151
|
|
|
|
315
|
|
|
|
(2,101
|
)
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
20,775
|
|
|
|
11,142
|
|
|
|
20,333
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(13,362
|
)
|
|
|
(9,458
|
)
|
|
|
(15,284
|
)
|
Acquisition of businesses and earnout adjustment
|
|
|
-
|
|
|
|
(6,725
|
)
|
|
|
-
|
|
Other investing activities
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(13,352
|
)
|
|
|
(16,183
|
)
|
|
|
(15,284
|
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
|
(5,064
|
)
|
|
|
(348
|
)
|
|
|
(251
|
)
|
Issuance of common stock
|
|
|
11
|
|
|
|
32
|
|
|
|
381
|
|
Excess tax benefit from stock option exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
481
|
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing Activities
|
|
|
(5,053
|
)
|
|
|
(316
|
)
|
|
|
418
|
|
|
|
|
|
|
|
Effect of Changes in Currency Exchange Rates on Cash
|
|
|
(66
|
)
|
|
|
145
|
|
|
|
-
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
2,304
|
|
|
|
(5,212
|
)
|
|
|
5,467
|
|
Cash and Cash Equivalents, Beginning of Year
|
|
|
21,681
|
|
|
|
26,893
|
|
|
|
21,426
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year
|
|
$
|
23,985
|
|
|
$
|
21,681
|
|
|
$
|
26,893
|
|
|
|
|
|
|
|
F-6
AMERICAN PACIFIC
CORPORATION
Consolidated Statements of Cash Flows
(Continued)
For the Years Ended September 30, 2010, 2009 and 2008
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Cash Paid (Refunded) For:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
10,159
|
|
|
$
|
10,089
|
|
|
$
|
10,141
|
|
Income taxes
|
|
|
(537
|
)
|
|
|
(439
|
)
|
|
|
5,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases originated
|
|
|
98
|
|
|
|
-
|
|
|
|
-
|
|
Additions to Property, Plant and Equipment not yet paid
|
|
|
624
|
|
|
|
300
|
|
|
|
119
|
|
See Notes to Consolidated Financial Statements
F-7
AMERICAN PACIFIC
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2010, 2009 AND 2008
(Dollars in Thousands, Except Per Share Amounts)
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
Principles of Consolidation. Our consolidated
financial statements include the accounts of American Pacific
Corporation and our subsidiaries (the Company,
we, us or our). All
intercompany accounts have been eliminated.
Effective October 1, 2008, we acquired Marotta Holdings
Limited (subsequently renamed Ampac ISP Holdings Limited) and
its wholly-owned subsidiaries (collectively AMPAC ISP
Holdings) for a cash purchase price, including direct
expenses and net of cash acquired, of $6,725. AMPAC ISP Holdings
is included in our consolidated financial statements beginning
on October 1, 2008 and is a component of our Aerospace
Equipment segment.
Use of Estimates. The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States of America requires us
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent
assets and liabilities and the reported amounts of revenue and
expenses. Judgments and assessments of uncertainties are
required in applying our accounting policies in many areas. For
example, key assumptions and estimates are particularly
important when determining our projected liabilities for pension
benefits, useful lives for depreciable and amortizable assets,
estimated costs to complete long-term contracts, deferred tax
assets and long-lived assets, including intangible assets and
goodwill. Other areas in which significant judgment exists
include, but are not limited to, costs that may be incurred in
connection with environmental matters and the resolution of
litigation and other contingencies. Actual results may differ
from estimates on which our consolidated financial statements
were prepared.
Revenue Recognition. Revenues from our
Specialty Chemicals segment, Fine Chemicals segment, and Other
Businesses segment are recognized when persuasive evidence of an
arrangement exists, delivery has occurred or services have been
rendered, title passes, the price is fixed or determinable and
collectability is reasonably assured. Almost all products sold
by our Fine Chemicals segment are subject to customer acceptance
periods. Specifically, these customers have contractually
negotiated acceptance periods from the time they receive
certificates of analysis and compliance
(Certificates) to reject the material based on
issues with the quality of the product, as defined in the
applicable agreement. At times we receive payment in advance of
customer acceptance. If we receive payment in advance of
customer acceptance, we record deferred revenues and deferred
costs of revenue upon delivery of the product and recognize
revenues in the period when the acceptance period lapses or the
customers acceptance has occurred.
Some of our perchlorate and fine chemicals products customers
have requested that we store materials purchased from us in our
facilities (Bill and Hold transactions or
arrangements). We recognize revenue prior to shipment of these
Bill and Hold transactions when we have satisfied the applicable
revenue recognition criteria, which include the point at which
title and risk of ownership transfer to our customers. These
customers have specifically requested in writing, pursuant to a
contract, that we invoice for the finished product and hold the
finished product until a later date. For our Bill and Hold
arrangements that contain customer acceptance periods, we record
deferred revenues and deferred costs of revenues when such
products are available for delivery and Certificates have been
delivered to the customers. We recognize revenue on our Bill and
Hold transactions in the period when the acceptance period
lapses or the customers acceptance has occurred. The sales
value of inventory, subject to Bill and Hold arrangements, at
our facilities was $19,606 and $25,882 as of September 30,
2010 and 2009, respectively.
F-8
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Revenues from our Aerospace Equipment segment are derived from
contracts that are accounted for using the
percentage-of-completion
method and measure progress on a
cost-to-cost
basis. Contract revenues include change orders and claims when
approved by the customer. The
percentage-of-completion
method recognizes revenue as work on a contract progresses.
Revenues are calculated based on the percentage of total costs
incurred in relation to total estimated costs at completion of
the contract. For fixed-price and fixed-price-incentive
contracts, if at any time expected costs exceed the value of the
contract, the loss is recognized immediately. We do not incur
material pre-contract costs.
Deferred Revenues and Deferred Cost of
Revenues. Deferred revenues represent payments
received from customers for products that have not met all
revenue recognition requirements. Deferred costs of revenues,
which is a component of inventories, includes the cost of
inventory that is directly associated with deferred revenues.
Deferred revenues and deferred costs of revenues are recognized
when all elements of the revenue recognition process have been
met.
Environmental Remediation. We are subject to
environmental regulations that relate to our past and current
operations. We record liabilities for environmental remediation
costs when our assessments indicate that remediation efforts are
probable and the costs can be reasonably estimated. On a
quarterly basis, we review our estimates of future costs that
could be incurred for remediation activities. In some cases,
only a range of reasonably possible costs can be estimated. In
establishing our reserves, the most probable estimate is used;
otherwise, we accrue the minimum amount of the range. Estimates
of liabilities are based on currently available facts, existing
technologies and presently enacted laws and regulations. These
estimates are subject to revision in future periods based on
actual costs or new circumstances. Accrued environmental
remediation costs include the undiscounted cost of equipment,
operating and maintenance costs, and fees to outside law firms
and consultants, for the estimated duration of the remediation
activity. Estimating environmental cost requires us to exercise
substantial judgment regarding the cost, effectiveness and
duration of our remediation activities. Actual future
expenditures could differ materially from our current estimates.
We evaluate potential claims for recoveries from other parties
separately from our estimated liabilities. We record an asset
for expected recoveries when recoveries of the amounts are
probable.
Related Party Transactions. Our related party
transactions generally fall into the following categories:
payments of professional fees to firms affiliated with certain
members of our board of directors, and payments to certain
directors for consulting services outside of the scope of their
duties as directors. For the years ended September 30,
2010, 2009 and 2008, such transactions totaled approximately
$117, $4, and $19, respectively.
Cash and Cash Equivalents. All highly liquid
investment securities with a maturity of three months or less
when acquired are considered to be cash equivalents. We maintain
cash balances that exceed federally insured limits; however, we
have incurred no losses on such accounts.
Fair Value Disclosure. We adopted the new
accounting guidance under generally accepted accounting
principles relating to fair value measurements and disclosures
effective October 1, 2009. The new guidance clarifies the
definition of fair value, prescribes methods for measuring fair
value, establishes a fair value hierarchy based on the inputs
used to measure fair value and expands disclosures about the use
of fair value measurements.
The valuation techniques utilized are based upon observable and
unobservable inputs. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs
reflect internal market assumptions. These two types of inputs
create the following fair value hierarchy:
Level 1 Quoted prices for identical instruments
in active markets.
F-9
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Level 2 Quoted prices for similar instruments
in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived
valuations whose inputs are observable or whose significant
value drivers are observable.
Level 3 Significant inputs to the valuation
model are unobservable.
We estimate the fair value of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities
approximate their carrying values due to their short-term
nature. We estimate the fair value of our fixed-rate long-term
debt to be approximately $103,688 based on level 2 data
which was the trade date closest to September 30, 2010,
which was October 13, 2010. We estimated the fair value of
our fixed-rate long-term debt to be approximately $100,650 based
on the trade date closest to September 30, 2009, which was
September 9, 2009.
Concentration of Credit Risk. Financial
instruments that have potential concentrations of credit risk
include cash and cash equivalents and accounts receivable. We
place our cash and cash equivalents with high quality credit
institutions. Our accounts receivable have concentration risk
because significant amounts relate to customers in the aerospace
and defense or pharmaceutical industries. From time to time we
make sales to a customer that exceed 10% of our then outstanding
accounts receivable balance. The following table provides
disclosure of the percentage of our consolidated accounts
receivable attributed to customers that exceed ten percent of
the total for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
Fine chemicals customer
|
|
|
|
|
|
|
14%
|
|
|
|
13%
|
|
Fine chemicals customer
|
|
|
|
|
|
|
|
|
|
|
19%
|
|
Fine chemicals customer
|
|
|
|
|
|
|
|
|
|
|
10%
|
|
Specialty chemicals customer
|
|
|
23%
|
|
|
|
11%
|
|
|
|
|
|
Specialty chemicals customer
|
|
|
19%
|
|
|
|
10%
|
|
|
|
|
|
Aerospace equipment customer
|
|
|
|
|
|
|
13%
|
|
|
|
12%
|
|
Inventories. Inventories are stated at the
lower of cost or market. Costs are removed from inventories
using the average-cost method. Inventoried costs include
materials, labor and manufacturing overhead. Inventoried costs
also include certain overhead parts and supplies. General and
administrative costs are expensed as incurred. Raw materials
costs are determined on a moving average basis. We expense the
cost of inventories which are considered to be excess because
on-hand inventory quantities exceed our estimates of future
demand.
Property, Plant and Equipment. Property,
plant and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line
method over the estimated productive lives of the assets of 3 to
15 years for machinery and equipment and 7 to 30 years
for buildings and improvements. Leasehold improvements are
depreciated over the shorter of the estimated productive life of
7 to 9 years or the term of the lease.
Intangible Assets. Intangible assets are
recorded at cost and are amortized using the straight-line
method over their estimated period of benefit of 1 to
6 years.
We evaluate the recoverability of intangible assets periodically
and take into account events or circumstances that warrant
revised estimates of useful lives or that indicate that
impairment exists. All of our intangible assets are subject to
amortization. No impairments of intangible assets have been
recorded during any of the years presented.
F-10
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Depreciation and Amortization
Expense. Depreciation and amortization expense is
classified as follows in our statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Classified as cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
13,625
|
|
|
$
|
13,566
|
|
|
$
|
13,168
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
1,517
|
|
Classified as operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
744
|
|
|
|
532
|
|
|
|
532
|
|
Amortization
|
|
|
2,076
|
|
|
|
2,068
|
|
|
|
1,237
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,445
|
|
|
$
|
16,166
|
|
|
$
|
16,454
|
|
|
|
|
|
|
|
Goodwill. Goodwill is not amortized. We test
goodwill for impairment at the reporting unit level on an annual
basis, as of September 30, or more frequently if an event
occurs or circumstances change that indicate that the fair value
of a reporting unit could be below its carrying amount. The
impairment test consists of comparing the fair value of a
reporting unit with its carrying amount including goodwill, and,
if the carrying amount of the reporting unit exceeds its fair
value, comparing the implied fair value of goodwill with its
carrying amount. An impairment loss would be recognized for the
carrying amount of goodwill in excess of its implied fair value.
There was no goodwill impairment charge recorded in any of the
years presented.
Income Taxes. We account for income taxes
under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured,
separately for each tax-paying entity in each tax jurisdiction,
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period
that includes the enactment date.
We account for uncertain tax positions in accordance with an
accounting standard which creates a single model to address
uncertainty in income tax positions and prescribes the minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. Under this
standard, we may recognize tax benefits from an uncertain
position only if it is more likely than not that the position
will be sustained upon examination by taxing authorities based
on the technical merits of the issue. The amount recognized is
the largest benefit that we believe has greater than a 50%
likelihood of being realized upon settlement.
Impairment of Long-Lived Assets. We test our
property, plant and equipment and amortizable intangible assets
for recoverability when events or changes in circumstances
indicate that their carrying amounts may not be recoverable.
Examples of such circumstances include, but are not limited to,
operating or cash flow losses from the use of such assets or
changes in our intended uses of such assets. To test for
recovery, we group assets (an Asset Group) in a
manner that represents the lowest level for which identifiable
cash flows are largely independent of the cash flows of other
groups of assets and liabilities. Our Asset Groups are typically
identified by facility because each facility has a unique cost
overhead and general and administrative expense structure that
is supported by cash flows from products produced at the
facility. The carrying amount of an Asset Group is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the
Asset Group.
If we determine that an Asset Group is not recoverable, then we
would record an impairment charge if the carrying value of the
Asset Group exceeds its fair value. Fair value is based on
estimated discounted future cash flows expected to be generated
by the Asset Group. The assumptions underlying cash flow
projections would represent managements best estimates at
the time of the
F-11
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
impairment review. Some of the factors that management would
consider or estimate include: industry and market conditions,
sales volume and prices, costs to produce and inflation. Changes
in key assumptions or actual conditions which differ from
estimates could result in an impairment charge. We use
reasonable and supportable assumptions when performing
impairment reviews but cannot predict the occurrence of future
events and circumstances that could result in impairment
charges. We recorded no impairments of long-lived assets during
the years ended September 30, 2010, 2009 and 2008.
Earnings (Loss) Per Share. Basic earnings
(loss) per share is calculated by dividing net income (loss) by
the weighted average shares outstanding during the year. Diluted
earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average shares outstanding plus the
dilutive effect of common share equivalents, which is computed
using the treasury stock method.
Foreign Currency. We translate our foreign
subsidiaries assets and liabilities into U.S. dollars
using the year-end exchange rate. Revenue and expense amounts
are translated at the average monthly exchange rate. Foreign
currency translation gains or losses are reported as cumulative
currency translation adjustments as a component of
stockholders equity. We recorded foreign currency
transaction gains or losses as a component of interest and other
income (expense), net, on our consolidated statement of
operations. For the years ended September 30, 2010, 2009
and 2008, gains and losses resulting from transactions in
foreign currencies were not material.
Recently Issued or Adopted Accounting
Standards. In September 2006, the Financial
Accounting Standards Board (the FASB) issued a new
standard which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles
in the United States of America, and expands disclosures about
fair value measurements. In February 2008, the FASB deferred
this standard for one year as it applied to certain items,
including assets and liabilities initially measured at fair
value in a business combination, reporting units and certain
assets and liabilities measured at fair value in connection with
goodwill impairment tests, and long-lived assets measured at
fair value for impairment assessments. The standard applies
under other accounting pronouncements that require or permit
fair value measurements, the FASB having previously concluded in
those accounting pronouncements that fair value is the relevant
measurement attribute. This standard was effective for us on
October 1, 2008; however, we did not adopt all the
provisions of the standard as the FASB delayed the effective
date of its application to non-financial assets and liabilities.
The remaining provisions became effective for us beginning
October 1, 2009. The adoption of this standard did not have
a material impact on our results of operations, financial
position or cash flows.
In December 2007, the FASB issued a new standard that
significantly changed the accounting for business combinations.
Under the standard, an acquiring entity is required to recognize
all the assets acquired and liabilities assumed in a transaction
at the acquisition-date fair value with limited exceptions. The
standard also includes a substantial number of new disclosure
requirements. The standard applies to us for business
combinations with acquisition dates on or after October 1,
2009. We expect that the new standard will have an impact on our
accounting for future business combinations, but the effect is
dependent upon acquisitions at that time.
In December 2007, the FASB issued a new standard that
establishes revised accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, the standard
requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and
separate from the parents equity. The amount of net income
attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. It
also clarifies that changes in a parents ownership
interest in a subsidiary that do not result in deconsolidation
are equity transactions if the parent retains its controlling
financial interest. The standard requires that a parent
recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the
fair value of
F-12
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
the noncontrolling equity investment on the deconsolidation
date. The standard also includes expanded disclosure
requirements regarding the interests of the parent and its
noncontrolling interest. The standard was effective for us
beginning on October 1, 2009. We currently have no entities
or arrangements that were affected by the adoption of this
standard.
In April 2008, the FASB issued a new standard which amends the
factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset. The standard for determining the
useful life of a recognized intangible asset shall be applied
prospectively to intangible assets acquired after the effective
date. However, the disclosure requirements must be applied
prospectively to all intangible assets recognized in the
Companys financial statements as of the effective date.
The standard was effective for us beginning on October 1,
2009. The adoption of this standard did not have a material
impact on our results of operations, financial position or cash
flows.
In December 2008, the FASB issued a new standard that provides
guidance on an employers disclosures about plan assets of
a defined benefit pension or other postretirement plan. The
objectives of the disclosures include disclosure of investment
allocation decisions, major categories of plan assets, inputs
and valuation techniques used to measure the fair value of plan
assets, the effect of certain fair value measurements, and
significant concentrations of risk within plan assets. The
expanded disclosure requirements was effective for our fiscal
year ended September 30, 2010. The adoption of this
standard is not expected to have a material impact on our
results of operations, financial position or cash flows.
In April 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-17,
which provides guidance on defining a milestone under Topic 605
and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or
development transactions. Consideration that is contingent on
achievement of a milestone in its entirety may be recognized as
revenue in the period in which the milestone is achieved only if
the milestone is judged to meet certain criteria to be
considered substantive. Milestones should be considered
substantive in their entirety and may not be bifurcated. An
arrangement may contain both substantive and nonsubstantive
milestones that should be evaluated individually. We adopted
this ASU on October 1, 2010. We anticipate that the
adoption of this standard will affect the timing of revenue
recognition on certain existing and future research and
development contracts for our Fine Chemicals segment. However,
because the term of these contracts are typically less than six
months and the amount of revenues generated from such contracts
are not material to our consolidated revenues, the adoption of
this standard is not expected to have a material impact on our
results of operations, financial position or cash flows.
|
|
2.
|
SHARE-BASED
COMPENSATION
|
We account for our share-based compensation arrangements under
an accounting standard which requires us to measure the cost of
employee services received in exchange for an award of equity
instruments based on the grant date fair value of the award. The
fair values of awards are recognized as additional compensation
expense, which is classified as operating expenses,
proportionately over the vesting period of the awards.
Our share-based compensation arrangements are designed to
advance the long-term interests of the Company, including by
attracting and retaining employees and directors and aligning
their interests with those of our stockholders. The amount,
frequency, and terms of share-based awards may vary based on
competitive practices, our operating results, government
regulations and availability under our equity incentive plans.
Depending on the form of the share-based award, new shares of
our common stock may be issued upon grant, option exercise or
vesting of the award. We maintain three share based plans, each
as discussed below.
F-13
|
|
2.
|
SHARE-BASED
COMPENSATION (Continued)
|
The American Pacific Corporation Amended and Restated 2001 Stock
Option Plan (the 2001 Plan) permits the granting of
stock options to employees, officers, directors and consultants.
Options granted under the 2001 Plan generally vested 50% at the
grant date and 50% on the one-year anniversary of the grant
date, and expire ten years from the date of grant. As of
September 30, 2010, there were 750 shares available
for grant under the 2001 Plan. This plan was approved by our
stockholders.
The American Pacific Corporation 2002 Directors Stock
Option Plan, as amended and restated (the
2002 Directors Plan) compensates non-employee
directors with stock options granted annually or upon other
discretionary events. Options granted under the
2002 Directors Plan prior to September 30, 2007
generally vested 50% at the grant date and 50% on the one-year
anniversary of the grant date, and expire ten years from the
date of grant. Options granted under the 2002 Directors
Plan in November 2007 vested 50% one year from the date of grant
and 50% two years from the date of grant, and expire ten years
from the date of grant. As of September 30, 2010, there
were no shares available for grant under the 2002 Directors
Plan. This plan was approved by our stockholders.
The American Pacific Corporation 2008 Stock Incentive Plan (the
2008 Plan) permits the granting of stock options,
restricted stock, restricted stock units and stock appreciation
rights to employees, directors and consultants. A total of
350,000 shares of common stock are authorized for issuance
under the 2008 Plan, provided that no more than
200,000 shares of common stock may be granted pursuant to
awards of restricted stock and restricted stock units.
Generally, awards granted under the 2008 Plan vest in three
equal annual installments beginning on the first anniversary of
the grant date, and in the case of option awards, expire ten
years from the date of grant. As of September 30, 2010,
there were 12,000 shares available for grant under the 2008
Plan. This plan was approved by our stockholders. In December
2010, our board of directors approved an amendment and
restatement of the 2008 Plan that, among other things, increases
the total shares of common stock authorized under the 2008 Plan
from 350,000 to 800,000. The effectiveness of this amendment and
restatement will be subject to stockholder approval.
A summary of our outstanding and non-vested stock option and
restricted stock activity for the year ended September 30,
2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
Outstanding and
|
|
|
|
Outstanding
|
|
|
Non-Vested
|
|
|
Non-Vested
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
Price
|
|
|
|
|
|
Value
|
|
|
|
|
|
Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Shares
|
|
|
Per Share
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
540,997
|
|
|
$
|
8.64
|
|
|
|
161,710
|
|
|
$
|
5.57
|
|
|
|
22,000
|
|
|
$
|
11.25
|
|
Granted
|
|
|
149,000
|
|
|
|
7.21
|
|
|
|
149,000
|
|
|
|
3.65
|
|
|
|
36,000
|
|
|
|
7.15
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
(61,065
|
)
|
|
|
5.62
|
|
|
|
(7,336
|
)
|
|
|
11.25
|
|
Exercised
|
|
|
(2,500
|
)
|
|
|
4.87
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired / Cancelled
|
|
|
(29,321
|
)
|
|
|
8.86
|
|
|
|
(750
|
)
|
|
|
3.74
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
|
658,176
|
|
|
|
8.32
|
|
|
|
248,895
|
|
|
|
4.41
|
|
|
|
50,664
|
|
|
|
8.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of our exercisable stock options as of
September 30, 2010 is as follows:
|
|
|
|
|
Number of vested stock options
|
|
|
409,281
|
|
Weighted average exercise price per share
|
|
$
|
8.07
|
|
Aggregate intrinsic value
|
|
$
|
3
|
|
Weighted average remaining contractual term in years
|
|
|
6.0
|
|
We determine the fair value of stock option awards at their
grant date, using a Black-Scholes Option-Pricing model applying
the assumptions in the following table. We determine the fair
value of restricted
F-14
|
|
2.
|
SHARE-BASED
COMPENSATION (Continued)
|
stock awards based on the fair market value of our common stock
on the grant date. Actual compensation, if any, ultimately
realized by optionees may differ significantly from the amount
estimated using an option valuation model.
The following stock option information is as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Weighted average grant date fair value per share of options
granted Significant fair value assumptions:
|
|
$
|
3.65
|
|
|
$
|
5.41
|
|
|
$
|
7.86
|
|
Expected term in years
|
|
|
6.00
|
|
|
|
6.00
|
|
|
|
5.75
|
|
Expected volatility
|
|
|
51.3%
|
|
|
|
48.7%
|
|
|
|
44.5%
|
|
Expected dividends
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Risk-free interest rates
|
|
|
2.3%
|
|
|
|
2.7%
|
|
|
|
3.4%
|
|
Total intrinsic value of options exercised
|
|
$
|
4
|
|
|
$
|
21
|
|
|
$
|
629
|
|
Aggregate cash received for option exercises
|
|
$
|
11
|
|
|
$
|
32
|
|
|
$
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost (included in operating expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
546
|
|
|
$
|
585
|
|
|
$
|
127
|
|
Restricted stock
|
|
|
234
|
|
|
|
182
|
|
|
|
-
|
|
|
|
|
|
|
|
Total
|
|
|
780
|
|
|
|
767
|
|
|
|
127
|
|
Tax benefit recognized
|
|
|
170
|
|
|
|
135
|
|
|
|
50
|
|
|
|
|
|
|
|
Net compensation cost
|
|
$
|
610
|
|
|
$
|
632
|
|
|
$
|
77
|
|
|
|
|
|
|
|
As of period end date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation cost for non-vested awards not yet recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
297
|
|
|
$
|
303
|
|
|
$
|
70
|
|
Restricted stock
|
|
$
|
88
|
|
|
$
|
65
|
|
|
$
|
-
|
|
Weighted-average years to be recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
0.6
|
|
Restricted stock
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
-
|
|
For each year presented, the expected option term was determined
using the simplified method under the applicable accounting
standard. Expected volatility is based on historical market
factors related to the Companys common stock. Risk-free
interest rate is based on U.S. Treasury rates appropriate
for the expected term.
Our share-based compensation plans permit us, but do not require
us, to repurchase newly exercised shares from optionees in
settlement of the optionees exercise price obligation.
Shares are repurchased at a price equal to the closing price of
our common stock on the date of exercise. In June 2008, we
repurchased 11,080 shares at an average price of $17.50 per
share.
The following tables provide additional disclosure for accounts
receivable, inventories and property, plant and equipment at
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Accounts Receivable:
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
42,348
|
|
|
$
|
35,942
|
|
Unbilled receivables
|
|
|
9,773
|
|
|
|
7,807
|
|
Employee and other receivables
|
|
|
319
|
|
|
|
479
|
|
Allowance for bad debt
|
|
|
(540)
|
|
|
|
(200)
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,900
|
|
|
$
|
44,028
|
|
|
|
|
|
|
|
F-15
|
|
3.
|
BALANCE SHEET
DATA (Continued)
|
Unbilled receivables represent unbilled costs and accrued
profits related to revenues recognized on contracts that we
account for using the
percentage-of-completion
method. Substantially all of these amounts are expected to be
billed or invoiced within the next 12 months. We assess the
collectability of our accounts receivable based on historical
collection experience and provide allowances for estimated
credit losses. Typically, our customers consist of large
corporations and government contractors procuring products from
us on behalf of or for the benefit of government agencies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
2,977
|
|
|
$
|
1,951
|
|
Work-in-progress
|
|
|
18,318
|
|
|
|
22,080
|
|
Raw materials and supplies
|
|
|
9,103
|
|
|
|
9,930
|
|
Deferred cost of revenues
|
|
|
5,728
|
|
|
|
2,395
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,126
|
|
|
$
|
36,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Property, Plant and Equipment:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
3,683
|
|
|
$
|
3,455
|
|
Buildings and improvements
|
|
|
48,875
|
|
|
|
47,548
|
|
Machinery and equipment
|
|
|
133,198
|
|
|
|
127,116
|
|
Construction in progress
|
|
|
8,012
|
|
|
|
2,325
|
|
|
|
|
|
|
|
Total Cost
|
|
|
193,768
|
|
|
|
180,444
|
|
Less: accumulated depreciation
|
|
|
(79,895
|
)
|
|
|
(65,799
|
)
|
|
|
|
|
|
|
Total
|
|
$
|
113,873
|
|
|
$
|
114,645
|
|
|
|
|
|
|
|
Intangible assets consist of the following as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Perchlorate customer list
|
|
$
|
38,697
|
|
|
$
|
38,697
|
|
Less accumulated amortization
|
|
|
(38,697
|
)
|
|
|
(38,697
|
)
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
8,976
|
|
|
|
9,018
|
|
Less accumulated amortization
|
|
|
(7,556
|
)
|
|
|
(6,182
|
)
|
|
|
|
|
|
|
|
|
|
1,420
|
|
|
|
2,836
|
|
|
|
|
|
|
|
Backlog
|
|
|
1,559
|
|
|
|
1,579
|
|
Less accumulated amortization
|
|
|
(1,559
|
)
|
|
|
(862
|
)
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
717
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,420
|
|
|
$
|
3,553
|
|
|
|
|
|
|
|
The perchlorate customer list is an asset of our Specialty
Chemicals segment and was fully amortized as of February 2008.
Amortization expense was $1,517 for year ended
September 30, 2008. Customer relationships are assets of
our Fine Chemicals and Aerospace Equipment segments and are
subject to amortization. Amortization expense was $1,374,
$1,238, and $1,237 for the years ended September 30, 2010,
2009 and 2008, respectively. Backlog is an asset of our
Aerospace Equipment segment and is subject to amortization.
Amortization expense was $702, $830, and zero
F-16
|
|
4.
|
INTANGIBLE
ASSETS (Continued)
|
for the years ended September 30, 2010, 2009 and 2008,
respectively. Estimated future amortization expense for our
intangible assets is as follows:
|
|
|
|
|
Years ending September 30:
|
|
|
|
|
2011
|
|
$
|
832
|
|
2012
|
|
|
294
|
|
2013
|
|
|
294
|
|
|
|
|
|
|
Total
|
|
$
|
1,420
|
|
|
|
|
|
|
Goodwill is assigned to our Aerospace Equipment Segment. Changes
in the reported value for goodwill are a result in fluctuations
in the underlying foreign currency translation rate.
Our outstanding debt balances consist of the following as of
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Senior Notes, 9%, due 2015
|
|
$
|
105,000
|
|
|
$
|
110,000
|
|
Capital Leases, due through 2014
|
|
|
172
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
|
105,172
|
|
|
|
110,248
|
|
Less Current Portion
|
|
|
(70
|
)
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Debt
|
|
$
|
105,102
|
|
|
$
|
110,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes. In February 2007, we issued and
sold $110,000 aggregate principal amount of 9.0% Senior
Notes due February 1, 2015 (collectively, with the exchange
notes issued in August 2007 as referenced below, the
Senior Notes). Proceeds from the issuance of the
Senior Notes were used to repay our former credit facilities.
The Senior Notes accrue interest at an annual rate of 9.0%,
payable semi-annually in February and August. The Senior Notes
are guaranteed on a senior unsecured basis by all of our
existing and future material U.S. subsidiaries. The Senior
Notes are:
|
|
|
|
|
ranked equally in right of payment with all of our existing and
future senior indebtedness;
|
|
|
ranked senior in right of payment to all of our existing and
future senior subordinated and subordinated indebtedness;
|
|
|
effectively junior to our existing and future secured debt to
the extent of the value of the assets securing such
debt; and
|
|
|
structurally subordinated to all of the existing and future
liabilities (including trade payables) of each of our
subsidiaries that do not guarantee the Senior Notes.
|
The Senior Notes may be redeemed by the Company, in whole or in
part, under the following circumstances:
|
|
|
|
|
at any time prior to February 1, 2011 at a price equal to
100% of the purchase amount of the Senior Notes plus an
applicable premium as defined in the related indenture;
|
|
|
at any time on or after February 1, 2011 at redemption
prices beginning at 104.5% of the principal amount to be
redeemed and reducing to 100% by February 1, 2013; and
|
|
|
under certain changes of control, we must offer to purchase the
Senior Notes at 101% of their aggregate principal amount, plus
accrued interest.
|
The Senior Notes were issued pursuant to an indenture which
contains certain customary events of default, including cross
default provisions if we default under our existing and future
debt agreements having, individually or in the aggregate, a
principal or similar amount outstanding of at least $10,000, and
certain other covenants limiting, subject to exceptions,
carve-outs and qualifications, our ability to:
|
|
|
|
|
incur additional debt;
|
|
|
pay dividends or make other restricted payments;
|
F-17
|
|
|
|
|
create liens on assets to secure debt;
|
|
|
incur dividend or other payment restrictions with regard to
restricted subsidiaries;
|
|
|
transfer or sell assets;
|
|
|
enter into transactions with affiliates;
|
|
|
enter into sale and leaseback transactions;
|
|
|
create an unrestricted subsidiary;
|
|
|
enter into certain business activities; or
|
|
|
effect a consolidation, merger or sale of all or substantially
all of our assets.
|
In connection with the closing of the sale of the Senior Notes,
we entered into a registration rights agreement which required
us to file a registration statement to offer to exchange the
Senior Notes for notes that have substantially identical terms
as the Senior Notes and are registered under the Securities Act
of 1933, as amended. In July 2007, we filed a registration
statement with the SEC with respect to an offer to exchange the
Senior Notes as required by the registration rights agreement,
which registration statement was declared effective by the SEC.
In August 2007, we completed the exchange of 100% of the Senior
Notes for substantially identical notes which are registered
under the Securities Act of 1933, as amended.
Senior Note Repurchase. In June 2010, we
repurchased and cancelled $5,000 in principal amount of our
Senior Notes for $4,900. As a result of this repurchase, we
recorded an immaterial loss of $16 in other income (expense),
net of deferred financing costs of $116.
Revolving Credit Facility. In February 2007,
we entered into an Amended and Restated Credit Agreement, as
amended as of July 7, 2009 and September 17, 2010 (the
Revolving Credit Facility), with Wachovia Bank,
National Association (predecessor by merger to Wells Fargo Bank,
National Association), and certain other lenders, which provides
a secured revolving credit facility in an aggregate principal
amount of up to $20,000 with an initial maturity of
5 years. We may prepay and terminate the Revolving Credit
Facility at any time. The annual interest rates applicable to
loans under the Revolving Credit Facility are, at our option,
either the Alternate Base Rate or LIBOR Rate (each as defined in
the Revolving Credit Facility) plus, in each case, an applicable
margin. The applicable margin is tied to our total leverage
ratio (as defined in the Revolving Credit Facility). In
addition, we pay commitment fees, other fees related to the
issuance and maintenance of letters of credit, and certain
agency fees.
The Revolving Credit Facility is guaranteed by and secured by
substantially all of the assets of our current and future
domestic subsidiaries, subject to certain exceptions as set
forth in the Revolving Credit Facility. The Revolving Credit
Facility contains certain negative covenants restricting and
limiting our ability to, among other things:
|
|
|
|
|
incur debt, incur contingent obligations and issue certain types
of preferred stock;
|
|
|
create liens;
|
|
|
pay dividends, distributions or make other specified restricted
payments;
|
|
|
make certain investments and acquisitions;
|
|
|
enter into certain transactions with affiliates;
|
|
|
enter into sale and leaseback transactions; and
|
|
|
merge or consolidate with any other entity or sell, assign,
transfer, lease, convey or otherwise dispose of assets.
|
Financial covenants under the Revolving Credit Facility include
quarterly requirements for total leverage ratio of less than or
equal to 5.25 to 1.00 (Total Leverage Ratio), and
interest coverage ratio of at least 2.00 to 1.00 through
quarters ended June 30, 2011 and 2.50 to 1.00 for quarters
thereafter (Interest Coverage Ratio). The Total
Leverage Ratio is defined as the ratio of Consolidated Funded
Debt to Consolidated EBITDA and the Interest Coverage Ratio is
defined as the ratio of Consolidated EBITDA to Consolidated
Interest Expense, each term as defined in the Revolving Credit
F-18
Facility. In accordance with the definitions contained in the
Revolving Credit Facility, as of September 30, 2010, we
were in compliance with our Total Leverage Ratio and Interest
Coverage Ratio covenants.
The Revolving Credit Facility also contains usual and customary
events of default (subject to certain threshold amounts and
grace periods), including cross-default provisions that include
our Senior Notes. If an event of default occurs and is
continuing, we may be required to repay the obligations under
the Revolving Credit Facility prior to its stated maturity and
the related commitments may be terminated. As of
September 30, 2010, under our Revolving Credit Facility, we
had no borrowings outstanding, availability of $18,170, and we
were in compliance with its various financial covenants.
Availability is computed as the total commitment of $20,000 less
outstanding borrowings and outstanding letters of credit, if any.
Principal Maturities. Principal maturities
for our outstanding debt as of September 30, 2010 are as
follows:
|
|
|
|
|
Years ending September 30:
|
|
|
|
|
2011
|
|
$
|
70
|
|
2012
|
|
|
69
|
|
2013
|
|
|
22
|
|
2014
|
|
|
11
|
|
2015
|
|
|
105,000
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total
|
|
$
|
105,172
|
|
|
|
|
|
|
Debt Issue Costs. In connection with the
issuance of the Senior Notes, we incurred debt issuance costs of
approximately $4,814 which were capitalized and classified as
other assets on the balance sheet. These costs are being
amortized as additional interest expense over the eight year
term on the Senior Notes.
Letters of Credit. As of September 30,
2010, we had $1,830 in outstanding standby letters of credit
which mature through July 2013. These letters of credit
principally secure performance of certain water treatment
equipment sold by us and payment of fees associated with the
delivery of natural gas and power.
|
|
6.
|
EARNINGS (LOSS)
PER SHARE
|
Shares used to compute earnings (loss) per share from continuing
operations are as follows for the years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(3,277
|
)
|
|
$
|
(5,959
|
)
|
|
$
|
8,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Weighted Average Shares
|
|
|
7,490,000
|
|
|
|
7,482,000
|
|
|
|
7,451,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares, Basic
|
|
|
7,490,000
|
|
|
|
7,482,000
|
|
|
|
7,451,000
|
|
Dilutive Effect of Stock Options
|
|
|
-
|
|
|
|
-
|
|
|
|
148,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares, Diluted
|
|
|
7,490,000
|
|
|
|
7,482,000
|
|
|
|
7,599,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Share
|
|
$
|
(0.44
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
1.20
|
|
Diluted Earnings (Loss) per Share
|
|
$
|
(0.44
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
1.18
|
|
As of September 30, 2010 and 2009, respectively, we had an
aggregate of 708,840 and 540,997 antidilutive options and
restricted shares outstanding.
F-19
Preferred Stock. We have authorized
3,000,000 shares of preferred stock, par value $1.00 per
share. At September 30, 2010 and 2009, no shares of
preferred stock are issued and outstanding.
Treasury Stock. In July 2009, our board of
directors approved a resolution to retire the
2,045,950 shares of treasury stock held by the Company. The
transaction resulted in a reduction in Treasury Stock in the
amount of $17,175 and a corresponding reduction in Capital in
Excess of Par Value on our consolidated balance sheet as of
September 30, 2009.
Income (loss) before income taxes for domestic and foreign
operations is as follows for the years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
United States
|
|
$
|
(3,198
|
)
|
|
$
|
(8,456
|
)
|
|
$
|
15,934
|
|
Foreign
|
|
|
(743
|
)
|
|
|
(305
|
)
|
|
|
(495
|
)
|
|
|
|
|
|
|
Total
|
|
$
|
(3,941
|
)
|
|
$
|
(8,761
|
)
|
|
$
|
15,439
|
|
|
|
|
|
|
|
The components of the income tax expense (benefit) are as
follows for the years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Current
|
|
$
|
(172
|
)
|
|
$
|
429
|
|
|
$
|
1,580
|
|
Deferred
|
|
|
(492
|
)
|
|
|
(3,231
|
)
|
|
|
4,908
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
(664
|
)
|
|
$
|
(2,802
|
)
|
|
$
|
6,488
|
|
|
|
|
|
|
|
Deferred tax assets are comprised of the following at September
30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Environmental remediation reserves
|
|
$
|
11,058
|
|
|
$
|
11,955
|
|
Pension obligations
|
|
|
15,005
|
|
|
|
10,400
|
|
Tax credits and carryforwards
|
|
|
3,137
|
|
|
|
3,589
|
|
Intangible assets
|
|
|
2,349
|
|
|
|
2,899
|
|
Inventory
|
|
|
8,678
|
|
|
|
4,660
|
|
Accrued expenses
|
|
|
2,214
|
|
|
|
1,997
|
|
Other
|
|
|
917
|
|
|
|
590
|
|
|
|
|
|
|
|
Subtotal
|
|
|
43,358
|
|
|
|
36,090
|
|
Valuation allowance
|
|
|
(1,186
|
)
|
|
|
(1,157
|
)
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
42,172
|
|
|
|
34,933
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(10,671
|
)
|
|
|
(6,698
|
)
|
Prepaid expenses
|
|
|
(461
|
)
|
|
|
(623
|
)
|
Other
|
|
|
(114
|
)
|
|
|
(302
|
)
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(11,246
|
)
|
|
|
(7,623
|
)
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
30,926
|
|
|
$
|
27,310
|
|
|
|
|
|
|
|
The following summarizes our tax credits and carryforwards as of
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
Federal operating losses
|
|
$
|
1,251
|
|
|
$
|
1,382
|
|
Federal R&D credits
|
|
|
160
|
|
|
|
160
|
|
Federal AMT credits
|
|
|
1,412
|
|
|
|
1,684
|
|
State operating losses
|
|
|
1,205
|
|
|
|
1,205
|
|
U.K. operating losses
|
|
|
2,753
|
|
|
|
2,514
|
|
Ireland operating losses
|
|
|
3,989
|
|
|
|
3,548
|
|
F-20
|
|
8.
|
INCOME TAXES
(Continued)
|
Federal operating loss carryforwards, expiring in 2029, federal
R&D credits and federal AMT credits are available to reduce
future federal taxable income. We do not anticipate future
taxable income in the states that have operating loss
carryforwards and have provided a full valuation allowance of
$66 as of September 30, 2010 and 2009. Because of a history
of losses in foreign tax jurisdictions, we have concluded that
it is more likely than not that we will not utilize these
operating loss carryforwards and, accordingly, have provided
aggregate valuation allowances of $1,120 and $1,091 as of
September 30, 2010 and 2009, respectively. We have not
provided a U.S. federal income tax for our foreign
operations because we intend to permanently reinvest any foreign
earnings.
A reconciliation of the federal statutory rate to our effective
tax (benefit) rate is as follows for the years ended September
30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Federal income tax at the statutory rate
|
|
|
(35.0%)
|
|
|
|
(35.0%)
|
|
|
|
35.0%
|
|
State income tax, net of federal benefit
|
|
|
(5.4%)
|
|
|
|
(5.0%)
|
|
|
|
5.2%
|
|
Nondeductible expenses
|
|
|
8.5%
|
|
|
|
3.9%
|
|
|
|
1.5%
|
|
Valuation allowance
|
|
|
1.4%
|
|
|
|
0.0%
|
|
|
|
1.0%
|
|
Change in effective state income tax rate
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
(2.3%)
|
|
Interest and penalties
|
|
|
9.4%
|
|
|
|
0.6%
|
|
|
|
1.4%
|
|
Foreign tax rate differential
|
|
|
5.5%
|
|
|
|
2.4%
|
|
|
|
0.0%
|
|
Other
|
|
|
(1.2%)
|
|
|
|
1.1%
|
|
|
|
0.2%
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(16.8%)
|
|
|
|
(32.0%)
|
|
|
|
42.0%
|
|
|
|
|
|
|
|
We review our portfolio of uncertain tax positions and recorded
liabilities based on the applicable recognition standards. In
this regard, an uncertain tax position represents our expected
treatment of a tax position taken in a filed tax return, or
planned to be taken in a future tax return, that has not been
reflected in measuring income tax expense for financial
reporting purposes. We classify uncertain tax positions as
non-current income tax liabilities unless expected to be settled
within one year.
We adopted the accounting standard for uncertain tax positions
on October 1, 2007. The cumulative effects of applying this
interpretation were recorded as a decrease of $291 to retained
earnings, an increase of $1,179 to net deferred tax assets and
an increase of $1,470 to non-current income taxes liabilities (a
component of other long-term liabilities) as of October 1,
2007.
As of September 30, 2010 and 2009, the total amount of
unrecognized tax benefits was $1,246 and $652, respectively, of
which $386 and $335, respectively, would affect the effective
tax rate, if recognized. The remaining balance is related to
deferred tax items which only impact the timing of tax payments.
Due to the effects of filing tax carryback claims, we have no
significant statutes of limitations that are anticipated to
expire in the fiscal year ending September 30, 2011. As
such, it is reasonably possible that none of the gross liability
for unrecognized tax benefits will reverse during the fiscal
year ending September 30, 2011.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits as of September 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Unrecognized Tax Benefits - Beginning of Year
|
|
$
|
652
|
|
|
$
|
313
|
|
Additions for tax positions of prior years
|
|
|
855
|
|
|
|
392
|
|
Reductions for tax positions of prior years
|
|
|
(261
|
)
|
|
|
-
|
|
Lapse of statute of limitations
|
|
|
-
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
Unrecognized Tax Benefits - End of Year
|
|
$
|
1,246
|
|
|
$
|
652
|
|
|
|
|
|
|
|
We recognize accrued interest and penalties related to
unrecognized tax benefits in income tax expense. As of
September 30, 2010 and 2009, respectively, we had accrued
$584 and $164, respectively, for the payment of tax-related
interest and penalties. For the years ended
F-21
|
|
8.
|
INCOME TAXES
(Continued)
|
September 30, 2010 and 2009, respectively, income tax
expense includes an expense of $321 and $52 for interest and
penalties.
We file income tax returns in the U.S. federal
jurisdiction, various states and foreign jurisdictions. With few
exceptions, we are no longer subject to federal or state income
tax examinations for the years before 2002.
|
|
9.
|
EMPLOYEE BENEFIT
PLANS
|
Defined Benefit Plan Descriptions. We
maintain three defined benefit pension plans which cover
substantially all of our U.S. employees, excluding
employees of our Aerospace Equipment segment: the Amended and
Restated American Pacific Corporation Defined Benefit Pension
Plan (the AMPAC Plan), the Ampac Fine Chemicals LLC
Pension Plan for Salaried Employees (the AFC Salaried
Plan), and the Ampac Fine Chemicals LLC Pension Plan for
Bargaining Unit Employees (the AFC Bargaining Plan),
each as amended to date. Collectively, these three plans are
referred to as the Pension Plans. Pension Plans
benefits are paid based on an average of earnings, retirement
age, and length of service, among other factors. In May 2010,
our board of directors approved amendments to our Pension Plans
which effectively closed the Pension 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
Companys 401(k) plans. In addition, we maintain the
American Pacific Corporation Supplemental Executive Retirement
Plan (the SERP) that as of September 30, 2010,
includes three executive officers and two former executive
officers. We use a measurement date of September 30 to account
for our Pension Plans and SERP.
In November 2007, our board of directors approved an amendment
and restatement of the SERP. Under the terms of the amended and
restated SERP, certain of our officers and their beneficiaries
are entitled to receive a monthly annuity benefit following
their retirement from the Company. The amendment and restatement
of the SERP, which was effective as of October 1, 2007,
amended, among other provisions, the list of participants in the
SERP to include three additional executive officers of the
Company and the method of calculating a participants
benefit under the SERP.
Defined Contribution Plan Descriptions. We
maintain two 401(k) plans in which participating employees may
make contributions. One covers substantially all
U.S. employees except bargaining unit employees of our Fine
Chemicals segment and the other covers those bargaining unit
employees (collectively, the 401(k) Plans). We make
matching contributions for Fine Chemicals segment
employees and U.S. employees of our Aerospace Equipment
segment. In addition, we make a profit sharing contribution for
U.S. employees of our Aerospace Equipment segment who were
employed prior to June 30, 2010. Beginning July 1,
2010, for all eligible new U.S. employees we will make
matching contributions.
F-22
|
|
9.
|
EMPLOYEE BENEFIT
PLANS (Continued)
|
Summary Defined Benefit Plan Results. The
table below presents the annual changes in benefit obligations
and plan assets and the funded status of our Pension Plans and
SERP as of and for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
SERP
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
50,515
|
|
|
$
|
37,392
|
|
|
$
|
6,981
|
|
|
$
|
5,979
|
|
Service cost
|
|
|
2,196
|
|
|
|
1,983
|
|
|
|
439
|
|
|
|
350
|
|
Interest cost
|
|
|
3,281
|
|
|
|
2,892
|
|
|
|
374
|
|
|
|
370
|
|
Amendments
|
|
|
285
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Actuarial losses
|
|
|
8,272
|
|
|
|
9,468
|
|
|
|
316
|
|
|
|
409
|
|
Benefits paid
|
|
|
(1,397
|
)
|
|
|
(1,220
|
)
|
|
|
(427
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
|
63,152
|
|
|
|
50,515
|
|
|
|
7,683
|
|
|
|
6,981
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
29,294
|
|
|
|
27,552
|
|
|
|
-
|
|
|
|
-
|
|
Actual return on plan assets
|
|
|
1,950
|
|
|
|
21
|
|
|
|
-
|
|
|
|
-
|
|
Employer contributions
|
|
|
3,300
|
|
|
|
2,941
|
|
|
|
427
|
|
|
|
127
|
|
Benefits paid
|
|
|
(1,397
|
)
|
|
|
(1,220
|
)
|
|
|
(427
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
|
33,147
|
|
|
|
29,294
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(30,005
|
)
|
|
$
|
(21,221
|
)
|
|
$
|
(7,683
|
)
|
|
$
|
(6,981
|
)
|
|
|
|
|
|
|
Amounts pertaining to our Pension Plans and SERP recognized in
our consolidated balance sheet are classified as follows as of
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
SERP
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Employee related liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(527
|
)
|
|
$
|
(482
|
)
|
Pension obligations and other long-term liabilities
|
|
|
(30,005
|
)
|
|
|
(21,221
|
)
|
|
|
(7,156
|
)
|
|
|
(6,499
|
)
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(30,005
|
)
|
|
$
|
(21,221
|
)
|
|
$
|
(7,683
|
)
|
|
$
|
(6,981
|
)
|
|
|
|
|
|
|
The following table summarizes changes in the components of
unrecognized benefit plan costs for the year ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
SERP
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
8,733
|
|
|
$
|
11,648
|
|
|
$
|
316
|
|
|
$
|
409
|
|
Prior service costs
|
|
|
285
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss from previous years
|
|
|
(1,178
|
)
|
|
|
(509
|
)
|
|
|
-
|
|
|
|
-
|
|
Prior service costs
|
|
|
(69
|
)
|
|
|
(76
|
)
|
|
|
(420
|
)
|
|
|
(434
|
)
|
Income tax benefits related to above items
|
|
|
(3,109
|
)
|
|
|
(4,426
|
)
|
|
|
42
|
|
|
|
10
|
|
|
|
|
|
|
|
Changes in unrecognized benefit plan costs
|
|
$
|
4,662
|
|
|
$
|
6,637
|
|
|
$
|
(62
|
)
|
|
$
|
(15
|
)
|
|
|
|
|
|
|
F-23
|
|
9.
|
EMPLOYEE BENEFIT
PLANS (Continued)
|
The following table sets forth the amounts recognized as
components of accumulated other comprehensive loss at September
30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
SERP
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
24,036
|
|
|
$
|
16,481
|
|
|
$
|
595
|
|
|
$
|
279
|
|
Prior service costs
|
|
|
538
|
|
|
|
322
|
|
|
|
2,242
|
|
|
|
2,662
|
|
Income tax benefits related to above items
|
|
|
(9,830
|
)
|
|
|
(6,721
|
)
|
|
|
(1,134
|
)
|
|
|
(1,176
|
)
|
|
|
|
|
|
|
Unrecognized benefit plan costs, net of tax
|
|
$
|
14,744
|
|
|
$
|
10,082
|
|
|
$
|
1,703
|
|
|
$
|
1,765
|
|
|
|
|
|
|
|
The table below sets forth the amounts in accumulated other
comprehensive loss at September 30, 2010 that we expect to
recognize in periodic pension cost in the year ending
September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
SERP
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
$
|
1,749
|
|
|
$
|
-
|
|
Amortization of prior service costs
|
|
|
62
|
|
|
|
420
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,811
|
|
|
$
|
420
|
|
|
|
|
|
|
|
The table below provides data for our defined benefit plans as
of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Plan Assets:
|
|
|
|
|
|
|
|
|
Ampac Plan
|
|
$
|
25,565
|
|
|
$
|
23,650
|
|
AFC Salaried Plan
|
|
|
4,831
|
|
|
|
3,431
|
|
AFC Bargaining Plan
|
|
|
2,751
|
|
|
|
2,213
|
|
Accumulated Benefit Obligation:
|
|
|
|
|
|
|
|
|
Ampac Plan
|
|
|
39,181
|
|
|
|
32,826
|
|
AFC Salaried Plan
|
|
|
6,529
|
|
|
|
4,684
|
|
AFC Bargaining Plan
|
|
|
3,402
|
|
|
|
2,896
|
|
Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
Ampac Plan
|
|
|
51,226
|
|
|
|
41,769
|
|
AFC Salaried Plan
|
|
|
8,239
|
|
|
|
5,850
|
|
AFC Bargaining Plan
|
|
|
3,687
|
|
|
|
2,896
|
|
Net periodic benefit plan cost is comprised of the following for
the years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
|
|
|
SERP
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Net Periodic Benefit Plan Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2,196
|
|
|
$
|
1,983
|
|
|
$
|
2,078
|
|
|
$
|
439
|
|
|
$
|
350
|
|
|
$
|
351
|
|
Interest cost
|
|
|
3,281
|
|
|
|
2,892
|
|
|
|
2,526
|
|
|
|
374
|
|
|
|
370
|
|
|
|
346
|
|
Expected return on plan assets
|
|
|
(2,410
|
)
|
|
|
(2,201
|
)
|
|
|
(2,466
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recognized actuarial losses
|
|
|
1,178
|
|
|
|
509
|
|
|
|
296
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of prior service costs
|
|
|
69
|
|
|
|
76
|
|
|
|
76
|
|
|
|
420
|
|
|
|
434
|
|
|
|
434
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
4,314
|
|
|
$
|
3,259
|
|
|
$
|
2,510
|
|
|
$
|
1,233
|
|
|
$
|
1,154
|
|
|
$
|
1,131
|
|
|
|
|
|
|
|
F-24
|
|
9.
|
EMPLOYEE BENEFIT
PLANS (Continued)
|
Assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
SERP
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted-Average Actuarial Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used to Determine Benefit Obligation as
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.80%
|
|
|
|
6.40%
|
|
|
|
7.25%
|
|
|
|
4.80%
|
|
|
|
5.60%
|
|
|
|
7.25%
|
|
Rate of compensation increase
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
|
4.00%
|
|
Weighted-Average Actuarial Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used to Determine Net Periodic Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Cost for the Years Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.40%
|
|
|
|
7.25%
|
|
|
|
6.25%
|
|
|
|
5.60%
|
|
|
|
7.25%
|
|
|
|
6.25%
|
|
Rate of compensation increase
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
|
4.50%
|
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
|
4.50%
|
|
Expected return on plan assets
|
|
|
8.00%
|
|
|
|
8.00%
|
|
|
|
8.00%
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The discount rate is determined for the Pension Plans and SERP,
respectively, by projecting the expected future benefit payments
of the Pension Plans and SERP, discounting those payments using
a theoretical zero-coupon spot-yield curve derived from a
universe of high-quality bonds as of the measurement date, and
solving for a single equivalent discount rate that results in
the same projected benefit obligation.
Through consultation with investment advisors and actuaries, the
expected long-term returns for each of the Pension Plans
strategic asset classes were developed. Several factors were
considered, including survey of investment managers
expectations, current market data and historical returns of long
periods. Using policy target allocation percentages and the
asset class expected returns, a weighted average expected return
was calculated.
Plan Assets and Investment Policy. The
Pension Plans assets include no shares of our common
stock. We developed assumptions for expected long-term returns
for the targeted asset classes of each of the Pension Plans
based on factors that include current market data such as
yields/price-earnings ratios, and historical market returns over
long periods. Using policy target allocation percentages and the
asset class expected returns, a weighted average expected return
was calculated. The actual and target asset allocation for the
Pension Plans is as follows at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
Actual
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Equity securities
|
|
|
70%
|
|
|
|
68%
|
|
|
|
65%
|
|
Debt securities
|
|
|
27%
|
|
|
|
29%
|
|
|
|
25%
|
|
Cash and marketable securities
|
|
|
3%
|
|
|
|
3%
|
|
|
|
10%
|
|
|
|
|
|
|
|
Total
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
F-25
|
|
9.
|
EMPLOYEE BENEFIT
PLANS (Continued)
|
The table below provides the fair values of the Pension
Plans assets as of September 30, 2010, by asset
category. The table below identifies the level of inputs used to
determine the fair value of assets in each category (see
Note 1 for additional information regarding the level
categories).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quotes Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
|
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic large-cap
|
|
$
|
12,721
|
|
|
|
|
|
|
|
|
|
|
$
|
12,721
|
|
Domestic mid-cap
|
|
|
2,514
|
|
|
|
|
|
|
|
|
|
|
|
2,514
|
|
Domestic small-cap
|
|
|
1,353
|
|
|
|
|
|
|
|
|
|
|
|
1,353
|
|
International
|
|
|
4,646
|
|
|
|
|
|
|
|
|
|
|
|
4,646
|
|
Other
|
|
|
1,173
|
|
|
|
|
|
|
|
|
|
|
|
1,173
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Mutual funds
|
|
|
3,332
|
|
|
|
|
|
|
|
|
|
|
|
3,332
|
|
Corporate bonds
|
|
|
|
|
|
$
|
3,181
|
|
|
|
|
|
|
|
3,181
|
|
Certificated of deposit
|
|
|
|
|
|
|
1,513
|
|
|
|
|
|
|
|
1,513
|
|
U.S. Treasuries
|
|
|
1,167
|
|
|
|
|
|
|
|
|
|
|
|
1,167
|
|
Mortgage-backed
|
|
|
|
|
|
|
517
|
|
|
|
|
|
|
|
517
|
|
Cash and cash equivalents
|
|
|
976
|
|
|
|
|
|
|
|
|
|
|
|
976
|
|
Other
|
|
|
5
|
|
|
|
49
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
$
|
27,887
|
|
|
$
|
5,260
|
|
|
$
|
-
|
|
|
$
|
33,147
|
|
|
|
|
|
|
|
Contributions and Benefit Payments. We made
total contributions of $1,131, $1,130 and $993 to the 401(k)
Plans during the years ended September 30, 2010, 2009 and
2008, respectively.
During the year ending September 30, 2011, we expect to
contribute approximately $6,500 to the Pension Plans and
approximately $500 to the SERP. The table below sets forth
expected future benefit payments for the years ending September
30:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ending September 30:
|
|
Pension Plans
|
|
|
SERP
|
|
|
|
|
|
|
2011
|
|
$
|
1,700
|
|
|
$
|
524
|
|
2012
|
|
|
1,753
|
|
|
|
515
|
|
2013
|
|
|
1,949
|
|
|
|
604
|
|
2014
|
|
|
2,085
|
|
|
|
590
|
|
2015
|
|
|
2,209
|
|
|
|
789
|
|
2016-2020
|
|
|
14,507
|
|
|
|
3,618
|
|
|
|
10.
|
COMMITMENTS AND
CONTINGENCIES
|
Operating Leases. We lease our corporate
offices and production facilities for our Aerospace Equipment
segment under operating leases with lease periods extending
through 2025. Certain of our operating leases contain step rent
provisions and escalation clauses and also provide for cash
allowances toward the funding of capital improvements. Our
minimum lease payments include these considerations. Total
rental expense under operating leases was $2,153, $2,114 and
$1,574 for the years ended September 30, 2010, 2009, and
2008, respectively.
F-26
|
|
10.
|
COMMITMENTS AND
CONTINGENCIES (Continued)
|
Minimum lease payments are recognized as rental expense on a
straight-line basis over the minimum lease term. Estimated
future minimum lease payments under operating leases as of
September 30, 2010, are as follows:
|
|
|
|
|
Years ending September 30:
|
|
|
|
|
2011
|
|
$
|
1,814
|
|
2012
|
|
|
1,722
|
|
2013
|
|
|
1,577
|
|
2014
|
|
|
1,566
|
|
2015
|
|
|
1,466
|
|
Thereafter
|
|
|
4,933
|
|
|
|
|
|
|
Total
|
|
$
|
13,078
|
|
|
|
|
|
|
Purchase Commitments. Purchase commitments
represent obligations under agreements which are not
unilaterally cancelable by us, are legally enforceable, and
specify fixed or minimum amounts or quantities of goods or
services at fixed or minimum prices. As of September 30,
2010, our purchase commitments were not material.
Employee Agreements. We have an employment
agreement with our Chief Executive Officer. The term of the
employment agreement currently ends on September 30, 2013,
unless amended or extended in accordance with the terms of the
agreement or otherwise. Significant contract provisions include
annual base salary, health care benefits, and non-compete
provisions. The employment agreement is primarily an at
will employment agreement, under which we may terminate
the executive officers employment for any or no reason.
Generally, the agreement provides that a termination without
cause obligates us to pay certain severance benefits specified
in the contract.
We maintain severance agreements with each of our Vice
President, Administration and our Chief Financial Officer,
which, generally, provide that a termination of the executive
without cause obligates us to pay certain severance benefits
specified in the contract. In addition, certain other key
divisional executives are eligible for severance benefits.
Estimated minimum aggregate severance benefits under all of
these agreements and arrangements was approximately $4,900 as of
September 30, 2010.
Environmental
Matters.
Regulatory Review of Perchlorates. Our Specialty
Chemicals segment manufactures and sells products that contain
perchlorates. Federal and state regulators continue to review
the effects of perchlorate, if any, on human health and the
related allowable maximum level of contaminant from perchlorate.
While the presence of regulatory review presents general
business risk to the Company, we are currently unaware of any
regulatory proposal that would have a material effect on our
results of operations and financial position or that would cause
us to significantly modify or curtail our business practices,
including our remediation activities discussed below.
Perchlorate Remediation Project in Henderson,
Nevada. We commercially manufactured perchlorate
chemicals at a facility in Henderson, Nevada (AMPAC
Henderson Site) from 1958 until the facility was destroyed
in May 1988, after which we relocated our production to a new
facility in Iron County, Utah. Kerr-McGee Chemical Corporation
(KMCC) also operated a perchlorate production
facility in Henderson, Nevada (the KMCC Site) from
1967 to 1998. In addition, between 1956 and 1967, American
Potash operated a perchlorate production facility and, for many
years prior to 1956, other entities also manufactured
perchlorate chemicals at the KMCC Site. As a result of a longer
production history in Henderson, KMCC and its predecessor
operations manufactured significantly greater amounts of
perchlorate over time than we did at the AMPAC Henderson Site.
F-27
|
|
10.
|
COMMITMENTS AND
CONTINGENCIES (Continued)
|
In 1997, the Southern Nevada Water Authority (SNWA)
detected trace amounts of the perchlorate anion in Lake Mead and
the Las Vegas Wash. Lake Mead is a source of drinking water for
Southern Nevada and areas of Southern California. The Las Vegas
Wash flows into Lake Mead from the Las Vegas valley.
In response to this discovery by SNWA, and at the request of the
Nevada Division of Environmental Protection (NDEP),
we engaged in an investigation of groundwater near the AMPAC
Henderson Site and down gradient toward the Las Vegas Wash. The
investigation and related characterization, which lasted more
than six years, employed experts in the field of hydrogeology.
This investigation concluded that although there is perchlorate
in the groundwater in the vicinity of the AMPAC Henderson Site
up to 700 parts per million, perchlorate from this site does not
materially impact, if at all, water flowing in the Las Vegas
Wash toward Lake Mead. It has been well established, however, by
data generated by SNWA and NDEP, that perchlorate from the KMCC
Site did impact the Las Vegas Wash and Lake Mead. KMCCs
successor, Tronox LLC, operates an above ground perchlorate
groundwater remediation facility at their Henderson site.
Notwithstanding these facts, and at the direction of NDEP and
the U.S. Environmental Protection Agency (the
EPA), we conducted an investigation of remediation
technologies for perchlorate in groundwater with the intention
of remediating groundwater near the AMPAC Henderson Site. The
technology that was chosen was in situ bioremediation
(ISB). ISB reduces perchlorate in the groundwater by
precise addition of an appropriate carbon source to the
groundwater itself while it is still in the ground (as opposed
to an above ground, more conventional, ex situ process). This
induces naturally occurring organisms in the groundwater to
reduce the perchlorate among other oxygen containing compounds.
In 2002, we conducted a pilot test in the field of the ISB
technology and it was successful. On the basis of the successful
test and other evaluations, in the fiscal year ended
September 30, 2005 (Fiscal 2005), we submitted
a work plan to NDEP for the construction of a remediation
facility near the AMPAC Henderson Site. The conditional approval
of the work plan by NDEP in our third quarter of Fiscal 2005
allowed us to generate estimated costs for the installation and
operation of the remediation facility to address perchlorate at
the AMPAC Henderson Site. We commenced construction in July
2005. In December 2006, we began operations of the permanent
facility. The location of this facility is several miles, in the
direction of groundwater flow, from the AMPAC Henderson Site.
At the request of NDEP, in the summer of 2009, we began renewed
discussions with them to formalize our remediation efforts in an
agreement that, if executed, would provide more detailed
regulatory guidance on environmental characterization and
remedies at the AMPAC Henderson Site and vicinity. The agreement
under discussion would be expected to be similar to others
previously executed by NDEP with other companies under similar
circumstances. Typically, such agreements generally cover such
matters as the scope of work plans, schedules, deliverables,
remedies for non compliance, and reimbursement to the State of
Nevada for past and future oversight costs.
Henderson Site Environmental Remediation Reserve. We
accrue for anticipated costs associated with environmental
remediation that are probable and estimable. On a quarterly
basis, we review our estimates of future costs that could be
incurred for remediation activities. In some cases, only a range
of reasonably possible costs can be estimated. In establishing
our reserves, the most probable estimate is used; otherwise, we
accrue the minimum amount of the range.
During our Fiscal 2005 third quarter, we recorded a charge for
$22,400 representing our estimate of the probable costs of our
remediation efforts at the AMPAC Henderson Site, including the
costs for capital equipment, operating and maintenance
(O&M), and consultants. The project consisted
of two primary phases: the initial construction of the
remediation equipment phase and the O&M phase. During the
fiscal year ended September 30, 2006, we increased our
total cost estimate of probable
F-28
|
|
10.
|
COMMITMENTS AND
CONTINGENCIES (Continued)
|
costs for the construction phase by $3,600 due primarily to
changes in the engineering designs, delays in receiving permits
and the resulting extension of construction time.
Late in the fiscal year ended September 30, 2009
(Fiscal 2009), we gained additional information from
groundwater modeling that indicates groundwater emanating from
the AMPAC Henderson Site in certain areas in deeper zones (more
than 150 feet below ground surface) is moving toward our
existing remediation facility at a much slower pace than
previously estimated. Utilization of our existing facilities
alone, at this lower groundwater pace, could, according to this
more recently created groundwater model, extend the life of our
remediation project to well in excess of fifty years. As a
result of this additional data, related model interpretations
and consultations with NDEP, we re-evaluated our remediation
operations at the end of Fiscal 2009 and during the fiscal year
ended September 30, 2010 (Fiscal 2010) as new
data was generated. This evaluation indicates that we should be
able to significantly reduce the total project time, and
ultimately the total cost of the project, by installing
additional groundwater extraction wells in the deeper, more
concentrated areas, thereby providing for a more aggressive
remediation treatment. The additional wells and related
remediation equipment will incorporate above ground treatment to
supplement or possibly replace by consolidation our existing ISB
process. With the additional extraction wells and equipment, we
estimated that the total remaining project life for the existing
and new, more aggressive deep zone systems could range from 10
to 29 years, beginning with Fiscal 2010. Within that range,
we estimated that a range of 13 to 23 years is more likely.
Groundwater speed, perchlorate concentrations, aquifer
characteristics and forecasted groundwater extraction rates
continue to be key variables underlying our estimate of the life
of the project and these variables are updated on a regular
basis. If additional information becomes available in the future
that lead to a different interpretation of the model, thereby
dictating a change in equipment and operations, our estimate of
the resulting project life could change significantly.
In our Fiscal 2009 fourth quarter, we accrued approximately
$9,600 representing our estimate of the cost to engineer,
design, and install this additional equipment. We anticipate
that these amounts will be spent through and the new equipment
operational by 2012. We are in the pre-construction, design and
engineering steps, and as a result, this estimate involves a
number of significant assumptions. Due to uncertainties inherent
in making estimates, our estimate may later require significant
revision as new facts become available and circumstances change.
In addition to accruing approximately $9,600 for engineering,
design, installation and cost of additional equipment, in our
Fiscal 2009 fourth quarter, we increased our estimate of total
remaining O&M costs by $4,100 due primarily to incremental
O&M costs to operate and maintain the additional equipment
once installed. Total O&M expenses are currently estimated
at approximately $1,000 per year and estimated to increase to
approximately $1,300 per year after the additional equipment
becomes operational. To estimate O&M costs, we consider,
among other factors, the project scope and historical expense
rates to develop assumptions regarding labor, utilities,
repairs, maintenance supplies and professional services costs.
If additional information becomes available in the future that
is different than information currently available to us and
thereby leads us to different conclusions, our estimate of
O&M expenses could change significantly.
In addition, certain remediation activities are conducted on
public lands under operating permits. In general, these permits
require us to return the land to its original condition at the
end of the permit period. Estimated costs associated with
removal of remediation equipment from the land are not material
and are included in our range of estimated costs.
As of September 30, 2010, the aggregate range of
anticipated environmental remediation costs was from
approximately $20,100 to approximately $44,000 based on a
possible total remaining life of the project ranging from 9 to
28 years. As of September 30, 2010, the accrued amount
was $23,870, based on an estimate of 12 remaining years, or the
low end of the more likely range of the expected life of the
project. These estimates are based on information currently
available to us and may be subject
F-29
|
|
10.
|
COMMITMENTS AND
CONTINGENCIES (Continued)
|
to material adjustment upward or downward in future periods as
new facts or circumstances may indicate. A summary of our
environmental reserve activity for the year ended
September 30, 2010 is shown below:
|
|
|
|
|
Balance, September 30, 2009
|
|
$
|
26,690
|
|
Additions or adjustments
|
|
|
-
|
|
Expenditures
|
|
|
(2,820)
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
$
|
23,870
|
|
|
|
|
|
|
AFC Environmental Matters. The primary operations of
our Fine Chemicals segment are located on land leased from
Aerojet-General Corporation (Aerojet). The leased
land is part of a tract of land owned by Aerojet designated as a
Superfund site under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980
(CERCLA). The tract of land had been used by Aerojet
and affiliated companies to manufacture and test rockets and
related equipment since the 1950s. Although the chemicals
identified as contaminants on the leased land were not used by
Aerojet Fine Chemicals LLC (predecessor in interest to Ampac
Fine Chemicals LLC) as part of its operations, CERCLA,
among other things, provides for joint and severable liability
for environmental liabilities including, for example,
environmental remediation expenses.
As part of the agreement by which we acquired our Fine Chemicals
segment business from GenCorp Inc. (GenCorp), an
Environmental Indemnity Agreement was entered into whereby
GenCorp agreed to indemnify us against any and all environmental
costs and liabilities arising out of or resulting from any
violation of environmental law prior to the effective date of
the sale, or any release of hazardous substances by Aerojet Fine
Chemicals LLC, Aerojet or GenCorp on the premises of Ampac Fine
Chemicals LLC or Aerojets Sacramento site prior to the
effective date of the sale.
On November 29, 2005, EPA Region IX provided us with a
letter indicating that the EPA does not intend to pursue any
clean up or enforcement actions under CERCLA against future
lessees of the Aerojet property for existing contamination,
provided that the lessees do not contribute to or do not
exacerbate existing contamination on or under the Aerojet
Superfund site.
Other Matters. Although we are not currently
party to any material pending legal proceedings, we are from
time to time subject to claims and lawsuits related to our
business operations. We accrue for loss contingencies when a
loss is probable and the amount can be reasonably estimated.
Legal fees, which can be material in any given period, are
expensed as incurred. We believe that current claims or lawsuits
against us, individually and in the aggregate, will not result
in loss contingencies that will have a material adverse effect
on our financial condition, cash flows or results of operations.
We report our business in four operating segments: Fine
Chemicals, Specialty Chemicals, Aerospace Equipment and Other
Businesses. These segments are based upon business units that
offer distinct products and services, are operationally managed
separately and produce products using different production
methods. Segment operating income or loss includes all sales and
expenses directly associated with each segment. Environmental
remediation charges, corporate general and administrative costs,
which consist primarily of executive, investor relations,
accounting, human resources and information technology expenses,
and interest are not allocated to segment operating results.
Fine Chemicals. Our Fine Chemicals segment
includes the operating results of our wholly-owned subsidiaries
Ampac Fine Chemicals LLC and AMPAC Fine Chemicals Texas, LLC
(collectively, AMPAC Fine Chemicals or AFC). AFC is a custom
manufacturer of active pharmaceutical ingredients and registered
intermediates for commercial customers in the pharmaceutical
industry. AFC operates in compliance with the U.S. Food and
Drug Administrations current Good Manufacturing Practices
and the requirements of certain other regulatory agencies such
as the
F-30
|
|
11.
|
SEGMENT
INFORMATION (Continued)
|
European Unions European Medicines Agency and Japans
Pharmaceuticals and Medical Devices Agency. AFC has distinctive
competencies and specialized engineering capabilities in
performing chiral separations, manufacturing chemical compounds
that require high containment and performing energetic
chemistries at commercial scale.
Specialty Chemicals. Our Specialty Chemicals
segment manufactures and sells: (i) perchlorate chemicals,
principally ammonium perchlorate, which is the predominant
oxidizing agent for solid propellant rockets, booster motors and
missiles used in space exploration, commercial satellite
transportation and national defense programs, (ii) sodium
azide, a chemical used in pharmaceutical manufacturing, and
(iii) Halotron®,
a series of clean fire extinguishing agents used in fire
extinguishing products ranging from portable fire extinguishers
to total flooding systems.
Aerospace Equipment. Our Aerospace Equipment
segment includes the operating results of our wholly-owned
subsidiary Ampac-ISP Corp. and its wholly-owned subsidiaries
(collectively, AMPAC ISP). AMPAC ISP manufactures
monopropellant and bipropellant liquid propulsion systems and
thrusters for satellites, launch vehicles, and interceptors. In
addition, AMPAC ISP designs, develops and manufactures liquid
propulsion thrusters, high performance valves, pressure
regulators, cold-gas propulsion systems, and precision
structures for space applications, especially in the European
space market.
Other Businesses. Our Other Businesses
segment contains our water treatment equipment division and real
estate activities. Our water treatment equipment business
markets, designs, and manufactures electrochemical On Site
Hypochlorite Generation, or OSHG, systems. These systems are
used in the disinfection of drinking water, control of noxious
odors, and the treatment of seawater to prevent the growth of
marine organisms in cooling systems. We supply our equipment to
municipal, industrial and offshore customers. Our real estate
activities are not material.
Our revenues are characterized by individually significant
orders and relatively few customers. As a result, in any given
reporting period, certain customers may account for more than
ten percent of our consolidated revenues. The following table
provides disclosure of the percentage of our consolidated
revenues attributed to customers that exceed ten percent of the
total in each of the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Fine chemicals customer
|
|
|
18%
|
|
|
|
24%
|
|
|
|
13%
|
|
Fine chemicals customer
|
|
|
|
|
|
|
|
|
|
|
31%
|
|
Fine chemicals customer
|
|
|
|
|
|
|
|
|
|
|
10%
|
|
Specialty chemicals customer
|
|
|
14%
|
|
|
|
15%
|
|
|
|
16%
|
|
Specialty chemicals customer
|
|
|
15%
|
|
|
|
11%
|
|
|
|
|
|
F-31
|
|
11.
|
SEGMENT
INFORMATION (Continued)
|
The following provides financial information about our segment
operations for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fine Chemicals
|
|
$
|
69,632
|
|
|
$
|
95,484
|
|
|
$
|
124,187
|
|
Specialty Chemicals
|
|
|
62,611
|
|
|
|
62,210
|
|
|
|
57,097
|
|
Aerospace Equipment
|
|
|
37,608
|
|
|
|
33,488
|
|
|
|
16,435
|
|
Other Businesses
|
|
|
6,341
|
|
|
|
5,966
|
|
|
|
5,410
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
176,192
|
|
|
$
|
197,148
|
|
|
$
|
203,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fine Chemicals
|
|
$
|
(7,583)
|
|
|
$
|
2,299
|
|
|
$
|
16,246
|
|
Specialty Chemicals
|
|
|
30,571
|
|
|
|
26,189
|
|
|
|
23,128
|
|
Aerospace Equipment
|
|
|
(265)
|
|
|
|
3,012
|
|
|
|
736
|
|
|
|
|
|
|
|
Other Businesses
|
|
|
(206)
|
|
|
|
195
|
|
|
|
1,022
|
|
|
|
|
|
|
|
Total Segment Operating Income
|
|
|
22,517
|
|
|
|
31,695
|
|
|
|
41,132
|
|
Corporate Expenses
|
|
|
(15,847)
|
|
|
|
(16,167)
|
|
|
|
(16,256)
|
|
Environmental Remediation Charges
|
|
|
-
|
|
|
|
(13,700)
|
|
|
|
-
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
6,670
|
|
|
$
|
1,828
|
|
|
$
|
24,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fine Chemicals
|
|
$
|
12,997
|
|
|
$
|
12,943
|
|
|
$
|
12,876
|
|
Specialty Chemicals
|
|
|
1,148
|
|
|
|
1,274
|
|
|
|
2,825
|
|
Aerospace Equipment
|
|
|
1,649
|
|
|
|
1,461
|
|
|
|
222
|
|
Other Businesses
|
|
|
16
|
|
|
|
12
|
|
|
|
12
|
|
Corporate
|
|
|
635
|
|
|
|
476
|
|
|
|
519
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,445
|
|
|
$
|
16,166
|
|
|
$
|
16,454
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fine Chemicals
|
|
$
|
10,614
|
|
|
$
|
6,438
|
|
|
$
|
10,667
|
|
Specialty Chemicals
|
|
|
1,047
|
|
|
|
1,503
|
|
|
|
1,687
|
|
Aerospace Equipment
|
|
|
1,618
|
|
|
|
1,318
|
|
|
|
686
|
|
Other Businesses
|
|
|
12
|
|
|
|
13
|
|
|
|
1
|
|
Corporate
|
|
|
71
|
|
|
|
186
|
|
|
|
2,243
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,362
|
|
|
$
|
9,458
|
|
|
$
|
15,284
|
|
|
|
|
|
|
|
Assets, at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fine Chemicals
|
|
$
|
137,252
|
|
|
$
|
143,600
|
|
|
$
|
155,807
|
|
Specialty Chemicals
|
|
|
39,411
|
|
|
|
25,237
|
|
|
|
18,282
|
|
Aerospace Equipment
|
|
|
29,899
|
|
|
|
27,769
|
|
|
|
10,563
|
|
Other Businesses
|
|
|
4,395
|
|
|
|
8,233
|
|
|
|
4,963
|
|
Corporate
|
|
|
64,786
|
|
|
|
60,002
|
|
|
|
61,798
|
|
|
|
|
|
|
|
Total
|
|
$
|
275,743
|
|
|
$
|
264,841
|
|
|
$
|
251,413
|
|
|
|
|
|
|
|
Substantially all of our operations are located in the United
States. Our operations in the U.K. and Ireland represent less
than 10% of our consolidated assets, revenues and net loss.
Export sales consist mostly of fine chemicals and water
treatment equipment sales. For the year ended September 30,
2010, sales outside the U.S. represented 18% of
consolidated revenues, with no country representing more than
10%. For the year ended September 30, 2009, sales outside
the U.S. represented 26% of consolidated revenues, with no
country representing more than 10%. For the year ended
September 30, 2008, sales outside the U.S. represented
48% of consolidated revenues, with the U.K. and Belgium
representing 32% and 10%, respectively.
F-32
|
|
12.
|
INTEREST AND
OTHER INCOME (EXPENSE), NET
|
Interest and other income (expense), net, consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Interest Income
|
|
$
|
58
|
|
|
$
|
150
|
|
|
$
|
937
|
|
Gain on Sales of Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
429
|
|
Other
|
|
|
(13
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45
|
|
|
$
|
146
|
|
|
$
|
1,366
|
|
|
|
|
|
|
|
|
|
13.
|
GUARANTOR
SUBSIDIARIES
|
As discussed in Note 5, in February 2007, American Pacific
Corporation, a Delaware corporation (Parent) issued
and sold $110,000 aggregate principal amount of Senior Notes. In
connection with the issuance of the Senior Notes, the
Parents material U.S. subsidiaries (Guarantor
Subsidiaries) jointly, fully, severally, and
unconditionally guaranteed the Senior Notes. The Parents
foreign subsidiaries (Non-Guarantor Subsidiaries)
are not guarantors of the Senior Notes. Each of the
Parents subsidiaries is 100% owned. The Parent has no
independent assets or operations. The following presents
condensed consolidating financial information separately for the
Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet - September 30,
2010
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
-
|
|
|
$
|
22,991
|
|
|
$
|
994
|
|
|
$
|
-
|
|
|
$
|
23,985
|
|
Accounts Receivable, Net
|
|
|
-
|
|
|
|
48,194
|
|
|
|
6,054
|
|
|
|
(2,348
|
)
|
|
|
51,900
|
|
Inventories
|
|
|
-
|
|
|
|
34,968
|
|
|
|
1,158
|
|
|
|
-
|
|
|
|
36,126
|
|
Prepaid Expenses and Other Assets
|
|
|
-
|
|
|
|
1,249
|
|
|
|
293
|
|
|
|
-
|
|
|
|
1,542
|
|
Income Taxes Receivable and Deferred Income Taxes
|
|
|
-
|
|
|
|
13,474
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,474
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
-
|
|
|
|
120,876
|
|
|
|
8,499
|
|
|
|
(2,348
|
)
|
|
|
127,027
|
|
Property, Plant and Equipment, Net
|
|
|
-
|
|
|
|
111,946
|
|
|
|
1,927
|
|
|
|
-
|
|
|
|
113,873
|
|
Intangible Assets, Net
|
|
|
-
|
|
|
|
537
|
|
|
|
883
|
|
|
|
-
|
|
|
|
1,420
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
2,933
|
|
|
|
-
|
|
|
|
2,933
|
|
Deferred Income Taxes
|
|
|
-
|
|
|
|
20,222
|
|
|
|
32
|
|
|
|
-
|
|
|
|
20,254
|
|
Other Assets
|
|
|
-
|
|
|
|
9,945
|
|
|
|
291
|
|
|
|
-
|
|
|
|
10,236
|
|
Intercompany Advances
|
|
|
91,545
|
|
|
|
4,896
|
|
|
|
-
|
|
|
|
(96,441
|
)
|
|
|
-
|
|
Investment in Subsidiaries, Net
|
|
|
77,112
|
|
|
|
4,817
|
|
|
|
-
|
|
|
|
(81,929
|
)
|
|
|
-
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
168,657
|
|
|
$
|
273,239
|
|
|
$
|
14,565
|
|
|
$
|
(180,718
|
)
|
|
$
|
275,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilitites and Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Other Current Liabilities
|
|
$
|
-
|
|
|
$
|
23,931
|
|
|
$
|
3,916
|
|
|
$
|
(2,348
|
)
|
|
$
|
25,499
|
|
Environmental Remediation Reserves
|
|
|
-
|
|
|
|
8,694
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,694
|
|
Deferred Revenues and Customer Deposits
|
|
|
-
|
|
|
|
17,927
|
|
|
|
842
|
|
|
|
-
|
|
|
|
18,769
|
|
Current Portion of Long-Term Debt
|
|
|
-
|
|
|
|
21
|
|
|
|
49
|
|
|
|
-
|
|
|
|
70
|
|
Intercompany Advances
|
|
|
-
|
|
|
|
91,545
|
|
|
|
4,896
|
|
|
|
(96,441
|
)
|
|
|
-
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
-
|
|
|
|
142,118
|
|
|
|
9,703
|
|
|
|
(98,789
|
)
|
|
|
53,032
|
|
Long-Term Debt
|
|
|
105,000
|
|
|
|
57
|
|
|
|
45
|
|
|
|
-
|
|
|
|
105,102
|
|
Environmental Remediation Reserves
|
|
|
-
|
|
|
|
15,176
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,176
|
|
Pension Obligations and Other Long-Term Liabilities
|
|
|
-
|
|
|
|
38,776
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,776
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
105,000
|
|
|
|
196,127
|
|
|
|
9,748
|
|
|
|
(98,789
|
)
|
|
|
212,086
|
|
Total Shareholders Equity
|
|
|
63,657
|
|
|
|
77,112
|
|
|
|
4,817
|
|
|
|
(81,929
|
)
|
|
|
63,657
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
168,657
|
|
|
$
|
273,239
|
|
|
$
|
14,565
|
|
|
$
|
(180,718
|
)
|
|
$
|
275,743
|
|
|
|
|
|
|
|
F-33
|
|
13.
|
GUARANTOR
SUBSIDIARIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet - September 30,
2009
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
-
|
|
|
$
|
20,046
|
|
|
$
|
1,635
|
|
|
$
|
-
|
|
|
$
|
21,681
|
|
Accounts Receivable, Net
|
|
|
-
|
|
|
|
40,399
|
|
|
|
3,951
|
|
|
|
(322
|
)
|
|
|
44,028
|
|
Inventories
|
|
|
-
|
|
|
|
35,223
|
|
|
|
1,133
|
|
|
|
-
|
|
|
|
36,356
|
|
Prepaid Expenses and Other Assets
|
|
|
-
|
|
|
|
1,645
|
|
|
|
166
|
|
|
|
-
|
|
|
|
1,811
|
|
Income Taxes Receivable and Deferred Income Taxes
|
|
|
-
|
|
|
|
8,465
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,465
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
-
|
|
|
|
105,778
|
|
|
|
6,885
|
|
|
|
(322
|
)
|
|
|
112,341
|
|
Property, Plant and Equipment, Net
|
|
|
-
|
|
|
|
113,143
|
|
|
|
1,502
|
|
|
|
-
|
|
|
|
114,645
|
|
Intangible Assets, Net
|
|
|
-
|
|
|
|
1,775
|
|
|
|
1,778
|
|
|
|
-
|
|
|
|
3,553
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
3,144
|
|
|
|
-
|
|
|
|
3,144
|
|
Deferred Income Taxes
|
|
|
-
|
|
|
|
21,121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,121
|
|
Other Assets
|
|
|
-
|
|
|
|
10,037
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,037
|
|
Intercompany Advances
|
|
|
79,918
|
|
|
|
2,535
|
|
|
|
-
|
|
|
|
(82,453
|
)
|
|
|
-
|
|
Investment in Subsidiaries, Net
|
|
|
101,179
|
|
|
|
6,229
|
|
|
|
-
|
|
|
|
(107,408
|
)
|
|
|
-
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
181,097
|
|
|
$
|
260,618
|
|
|
$
|
13,309
|
|
|
$
|
(190,183
|
)
|
|
$
|
264,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilitites and Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Other Current Liabilities
|
|
$
|
-
|
|
|
$
|
19,894
|
|
|
$
|
1,936
|
|
|
$
|
(322
|
)
|
|
$
|
21,508
|
|
Environmental Remediation Reserves
|
|
|
-
|
|
|
|
2,522
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,522
|
|
Deferred Revenues and Customer Deposits
|
|
|
-
|
|
|
|
4,579
|
|
|
|
2,332
|
|
|
|
-
|
|
|
|
6,911
|
|
Current Portion of Long-Term Debt
|
|
|
-
|
|
|
|
99
|
|
|
|
52
|
|
|
|
-
|
|
|
|
151
|
|
Intercompany Advances
|
|
|
-
|
|
|
|
79,918
|
|
|
|
2,535
|
|
|
|
(82,453
|
)
|
|
|
-
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
-
|
|
|
|
107,012
|
|
|
|
6,855
|
|
|
|
(82,775
|
)
|
|
|
31,092
|
|
Long-Term Debt
|
|
|
110,000
|
|
|
|
-
|
|
|
|
97
|
|
|
|
-
|
|
|
|
110,097
|
|
Environmental Remediation Reserves
|
|
|
-
|
|
|
|
24,168
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,168
|
|
Pension Obligations and Other Long-Term Liabilities
|
|
|
-
|
|
|
|
28,259
|
|
|
|
128
|
|
|
|
-
|
|
|
|
28,387
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
110,000
|
|
|
|
159,439
|
|
|
|
7,080
|
|
|
|
(82,775
|
)
|
|
|
193,744
|
|
Total Shareholders Equity
|
|
|
71,097
|
|
|
|
101,179
|
|
|
|
6,229
|
|
|
|
(107,408
|
)
|
|
|
71,097
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
181,097
|
|
|
$
|
260,618
|
|
|
$
|
13,309
|
|
|
$
|
(190,183
|
)
|
|
$
|
264,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations - Year Ended
September 30, 2010
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
165,489
|
|
|
$
|
10,842
|
|
|
$
|
(139
|
)
|
|
$
|
176,192
|
|
Cost of Revenues
|
|
|
-
|
|
|
|
114,570
|
|
|
|
7,046
|
|
|
|
(139
|
)
|
|
|
121,477
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
-
|
|
|
|
50,919
|
|
|
|
3,796
|
|
|
|
-
|
|
|
|
54,715
|
|
Operating Expenses
|
|
|
-
|
|
|
|
43,785
|
|
|
|
4,260
|
|
|
|
-
|
|
|
|
48,045
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
-
|
|
|
|
7,134
|
|
|
|
(464
|
)
|
|
|
-
|
|
|
|
6,670
|
|
Interest and Other Income, Net
|
|
|
10,533
|
|
|
|
317
|
|
|
|
(272
|
)
|
|
|
(10,533
|
)
|
|
|
45
|
|
Interest and Other Expense
|
|
|
10,533
|
|
|
|
10,650
|
|
|
|
6
|
|
|
|
(10,533
|
)
|
|
|
10,656
|
|
|
|
|
|
|
|
Loss before Income Tax and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Account for Subsidiaries
|
|
|
-
|
|
|
|
(3,199
|
)
|
|
|
(742
|
)
|
|
|
-
|
|
|
|
(3,941
|
)
|
Income Tax Expense (Benefit)
|
|
|
-
|
|
|
|
(624
|
)
|
|
|
(40
|
)
|
|
|
-
|
|
|
|
(664
|
)
|
|
|
|
|
|
|
Net Loss before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Account for Subsidiaries
|
|
|
-
|
|
|
|
(2,575
|
)
|
|
|
(702
|
)
|
|
|
-
|
|
|
|
(3,277
|
)
|
Equity Account for Subsidiaries
|
|
|
(3,277
|
)
|
|
|
(702
|
)
|
|
|
-
|
|
|
|
3,979
|
|
|
|
-
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(3,277
|
)
|
|
$
|
(3,277
|
)
|
|
$
|
(702
|
)
|
|
$
|
3,979
|
|
|
$
|
(3,277
|
)
|
|
|
|
|
|
|
F-34
|
|
13.
|
GUARANTOR
SUBSIDIARIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations - Year Ended
September 30, 2009
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
187,854
|
|
|
$
|
9,492
|
|
|
$
|
(198
|
)
|
|
$
|
197,148
|
|
Cost of Revenues
|
|
|
-
|
|
|
|
129,851
|
|
|
|
6,642
|
|
|
|
(198
|
)
|
|
|
136,295
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
-
|
|
|
|
58,003
|
|
|
|
2,850
|
|
|
|
-
|
|
|
|
60,853
|
|
Operating Expenses
|
|
|
-
|
|
|
|
55,921
|
|
|
|
3,104
|
|
|
|
-
|
|
|
|
59,025
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
-
|
|
|
|
2,082
|
|
|
|
(254
|
)
|
|
|
-
|
|
|
|
1,828
|
|
Interest and Other Income, Net
|
|
|
10,668
|
|
|
|
185
|
|
|
|
(2
|
)
|
|
|
(10,705
|
)
|
|
|
146
|
|
Interest and Other Expense
|
|
|
10,668
|
|
|
|
10,723
|
|
|
|
49
|
|
|
|
(10,705
|
)
|
|
|
10,735
|
|
|
|
|
|
|
|
Loss before Income Tax and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Account for Subsidiaries
|
|
|
-
|
|
|
|
(8,456
|
)
|
|
|
(305
|
)
|
|
|
-
|
|
|
|
(8,761
|
)
|
Income Tax Expense (Benefit)
|
|
|
-
|
|
|
|
(2,906
|
)
|
|
|
104
|
|
|
|
-
|
|
|
|
(2,802
|
)
|
|
|
|
|
|
|
Net Loss before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Account for Subsidiaries
|
|
|
-
|
|
|
|
(5,550
|
)
|
|
|
(409
|
)
|
|
|
-
|
|
|
|
(5,959
|
)
|
Equity Account for Subsidiaries
|
|
|
(5,959
|
)
|
|
|
(409
|
)
|
|
|
-
|
|
|
|
6,368
|
|
|
|
-
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(5,959
|
)
|
|
$
|
(5,959
|
)
|
|
$
|
(409
|
)
|
|
$
|
6,368
|
|
|
$
|
(5,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations - Year Ended
September 30, 2008
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
200,611
|
|
|
$
|
2,742
|
|
|
$
|
(224
|
)
|
|
$
|
203,129
|
|
Cost of Revenues
|
|
|
-
|
|
|
|
133,043
|
|
|
|
2,569
|
|
|
|
(224
|
)
|
|
|
135,388
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
-
|
|
|
|
67,568
|
|
|
|
173
|
|
|
|
-
|
|
|
|
67,741
|
|
Operating Expenses
|
|
|
-
|
|
|
|
42,245
|
|
|
|
620
|
|
|
|
-
|
|
|
|
42,865
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
-
|
|
|
|
25,323
|
|
|
|
(447
|
)
|
|
|
-
|
|
|
|
24,876
|
|
Interest and Other Income, Net
|
|
|
10,654
|
|
|
|
1,353
|
|
|
|
13
|
|
|
|
(10,654
|
)
|
|
|
1,366
|
|
Interest and Other Expense
|
|
|
10,654
|
|
|
|
10,742
|
|
|
|
61
|
|
|
|
(10,654
|
)
|
|
|
10,803
|
|
|
|
|
|
|
|
Income (Loss) before Income Tax and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Account for Subsidiaries
|
|
|
-
|
|
|
|
15,934
|
|
|
|
(495
|
)
|
|
|
-
|
|
|
|
15,439
|
|
Income Tax Expense
|
|
|
-
|
|
|
|
6,488
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,488
|
|
|
|
|
|
|
|
Income (Loss) before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Account for Subsidiaries
|
|
|
-
|
|
|
|
9,446
|
|
|
|
(495
|
)
|
|
|
-
|
|
|
|
8,951
|
|
Equity Account for Subsidiaries
|
|
|
8,951
|
|
|
|
(495
|
)
|
|
|
-
|
|
|
|
(8,456
|
)
|
|
|
-
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
8,951
|
|
|
$
|
8,951
|
|
|
$
|
(495
|
)
|
|
$
|
(8,456
|
)
|
|
$
|
8,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows - Year Ended
September 30, 2010
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
Net cash Provided (Used) by Operating Activities
|
|
$
|
-
|
|
|
$
|
22,396
|
|
|
$
|
(1,603
|
)
|
|
$
|
-
|
|
|
$
|
20,793
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
-
|
|
|
|
(12,449
|
)
|
|
|
(913
|
)
|
|
|
-
|
|
|
|
(13,362
|
)
|
Other
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
-
|
|
|
|
(12,439
|
)
|
|
|
(913
|
)
|
|
|
-
|
|
|
|
(13,352
|
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
|
(4,900
|
)
|
|
|
(119
|
)
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
(5,064
|
)
|
Issuance of common stock, net of tax benefit
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
Intercompany advances, net
|
|
|
4,907
|
|
|
|
(6,893
|
)
|
|
|
1,986
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing Activities
|
|
|
-
|
|
|
|
(7,012
|
)
|
|
|
1,941
|
|
|
|
-
|
|
|
|
(5,071
|
)
|
|
|
|
|
|
|
Effect of Changes in Currency Exchange Rates
|
|
|
-
|
|
|
|
-
|
|
|
|
(66
|
)
|
|
|
-
|
|
|
|
(66
|
)
|
Net Change in Cash and Cash Equivalents
|
|
|
-
|
|
|
|
2,945
|
|
|
|
(641
|
)
|
|
|
-
|
|
|
|
2,304
|
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
-
|
|
|
|
20,046
|
|
|
|
1,635
|
|
|
|
-
|
|
|
|
21,681
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
-
|
|
|
$
|
22,991
|
|
|
$
|
994
|
|
|
$
|
-
|
|
|
$
|
23,985
|
|
|
|
|
|
|
|
F-35
|
|
13.
|
GUARANTOR
SUBSIDIARIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows - Year Ended
September 30, 2009
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
Net cash Provided by Operating Activities
|
|
$
|
-
|
|
|
$
|
10,101
|
|
|
$
|
1,041
|
|
|
$
|
-
|
|
|
$
|
11,142
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business
|
|
|
-
|
|
|
|
(7,196
|
)
|
|
|
471
|
|
|
|
-
|
|
|
|
(6,725
|
)
|
Capital expenditures
|
|
|
-
|
|
|
|
(8,741
|
)
|
|
|
(717
|
)
|
|
|
-
|
|
|
|
(9,458
|
)
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
-
|
|
|
|
(15,937
|
)
|
|
|
(246
|
)
|
|
|
-
|
|
|
|
(16,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
|
-
|
|
|
|
(275
|
)
|
|
|
(73
|
)
|
|
|
-
|
|
|
|
(348
|
)
|
Issuance of common stock
|
|
|
32
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32
|
|
Intercompany advances, net
|
|
|
(32
|
)
|
|
|
(507
|
)
|
|
|
539
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing Activities
|
|
|
-
|
|
|
|
(782
|
)
|
|
|
466
|
|
|
|
-
|
|
|
|
(316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Changes in Currency Exchange Rates
|
|
|
-
|
|
|
|
-
|
|
|
|
145
|
|
|
|
-
|
|
|
|
145
|
|
Net Change in Cash and Cash Equivalents
|
|
|
-
|
|
|
|
(6,618
|
)
|
|
|
1,406
|
|
|
|
-
|
|
|
|
(5,212
|
)
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
-
|
|
|
|
26,664
|
|
|
|
229
|
|
|
|
-
|
|
|
|
26,893
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
-
|
|
|
$
|
20,046
|
|
|
$
|
1,635
|
|
|
$
|
-
|
|
|
$
|
21,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows - Year Ended
September 30, 2008
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
Net cash Provided (Used) by Operating Activities
|
|
$
|
-
|
|
|
$
|
20,960
|
|
|
$
|
(627
|
)
|
|
$
|
-
|
|
|
$
|
20,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
-
|
|
|
|
(15,242
|
)
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
(15,284
|
)
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
-
|
|
|
|
(15,242
|
)
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
(15,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
|
-
|
|
|
|
(251
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(251
|
)
|
Issuance of common stock
|
|
|
381
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
381
|
|
Excess tax benefit from stock option exercises
|
|
|
481
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
481
|
|
Purchases of treasury stock
|
|
|
(193
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(193
|
)
|
Intercompany advances, net
|
|
|
(669
|
)
|
|
|
(155
|
)
|
|
|
824
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing Activities
|
|
|
-
|
|
|
|
(406
|
)
|
|
|
824
|
|
|
|
-
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
-
|
|
|
|
5,312
|
|
|
|
155
|
|
|
|
-
|
|
|
|
5,467
|
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
-
|
|
|
|
21,352
|
|
|
|
74
|
|
|
|
-
|
|
|
|
21,426
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
-
|
|
|
$
|
26,664
|
|
|
$
|
229
|
|
|
$
|
-
|
|
|
$
|
26,893
|
|
|
|
|
|
|
|
F-36