SecProbe.io

CORRESP
1
filename1.htm

corresp

AMERICAN PACIFIC CORPORATION

March 25, 2005

Via EDGAR AND OVERNIGHT MAIL

Scott Watkinson

Division of Corporation Finance

United States Securities and Exchange Commission

Mail Stop 0304

450 Fifth Street, N.W.

Washington, D.C. 20549-0510

         Re:
    Form 10-K for the fiscal year ended September 30, 2004

Form 10-Q for the period ended December 31, 2004

File No. 1-8137

Dear Mr. Watkinson:

     On behalf of America Pacific Corporation, a Delaware corporation (the “Company”), we submit
this letter in response to comments from the staff (the “Staff”) of the Securities and Exchange
Commission (the “Commission”) by letter dated February 15, 2005 (the “Staff Letter”) with respect
to the Company’s Form 10-K for the fiscal year ended September 30, 2004 and the Form 10-Q for the
period ended December 31, 2004.

     For the Staff’s convenience, we are also sending in paper format by hand delivery copies of
this letter and the exhibits referred to herein. All supplemental materials enclosed with this
letter are included in paper format only and have not been transmitted via EDGAR.

     The numbering of the paragraphs below corresponds to the numbering of the Staff’s comments in
the Staff Letter. We have incorporated the text of the Staff’s comments into this response letter
in italicized type and have followed each comment with the Company’s response in regular type.
References in the letter to “we,” “our” or “us” means the Company, unless otherwise specified.

Securities and Exchange Commission

March 25, 2005

Page Two

Form 10-K for the year ended September 30, 2004

General

Comment No. 1

     Where a comment below requests additional disclosures or other revisions to be made, please
show us in your supplemental response what the revisions will look like. These revisions should be
included in your future filings.

Response No. 1

     We have provided the requested disclosure or other revisions to the Staff’s comments in our
responses below, as applicable. We will include such additional disclosure or other revisions in
our future filings as described in our responses below.

Selected Financial Data, page 20

Comment No. 2

     Please revise your disclosure to include dividends declared per common share as required by
Instruction 2 to Item 301 of Regulation S-K.

Response No. 2

     Historically, American Pacific has not paid a dividend to its shareholders. In January of
2003, the Board of Directors instituted a Dividend and Stock Repurchase program (the “Program”).
This Program designates 25% of its annual free cash flows (as calculated under the Program) to
either stock repurchases and/or dividends.

     In December 2003, due to good financial performance in fiscal 2003, under the Program the
Board of Directors declared a dividend of $0.42 per share. No dividend was paid for fiscal 2004
performance due to lower levels of profitability and share repurchases that occurred during the
fiscal year. This information was disclosed in Note 12 “Dividend and Stock Repurchase Program”
section in our Form 10-K filing. We inadvertently failed to reflect this information as required
by Instruction 2 to Item 301 of Regulation S-K. We will reflect any cash dividends per share on
our table of financial data in the future.

     Supplement 1 contains a revised form of Selected Financial Data that will be used in future
filings which includes this, and selected other information, in the Other Data section.

Securities and Exchange Commission

March 25, 2005

Page Three

Results of Operations, page 24

Comment No. 3

     Please revise your discussion to explain the causes of the significant increase in the
receivables collection period in 2004 compared to 2003, including an explanation of whether this
may be indicative of receivables collection problems.

Response No. 3

     In future filings we will add the following information:

     Our reported accounts and notes receivables (the “Receivables”) increased by approximately
$7.0 million for fiscal 2004 as compared to fiscal 2003 for the period ending September 30. The
net increase in Receivables resulted principally from two large perchlorate chemical sales
(approximately $10.3 million in total) that were completed just prior to the end of the period. As
a result, Receivables from our perchlorate chemical business (part of Specialty Chemical segment)
increased by approximately $7.6 million in comparison to the same period in fiscal 2003.

     The consolidation of our ES joint venture added approximately $2.5 million of Receivables as
of September 30, 2004. ES was not consolidated in the year earlier financial statements.
However, the increase in Receivables from ES was offset by the reduction in Receivables from the
rest of our businesses (excluding the perchlorate chemical business).

     During the first quarter of fiscal 2005 we completed an acquisition (the “ISP Acquisition”)
that added approximately $6.6 million in Receivables to our consolidated financial statements.
Excluding the impact of the ISP Acquisition, Receivables from the existing businesses decreased by
approximately $3.2 million by the end of the first quarter in comparison to the end of the 2004
fiscal year.

     The increase in receivables as of September 30, 2004 in comparison to year earlier levels
represents normal operating condition for our business. There has been no material change in: (i)
the terms and conditions we extend to our customers, and (ii) the cash payment performance of our
customers.

Summarized Quarterly Financial Data, page 31

Comment No. 4

     Please revise your disclosure to include income (loss) before extraordinary items and
cumulative effect of a change in accounting and per share data based upon such income (loss) as
required by Item 302(a)(1) of Regulation S-K.

Securities and Exchange Commission

March 25, 2005

Page Four

Response No. 4

     As of March 31, 2004, we consolidated our 50% owned Energetic Systems (“ES”) joint venture as
a consequence of the application of FASB Interpretation No. 46®. At this time we reported a
cumulative effect of accounting change of $769,000 (net of a tax benefit of $414,000) on our second
quarter Form 10-Q.

     This information was disclosed in Note 1 “Summary of Significant Accounting Policies” section
in our Form 10-K filing. We inadvertently failed to reflect this information as required by Item
302(a)(1) of Regulation S-K. In future filings we will include within our Consolidated Statement
of Operations separate line items for: (i) income (loss) before extraordinary items and cumulative
effect of a change in accounting, and (ii) per share data based upon such income (loss). Our
second quarter of fiscal 2004 is the only period with a cumulative effect of accounting change in
our reported financial statements. Accordingly our report on Form 10-Q for our third quarter of
fiscal 2005 will include a presentation of this information.

     Supplement 2 contains a revised form of disclosure showing the presentation of this
information as it will be provided in the Form 10-Q.

Financial Statements

Comment No. 5

     It is unclear whether you have provided the information required by Rule 5-04 of Regulation
S-X to be included in Schedule II. Please advise or revise.

Response No. 5

     Based on the excellent payment history that we have experienced with our customers (many of
which are US government contractors), we did not establish reserves against amounts reported in the
accounts and notes receivable line item of our financial statements. Accordingly, we believe that
the presentation of this item is consistent with Rule 5-04 of Regulation S-K. In future filings we
will add the following sentence to our accounting policies discussion: “Management believes that a
reserve against accounts and notes receivables is not necessary because our customers consist of
large corporations, many of which are government contractors procuring products from us on behalf
of or for the benefit of government agencies, with excellent credit and a history of paying all
accounts due from us in their entirety.”

Statements of Operations, page 41

Comment No. 6

     Please revise the net interest and other expense (income) line item to present interest
income, interest expense and other expense (income) as separate line items. Net

Securities and Exchange Commission

March 25, 2005

Page Five

presentation is not appropriate. Please also disclose in a footnote in table format the
components and related amounts included in the revised other expense (income) line item for each
period your statement of operations is presented, including interim periods. See Rules 5-03.7 to
.9 of Regulation S-X. In addition, please separately disclose the amounts of interest income and
preferred stock dividends received from your ES joint venture for the six-months ended March 31,
2004 and each of the years ended September 30, 2003 and 2002. Please also disclose the statement
of operations line item that each of these amounts was included in prior to ES being consolidated
by you on March 31, 2004.

Response No. 6

     Supplement 1 and Supplement 3 separately discloses our annual interest income, interest
expense and other expense (income) line items. Supplement 4 separately discloses our quarterly
interest income, interest expense and other expense (income) line items.

     Supplement 5 separately discloses the amounts of interest income and preferred stock dividends
received from our ES joint venture for the six-months ended March 31, 2004 and each of the years
ended September 30, 2003 and 2002.

     During the third quarter of fiscal 2004 we received our only preferred stock dividend from ES
in the amount of $25,000. Thus for the six-months ended March 31, 2004 and each of the years ended
September 30, 2003 and 2002 there were no preferred stock dividends to report.

     The other expense line item is comprised entirely of the losses that our ES joint venture
incurred prior to our consolidating this business.

Securities and Exchange Commission

March 25, 2005

Page Six

Comment No. 7

     Please provide us with your significance computations under Rule 3-09 of Regulation S-X for
the ES joint venture for each period presented. Please also tell us for the six months ended March
31, 2004 and each of the years ended September 30, 2003 and 2002 the following:

    a.
    ES joint venture’s pre-tax income,

    b.
    its total preferred stock dividends and

    c.
    the portion that were yours.

Response No. 7

     Supplement 6 provides the significant computation analysis for the ES joint venture under Rule
3-09 of Regulation S-X. We determined that disclosure of financial information for the ES joint
venture was needed. We disclosed key financial information for the ES joint venture in paragraph
form in the “Investments in and Advances to Joint Venture” section of our 2003 and 2004 quarterly
and annual financial statements until the financial results of the ES joint venture were
consolidated as of March 31, 2004.

     Supplement 7 provides the ES joint venture’s pre-tax income for the six month period ended
March 31, 2004 and for each of the years ended September 30, 2003 and 2002. The only preferred
stock dividend, in the amount of $25,000, was received during our third quarter of fiscal 2004
after we were consolidating ES financial results. We were the only holder of the preferred shares
at the time of the preferred stock dividend.

Comment No. 8

     Please also tell us how you treated these preferred stock dividends made by ES in your
numerator and denominator for each period presented.

Response No. 8

     Since the one and only preferred stock dividend was received after we began consolidating the
ES joint venture, this dividend was treated as an inter-company elimination and not disclosed in
any financial statements.

Securities and Exchange Commission

March 25, 2005

Page Seven

Note 1 — Summary of Significant Accounting Policies, page 44

Comment No. 9

     Please disclose the types of expenses that you include in the cost of sales line item and the
types of expenses that you include in the operating expenses line item. Please also disclose
whether you include inbound freight charges, purchasing and receiving costs, inspection costs,
warehousing costs, internal transfer costs, and the other costs of your distribution network in the
cost of sales line item. With the exception of warehousing costs, if you currently exclude a
portion of these costs from cost of sales, please disclose:

    a.
    in a footnote the line items that these excluded costs are included in and
the amounts included in each line item for each period presented, and

    b.
    in MD&A that your gross margins may not be comparable to those of other
entities, since some entities include all of the costs related to their distribution
network in cost of sales and others like you exclude a portion of them from gross
margin, including them instead in a line item, such as operating expenses.

Response No. 9

     With the exception of the treatment of some shipping costs in our ES joint venture for the
last two quarters of fiscal 2004 and the first quarter or fiscal 2005, which is discussed in
question 10, all of our costs relating to the production and delivery of products are captured in
our cost of sales line item. Production costs include the acquisition of raw materials (including
inbound freight charges, purchasing and receiving costs, inspection costs, and warehousing costs)
and their subsequent conversion to finished goods. Delivery costs include packaging, storage and
transportation expenses.

     Our operating expenses include support services provided to the company. Such expenses
include: (i) finance and accounting, (ii) legal, (iii) research and development, (iv) information
systems, (v) corporate development, (vi) human resources, and (vii) senior management.

Securities and Exchange Commission

March 25, 2005

Page Eight

Comment No. 10

     Please disclose your accounting policy for shipping and handling costs. In doing so, disclose
both the line item in which you include amounts paid by customers to you for shipping and handling
and the line item(s) in which you include your actual costs for shipping and handling. If you do
not include all of your actual costs for shipping and handling in cost of sales, also disclose the
amounts of your actual costs for shipping and handling excluded from cost of sales for each period
presented as required by paragraph 6 of EITF 00_10.

Response No. 10

     We are not responsible, operationally or financially, for transporting some of our products
from our manufacturing facilities to their destination. We do not receive payments from our
customers for shipping these products or incur shipping costs for them. For other products, we are
responsible, both operationally and financially, for transporting those products from our
manufacturing facilities to their destination. For our businesses other than ES, we record
shipping and handling costs in cost of sales and amounts paid by customers are reflected in the
selling price of the product and recorded as revenue from sales.

     As noted in our response to Question 4 above, we began consolidating the results of our ES
joint venture beginning with the third quarter of fiscal 2004 and have reported those results on a
consolidated basis for two quarters of fiscal 2004 and the first quarter of fiscal 2005. Our ES
joint venture historically deducted shipping costs from gross sales, resulting in the net sales
reported. The historical reason for this approach is that in the ES business products are sold to
customers on a “price plus shipping” basis. Consequently, the same customer pays different prices
for the same type and quantity of product shipped to different locations. The financial reporting
practice of netting shipping cost