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. In addition to the other information contained in our Fiscal 2013 annual report on Form 10-K and our other filings with the SEC, the following risk factors should be considered carefully before you decide whether to buy, hold or
sell our common stock. Additional risks not presently known to us or that we currently deem immaterial may also impair our business, financial conditions, results of operations and stock price.
RISKS RELATED TO THE ACQUISITION BY H.I.G.
The Merger
is subject to a number of conditions beyond our control. Failure to complete the Merger within the expected time frame or at all could adversely affect our future business and financial results and our stock price.
Completion of the Merger is subject to certain conditions, including among other things, there having been validly tendered and not validly
withdrawn Shares that represent one more than 50% of the total number of Shares outstanding at the time of the expiration of the Offer. We cannot predict whether and when these conditions will be satisfied. If one or more of these conditions is not
satisfied, and as a result, we do not complete the Merger, or in the event the proposed Merger is not completed or delayed for any other reason, our business may be harmed because:
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management’s and our employees’ attention may be diverted from our day-to-day business because matters related to the proposed Merger may require
additional commitments of their time and resources;
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employees may experience uncertainty about their future roles with us, which might adversely affect our ability to retain and hire key personnel and other
employees;
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our relationships with customers, partners and suppliers may be harmed as a result of the Merger as well as uncertainties with regard to the combined
company’s plans with respect to our products, employees and business;
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certain costs related to the proposed Merger, such as legal and accounting fees and reimbursement of certain expenses, are payable by us whether or not the
proposed Merger is completed; and
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we would not realize any of the anticipated benefits of having completed the proposed Merger.
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Our stock price may also fluctuate significantly based on announcements by H.I.G. and other third-parties or us regarding the proposed Merger. Any
of these events could harm our results of operations and financial condition and could cause a decline in the price of our common stock, particularly if the Merger does not close.
While the Merger Agreement is in effect, we are subject to restrictions on our business activities.
Until the Merger closes or the Merger Agreement is terminated, we are subject to restrictions on our business activities and must generally operate our business in the ordinary course consistent with past practice
(subject to certain exceptions). These restrictions may prevent us from exploring and pursing certain business opportunities. This could have a material adverse effect on our future results of operations or financial condition should the Merger not
be completed.
In certain instances, the Merger Agreement could require us to pay a termination fee of $13.5 million to Parent, a payment which
could affect the decisions of a third party considering making an alternative acquisition proposal.
There is no assurance that
the proposed Merger will occur. If the proposed Merger or a similar transaction is not completed, the share price of our common stock may decline to the extent that the current market price of our common stock reflects an assumption that a
transaction will be completed. In addition, the Merger Agreement contains certain termination rights and provides that upon termination of the Merger Agreement by us or Parent upon specified conditions, including a termination by us to accept a
“Superior Proposal” (as defined in the Merger Agreement) or by Parent upon a change in the recommendation of our board of directors, we will be required to pay Parent a termination fee of $13.5 million. The payment of a termination fee may
have a material adverse impact on our financial condition and could affect the structure, pricing and terms proposed by a third party seeking to acquire or merge with us or deter such third party from making a competing acquisition proposal.
Further, a failed transaction may result in negative publicity and a negative impression of us in the investment community.
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Pending stockholder litigation could prevent or delay the closing of the Merger or otherwise negatively impact
our business and operations.
Five putative class action lawsuits were filed regarding the proposed merger transaction. For
additional information about these litigation proceedings, see “Item 1. Legal Proceedings.” We may incur additional costs in connection with the defense or settlement of these or other similar litigation. In some cases, these or other
similar litigation may adversely affect our desire to proceed with, or our ability to complete, a particular transaction. These litigation proceedings or other similar litigation could also have a material adverse effect on our financial condition
or results of operations.
RISKS RELATED TO OUR BUSINESS
We depend on a limited number of customers and products for most of our sales and the loss of one or more of these customers or products 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 89% of our revenues in the
Specialty Chemicals segment for Fiscal 2013 and approximately 34% of our consolidated revenues for Fiscal 2013, are purchased by two customers. Should our relationship with any of our major Specialty Chemicals 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 any of our major Specialty Chemicals 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 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 segment’s success is largely dependent upon the manufacturing by AFC of a limited number of active
pharmaceutical ingredients and registered intermediates for a limited number of key customers. One customer of AFC accounted for 28% of our consolidated revenue and the top two customers of AFC accounted for 64% of its revenues, and 37% of our
consolidated revenues, in Fiscal 2013. Negative developments in these customer relationships or in either of the customer’s business, or failure to renew or extend certain contracts, may 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 negotiate lower prices, any of which could have
a similar negative effect on the results of operations of AFC. If the pharmaceutical products that AFC’s customers produce using its compounds
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experience any problems, including problems related to their safety or efficacy, delays in filing with or approval by the FDA, or other regulatory agencies, 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 AFC’s 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 preestablished 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
contract’s 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 unreimbursed 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. AFC’s customers face similarly high regulatory requirements. Before marketing most drug products, AFC’s customers are required to obtain approval from the FDA based upon preclinical 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.
In some cases, approval is required from other regulatory agencies such as the DEA. Even if AFC’s customers are successful in obtaining all required premarketing approvals, postmarketing requirements and any failure on either AFC’s 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
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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. AFC’s failure to
comply with governmental regulations, in particular those of the FDA and DEA, 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 FDA’s 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 FDA’s 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 subcontractors, are subject 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. government’s subcontractors, including with respect to financial viability, as part of the U.S. government’s 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 subcontractor would be impaired. Further, a portion of our
business involves the sale of controlled products overseas, such as supplying ammonium perchlorate, or “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.
A significant portion of our business is based on contracts with contractors or subcontractors to the U.S. government 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 U.S. government prime contractors and subcontractors represent a significant portion of our business. We also make
sales to the U.S. government from time to time. In Fiscal 2013, our Specialty Chemicals segment generated approximately 30% of consolidated revenues, primarily sales of rocket-grade AP, from sales to U.S. government prime contractors and
subcontractors. 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.
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Government fiscal year 2013 ended on September 30, 2013 without Congress completing work on any
government fiscal year 2014 appropriations bills. Congress also failed to reach an agreement prior to the start of the government fiscal year 2014 on a short-term continuing resolution to temporarily fund the government, resulting in a partial
government shutdown. When agreement was ultimately reached to fund the government in the new fiscal year, a short-term current resolution (which expires January 2014) was used rather than a government fiscal year 2014 appropriation for most
government agencies. Additionally, absent a larger budget deal, Sequestration, under the terms of the Budget Control Act of 2012, remains in effect for government fiscal year 2014, forcing DOD and NASA to undergo another round of budget cuts
beginning on January 1, 2014. 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 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 where we are a subcontractor, the U.S. government contractor may cease purchasing our products. 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 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 flows.
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 into voluntary agreements with
governmental agencies to take such actions. We have entered into such a voluntary agreement with NDEP that formalized our ongoing remedial actions in connection with perchlorate production at our former facility in Henderson, Nevada. 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 or fail to abide by the agreement with NDEP. 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.
Regulatory Review of Perchlorates
. Our Specialty Chemicals segment manufactures and sells products that contain perchlorates. Currently,
perchlorate is on Contaminant Candidate List 3 of the U.S. Environmental Protection Agency (the “EPA”). In February 2011, the EPA announced that it had determined to move forward with the development of a regulation for perchlorates in
drinking water, reversing its October 2008 preliminary determination not to promulgate such a regulation. Accordingly, the EPA announced its intention to begin to evaluate the feasibility and affordability of treatment technologies to remove
perchlorate and to examine the costs and benefits of potential standards. The EPA has conducted various meetings, as required by the Safe Drinking Water Act, including a meeting of
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the Science Advisory Board, whose report was issued May 29, 2013. We continue to monitor activities and currently expect, based on EPA statements, that the earliest a final regulation is
expected to be published is December 2015. Regulatory review and anticipated regulatory actions present general business risk to the Company, but no regulatory proposal of the EPA or any state in which we operate, to date, has been publicly
announced that we believe 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.
However, 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. It is possible that federal and, potentially, one or more state or local 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
(the “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. Legacy production at the AMPAC Henderson Site resulted in perchlorate
presence in the groundwater near the vicinity of the former facility.
At the direction of the Nevada Division of Environmental
Protection (“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 2002, we conducted a pilot test and
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.
Late in Fiscal 2009, we gained
additional information from groundwater modeling that indicated groundwater emanating from the AMPAC Henderson Site in certain areas in deeper zones (more than 150 feet below ground surface) was moving toward our existing remediation facility at a
much slower pace than previously estimated. As a result of this additional data, related model interpretations and consultations with NDEP, we re-evaluated our remediation operations and determined that we should be able to improve the effectiveness
of the treatment program and significantly reduce the total project time by expanding the treatment system existing at the time. The expansion included the installation of additional groundwater extraction wells in the deeper, more concentrated
areas, construction of an underground pipeline to move extracted groundwater to our treatment facility, and the addition of fluidized bed reactor (“FBR”) bioremediation treatment equipment (the “Expansion Project”).
Henderson Site Environmental Remediation Reserve.
During Fiscal 2005 and Fiscal 2006, we recorded aggregate charges of $26,000 representing
our estimates at the time of the probable costs of our remediation efforts at the AMPAC Henderson Site, including the costs for capital equipment and on-going operating and maintenance (“O&M”). Following the receipt of new data
regarding groundwater movement late in Fiscal 2009, we added the Expansion Project to the planned scope of our remediation operations. As a result, we increased our accruals by approximately $13,700.
Through June 2011, and in cooperation with NDEP, we worked to develop the formal design, engineering and permitting of the Expansion Project. Based
on data obtained through that date, which was largely comprised of firm quotations, we determined that significant modifications to our Fiscal 2009 assumptions were required. As a result, in June 2011, we accrued an additional $6,000 for the
estimated increase in cost of the capital component of the Expansion Project, offset slightly by reductions in O&M cost estimates. The estimated capital costs of the Expansion Project increased by approximately $6,400. The increase reflected
(i) an increase in the capacity of the FBR bioremediation treatment equipment to
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accommodate technical requirements based on the testing of new extraction wells in the fall of 2010, and (ii) higher than initially anticipated cost associated with the installation of the
equipment and construction of the pipeline. Our estimate of total O&M costs was reduced by approximately $400.
In September 2012,
we commenced initial operation of the Expansion Project with planned start-up activities completed in Fiscal 2013. System optimization will continue in Fiscal 2014. In September 2012, we recorded an additional remediation charge in the amount of
$700, which is substantially attributed to the true-up of estimates to the expected final cost of the Expansion Project. Due to uncertainties inherent in making estimates, our estimates of capital and O&M costs may later require significant
revision as new facts become available and circumstances change.
As of December 31, 2013, the aggregate range of anticipated
environmental remediation costs was from approximately $7,600 to approximately $31,300. This range represents a significant estimate and is based on the estimable elements of cost for capital and O&M costs, and an estimated remaining operating
life of the project through a range from the years 2017 to 2030. As of December 31, 2013, the accrued amount was $11,308, based on an estimated remaining life of the project through the year 2019, or the low end of the more likely range of the
expected life of the project. Cost estimates are based on our current assessments of the facility configuration. As we proceed with the project, we have, and may in the future, become aware of elements of the facility configuration that must be
changed to meet the targeted operational requirements. Certain of these changes may result in corresponding cost increases. Costs associated with the changes are accrued when a reasonable alternative, or range of alternatives, is identified and the
cost of such alternative is estimable. Our estimated reserve for environmental remediation is 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
241 acres of land on a Superfund site in Rancho Cordova, California, owned by Aerojet Rocketdyne, Inc., 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 must abide by certain limitations regarding construction and development of the site which may restrict AFC’s 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 exceed any related reserves.
As of December 31, 2013, we had recorded reserves in connection with the AMPAC Henderson Site of approximately $11,308. However, as of such
date, we had not established any other environmental-related reserves. Given the many uncertainties involved in assessing and estimating environmental liabilities, our environmental-related risks may 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,
during the quarter ended June 30, 2011, we increased our environmental reserves in connection with the AMPAC Henderson Site by approximately $6,000 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
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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 result in our having 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.
For each of our Specialty Chemicals and Fine Chemicals segments, 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.
Our Specialty Chemicals segment products are produced at
our Iron County, Utah facility and our Fine Chemicals segment products are currently produced at our Rancho Cordova, California facility. Any of these facilities could be disrupted or damaged by fire, floods, earthquakes, power loss, systems
failures or similar or other 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 segment’s 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 following that incident. 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 and components needed in our manufacturing processes are available. In addition, as a supplier to U.S. government contractors or subcontractors, we are frequently limited to procuring materials and components from
sources of supply that can meet rigorous government and/or customer specifications. If a supplier provides us raw materials or other supplies or components
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that are deficient or defective or if a supplier fails to provide us such materials, supplies or components in a timely manner or at all, we may have limited ability to find appropriate
substitutes or otherwise meet required specifications and deadlines. In addition, as business conditions, the U.S. defense budget, and congressional allocations change, suppliers of specialty chemicals and materials sometimes consider dropping or in
fact drop 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 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 either
provides some of the raw materials which are used by AFC to produce or manufacture the customer’s products or requires AFC to use a particular or limited number of suppliers for a raw material. 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. A delay in the arrival of a shipment of raw materials from a third party supplier
could have a significant impact on AFC’s ability to meet its contractual commitments to customers. Certain key raw materials are obtained from sources from outside the U.S., including the People’s Republic of China. 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. In addition, the availability of certain chemicals is subject to DEA quotas.
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 and Fine Chemicals 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 and Fine Chemicals 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 EMA, have regulatory oversight over the production process for many of the products that AFC
manufactures for its customers. For controlled substances, compliance with DEA regulations is also required. AFC employs sophisticated and rigorous manufacturing and testing practices to ensure compliance with the FDA’s 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 customer’s timing and delivery requirements, the customer may reject the chemical compounds. In such instances, AFC may also be in breach of its customer’s contract.
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Like our Fine Chemicals segment, our Specialty Chemicals segment faces similar production demands and
requirements. 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.
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 customer’s 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 AFC’s 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, 2013, AFC had approximately 176 employees that were covered by a collective bargaining agreement. We consider our
relationships with our unionized employees to be satisfactory. In June 2013, AFC’s collective bargaining agreement was renegotiated and extended to June 2016. 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 AFC’s operating costs and could adversely affect its profitability. If the unionized workers were to engage in a strike or other work stoppage, or other nonunionized 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, AFC’s capital expenditures consume cash from our Fine Chemicals segment and our other operations and may also consume cash from borrowings. Increases in capital expenditures may result in
low levels of working capital or require us to finance working capital deficits, and such financing may be costly or even unavailable given ongoing 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 AFC’s growth, increase AFC’s costs and negatively impact
its operating results.
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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 customer’s product may include
ingredients 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 customer’s 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. 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
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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 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 People’s Republic of China and India, where facilities, construction and operating costs are significantly lower. 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, including as a result of the actual placement, timing and delivery of orders for new and/or existing products. 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 to 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
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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. Our inability to attract and retain talented personnel and replace key personnel 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 performing chiral separations, energetic chemistries and projects that require high containment. Our future growth and profitability in part depend upon the knowledge
and efforts of our highly skilled employees, including their ability to keep pace with technological changes in the fine chemicals and specialty chemicals 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 management’s attention and expose us to
unanticipated liabilities and costs. We may experience difficulties integrating the acquired operations, and we may incur costs relating to acquisitions that are never consummated.
Our business strategy may include 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 effect 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 management’s 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 management’s 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 due 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 due 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.
Acquisitions, divestitures and other strategic transactions are inherently risky, and we cannot provide any assurance that our
previous or future transactions will be successful. The inability to effectively manage the risks associated with these transactions could materially and adversely affect our business, financial condition or results of operations.
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.
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As of December 31, 2013, we had outstanding debt of approximately $54,000, for which we are
required to make principal and 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:
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make it more difficult for us to satisfy any other outstanding debt obligations;
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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;
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limit our flexibility in planning for, or reacting to, changes in the industries in which we compete;
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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;
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limit our ability to borrow additional funds; or
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increase our vulnerability to general adverse economic and industry conditions.
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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 various ongoing covenants in our debt, including in certain cases financial covenants, 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 affirmative, negative and financial covenants. These covenants include provisions restricting our and our current and future domestic subsidiaries’ ability to, among other things:
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pay dividends, repurchase our stock, or make other restricted payments;
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make certain investments or acquisitions;
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incur additional indebtedness;
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create or permit to exist certain liens;
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enter into certain transactions with affiliates;
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consummate a merger, consolidation or sale of assets;
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change our business; and
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wind up, liquidate, or dissolve our affairs.
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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 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 and other factors could affect our estimates of pension obligations,
which in turn could affect future funding requirements, related costs and our future financial condition, results of operations and cash flows.
As of September 30, 2013, we had unfunded pension obligations, including the current and non-current portions, of $30,576 on a projected benefit obligation basis. The cost of our defined benefit pension plans
is recognized through operations over extended periods of time and involves many uncertainties during those periods of time. Our funding policy for our U.S. tax-qualified defined benefit pension plans is to accumulate plan assets that, over the long
run, will approximate the present value of projected benefit obligations. Our pension cost is materially affected by the discount rate used to measure pension obligations, the level of plan assets available to fund those obligations at the
measurement date and the
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expected long-term rate of return on plan assets. Changes in these and related factors can affect our estimates of pension obligations. Additionally, significant changes in investment performance
or a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets or in a change of the expected rate of return on plan assets.
We have unfunded obligations under our U.S. tax-qualified defined benefit pension plans totaling approximately $19,390 on a projected benefit
obligation basis as of September 30, 2013. Declines in the value of plan investments or unfavorable changes in law or regulations that govern pension plan funding could materially change the timing and amount of required funding.
Our suspended stockholder 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
stockholder rights plan that, although currently suspended, may have the effect of discouraging unsolicited takeover proposals. The rights issued under the stockholder 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;
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the ability of our board of directors to designate the terms of and issue new series of preferred stock;
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advance notice requirements for nominations for election to our board of directors; and
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special voting requirements for the amendment, in certain cases, of our Restated Certificate of Incorporation, as amended, and our Amended and Restated
By-laws.
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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 stockholder 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 nonexclusive 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 business and operations would be adversely impacted in the event of a failure of our information technology infrastructure.
We rely upon the capacity, reliability and security of our information technology hardware and software infrastructure and our
ability to expand and update this infrastructure in response to our changing needs. We are constantly updating our information technology infrastructure. Any failure to manage, expand and update our information technology infrastructure or any
failure in the operation of this infrastructure could harm our business. Despite our implementation of security measures, our systems are vulnerable to damages from computer viruses, natural disasters, unauthorized access and other similar
disruptions. Any system failure, accident or security breach could result in disruptions to our operations. To the extent that any disruptions or security breach results in a loss or damage to our data, or in inappropriate disclosure of confidential
information, it could harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
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We are exposed to counterparty risk through our interest rate swap and a counterparty default
could adversely affect our financial condition.
We have entered into an interest rate swap with HSBC Bank USA, N.A.
(“HSBC”), which subjects us to counterparty risk. The ability of HSBC to perform its obligations under the contract will depend upon a number of factors that are beyond our control and may include, among other things, general economic
conditions and the overall financial condition of HSBC. Should HSBC fail to honor its obligations under its agreement with us, we could sustain significant losses which could have an adverse effect on our financial condition, results of operations
and cash flows.
Our common stock price may fluctuate substantially, and a stockholder’s investment could decline in value.
The market price of our common stock has been highly volatile during the past several years. For example, during Fiscal 2013,
the highest closing sale price for our common stock was $54.76 and the lowest closing sale price for our common stock was $11.26. 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;
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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;
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material public announcements by us or our competitors;
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changes in government regulations or policies, such as new legislation, laws or regulatory decisions that are adverse to us and/or our products;
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changes in key members of management;
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developments in our industries;
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changes in investors’ acceptable levels of risk;
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trading volume of our common stock; and
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general economic conditions.
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