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American Pacific Corp.
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Originally a specialty chemical company, diversification into
fine chemicals and aerospace equipment has given American Pacific Corp. the kind of
organic growth that they were seeking
Basic Materials
Specialty Chemicals
(APFC-NASDAQ)
www.apfc.com
American Pacific Corp.
3770 Howard Hughes Parkway, Suite 300
Las Vegas, NV 89169
Phone: 702-735-2200
John R. Gibson
Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - June 22, 2007
BIO:
John Gibson joined American Pacific in 1992 as Vice President – Operations. He
was promoted to President and CEO in 1997 and elected Chairman in 1998. Mr. Gibson was
named Chairman and CEO in October 2006, upon the hiring of Dr. Joseph Carleone as
President and COO.
Prior to joining American Pacific John Gibson was employed by U.S. Steel for 28 years. He
is a graduate in Metallurgical Engineering, University of Nevada, Reno and also holds a
degree, cum laude, in Economics from Colorado College. He is a member and active in
several professional societies including the Aerospace Industries Association, Board of
Governors, the Utah Association of Energy Users, Past President, the Nevada Taxpayers
Association, the Conference Board and others.
He lives with his wife, Marianne, in Las Vegas.
Company Profile:
American Pacific is a specialty chemical company
that produces (i) energetic products used primarily in space flight and defense
systems, automotive airbag safety systems and explosives, (ii) Halotron, a clean fire
extinguishing agent and (iii) water treatment equipment. In November 2005,
American Pacific acquired the former Aerojet Fine Chemicals business. Ampac Fine
Chemicals, as it is now known, is a leading manufacturer of active pharmaceutical
ingredients and registered intermediates under cGMP guidelines for commercial customers in
the pharmaceutical industry, involving high potency compounds, energetic and
nucleoside chemistries, and chiral separation, In 2004 American Pacific acquired the
former Atlantic Research Corporation liquid in-space propulsion business. Ampac-ISP, as it
is now known, is a leading supplier of commercial and military propulsion products and the
world’s largest producer of bipropellant thrusters.
CEOCFO: Mr. Gibson: what is your vision as CEO and
Chairman of American Pacific Corp., and how do you get there?
Mr. Gibson: “We are a 52-year-old company,
founded in 1955 in Las Vegas. We were originally a specialty chemical company. Although
our products were very well received in the market, we eventually found that there was not
the kind of potential for organic growth that we wanted, so we sought to diversify our
company. There are three legs to our company now and the first diversification was to
purchase a small aerospace equipment company. Our last acquisition, the third leg of our
company was to purchase a fine chemical business where active pharmaceutical ingredients
are made as well as registered intermediates. We now are a company with three parts to it,
the first part being a specialty chemical division in which we have fairly healthy cash
flow and long-term profit. The second part in aerospace equipment is small; we intend to
grow it. We make small thrusters for space satellites in that business. The third which we
believe where we will find much of our growth is in fine chemicals as a part of the larger
pharmaceutical market.”
CEOCFO: What are fine chemicals?
Mr. Gibson: “Fine chemicals are distinguished
from specialty chemicals in that they are for a specific high quality application, for
example in drugs that are commonly used by people; as opposed to much of specialty
chemicals which are often commodities. Generally speaking fine chemicals are organic in
nature and require very careful processing and sophisticated equipment in order to make
the final chemical for the eventual manufacturer of a specific drug that they are applied
to.”
CEOCFO: Was being in the specialty chemical and then going
into the fine chemicals a natural progression?
Mr. Gibson: “We felt comfortable with it. They do
not necessarily correlate in chemistry because in specialty chemicals, generally speaking
you are processing enormous quantities and it is fairly straight-forward chemistry, where
in fine chemicals it is more difficult and tedious to accomplish. The similarity however
was that in our specialty chemical business we think sought out, found and cultivated
niche markets. For example, we are generally speaking in our specialty chemical business,
a sole supplier. We sought the same kind of acquisition in fine chemicals. We believe we
found it. Not that there is anything wrong with aspirin, but we are not making aspirin or
the common kind of ingredient that you would find in many drugs; we are making very
sophisticated ones primarily for antivirals, cancer treatment and the central nervous
system. That is what we sought, the kind of market we are used to and especially critical
in terms of customer relationships, in terms of being able to be a sole or perhaps dual
supplier.
CEOCFO: Are you in a leading market position in all of your
areas?
Mr. Gibson: “We have a leading market position in
our primary specialty chemical; we are the sole provider of ammonium perchlorate, which is
the oxidizing chemical used for example in the space shuttle and minuteman defense
missile. We are the only supplier in North America for that. We are not the leading
supplier in active pharmaceutical ingredients, but we certainly have a very healthy
position in the market and where we are participating, we are the sole supplier or one of
two suppliers generally speaking. That is how we see ourselves. However, in terms of that
whole market we are not a market leader.”
CEOCFO: Do you have to go after new business?
Mr. Gibson: “Absolutely, because what happens in
many of these areas whether it is aerospace, specialty or fine chemicals, the market
changes with time; even though you may be very good at specifically what you are doing,
you have to stay ahead of the game. We talk to customers all the time, we want to know
what they are doing that is new and different and if we can help. We maintain a strong
relationship on the technical side with Georgia Tech University in Atlanta, and we are
participating in certain research projects there that hopefully, will lead to commercial
markets.”
CEOCFO: In the area of fine chemicals where you see much
promise, how do you get the business there when you are newer to the industry, how does
that business work?
Mr. Gibson: “The fine chemical business that we
purchased, developed at Aerojet General Corporation, GenCorp, as it is known today near
Sacramento, California. It was a natural outgrowth of certain chemicals that the company
handled or processed in the space propulsion industry and so they saw the connection and
similarity and they actually started the business many years ago. By the time that we
purchased or acquired that business it was very well established and was an ongoing
business for us. What you have to do probably more than any other single factor is develop
a trust and reliability with customers in which they know that they can offer to permit
you to use their intellectual property to manufacture a part of a chemical that they need
for a specific drug. As I say, you do not necessarily engage yourself in your own research
in those kinds of things, what you do is perfect your process and chemical handling to the
extent that when the moment arises and there is a new or different drug that requires a
specific kind of talent to be able to make, then we are there. We spend a lot of time in
the marketplace with customers or potential customers in the fine chemical business.”
CEOCFO: What is the financial picture like today for AMPAC?
Mr. Gibson: “When we last reported earnings,
which was the second fiscal quarter, our fiscal year begins on October 1st so
our second fiscal quarter ended March 31st for 2007; we indicated to the market
that we continued to believe that we would have sales of approximately $170 million and we
foresaw EBITDA performance for the same fiscal year of $36 million. We are doing the
things we had visualized and had become our objectives four years ago. We have more than
doubled our revenue, we had a few years in which we did not return a profit and those
years were consumed by finding and getting the right acquisition at the right time and
then making it work. We believe we are now at the threshold of gaining a return on that on
those investments we made.”
CEOCFO: Do you need to build any new facilities?
Mr. Gibson: “The capital spending prior to the
fine chemical business is rather modest. In the fine chemical business that is always a
significant consideration because the formulations change, the equipment required changes
somewhat. As of right now, I do not think it is particularly significant. We have
indicated to the market our capital spending this fiscal year will be somewhere in the
neighborhood of $10 million. We may have to increase it somewhat in the future but that is
all in our plans. We expect that the return on any of those investments will be beneficial
to the company.”
CEOCFO: What do you see two or three years down the line?
Mr. Gibson: “I hesitate to say more than what we
have said publicly but it is obvious that we would not be doing what we are doing if we
didn’t expect positive returns in the future and that is what everyone of my
employees, engineers and scientists, are committed to. We see a healthy company in the
future.”
CEOCFO: Do you see more acquisitions?
Mr. Gibson: “Actually the other part of the
capital spending question or Capex, is that if we find a facility that is available and
fits our purpose and would in effect be a substitute for Capex or capital spending, then
that is what we will do, so we do see acquisitions in the future. I do not believe on the
order, size or magnitude of this last one we did with fine chemicals which was in the
range of $130 million, but modest increases rather than capital spending, yes we see that
in the future.”
CEOCFO: What are the challenges of running three separate
businesses under one umbrella?
Mr. Gibson: “It has been fun and a challenge at
the same time. What I have tried to do and every CEO is probably somewhat different, but I
have tried to give, especially the new acquisitions, as much autonomy as I can. They were
healthy businesses to begin with. I did not want to interfere with their organization or
their business plan. I wanted their business plan to be what they believe they could
accomplish and it has been so far. Obviously, we had our own strategic objectives over
all, but I think when you begin to branch out in a business, and ours was single-focus for
fifty years; you have to develop trust that your managers know what they are doing and
will do the right thing. So far, I have been very satisfied with the operation. I should
add that the executives are extremely important and I did bring on a President and COO,
Dr. Joseph Carleone. Dr. Carleone had previously spent over 20 years in aerospace and he
was the actual president of the fine chemical business that we purchased. It was a natural
change and promotion for us that we were able to accomplish and I have been very satisfied
with his work. Obviously, he is also the key link between me, and the operating managers
in the facilities. We work closely together. I think that is a key. The other thing is
with an organization in today’s world, you have to be careful that it remains lean.
In our case there are a couple of things that are interesting, one is that we have no
significant formal sales force; every one of us is a sales person. We have program
managers, we see customers at that level, at the President’s level and certainly at
the division leader’s level all the time. That is important and I think it keeps the
overhead under control. Selling is a talent that I have the highest respect for, but I
think you can make an effective salesman out of the engineering and technical personnel if
you cultivate it and work at it. We have a modest staff; we will do $170 million and are
right at 500 employees. We do not for example have in-house legal staff here at
headquarters. The only point is there are certain activities and I think that is one of
them that you can effectively outsource and that has worked well. In selling, we do the
selling. In legal work when we need work, we go outside.”
CEOCFO: Is the investment community starting to pay
attention?
Mr. Gibson: “Lately it has been very good. The
share price on the market on Nasdaq is up over 100% since January 1st; that is
unusual for us. Many accused our stock as being what they termed “tornado
proof.” It wouldn’t fall a lot in bad times and in good times it would not rise
much. I think the market is beginning to understand what we are trying to do so the recent
activity in our stock has been very good for the shareholders.”
CEOCFO: In closing, why should potential investors look at
the company?
Mr. Gibson: “I think we have a bright future.
There is nothing wrong with the east; we have a small facility in Niagara N.Y., but I
think in the west is where the growth is taking place. By carefully selecting the niche
markets in which we choose to participate, I think there is a bright future here. I would
hope that our present and future shareholders will be very satisfied at what they
see.”
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