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American Pacific Corp. (APFC)

Q1 2011 Earnings Call

February 7, 2011 4:30 PM ET

Executives

Linda Ferguson – Vice President, Administration

Joe Carleone – Chief Executive Officer

Dana Kelley – Chief Financial Officer

Analyst

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 American Pacific Corporation Earnings Conference Call. My name is [Anisia] and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions)

I would now like to turn the call over to Ms. Linda Ferguson. Please proceed.

Linda Ferguson

Good afternoon. Welcome to our review of our financial results for our fiscal year 2011 first quarter. Joe Carleone, Chief Executive Officer and Dana Kelley, Chief Financial Officer will each provide remarks. Following their remarks, we will be happy to take your questions.

Today’s call includes forward-looking statements. You can identify these statements by the fact that they use words such as will, expect, anticipate, believe, and other words and terms of similar meaning. These forward-looking statements are not historical facts and are subject to risks and uncertainties.

Our actual results may differ materially. For a description of the factors that may cause actual results to differ materially from our forward-looking statements, please refer to the risk factors forward-looking statements section of our earnings release furnished today to the SEC on form 8-K. And also to our most recent quarterly report on form 10-Q and our other filings made with the SEC. All forward-looking statements are made as of the date hereof and we assume no obligation to update these statements except as required by law.

In addition, we will be referring to both GAAP and non-GAAP financial measures. Our recently published earnings release contains definitions of these non-GAAP measures and a reconciliation of these non-GAAP measures to the most comparable GAAP measures. Our earnings release can be found in the news release section of our website at apfc.com. I will now turn the call over to Joe.

Joe Carleone

Thank you, Linda. Good afternoon, ladies and gentlemen, and thank you for joining our conference call. Our operating results for this first quarter, while not where we want them to be, are consistent with our expectations. Also, our expectations for the remainder of the year have not changed. We are therefore, reaffirming our guidance for fiscal 2011.

As indicated in our last call and substantiated in our first quarter bookings, our business opportunities continue to increase, especially in our Fine Chemicals and Aerospace segments. Also in the first quarter, our Fine Chemicals segment entered into a new, three-year supply agreement with Gilead. In the latter part of the year, we see performance levels that are more indicative of what AMPAC should be providing.

As described in our last call, 2010 was a year of repositioning our company. We now enter a year of transition, back to an improved profitability level by the end of the year. We are building upon our core products, which have comeback considerably from last year.

We are adding new products and customers, especially in our Fine Chemicals segment. These activities will strengthen our company and secure our growth profile for the future.

Let us now discuss each of the business segments beginning with our Fine Chemicals segment. While there is a continuing effect of the reduced production in 2010 penetrating into the first and second quarters of fiscal 2011, our Fine Chemicals segment is poised to return to profitability based on [military] orders for it’s core products.

Our major core products are now in full production at our California facility. We continue to expect our sales in this segment to exceed the fiscal 2010 sales by 25%. A good part of the sales increase is due to development products.

Development product sales for this first quarter have reached a record $7.7 million, with the year-end estimate approaching $20 million. Maturing and growing development products are responsible for this increase.

Our first major inspection by the Drug Enforcement Agency of our Controlled Substance facility went very well. We estimate the approval to become a certified manufacturer of these controlled pharmaceutical chemicals will take another six months or so.

Our other new product initiatives, including anti-viral building blocks and chemicals for anti-terrorism and the Department of Defense, are progressing well as represented by our forecasted growth and development product sales. We also made a major breakthrough in property taxes for our California facility. The Fine Chemicals team did a great job to reduce our taxes significantly going forward and negotiating a refund for previous years.

Now, moving on to the Specialty Chemicals segment. Our Specialty Chemicals segment performed well this quarter, despite lower production and sales volumes. The production team continues to adapt to lower demand in rocket-grade ammonium perchlorate. The NASA budget and direction continue to be a subject of debate.

Congress, both the House and Senate, are directing a heavy lift vehicle that will use large, shuttle like solid rockets. However, Congress also plans to cut overall budgets for NASA. It will take quite a while for this to be resolved. We are therefore forecasting no ammonium perchlorate for NASA applications in fiscal 2011.

While NASA is undecided, we continue to have a reliable user of rocket-grade perchlorate, the Department of Defense. DoD quantities have been lower then that used by NASA but they are consistent. Their strategic and tactical missiles must use solid rockets. The forecasted quantity of rocket-grade ammonium perchlorate for fiscal 2011 will be consumed by DoD products.

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