American Pacific Corp. (APFC)
Q2 2010 Earnings Call Transcript
August 04, 2010 16:30 pm
Linda Ferguson - VP and Corporate Secretary
Joe Carleone - CEO
Dana Kelley -, CFO
Lee Author - Hammock Investors
Bruce Baughman - Franklin
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Good day, ladies and gentlemen, and welcome to the third quarter 2010 American Pacific Corporation earnings conference call. My name is Jasmine and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today Ms. Linda Ferguson, Vice President and Corporate Secretary. Please proceed.
Good afternoon and welcome to our review of the financial results for the third quarter of fiscal year 2010. 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 of words such as will, expect, 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 thereof 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.
Good afternoon ladies and gentlemen and thank you for joining our conference call. As we expected, the fiscal 2010 third quarter was one of our weaker quarters. We expect our fourth quarter to be stronger, but not as strong as originally anticipated because of weaker forecasted Fine Chemicals sales for Q4 than previously expected. Based on this we are forced to lower our guidance.
While this is certainly a disappointment, we see opportunities in future that will allow recovery to passive organic growth. As indicated in our last two investor calls 2010 will be the year of repositioning our corporation for improved future profitability and to prepare for and take advantage of new opportunities we see emerging.
We made considerable progress this quarter towards this repositioning. More specifically we have frozen our defined benefits pension plan which affects new employees, bought back and cancelled $5 million of our outstanding notes as 2 points below par and we have launched our corporate wide cost reduction initiatives, and improving the profitability in each of our business units and eliminating certain corporate cost.
Let's now move to a discussion of our Prime chemical segment. While the future potential of the Fine Chemicals business segment continues to share remarkable promise, we continue to have several near term issues resolved. Fiscal ‘10 sales have slipped because of order reductions and delays in the approval and demand for products coming through our pipeline. In addition current quarter three delays to validate a new process have placed traditional downward pressure on fiscal 2010 revenue.
New process activities such as these provide the basis for new or increased orders. Because of this situation we now see sales of this segment to be down 20% to 25% compared to fiscal year 2009 rather than the 15% difference projected a quarter ago. Separately, we received an FDA warning letter associated with our inspection last February. The essence of this letter was an insufficient amount of detail initially submitted on our corrective actions for the observations coming out of our inspection.
We have incorporated the appropriate corrective actions and are resubmitting to the FDA. Our Fine Chemicals pool is focused on these regulatory and operational matters and we are confident that the actions being taken will overcome them. Furthermore, we have reduced work force and our Fine Chemicals segment by 10% to address the reduced production requirements. Looking to the future we continue to see strong growth in our product pipeline. As mentioned in our last call the areas of controlled substances applying biocatalysis to anti-viral building block and expanding into the Japanese market, all continued to develop positively. In addition, we are very near to signing a long-term agreement in the area to controlled substances.
Further more, we are seeing a strong emphasis for pharmaceuticals chemicals to support the efforts of the Homeland Security Department to prepare for the consequences of potential bio-terrorism incidents. Finally, during this quarter our fine chemicals team negotiated the three-year agreement with the Machinist Union at our California facility.
Now moving on to Specialty Chemicals, the Specialty Chemicals segment continues to perform well. While revenue was down as a result of reduced demand for ammonium perchlorate production is running well even with very little plant utilization. This is a significant achievement demonstrating that we have reconfigured our organization in Utah to deal with a much lower production volume in a very cost effective manner. The team is in the process of producing significantly less ammonium perchlorate products than produced a year ago with the exceptional high quality and good productivity.