##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-08137
 AMERICAN PACIFIC CORPORATION
  
 Delaware
    
    59-6490478(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 3770 Howard Hughes Parkway, Suite 300
Las Vegas, Nevada 89169
 702) 735-2200
 þ o
  o o þ
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AMERICAN PACIFIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONITEM 1. Condensed Consolidated Statements of Operations (unaudited)
    
    
    2Condensed Consolidated Balance Sheets (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows (unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    5ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37ITEM 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    37ITEM 1A. Risk Factors
    
    
    37ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49ITEM 3. Defaults Upon Senior Securities
    
    
    49ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    49ITEM 5. Other Information
    
    
    49ITEM 6. Exhibits
    
    
    49EX-31.1EX-31.2EX-32.1EX-32.2
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PART I. FINANCIAL STATEMENTS
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Statements of Operations
 (Unaudited, Dollars in Thousands, Except per Share Amounts)
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Revenues
    
    $
    43,723
    
    
    $
    42,840
    
    
    $
    122,200
    
    
    $
    99,102Cost of Revenues
    
    
    30,358
    
    
    
    30,931
    
    
    
    79,716
    
    
    
    70,288Gross Profit
    
    
    13,365
    
    
    
    11,909
    
    
    
    42,484
    
    
    
    28,814Operating Expenses
    
    
    9,660
    
    
    
    10,187
    
    
    
    28,264
    
    
    
    26,468Environmental Remediation Charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,800Operating (Income) Loss
    
    
    3,705
    
    
    
    1,722
    
    
    
    14,220
    
    
    
    (454
    )Interest and Other Income
    
    
    181
    
    
    
    55
    
    
    
    365
    
    
    
    978Interest Expense
    
    
    2,709
    
    
    
    3,280
    
    
    
    9,169
    
    
    
    7,405Debt Repayment Charges
    
    
    
    
    
    
    
    
    
    
    2,714
    
    
    
    Income (Loss) from Continuing Operations
before Income Tax
    
    
    1,177
    
    
    
    (1,503
    )
    
    
    2,702
    
    
    
    (6,881
    )Income Tax Expense (Benefit)
    
    
    571
    
    
    
    (642
    )
    
    
    1,339
    
    
    
    (2,624
    )Income (Loss) from Continuing Operations
    
    
    606
    
    
    
    (861
    )
    
    
    1,363
    
    
    
    (4,257
    )Loss from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (192
    )
    
    
    
    
    
    
    (439
    )Net Income (Loss)
    
    $
    606
    
    
    $
    (1,053
    )
    
    $
    1,363
    
    
    $
    (4,696
    )Basic Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    0.08
    
    
    $
    (0.12
    )
    
    $
    0.19
    
    
    $
    (0.58
    )Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.06
    )Net Income (Loss)
    
    $
    0.08
    
    
    $
    (0.14
    )
    
    $
    0.19
    
    
    $
    (0.64
    )Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    0.08
    
    
    $
    (0.12
    )
    
    $
    0.18
    
    
    $
    (0.58
    )Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.06
    )Net Income (Loss)
    
    $
    0.08
    
    
    $
    (0.14
    )
    
    $
    0.18
    
    
    $
    (0.64
    )Weighted Average Shares Outstanding:Basic
    
    
    7,378,000
    
    
    
    7,304,000
    
    
    
    7,345,000
    
    
    
    7,299,000Diluted
    
    
    7,523,000
    
    
    
    7,304,000
    
    
    
    7,439,000
    
    
    
    7,299,000
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Balance Sheets
 (Unaudited, Dollars in Thousands)
 June 30,
    
    September 30,2007
    
    2006ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    21,899
    
    
    $
    6,872Accounts Receivable, Net
    
    
    20,574
    
    
    
    19,474Notes Receivable
    
    
    
    
    
    
    7,510Inventories, Net
    
    
    57,627
    
    
    
    39,755Prepaid Expenses and Other Current Assets
    
    
    2,098
    
    
    
    1,845Deferred Income Taxes
    
    
    1,887
    
    
    
    1,887Total Current Assets
    
    
    104,085
    
    
    
    77,343Property, Plant and Equipment, Net
    
    
    116,472
    
    
    
    119,746Intangible Assets, Net
    
    
    7,398
    
    
    
    14,237Deferred Income Taxes
    
    
    21,701
    
    
    
    21,701Other Assets
    
    
    8,616
    
    
    
    6,428TOTAL ASSETS
    
    $
    258,272
    
    
    $
    239,455LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    10,759
    
    
    $
    11,158Accrued Liabilities
    
    
    9,914
    
    
    
    11,257Employee Related Liabilities
    
    
    5,707
    
    
    
    4,600Environmental Remediation Reserves
    
    
    565
    
    
    
    1,631Deferred Revenues
    
    
    22,280
    
    
    
    5,683Current Portion of Debt
    
    
    230
    
    
    
    9,593Total Current Liabilities
    
    
    49,455
    
    
    
    43,922Long-Term Debt
    
    
    110,423
    
    
    
    97,771Environmental Remediation Reserves
    
    
    15,146
    
    
    
    15,880Pension Obligations and Other Long-Term Liabilities
    
    
    9,088
    
    
    
    9,998Total Liabilities
    
    
    184,112
    
    
    
    167,571Commitments and ContingenciesStockholders EquityPreferred Stock  No par value; 3,000,000 authorized; none outstanding
    
    
    
    
    
    
    Common Stock  $.10 par value; 20,000,000 shares authorized,
9,443,541 and 9,359,041 issued
    
    
    942
    
    
    
    933Capital in Excess of Par Value
    
    
    87,580
    
    
    
    86,724Retained Earnings
    
    
    3,675
    
    
    
    2,312Treasury Stock - 2,034,870 shares
    
    
    (16,982
    )
    
    
    (16,982
    )Accumulated Other Comprehensive Loss
    
    
    (1,055
    )
    
    
    (1,103
    )Total Shareholders Equity
    
    
    74,160
    
    
    
    71,884TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    258,272
    
    
    $
    239,455
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Statements of Cash Flow
 (Unaudited, Dollars in Thousands)
 Nine Months EndedJune 30,2007
    
    2006Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    1,363
    
    
    $
    (4,696
    )Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:Depreciation and amortization
    
    
    14,502
    
    
    
    14,166Non-cash interest expense
    
    
    1,975
    
    
    
    2,314Share-based compensation
    
    
    67
    
    
    
    287Non-cash component of debt repayment charges
    
    
    2,309
    
    
    
    Gain on sale of assets
    
    
    
    
    
    
    (610
    )Excess tax benefit from stock option exercises
    
    
    (203
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,055
    )
    
    
    (5,399
    )Inventories
    
    
    (17,872
    )
    
    
    (6,273
    )Prepaid expenses and other current assets
    
    
    (253
    )
    
    
    (3,461
    )Accounts payable, accrued liabilities, and employee related liabilities
    
    
    5,456
    
    
    
    6,361Deferred revenues
    
    
    16,597
    
    
    
    (284
    )Environmental remediation reserves
    
    
    (1,800
    )
    
    
    (2,857
    )Pension obligations, net
    
    
    (351
    )
    
    
    128Discontinued operations, net
    
    
    
    
    
    
    921Other
    
    
    (853
    )
    
    
    490Net Cash Provided by Operating Activities
    
    
    19,882
    
    
    
    1,087Cash Flows from Investing Activities:Acquisition of business and earnout payment
    
    
    (6,000
    )
    
    
    (108,462
    )Capital expenditures
    
    
    (3,930
    )
    
    
    (13,429
    )Proceeds from sale of assets
    
    
    
    
    
    
    2,395Discontinued operations, net
    
    
    7,510
    
    
    
    (403
    )Net Cash Used by Investing Activities
    
    
    (2,420
    )
    
    
    (119,899
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    110,000
    
    
    
    85,000Payments of long-term debt
    
    
    (108,533
    )
    
    
    (496
    )Short-term borrowings, net
    
    
    
    
    
    
    4,000Debt issuance costs
    
    
    (4,677
    )
    
    
    (1,782
    )Issuances of common stock
    
    
    572
    
    
    
    158Excess tax benefit from stock option exercises
    
    
    203
    
    
    
    Discontinued operations, net
    
    
    
    
    
    
    (92
    )Net Cash Provided (Used) by Financing Activities
    
    
    (2,435
    )
    
    
    86,788Net Change in Cash and Cash Equivalents
    
    
    15,027
    
    
    
    (32,024
    )Cash and Cash Equivalents, Beginning of Period
    
    
    6,872
    
    
    
    37,213Cash and Cash Equivalents, End of Period
    
    $
    21,899
    
    
    $
    5,189Cash Paid For:Interest
    
    $
    3,337
    
    
    $
    5,065Income taxes
    
    
    412
    
    
    
    (352
    )Non-Cash Transactions:Capital leases originated
    
    $
    321
    
    
    $
    Issuance of seller subordinated note, net of discount
    
    
    
    
    
    
    19,400
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AMERICAN PACIFIC CORPORATION
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited, Dollars in Thousands, Except per Share Amounts)
 1.
    
    INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIESInterim Basis of Presentation:The accompanying condensed consolidated financial statements of
American Pacific Corporation and its subsidiaries (the Company, we, us, or our) are
unaudited, but in our opinion, include all adjustments, which are of a normal recurring nature,
necessary for the fair presentation of financial results for interim periods. These statements
should be read in conjunction with our consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended September 30, 2006. The operating
results for the three-month and nine-month periods ended June 30, 2007 and cash flows for the
nine-month period ended June 30, 2007 are not necessarily indicative of the results that will be
achieved for the full fiscal year or for future periods.Accounting Policies:A description of our significant accounting policies is included in Note 1
to our consolidated financial statements included in our Annual Report on Form 10-K for the year
ended September 30, 2006.Principles of Consolidation:Our consolidated financial statements include the accounts of
American Pacific Corporation and our wholly-owned subsidiaries. In connection with our
acquisition of the fine chemicals business (the AFC Business) of GenCorp, Inc. (GenCorp),
through the purchase of substantially all of the assets of Aerojet Fine Chemicals LLC and the
assumption of certain of its liabilities, we began consolidating our newly formed, wholly-owned
subsidiary, Ampac Fine Chemicals LLC or AFC on November 30, 2005 (See Note 2). All
intercompany accounts have been eliminated.Discontinued Operations:In June 2006, our board of directors approved and we committed to a
plan to sell our 50% interest in our Energetic Systems, Inc. joint venture (ESI) based on our
determination that ESIs product lines were no longer a strategic fit with our business
strategies. We consolidated ESI in accordance with FIN 46R, Consolidation of Variable Interest
Entities, which requires companies to consolidate variable interest entities that either: (1)
do not have sufficient equity investment at risk to permit the entity to finance its activities
without additional subordinated financial support, or (2) hold a significant variable interest
in, or have significant involvement with, an existing variable interest entity. Revenues,
expenses and cash flows associated with ESIs operations are presented as discontinued
operations for all periods presented. Effective September 30, 2006, we completed the sale of
our interest in ESI. ESI was formerly reported within our Specialty Chemicals segment (see Note
12).Recently Issued or Adopted Accounting Standards:In July 2006, the Financial Accounting
Standards Board (FASB) issued FIN 48, Accounting for Uncertainty in Income Taxes, which
clarifies the accounting for uncertainty in income taxes recognized in the financial statements
in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 provides
guidance on the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosures, and
transition. FIN 48 is effective for our fiscal year beginning October 1, 2007. We are currently
evaluating the impact of this standard on our consolidated financial statements.
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1.
    
    INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)In September 2006, the Securities and Exchange Commission (SEC) issued SAB 108, which
documents the SEC staffs views regarding the process of quantifying financial statement
misstatements. Under SAB 108, we must evaluate the materiality of an identified unadjusted error
by considering the impact of both the current year error and the cumulative error, if
applicable. This also means that both the impact on the current period income statement and the
period-end balance sheet must be considered. SAB 108 is effective for our fiscal year ending
September 30, 2007. Any past adjustments required to be recorded as a result of adopting SAB 108
will be recorded as a cumulative effect adjustment to the opening balance of retained earnings.
We do not believe the adoption of SAB 108 will have a material impact on our consolidated
financial statements.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair
value, establishes a framework for measuring fair value in GAAP, and expands disclosures about
fair value measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157
will be first effective for our financial statements issued for the year ended September 30,
2008, and interim periods within that year. We are currently evaluating the impact that the
adoption of SFAS No. 157 will have on our consolidated financial statements.In September 2006, FASB issued SFAS 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R), which
requires companies to recognize the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its balance sheet and to recognize changes in
that funded status in the year in which the changes occur through comprehensive income. This
statement becomes effective for us on September 30, 2007. We are currently evaluating the
impact the adoption of SFAS 158 will have on our consolidated financial statements.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits companies to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve financial
reporting by providing companies with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. The fair value option established by SFAS No. 159 permits
all companies to choose to measure eligible items at fair value at specified election dates. At
each subsequent reporting date, a company shall report in earnings any unrealized gains and
losses on items for which the fair value option has been elected. SFAS No. 159 is effective as
of the beginning of our first fiscal year that begins on October 1, 2008. We are currently
evaluating whether to adopt the fair value option under SFAS No. 159 and evaluating what impact
adoption would have on our consolidated financial statements.2.
    
    ACQUISITIONSAFC Business Acquisition:In July 2005, we entered into an agreement to acquire, and on November
30, 2005, we completed the acquisition of the AFC Business of GenCorp through the purchase of
substantially all of the assets of Aerojet Fine Chemicals LLC and the assumption of certain of
its liabilities. The assets were acquired and liabilities assumed by our newly formed,
wholly-owned subsidiary, Ampac Fine Chemicals LLC or AFC. AFC is a manufacturer of active
pharmaceutical ingredients and registered intermediates under the U.S. Food and Drug
Administrations (FDA) current good manufacturing practices or cGMP guidelines for customers
in the pharmaceutical industry. Its facilities in California offer specialized engineering
capabilities including high containment for high potency compounds, energetic and nucleoside
chemistries, and chiral separation using the first commercial-scale simulated moving bed in the
United States.
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2.
    
    ACQUISITIONS (continued)The total consideration for the AFC Business acquisition is comprised of the following:
 Cash
    
    $
    88,500Fair value of Seller Subordinated Note (Face value $25,500)
    
    
    19,400Capital expenditures adjustment
    
    
    17,431Working capital adjustment
    
    
    (1,268
    )Earnout adjustment
    
    
    5,000Other direct acquisition costs
    
    
    4,348Total purchase price
    
    $
    133,411
 Subordinated Seller Note
 Capital Expenditures Adjustment
 Working Capital Adjustment
 Earnout and EBITDAP Adjustments
 Direct Acquisition Costs
 In connection with the AFC Business acquisition, we entered into Credit Facilities and a Seller
Subordinated Note, each discussed in Note 7. The total purchase price was funded with net
proceeds from the Credit Facilities of $81,881, the Seller Subordinated Note of $25,500 and
existing cash.This acquisition was accounted for using the purchase method of accounting, under which the
total purchase price was allocated to the fair values of the assets acquired and liabilities
assumed. We engaged outside consultants to assist in the valuation of property, plant and
equipment and intangible assets. As of September 30, 2006, the allocation of the purchase price
and the related determination of the useful lives of property, plant and equipment were
preliminary and subject to change based on the then pending final valuation report. As a result
of the final valuation report, during the first quarter of fiscal 2007, we recorded a
reclassification of $2,986 of assigned purchase price from intangible assets to property, plant
and equipment, and finalized our estimates of the related remaining useful lives.
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2.
    
    ACQUISITIONS (continued)The following table indicates the amounts assigned to each major asset and liability caption of
AFC as of the acquisition date:
 Accounts Receivable
    
    $
    7,746Inventories
    
    
    15,941Other Current Assets
    
    
    123Property, Plant and Equipment
    
    
    114,494Customer relationships, average life of 5.5 years
    
    
    7,957Backlog, average life of 1.5 years
    
    
    2,287Other Assets
    
    
    382Total Assets Acquired
    
    
    148,930Accounts Payable and Accrued Liabilities
    
    
    11,967Deferred Revenues and Customer Deposits
    
    
    2,549Long-Term Liabilities
    
    
    1,003Total Liabilities Assumed
    
    
    15,519Purchase Price
    
    $
    133,411
 Intangible assets, consisting of customer relationships and existing customer backlog, have
definite lives and will be amortized over their estimated useful lives using the straight-line
method.3.
    
    SHARE-BASED COMPENSATIONOn October 1, 2005, we adopted SFAS No. 123R, Share-Based Payment, which requires us to
measure the cost of employee services received in exchange for an award of equity instruments
based on the grant date fair value of the award. We have elected to use the Modified Prospective
Transition method such that SFAS No. 123R applies to the unvested portion of previously issued
awards, new awards and to awards modified, repurchased or canceled after the effective date.
Accordingly, commencing October 1, 2005, we recognize share-based compensation for all current
award grants and for the unvested portion of previous award grants based on grant date fair
values. Prior to fiscal 2006, we accounted for share-based awards under the Accounting
Principles Board Opinion No. 25 intrinsic value method, under which no compensation expense was
recognized because all historical options granted were at an exercise price equal to the market
value of our stock on the grant date. Prior period financial statements have not been adjusted
to reflect fair value share-based compensation expense under SFAS No. 123R.Our share-based payment arrangements are designed to attract and retain employees and directors.
The amount, frequency, and terms of share-based awards may vary based on competitive practices,
our operating results, and government regulations. New shares are issued upon option exercise or
restricted share grants. We do not settle equity instruments in cash. We maintain two share
based plans, each as discussed below.The American Pacific Corporation 2001 Stock Option Plan, as amended (the 2001 Plan), permits
the granting of incentive stock options meeting the requirements of Section 422 of the Internal
Revenue Code and nonqualified options that do not meet the requirements of Section 422 to
employees, officers, directors and consultants. Options granted under the 2001 Plan generally
vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in
ten years. As of June 30, 2007, there were 20,000 shares available for grant under the 2001
Plan. This plan was approved by our shareholders.The American Pacific Corporation 2002 Directors Stock Option Plan (the 2002 Directors Plan)
compensates outside directors with annual grants of stock options or upon other discretionary
events. Options are granted to each eligible director at a price equal to the fair market value
of our common stock on the date of the grant. Options granted under the 2002 Directors Plan
generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and
expire in ten years. As of June 30, 2007, there were 25,000 shares available for grant under the
2002 Directors Plan. This plan was approved by our shareholders.
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3.
    
    SHARE-BASED COMPENSATION (continued)A summary of our outstanding and vested stock option activity for the nine months ended June 30,
2007 is as follows:
 Total Outstanding
    
    Non VestedWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    FairPrice
    
    
    
    
    
    ValueShares
    
    Per Share
    
    Shares
    
    Per ShareBalance, September 30, 2006
    
    
    515,500
    
    
    $
    6.95
    
    
    
    18,750
    
    
    $
    1.95Granted
    
    
    19,000
    
    
    
    7.64
    
    
    
    19,000
    
    
    
    3.63Vested
    
    
    
    
    
    
    
    
    
    
    (28,250
    )
    
    
    2.51Exercised
    
    
    (84,500
    )
    
    
    6.75
    
    
    
    
    
    
    
    Expired / Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, June 30, 2007
    
    
    450,000
    
    
    
    7.01
    
    
    
    9,500
    
    
    
    3.63
 A summary of our exercisable stock options as of June 30, 2007 is as follows:
 Number of vested stock options
    
    
    440,500Weighted-average exercise price per share
    
    $
    7.00Aggregate intrinsic value
    
    $
    3,653Weighted-average remaining contractual term in years
    
    
    6.9
 We determine the fair value of share-based awards at their grant date, using a
Black-Scholes option-pricing model applying the assumptions in the following table. Actual
compensation, if any, ultimately realized by optionees may differ significantly from the amount
estimated using an option valuation model.
 Nine Months EndedJune 30,2007
    
    2006Weighted-average grant date fair value per share of options granted
    
    $
    3.68
    
    
    $
    2.00Significant fair value assumptions:Expected term in years
    
    
    5.25
    
    
    
    4.75Expected volatility
    
    
    47.0
    %
    
    
    50.0
    %Expected dividends
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rates
    
    
    4.7
    %
    
    
    4.4
    %Total intrinsic value of options exercised
    
    $
    472
    
    
    $
    54Aggregate cash received for option exercises
    
    $
    376
    
    
    $
    158Total compensation cost (included in operating expenses)
    
    $
    67
    
    
    $
    287Tax benefit recognized
    
    
    29
    
    
    
    110Net compensation cost
    
    $
    38
    
    
    $
    177As of period end date:Total compensation cost for non-vested awards
not yet recognized
    
    $
    10
    
    
    $
    79Weighted-average years to be recognized
    
    
    0.3
    
    
    
    0.3
 4.
    
    SELECTED BALANCE SHEET DATAInventories:Inventories consist of the following:
 June 30,
    
    September 30,2007
    
    2006Finished goods
    
    $
    21,151
    
    
    $
    7,170Work-in-process
    
    
    20,949
    
    
    
    20,196Raw materials and supplies
    
    
    15,796
    
    
    
    12,664Allowance for obsolete inventory
    
    
    (269
    )
    
    
    (275
    )Total
    
    $
    57,627
    
    
    $
    39,755
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4.
    
    SELECTED BALANCE SHEET DATA (continued)
 Intangible Assets:We account for our intangible assets in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets. Intangible assets consist of the following:
 June 30,
    
    September 30,2007
    
    2006Perchlorate customer list
    
    $
    38,697
    
    
    $
    38,697Less accumulated amortization
    
    
    (36,205
    )
    
    
    (33,280
    )2,492
    
    
    
    5,417Customer relationships and backlog
    
    
    10,244
    
    
    
    13,230Less accumulated amortization
    
    
    (5,684
    )
    
    
    (4,756
    )4,560
    
    
    
    8,474Pension-related intangible
    
    
    346
    
    
    
    346Total
    
    $
    7,398
    
    
    $
    14,237
 The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject
to amortization. Amortization expense was $975 for each of the three-month periods ended June
30, 2007 and 2006, and $2,925 for each of the nine-month periods ended June 30, 2007 and 2006.The pension-related intangible is an actuarially calculated amount related to unrecognized prior
service cost for our defined benefit pension plan and supplemental executive retirement plan.In connection with our acquisition of the AFC Business, we acquired intangible assets with fair
values of $7,957 for customer relationships and $2,287 for existing customer backlog. These
assets have definite lives and are assigned to our Fine Chemicals segment. Amortization expense
for the three months ended June 30, 2007 and 2006 was $309 and $1,427, respectively.
Amortization expense for the nine months ended June 30, 2007 and 2006 was $928 and $3,329,
respectively.5.
    
    COMPREHENSIVE INCOME (LOSS)Comprehensive income (loss) consists of the following:
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Net Income (Loss)
    
    $
    606
    
    
    $
    (1,053
    )
    
    $
    1,363
    
    
    $
    (4,696
    )Other Comprehensive Income (Loss) -

Foreign currency translation adjustment
    
    
    21
    
    
    
    (93
    )
    
    
    48
    
    
    
    (52
    )Comprehensive Income (Loss)
    
    $
    627
    
    
    $
    (1,146
    )
    
    $
    1,411
    
    
    $
    (4,748
    )
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6.
    
    EARNINGS (LOSS) PER SHAREShares used to compute earnings (loss) per share from continuing operations are as follows:
 Three Months Ended
    
    Nine Months EndedJune 30,
    

June3 0,2007
    
    2006
    
    2007
    
    2006Income (Loss) from Continuing Operations
    
    $
    606
    
    
    $
    (861
    )
    
    $
    1,363
    
    
    $
    (4,257
    )Basic Weighted Average Shares
    
    
    7,378,000
    
    
    
    7,304,000
    
    
    
    7,345,000
    
    
    
    7,299,000Diluted:Weighted average shares, basic
    
    
    7,378,000
    
    
    
    7,304,000
    
    
    
    7,345,000
    
    
    
    7,299,000Dilutive effect of stock options
    
    
    145,000
    
    
    
    
    
    
    
    94,000
    
    
    
    Weighted average shares, diluted
    
    
    7,523,000
    
    
    
    7,304,000
    
    
    
    7,439,000
    
    
    
    7,299,000Basic (income) loss per share from continuing operations
    
    $
    0.08
    
    
    $
    (0.12
    )
    
    $
    0.19
    
    
    $
    (0.58
    )Diluted (income) loss per share from continuing operations
    
    $
    0.08
    
    
    $
    (0.12
    )
    
    $
    0.18
    
    
    $
    (0.58
    )
 As of June 30, 2007, we had no antidilutive options outstanding. As of June 30, 2006, we
had 515,500 antidilutive options outstanding. Stock options are antidilutive because we
reported a loss from continuing operations or the exercise price of certain options exceeds the
average fair market value of our stock for the period. These options could be dilutive in
future periods if our operations are profitable or our stock price increases.7.
    
    DEBTOur outstanding debt balances consist of the following:
 June 30,
    
    September 30,2007
    
    2006Senior Notes, 9%, due 2015
    
    $
    110,000
    
    
    $
    Credit Facilities:First Lien Term Loan, 9.4%, due through 2010
    
    
    
    
    
    
    64,350First Lien Revolving Credit
    
    
    
    
    
    
    Second Lien Term Loan plus accrued PIK Interest of $170, 14.4%, due 2011
    
    
    
    
    
    
    20,170Subordinated Seller Note plus accrued PIK Interest of $2,226, 10.4%,Net of Discount of $5,424, due 2012
    
    
    
    
    
    
    22,304Capital Leases
    
    
    653
    
    
    
    540Total Debt
    
    
    110,653
    
    
    
    107,364Less Current Portion
    
    
    (230
    )
    
    
    (9,593
    )Total Long-term Debt
    
    $
    110,423
    
    
    $
    97,771
 Credit Facilities:In connection with our acquisition of the AFC Business, discussed in
Note 2, on November 30, 2005, we entered into a $75,000 first lien credit agreement (the First
Lien Credit Facility) with Wachovia Bank, National Association and other lenders. We also
entered into a $20,000 second lien credit agreement (the Second Lien Credit Facility, and
together with the First Lien Credit Facility, the Credit Facilities) with Wachovia Bank,
National Association, and certain other lenders. The Credit Facilities are collateralized by
substantially all of our assets and the assets of our domestic subsidiaries. Concurrent with
the issuance of our Senior Notes in February 2007, we repaid our first lien term loan, amended
our First Lien Credit Facility and repaid and terminated our Second Lien Credit Facility.Seller Subordinated Note:In connection with our acquisition of the AFC Business, discussed in
Note 2, we issued an unsecured subordinated seller note in the principal amount of $25,500 to
Aerojet-General Corporation, a subsidiary of GenCorp. The note accrued payment-in-kind interest
(PIK Interest) at a rate equal to the threemonth U.S. dollar LIBOR as from time to time in
effect plus a margin equal to the weighted average of the interest rate margin for the loans
outstanding
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7.
    
    DEBT (continued)under the Credit Facilities, including certain changes in interest rates due to subsequent
amendments or refinancing of the Credit Facilities. The note was subordinated to the senior debt
under or related to the Credit Facilities and certain other indebtedness, subject to certain
terms and conditions.In connection with our February 2007 refinancing activities, we negotiated an early retirement
of the Seller Subordinated Note at a discount of approximately $5,000 from the face amount of
the note. On February 6, 2007, we paid GenCorp $23,735 representing full settlement of the
Seller Subordinated Note and accrued interest.Senior Notes:On February 6, 2007, we issued and sold $110,000 aggregate principal amount of
9.0% Senior Notes due February 1, 2015 (the Senior Notes). The Senior Notes accrue interest
at a rate per annum equal to 9.0%, to be payable semi-annually in arrears on each February 1 and
August 1, beginning on August 1, 2007. The Senior Notes are guaranteed on a senior unsecured
basis by all of our existing and future material U.S. subsidiaries. The Senior Notes are:
 
    
    ranked equally in right of payment with all of our existing and future senior
indebtedness;
    
    ranked senior in right of payment to all of our existing and future senior subordinated
and subordinated indebtedness;
    
    effectively junior to our existing and future secured debt to the extent of the value of
the assets securing such debt; and
    
    structurally subordinated to all of the existing and future liabilities (including trade
payables) of each of our subsidiaries that do not guarantee the Senior Notes.
 The Senior Notes may be redeemed, in whole or in part, under the following circumstances:
 
    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus a make-whole premium as defined in the related indenture;
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% and
reducing to 100% by February 1, 2013; and
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes with the
proceeds of certain sales of its equity securities.
 In addition, if we experience certain changes of control, we must offer to purchase the Notes at
101% of their aggregate principal amount, plus accrued interest.The Senior Notes were issued pursuant to an Indenture (the Indenture) that contains certain
covenants limiting, subject to exceptions, carve-outs and qualifications, our ability to:
 
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
 The Indenture also contains certain customary events of default.
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7.
    
    DEBT (continued)In connection with the closing of the sale of the Senior Notes, we entered into a registration
rights agreement and agreed to use our reasonable best efforts to:
 
    
    file a registration statement with respect to an offer to exchange the Senior Notes for
notes that have substantially identical terms as the Senior Notes and are registered under
the Securities Act of 1933, as amended;
    
    cause the registration statement to become effective within 210 days after the closing; and
    
    consummate the exchange offer within 240 days after the closing.
   Revolving Credit Facility
  
    
    incur debt, incur contingent obligations and issue certain types of preferred stock;
    
    create liens;
    
    pay dividends, distributions or make other specified restricted payments;
    
    make certain investments and acquisitions;
    
    enter into certain transactions with affiliates;
    
    enter into sale and leaseback transactions; and
    
    merge or consolidate with any other entity or sell, assign, transfer, lease, convey or
otherwise dispose of assets.
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7.
    
    DEBT (continued)As of June 30, 2007, under our Revolving Credit Facility, we had no borrowings outstanding,
availability of $18,082, and we were in compliance with its various financial covenants.
Availability is computed as the total commitment of $20,000 less outstanding borrowings and
outstanding letters of credit, if any.Letters of Credit:As of June 30, 2007, we had $2,332 in outstanding standby letters of credit
which mature through May 2012. These letters of credit principally secure performance of certain
water treatment equipment sold by us and payment of fees associated with the delivery of natural
gas and power.Interest Rate Swap Agreements: In May 2006, we entered into two interest rate swap agreements,
expiring on June 30, 2008, for the purpose of hedging a portion of our exposure to changes in
variable rate interest on our Credit Facilities. Under the terms of the swap agreements, we
paid fixed rate interest and received variable rate interest based on a specific spread over
three-month LIBOR. The differential to be paid or received was recorded as an adjustment to
interest expense. The swap agreements did not qualify for hedge accounting treatment. We
recorded an asset or liability for the fair value of the swap agreements, with the effect of
marking these contracts to fair value being recorded as an adjustment to interest expense. The
aggregate fair value of the swap agreements at September 30, 2006, which was recorded as other
long-term liabilities, was $314. In connection with the refinancing of our Credit Facilities, we
terminated our swap agreements at a cost of $268, which resulted in a gain of $46 that is
recorded as a reduction of interest expense.Debt Issue Costs and Debt Repayment Charges:In connection with the repayment of our Credit
Facilities, we recorded a charge for approximately $2,300 to write-off the unamortized balance
of debt issue costs associated with those facilities. In addition, we paid a pre-payment
penalty of approximately $400 to terminate the Second Lien Credit Facility. These charges are
presented as Debt Repayment Charges in our statement of operations. In connection with the
issuance of the Senior Notes, we incurred debt issuance costs of approximately $4,677 which were
capitalized and classified as other assets on the balance sheet. These costs will be amortized
as additional interest expense over the eight year term on the Senior Notes.8.
    
    COMMITMENTS AND CONTINGENCIESEnvironmental Matters:Review of Perchlorate Toxicity by the EPA Perchlorate (the anion) is not currently included in the list of hazardous substances compiled
by the U.S. Environmental Protection Agency (EPA), but it is on the EPAs Contaminant
Candidate List. The EPA has conducted a risk assessment relating to perchlorate, two drafts of
which were subject to formal peer reviews held in 1999 and 2002. Following the 2002 peer
review, the EPA perchlorate risk assessment together with other perchlorate related science was
reviewed by the National Academy of Sciences or NAS. This NAS report was released on January
11, 2005. The recommendations contained in this NAS report indicate that human health is
protected in drinking water at a level of 24.5 parts per billion (ppb). Certain states have
also conducted risk assessments and have set preliminary levels from 1  14 ppb. The EPA has
established a reference dose for perchlorate of .0007 mg/kg/day which is equal to a drinking
water equivalent level (DWEL) of 24.5 ppb. A decision as to whether or not to establish a
minimum contaminate level (MCL) is pending. The outcome of these federal EPA actions, as well
as any similar state regulatory action, will influence the number, if any, of potential sites
that may be subject to remediation action.
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8.
    
    COMMITMENTS AND CONTINGENCIES (continued)Perchlorate Remediation Project in Henderson, Nevada We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (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. Kerr-McGee Chemical
Corporation (KMCC) also operated a perchlorate production facility in Henderson, Nevada (KMCC
Site) from 1967 to 1998. In addition, between 1956 and 1967, American Potash operated a
perchlorate production facility and for many years prior to 1956, other entities also
manufactured perchlorate chemicals at the KMCC Site. In 1998, Kerr-McGee Chemical LLC became
the operating entity and it ceased the production of perchlorate at the Kerr McGee Henderson
Site. Thereafter, it continued to produce other chemicals at this site until it was recently
sold. As a result of a longer production history in Henderson, KMCC and its predecessor
operations have manufactured significantly greater amounts of perchlorate over time than we did
at the Ampac Henderson Site.In 1997, the Southern Nevada Water Authority (SNWA) detected trace amounts of the perchlorate
anion in Lake Mead and the Las Vegas Wash. Lake Mead is a source of drinking water for Southern
Nevada and areas of Southern California. The Las Vegas Wash flows into Lake Mead from the Las
Vegas valley.In response to this discovery by SNWA, and at the request of the Nevada Division of
Environmental Protection (NDEP), we engaged in an investigation of groundwater near the Ampac
Henderson Site and down gradient toward the Las Vegas Wash. That investigation and related
characterization which lasted more than six years employed experts in the field of hydrogeology.
This investigation concluded that, although there is perchlorate in the groundwater in the
vicinity of the Ampac Henderson Site up to 700 ppm, perchlorate from this Site does not
materially impact, if at all, water flowing in the Las Vegas Wash toward Lake Mead. It has
been well established, however, by data generated by SNWA and NDEP, that perchlorate from the
Kerr McGee Henderson Site did impact the Las Vegas Wash and Lake Mead. Kerr McGees successor,
Tronox LLC, operates an ex situ perchlorate groundwater remediation facility at their Henderson
site. Recent measurements of perchlorate in Lake Mead made by SNWA have been less than 10 ppb.Notwithstanding these facts, and at the direction of 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. The technology that was chosen as most
efficient and appropriate is in situ bioremediation or ISB. ISB reduces perchlorate in the
groundwater by precise addition of an appropriate carbon source to the groundwater itself while
it is still in the ground (as opposed to an above ground, more conventional, ex situ process).
This induces naturally occurring organisms in the groundwater to reduce the perchlorate among
other oxygen containing compounds.In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On
the basis of the successful test and other evaluations, 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 Ampac Henderson Site. We commenced construction in July 2005. In
December 2006, we began operations, reducing perchlorate concentrations in system extracted
groundwater in Henderson.
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8.
    
    COMMITMENTS AND CONTINGENCIES (continued)Henderson Site Environmental Remediation Reserve During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate
of the probable costs of our remediation efforts at the Henderson Site, including the costs for
equipment, operating and maintenance costs, and consultants. Key factors in determining the
total estimated cost include an estimate of the speed of groundwater entering the treatment
area, which was then used to estimate a project life of 45 years, as well as estimates for
capital expenditures and annual operating and maintenance costs. The project consists of two
primary phases; the initial construction of the remediation equipment and the operating and
maintenance phase. During our fiscal 2006, we increased our total cost estimate of probable
costs for the construction phase by $3,600 due primarily to changes in the engineering designs,
delays in receiving permits and the resulting extension of construction time. We commenced the
construction phase in late fiscal 2005, completed an interim system in June 2006, and completed
the permanent facility in December 2006. In addition, to the operating and maintenance costs,
certain remediation activities are conducted on public lands under operating permits. In
general, these permits require us to return the land to its original condition at the end of the
permit period. Estimated costs associated with removal of remediation equipment from the land
are not material and are included in our range of estimated costs. These estimates are 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.We accrue for anticipated costs associated with environmental remediation that are probable
and estimable. On a quarterly basis, we review our estimates of future costs that could be
incurred for remediation activities. In some cases, only a range of reasonably possible costs
can be estimated. In establishing our reserves, the most probable estimate is used; otherwise,
we accrue the minimum amount of the range. As of June 30, 2007, the aggregate range of
anticipated environmental remediation costs was from approximately $12,500 to approximately
$19,000, and the accrued amount was $15,711. A summary of our environmental reserve activity
for the nine months ended June 30, 2007 is shown below:
 Balance, September 30, 2006
    
    $
    17,511Additions or adjustments
    
    
    Expenditures
    
    
    (1,800
    )Balance, June 30, 2007
    
    $
    15,711
 AFC Environmental Matters AFCs facility is located on land leased from Aerojet. The leased land is part of a tract of
land owned by Aerojet designated as a Superfund Site under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA). The tract of land had been used by Aerojet
and affiliated companies to manufacture and test rockets and related equipment since the 1950s.
Although the chemicals identified as contaminants on the leased land were not used by Aerojet
Fine Chemicals as part of its operations, CERCLA, among other things, provides for joint and
severable liability for environmental liabilities including, for example, the environmental
remediation expenses.As part of the agreement to sell the AFC Business, an Environmental Indemnity Agreement was
entered into whereby GenCorp agreed to indemnify us against any and all environmental costs and
liabilities arising out of or resulting from any violation of environmental law prior to the
effective date of the sale, or any release of hazardous substances by the AFC Business, Aerojet
or GenCorp on the AFC premises or Aerojets Sacramento site prior to the effective date of the
sale.
 -15-




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8.
    
    COMMITMENTS AND CONTINGENCIES (continued)On November 29, 2005, EPA Region IX provided us with a letter indicating that the EPA does not
intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the
Aerojet Fine Chemicals property for existing contamination, provided that the lessees do not
contribute to or do not exacerbate existing contamination on or under the Aerojet Superfund
site.Employment Matters: Effective March 25, 2006, the employment of Dr. Seth Van Voorhees, as our
Chief Financial Officer, Vice President and Treasurer, terminated. Dr. Van Voorhees was
employed by us pursuant to an employment agreement dated December 1, 2005. On December 6, 2006,
we reached a settlement with Dr. Van Voorhees under which we paid Dr. Van Voorhees $600 and both
parties entered into a standard mutual release.Other Matters:We are from time to time involved in other claims or lawsuits. We believe that
current claims or lawsuits against us, individually and in the aggregate, will not have a
material adverse effect on our financial condition, cash flows or results of operations.9.
    
    SEGMENT INFORMATIONWe report our business in four operating segments: Specialty Chemicals, Fine Chemicals,
Aerospace Equipment and Other Businesses. These segments are based upon business units that
offer distinct products and services, are operationally managed separately and produce products
using different production methods. Segment operating profit includes all sales and expenses
directly associated with each segment. Environmental remediation charges, corporate general and
administrative costs, which consist primarily of executive, investor relations, accounting,
human resources and information technology expenses, and interest are not allocated to segment
operating results.
 Specialty Chemicals: â
 Fine Chemicals:
 Aerospace Equipment:
 Other Businesses:
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9.
    
    SEGMENT INFORMATION (continued)The following table provides disclosure of the percentage of our consolidated revenues
attributed to customers that exceed ten percent of the total in each of the given periods.
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Specialty chemicals customer
    
    
    
    
    
    
    16
    %
    
    
    11
    %
    
    
    18
    %Specialty chemicals customer
    
    
    
    
    
    
    
    
    
    
    11
    %Fine chemicals customer
    
    
    15
    %
    
    
    32
    %
    
    
    10
    %
    
    
    28
    %Fine chemicals customer
    
    
    35
    %
    
    
    
    
    
    
    22
    %Fine chemicals customer
    
    
    
    
    
    
    13
    %Fine chemicals customer
    
    
    
    
    
    
    
    
    
    
    12
    %Fine chemicals customer
    
    
    13
    %
    
    
    
    
    
    
    11
    %Aerospace equipment customer
    
    
    
    
    
    
    10
    %
 The following provides financial information about our segment operations:
 Three Months Ended
    
    Nine  Months EndedJune 30,
    

June 30,2007
    
    2006
    
    2007
    
    2006Revenues:Specialty Chemicals
    
    $
    8,780
    
    
    $
    11,098
    
    
    $
    36,702
    
    
    $
    32,282Fine Chemicals
    
    
    30,736
    
    
    
    25,889
    
    
    
    70,693
    
    
    
    49,992Aerospace Equipment
    
    
    4,119
    
    
    
    5,232
    
    
    
    12,560
    
    
    
    13,366Other Businesses
    
    
    88
    
    
    
    621
    
    
    
    2,245
    
    
    
    3,462Total Revenues
    
    $
    43,723
    
    
    $
    42,840
    
    
    $
    122,200
    
    
    $
    99,102Segment Operating Income (Loss):Specialty Chemicals
    
    $
    1,935
    
    
    $
    1,983
    
    
    $
    11,846
    
    
    $
    8,935Fine Chemicals
    
    
    4,950
    
    
    
    3,758
    
    
    
    10,795
    
    
    
    4,434Aerospace Equipment
    
    
    310
    
    
    
    445
    
    
    
    607
    
    
    
    764Other Businesses
    
    
    (183
    )
    
    
    (456
    )
    
    
    564
    
    
    
    215Total Segment Operating Income
    
    
    7,012
    
    
    
    5,730
    
    
    
    23,812
    
    
    
    14,348Corporate Expenses
    
    
    (3,307
    )
    
    
    (4,008
    )
    
    
    (9,592
    )
    
    
    (12,002
    )Environmental Remediation Charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,800
    )Operating Income (Loss)
    
    $
    3,705
    
    
    $
    1,722
    
    
    $
    14,220
    
    
    $
    (454
    )Depreciation and Amortization:Specialty Chemicals
    
    $
    1,290
    
    
    $
    1,287
    
    
    $
    3,858
    
    
    $
    3,849Fine Chemicals
    
    
    3,401
    
    
    
    4,486
    
    
    
    10,146
    
    
    
    9,834Aerospace Equipment
    
    
    38
    
    
    
    19
    
    
    
    104
    
    
    
    54Other Businesses
    
    
    3
    
    
    
    3
    
    
    
    9
    
    
    
    9Corporate
    
    
    127
    
    
    
    139
    
    
    
    385
    
    
    
    420Total Depreciation and Amortization
    
    $
    4,859
    
    
    $
    5,934
    
    
    $
    14,502
    
    
    $
    14,166
 10.
    
    INTEREST AND OTHER INCOME
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Interest income
    
    $
    181
    
    
    $
    74
    
    
    $
    365
    
    
    $
    369Gain on sale of Hughes Parkway
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    580Other
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    29$
    181
    
    
    $
    55
    
    
    $
    365
    
    
    $
    978
 We owned a 70% interest as general and limited partner in a real estate development limited
partnership (the Partnership). The remaining 30% limited partners included certain current and
former members of our board of directors. The Partnership, in turn, owned a 33% limited
partnership interest in Hughes Parkway. Hughes Parkway owns the building in which we lease
office space in Las Vegas, Nevada.
 -17-




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##### Table of Contents



10.
    
    INTEREST AND OTHER INCOME (continued)In October 2005, the Partnership sold its interest in Hughes Parkway, which resulted in a net
gain and cash distribution to us of $2,395. Concurrent with, and as a condition of, the sale of
the Partnerships interest in Hughes Parkway, we renewed our office space lease through February
2009. We accounted for the transaction as a sale leaseback. Accordingly, we deferred a gain
totaling $1,815 representing the present value of future lease payments. We amortize the
deferred gain (as a reduction of rental expense), using the straight-line method over the term
of the lease. We recognized the remaining gain of $580, which is reported as interest and other
income.11.
    
    DEFINED BENEFIT PLANSWe maintain three defined benefit pension plans which cover substantially all of our U.S.
employees, excluding employees of our Aerospace Equipment Segment: the American Pacific
Corporation Defined Benefit Pension Plan, the Ampac Fine Chemicals LLC Pension Plan for Salaried
Employees, and the Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit Employees.
Collectively, these three plans are referred to as the Pension Plans. The AFC related plans
were established in connection with our acquisition of the AFC Business and include the assumed
liabilities for pension benefits to existing employees at the acquisition date. In addition, we
have a supplemental executive retirement plan or SERP that includes our former and current
chief executive officers.Net periodic pension cost related to the Pension Plans consists of the following:
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Pension Plans:Service Cost
    
    $
    546
    
    
    $
    268
    
    
    $
    1,520
    
    
    $
    804Interest Cost
    
    
    631
    
    
    
    413
    
    
    
    1,689
    
    
    
    1,240Expected Return on Plan Assets
    
    
    (627
    )
    
    
    (341
    )
    
    
    (1,563
    )
    
    
    (1,023
    )Recognized Actuarial Losses
    
    
    (263
    )
    
    
    15
    
    
    
    43
    
    
    
    43Amortization of Prior Service Costs
    
    
    293
    
    
    
    116
    
    
    
    322
    
    
    
    348Net Periodic Pension Cost
    
    $
    580
    
    
    $
    471
    
    
    $
    2,011
    
    
    $
    1,412Supplemental Executive Retirement Plan:Service Cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest Cost
    
    
    35
    
    
    
    37
    
    
    
    105
    
    
    
    111Expected Return on Plan Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognized Actuarial Losses
    
    
    10
    
    
    
    11
    
    
    
    32
    
    
    
    32Amortization of Prior Service Costs
    
    
    6
    
    
    
    7
    
    
    
    18
    
    
    
    23Net Periodic Pension Cost
    
    $
    51
    
    
    $
    55
    
    
    $
    155
    
    
    $
    166
 For the nine months ended June 30, 2007, we contributed $2,077 to the Pension Plans to fund
benefit payments and anticipate making approximately $628 in additional contributions through
September 30, 2007. For the nine months ended June 30, 2007, we contributed $95 to the SERP to
fund benefit payments and anticipate making approximately $32 in additional contributions
through September 30, 2007.12.
    
    DISCONTINUED OPERATIONSIn June 2006, our board of directors approved and we committed to a plan to sell our interest in
ESI, based on our determination that ESIs product lines were no longer a strategic fit with our
business strategies. Revenues and expenses associated with ESIs operations are presented as
discontinued operations for all periods presented. ESI was formerly reported within our
Specialty Chemicals segment. Effective September 30, 2006, we completed the sale of our
interest in ESI for $7,510, which, after deducting direct expenses, resulted in a gain on the
sale before income taxes of $258.
The ESI sale proceeds are reflected as a note receivable as of September 30, 2006 and we
collected the amount in full in October 2006.
 -18-




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##### Table of Contents



12. DISCONTINUED OPERATIONS (continued)
  Three Months
    
    
    Nine MonthsEnded June 30, 2006Revenues

    
    $
    3,173
    
    
    $
    9,952Discontinued Operations:Operating loss before tax
    
    
    (315
    )
    
    
    (720
    )Benefit for income taxes
    
    
    (123
    )
    
    
    (281
    )Net loss from discontinued operations
    
    $
    (192
    )
    
    $
    (439
    )
 13. GUARANTOR SUBSIDIARIES
  Condensed Consolidating Balance Sheet -
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorJune 30, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    21,764
    
    
    $
    135
    
    
    $
    
    
    
    $
    21,899Accounts Receivable
    
    
    
    
    
    
    20,394
    
    
    
    1,171
    
    
    
    (991
    )
    
    
    20,574Inventories
    
    
    
    
    
    
    56,855
    
    
    
    772
    
    
    
    
    
    
    
    57,627Prepaid Expenses and Other Assets
    
    
    
    
    
    
    1,961
    
    
    
    137
    
    
    
    
    
    
    
    2,098Deferred Income Taxes
    
    
    
    
    
    
    1,887
    
    
    
    
    
    
    
    
    
    
    
    1,887Total Current Assets
    
    
    
    
    
    
    102,861
    
    
    
    2,215
    
    
    
    (991
    )
    
    
    104,085Property, Plant and Equipment, Net
    
    
    
    
    
    
    116,317
    
    
    
    155
    
    
    
    
    
    
    
    116,472Intangible Assets, Net
    
    
    
    
    
    
    7,398
    
    
    
    
    
    
    
    
    
    
    
    7,398Deferred Income Taxes
    
    
    
    
    
    
    21,701
    
    
    
    
    
    
    
    
    
    
    
    21,701Other Assets
    
    
    
    
    
    
    8,616
    
    
    
    
    
    
    
    
    
    
    
    8,616Intercompany Advances
    
    
    79,161
    
    
    
    1,821
    
    
    
    
    
    
    
    (80,982
    )
    
    
    Investment in Subsidiaries
    
    
    104,999
    
    
    
    (301
    )
    
    
    
    
    
    
    (104,698
    )
    
    
    Total Assets
    
    $
    184,160
    
    
    $
    258,413
    
    
    $
    2,370
    
    
    $
    (186,671
    )
    
    $
    258,272Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    26,521
    
    
    $
    850
    
    
    $
    (991
    )
    
    $
    26,380Environmental Remediation Reserves
    
    
    
    
    
    
    565
    
    
    
    
    
    
    
    
    
    
    
    565Deferred Revenues
    
    
    
    
    
    
    22,280
    
    
    
    
    
    
    
    
    
    
    
    22,280Intercompany Advances
    
    
    
    
    
    
    79,161
    
    
    
    1,821
    
    
    
    (80,982
    )
    
    
    Current Portion of Debt
    
    
    
    
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    230Total Current Liabilities
    
    
    
    
    
    
    128,757
    
    
    
    2,671
    
    
    
    (81,973
    )
    
    
    49,455Long-Term Debt
    
    
    110,000
    
    
    
    423
    
    
    
    
    
    
    
    
    
    
    
    110,423Environmental Remediation Reserves
    
    
    
    
    
    
    15,146
    
    
    
    
    
    
    
    
    
    
    
    15,146Other Long-Term Liabilities
    
    
    
    
    
    
    9,088
    
    
    
    
    
    
    
    
    
    
    
    9,088Total Liabilities
    
    
    110,000
    
    
    
    153,414
    
    
    
    2,671
    
    
    
    (81,973
    )
    
    
    184,112Total Stockholders Equity
    
    
    74,160
    
    
    
    104,999
    
    
    
    (301
    )
    
    
    (104,698
    )
    
    
    74,160Total Liabilities and Stockholders Equity
    
    $
    184,160
    
    
    $
    258,413
    
    
    $
    2,370
    
    
    $
    (186,671
    )
    
    $
    258,272
 -19-




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##### Table of Contents



13. GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Balance Sheet -
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorSeptember 30, 2006
    
    Parent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    6,758
    
    
    $
    114
    
    
    $
    
    
    
    $
    6,872Accounts Receivable
    
    
    
    
    
    
    19,253
    
    
    
    1,040
    
    
    
    (819
    )
    
    
    19,474Notes Receivable
    
    
    
    
    
    
    7,510
    
    
    
    
    
    
    
    
    
    
    
    7,510Inventories
    
    
    
    
    
    
    39,152
    
    
    
    603
    
    
    
    
    
    
    
    39,755Prepaid Expenses and Other Assets
    
    
    
    
    
    
    1,745
    
    
    
    100
    
    
    
    
    
    
    
    1,845Deferred Income Taxes
    
    
    
    
    
    
    1,887
    
    
    
    
    
    
    
    
    
    
    
    1,887Total Current Assets
    
    
    
    
    
    
    76,305
    
    
    
    1,857
    
    
    
    (819
    )
    
    
    77,343Property, Plant and Equipment, Net
    
    
    
    
    
    
    119,623
    
    
    
    123
    
    
    
    
    
    
    
    119,746Intangible Assets, Net
    
    
    
    
    
    
    14,237
    
    
    
    
    
    
    
    
    
    
    
    14,237Deferred Income Taxes
    
    
    
    
    
    
    21,701
    
    
    
    
    
    
    
    
    
    
    
    21,701Other Assets
    
    
    
    
    
    
    6,428
    
    
    
    
    
    
    
    
    
    
    
    6,428Intercompany Advances
    
    
    81,389
    
    
    
    975
    
    
    
    
    
    
    
    (82,364
    )
    
    
    Investment in Subsidiaries
    
    
    97,320
    
    
    
    56
    
    
    
    
    
    
    
    (97,376
    )
    
    
    Total Assets
    
    $
    178,709
    
    
    $
    239,325
    
    
    $
    1,980
    
    
    $
    (180,559
    )
    
    $
    239,455Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    26,885
    
    
    $
    949
    
    
    $
    (819
    )
    
    $
    27,015Environmental Remediation Reserves
    
    
    
    
    
    
    1,631
    
    
    
    
    
    
    
    
    
    
    
    1,631Deferred Revenues
    
    
    
    
    
    
    5,683
    
    
    
    
    
    
    
    
    
    
    
    5,683Intercompany Advances
    
    
    
    
    
    
    81,389
    
    
    
    975
    
    
    
    (82,364
    )
    
    
    Current Portion of Debt
    
    
    9,422
    
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    9,593Total Current Liabilities
    
    
    9,422
    
    
    
    115,759
    
    
    
    1,924
    
    
    
    (83,183
    )
    
    
    43,922Long-Term Debt
    
    
    97,403
    
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    97,771Environmental Remediation Reserves
    
    
    
    
    
    
    15,880
    
    
    
    
    
    
    
    
    
    
    
    15,880Other Long-Term Liabilities
    
    
    
    
    
    
    9,998
    
    
    
    
    
    
    
    
    
    
    
    9,998Total Liabilities
    
    
    106,825
    
    
    
    142,005
    
    
    
    1,924
    
    
    
    (83,183
    )
    
    
    167,571Total Stockholders Equity
    
    
    71,884
    
    
    
    97,320
    
    
    
    56
    
    
    
    (97,376
    )
    
    
    71,884Total Liabilities and Stockholders Equity
    
    $
    178,09
    
    
    $
    239,325
    
    
    $
    1,980
    
    
    $
    (180,559
    )
    
    $
    239,455
 Condensed Consolidating Statement of Operations -
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorNine Months Ended June 30, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    121,030
    
    
    $
    1,353
    
    
    $
    (183
    )
    
    $
    122,200Cost of Revenues
    
    
    
    
    
    
    78,532
    
    
    
    1,367
    
    
    
    (183
    )
    
    
    79,716Gross Profit (Loss)
    
    
    
    
    
    
    42,498
    
    
    
    (14
    )
    
    
    
    
    
    
    42,484Operating Expenses
    
    
    
    
    
    
    27,869
    
    
    
    395
    
    
    
    
    
    
    
    28,264Operating Income (Loss)
    
    
    
    
    
    
    14,629
    
    
    
    (409
    )
    
    
    
    
    
    
    14,220Interest and Other Income
    
    
    8,846
    
    
    
    362
    
    
    
    3
    
    
    
    (8,846
    )
    
    
    365Interest Expense
    
    
    8,846
    
    
    
    9,169
    
    
    
    
    
    
    
    (8,846
    )
    
    
    9,169Debt Repayment Charges
    
    
    
    
    
    
    2,714
    
    
    
    
    
    
    
    
    
    
    
    2,714Income
(Loss) from Continuing Operations before Income Tax and Equity Account for Subsidiaries
    
    
    
    
    
    
    3,108
    
    
    
    (406
    )
    
    
    
    
    
    
    2,702Income Tax Expense
    
    
    
    
    
    
    1,339
    
    
    
    
    
    
    
    
    
    
    
    1,339Income
(Loss) from Continuing Operations before Equity Account for Subsidiaries
    
    
    
    
    
    
    1,769
    
    
    
    (406
    )
    
    
    
    
    
    
    1,363Equity Account for Subsidiaries
    
    
    1,363
    
    
    
    (406
    )
    
    
    
    
    
    
    (957
    )
    
    
    Net Income (Loss) from Continuing Operations
    
    $
    1,363
    
    
    $
    1,363
    
    
    $
    (406
    )
    
    $
    (957
    )
    
    $
    1,363
 -20-




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##### Table of Contents



13. GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Operations -
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorNine Months Ended June 30, 2006
    
    Parent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    98,251
    
    
    $
    1,126
    
    
    $
    (275
    )
    
    $
    99,102Cost of Revenues
    
    
    
    
    
    
    69,521
    
    
    
    1,042
    
    
    
    (275
    )
    
    
    70,288Gross Profit
    
    
    
    
    
    
    28,730
    
    
    
    84
    
    
    
    
    
    
    
    28,814Operating Expenses
    
    
    
    
    
    
    26,145
    
    
    
    323
    
    
    
    
    
    
    
    26,468Environmental Remediation Charges
    
    
    
    
    
    
    2,800
    
    
    
    
    
    
    
    
    
    
    
    2,800Operating Loss
    
    
    
    
    
    
    (215
    )
    
    
    (239
    )
    
    
    
    
    
    
    (454
    )Interest and Other Income
    
    
    7,395
    
    
    
    975
    
    
    
    3
    
    
    
    (7,395
    )
    
    
    978Interest Expense
    
    
    7,395
    
    
    
    7,405
    
    
    
    
    
    
    
    (7,395
    )
    
    
    7,405Loss from
Continuing Operations before Income Tax and Equity Account for Subsidiaries
    
    
    
    
    
    
    (6,645
    )
    
    
    (236
    )
    
    
    
    
    
    
    (6,881
    )Income Tax Benefit
    
    
    
    
    
    
    (2,624
    )
    
    
    
    
    
    
    
    
    
    
    (2,624
    )Loss from
Continuing Operations before Equity Account for Subsidiaries
    
    
    
    
    
    
    (4,021
    )
    
    
    (236
    )
    
    
    
    
    
    
    (4,257
    )Equity Account for Subsidiaries
    
    
    (4,257
    )
    
    
    (236
    )
    
    
    
    
    
    
    4,493
    
    
    
    Net Loss from Continuing Operations
    
    $
    (4,257
    )
    
    $
    (4,257
    )
    
    $
    (236
    )
    
    $
    4,493
    
    
    $
    (4,257
    )
 Condensed Consolidating Statement of Operations -
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorThree Months Ended June 30, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    43,250
    
    
    $
    502
    
    
    $
    (29
    )
    
    $
    43,723Cost of Revenues
    
    
    
    
    
    
    29,831
    
    
    
    556
    
    
    
    (29
    )
    
    
    30,358Gross Profit (Loss)
    
    
    
    
    
    
    13,419
    
    
    
    (54
    )
    
    
    
    
    
    
    13,365Operating Expenses
    
    
    
    
    
    
    9,564
    
    
    
    96
    
    
    
    
    
    
    
    9,660Operating Income (Loss)
    
    
    
    
    
    
    3,855
    
    
    
    (150
    )
    
    
    
    
    
    
    3,705Interest and Other Income
    
    
    2,473
    
    
    
    180
    
    
    
    1
    
    
    
    (2,473
    )
    
    
    181Interest Expense
    
    
    2,473
    
    
    
    2,709
    
    
    
    
    
    
    
    (2,473
    )
    
    
    2,709Income
(Loss) from Continuing Operations before Income Tax and Equity Account for Subsidiaries
    
    
    
    
    
    
    1,326
    
    
    
    (149
    )
    
    
    
    
    
    
    1,177Income Tax Expense
    
    
    
    
    
    
    571
    
    
    
    
    
    
    
    
    
    
    
    571Income
(Loss) from Continuing Operations before Equity Account for Subsidiaries
    
    
    
    
    
    
    755
    
    
    
    (149
    )
    
    
    
    
    
    
    606Equity Account for Subsidiaries
    
    
    606
    
    
    
    (149
    )
    
    
    
    
    
    
    (457
    )
    
    
    Net Income (Loss) from Continuing Operations
    
    $
    606
    
    
    $
    606
    
    
    $
    (149
    )
    
    $
    (457
    )
    
    $
    606
 Condensed Consolidating Statement of Operations -
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorThree Months Ended June 30, 2006
    
    Parent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    42,384
    
    
    $
    593
    
    
    $
    (137
    )
    
    $
    42,840Cost of Revenues
    
    
    
    
    
    
    30,559
    
    
    
    509
    
    
    
    (137
    )
    
    
    30,931Gross Profit (Loss)
    
    
    
    
    
    
    11,825
    
    
    
    84
    
    
    
    
    
    
    
    11,909Operating Expenses
    
    
    
    
    
    
    10,066
    
    
    
    121
    
    
    
    
    
    
    
    10,187Operating Income (Loss)
    
    
    
    
    
    
    1,759
    
    
    
    (37
    )
    
    
    
    
    
    
    1,722Interest and Other Income
    
    
    3,270
    
    
    
    54
    
    
    
    1
    
    
    
    (3,270
    )
    
    
    55Interest Expense
    
    
    3,270
    
    
    
    3,280
    
    
    
    
    
    
    
    (3,270
    )
    
    
    3,280Income
(Loss) from Continuing Operations before Income Tax and Equity Account for Subsidiaries
    
    
    
    
    
    
    (1,467
    )
    
    
    (36
    )
    
    
    
    
    
    
    (1,503
    )Income Tax Expense
    
    
    
    
    
    
    (642
    )
    
    
    
    
    
    
    
    
    
    
    (642
    )Income
(Loss) from Continuing Operations before Equity Account for Subsidiaries
    
    
    (861
    )
    
    
    (36
    )
    
    
    
    
    
    
    897
    
    
    
    Equity Account for Subsidiaries
    
    
    
    
    
    
    (825
    )
    
    
    (36
    )
    
    
    
    
    
    
    (861
    )Net Income (Loss) from Continuing Operations
    
    $
    (861
    )
    
    $
    (861
    )
    
    $
    (36
    )
    
    $
    897
    
    
    $
    (861
    )
 -21-




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##### Table of Contents



13. GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Cash Flows -
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorNine Months Ended June 30, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedNet Cash Provided (Used) by Operating Activities
    
    $
    
    
    
    $
    20,652
    
    
    $
    (770
    )
    
    $
    
    
    
    $
    19,882Cash Flows from Investing Activities:Acquisition of businesses
    
    
    
    
    
    
    (6,000
    )
    
    
    
    
    
    
    
    
    
    
    (6,000
    )Capital expenditures
    
    
    
    
    
    
    (3,875
    )
    
    
    (55
    )
    
    
    
    
    
    
    (3,930
    )Discontinued operations, net
    
    
    
    
    
    
    7,510
    
    
    
    
    
    
    
    
    
    
    
    7,510Net Cash Used in Investing Activities
    
    
    
    
    
    
    (2,365
    )
    
    
    (55
    )
    
    
    
    
    
    
    (2,420
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,000Payments of long-term debt
    
    
    (108,326
    )
    
    
    (207
    )
    
    
    
    
    
    
    
    
    
    
    (108,533
    )Debt issuance costs
    
    
    (4,677
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,677
    )Issuance of common stock
    
    
    572
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    572Excess tax benefit from exrecise of stock options
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203Intercompany advances, net
    
    
    2,228
    
    
    
    (3,074
    )
    
    
    846
    
    
    
    
    
    
    
    Net Cash Provided by (Used) Financing Activities
    
    
    
    
    
    
    (3,281
    )
    
    
    846
    
    
    
    
    
    
    
    (2,435
    )Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    15,006
    
    
    
    21
    
    
    
    
    
    
    
    15,027Cash and Cash Equivalents, Beginning of Period
    
    
    
    
    
    
    6,758
    
    
    
    114
    
    
    
    
    
    
    
    6,872Cash and Cash Equivalents, End of Period
    
    $
    
    
    
    $
    21,764
    
    
    $
    135
    
    
    $
    
    
    
    $
    21,899
 Condensed Consolidating Statement of Cash Flows -
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorNine Months Ended June 30, 2006
    
    Parent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedNet Cash Provided (Used) by Operating Activities
    
    $
    
    
    
    $
    1,315
    
    
    $
    (228
    )
    
    $
    
    
    
    $
    1,087Cash Flows from Investing Activities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of businesses
    
    
    
    
    
    
    (108,462
    )
    
    
    
    
    
    
    
    
    
    
    (108,462
    )Capital expenditures
    
    
    
    
    
    
    (13,325
    )
    
    
    (104
    )
    
    
    
    
    
    
    (13,429
    )Proceeds from sale of assets
    
    
    
    
    
    
    2,395
    
    
    
    
    
    
    
    
    
    
    
    2,395Discontinued operations, net
    
    
    
    
    
    
    (403
    )
    
    
    
    
    
    
    
    
    
    
    (403
    )Net Cash Used in Investing Activities
    
    
    
    
    
    
    (119,795
    )
    
    
    (104
    )
    
    
    
    
    
    
    (119,899
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    85,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,000Payments of long-term debt
    
    
    (487
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (496
    )Short-term borrowings, net
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Debt issuance costs
    
    
    (1,782
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,782
    )Issuance of common stock
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158Intercompany advances, net
    
    
    (86,889
    )
    
    
    86,523
    
    
    
    366
    
    
    
    
    
    
    
    Discontinued operations, net
    
    
    
    
    
    
    (92
    )
    
    
    
    
    
    
    
    
    
    
    (92
    )Net Cash Provided by Financing Activities
    
    
    
    
    
    
    86,422
    
    
    
    366
    
    
    
    
    
    
    
    86,788Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    (32,058
    )
    
    
    34
    
    
    
    
    
    
    
    (32,024
    )Cash and Cash Equivalents, Beginning of Period
    
    
    
    
    
    
    37,079
    
    
    
    134
    
    
    
    
    
    
    
    37,213Cash and Cash Equivalents, End of Period
    
    $
    
    
    
    $
    5,021
    
    
    $
    168
    
    
    $
    
    
    
    $
    5,189
 - 22 -




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
   OUR COMPANY
   -23-




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##### Table of Contents



OUR BUSINESS SEGMENTS
  Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Specialty Chemicals:Perchlorates
    
    
    17
    %
    
    
    22
    %
    
    
    27
    %
    
    
    28
    %Sodium Azide
    
    
    0
    %
    
    
    2
    %
    
    
    1
    %
    
    
    2
    %Halotron
    
    
    3
    %
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %Total Specialty Chemicals
    
    
    20
    %
    
    
    26
    %
    
    
    30
    %
    
    
    33
    %Fine Chemicals
    
    
    70
    %
    
    
    60
    %
    
    
    58
    %
    
    
    50
    %Aerospace Equipment
    
    
    10
    %
    
    
    12
    %
    
    
    10
    %
    
    
    13
    %Other Businesses:Real Estate
    
    
    0
    %
    
    
    0
    %
    
    
    1
    %
    
    
    1
    %Water Treatment Equipment
    
    
    0
    %
    
    
    2
    %
    
    
    1
    %
    
    
    3
    %Total Other Businesses
    
    
    0
    %
    
    
    2
    %
    
    
    2
    %
    
    
    4
    %Total Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Specialty Chemicals:
    Fine Chemicals .
  -24-




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##### Table of Contents



Aerospace Equipment:
 Other Businesses :
 Discontinued Operations
 RESULTS OF OPERATIONS
 Revenues
 June 30,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeThree Months Ended:Specialty Chemicals
    
    $
    8,780
    
    
    $
    11,098
    
    
    $
    (2,318
    )
    
    
    (21
    %)Fine Chemicals
    
    
    30,736
    
    
    
    25,889
    
    
    
    4,847
    
    
    
    19
    %Aerospace Equipment
    
    
    4,119
    
    
    
    5,232
    
    
    
    (1,113
    )
    
    
    (21
    %)Other Businesses
    
    
    88
    
    
    
    621
    
    
    
    (533
    )
    
    
    (86
    %)Total Revenues
    
    $
    43,723
    
    
    $
    42,840
    
    
    $
    883
    
    
    
    2
    %Nine Months Ended:Specialty Chemicals
    
    $
    36,702
    
    
    $
    32,282
    
    
    $
    4,420
    
    
    
    14
    %Fine Chemicals
    
    
    70,693
    
    
    
    49,992
    
    
    
    20,701
    
    
    
    41
    %Aerospace Equipment
    
    
    12,560
    
    
    
    13,366
    
    
    
    (806
    )
    
    
    (6
    %)Other Businesses
    
    
    2,245
    
    
    
    3,462
    
    
    
    (1,217
    )
    
    
    (35
    %)Total Revenues
    
    $
    122,200
    
    
    $
    99,102
    
    
    $
    23,098
    
    
    
    23
    %
  -25-




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##### Table of Contents



Cost of Revenues and Gross Margin
 June 30,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeThree Months Ended:Revenues
    
    $
    43,723
    
    
    $
    42,840
    
    
    $
    883
    
    
    
    2
    %Cost of Revenues
    
    
    30,358
    
    
    
    30,931
    
    
    
    (573
    )
    
    
    (2
    %)Gross Margin
    
    
    13,365
    
    
    
    11,909
    
    
    
    1,456
    
    
    
    12
    %Gross Margin Percentage
    
    
    31
    %
    
    
    28
    %Nine Months Ended:Revenues
    
    $
    122,200
    
    
    $
    99,102
    
    
    $
    23,098
    
    
    
    23
    %Cost of Revenues
    
    
    79,716
    
    
    
    70,288
    
    
    
    9,428
    
    
    
    13
    %Gross Margin
    
    
    42,484
    
    
    
    28,814
    
    
    
    13,670
    
    
    
    47
    %Gross Margin Percentage
    
    
    35
    %
    
    
    29
    %
  -26-




---



##### Table of Contents




    
    Specialty Chemicals gross margin percentage improved 15 points for the fiscal 2007 third quarter and improved five
points for the fiscal 2007 year-to-date period primarily because the prior year third quarter included unusually high
manufacturing overhead costs within the perchlorate operations.
 
    
    Increases in gross margin losses from our Sodium Azide products due to lower volumes.
 
    
    Fine Chemicals segment gross margin percentage for the fiscal 2007 third quarter was consistent with the prior year
quarter and improved five points during the nine months ended June 30, 2007 compared to the prior year period. The
improvement in the gross margin percentage is due to changes in product mix to include more R&D and oncology products
in the fiscal 2007 period, as well as better absorption of manufacturing overheads due to the higher product volumes.
 
    
    For the nine months ended June 30, 2007, Aerospace Equipment gross margins have improved approximately three points
largely due to the current period activity including more standard production thruster work compared to the prior year
periods which included a greater volume of development activities.
 Operating Expenses
 June 30,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeThree Months Ended:Operating Expenses
    
    $
    9,660
    
    
    $
    10,187
    
    
    $
    (527
    )
    
    
    (5
    %)Percentage of Revenues
    
    
    22
    %
    
    
    24
    %Nine Months Ended:Operating Expenses
    
    $
    28,264
    
    
    $
    26,468
    
    
    $
    1,796
    
    
    
    7
    %Percentage of Revenues
    
    
    23
    %
    
    
    27
    %
  
    
    A net increase in Fine Chemicals operating expenses of $2,612
between the nine month periods primarily because the 2007 period
includes nine months of operations compared to seven months of
operations in the prior year period.
 
    
    A decrease of $1,117 for the fiscal 2007 third quarter and $2,401
for the fiscal 2007 nine month period, as compared to the prior
year periods, in amortization expense related to AFC intangible
assets.
 
    
    An increase of $310 for the fiscal 2007 quarter and $1,814 for the
fiscal 2007 period for incentive compensation due to improved
performance in fiscal 2007.
 -27-




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##### Table of Contents



Segment Operating Profit (Loss)
 June 30,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeThree Months Ended:Specialty Chemicals
    
    $
    1,935
    
    
    $
    1,983
    
    
    $
    (48
    )
    
    
    (2
    %)Fine Chemicals
    
    
    4,950
    
    
    
    3,758
    
    
    
    1,192
    
    
    
    32
    %Aerospace Equipment
    
    
    310
    
    
    
    445
    
    
    
    (135
    )
    
    
    (30
    %)Other Businesses
    
    
    (183
    )
    
    
    (456
    )
    
    
    273
    
    
    
    (60
    %)Segment Operating Profit
    
    
    7,012
    
    
    
    5,730
    
    
    
    1,282
    
    
    
    22
    %Corporate Expenses
    
    
    (3,307
    )
    
    
    (4,008
    )
    
    
    701
    
    
    
    (17
    %)Operating Income
    
    $
    3,705
    
    
    $
    1,722
    
    
    $
    1,983
    
    
    
    115
    %Nine Months Ended:Specialty Chemicals
    
    $
    11,846
    
    
    $
    8,935
    
    
    $
    2,911
    
    
    
    33
    %Fine Chemicals
    
    
    10,795
    
    
    
    4,434
    
    
    
    6,361
    
    
    
    143
    %Aerospace Equipment
    
    
    607
    
    
    
    764
    
    
    
    (157
    )
    
    
    (21
    %)Other Businesses
    
    
    564
    
    
    
    215
    
    
    
    349
    
    
    
    162
    %Segment Operating Profit
    
    
    23,812
    
    
    
    14,348
    
    
    
    9,464
    
    
    
    66
    %Corporate Expenses
    
    
    (9,592
    )
    
    
    (12,002
    )
    
    
    2,410
    
    
    
    (20
    %)Environmental Remediation Charges
    
    
    
    
    
    
    (2,800
    )
    
    
    2,800
    
    
    
    (100
    %)Operating Income (Loss)
    
    $
    14,220
    
    
    $
    (454
    )
    
    $
    14,674
    
    
    NM
 
 NM = Not Meaningful  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
 Nine Months Ended June 30,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeCash Provided (Used) By:Operating activities
    
    $
    19,882
    
    
    $
    1,087
    
    
    $
    18,795
    
    
    
    1,729
    %Financing activities
    
    
    (2,420
    )
    
    
    (119,899
    )
    
    
    117,479
    
    
    
    98
    %Investing activities
    
    
    (2,435
    )
    
    
    86,788
    
    
    
    (89,223
    )
    
    
    (103
    %)Net change in cash for period
    
    $
    15,027
    
    
    $
    (32,024
    )
    
    $
    47,051
    
    
    
    147
    %
 Operating Activities:
 
    
    An increase in cash due to improved profitability of our operations of $11,377.
 
    
    A decrease in cash used to fund working capital increases of $4,824, excluding the effect of interest and income taxes.
 
    
    An decrease in cash used for interest payments of $1,323.
 
    
    An increase in cash used for income taxes of $764.
 
    
    A reduction in cash used for environmental remediation of $3,857.
 
    
    Other increases in cash used for operating activities of $1,822.
  -28-




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##### Table of Contents



Investing Activities:
  
    
    Cash received from the sale of ESI of $7,510.
 
    
    Cash used to fund the AFC acquisition earnout adjustment of $6,000.
 
    
    Cash used for capital expenditures of $3,930.
  
    
    Cash used for our acquisition of AFC of $108,462.
 
    
    Cash used for capital expenditures of $13,429.
 
    
    Cash provided by proceeds from the sale of our interest in a real estate partnership of $2,395.
  Financing Activities:
 Liquidity and Capital Resources
   -29-




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##### Table of Contents



Long Term Debt and Revolving Credit Facilities
 Credit Facilities:
 Seller Subordinated Note:
  Senior Notes
 
    
    ranked equally in right of payment with all of our existing and future senior indebtedness;
 
    
    ranked senior in right of payment to all of our existing and future senior subordinated
and subordinated indebtedness;
 
    
    effectively junior to our existing and future secured debt to the extent of the value of
the assets securing such debt; and
 
    
    structurally subordinated to all of the existing and future liabilities (including trade
payables) of each of our subsidiaries that do not guarantee the Senior Notes.
  
    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus a make-whole premium as defined in the related indenture;
 
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% and
reducing to 100% by February 1, 2013; and
 
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes with the
proceeds of certain sales of its equity securities.
   
    
    incur additional debt;
 -30-




---



##### Table of Contents




    
    pay dividends or make other restricted payments;
 
    
    create liens on assets to secure debt;
 
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
 
    
    transfer or sell assets;
 
    
    enter into transactions with affiliates;
 
    
    enter into sale and leaseback transactions;
 
    
    create an unrestricted subsidiary;
 
    
    enter into certain business activities; or
 
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
   
    
    file a registration statement with respect to an offer to exchange the Senior Notes for notes that have substantially
identical terms as the Senior Notes and are registered under the Securities Act;
 
    
    cause the registration statement to become effective within 210 days after the closing; and
 
    
    consummate the exchange offer within 240 days after the closing.
   Revolving Credit Facility
  
    
    incur debt, incur contingent obligations and issue certain types of preferred stock;
 
    
    create liens;
 
    
    pay dividends, distributions or make other specified restricted payments;
 
    
    make certain investments and acquisitions;
 
    
    enter into certain transactions with affiliates;
 
    
    enter into sale and leaseback transactions; and
 
    
    merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.
 -31-




---



##### Table of Contents



Debt Issue Costs and Debt Repayment Charges:
 Interest Rate Swap Agreements
  Environmental Remediation  Henderson Site
  -32-




---



##### Table of Contents



Contractual Obligations and Off-Balance Sheet Arrangements
  Payments Due by Year Ending September 30,2007
    
    2008-09
    
    2010-11
    
    Thereafter
    
    TotalSenior Notes, due 2015
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    110,000
    
    
    $
    110,000Interest on Senior Notes (a)
    
    
    6,401
    
    
    
    19,800
    
    
    
    19,800
    
    
    
    33,199
    
    
    
    79,200Capital Leases
    
    
    171
    
    
    
    369
    
    
    
    
    
    
    
    
    
    
    
    540Interest on Capital Leases
    
    
    36
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    51Operating Leases
    
    
    1,013
    
    
    
    1,430
    
    
    
    76
    
    
    
    4
    
    
    
    2,523Total
    
    $
    7,621
    
    
    $
    21,614
    
    
    $
    19,876
    
    
    $
    143,203
    
    
    $
    192,314
 
 (a)
    
    2007 amount represents interest obligation from the issuance date on February 6, 2007
through September 30, 2007.  CRITICAL ACCOUNTING POLICIES
   Sales and Revenue Recognition
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Depreciable or Amortizable Lives of Long-Lived Assets
   Impairment of Long-Lived Assets
   Environmental Costs
   -34-




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Income Taxes
   Pension Benefits
   Recently Issued or Adopted Accounting Standards
    -35-




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-36-




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in Thousands)
   
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal controls
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS (Dollars in Thousands)
  We can be adversely impacted by reductions or changes in National Aeronautics and Space
Administration (NASA) or U.S. government military spending.
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We depend on a limited number of customers for most of our sales in our Specialty Chemicals,
Aerospace Equipment and Fine Chemicals segments and the loss of one or more of these customers
could have a material adverse affect on our revenues.
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Our existing U.S. government contracts and contracts based on U.S. government contracts are subject
to continued appropriations by Congress and may be terminated if future funding is not made
available.
  The inherent limitations of our cost-plus or fixed-price government contracts may impact our
profitability.
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Our U.S. government contracts and our customers U.S. government contracts are subject to
termination.
  
    
    the contractor is paid an amount agreed upon for completed and
partially completed products and services accepted by the U.S.
government;
 
    
    the U.S. government is not liable for the contractors costs for
unaccepted items, and is entitled to repayment of any advance
payments and progress payments related to the terminated portions
of the contract; and
 
    
    the contractor may be liable for excess costs incurred by the U.S.
government in procuring undelivered items from another source.
  We are subject to procurement and other related laws and regulations, non-compliance with which may
expose us to adverse consequences.
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Our operations and properties are currently the subject of numerous environmental and other
government regulations, which may become more stringent in the future and may reduce our
profitability and liquidity.
  Review of Perchlorate Toxicity by EPA
 Perchlorate Remediation Project in Henderson, Nevada
 Henderson Site Environmental Remediation Reserve
 Other AFC Environmental Matters
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The production of most of our Specialty Chemicals products is conducted in a single facility and
our operations will be materially affected if production at that facility is disrupted.
  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.
    Our Fine Chemicals segment may be unable to comply with customer specifications and manufacturing
instructions, experience schedule delays or other problems with existing or new products and
systems, which could result in increased costs and loss of sales.
  Failure to meet strict timing or delivery requirements could cause AFC to be in breach of material
customer contracts.
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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, then the operating results of AFC may
be negatively impacted.
  AFC or its customers may be unable to obtain government approval for its products or comply with
government regulations relating to its business.
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Recall or withdrawal of a customers product from the market or the failure of the customer to
obtain regulatory approval of its products will impact forecasted 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.
  The pharmaceutical fine chemicals industry is a capital-intensive industry and if AFC does not have
enough capital to finance the necessary capital expenditures, its business and results of
operations may be harmed.
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Although we have established reserves for our environmental liabilities, given the many
uncertainties involved in assessing liability for environmental claims, our reserves may not be
sufficient.
  The release or explosion of dangerous materials used in our business could disrupt our operations
and cause us to incur additional costs and liability.
   Our inability to adapt to rapid technological changes could impair our ability to remain
competitive.
  
    
    adversely impact our competitive position if we are unable to react to these developments in a timely or efficient
manner;
 
    
    require us to write-down obsolete facilities, equipment and technology;
 
    
    require us to discontinue production of obsolete products before we can recover any or all of our related research,
development and commercialization expenses; or
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
    
    require significant capital expenditures for research, development and launch of new products or processes.
 Our proprietary rights may be violated or compromised, which could damage our operations.
  We are subject to intense competition in certain of the industries where we compete and therefore
may not be able to compete successfully.
  Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating
results to fluctuate.
  The cyclicality and volatility of the chemical industry affects our capacity utilization and causes
fluctuations in our results of operations.
  A loss of key personnel or highly skilled employees could disrupt our operations.
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We may continue to expand our operations through acquisitions, which 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.
   We have a substantial amount of debt, and the cost of servicing that debt could adversely affect
our ability to take actions or our liquidity or financial condition.
   
    
    make it more difficult for us to satisfy our outstanding debt obligations;
 
    
    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;
 
    
    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;
 
    
    limit our ability to borrow additional funds; or
 
    
    increase our vulnerability to general adverse economic and industry conditions.
 If we are unable to generate sufficient cash flow to service our debt and fund our operating costs,
our liquidity may be adversely affected.
   
    
    incur additional debt, incur contingent obligations and issue additional preferred stock;
 
    
    create liens;
 
    
    pay dividends, distributions or make other specified restricted payments, and restrict the ability of certain of our
subsidiaries to pay dividends or make other payments to us;
 
    
    sell assets;
 
    
    make certain capital expenditures, investments and acquisitions;
 
    
    enter into certain transactions with affiliates;
 
    
    enter into sale and leaseback transactions; and
 
    
    merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets.
  Our Shareholder Rights Plan, Certificate of Incorporation and Bylaws discourage unsolicited
takeover proposals and could prevent stockholders from realizing a premium on their common stock.
  
    
    a classified board of directors;
 
    
    the ability of our board of directors to designate the terms of and issue new series of preferred stock;
 
    
    advance notice requirements for nominations for election to our board of directors; and
 
    
    special voting requirements for the amendment of our certificate of incorporation and bylaws.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  None.
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES  None.
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  None.
 
 ITEM 5. OTHER INFORMATION
  
    
    Monthly payments equal to regular straight-time salary in effect
on the date of termination for 24 months;
 
    
    Reimbursement of Dr. Maliks COBRA premiums on his current health
care coverage for a period of six months; and
 
    
    If Dr. Maliks employment is terminated after he was employed for
at least six months in a fiscal year, Dr. Malik shall be entitled
to a portion of his bonus pursuant to the bonus plan in effect for
such year applicable to him, equal to the bonus he would have
achieved for that year, multiplied by the number of weeks that he
was employed during the fiscal year, divided by 52, payable at the
time normally payable under such bonus plan.
 
 ITEM 6. EXHIBITS
 10.1
    
    AMPAC Fine Chemicals LLC Severance Pay Plan, incorporated by reference to the Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.10.2
    
    Notice of Eligibility for Dr. Aslam Malik under AMPAC Fine Chemicals LLC Severance Pay Plan,
dated January 24, 2007, incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 2007.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1*
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2*
    
    Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 
 *
    
    Exhibits 32.1 and 32.2 are furnished to accompany this quarterly report on Form 10-Q but
shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of
1934 or otherwise and shall not be deemed incorporated by reference into any registration
statements filed under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as
amended. -49-




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SIGNATURES
  AMERICAN PACIFIC CORPORATIONDate:  August 3, 2007
    /s/ JOHN R. GIBSONJohn R. GibsonChief Executive Officer -50-