##### Table of Contents



FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended June 30, 2008
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
 Commission File Number: 001-08137
 AMERICAN PACIFIC CORPORATION
  
 Delaware
    
    59-6490478(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 3883 Howard Hughes Parkway, Suite 700
Las Vegas, Nevada 89169
  702) 735-2200
  þ o
  Large accelerated filer o
    
    Accelerated filer þNon-accelerated filer o (Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



AMERICAN PACIFIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
  
 PART I. FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    
    1Condensed Consolidated Statements of Operations (unaudited)
    
    
    1Condensed Consolidated Balance Sheets (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows (unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    4ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    22ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36ITEM 4. Controls and Procedures
    
    
    36PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    38ITEM 1A. Risk Factors
    
    
    38ITEM 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 INFORMATION
 
 ITEM 1. 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 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    36,740
    
    
    $
    43,723
    
    
    $
    131,977
    
    
    $
    122,200Cost of Revenues
    
    
    23,990
    
    
    
    30,358
    
    
    
    85,188
    
    
    
    79,716Gross Profit
    
    
    12,750
    
    
    
    13,365
    
    
    
    46,789
    
    
    
    42,484Operating Expenses
    
    
    10,377
    
    
    
    9,660
    
    
    
    31,824
    
    
    
    28,264Operating Income
    
    
    2,373
    
    
    
    3,705
    
    
    
    14,965
    
    
    
    14,220Interest and Other Income, Net
    
    
    575
    
    
    
    181
    
    
    
    1,221
    
    
    
    365Interest Expense
    
    
    2,682
    
    
    
    2,709
    
    
    
    8,073
    
    
    
    9,169Debt Repayment Charges
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    2,714Income before Income Tax
    
    
    266
    
    
    
    1,177
    
    
    
    8,113
    
    
    
    2,702Income Tax Expense
    
    
    138
    
    
    
    571
    
    
    
    3,489
    
    
    
    1,339Net Income
    
    $
    128
    
    
    $
    606
    
    
    $
    4,624
    
    
    $
    1,363Earnings per Share:Basic
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.62
    
    
    $
    0.19Diluted
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.61
    
    
    $
    0.18Weighted Average Shares Outstanding:Basic
    
    
    7,452,000
    
    
    
    7,378,000
    
    
    
    7,442,000
    
    
    
    7,345,000Diluted
    
    
    7,607,000
    
    
    
    7,523,000
    
    
    
    7,594,000
    
    
    
    7,439,000
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##### Table of Contents



AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Balance Sheets
(Unaudited, Dollars in Thousands, Except per Share Amounts)
 
 June 30,
    
    
    September 30,2008
    
    
    2007ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    32,770
    
    
    $
    21,426Accounts Receivable, Net
    
    
    21,396
    
    
    
    25,236Inventories
    
    
    57,947
    
    
    
    47,023Prepaid Expenses and Other Assets
    
    
    4,247
    
    
    
    2,258Deferred Income Taxes
    
    
    7,594
    
    
    
    2,101Total Current Assets
    
    
    123,954
    
    
    
    98,044Property, Plant and Equipment, Net
    
    
    118,283
    
    
    
    116,965Intangible Assets, Net
    
    
    3,322
    
    
    
    5,767Deferred Income Taxes
    
    
    16,924
    
    
    
    19,385Other Assets
    
    
    9,068
    
    
    
    9,246TOTAL ASSETS
    
    $
    271,551
    
    
    $
    249,407LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    12,041
    
    
    $
    10,867Accrued Liabilities
    
    
    6,280
    
    
    
    7,829Accrued Interest
    
    
    4,124
    
    
    
    1,686Employee Related Liabilities
    
    
    6,838
    
    
    
    7,222Deferred Revenues and Customer Deposits
    
    
    23,243
    
    
    
    7,755Current Portion of Environmental Remediation Reserves
    
    
    557
    
    
    
    726Current Portion of Long-Term Debt
    
    
    254
    
    
    
    252Total Current Liabilities
    
    
    53,337
    
    
    
    36,337Long-Term Debt
    
    
    110,163
    
    
    
    110,373Environmental Remediation Reserves
    
    
    14,109
    
    
    
    14,697Pension Obligations and Other Long-Term Liabilities
    
    
    15,534
    
    
    
    12,311Total Liabilities
    
    
    193,143
    
    
    
    173,718Commitments and ContingenciesShareholders EquityPreferred Stock - $1.00 par value; 3,000,000 authorized; none outstanding
    
    
    -
    
    
    
    -Common Stock - $0.10 par value; 20,000,000 shares authorized,
9,523,541 and 9,463,541 issued
    
    
    952
    
    
    
    946Capital in Excess of Par Value
    
    
    88,240
    
    
    
    87,513Retained Earnings
    
    
    11,629
    
    
    
    7,296Treasury Stock - 2,045,950 shares
    
    
    (17,175
    )
    
    
    (16,982
    )Accumulated Other Comprehensive Loss
    
    
    (5,238
    )
    
    
    (3,084
    )Total Shareholders Equity
    
    
    78,408
    
    
    
    75,689TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    271,551
    
    
    $
    249,407
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited, Dollars in Thousands)
 
 Nine Months EndedJune 30,2008
    
    
    2007Cash Flows from Operating Activities:Net Income
    
    $
    4,624
    
    
    $
    1,363Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:Depreciation and amortization
    
    
    12,472
    
    
    
    14,502Non-cash interest expense
    
    
    478
    
    
    
    1,975Share-based compensation
    
    
    90
    
    
    
    67Non-cash component of debt repayment charge
    
    
    -
    
    
    
    2,309Excess tax benefit from stock option exercises
    
    
    (244
    )
    
    
    (203
    )Deferred income taxes
    
    
    (447
    )
    
    
    -Gain on sale of assets
    
    
    (418
    )
    
    
    -Changes in operating assets and liabilities:Accounts receivable, net
    
    
    3,800
    
    
    
    (1,055
    )Inventories
    
    
    (10,924
    )
    
    
    (17,872
    )Prepaid expenses and other current assets
    
    
    (1,766
    )
    
    
    (253
    )Accounts payable
    
    
    (154
    )
    
    
    (308
    )Accrued liabilities
    
    
    (1,011
    )
    
    
    800Accrued interest
    
    
    2,438
    
    
    
    3,857Employee related liabilities
    
    
    (384
    )
    
    
    1,107Deferred revenues and customer deposits
    
    
    15,488
    
    
    
    16,597Environmental remediation reserves
    
    
    (757
    )
    
    
    (1,800
    )Pension obligations, net
    
    
    (199
    )
    
    
    (351
    )Other
    
    
    (1,945
    )
    
    
    (853
    )Net Cash Provided by Operating Activities
    
    
    21,141
    
    
    
    19,882Cash Flows from Investing Activities:Capital expenditures
    
    
    (10,027
    )
    
    
    (3,930
    )Earnout payment for acquisition of AFC Business
    
    
    -
    
    
    
    (6,000
    )Discontinued operations - collection of note receivable
    
    
    -
    
    
    
    7,510Net Cash Used by Investing Activities
    
    
    (10,027
    )
    
    
    (2,420
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    -
    
    
    
    110,000Payments of long-term debt
    
    
    (208
    )
    
    
    (108,533
    )Debt issuance costs
    
    
    -
    
    
    
    (4,677
    )Issuances of common stock
    
    
    387
    
    
    
    572Excess tax benefit from stock option exercises
    
    
    244
    
    
    
    203Purchases of treasury stock
    
    
    (193
    )
    
    
    -Net Cash Provided (Used) by Financing Activities
    
    
    230
    
    
    
    (2,435
    )Net Change in Cash and Cash Equivalents
    
    
    11,344
    
    
    
    15,027Cash and Cash Equivalents, Beginning of Period
    
    
    21,426
    
    
    
    6,872Cash and Cash Equivalents, End of Period
    
    $
    32,770
    
    
    $
    21,899Cash Paid For:Interest
    
    $
    5,156
    
    
    $
    3,337Income taxes
    
    
    3,901
    
    
    
    412Non-Cash Investing and Financing Transactions:Capital leases originated
    
    $
    -
    
    
    $
    321Additions to Property, Plant and Equipment not yet paid
    
    
    1,361
    
    
    
    131
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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 (collectively, 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, 2007.
The operating results for the three-month and nine-month periods ended June 30, 2008 and cash
flows for the nine-month period ended June 30, 2008 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, 2007.Principles of Consolidation.Our consolidated financial statements include the accounts of
American Pacific Corporation and our wholly-owned subsidiaries. All intercompany accounts have
been eliminated.Recently Issued or Adopted Accounting Standards.In July 2006, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48), which clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. We adopted FIN 48 on October 1,
2007 (see Note 9).In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157),
which defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles in the United States of America, and expands disclosures about
fair value measurements. In February 2008, the FASB deferred the adoption of SFAS No. 157 for
one year as it applies to certain items, including assets and liabilities initially measured at
fair value in a business combination, reporting units and certain assets and liabilities
measured at fair value in connection with goodwill impairment tests in accordance with SFAS No.
142, Goodwill and Other Intangible Assets, and long-lived assets measured at fair value for
impairment assessments under SFAS No. 144, Accounting for the Impairment and Disposal of
Long-Lived Assets. SFAS No. 157 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
effective for us on October 1, 2008. We are currently evaluating the impact SFAS 157 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). 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 must 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 fiscal
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1.
    
    INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)year that begins on October 1, 2008. We are currently evaluating whether to adopt the fair
value option under SFAS No. 159 and what impact adoption would have on our consolidated
financial statements.In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS
No. 141R). SFAS No. 141R will significantly change the accounting for business combinations.
Under SFAS No. 141R, an acquiring entity is required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with limited
exceptions. SFAS No. 141R also includes a substantial number of new disclosure requirements.
SFAS No. 141R applies to us prospectively for business combinations with acquisition dates on
or after October 1, 2009. We expect that SFAS No. 141R, once adopted, will have an impact on
accounting for business combinations, but the effect is dependent upon acquisitions at that
time.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements - An Amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 establishes
new accounting and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. Specifically, SFAS No. 160 requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated financial statements
and separate from the parents equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face of the income
statement. SFAS No. 160 clarifies that changes in a parents ownership interest in a subsidiary
that do not result in deconsolidation are equity transactions if the parent retains its
controlling financial interest. In addition, SFAS No. 160 requires that a parent recognize a
gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the noncontrolling equity investment on the deconsolidation
date. SFAS No.160 also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest. SFAS No. 160 is effective for us beginning on October
1, 2009. We currently have no entities or arrangements that will be affected by the adoption of
SFAS No. 160. However, determination of the ultimate effect of this pronouncement will depend
on our structure at the date of adoption.2.
    
    SHARE-BASED COMPENSATIONWe account for our share-based compensation arrangements under the provisions of SFAS No. 123
(Revised 2004), 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. The fair values of awards are recognized as additional compensation
expense, which is classified as operating expenses, proportionately over the vesting period of
the awards.Our share-based compensation arrangements are designed to advance the long-term interests of
the Company, including by attracting and retaining employees and directors and aligning their
interests with those of our stockholders. The amount, frequency, and terms of share-based
awards may vary based on competitive practices, our operating results, government regulations
and availability under our equity incentive plans. Depending on the form of the share-based
award, new shares of our common stock may be issued upon grant, option exercise or vesting of
the award. We maintain three share based plans, each as discussed below.The American Pacific Corporation Amended and Restated 2001 Stock Option Plan (the 2001 Plan)
permits the granting of stock options 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 ten years from the date of grant. As of June
30, 2008, there were 20,000 shares available for grant under the 2001 Plan. This plan was
approved by our stockholders.
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2.
    
    SHARE-BASED COMPENSATION (continued)The American Pacific Corporation 2002 Directors Stock Option Plan, as amended and restated (the
2002 Directors Plan) compensates non-employee directors with stock options granted annually
or upon other discretionary events. Options granted under the 2002 Directors Plan prior to
September 30, 2007 generally vested 50% at the grant date and 50% on the one-year anniversary
of the grant date, and expire ten years from the date of grant. Options granted under the 2002
Directors Plan in November 2007 vest 50% one year from the date of grant and 50% two years from
the date of grant. As of June 30, 2008, there were 3 shares available for grant under the 2002
Directors Plan. This plan was approved by our stockholders.In November 2007, our board of directors adopted, and in March 2008, our stockholders approved,
the American Pacific Corporation 2008 Stock Incentive Plan (the 2008 Plan). The 2008 Plan
provides for grants of stock options, restricted stock, restricted stock units and stock
appreciation rights to employees, directors and consultants. A total of 350,000 shares of
common stock are reserved for issuance under the 2008 Plan, provided that no more than 200,000
shares of common stock may be granted pursuant to awards of restricted stock or restricted
stock units. As of June 30, 2008, there were 350,000 shares available for grant under the 2008
plan.A summary of our outstanding and vested stock option activity for the nine months ended June
30, 2008 is as follows:
 Total Outstanding
    
    
    Non VestedWeighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    FairPrice
    
    
    
    
    
    
    ValueShares
    
    
    Per Share
    
    
    Shares
    
    
    Per ShareBalance, September 30, 2007
    
    
    430,000
    
    
    $
    7.05
    
    
    
    9,500
    
    
    $
    3.77Granted
    
    
    24,997
    
    
    
    16.93
    
    
    
    24,997
    
    
    
    7.86Vested
    
    
    -
    
    
    
    -
    
    
    
    (9,500
    )
    
    
    3.77Exercised
    
    
    (60,000
    )
    
    
    6.77
    
    
    
    -
    
    
    
    -Expired / Cancelled
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Balance, June 30, 2008
    
    
    394,997
    
    
    
    7.72
    
    
    
    24,997
    
    
    
    7.86
  Number of vested stock options
    
    
    370,000Weighted-average exercise price per share
    
    $
    7.10Aggregate intrinsic value
    
    $
    3,753Weighted-average remaining contractual term in years
    
    
    6.1
 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.
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##### Table of Contents



2.
    
    SHARE-BASED COMPENSATION (continued)
 Nine Months EndedJune 30,2008
    
    
    2007Weighted-average grant date fair value per share of options granted
    
    $
    7.86
    
    
    $
    3.68Significant fair value assumptions:Expected term in years
    
    
    5.75
    
    
    
    5.25Expected volatility
    
    
    44.5
    %
    
    
    47.0
    %Expected dividends
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rates
    
    
    3.4
    %
    
    
    4.7
    %Total intrinsic value of options exercised
    
    $
    629
    
    
    $
    472Aggregate cash received for option exercises
    
    $
    406
    
    
    $
    376Total compensation cost (included in operating expenses)
    
    $
    90
    
    
    $
    67Tax benefit recognized
    
    
    37
    
    
    
    29Net compensation cost
    
    $
    53
    
    
    $
    38As of period end date:Total compensation cost for non-vested awards
not yet recognized
    
    $
    107
    
    
    $
    10Weighted-average years to be recognized
    
    
    0.9
    
    
    
    0.3
 Our share-based compensation plans permit us, but does not require us, to repurchase newly
exercised shares from optionees in settlement of the optionees exercise price obligation.
Shares are repurchased at a price equal to the closing price of our common stock on the date of
exercise. In June 2008, we repurchased 11,080 shares at an average price of $17.50 per share.3.
    
    SELECTED BALANCE SHEET DATAInventories.Inventories consist of the following:
 June 30,
    
    
    September 30,2008
    
    
    2007Finished goods
    
    $
    2,092
    
    
    $
    817Work-in-process
    
    
    24,183
    
    
    
    29,225Raw materials and supplies
    
    
    15,593
    
    
    
    14,537Deferred cost of revenues
    
    
    16,079
    
    
    
    2,444Total
    
    $
    57,947
    
    
    $
    47,023
 Intangible Assets.
 June 30,
    
    
    September 30,2008
    
    
    2007Perchlorate customer list
    
    $
    38,697
    
    
    $
    38,697Less accumulated amortization
    
    
    (38,697
    )
    
    
    (37,180
    )-
    
    
    
    1,517Customer relationships and backlog
    
    
    10,244
    
    
    
    10,244Less accumulated amortization
    
    
    (6,922
    )
    
    
    (5,994
    )3,322
    
    
    
    4,250Total
    
    $
    3,322
    
    
    $
    5,767
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3.
    
    SELECTED BALANCE SHEET DATA (continued)The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject to
amortization. Amortization expense was $0 and $975 for the three-month periods ended June 30,
2008 and 2007, respectively. Amortization expense was $1,517 and $2,925 for the nine-month
periods ended June 30, 2008 and 2007, respectively.Customer relationships and backlog are assets of our Fine Chemicals segment and are subject to
amortization. Amortization expense was $309 for each of the three-month periods ended June 30,
2008 and 2007, and $928 for each of the nine-month periods ended June 30, 2008 and 2007.4.
    
    COMPREHENSIVE INCOMEComprehensive income consists of the following:
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net Income
    
    $
    128
    
    
    $
    606
    
    
    $
    4,624
    
    
    $
    1,363Other Comprehensive Income (Loss) -Foreign currency translation adjustment
    
    
    3
    
    
    
    21
    
    
    
    (44
    )
    
    
    48SERP Amendment, net of tax (See Note 10)
    
    
    -
    
    
    
    -
    
    
    
    (2,110
    )
    
    
    -Comprehensive Income
    
    $
    131
    
    
    $
    627
    
    
    $
    2,470
    
    
    $
    1,411
 5.
    
    EARNINGS PER SHAREShares used to compute earnings per share are as follows:
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    128
    
    
    $
    606
    
    
    $
    4,624
    
    
    $
    1,363Basic Weighted Average Shares
    
    
    7,452,000
    
    
    
    7,378,000
    
    
    
    7,442,000
    
    
    
    7,345,000Diluted:Weighted average shares, basic
    
    
    7,452,000
    
    
    
    7,378,000
    
    
    
    7,442,000
    
    
    
    7,345,000Dilutive effect of stock options
    
    
    155,000
    
    
    
    145,000
    
    
    
    152,000
    
    
    
    94,000Weighted average shares, diluted
    
    
    7,607,000
    
    
    
    7,523,000
    
    
    
    7,594,000
    
    
    
    7,439,000Basic earnings per share
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.62
    
    
    $
    0.19Diluted earnings per share
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.61
    
    
    $
    0.18
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6.
    
    DEBTOur outstanding debt balances consist of the following:
 June 30,
    
    
    September 30,2008
    
    
    2007Senior Notes, 9%, due 2015
    
    $
    110,000
    
    
    $
    110,000Capital Leases, due through 2009
    
    
    417
    
    
    
    625Total Debt
    
    
    110,417
    
    
    
    110,625Less Current Portion
    
    
    (254
    )
    
    
    (252
    )Total Long-term Debt
    
    $
    110,163
    
    
    $
    110,373
 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 an applicable premium as defined in the related indenture;
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the
principal amount to be redeemed and reducing to 100% by February 1, 2013;
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a
redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest
thereon, with the proceeds of certain sales of our equity securities; and
    
    under certain changes of control, we must offer to purchase the Senior Notes at 101% of
their aggregate principal amount, plus accrued interest.
  
    
    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.
 
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6.
    
    DEBT (continued)In connection with the closing of the sale of the Senior Notes, we entered into a registration
rights agreement which required us to file a registration statement to 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. In July 2007, we filed a registration
statement with the SEC with respect to an offer to exchange the Senior Notes as required by the
registration rights agreement, which was declared effective by the SEC. In August 2007, we
completed the exchange of 100% of the Senior Notes for substantially identical notes which are
registered under the Securities Act of 1933, as amended.Revolving Credit Facility.In February 2007, we entered into an Amended and Restated Credit
Agreement (the Revolving Credit Facility) with Wachovia Bank, National Association, and
certain other lenders, which provides a secured revolving credit facility in an aggregate
principal amount of up to $20,000 with an initial maturity of 5 years. We may prepay and
terminate the Revolving Credit Facility at any time. The annual interest rates applicable to
loans under the Revolving Credit Facility are, at our option, either the Alternate Base Rate or
LIBOR Rate (each as defined in the Revolving Credit Facility) plus, in each case, an applicable
margin. The applicable margin is tied to our total leverage ratio (as defined in the Revolving
Credit Facility). In addition, we pay commitment fees, other fees related to the issuance and
maintenance of letters of credit, and certain agency fees.The Revolving Credit Facility is guaranteed by and secured by substantially all of the assets of
our current and future domestic subsidiaries, subject to certain exceptions as set forth in the
Revolving Credit Facility. The Revolving Credit Facility contains certain negative covenants
restricting and limiting our ability to, among other things:
 
    
    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.
   Letters of Credit.
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6.
    
    DEBT (continued)Debt Repayment Charges. In February 2007, in connection with issuance of our Senior Notes and
the repayment of our then existing credit facilities, we recorded a charge for $2,309 to
write-off the unamortized balance of debt issue costs associated with those facilities and paid
a pre-payment penalty of $405 to terminate one of the then existing credit facilities.7.
    
    COMMITMENTS AND CONTINGENCIESEnvironmental Matters.Review of Perchlorate Toxicity by the EPA.Perchlorate is not currently included in the list of
hazardous substances compiled by the U.S. Environmental Protection Agency (the 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 (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 with perchlorate 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 of 24.5 ppb.  A decision as
to whether or not to establish a minimum contaminate level is pending.  The outcome of the
federal EPA action, as well as any similar state regulatory action, will influence the number,
if any, of potential sites that may be subject to remediation action.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 (the 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.
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. The 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 KMCC Site did impact the Las Vegas Wash and Lake Mead. KMCC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.
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7.
    
    COMMITMENTS AND CONTINGENCIES (continued)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 (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 the AMPAC Henderson Site. We commenced construction in July 2005. In
December 2006, we began operations, reducing perchlorate concentrations in system extracted
groundwater in Henderson.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 AMPAC 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 phase and the operating and maintenance phase. During
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, 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, 2008, the aggregate range of anticipated
environmental remediation costs was from approximately $11,900 to approximately $17,900, and the
accrued amount was $14,666. A summary of our environmental reserve activity for the nine months
ended June 30, 2008 is shown below:
 Balance, September 30, 2007
    
    $
    15,423Additions or adjustments
    
    
    -Expenditures
    
    
    (757
    )Balance, June 30, 2008
    
    $
    14,666
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7.
    
    COMMITMENTS AND CONTINGENCIES (continued)AFC Environmental Matters.Our Fine Chemicals segment, Ampac Fine Chemicals LLC (AFC), is
located on land leased from Aerojet-General Corporation (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 of 1980 (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 LLC as part of its operations, CERCLA, among other
things, provides for joint and severable liability for environmental liabilities including, for
example, environmental remediation expenses.As part of the agreement by which we acquired the business of AFC from GenCorp Inc. (GenCorp),
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 AFC, Aerojet or GenCorp on the AFC premises or Aerojets Sacramento site
prior to the effective date of the sale.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 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.Other Matters.Although we are not currently party to any material pending legal proceedings,
we are from time to time subject to claims and lawsuits related to our business operations. We
accrue for loss contingencies when a loss is probable and the amount can be reasonably
estimated. Legal fees, which can be material in any given period, are expensed as incurred. We
believe that current claims or lawsuits against us, individually and in the aggregate, will not
result in loss contingencies that will have a material adverse effect on our financial
condition, cash flows or results of operations.8.
    
    SEGMENT INFORMATIONWe report our business in four operating segments: Fine Chemicals, Specialty 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 income 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.Fine Chemicals.Our Fine Chemicals segment includes the operating results of our wholly-owned
subsidiary Ampac Fine Chemicals LLC or AFC. AFC is a manufacturer of active pharmaceutical
ingredients and registered intermediates under cGMP guidelines for commercial customers in the
pharmaceutical industry, involving high potency compounds, energetic and nucleoside chemistries,
and chiral separation.Specialty Chemicals.Our Specialty Chemicals segment manufactures and sells: (i) perchlorate
chemicals, used principally in solid rocket propellants for the space shuttle and defense
programs, (ii) sodium azide, a chemical used in pharmaceutical manufacturing and historically
used principally in the inflation of certain automotive airbag systems, and (iii)
Halotronâ, a clean gas fire extinguishing agent designed to replace halons and used in
fire extinguishing systems ranging from portable fire extinguishers to airport firefighting
vehicles.
 - 13 -




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##### Table of Contents



8.
    
    SEGMENT INFORMATION (continued)Aerospace Equipment. Our Aerospace Equipment segment includes the operating results of our
wholly-owned subsidiary Ampac-ISP Corp. (ISP). ISP manufactures and sells in-space propulsion
systems, thrusters (monopropellant or bipropellant) and propellant tanks.Other Businesses.Our Other Businesses segment contains our water treatment equipment and real
estate activities. Our water treatment equipment business designs, manufactures and markets
systems for the control of noxious odors, the disinfection of water streams and the treatment of
seawater. Our real estate activities are substantially complete.Our revenues are characterized by individually significant orders and relatively few customers.
As a result, in any given reporting period, certain customers may account for more than ten
percent of our consolidated revenues. 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 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Fine chemicals customer
    
    
    
    
    
    
    15
    %
    
    
    14
    %
    
    
    10
    %Fine chemicals customer
    
    
    33
    %
    
    
    35
    %
    
    
    25
    %
    
    
    22
    %Fine chemicals customer
    
    
    
    
    
    
    13
    %
    
    
    
    
    
    
    11
    %Fine chemicals customer
    
    
    13
    %
    
    
    
    
    
    
    12
    %
    
    
    12
    %Specialty chemicals customer
    
    
    23
    %
    
    
    
    
    
    
    20
    %
    
    
    11
    %Specialty chemicals customer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    %
  Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Fine Chemicals
    
    $
    19,654
    
    
    $
    30,736
    
    
    $
    76,920
    
    
    $
    70,693Specialty Chemicals
    
    
    11,942
    
    
    
    8,780
    
    
    
    40,278
    
    
    
    36,702Aerospace Equipment
    
    
    3,380
    
    
    
    4,119
    
    
    
    11,350
    
    
    
    12,560Other Businesses
    
    
    1,764
    
    
    
    88
    
    
    
    3,429
    
    
    
    2,245Total Revenues
    
    $
    36,740
    
    
    $
    43,723
    
    
    $
    131,977
    
    
    $
    122,200Segment Operating Income (Loss):Fine Chemicals
    
    $
    621
    
    
    $
    4,950
    
    
    $
    9,426
    
    
    $
    10,795Specialty Chemicals
    
    
    5,998
    
    
    
    1,935
    
    
    
    16,768
    
    
    
    11,846Aerospace Equipment
    
    
    (330
    )
    
    
    310
    
    
    
    248
    
    
    
    607Other Businesses
    
    
    341
    
    
    
    (183
    )
    
    
    340
    
    
    
    564Total Segment Operating Income
    
    
    6,630
    
    
    
    7,012
    
    
    
    26,782
    
    
    
    23,812Corporate Expenses
    
    
    (4,257
    )
    
    
    (3,307
    )
    
    
    (11,817
    )
    
    
    (9,592
    )Operating Income
    
    $
    2,373
    
    
    $
    3,705
    
    
    $
    14,965
    
    
    $
    14,220Depreciation and Amortization:Fine Chemicals
    
    $
    3,115
    
    
    $
    3,401
    
    
    $
    9,505
    
    
    $
    10,146Specialty Chemicals
    
    
    302
    
    
    
    1,290
    
    
    
    2,392
    
    
    
    3,858Aerospace Equipment
    
    
    60
    
    
    
    38
    
    
    
    156
    
    
    
    104Other Businesses
    
    
    3
    
    
    
    3
    
    
    
    9
    
    
    
    9Corporate
    
    
    155
    
    
    
    127
    
    
    
    410
    
    
    
    385Total Depreciation and Amortization
    
    $
    3,635
    
    
    $
    4,859
    
    
    $
    12,472
    
    
    $
    14,502
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9.
    
    INCOME TAXESWe adopted the provisions of FIN 48 on October 1, 2007. As a result of the implementation of
FIN 48, we made a comprehensive review of our portfolio of uncertain tax positions in accordance
with recognition standards established by FIN 48. In this regard, an uncertain tax position
represents our expected treatment of a tax position taken in a filed tax return, or planned to
be taken in a future tax return, that has not been reflected in measuring income tax expense for
financial reporting purposes. Upon the adoption of FIN 48, we recorded a liability for
unrecognized tax benefits of $3,949, of which $291 would impact our effective tax rate if we
were to sustain the positions as filed. During the quarter ended June 30, 2008 the liability for
unrecognized tax benefits decreased by $3,714 due to the expiration of the statute of
limitations for the year ended September 30, 2004, changes in tax attributes upon the
finalization of the tax return for the year ended September 30, 2007, and the filing of a tax
accounting method change with the tax return for the year ended September 30, 2007. Of the
original $291 that would impact our effective tax rate if we were to sustain the position as
filed, $88 served to reduce our income tax expense for the quarter for the same reasons as set
forth above. We expect that it is reasonably possible that our liability for unrecognized tax
benefits will be reduced by $35 during the next twelve months due to the expiration of certain
statutes of limitations.We recognize accrued interest and penalties related to unrecognized tax benefits in income tax
expense. As of October 1, 2007, we had accrued approximately $154 for the payment of tax-related
interest and no amounts for penalties. For the nine months ended June 30, 2008, we accrued an
additional $61 of interest related to unrecognized tax benefits. During the quarter ended June
30, 2008, we reduced the total accrued interest by $156 as the interest accrued for the
uncertain tax positions that were resolved during the quarter by events described in the
preceding paragraph was released.We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and
the U.K. With few exceptions, we are no longer subject to federal or state income tax
examinations for years before 2005.10.
    
    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 Amended and Restated
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, the Pension Plans).We maintain a Supplemental Executive Retirement Plan (the SERP). Prior to November 2007, the
SERP included our former and current Chief Executive Officers. In November 2007, our board of
directors approved the amendment and restatement of the SERP. Under the terms of the amended
and restated SERP, certain of our officers and their beneficiaries are entitled to receive a
monthly annuity benefit following their retirement from the Company. The amendment and
restatement of the SERP, which became effective as of October 1, 2007, amends, among other
provisions, the list of participants in the SERP to include three additional executive officers
of the Company and the method of calculating a participants benefit under the SERP. As a
result of the SERP amendment and restatement, effective October 1, 2007, we recorded an increase
in our SERP liability of $3,516 which represents the actuarial value of the amended SERP
benefits applied to prior service periods of the participants (Prior Service Costs). An entry
for the corresponding amount was recorded as an increase to Accumulated Other Comprehensive
Loss. Unrecognized Prior Service Costs will be amortized as additional pension expense over the
average estimated remaining service period of the participants of eight years.
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10.
    
    DEFINED BENEFIT PLANS (continued)We maintain two 401(k) plans in which participating employees may make contributions. One covers
substantially all U.S. employees except AFC bargaining unit employees and the other covers AFC
bargaining unit employees. We make matching contributions for AFC and Aerospace Equipment U.S.
employees. In addition, we make a profit sharing contribution for Aerospace Equipment U.S.
employees.We provide healthcare and life insurance benefits to substantially all of our employees.Net periodic pension cost related to the Pension Plans consists of the following:
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Pension Plans:Service Cost
    
    $
    520
    
    
    $
    546
    
    
    $
    1,534
    
    
    $
    1,520Interest Cost
    
    
    758
    
    
    
    631
    
    
    
    1,884
    
    
    
    1,689Expected Return on Plan Assets
    
    
    (808
    )
    
    
    (627
    )
    
    
    (1,850
    )
    
    
    (1,563
    )Recognized Actuarial Losses
    
    
    (6
    )
    
    
    (263
    )
    
    
    208
    
    
    
    43Amortization of Prior Service Costs
    
    
    28
    
    
    
    293
    
    
    
    56
    
    
    
    322Net Periodic Pension Cost
    
    $
    492
    
    
    $
    580
    
    
    $
    1,832
    
    
    $
    2,011Supplemental Executive Retirement Plan:Service Cost
    
    $
    88
    
    
    $
    -
    
    
    $
    264
    
    
    $
    -Interest Cost
    
    
    87
    
    
    
    35
    
    
    
    264
    
    
    
    105Expected Return on Plan Assets
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Recognized Actuarial Losses
    
    
    -
    
    
    
    10
    
    
    
    -
    
    
    
    32Amortization of Prior Service Costs
    
    
    108
    
    
    
    6
    
    
    
    323
    
    
    
    18Net Periodic Pension Cost
    
    $
    283
    
    
    $
    51
    
    
    $
    851
    
    
    $
    155
 For the nine months ended June 30, 2008, we contributed $2,629 to the Pension Plans to fund
benefit payments and anticipate making approximately $381 in additional contributions through
September 30, 2008. For the nine months ended June 30, 2008, we contributed $95 to the SERP to
fund benefit payments and anticipate making approximately $32 in additional contributions
through September 30, 2008.11.
    
    GUARANTOR SUBSIDIARIESAs discussed in Note 6, on February 6, 2007, American Pacific Corporation, a Delaware
corporation (the Parent) issued and sold $110,000 aggregate principal amount of Senior Notes.
In connection with the issuance of the Senior Notes, the Parents U.S. subsidiaries (Guarantor
Subsidiaries) jointly, fully, severally, and unconditionally guaranteed the Senior Notes. The
Parents sole foreign subsidiary (Non-Guarantor Subsidiary) is not a guarantor of the Senior
Notes. Each of the Parents subsidiaries is wholly-owned. The Parent has no independent assets
or operations. The following presents condensed consolidating financial information separately
for the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiary:
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11.
    GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Balance Sheet -
June 30, 2008
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    -
    
    
    $
    32,699
    
    
    $
    71
    
    
    $
    -
    
    
    $
    32,770Accounts Receivable, Net
    
    
    -
    
    
    
    21,398
    
    
    
    1,092
    
    
    
    (1,094
    )
    
    
    21,396Inventories
    
    
    -
    
    
    
    57,068
    
    
    
    879
    
    
    
    -
    
    
    
    57,947Prepaid Expenses and Other Assets
    
    
    -
    
    
    
    4,131
    
    
    
    116
    
    
    
    -
    
    
    
    4,247Deferred Income Taxes
    
    
    -
    
    
    
    7,594
    
    
    
    -
    
    
    
    -
    
    
    
    7,594Total Current Assets
    
    
    -
    
    
    
    122,890
    
    
    
    2,158
    
    
    
    (1,094
    )
    
    
    123,954Property, Plant and Equipment, Net
    
    
    -
    
    
    
    118,136
    
    
    
    147
    
    
    
    -
    
    
    
    118,283Intangible Assets, Net
    
    
    -
    
    
    
    3,322
    
    
    
    -
    
    
    
    -
    
    
    
    3,322Deferred Income Taxes
    
    
    -
    
    
    
    16,924
    
    
    
    -
    
    
    
    -
    
    
    
    16,924Other Assets
    
    
    -
    
    
    
    9,068
    
    
    
    -
    
    
    
    -
    
    
    
    9,068Intercompany Advances
    
    
    79,655
    
    
    
    2,070
    
    
    
    -
    
    
    
    (81,725
    )
    
    
    -Investment in Subsidiaries
    
    
    108,753
    
    
    
    (946
    )
    
    
    -
    
    
    
    (107,807
    )
    
    
    -Total Assets
    
    $
    188,408
    
    
    $
    271,464
    
    
    $
    2,305
    
    
    $
    (190,626
    )
    
    $
    271,551Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    -
    
    
    $
    29,196
    
    
    $
    1,181
    
    
    $
    (1,094
    )
    
    $
    29,283Environmental Remediation Reserves
    
    
    -
    
    
    
    557
    
    
    
    -
    
    
    
    -
    
    
    
    557Deferred Revenues and Customer Deposits
    
    
    -
    
    
    
    23,243
    
    
    
    -
    
    
    
    -
    
    
    
    23,243Intercompany Advances
    
    
    -
    
    
    
    79,655
    
    
    
    2,070
    
    
    
    (81,725
    )
    
    
    -Current Portion of Long-Term Debt
    
    
    -
    
    
    
    254
    
    
    
    -
    
    
    
    -
    
    
    
    254Total Current Liabilities
    
    
    -
    
    
    
    132,905
    
    
    
    3,251
    
    
    
    (82,819
    )
    
    
    53,337Long-Term Debt
    
    
    110,000
    
    
    
    163
    
    
    
    -
    
    
    
    -
    
    
    
    110,163Environmental Remediation Reserves
    
    
    -
    
    
    
    14,109
    
    
    
    -
    
    
    
    -
    
    
    
    14,109Pension Obligations and Other Long-Term Liabilities
    
    
    -
    
    
    
    15,534
    
    
    
    -
    
    
    
    -
    
    
    
    15,534Total Liabilities
    
    
    110,000
    
    
    
    162,711
    
    
    
    3,251
    
    
    
    (82,819
    )
    
    
    193,143Total Shareholders Equity
    
    
    78,408
    
    
    
    108,753
    
    
    
    (946
    )
    
    
    (107,807
    )
    
    
    78,408Total Liabilities and Shareholders Equity
    
    $
    188,408
    
    
    $
    271,464
    
    
    $
    2,305
    
    
    $
    (190,626
    )
    
    $
    271,551Condensed Consolidating Statement of Operations -
Three Months Ended June 30, 2008Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    -
    
    
    $
    35,845
    
    
    $
    895
    
    
    $
    -
    
    
    $
    36,740Cost of Revenues
    
    
    -
    
    
    
    23,122
    
    
    
    868
    
    
    
    -
    
    
    
    23,990Gross Profit
    
    
    -
    
    
    
    12,723
    
    
    
    27
    
    
    
    -
    
    
    
    12,750Operating Expenses
    
    
    -
    
    
    
    10,257
    
    
    
    120
    
    
    
    -
    
    
    
    10,377Operating Income (Loss)
    
    
    -
    
    
    
    2,466
    
    
    
    (93
    )
    
    
    -
    
    
    
    2,373Interest and Other Income
    
    
    2,658
    
    
    
    575
    
    
    
    -
    
    
    
    (2,658
    )
    
    
    575Interest Expense
    
    
    2,658
    
    
    
    2,682
    
    
    
    -
    
    
    
    (2,658
    )
    
    
    2,682Income (Loss) before Income Tax and
Equity Account for Subsidiaries
    
    
    -
    
    
    
    359
    
    
    
    (93
    )
    
    
    -
    
    
    
    266Income Tax Expense
    
    
    -
    
    
    
    138
    
    
    
    -
    
    
    
    -
    
    
    
    138Income (Loss) before
Equity Account for Subsidiaries
    
    
    -
    
    
    
    221
    
    
    
    (93
    )
    
    
    -
    
    
    
    128Equity Account for Subsidiaries
    
    
    128
    
    
    
    (93
    )
    
    
    -
    
    
    
    (35
    )
    
    
    -Net Income (Loss)
    
    $
    128
    
    
    $
    128
    
    
    $
    (93
    )
    
    $
    (35
    )
    
    $
    128
 - 17 -




---



##### Table of Contents



11.
    GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Operations -
Nine Months Ended June 30, 2008
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    -
    
    
    $
    129,978
    
    
    $
    2,010
    
    
    $
    (11
    )
    
    $
    131,977Cost of Revenues
    
    
    -
    
    
    
    83,242
    
    
    
    1,957
    
    
    
    (11
    )
    
    
    85,188Gross Profit
    
    
    -
    
    
    
    46,736
    
    
    
    53
    
    
    
    -
    
    
    
    46,789Operating Expenses
    
    
    -
    
    
    
    31,390
    
    
    
    434
    
    
    
    -
    
    
    
    31,824Operating Income (Loss)
    
    
    -
    
    
    
    15,346
    
    
    
    (381
    )
    
    
    -
    
    
    
    14,965Interest and Other Income
    
    
    7,990
    
    
    
    1,221
    
    
    
    -
    
    
    
    (7,990
    )
    
    
    1,221Interest Expense
    
    
    7,990
    
    
    
    8,073
    
    
    
    -
    
    
    
    (7,990
    )
    
    
    8,073Income (Loss) before Income Tax and
Equity Account for Subsidiaries
    
    
    -
    
    
    
    8,494
    
    
    
    (381
    )
    
    
    -
    
    
    
    8,113Income Tax Expense
    
    
    -
    
    
    
    3,489
    
    
    
    -
    
    
    
    -
    
    
    
    3,489Income (Loss) before
Equity Account for Subsidiaries
    
    
    -
    
    
    
    5,005
    
    
    
    (381
    )
    
    
    -
    
    
    
    4,624Equity Account for Subsidiaries
    
    
    4,624
    
    
    
    (381
    )
    
    
    -
    
    
    
    (4,243
    )
    
    
    -Net Income (Loss)
    
    $
    4,624
    
    
    $
    4,624
    
    
    $
    (381
    )
    
    $
    (4,243
    )
    
    $
    4,624Condensed Consolidating Statement of Cash Flows -
Nine Months Ended June 30, 2008Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedNet cash Provided (Used) by Operating Activities
    
    $
    -
    
    
    $
    21,357
    
    
    $
    (216
    )
    
    $
    -
    
    
    $
    21,141Cash Flows from Investing Activities:Capital expenditures
    
    
    -
    
    
    
    (10,010
    )
    
    
    (17
    )
    
    
    -
    
    
    
    (10,027
    )Net Cash Used in Investing Activities
    
    
    -
    
    
    
    (10,010
    )
    
    
    (17
    )
    
    
    -
    
    
    
    (10,027
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    -
    
    
    
    (208
    )
    
    
    -
    
    
    
    -
    
    
    
    (208
    )Issuance of common stock
    
    
    387
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    387Excess tax benefit from stock option exercises
    
    
    244
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    244Purchases of treasury stock
    
    
    (193
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (193
    )Intercompany advances, net
    
    
    (438
    )
    
    
    208
    
    
    
    230
    
    
    
    -
    
    
    
    -Net Cash Provided by Financing Activities
    
    
    -
    
    
    
    -
    
    
    
    230
    
    
    
    -
    
    
    
    230Net Change in Cash and Cash Equivalents
    
    
    -
    
    
    
    11,347
    
    
    
    (3
    )
    
    
    -
    
    
    
    11,344Cash and Cash Equivalents, Beginning of Period
    
    
    -
    
    
    
    21,352
    
    
    
    74
    
    
    
    -
    
    
    
    21,426Cash and Cash Equivalents, End of Period
    
    $
    -
    
    
    $
    32,699
    
    
    $
    71
    
    
    $
    -
    
    
    $
    32,770
 - 18 -




---



##### Table of Contents



11.
    GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Balance Sheet -September 30, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    -
    
    
    $
    21,352
    
    
    $
    74
    
    
    $
    -
    
    
    $
    21,426Accounts Receivable, Net
    
    
    -
    
    
    
    25,262
    
    
    
    1,053
    
    
    
    (1,079
    )
    
    
    25,236Inventories
    
    
    -
    
    
    
    46,311
    
    
    
    712
    
    
    
    -
    
    
    
    47,023Prepaid Expenses and Other Assets
    
    
    -
    
    
    
    2,160
    
    
    
    98
    
    
    
    -
    
    
    
    2,258Deferred Income Taxes
    
    
    -
    
    
    
    2,101
    
    
    
    -
    
    
    
    -
    
    
    
    2,101Total Current Assets
    
    
    -
    
    
    
    97,186
    
    
    
    1,937
    
    
    
    (1,079
    )
    
    
    98,044Property, Plant and Equipment, Net
    
    
    -
    
    
    
    116,814
    
    
    
    151
    
    
    
    -
    
    
    
    116,965Intangible Assets, Net
    
    
    -
    
    
    
    5,767
    
    
    
    -
    
    
    
    -
    
    
    
    5,767Deferred Income Taxes
    
    
    -
    
    
    
    19,385
    
    
    
    -
    
    
    
    -
    
    
    
    19,385Other Assets
    
    
    -
    
    
    
    9,246
    
    
    
    -
    
    
    
    -
    
    
    
    9,246Intercompany Advances
    
    
    78,976
    
    
    
    1,840
    
    
    
    -
    
    
    
    (80,816
    )
    
    
    -Investment in Subsidiaries
    
    
    106,713
    
    
    
    (521
    )
    
    
    -
    
    
    
    (106,192
    )
    
    
    -Total Assets
    
    $
    185,689
    
    
    $
    249,717
    
    
    $
    2,088
    
    
    $
    (188,087
    )
    
    $
    249,407Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    -
    
    
    $
    27,914
    
    
    $
    769
    
    
    $
    (1,079
    )
    
    $
    27,604Environmental Remediation Reserves
    
    
    -
    
    
    
    726
    
    
    
    -
    
    
    
    -
    
    
    
    726Deferred Revenues and Customer Deposits
    
    
    -
    
    
    
    7,755
    
    
    
    -
    
    
    
    -
    
    
    
    7,755Intercompany Advances
    
    
    -
    
    
    
    78,976
    
    
    
    1,840
    
    
    
    (80,816
    )
    
    
    -Current Portion of Long-Term Debt
    
    
    -
    
    
    
    252
    
    
    
    -
    
    
    
    -
    
    
    
    252Total Current Liabilities
    
    
    -
    
    
    
    115,623
    
    
    
    2,609
    
    
    
    (81,895
    )
    
    
    36,337Long-Term Debt
    
    
    110,000
    
    
    
    373
    
    
    
    -
    
    
    
    -
    
    
    
    110,373Environmental Remediation Reserves
    
    
    -
    
    
    
    14,697
    
    
    
    -
    
    
    
    -
    
    
    
    14,697Pension Obligations and Other Long-Term Liabilities
    
    
    -
    
    
    
    12,311
    
    
    
    -
    
    
    
    -
    
    
    
    12,311Total Liabilities
    
    
    110,000
    
    
    
    143,004
    
    
    
    2,609
    
    
    
    (81,895
    )
    
    
    173,718Total Shareholders Equity
    
    
    75,689
    
    
    
    106,713
    
    
    
    (521
    )
    
    
    (106,192
    )
    
    
    75,689Total Liabilities and Shareholders Equity
    
    $
    185,689
    
    
    $
    249,717
    
    
    $
    2,088
    
    
    $
    (188,087
    )
    
    $
    249,407Condensed Consolidating Statement of Operations -Three Months Ended June 30, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    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) before Income Tax and
Equity Account for Subsidiaries
    
    
    -
    
    
    
    1,326
    
    
    
    (149
    )
    
    
    -
    
    
    
    1,177Income Tax Expense
    
    
    -
    
    
    
    571
    
    
    
    -
    
    
    
    -
    
    
    
    571Income (Loss) before
Equity Account for Subsidiaries
    
    
    -
    
    
    
    755
    
    
    
    (149
    )
    
    
    -
    
    
    
    606Equity Account for Subsidiaries
    
    
    606
    
    
    
    (149
    )
    
    
    -
    
    
    
    (457
    )
    
    
    -Net Income (Loss)
    
    $
    606
    
    
    $
    606
    
    
    $
    (149
    )
    
    $
    (457
    )
    
    $
    606
 - 19 -




---



##### Table of Contents



11. GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Operations -Nine Months Ended June 30, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    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) before Income Tax and
Equity Account for Subsidiaries
    
    
    -
    
    
    
    3,108
    
    
    
    (406
    )
    
    
    -
    
    
    
    2,702Income Tax Expense
    
    
    -
    
    
    
    1,339
    
    
    
    -
    
    
    
    -
    
    
    
    1,339Income (Loss) before
Equity Account for Subsidiaries
    
    
    -
    
    
    
    1,769
    
    
    
    (406
    )
    
    
    -
    
    
    
    1,363Equity Account for Subsidiaries
    
    
    1,363
    
    
    
    (406
    )
    
    
    -
    
    
    
    (957
    )
    
    
    -Net Income (Loss)
    
    $
    1,363
    
    
    $
    1,363
    
    
    $
    (406
    )
    
    $
    (957
    )
    
    $
    1,363Condensed Consolidating Statement of Cash Flows -Nine Months Ended June 30, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    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 exercise of options
    
    
    203
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    203Intercompany advances, net
    
    
    2,228
    
    
    
    (3,074
    )
    
    
    846
    
    
    
    -
    
    
    
    -Net Cash Provided (Used) by 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
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12.
    
    INTEREST AND OTHER INCOMEIn October 2005, we sold our one-third interest in an office building located in Las Vegas,
Nevada and concurrently renewed our lease with the buyer to lease a floor in the same building.
The transaction was accounted for as a sale-leaseback. Accordingly, we deferred a gain,
initially totaling $1,815 representing the present value of future lease payments. We amortized
the deferred gain (as a reduction of rental expense), using the straight-line method through
April 2008. In May 2008, we terminated the lease and relocated our offices to different leased
space. The unamortized sale lease-back gain, in the amount of $457, was recognized as other
income in our consolidated statements of operations and reported as a gain on sale of assets in
our consolidated statements of cash flows.


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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
   OUR COMPANY
  - 22 -




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OUR BUSINESS SEGMENTS
  Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Fine Chemicals
    
    
    53
    %
    
    
    70
    %
    
    
    58
    %
    
    
    58
    %Specialty Chemicals:Perchlorates
    
    
    29
    %
    
    
    17
    %
    
    
    28
    %
    
    
    27
    %Sodium Azide
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    1
    %Halotron
    
    
    4
    %
    
    
    3
    %
    
    
    3
    %
    
    
    2
    %Total Specialty Chemicals
    
    
    33
    %
    
    
    20
    %
    
    
    31
    %
    
    
    30
    %Aerospace Equipment
    
    
    9
    %
    
    
    10
    %
    
    
    9
    %
    
    
    10
    %Other Businesses:Real Estate
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    1
    %Water Treatment Equipment
    
    
    5
    %
    
    
    0
    %
    
    
    2
    %
    
    
    1
    %Total Other Businesses
    
    
    5
    %
    
    
    0
    %
    
    
    2
    %
    
    
    2
    %Total Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Fine Chemicals .
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
    
    Alternative Supply May Not Be Readily Available. We are currently the sole source supplier
on several of our fine chemicals products.
 
    
    Regulatory Approval.Applications to and approvals from the FDA and other regulatory
authorities generally require the chemical contractor to be named. Switching contractors may
require additional regulatory approval and could take as long as 1-2 years.
 
    
    Significant Financial Costs.Switching contractors can result in significant costs
associated with technology transfer, process validation and re-filing with the FDA and other
regulatory authorities.
 Specialty Chemicals.
   Aerospace Equipment.
 Other Businesses .
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RESULTS OF OPERATIONS
 REVENUES
 June 30,
    
    
    Increase
    
    
    Percentage2008
    
    
    2007
    
    
    (Decrease)
    
    
    ChangeThree Months Ended:Fine Chemicals
    
    $
    19,654
    
    
    $
    30,736
    
    
    $
    (11,082
    )
    
    
    (36
    %)Specialty Chemicals
    
    
    11,942
    
    
    
    8,780
    
    
    
    3,162
    
    
    
    36
    %Aerospace Equipment
    
    
    3,380
    
    
    
    4,119
    
    
    
    (739
    )
    
    
    (18
    %)Other Businesses
    
    
    1,764
    
    
    
    88
    
    
    
    1,676
    
    
    
    1,905
    %Total Revenues
    
    $
    36,740
    
    
    $
    43,723
    
    
    $
    (6,983
    )
    
    
    (16
    %)Nine Months Ended:Fine Chemicals
    
    $
    76,920
    
    
    $
    70,693
    
    
    $
    6,227
    
    
    
    9
    %Specialty Chemicals
    
    
    40,278
    
    
    
    36,702
    
    
    
    3,576
    
    
    
    10
    %Aerospace Equipment
    
    
    11,350
    
    
    
    12,560
    
    
    
    (1,210
    )
    
    
    (10
    %)Other Businesses
    
    
    3,429
    
    
    
    2,245
    
    
    
    1,184
    
    
    
    53
    %Total Revenues
    
    $
    131,977
    
    
    $
    122,200
    
    
    $
    9,777
    
    
    
    8
    %
 Fine Chemicals
  Specialty Chemicals.
  
    
    A 50% increase in perchlorate volume and a 3% decrease in the related average price per
pound in the fiscal 2008 third quarter.
 
    
    A 27% increase in perchlorate volume, offset partially by a 11% decrease in the related
average price per pound for the nine months ended June 30, 2008.
 
    
    Sodium azide revenues decreased 68% in the fiscal 2008 nine-month period compared to the
prior year period.
 
    
    Halotron revenues increased 10% in the fiscal 2008 nine-month period compared to the prior
year period.
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Aerospace Equipment.
 
    
    The awards of new contracts are occurring later than we previously anticipated.
 
    
    During the fiscal 2008 third quarter, a component supplier for one of the Aerospace
Equipment segments larger production contracts experienced a quality issue with respect to
their manufactured component, which in turn resulted in a delay in delivery of these
components to our ISP facilities. The quality issue at the supplier has been resolved and
production under this contract has resumed. Nonetheless, the delay did result in significant
revenue declines during the fiscal 2008 third quarter.
  Other Businesses.
 COST OF REVENUES AND GROSS MARGIN
 June 30,
    
    
    Increase
    
    
    Percentage2008
    
    
    2007
    
    
    (Decrease)
    
    
    ChangeThree Months Ended:Revenues
    
    $
    36,740
    
    
    $
    43,723
    
    
    $
    (6,983
    )
    
    
    (16
    %)Cost of Revenues
    
    
    23,990
    
    
    
    30,358
    
    
    
    (6,368
    )
    
    
    (21
    %)Gross Margin
    
    
    12,750
    
    
    
    13,365
    
    
    
    (615
    )
    
    
    (5
    %)Gross Margin Percentage
    
    
    35
    %
    
    
    31
    %Nine Months Ended:Revenues
    
    $
    131,977
    
    
    $
    122,200
    
    
    $
    9,777
    
    
    
    8
    %Cost of Revenues
    
    
    85,188
    
    
    
    79,716
    
    
    
    5,472
    
    
    
    7
    %Gross Margin
    
    
    46,789
    
    
    
    42,484
    
    
    
    4,305
    
    
    
    10
    %Gross Margin Percentage
    
    
    35
    %
    
    
    35
    %
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
    
    A decrease in Fine Chemicals segment gross margin percentage of approximately seven points
for the fiscal 2008 third quarter and approximately three points for the nine months ended
June 30, 2008, each compared to the comparable prior fiscal year period. There are several
factors affecting Fine Chemicals gross margin percentages. The primary factor is a change in
product mix, with the fiscal 2008 periods, and in particular the third quarter of fiscal 2008,
containing a greater percentage of lower-margin products than the comparable fiscal 2007
periods. To a lesser extent, gross margin percentages were also reduced by product scheduling
and maintenance issues which affected manufacturing efficiency. The Fine Chemicals segment
operating margin percentage is expected to increase significantly for our fiscal 2008 fourth
quarter, although for our full fiscal 2008, we continue to expect that Fine Chemicals
operating margins will be less than fiscal 2007.
 
    
    Specialty Chemicals segment gross margin percentage improved twenty points for the fiscal
2008 third quarter and eight points for the nine months ended June 30, 2008, compared to the
respective prior year periods, reflecting the following:
 
    
    Mid fiscal 2008 second quarter, the Specialty Chemicals segment completed the
amortization of the value assigned to the perchlorate customer list acquired in fiscal
1998. This reduction in amortization expense improved the Specialty Chemicals segment
gross margin percentage by eight points for the fiscal 2008 third quarter and three
points for the nine months ended June 30, 2008, compared to the respective prior year
periods.
    
    The gross margin percentages in the fiscal 2008 periods benefited from higher Grade
I AP production quantities in fiscal 2008, and the related improvement in fixed
manufacturing costs absorption.
 
    
    On a year-to-date basis, an increase in Aerospace Equipment segment gross margin
percentage.
 OPERATING EXPENSES
 June 30,
    
    
    Increase
    
    
    Percentage2008
    
    
    2007
    
    
    (Decrease)
    
    
    ChangeThree Months Ended:Operating Expenses
    
    $
    10,377
    
    
    $
    9,660
    
    
    $
    717
    
    
    
    7
    %Percentage of Revenues
    
    
    28
    %
    
    
    22
    %Nine Months Ended:Operating Expenses
    
    $
    31,824
    
    
    $
    28,264
    
    
    $
    3,560
    
    
    
    13
    %Percentage of Revenues
    
    
    24
    %
    
    
    23
    %
  
    
    A decrease in Fine Chemicals segment operating expenses of $249 for the fiscal 2008 third
quarter and an increase of $717 for the nine months ended June 30, 2008 due to changes in
personnel related costs.
 
    
    A decrease in Specialty Chemicals segment operating expenses of $392 for the fiscal 2008
third quarter primarily due to the timing of employee benefit expenses. On a year-to-date
basis, the lower employee benefit costs were offset by increases in environmental compliance
related expenses and product development costs.
 
    
    An increase in Aerospace Equipment operating expenses of $311 for the fiscal 2008 third
quarter primarily due to additional research and development and bid and proposal costs.
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
    
    An increase in corporate operating expenses of $950 for the fiscal 2008 third quarter and
$2,225 for the nine months ended June 30, 2008, which latter increase includes $762 increase
in retirement benefit expenses, $661 increase in salaries and benefits, $384 increase in
corporate development costs, and $248 increase in Sarbanes-Oxley compliance costs.
 SEGMENT OPERATING INCOME
 June 30,
    
    
    Increase
    
    
    Percentage2008
    
    
    2007
    
    
    (Decrease)
    
    
    ChangeThree Months Ended:Fine Chemicals
    
    $
    621
    
    
    $
    4,950
    
    
    $
    (4,329
    )
    
    
    (87
    %)Specialty Chemicals
    
    
    5,998
    
    
    
    1,935
    
    
    
    4,063
    
    
    
    210
    %Aerospace Equipment
    
    
    (330
    )
    
    
    310
    
    
    
    (640
    )
    
    
    (206
    %)Other Businesses
    
    
    341
    
    
    
    (183
    )
    
    
    524
    
    
    
    (286
    %)Segment Operating Income
    
    
    6,630
    
    
    
    7,012
    
    
    
    (382
    )
    
    
    (5
    %)Corporate Expenses
    
    
    (4,257
    )
    
    
    (3,307
    )
    
    
    (950
    )
    
    
    29
    %Operating Income
    
    $
    2,373
    
    
    $
    3,705
    
    
    $
    (1,332
    )
    
    
    (36
    %)Nine Months Ended:Fine Chemicals
    
    $
    9,426
    
    
    $
    10,795
    
    
    $
    (1,369
    )
    
    
    (13
    %)Specialty Chemicals
    
    
    16,768
    
    
    
    11,846
    
    
    
    4,922
    
    
    
    42
    %Aerospace Equipment
    
    
    248
    
    
    
    607
    
    
    
    (359
    )
    
    
    (59
    %)Other Businesses
    
    
    340
    
    
    
    564
    
    
    
    (224
    )
    
    
    (40
    %)Segment Operating Income
    
    
    26,782
    
    
    
    23,812
    
    
    
    2,970
    
    
    
    12
    %Corporate Expenses
    
    
    (11,817
    )
    
    
    (9,592
    )
    
    
    (2,225
    )
    
    
    23
    %Operating Income
    
    $
    14,965
    
    
    $
    14,220
    
    
    $
    745
    
    
    
    5
    %
  LIQUIDITY AND CAPITAL RESOURCES
 CASH FLOWS
 Nine Months Ended June 30,
    
    
    
    
    
    
    Percentage2008
    
    
    2007
    
    
    Change
    
    
    ChangeCash Provided (Used) By:Operating activities
    
    $
    21,141
    
    
    $
    19,882
    
    
    $
    1,259
    
    
    
    6
    %Investing activities
    
    
    (10,027
    )
    
    
    (2,420
    )
    
    
    (7,607
    )
    
    
    (314
    %)Financing activities
    
    
    230
    
    
    
    (2,435
    )
    
    
    2,665
    
    
    
    109
    %Net change in cash for period
    
    $
    11,344
    
    
    $
    15,027
    
    
    $
    (3,683
    )
    
    
    (25
    %)
 Operating Activities. 
  
    
    A decrease in cash due to less profit from our operations of $406.
 
    
    An improvement in cash flow provided by working capital accounts of $5,320, excluding the
effects of interest and income taxes.
 
    
    An increase in cash taxes paid of $3,489.
 
    
    An increase in cash used for interest payments of $1,414.
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
    
    A reduction in cash used for environmental remediation of $1,043.
 
    
    Other decreases in cash used for operating activities of $205.
       Investing Activities
   Financing Activities
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LIQUIDITY AND CAPITAL RESOURCES
    LONG-TERM DEBT AND REVOLVING CREDIT FACILITIES
 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 an applicable premium as defined in the related indenture;
 
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the
principal amount to be redeemed and reducing to 100% by February 1, 2013;
 
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a
redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest
thereon, with the proceeds of certain sales of our equity securities; and
 
    
    under certain changes of control, we must offer to purchase the Senior Notes at 101% of
their aggregate principal amount, plus accrued interest.
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
    
    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.
  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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ENVIRONMENTAL REMEDIATION  AMPAC HENDERSON SITE
  CONTRACTUAL OBLIGATIONS
   OFF-BALANCE SHEET ARRANGEMENTS
 Letters of Credit.
 Employee Agreements.
 - 32 -




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DIVIDEND AND SHARE REPURCHASE PROGRAM
  CRITICAL ACCOUNTING POLICIES
   Sales and Revenue Recognition. Revenue
Recognition in Financial Statements Revenue
Recognition,
  - 33 -




---



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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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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in Thousands)
  
 ITEM 4. CONTROLS AND PROCEDURES
  - 36 -




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS (Dollars in Thousands)
   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.
 %
  - 38 -




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The inherent limitations of our fixed-price or similar contracts may impact our profitability.
  The numerous and often complex laws and regulations and regulatory oversight to which our
operations and properties are subject, the cost of compliance, and the effect of any failure to
comply could reduce our profitability and liquidity.
   - 39 -




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A significant portion of our business depends on contracts with the government or its prime
contractors and these contracts are impacted by governmental priorities and are subject to
potential fluctuations in funding or early termination, including for convenience, any of which
could material adversely effect our operating results, financial condition or cash flows.
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We may be subject to potentially material costs and liabilities in connection with environmental
liabilities.
  Review of Perchlorate Toxicity by the EPA.
 Perchlorate Remediation Project in Henderson, Nevada.
 Henderson Site Environmental Remediation Reserve.
 - 41 -




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Other Environmental Matters.
 Although we have established an environmental reserve for our AMPAC Henderson Site, given the many
uncertainties involved in assessing environmental liabilities, our environmental-related risks may
from time to time exceed any related reserves.
  For each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments, most
production is conducted in a single facility and any significant disruption or delay at a
particular facility could have a material adverse effect on our business, financial position and
results of operations.
  - 42 -




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The release or explosion of dangerous materials used in our business could disrupt our operations
and cause us to incur additional costs and liability.
  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.
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Each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments may be unable to
comply with customer specifications and manufacturing instructions or may experience delays or
other problems with existing or new products, which could result in increased costs, losses of
sales and potential breach of customer contracts.
    Successful commercialization of pharmaceutical products and product line extensions is very
difficult and subject to many uncertainties. If a customer is not able to successfully
commercialize its products for which AFC produces compounds or if a product is subsequently
recalled, then the operating results of AFC may be negatively impacted.
  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.
 - 44 -




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The pharmaceutical fine chemicals industry is a capital-intensive industry and if AFC does not have
sufficient financial resources to finance the necessary capital expenditures, its business and
results of operations may be harmed.
  We may be subject to potential product liability claims that could affect our earnings and
financial condition and harm our reputation.
  Technology innovations in the markets that we serve may create alternatives to our products and
result in reduced sales.
  - 45 -




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We are subject to competition in certain industries where we participate 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 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, our liquidity or our 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;
 
    
    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
 - 47 -




---



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
    
    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;
 
    
    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.
  Our shareholder rights plan, Restated Certificate of Incorporation, as amended, and Amended and
Restated By-laws discourage unsolicited takeover proposals and could prevent stockholders from
realizing a premium on their common stock.
  
    
    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, in certain cases, of our Restated
Certificate of Incorporation, as amended, and our Amended and Restated By-laws.
  Our proprietary rights may be violated or compromised, which could damage our operations.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity Securities
 (c)
    
    
    (d)(a)
    
    
    (b)
    
    
    Total number of
    
    
    Maximum number (orTotal number
    
    
    Average
    
    
    shares purchased as
    
    
    approximate dollar value)Period
    
    
    of shares
    
    
    price paid
    
    
    part of publicly
    
    
    of shares that may yet bepurchased
    
    
    per share
    
    
    announced plans or
    
    
    purchased under theprograms
    
    
    plans or programsApril 1, 2008 to
April 30, 2008
    
    
    0
    
    
    N/A
    
    
    0
    
    
    N/AMay 1, 2008 to May
31, 2008
    
    
    0
    
    
    N/A
    
    
    0
    
    
    N/AJune 1, 2008 to June
30, 2008
    
    
    11,080(1)
    
    

$17.50(1)
    
    
    0
    
    
    N/ATotal
    
    
    11,080
    
    
    $17.50
    
    
    0
    
    
    N/A
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES  None.
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  None.
 
 ITEM 5. OTHER INFORMATION  None.
 
 ITEM 6. EXHIBITS  See attached exhibit index.
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SIGNATURES
  AMERICAN PACIFIC CORPORATIONDate: August 7, 2008
    
    /s/ JOHN R. GIBSONJohn R. GibsonChairman of the Board and Chief Executive Officer(Principal Executive Officer)/s/ DANA M. KELLEYDana M. KelleyVice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
 EXHIBIT NO.
    
    DOCUMENT DESCRIPTION3.1
    
    Restated Certificate of Incorporation, as amended, of American Pacific Corporation
(incorporated by reference to Exhibit 4.(a) to the Registrants Registration Statement on Form
S-3 (File No. 33-15674))3.2
    
    Articles of Amendment to the Restated Certificate of Incorporation of American Pacific
Corporation, as filed with the Secretary of State, State of Delaware, on October 7, 1991
(incorporated by reference to Exhibit 4.3 to the Registrants Registration Statement on Form
S-3 (File No. 33-52196))3.3
    
    Articles of Amendment to the Restated Certificate of Incorporation of American Pacific
Corporation, as filed with the Secretary of State, State of Delaware, on April 21, 1992
(incorporated by reference to Exhibit 4.4 to the Registrants Registration Statement on Form
S-3 (File No. 33-52196))3.4
    
    American Pacific Corporation Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on Form 8-K (File No. 001-08137) filed by the
Registrant with the Securities and Exchange Commission on November 15, 2007)3.5
    
    Form of Rights Agreement, dated as of August 3, 1999, between American Pacific Corporation
and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 1 to the
Registrants Registration Statement on Form 8-A (File No. 001-08137) filed by the Registrant
with the Securities and Exchange Commission on August 6, 1999)3.6
    
    Form of Letter to Stockholders with copies of Summary of Rights to Purchase Preference Shares
(incorporated by reference to Exhibit 2 to the Registrants Registration Statement on Form 8-A
(File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on
August 6, 1999)3.7
    
    Amendment, dated as of July 11, 2008, between American Pacific Corporation and American Stock
Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Registrants Current
Report on Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and
Exchange Commission on July 11, 2008)10.1
    
    Severance Agreement, dated as of July 8, 2008, between American Pacific Corporation and Linda
G. Ferguson (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on
Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and Exchange
Commission on July 11, 2008)10.2
    
    Severance Agreement, dated as of July 8, 2008, between American Pacific Corporation and Dana
M. Kelley (incorporated by reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and Exchange
Commission on July 11, 2008)31.1
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1*
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 200232.2*
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
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*
    
    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, as amended, or otherwise subject to the liability of that section, and shall not be
deemed to be incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended.
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