##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from  to
 Commission File Number: 001-08137
 AMERICAN PACIFIC CORPORATION
  
 Delaware
    
    59-6490478(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 3770 Howard Hughes Parkway, Suite 300
Las Vegas, Nevada 89169
 702) 735-2200
 þ o
  Large accelerated filer: o
    
    Accelerated filer: þ
    
    Non-accelerated filer: o
    
    Smaller reporting company: o(Do not check if a smaller reporting company)
 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
    
    
    37ITEM 1A. Risk Factors
    
    
    37ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48ITEM 3. Defaults Upon Senior Securities
    
    
    48ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    48ITEM 5. Other Information
    
    
    48ITEM 6. Exhibits
    
    
    48EX-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
    
    Six Months EndedMarch 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007Revenues
    
    $
    48,347
    
    
    $
    43,589
    
    
    $
    95,237
    
    
    $
    78,477Cost of Revenues
    
    
    31,737
    
    
    
    27,378
    
    
    
    61,198
    
    
    
    49,358Gross Profit
    
    
    16,610
    
    
    
    16,211
    
    
    
    34,039
    
    
    
    29,119Operating Expenses
    
    
    11,242
    
    
    
    10,091
    
    
    
    21,447
    
    
    
    18,604Operating Income
    
    
    5,368
    
    
    
    6,120
    
    
    
    12,592
    
    
    
    10,515Interest and Other Income, Net
    
    
    268
    
    
    
    90
    
    
    
    646
    
    
    
    184Interest Expense
    
    
    2,687
    
    
    
    3,157
    
    
    
    5,391
    
    
    
    6,460Debt Repayment Charges
    
    
    
    
    
    
    2,714
    
    
    
    
    
    
    
    2,714Income before Income Tax
    
    
    2,949
    
    
    
    339
    
    
    
    7,847
    
    
    
    1,525Income Tax Expense
    
    
    1,316
    
    
    
    221
    
    
    
    3,351
    
    
    
    768Net Income
    
    $
    1,633
    
    
    $
    118
    
    
    $
    4,496
    
    
    $
    757Earnings per Share:Basic
    
    $
    0.22
    
    
    $
    0.02
    
    
    $
    0.60
    
    
    $
    0.10Diluted
    
    $
    0.22
    
    
    $
    0.02
    
    
    $
    0.59
    
    
    $
    0.10Weighted Average Shares Outstanding:Basic
    
    
    7,440,000
    
    
    
    7,335,000
    
    
    
    7,437,000
    
    
    
    7,330,000Diluted
    
    
    7,592,000
    
    
    
    7,429,000
    
    
    
    7,588,000
    
    
    
    7,398,000
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Balance Sheets
 (Unaudited, Dollars in Thousands, Except per Share Amounts)
 March 31,
    
    September 30,2008
    
    2007ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    27,403
    
    
    $
    21,426Accounts Receivable, Net
    
    
    25,385
    
    
    
    25,236Inventories
    
    
    49,489
    
    
    
    47,023Prepaid Expenses and Other Assets
    
    
    4,286
    
    
    
    2,258Deferred Income Taxes
    
    
    5,504
    
    
    
    2,101Total Current Assets
    
    
    112,067
    
    
    
    98,044Property, Plant and Equipment, Net
    
    
    116,244
    
    
    
    116,965Intangible Assets, Net
    
    
    3,631
    
    
    
    5,767Deferred Income Taxes
    
    
    18,591
    
    
    
    19,385Other Assets
    
    
    9,279
    
    
    
    9,246TOTAL ASSETS
    
    $
    259,812
    
    
    $
    249,407LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    13,606
    
    
    $
    10,867Accrued Liabilities
    
    
    5,227
    
    
    
    7,829Accrued Interest
    
    
    1,650
    
    
    
    1,686Employee Related Liabilities
    
    
    5,346
    
    
    
    7,222Deferred Revenues and Customer Deposits
    
    
    13,044
    
    
    
    7,755Current Portion of Environmental Remediation Reserves
    
    
    613
    
    
    
    726Current Portion of Long-Term Debt
    
    
    234
    
    
    
    252Total Current Liabilities
    
    
    39,720
    
    
    
    36,337Long-Term Debt
    
    
    110,247
    
    
    
    110,373Environmental Remediation Reserves
    
    
    14,262
    
    
    
    14,697Pension Obligations and Other Long-Term Liabilities
    
    
    17,594
    
    
    
    12,311Total Liabilities
    
    
    181,823
    
    
    
    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, 9,482,541 and 9,463,541 issued
    
    
    948
    
    
    
    946Capital in Excess of Par Value
    
    
    87,763
    
    
    
    87,513Retained Earnings
    
    
    11,501
    
    
    
    7,296Treasury Stock - 2,034,870 shares
    
    
    (16,982
    )
    
    
    (16,982
    )Accumulated Other Comprehensive Loss
    
    
    (5,241
    )
    
    
    (3,084
    )Total Shareholders Equity
    
    
    77,989
    
    
    
    75,689TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    259,812
    
    
    $
    249,407
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Statements of Cash Flow
 (Unaudited, Dollars in Thousands)
 Six Months EndedMarch 31,2008
    
    2007Cash Flows from Operating Activities:Net Income
    
    $
    4,496
    
    
    $
    757Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:Depreciation and amortization
    
    
    8,837
    
    
    
    9,643Non-cash interest expense
    
    
    320
    
    
    
    1,819Share-based compensation
    
    
    53
    
    
    
    67Non-cash component of debt repayment charge
    
    
    
    
    
    
    2,309Excess tax benefit from stock option exercises
    
    
    (82
    )
    
    
    Deferred income taxes
    
    
    (24
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (192
    )
    
    
    3,893Inventories
    
    
    (2,466
    )
    
    
    (15,977
    )Prepaid expenses and other current assets
    
    
    (2,176
    )
    
    
    (144
    )Accounts payable
    
    
    2,282
    
    
    
    (505
    )Accrued liabilities
    
    
    (2,557
    )
    
    
    (19
    )Accrued interest
    
    
    (36
    )
    
    
    1,381Employee related liabilities
    
    
    (1,876
    )
    
    
    (91
    )Deferred revenues and customer deposits
    
    
    5,289
    
    
    
    5,218Environmental remediation reserves
    
    
    (548
    )
    
    
    (1,454
    )Pension obligations, net
    
    
    461
    
    
    
    19Other
    
    
    (562
    )
    
    
    (269
    )Net Cash Provided by Operating Activities
    
    
    11,219
    
    
    
    6,647Cash Flows from Investing Activities:Capital expenditures
    
    
    (5,297
    )
    
    
    (2,565
    )Earnout payment for acquisition of AFC Business
    
    
    
    
    
    
    (6,000
    )Discontinued operations  collection of note receivable
    
    
    
    
    
    
    7,510Net Cash Used by Investing Activities
    
    
    (5,297
    )
    
    
    (1,055
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    
    
    
    
    110,000Payments of long-term debt
    
    
    (144
    )
    
    
    (108,472
    )Debt issuance costs
    
    
    
    
    
    
    (4,574
    )Issuances of common stock
    
    
    117
    
    
    
    195Excess tax benefit from stock option exercises
    
    
    82
    
    
    
    Net Cash Provided (Used) by Financing Activities
    
    
    55
    
    
    
    (2,851
    )Net Change in Cash and Cash Equivalents
    
    
    5,977
    
    
    
    2,741Cash and Cash Equivalents, Beginning of Period
    
    
    21,426
    
    
    
    6,872Cash and Cash Equivalents, End of Period
    
    $
    27,403
    
    
    $
    9,613Cash Paid For:Interest
    
    $
    5,107
    
    
    $
    3,260Income taxes
    
    
    853
    
    
    
    81Non-Cash Investing and Financing Transactions:Capital leases originated
    
    $
    
    
    
    $
    321Additions to Property, Plant and Equipment not yet paid
    
    
    1,066
    
    
    
    384
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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 six-month periods ended March 31, 2008 and cash
flows for the six-month period ended March 31, 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 first 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 will have an impact on accounting for
business combinations once adopted, 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, this statement 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, this statement 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 March 31,
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 March 31, 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 March 31, 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 six months ended March 31,
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
    
    
    (19,000
    )
    
    
    6.17
    
    
    
    
    
    
    
    Expired / Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, March 31, 2008
    
    
    435,997
    
    
    
    7.66
    
    
    
    24,997
    
    
    
    7.86
 A summary of our exercisable stock options as of March 31, 2008 is as follows:
 Number of vested stock options
    
    
    411,000Weighted-average exercise price per share
    
    $
    7.09Aggregate intrinsic value
    
    $
    3,648Weighted-average remaining contractual term in years
    
    
    6.3
 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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2.      SHARE-BASED COMPENSATION (continued)
 Six Months EndedMarch 31,2008
    
    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
    
    $
    201
    
    
    $
    108Aggregate cash received for option exercises
    
    $
    117
    
    
    $
    195Total compensation cost (included in operating expenses)
    
    $
    53
    
    
    $
    67Tax benefit recognized
    
    
    22
    
    
    
    28Net compensation cost
    
    $
    31
    
    
    $
    39As of period end date:Total compensation cost for non-vested awards
not yet recognized
    
    $
    144
    
    
    $
    10Weighted-average years to be recognized
    
    
    1.1
    
    
    
    0.5
 3.      SELECTED BALANCE SHEET DATA
 Inventories.
 March 31,
    
    September 30,2008
    
    2007Finished goods
    
    $
    9,390
    
    
    $
    3,261Work-in-process
    
    
    24,710
    
    
    
    29,225Raw materials and supplies
    
    
    15,389
    
    
    
    14,537Total
    
    $
    49,489
    
    
    $
    47,023
 Intangible Assets.  We account for our intangible assets in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets. Intangible assets consist of the following:
 March 31,
    
    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
    
    
    (6,613
    )
    
    
    (5,994
    )3,631
    
    
    
    4,250Total
    
    $
    3,631
    
    
    $
    5,767
 The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject to
amortization. Amortization expense was $542 and $975 for the three-month periods ended March 31,
2008 and 2007, respectively. Amortization expense was $1,517 and $1,950 for the six-month
periods ended March 31, 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 March 31,
2008 and 2007, and $619 for each of the six-month periods ended March 31, 2008 and 2007.
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4.
    
    COMPREHENSIVE INCOMEComprehensive income consists of the following:
 Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net Income
    
    $
    1,633
    
    
    $
    118
    
    
    $
    4,496
    
    
    $
    757Other Comprehensive Income (Loss) -Foreign currency translation adjustment
    
    
    
    
    
    
    5
    
    
    
    (47
    )
    
    
    27SERP Amendment, net of tax (See Note 10)
    
    
    
    
    
    
    
    
    
    
    (2,110
    )
    
    
    Comprehensive Income
    
    $
    1,633
    
    
    $
    123
    
    
    $
    2,339
    
    
    $
    784
 5.
    
    EARNINGS PER SHAREShares used to compute earnings per share are as follows:
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007Net income
    
    $
    1,633
    
    
    $
    118
    
    
    $
    4,496
    
    
    $
    757Basic Weighted Average Shares
    
    
    7,440,000
    
    
    
    7,335,000
    
    
    
    7,437,000
    
    
    
    7,330,000Diluted:Weighted average shares, basic
    
    
    7,440,000
    
    
    
    7,335,000
    
    
    
    7,437,000
    
    
    
    7,330,000Dilutive effect of stock options
    
    
    152,000
    
    
    
    94,000
    
    
    
    151,000
    
    
    
    68,000Weighted average shares, diluted
    
    
    7,592,000
    
    
    
    7,429,000
    
    
    
    7,588,000
    
    
    
    7,398,000Basic earnings per share
    
    $
    0.22
    
    
    $
    0.02
    
    
    $
    0.60
    
    
    $
    0.10Diluted earnings per share
    
    $
    0.22
    
    
    $
    0.02
    
    
    $
    0.59
    
    
    $
    0.10
 As of March 31, 2008, we had 24,997 antidilutive options outstanding. As of March 31, 2007, we
had no antidilutive options outstanding. Stock options are antidilutive if the exercise price
of the option exceeds the average fair market value of our stock for the period.6.
    
    DEBTOur outstanding debt balances consist of the following:
 March 31,
    
    September 30,2008
    
    2007Senior Notes, 9%, due 2015
    
    $
    110,000
    
    
    $
    110,000Capital Leases, due through 2009
    
    
    481
    
    
    
    625Total Debt
    
    
    110,481
    
    
    
    110,625Less Current Portion
    
    
    (234
    )
    
    
    (252
    )Total Long-term Debt
    
    $
    110,247
    
    
    $
    110,373
 Senior Notes.In February 2007, we issued and sold $110,000 aggregate principal amount of 9.0%
Senior Notes due February 1, 2015 (collectively, with the exchange notes issued in August 2007
as referenced below, the Senior Notes). Proceeds from the issuance of the Senior Notes were
used to repay our former credit facilities. The Senior Notes accrue interest at an annual rate
of 9.0%, payable
semi-annually in February and August. The Senior Notes are guaranteed on a senior unsecured
basis by all of our existing and future material U.S. subsidiaries. The Senior Notes are:
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6.
    
    DEBT (continued)
 
    
    ranked equally in right of payment with all of our existing and future senior
indebtedness;
    
    ranked senior in right of payment to all of our existing and future senior subordinated
and subordinated indebtedness;
    
    effectively junior to our existing and future secured debt to the extent of the value of
the assets securing such debt; and
    
    structurally subordinated to all of the existing and future liabilities (including trade
payables) of each of our subsidiaries that do not guarantee the Senior Notes.
 The Senior Notes may be redeemed, in whole or in part, under the following circumstances:
 
    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus 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% 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% 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.
 The Senior Notes were issued pursuant to an indenture which contains certain customary events of
default and certain other covenants limiting, subject to exceptions, carve-outs and
qualifications, our ability to:
 
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
 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.On February 6, 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.
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6.
    
    DEBT (continued)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.
 Financial covenants under the Revolving Credit Facility include quarterly requirements for total
leverage ratio of less than or equal to 5.25 to 1.00, and interest coverage ratio of at least
2.50 to 1.00. The Revolving Credit Facility also contains usual and customary events of default
(subject to certain threshold amounts and grace periods). If an event of default occurs and is
continuing, we may be required to repay the obligations under the Revolving Credit Facility
prior to its stated maturity and the related commitments may be terminated.As of March 31, 2008, under our Revolving Credit Facility, we had no borrowings outstanding,
availability of $18,354 and we were in compliance with its various financial covenants.
Availability is computed as the total commitment of $20,000 less outstanding borrowings and
outstanding letters of credit, if any.Letters of Credit.As of March 31, 2008, we had $1,848 in outstanding standby letters of credit
which mature through May 2012. These letters of credit principally secure performance of certain
environmental protection equipment sold by us and payment of fees associated with the delivery
of natural gas and power.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.The perchlorate anion is not currently included in
the list of hazardous substances compiled by the U.S. Environmental Protection Agency (EPA),
but it is on the EPAs Contaminant Candidate List. The EPA has conducted a risk assessment
relating to perchlorate, two drafts of which were subject to formal peer reviews held in 1999
and 2002. Following the 2002 peer review, the EPA perchlorate risk assessment together with
other perchlorate related science was reviewed by the National Academy of Sciences or NAS.
This NAS report was released on January 11, 2005. The recommendations contained in this NAS
report indicate that human health is protected in drinking water 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
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7.
    
    COMMITMENTS AND CONTINGENCIES (continued)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 (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.Notwithstanding these facts, and at the direction of NDEP and the EPA, we conducted an
investigation of remediation technologies for perchlorate in groundwater with the intention of
remediating groundwater near the AMPAC Henderson Site. The technology that was chosen as most
efficient and appropriate is in situ bioremediation or ISB. ISB reduces perchlorate in the
groundwater by precise addition of an appropriate carbon source to the groundwater itself while
it is still in the ground (as opposed to an above ground, more conventional, ex situ process).
This induces naturally occurring organisms in the groundwater to reduce the perchlorate among
other oxygen containing compounds.In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On
the basis of the successful test and other evaluations, in fiscal 2005 we submitted a work plan
to NDEP for the construction of a remediation facility near the AMPAC Henderson Site. The
conditional approval of the work plan by NDEP in our third quarter of fiscal 2005 allowed us to
generate estimated costs for the installation and operation of the remediation facility to
address perchlorate at 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
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7.
    
    COMMITMENTS AND CONTINGENCIES (continued)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 March 31, 2008, the aggregate range of
anticipated environmental remediation costs was from approximately $11,900 to approximately
$17,900, and the accrued amount was $14,875. A summary of our environmental reserve activity
for the six months ended March 31, 2008 is shown below:
 Balance, September 30, 2007
    
    $
    15,423Additions or adjustments
    
    
    Expenditures
    
    
    (548
    )Balance, March 31, 2008
    
    $
    14,875
 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
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7.
    
    COMMITMENTS AND CONTINGENCIES (continued)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. 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, clean gas fire extinguishing agents designed to replace halons.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
    
    Six Months EndedMarch 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007Fine chemicals customer
    
    
    15
    %
    
    
    
    
    
    
    20
    %Fine chemicals customer
    
    
    22
    %
    
    
    26
    %
    
    
    22
    %
    
    
    15
    %Fine chemicals customer
    
    
    18
    %
    
    
    12
    %
    
    
    12
    %
    
    
    16
    %Specialty chemicals customer
    
    
    14
    %
    
    
    18
    %
    
    
    19
    %
    
    
    14
    %Specialty chemicals customer
    
    
    
    
    
    
    11
    %
    
    
    
    
    
    
    14
    %
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8.
    
    SEGMENT INFORMATION (continued)The following provides financial information about our
segment operations:
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007Revenues:Fine Chemicals
    
    $
    30,504
    
    
    $
    22,366
    
    
    $
    57,266
    
    
    $
    39,957Specialty Chemicals
    
    
    12,787
    
    
    
    16,132
    
    
    
    28,336
    
    
    
    27,922Aerospace Equipment
    
    
    4,235
    
    
    
    4,465
    
    
    
    7,970
    
    
    
    8,441Other Businesses
    
    
    821
    
    
    
    626
    
    
    
    1,665
    
    
    
    2,157Total Revenues
    
    $
    48,347
    
    
    $
    43,589
    
    
    $
    95,237
    
    
    $
    78,477Segment Operating Income (Loss):Fine Chemicals
    
    $
    4,144
    
    
    $
    2,926
    
    
    $
    8,805
    
    
    $
    5,845Specialty Chemicals
    
    
    4,891
    
    
    
    6,418
    
    
    
    10,770
    
    
    
    9,911Aerospace Equipment
    
    
    405
    
    
    
    111
    
    
    
    578
    
    
    
    297Other Businesses
    
    
    17
    
    
    
    154
    
    
    
    (1
    )
    
    
    747Total Segment Operating Income
    
    
    9,457
    
    
    
    9,609
    
    
    
    20,152
    
    
    
    16,800Corporate Expenses
    
    
    (4,089
    )
    
    
    (3,489
    )
    
    
    (7,560
    )
    
    
    (6,285
    )Operating Income
    
    $
    5,368
    
    
    $
    6,120
    
    
    $
    12,592
    
    
    $
    10,515Depreciation and Amortization:Fine Chemicals
    
    $
    3,018
    
    
    $
    3,048
    
    
    $
    6,390
    
    
    $
    6,745Specialty Chemicals
    
    
    832
    
    
    
    1,286
    
    
    
    2,090
    
    
    
    2,568Aerospace Equipment
    
    
    39
    
    
    
    34
    
    
    
    96
    
    
    
    66Other Businesses
    
    
    3
    
    
    
    3
    
    
    
    6
    
    
    
    6Corporate
    
    
    130
    
    
    
    128
    
    
    
    255
    
    
    
    258Total Depreciation and Amortization
    
    $
    4,022
    
    
    $
    4,499
    
    
    $
    8,837
    
    
    $
    9,643
 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. We expect that it is reasonably possible that our
liability for unrecognized tax benefits will be reduced by $62 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 six months ended March 31, 2008, we accrued an
additional $36 of interest related to unrecognized tax benefits.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 2004.
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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 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.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
    
    Six Months EndedMarch 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007Pension Plans:Service Cost
    
    $
    507
    
    
    $
    487
    
    
    $
    1,014
    
    
    $
    974Interest Cost
    
    
    563
    
    
    
    529
    
    
    
    1,126
    
    
    
    1,058Expected Return on Plan Assets
    
    
    (521
    )
    
    
    (468
    )
    
    
    (1,042
    )
    
    
    (936
    )Recognized Actuarial Losses
    
    
    107
    
    
    
    153
    
    
    
    214
    
    
    
    305Amortization of Prior Service Costs
    
    
    14
    
    
    
    15
    
    
    
    28
    
    
    
    30Net Periodic Pension Cost
    
    $
    670
    
    
    $
    716
    
    
    $
    1,340
    
    
    $
    1,431Supplemental Executive Retirement Plan:Service Cost
    
    $
    89
    
    
    $
    
    
    
    $
    176
    
    
    $
    Interest Cost
    
    
    87
    
    
    
    35
    
    
    
    173
    
    
    
    70Expected Return on Plan Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognized Actuarial Losses
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    22Amortization of Prior Service Costs
    
    
    110
    
    
    
    6
    
    
    
    216
    
    
    
    12Net Periodic Pension Cost
    
    $
    286
    
    
    $
    52
    
    
    $
    565
    
    
    $
    104
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10.
    
    DEFINED BENEFIT PLANS (continued)For the six months ended March 31, 2008, we contributed $1,256 to the Pension Plans to fund
benefit payments and anticipate making approximately $1,818 in additional contributions through
September 30, 2008. For the six months ended March 31, 2008, we contributed $63 to the SERP to
fund benefit payments and anticipate making approximately $63 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:Condensed Consolidating Balance Sheet -
March 31, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    27,312
    
    
    $
    91
    
    
    $
    
    
    
    $
    27,403Accounts Receivable, Net
    
    
    
    
    
    
    25,183
    
    
    
    1,138
    
    
    
    (936
    )
    
    
    25,385Inventories, Net
    
    
    
    
    
    
    48,609
    
    
    
    880
    
    
    
    
    
    
    
    49,489Prepaid Expenses and Other Assets
    
    
    
    
    
    
    4,163
    
    
    
    123
    
    
    
    
    
    
    
    4,286Deferred Income Taxes
    
    
    
    
    
    
    5,504
    
    
    
    
    
    
    
    
    
    
    
    5,504Total Current Assets
    
    
    
    
    
    
    110,771
    
    
    
    2,232
    
    
    
    (936
    )
    
    
    112,067Property, Plant and Equipment, Net
    
    
    
    
    
    
    116,097
    
    
    
    147
    
    
    
    
    
    
    
    116,244Intangible Assets, Net
    
    
    
    
    
    
    3,631
    
    
    
    
    
    
    
    
    
    
    
    3,631Deferred Income Taxes
    
    
    
    
    
    
    18,591
    
    
    
    
    
    
    
    
    
    
    
    18,591Other Assets
    
    
    
    
    
    
    9,279
    
    
    
    
    
    
    
    
    
    
    
    9,279Intercompany Advances
    
    
    79,416
    
    
    
    1,910
    
    
    
    
    
    
    
    (81,326
    )
    
    
    Investment in Subsidiaries
    
    
    108,573
    
    
    
    (856
    )
    
    
    
    
    
    
    (107,717
    )
    
    
    Total Assets
    
    $
    187,989
    
    
    $
    259,423
    
    
    $
    2,379
    
    
    $
    (189,979
    )
    
    $
    259,812Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    25,440
    
    
    $
    1,325
    
    
    $
    (936
    )
    
    $
    25,829Environmental Remediation Reserves
    
    
    
    
    
    
    613
    
    
    
    
    
    
    
    
    
    
    
    613Deferred Revenues
    
    
    
    
    
    
    13,044
    
    
    
    
    
    
    
    
    
    
    
    13,044Intercompany Advances
    
    
    
    
    
    
    79,416
    
    
    
    1,910
    
    
    
    (81,326
    )
    
    
    Current Portion of Debt
    
    
    
    
    
    
    234
    
    
    
    
    
    
    
    
    
    
    
    234Total Current Liabilities
    
    
    
    
    
    
    118,747
    
    
    
    3,235
    
    
    
    (82,262
    )
    
    
    39,720Long-Term Debt
    
    
    110,000
    
    
    
    247
    
    
    
    
    
    
    
    
    
    
    
    110,247Environmental Remediation Reserves
    
    
    
    
    
    
    14,262
    
    
    
    
    
    
    
    
    
    
    
    14,262Other Long-Term Liabilities
    
    
    
    
    
    
    17,594
    
    
    
    
    
    
    
    
    
    
    
    17,594Total Liabilities
    
    
    110,000
    
    
    
    150,850
    
    
    
    3,235
    
    
    
    (82,262
    )
    
    
    181,823Total Stockholders Equity
    
    
    77,989
    
    
    
    108,573
    
    
    
    (856
    )
    
    
    (107,717
    )
    
    
    77,989Total Liabilities and Stockholders Equity
    
    $
    187,989
    
    
    $
    259,423
    
    
    $
    2,379
    
    
    $
    (189,979
    )
    
    $
    259,812
 -16-




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##### Table of Contents



11.
    
    GUARANTOR SUBSIDIARIES (continued)Condensed Consolidating Statement of Operations -
Three Months Ended March 31, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    47,611
    
    
    $
    736
    
    
    $
    
    
    
    $
    48,347Cost of Revenues
    
    
    
    
    
    
    31,053
    
    
    
    684
    
    
    
    
    
    
    
    31,737Gross Profit (Loss)
    
    
    
    
    
    
    16,558
    
    
    
    52
    
    
    
    
    
    
    
    16,610Operating Expenses
    
    
    
    
    
    
    11,091
    
    
    
    151
    
    
    
    
    
    
    
    11,242Operating Income (Loss)
    
    
    
    
    
    
    5,467
    
    
    
    (99
    )
    
    
    
    
    
    
    5,368Interest and Other Income
    
    
    2,662
    
    
    
    267
    
    
    
    1
    
    
    
    (2,662
    )
    
    
    268Interest Expense
    
    
    2,662
    
    
    
    2,687
    
    
    
    
    
    
    
    (2,662
    )
    
    
    2,687Income (Loss) before Income Tax and
Equity Account for Subsidiaries
    
    
    
    
    
    
    3,047
    
    
    
    (98
    )
    
    
    
    
    
    
    2,949Income Tax Expense
    
    
    
    
    
    
    1,316
    
    
    
    
    
    
    
    
    
    
    
    1,316Income (Loss) before
Equity Account for Subsidiaries
    
    
    
    
    
    
    1,731
    
    
    
    (98
    )
    
    
    
    
    
    
    1,633Equity Account for Subsidiaries
    
    
    1,633
    
    
    
    (98
    )
    
    
    
    
    
    
    (1,535
    )
    
    
    Net Income (Loss)
    
    $
    1,633
    
    
    $
    1,633
    
    
    $
    (98
    )
    
    $
    (1,535
    )
    
    $
    1,633
 Condensed Consolidating Statement of Operations -
Six Months Ended March 31, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    94,133
    
    
    $
    1,115
    
    
    $
    (11
    )
    
    $
    95,237Cost of Revenues
    
    
    
    
    
    
    60,120
    
    
    
    1,089
    
    
    
    (11
    )
    
    
    61,198Gross Profit
    
    
    
    
    
    
    34,013
    
    
    
    26
    
    
    
    
    
    
    
    34,039Operating Expenses
    
    
    
    
    
    
    21,133
    
    
    
    314
    
    
    
    
    
    
    
    21,447Operating Income (Loss)
    
    
    
    
    
    
    12,880
    
    
    
    (288
    )
    
    
    
    
    
    
    12,592Interest and Other Income
    
    
    5,332
    
    
    
    646
    
    
    
    
    
    
    
    (5,332
    )
    
    
    646Interest Expense
    
    
    5,332
    
    
    
    5,391
    
    
    
    
    
    
    
    (5,332
    )
    
    
    5,391Income before Income Tax and
Equity Account for Subsidiaries
    
    
    
    
    
    
    8,135
    
    
    
    (288
    )
    
    
    
    
    
    
    7,847Income Tax Expense
    
    
    
    
    
    
    3,351
    
    
    
    
    
    
    
    
    
    
    
    3,351Income before
Equity Account for Subsidiaries
    
    
    
    
    
    
    4,784
    
    
    
    (288
    )
    
    
    
    
    
    
    4,496Equity Account for Subsidiaries
    
    
    4,496
    
    
    
    (288
    )
    
    
    
    
    
    
    (4,208
    )
    
    
    Net Income (Loss)
    
    $
    4,496
    
    
    $
    4,496
    
    
    $
    (288
    )
    
    $
    (4,208
    )
    
    $
    4,496
 -17-




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##### Table of Contents



11.
    
    GUARANTOR SUBSIDIARIES (continued)Condensed Consolidating Statement of Cash Flows -Six Months Ended March 31, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedNet cash Provided (Used) by Operating Activities
    
    $
    
    
    
    $
    11,263
    
    
    $
    (44
    )
    
    $
    
    
    
    $
    11,219Cash Flows from Investing Activities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of businesses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditures
    
    
    
    
    
    
    (5,288
    )
    
    
    (9
    )
    
    
    
    
    
    
    (5,297
    )Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Cash Used in Investing Activities
    
    
    
    
    
    
    (5,288
    )
    
    
    (9
    )
    
    
    
    
    
    
    (5,297
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments of long-term debt
    
    
    
    
    
    
    (144
    )
    
    
    
    
    
    
    
    
    
    
    (144
    )Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117Excess tax benefit from stock option exercises
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82Intercompany advances, net
    
    
    (199
    )
    
    
    129
    
    
    
    70
    
    
    
    
    
    
    
    Net Cash Provided (Used) by Financing Activities
    
    
    
    
    
    
    (15
    )
    
    
    70
    
    
    
    
    
    
    
    55Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    5,960
    
    
    
    17
    
    
    
    
    
    
    
    5,977Cash and Cash Equivalents, Beginning of Period
    
    
    
    
    
    
    21,352
    
    
    
    74
    
    
    
    
    
    
    
    21,426Cash and Cash Equivalents, End of Period
    
    $
    
    
    
    $
    27,312
    
    
    $
    91
    
    
    $
    
    
    
    $
    27,403
 -18-




---



##### Table of Contents



11.
    
    GUARANTOR SUBSIDIARIES (continued)Condensed Consolidating Balance Sheet -
September 30, 2007
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    21,352
    
    
    $
    74
    
    
    $
    
    
    
    $
    21,426Accounts Receivable
    
    
    
    
    
    
    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
    
    
    
    
    
    
    7,755
    
    
    
    
    
    
    
    
    
    
    
    7,755Intercompany Advances
    
    
    
    
    
    
    78,976
    
    
    
    1,840
    
    
    
    (80,816
    )
    
    
    Current Portion of Debt
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    252Total Current Liabilities
    
    
    
    
    
    
    115,623
    
    
    
    2,609
    
    
    
    (81,895
    )
    
    
    36,337Long-Term Debt
    
    
    110,000
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    110,373Environmental Remediation Reserves
    
    
    
    
    
    
    14,697
    
    
    
    
    
    
    
    
    
    
    
    14,697Other Long-Term Liabilities
    
    
    
    
    
    
    12,311
    
    
    
    
    
    
    
    
    
    
    
    12,311Total Liabilities
    
    
    110,000
    
    
    
    143,004
    
    
    
    2,609
    
    
    
    (81,895
    )
    
    
    173,718Total Stockholders Equity
    
    
    75,689
    
    
    
    106,713
    
    
    
    (521
    )
    
    
    (106,192
    )
    
    
    75,689Total Liabilities and Stockholders Equity
    
    $
    185,689
    
    
    $
    249,717
    
    
    $
    2,088
    
    
    $
    (188,087
    )
    
    $
    249,407
 -19-




---



##### Table of Contents



11.
    
    GUARANTOR SUBSIDIARIES (continued)Condensed Consolidating Statement of Operations -
Three Months Ended March 31, 2007
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    43,216
    
    
    $
    507
    
    
    $
    (134
    )
    
    $
    43,589Cost of Revenues
    
    
    
    
    
    
    27,003
    
    
    
    509
    
    
    
    (134
    )
    
    
    27,378Gross Profit
    
    
    
    
    
    
    16,213
    
    
    
    (2
    )
    
    
    
    
    
    
    16,211Operating Expenses
    
    
    
    
    
    
    9,918
    
    
    
    173
    
    
    
    
    
    
    
    10,091Operating Income (Loss)
    
    
    
    
    
    
    6,295
    
    
    
    (175
    )
    
    
    
    
    
    
    6,120Interest and Other Income
    
    
    3,118
    
    
    
    89
    
    
    
    1
    
    
    
    (3,118
    )
    
    
    90Interest Expense
    
    
    3,118
    
    
    
    3,157
    
    
    
    
    
    
    
    (3,118
    )
    
    
    3,157Debt Repayment Charges
    
    
    
    
    
    
    2,714
    
    
    
    
    
    
    
    
    
    
    
    2,714Income (Loss) from Continuing Operations before
Income Tax and Equity Account for Subsidiaries
    
    
    
    
    
    
    513
    
    
    
    (174
    )
    
    
    
    
    
    
    339Income Tax Expense
    
    
    
    
    
    
    221
    
    
    
    
    
    
    
    
    
    
    
    221Income (Loss) from Continuing Operations before
Equity Account for Subsidiaries
    
    
    
    
    
    
    292
    
    
    
    (174
    )
    
    
    
    
    
    
    118Equity Account for Subsidiaries
    
    
    118
    
    
    
    
    
    
    
    
    
    
    
    (118
    )
    
    
    Net Income (Loss) from Continuing Operations
    
    $
    118
    
    
    $
    292
    
    
    $
    (174
    )
    
    $
    (118
    )
    
    $
    118
 Condensed Consolidating Statement of Operations -
Six Months Ended March 31, 2007
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    77,781
    
    
    $
    851
    
    
    $
    (155
    )
    
    $
    78,477Cost of Revenues
    
    
    
    
    
    
    48,701
    
    
    
    812
    
    
    
    (155
    )
    
    
    49,358Gross Profit
    
    
    
    
    
    
    29,080
    
    
    
    39
    
    
    
    
    
    
    
    29,119Operating Expenses
    
    
    
    
    
    
    18,306
    
    
    
    298
    
    
    
    
    
    
    
    18,604Operating Income (Loss)
    
    
    
    
    
    
    10,774
    
    
    
    (259
    )
    
    
    
    
    
    
    10,515Interest and Other Income
    
    
    6,373
    
    
    
    182
    
    
    
    2
    
    
    
    (6,373
    )
    
    
    184Interest Expense
    
    
    6,373
    
    
    
    6,460
    
    
    
    
    
    
    
    (6,373
    )
    
    
    6,460Debt Repayment Charges
    
    
    
    
    
    
    2,714
    
    
    
    
    
    
    
    
    
    
    
    2,714Income (Loss) from Continuing Operations before
Income Tax and Equity Account for Subsidiaries
    
    
    
    
    
    
    1,782
    
    
    
    (257
    )
    
    
    
    
    
    
    1,525Income Tax Expense
    
    
    
    
    
    
    768
    
    
    
    
    
    
    
    
    
    
    
    768Income (Loss) from Continuing Operations before
Equity Account for Subsidiaries
    
    
    
    
    
    
    1,014
    
    
    
    (257
    )
    
    
    
    
    
    
    757Equity Account for Subsidiaries
    
    
    757
    
    
    
    
    
    
    
    
    
    
    
    (757
    )
    
    
    Net Income (Loss) from Continuing Operations
    
    $
    757
    
    
    $
    1,014
    
    
    $
    (257
    )
    
    $
    (757
    )
    
    $
    757
 -20-




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##### Table of Contents



11.
    
    GUARANTOR SUBSIDIARIES (continued)Condensed Consolidating Statement of Cash Flows -
Six Months Ended March 31, 2007
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedNet cash Provided (Used) by Operating Activities
    
    $
    
    
    
    $
    7,110
    
    
    $
    (463
    )
    
    $
    
    
    
    $
    6,647Cash Flows from Investing Activities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of businesses
    
    
    
    
    
    
    (6,000
    )
    
    
    
    
    
    
    
    
    
    
    (6,000
    )Capital expenditures
    
    
    
    
    
    
    (2,554
    )
    
    
    (11
    )
    
    
    
    
    
    
    (2,565
    )Discontinued operations, net
    
    
    
    
    
    
    7,510
    
    
    
    
    
    
    
    
    
    
    
    7,510Net Cash Used in Investing Activities
    
    
    
    
    
    
    (1,044
    )
    
    
    (11
    )
    
    
    
    
    
    
    (1,055
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,000Payments of long-term debt
    
    
    (108,327
    )
    
    
    (145
    )
    
    
    
    
    
    
    
    
    
    
    (108,472
    )Debt issuance costs
    
    
    (4,574
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,574
    )Issuance of common stock
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195Intercompany advances, net
    
    
    2,706
    
    
    
    (3,138
    )
    
    
    432
    
    
    
    
    
    
    
    Net Cash Provided (Used) by Financing Activities
    
    
    
    
    
    
    (3,283
    )
    
    
    432
    
    
    
    
    
    
    
    (2,851
    )Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    2,783
    
    
    
    (42
    )
    
    
    
    
    
    
    2,741Cash and Cash Equivalents, Beginning of Period
    
    
    
    
    
    
    6,758
    
    
    
    114
    
    
    
    
    
    
    
    6,872Cash and Cash Equivalents, End of Period
    
    $
    
    
    
    $
    9,541
    
    
    $
    72
    
    
    $
    
    
    
    $
    9,613
 -21-




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##### Table of Contents



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




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OUR BUSINESS SEGMENTS
  Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007Fine Chemicals
    
    
    63
    %
    
    
    51
    %
    
    
    60
    %
    
    
    51
    %Specialty Chemicals:Perchlorates
    
    
    23
    %
    
    
    34
    %
    
    
    27
    %
    
    
    32
    %Sodium Azide
    
    
    0
    %
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Halotron
    
    
    3
    %
    
    
    2
    %
    
    
    2
    %
    
    
    2
    %Total Specialty Chemicals
    
    
    26
    %
    
    
    37
    %
    
    
    30
    %
    
    
    35
    %Aerospace Equipment
    
    
    9
    %
    
    
    10
    %
    
    
    8
    %
    
    
    11
    %Other Businesses:Real Estate
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Water Treatment Equipment
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
    
    
    2
    %Total Other Businesses
    
    
    2
    %
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %Total Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Fine Chemicals .
  -23-




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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 .
 -24-




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RESULTS OF OPERATIONS
 REVENUES
 March 31,
    
    Increase
    
    Percentage2008
    
    2007
    
    (Decrease)
    
    ChangeThree Months Ended:Fine Chemicals
    
    $
    30,504
    
    
    $
    22,366
    
    
    $
    8,138
    
    
    
    36
    %Specialty Chemicals
    
    
    12,787
    
    
    
    16,132
    
    
    
    (3,345
    )
    
    
    (21
    %)Aerospace Equipment
    
    
    4,235
    
    
    
    4,465
    
    
    
    (230
    )
    
    
    (5
    %)Other Businesses
    
    
    821
    
    
    
    626
    
    
    
    195
    
    
    
    31
    %Total Revenues
    
    $
    48,347
    
    
    $
    43,589
    
    
    $
    4,758
    
    
    
    11
    %Six Months Ended:Fine Chemicals
    
    $
    57,266
    
    
    $
    39,957
    
    
    $
    17,309
    
    
    
    43
    %Specialty Chemicals
    
    
    28,336
    
    
    
    27,922
    
    
    
    414
    
    
    
    1
    %Aerospace Equipment
    
    
    7,970
    
    
    
    8,441
    
    
    
    (471
    )
    
    
    (6
    %)Other Businesses
    
    
    1,665
    
    
    
    2,157
    
    
    
    (492
    )
    
    
    (23
    %)Total Revenues
    
    $
    95,237
    
    
    $
    78,477
    
    
    $
    16,760
    
    
    
    21
    %
 Fine Chemicals
 Specialty Chemicals.
  
    
    A 17% decrease in perchlorate volume and an 11% decrease in the related average price per
pound in the fiscal 2008 second quarter.
    
    An 18% increase in perchlorate volume, offset partially by a
13% decrease in the related
average price per pound for the six months ended March 31, 2008.
    
    Sodium azide revenues decreased 68% in the fiscal 2008 six-month period compared to the
prior year period.
    
    Halotron revenues increased 13% in the fiscal 2008 six-month period compared to the prior
year six month period.
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Aerospace Equipment.
 Other Businesses.
 COST OF REVENUES AND GROSS MARGIN
 March 31,
    
    Increase
    
    Percentage2008
    
    2007
    
    (Decrease)
    
    ChangeThree Months Ended:Revenues
    
    $
    48,347
    
    
    $
    43,589
    
    
    $
    4,758
    
    
    
    11
    %Cost of Revenues
    
    
    31,737
    
    
    
    27,378
    
    
    
    4,359
    
    
    
    16
    %Gross Margin
    
    
    16,610
    
    
    
    16,211
    
    
    
    399
    
    
    
    2
    %Gross Margin Percentage
    
    
    34
    %
    
    
    37
    %Six Months Ended:Revenues
    
    $
    95,237
    
    
    $
    78,477
    
    
    $
    16,760
    
    
    
    21
    %Cost of Revenues
    
    
    61,198
    
    
    
    49,358
    
    
    
    11,840
    
    
    
    24
    %Gross Margin
    
    
    34,039
    
    
    
    29,119
    
    
    
    4,920
    
    
    
    17
    %Gross Margin Percentage
    
    
    36
    %
    
    
    37
    %
    
    
    A decrease in the Fine Chemicals segment gross margin percentage of approximately two
points for the fiscal 2008 second quarter and approximately three points for the six months
ended March 31,
 -26-




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##### Table of Contents



2008, each compared to the comparable prior fiscal year period. The reductions in the Fine
Chemicals segment gross margin percentages result from a decrease in manufacturing facility utilization
during the fiscal 2008 periods as compared to the fiscal 2007 periods. Lower manufacturing
facility utilization results in a reduction in gross margin percentages due the effect of
applying manufacturing overhead costs to a smaller base. Although the manufacturing utilization
rates were less when compared to the fiscal 2007 periods, they remained at high levels in the
fiscal 2008 periods. The utilization rates variances we are experiencing are within our
expectations for normal plant operations.
 
    
    Specialty Chemicals segment gross margin percentage improved two points for the fiscal 2008
second quarter and four points for the six months ended March 31, 2008, compared to the
respective prior year periods. 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, which represents the largest
component of the total change in Specialty Chemical segment gross margin percentage, improved
the Specialty Chemical segment gross margin percentage by three points for the fiscal 2008
second quarter and two points for the six months ended March 31, 2008, compared to the
respective prior year periods.
    
    An improvement in Aerospace Equipment segment gross margin percentage for both fiscal 2008
periods due to favorable performance on the segments primary production contracts.
 OPERATING EXPENSES
 March 31,
    
    Increase
    
    Percentage2008
    
    2007
    
    (Decrease)
    
    ChangeThree Months Ended:Operating Expenses
    
    $
    11,242
    
    
    $
    10,091
    
    
    $
    1,151
    
    
    
    11
    %Percentage of Revenues
    
    
    23
    %
    
    
    23
    %Six Months Ended:Operating Expenses
    
    $
    21,447
    
    
    $
    18,604
    
    
    $
    2,843
    
    
    
    15
    %Percentage of Revenues
    
    
    23
    %
    
    
    24
    %
  
    
    An increase in Fine Chemicals segment operating expenses of $460 for the fiscal 2008 second
quarter and $965 for the six months ended March 31, 2008 due to additional research and
development and business development personnel costs and the related recruiting and relocation
expenses.
    
    An increase in Specialty Chemicals segment operating expenses of $392 for the six months
ended March 31, 2008 primarily due to increases in environmental compliance related expenses
and product development costs.
    
    An increase in corporate operating expenses of $600 for the fiscal 2008 second quarter and
$1,275 for the six months ended March 31, 2008, which latter increase is comprised primarily
of $462 increase in retirement benefit expenses, $332 increase in corporate development costs,
and $308 increase in Sarbanes-Oxley compliance costs.
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SEGMENT OPERATING INCOME
 March 31,
    
    Increase
    
    Percentage2008
    
    2007
    
    (Decrease)
    
    ChangeThree Months Ended:Fine Chemicals
    
    $
    4,144
    
    
    $
    2,926
    
    
    $
    1,218
    
    
    
    42
    %Specialty Chemicals
    
    
    4,891
    
    
    
    6,418
    
    
    
    (1,527
    )
    
    
    (24
    %)Aerospace Equipment
    
    
    405
    
    
    
    111
    
    
    
    294
    
    
    
    265
    %Other Businesses
    
    
    17
    
    
    
    154
    
    
    
    (137
    )
    
    
    (89
    %)Segment Operating Income
    
    
    9,457
    
    
    
    9,609
    
    
    
    (152
    )
    
    
    (2
    %)Corporate Expenses
    
    
    (4,089
    )
    
    
    (3,489
    )
    
    
    (600
    )
    
    
    17
    %Operating Income
    
    $
    5,368
    
    
    $
    6,120
    
    
    $
    (752
    )
    
    
    (12
    %)Six Months Ended:Fine Chemicals
    
    $
    8,805
    
    
    $
    5,845
    
    
    $
    2,960
    
    
    
    51
    %Specialty Chemicals
    
    
    10,770
    
    
    
    9,911
    
    
    
    859
    
    
    
    9
    %Aerospace Equipment
    
    
    578
    
    
    
    297
    
    
    
    281
    
    
    
    95
    %Other Businesses
    
    
    (1
    )
    
    
    747
    
    
    
    (748
    )
    
    
    (100
    %)Segment Operating Income
    
    
    20,152
    
    
    
    16,800
    
    
    
    3,352
    
    
    
    20
    %Corporate Expenses
    
    
    (7,560
    )
    
    
    (6,285
    )
    
    
    (1,275
    )
    
    
    20
    %Operating Income
    
    $
    12,592
    
    
    $
    10,515
    
    
    $
    2,077
    
    
    
    20
    %
  LIQUIDITY AND CAPITAL RESOURCES
 CASH FLOWS
 Six Months Ended March 31,
    
    Increase
    
    Percentage2008
    
    2007
    
    (Decrease)
    
    ChangeCash Provided (Used) By:Operating activities
    
    $
    11,219
    
    
    $
    6,647
    
    
    $
    4,572
    
    
    
    69
    %Financing activities
    
    
    (5,297
    )
    
    
    (1,055
    )
    
    
    (4,242
    )
    
    
    (402
    %)Investing activities
    
    
    55
    
    
    
    (2,851
    )
    
    
    2,906
    
    
    
    102
    %Net change in cash for period
    
    $
    5,977
    
    
    $
    2,741
    
    
    $
    3,236
    
    
    
    118
    %
 Operating Activities .
  
    
    An increase in cash due to improved profitability of our operations of $1,719.
    
    An improvement in cash flow from working capital accounts of $4,111, excluding the effects
of interest and income taxes.
    
    An increase in cash taxes paid of $772.
    
    An increase in cash used for interest payments of $1,442.
    
    A reduction in cash used for environmental remediation of $906.
    
    Other decreases in cash used for operating activities of $50.
  -28-




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Investing Activities.
   Financing Activities.
 LIQUIDITY AND CAPITAL RESOURCES
  -29-




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##### Table of Contents



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% 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% 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.
 -30-




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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.
   ENVIRONMENTAL REMEDIATION  AMPAC HENDERSON SITE
  -31-




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##### Table of Contents



CONTRACTUAL OBLIGATIONS
   OFF-BALANCE SHEET ARRANGEMENTS
 Letters of Credit.
 Employee Agreements.
 DIVIDEND AND SHARE REPURCHASE PROGRAM
  -32-




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CRITICAL ACCOUNTING POLICIES
   Sales and Revenue Recognition. Revenue Recognition in Financial Statements Revenue Recognition,
  Depreciable or Amortizable Lives of Long-Lived Assets.
 -33-




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Impairment of Long-Lived Assets.
  Environmental Costs .
  Income Taxes.
 -34-




---



##### Table of Contents



Pension Benefits.
 Recently Issued or Adopted Accounting Standards.
    -35-




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##### Table of Contents



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.
 %
  -37-




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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.
   -38-




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##### Table of Contents



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.
  -39-




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We may be subject to potentially material costs and liabilities in connection with environmental
liabilities.
  Review of Perchlorate Toxicity by EPA.
 Perchlorate Remediation Project in Henderson, Nevada.
 Henderson Site Environmental Remediation Reserve.
 -40-




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##### Table of Contents



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.
  -41-




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##### Table of Contents



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.
    -42-




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##### Table of Contents



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.
 -43-




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##### Table of Contents



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.
  -44-




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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.
  -45-




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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
    
    increase our vulnerability to general adverse economic and industry conditions.
 -46-




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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.
  -47-




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  None.
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES  None.
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Item No. 1.
  Name
    
    Votes For
    
    Votes WithheldNorval F. Pohl
    
    
    5,882,382
    
    
    
    832,670C. Keith Rooker
    
    
    6,573,654
    
    
    
    141,398Jane L. Williams
    
    
    5,882,382
    
    
    
    832,670
 Item No. 2.
  Votes For
    
    Against
    
    Abstained
    
    Broker Non-Votes6,651,889
    
    27,016
    
    36,147
    
    Not Applicable
 Item No. 3
  Votes For
    
    Against
    
    Abstained
    
    Broker Non-Votes4,644,573
    
    919,604
    
    14,723
    
    1,136,152
 
 ITEM 5. OTHER INFORMATION  None.
 
 ITEM 6. EXHIBITS  See attached exhibit index.
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SIGNATURES
  AMERICAN PACIFIC CORPORATIONDate:  May 9, 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) -49-




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EXHIBIT INDEX
 EXHIBIT NO.
    
    DOCUMENT DESCRIPTION3.1
    
    Registrants Restated Certificate of Incorporation, as amended (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 Registrants Restated Certificate of Incorporation, 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 Registrants Restated Certificate of Incorporation, 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
    
    Amended and Restated By-Laws of the Registrant (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)10.1
    
    American Pacific Corporation 2008 Stock Incentive Plan (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 March 17, 2008)10.2
    
    Form of Notice of Stock Option Award and Stock Option Award Agreement under the American
Pacific Corporation 2008 Stock Incentive Plan (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 March 17, 2008)10.3
    
    Form of Notice of Restricted Stock Bonus Award and Restricted Stock Bonus Award Agreement
under the American Pacific Corporation 2008 Stock Incentive Plan (incorporated by reference to
Exhibit 10.3 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 March 17, 2008)10.4
    
    American Pacific Corporation Incentive Compensation Plan (incorporated by reference to
Exhibit 10.4 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 March 17, 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. -51-