##### Table of Contents



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 Quarterly Period Ended March 31, 2006
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
 Commission File Number 1-8137
 AMERICAN PACIFIC CORPORATION
  Delaware
    
    59-6490478(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or
    
    Identification No.)organization)3770 Howard Hughes Parkway, Suite 300Las Vegas, NV
    
    89109(Address of principal executive offices)
    
    (Zip Code)
 702) 735-2200
 þ o
 o o þ
 o þ




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##### 



AMERICAN PACIFIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q
 PART I. FINANCIAL INFORMATIONITEM 1.
    
    Condensed Consolidated Statements of Operations (unaudited)
    
    
    2Condensed Consolidated Balance Sheets (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows (unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    5ITEM 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20ITEM 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    36ITEM 4.
    
    Controls and Procedures
    
    
    36PART II. OTHER INFORMATIONITEM 1.
    
    Legal Proceedings
    
    
    36ITEM 1A.
    
    Risk Factors
    
    
    36ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36ITEM 3.
    
    Defaults Upon Senior Securities
    
    
    37ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    37ITEM 5.
    
    Other Information
    
    
    37ITEM 6.
    
    Exhibits
    
    
    38Exhibit 10.1Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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##### Table of Contents



PART I. FINANCIAL STATEMENTS
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited, Dollars in Thousands, Except per Share Amounts)
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Revenues
    
    $
    43,924
    
    
    $
    18,513
    
    
    $
    63,041
    
    
    $
    36,767Cost of Revenues
    
    
    30,055
    
    
    
    11,986
    
    
    
    44,631
    
    
    
    24,531Gross Profit
    
    
    13,869
    
    
    
    6,527
    
    
    
    18,410
    
    
    
    12,236Operating Expenses
    
    
    11,614
    
    
    
    7,113
    
    
    
    18,045
    
    
    
    13,808Environmental Remediation Charge
    
    
    2,800
    
    
    
    
    
    
    
    2,800Operating Loss
    
    
    (545
    )
    
    
    (586
    )
    
    
    (2,435
    )
    
    
    (1,572
    )Interest and Other Income
    
    
    48
    
    
    
    148
    
    
    
    923
    
    
    
    257Interest Expense
    
    
    3,129
    
    
    
    42
    
    
    
    4,271
    
    
    
    108Loss Before Income Taxes and
Extraordinary Gain
    
    
    (3,626
    )
    
    
    (480
    )
    
    
    (5,783
    )
    
    
    (1,423
    )Income Tax Benefit
    
    
    (1,288
    )
    
    
    (177
    )
    
    
    (2,140
    )
    
    
    (526
    )Loss Before Extraordinary Gain
    
    
    (2,338
    )
    
    
    (303
    )
    
    
    (3,643
    )
    
    
    (897
    )Extraordinary Gain, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,622Net Income (Loss)
    
    $
    (2,338
    )
    
    $
    (303
    )
    
    $
    (3,643
    )
    
    $
    725Basic Earnings (Loss) Per Share:Loss Before Extraordinary Gain
    
    $
    (0.32
    )
    
    $
    (0.04
    )
    
    $
    (0.50
    )
    
    $
    (0.12
    )Extraordinary Gain, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.22Net Income (Loss)
    
    $
    (0.32
    )
    
    $
    (0.04
    )
    
    $
    (0.50
    )
    
    $
    0.10Diluted Earnings (Loss) Per Share:Loss Before Extraordinary Gain
    
    $
    (0.32
    )
    
    $
    (0.04
    )
    
    $
    (0.50
    )
    
    $
    (0.12
    )Extraordinary Gain, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.22Net Income (Loss)
    
    $
    (0.32
    )
    
    $
    (0.04
    )
    
    $
    (0.50
    )
    
    $
    0.10Weighted Average Shares Outstanding:Basic
    
    
    7,297,000
    
    
    
    7,292,000
    
    
    
    7,297,000
    
    
    
    7,292,000Diluted
    
    
    7,297,000
    
    
    
    7,292,000
    
    
    
    7,297,000
    
    
    
    7,292,000
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Balance Sheets
(Unaudited, Dollars in Thousands)
 March 31,
    
    September 30,2006
    
    2005ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    7,997
    
    
    $
    37,213Accounts and Notes Receivable
    
    
    23,258
    
    
    
    12,572Inventories
    
    
    36,144
    
    
    
    13,818Prepaid Expenses and Other Assets
    
    
    3,913
    
    
    
    1,365Deferred Income Taxes
    
    
    834
    
    
    
    834Total Current Assets
    
    
    72,146
    
    
    
    65,802Property, Plant and Equipment, Net
    
    
    117,541
    
    
    
    15,646Intangible Assets, Net
    
    
    24,011
    
    
    
    9,763Deferred Income Taxes
    
    
    19,312
    
    
    
    19,312Other Assets
    
    
    5,222
    
    
    
    4,477TOTAL ASSETS
    
    $
    238,232
    
    
    $
    115,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    14,223
    
    
    $
    5,231Accrued Liabilities
    
    
    7,167
    
    
    
    2,786Employee Related Liabilities
    
    
    3,288
    
    
    
    2,023Environmental Remediation Reserves
    
    
    3,185
    
    
    
    4,967Deferred Revenues
    
    
    2,094
    
    
    
    792Current Portion of Debt
    
    
    8,518
    
    
    
    768Total Current Liabilities
    
    
    38,475
    
    
    
    16,567Long-Term Debt
    
    
    103,460
    
    
    
    Environmental Remediation Reserves
    
    
    16,205
    
    
    
    15,620Pension Obligations and Other Long-Term Liabilities
    
    
    8,843
    
    
    
    8,144Total Liabilities
    
    
    166,983
    
    
    
    40,331Commitments and ContingenciesShareholders EquityPreferred Stock  No par value; 3,000,000 authorized; none outstanding
    
    
    
    
    
    
    Common Stock  $.10 par value; 20,000,000 shares authorized9,337,287 and 9,331,787 issued
    
    
    933
    
    
    
    932Capital in Excess of Par Value
    
    
    86,450
    
    
    
    86,187Retained Earnings
    
    
    2,563
    
    
    
    6,206Treasury Stock - 2,034,870 shares
    
    
    (16,982
    )
    
    
    (16,982
    )Accumulated Other Comprehensive Loss
    
    
    (1,715
    )
    
    
    (1,674
    )Total Shareholders Equity
    
    
    71,249
    
    
    
    74,669TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    238,232
    
    
    $
    115,000
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Statements of Cash Flow
(Unaudited, Dollars in Thousands)
 Six Months EndedMarch 31,2006
    
    2005Cash Flows from Operating Activities
    
    $
    (3,826
    )
    
    $
    9,835Cash Flows from Investing Activities:Acquisition of businesses
    
    
    (108,451
    )
    
    
    (4,468
    )Capital expenditures
    
    
    (8,251
    )
    
    
    (1,147
    )Proceeds from sale of assets
    
    
    2,395
    
    
    
    Net Cash Used in Investing Activities
    
    
    (114,307
    )
    
    
    (5,615
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    85,000
    
    
    
    Payments of long-term debt
    
    
    (325
    )Short-term borrowings, net
    
    
    5,927
    
    
    
    300Debt issuance costs
    
    
    (1,716
    )
    
    
    Other
    
    
    31
    
    
    
    149Net Cash Provided by Financing Activities
    
    
    88,917
    
    
    
    449Net Change in Cash and Cash Equivalents
    
    
    (29,216
    )
    
    
    4,669Cash and Cash Equivalents, Beginning of Period
    
    
    37,213
    
    
    
    23,777Cash and Cash Equivalents, End of Period
    
    $
    7,997
    
    
    $
    28,446Cash Paid (Refunded) For:Interest
    
    $
    2,711
    
    
    $
    Income taxes
    
    $
    (397
    )
    
    $
    (452
    )Non-Cash Transaction:Issuance of seller subordinated note, net of discount
    
    $
    19,400
    
    
    $
    
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AMERICAN PACIFIC CORPORATION
 
 Notes to Condensed Consolidated Financial Statements
(Unaudited, Dollars in Thousands, Except per Share Amounts)
 1.
    
    INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIESInterim Basis of Presentation:The accompanying condensed consolidated financial statements of
American Pacific Corporation and its subsidiaries (the Company, we, us, or our) are
unaudited, but in our opinion, include all adjustments, which are of a normal recurring nature,
necessary for the fair presentation of financial results for interim periods. These statements
should be read in conjunction with our consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended September 30, 2005. The operating
results and cash flows for the six-month period ended March 31, 2006 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, 2005.Principles of Consolidation  Our consolidated financial statements include the accounts of
American Pacific Corporation and our wholly owned subsidiaries. In connection with our
acquisition of the AFC Business, we began consolidating AFC on November 30, 2005 (See Note 2).
All significant intercompany accounts have been eliminated.In addition, we consolidate our 50% interest in the Energetic Systems (ES) joint venture in
accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46R (FIN
46R), Consolidation of Variable Interest Entities, which requires companies to consolidate
variable interest entities that either: (1) do not have sufficient equity investment at risk to
permit the entity to finance its activities without additional subordinated financial support,
or (2) hold a significant variable interest in, or have significant involvement with, an
existing variable interest entity.Use of Estimates  The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities and the reported amounts of revenue and expenses. Judgments and
assessments of uncertainties are required in applying our accounting policies in many areas. For
example, key assumptions and estimates are particularly important when determining our projected
liabilities for pension benefits, useful lives for depreciable and amortizable assets, deferred
tax assets and long-lived assets, including intangible assets. Other areas in which significant
uncertainties exist include, but are not limited to, costs that may be incurred in connection
with environmental matters and the resolution of litigation and other contingencies. Actual
results may differ from estimates on which our condensed consolidated financial statements were
prepared.Revenue Recognition  Revenues for Specialty Chemicals,
Fine Chemicals, and water treatment equipment sales are
recognized when persuasive evidence of an arrangement exists,
shipment has been made or customer acceptance has occurred, title
passes, the price is fixed or determinable and collectibility is reasonably assured. Some of our
perchlorate and fine chemical products customers have requested that we store materials purchased from us in our
facilities (Bill and Hold transactions). We recognize the revenue and profit from
these Bill and Hold transactions at the point at which title and risk of ownership transfer to
our customers. These customers have specifically requested in
writing, pursuant to a contract, that we invoice for the finished
product and hold the finished product until a later date. We receive cash for the full amount of real estate sales at the time of closing
which is when the sale is recorded.Revenues from our Aerospace Equipment segment are derived from contracts that are accounted for
in conformity with the American Institute of Certified Public Accountants (AICPA) audit and
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accounting guide, Audits of Federal Government Contracts and the AICPAs Statement of Position
No. 81-1, Accounting for Performance of Construction-Type and Certain Production Type
Contracts. We account for these contracts using the percentage-of-completion method and measure
progress on a cost-to-cost basis. The percentage-of-completion method recognizes revenue as work
on a contract progresses. Revenues are calculated based on the percentage of total costs
incurred in relation to total estimated costs at completion of the contract. For fixed-price and
fixed-price-incentive contracts, if at any time expected costs exceed the value of the contract,
the loss is recognized immediately.Recently Issued or Adopted Accounting Standards:In November 2004, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 151, Inventory Costsan amendment of ARB No. 43,
Chapter 4. The statement clarifies that abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials (spoilage) should be recognized as current-period charges
and requires the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The statement was effective for us on October 1, 2005 and
had no material impact on our financial statements.In December 2004, the FASB issued SFAS No. 123R (revised 2004), Share-Based Payment which
requires all entities to recognize compensation expense in an amount equal to the fair value of
share-based payments granted to employees and directors. This statement was effective for us on
October 1, 2005; see Note 3 for additional information.Reclassifications:Certain prior period amounts have been reclassified to conform to the
current period presentation.2.
    
    ACQUISITIONSAFC Business Acquisition:In July 2005, we entered into an agreement to acquire, and on November
30, 2005, we completed the acquisition of, the fine chemicals business (the AFC Business) of
GenCorp Inc. (GenCorp) through the purchase of substantially all of the assets of Aerojet Fine
Chemicals, LLC and the assumption of certain of its liabilities. The assets were acquired and
liabilities assumed by our newly formed, wholly-owned subsidiary, Ampac Fine Chemicals (AFC).
AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under
cGMP guidelines for customers in the pharmaceutical industry. Its facilities in California offer
specialized engineering capabilities including high containment for high potency compounds,
energetic and nucleoside chemistries, and chiral separation using the first commercial-scale
simulated moving bed in the United States.The estimated total consideration for the AFC Business acquisition is comprised of the
following:
 Cash
    
    $
    88,500Fair value of Seller Subordinated Note (Face value $25,500)
    
    
    19,400Capital expenditures adjustment
    
    
    17,431Working capital adjustment
    
    
    (1,268
    )EBITDAP Adjustment
    
    
    (1,000
    )Other direct acquisition costs
    
    
    4,788Total purchase price
    
    $
    127,851
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Capital Expenditures Adjustment The capital expenditures adjustment represents net
reimbursements to GenCorp for their cash capital investments, as defined in the acquisition
agreements, during the period July 2005 through the closing date on November 30, 2005.Working Capital Adjustment The working capital adjustment represents a net adjustment to
the purchase price based on actual working capital as of the closing date compared to a
target working capital amount specified in the acquisition agreements.EBITDAP Adjustment The acquisition agreements include a reduction of the purchase price if
AFC did not achieve a specified level of earnings before interest, taxes, depreciation,
amortization, and pension expense (EBITDAP) for the three months ended December 31, 2005,
equal to four times the difference between the targeted EBITDAP and the actual EBITDAP
achieved, not to exceed $1,000. This target was not met, and accordingly, we have received
$1,000 from GenCorp.Subordinated Seller Note The fair value of the Seller Subordinated Note was determined by
discounting the required principal and interest payments at a rate of 15%, which the Company
believes is appropriate for instruments with comparable terms.Direct Acquisition Costs The Company estimates its total direct acquisition costs,
consisting primarily of legal and due diligence fees, to be approximately $4,788.Earnout Adjustment In addition to the amounts included in the purchase price above, the
purchase price is subject to an additional contingent cash payment of up to $5,000 based on
targeted financial performance of AFC during the year ending September 30, 2006. In
addition, if the full Earnout Adjustment becomes payable to GenCorp, the EBITDAP Adjustment
will also be returned to GenCorp.
 In connection with the AFC Business acquisition, we entered into Credit Facilities and a Seller
Subordinated Note, each discussed in Note 7. The total purchase price was funded with net
proceeds from the Credit Facilities of $83,323, the Seller Subordinated Note of $25,500 and
existing cash.This acquisition is being accounted for using the purchase method of accounting, under which the
total purchase price is allocated to the fair values of the assets acquired and liabilities
assumed. The allocation of the purchase price and the related determination of the useful lives
of acquired assets are preliminary and subject to change based on a final valuation of the
assets acquired and liabilities assumed. The allocation is preliminary pending completion of
inventory, fixed asset and intangible asset appraisals and the actuarial calculation of the
defined benefit pension plan obligation.The preliminary allocation of the purchase price is comprised of the following:
 Historical book value of Aerojet Fine Chemicals as of November 30, 2005
    
    $
    93,181Less liabilities not acquiredPayable to GenCorp
    
    
    24,916Cash overdraft
    
    
    3,761Adjusted historical book value of Aerojet Fine Chemicals as of November 30, 2005
    
    
    121,858Estimated fair value adjustments relating to:Inventories
    
    
    774Prepaid expenses
    
    
    (20
    )Property, plant and equipment
    
    
    (11,613
    )Customer relationships, average life of 5.5 years
    
    
    13,300Backlog, average life of 1.5 years
    
    
    4,800Prepaid pension asset
    
    
    (1,248
    )$
    127,851
 Intangible assets, consisting of customer relationships and existing customer backlog, have
definite lives and will be amortized over their estimated useful lives using the straight-line
method.
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The following pro forma information has been prepared from our historical financial statements
and those of the AFC Business. The pro forma information gives effect to the combination as if
it had occurred on October 1, 2005 and 2004, respectively.
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Revenues
    
    $
    43,924
    
    
    $
    28,328
    
    
    $
    81,283
    
    
    $
    64,649Loss before extraordinary gain
    
    
    (2,338
    )
    
    
    (4,842
    )
    
    
    (5,470
    )
    
    
    (7,404
    )Net Loss
    
    
    (2,338
    )
    
    
    (4,842
    )
    
    
    (5,470
    )
    
    
    (5,782
    )Basic earnings per share:Loss before extraordinary gain
    
    
    (0.32
    )
    
    
    (0.66
    )
    
    
    (0.75
    )
    
    
    (1.02
    )Net Loss
    
    
    (0.32
    )
    
    
    (0.66
    )
    
    
    (0.75
    )
    
    
    (0.79
    )Diluted earnings per share:Loss before extraordinary gain
    
    
    (0.32
    )
    
    
    (0.66
    )
    
    
    (0.75
    )
    
    
    (1.02
    )Net Loss
    
    
    (0.32
    )
    
    
    (0.66
    )
    
    
    (0.75
    )
    
    
    (0.79
    )
 The pro forma financial information is not necessarily indicative of what the financial
position or results of operations would have been if the combination had occurred on the
above-mentioned dates. Additionally, it is not indicative of future results of operations and
does not reflect any additional costs, synergies or other changes that may occur as a result of
the acquisition.ISP Acquisition:October 1, 2004, we acquired the former Atlantic Research Corporations
in-space propulsion business (ISP or ISP Acquisition) from Aerojet-General Corporation for
$4,505.We accounted for this acquisition using the purchase method of accounting. The fair value of
the current assets acquired and current liabilities assumed was approximately $6,972. Since the
purchase price was less than the fair value of the net current assets acquired, non-current
assets were recorded at zero and an after-tax extraordinary gain of $1,622 was recognized (net
of approximately $953 of income tax expense).3.
    
    SHARE-BASED COMPENSATIONOn October 1, 2005, we adopted SFAS No. 123R, Share-Based Payment (SFAS No. 123R) which
requires us to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant date fair value of the award. We have elected to use the Modified
Prospective Transition method such that SFAS No. 123R applies to the unvested portion of
previously issued awards, new awards and to awards modified, repurchased or canceled after the
effective date. Accordingly, commencing October 1, 2005, we recognized share-based compensation
for all current award grants and for the unvested portion of previous award grants based on
grant date fair values. Prior to fiscal 2006, we accounted for share-based awards under the
Accounting Principles Board Opinion No. 25 intrinsic value method, under which no compensation
expense was recognized because all historical options granted were at an exercise price equal to
the market value of our stock on the grant date. Prior period financial statements have not been
adjusted to reflect fair value share-based compensation expense under SFAS No. 123R.Our share-based payment arrangements are designed to attract and retain employees and directors.
The amount, frequency, and terms of share-based awards may vary based on competitive practices,
our operating results, and government regulations. New shares are issued upon option exercise or
restricted share grants. We do not settle equity instruments in cash. We maintain two share
based plans, each as discussed below.The American Pacific Corporation 2001 Stock Option Plan, as amended (the 2001 Plan), permits
the granting of incentive stock options meeting the requirements of Section 422 of the Internal
Revenue Code and nonqualified options that do not meet the
requirements of Section 422 to
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Total Outstanding
    
    Non VestedWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    FairPrice
    
    
    
    
    
    ValueShares
    
    Per Share
    
    Shares
    
    Per ShareBalance, September 30, 2005
    
    
    523,500
    
    
    $
    7.08
    
    
    
    143,750
    
    
    $
    3.06Granted
    
    
    37,500
    
    
    
    4.21
    
    
    
    37,500
    
    
    
    2.00Vested
    
    
    
    
    
    
    
    
    
    
    (36,250
    )
    
    
    3.08Exercised
    
    
    (5,500
    )
    
    
    5.54
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, March 31, 2006
    
    
    555,500
    
    
    
    6.90
    
    
    
    145,000
    
    
    
    2.78
  Number of vested stock options
    
    
    410,500Weighted-average exercise price per share
    
    $
    7.20Aggregate intrinsic value
    
    $
    822Weighted-average remaining contractual term in years
    
    
    7.71
  Six Months EndedMarch 31,2006
    
    2005Weighted-average grant date fair value per share of options granted
    
    $
    2.00
    
    
    $
    3.74Significant fair value assuptions:Expected term in years
    
    
    4.75
    
    
    
    4.50Expected volatility
    
    
    50.0
    %
    
    
    50.0
    %Expected dividends
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rates
    
    
    4.4
    %
    
    
    3.5
    %Total intrinsic value of options exercised
    
    $
    18
    
    
    $
    12Aggregate cash received for option exercises
    
    $
    30
    
    
    $
    24Total compensation cost (included in operating expenses)
    
    $
    233
    
    
    $
    Tax benefit recognized
    
    
    86
    
    
    
    Net compensation cost
    
    $
    147
    
    
    $
    As of period end date:Total compensation cost for non-vested awards
not yet recognized
    
    $
    191Weighted-average years to be recognized
    
    
    0.5
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SFAS No. 123R requires us to present pro forma information for periods prior to the
adoption as if we had accounted for all stock-based compensation under the fair value method.
Had share-based compensation costs been recorded last year, the effect on our net income and
earnings per share would have been as follows:
 Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Actual
    
    
    Pro Forma
    
    
    Actual
    
    
    Pro FormaNet income (loss), as reported
    
    $
    (2,338
    )
    
    $
    (303
    )
    
    $
    (3,643
    )
    
    $
    725Pro forma compensation, net of tax
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (98
    )Pro forma
net income (loss)
    
    
    
    
    
    $
    (319
    )
    
    
    
    
    
    $
    627Basic income (loss) per share:As reported
    
    $
    (0.32
    )
    
    $
    (0.04
    )
    
    $
    (0.50
    )
    
    $
    0.10Pro Forma
    
    
    
    
    
    $
    (0.04
    )
    
    
    
    
    
    $
    0.09Diluted income (loss) per shareAs reported
    
    $
    (0.32
    )
    
    $
    (0.04
    )
    
    $
    (0.50
    )
    
    $
    0.10Pro forma
    
    
    
    
    
    $
    (0.04
    )
    
    
    
    
    
    $
    0.09
 4.
    
    SELECTED BALANCE SHEET DATAInventories:Inventories consist of the following:
 March 31,
    
    September 30,2006
    
    2005Finished goods
    
    $
    4,353
    
    
    $
    2,475Work-in-process
    
    
    14,929
    
    
    
    2,940Raw materials and supplies
    
    
    16,862
    
    
    
    8,403Total
    
    $
    36,144
    
    
    $
    13,818
 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 30,2006
    
    
    2005Perchlorate customer list
    
    $
    38,697
    
    
    $
    38,697Less accumulated amortization
    
    
    (31,330
    )
    
    
    (29,380
    )7,367
    
    
    
    9,317Customer relationships and backlog
    
    
    18,100
    
    
    
    Less accumulated amortization
    
    
    (1,902
    )
    
    
    16,198
    
    
    
    Pension-related intangible
    
    
    446
    
    
    
    446Total
    
    $
    24,011
    
    
    $
    9,763
 The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject
to amortization. Amortization expense was $975 for both the three months ended March 31, 2006
and 2005 and $1,950 for both the six months ended March 31, 2006 and 2005.The pension-related intangible is an actuarially calculated amount related to unrecognized prior
service cost for our defined benefit pension plan and supplemental executive retirement plan.In connection with our acquisition of the AFC Business, we acquired intangible assets with
preliminary estimated fair values of $13,300 for customer relationships and $4,800 for existing
customer backlog. These assets have definite lives and are assigned to our Fine Chemicals
segment. Amortization expense for the three months and six months ended March 31, 2006 was
$1,426 and $1,902, respectively.
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5.
    
    COMPREHENSIVE INCOME (LOSS)Other comprehensive income (loss) consists of adjustments to our minimum pension liabilities and
foreign currency translation adjustments. Comprehensive income (loss) consists of the following:
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Net Income (Loss)
    
    $
    (2,338
    )
    
    $
    (303
    )
    
    $
    (3,643
    )
    
    $
    725Other Comprehensive Income (Loss):Foreign currency translation adjustment
    
    
    5
    
    
    
    (42
    )
    
    
    (41
    )
    
    
    29Minimum pension liability adjustment
    
    
    
    
    
    
    (221
    )
    
    
    
    
    
    
    209Total other comprehensive income (loss)
    
    
    5
    
    
    
    (263
    )
    
    
    (41
    )
    
    
    238Comprehensive Income (Loss)
    
    $
    (2,333
    )
    
    $
    (566
    )
    
    $
    (3,684
    )
    
    $
    963
 6.
    
    EARNINGS (LOSS) PER SHAREShares used to compute loss per share before extraordinary gain are as follows:
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Loss before extraordinary gain
    
    $
    (2,338
    )
    
    $
    (303
    )
    
    $
    (3,643
    )
    
    $
    (897
    )Basic:Weighted average shares
    
    
    7,297,000
    
    
    
    7,292,000
    
    
    
    7,297,000
    
    
    
    7,292,000Diluted:Weighted average shares, basic
    
    
    7,297,000
    
    
    
    7,292,000
    
    
    
    7,297,000
    
    
    
    7,292,000Dilutive effect of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares, diluted
    
    
    7,297,000
    
    
    
    7,292,000
    
    
    
    7,297,000
    
    
    
    7,292,000Basic loss per share before extraordinary item
    
    $
    (0.32
    )
    
    $
    (0.04
    )
    
    $
    (0.50
    )
    
    $
    (0.12
    )Diluted loss per share before extraordinary item
    
    $
    (0.32
    )
    
    $
    (0.04
    )
    
    $
    (0.50
    )
    
    $
    (0.12
    )
 As of March 31, 2006, we had 555,500 antidilutive options outstanding. The stock options
are antidilutive because we are reporting a loss before extraordinary gain and the exercise
price of certain options exceeds the average fair market value of our stock for the period.
These options could be dilutive in future periods if our operations are profitable and our stock
price increases.7.
    
    DEBTOur outstanding debt balances consist of the following:
 March 31,
    
    September 30,2006
    
    2005Credit Facilities:First Lien Term Loan, 8.98%
    
    $
    64,675
    
    
    $
    First Lien Revolving Credit, 8.63%
    
    
    6,000
    
    
    
    Second Lien Term Loan plus accrued PIK Interest, 13.98%
    
    
    20,067
    
    
    
    Subordinated Seller Note plus accrued PIK Interest, 9.58%, Net of Discount
    
    
    20,500
    
    
    
    Capital Leases and Other
    
    
    736
    
    
    
    768Total Debt
    
    
    111,978
    
    
    
    768Less current portion
    
    
    (8,518
    )
    
    
    (768
    )Total Long-term Debt
    
    $
    103,460
    
    
    $
    
 Credit Facilities:In connection with our acquisition of the AFC Business, discussed in
Note 2, on November 30, 2005, we entered into a $75,000 first lien credit agreement (the First
Lien Credit Facility) with Wachovia Capital Markets, LLC and other lenders. We also entered
into a $20,000 second lien credit agreement (the Second Lien Credit Facility, and together
with the First Lien Credit
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Facility, the Credit Facilities) with Wachovia Capital Markets,
LLC, and certain other lenders. The Credit Facilities are collateralized by substantially all
of our assets and the assets of our domestic subsidiaries.
 The First Lien Credit Facility provides for term loans in the aggregate principal amount of
$65,000. The term loans will be repaid in twenty consecutive quarterly payments in increasing
amounts, with the final payment due and payable on November 30, 2010. The First Lien Credit
Facility also provides for a revolving credit line in an aggregate principal amount of up to
$10,000 at any time outstanding, which includes a letter of credit sub-facility in the aggregate
principal amount of up to $5,000 and a swing-line sub-facility in the aggregate principal amount
of up to $2,000. The initial scheduled maturity of the revolving credit line is November 30,
2010. The revolving credit line may be increased by an amount of up to $5,000 within three years
from the date of the Credit Facilities.The Second Lien Credit Facility provides for term loans in the aggregate principal amount of
$20,000 with a scheduled maturity of November 30, 2011, with the full amount of such term loans
being payable on such date. We are required to pay a premium for certain prepayments, if any, of
the Second Lien Credit Facility made before November 30, 2008.The interest rates per annum applicable to loans under the Credit Facilities are, at our option,
the Alternate Base Rate (as defined in the Credit Facilities) or LIBOR Rate (as defined in the
Credit Facilities) plus, in each case, an applicable margin. Under the First Lien Credit
Facility such margin is tied to our total leverage ratio. A portion of the interest payment due
under the Second Lien Credit Facility will accrue as payment-in-kind interest (PIK Interest)
and is added to the then outstanding principal. In addition, under the revolving credit
facility, we will be required to pay (i) a commitment fee in an amount equal to the applicable
percentage per annum on the average daily unused amount of the revolving commitments and (ii)
other fees related to the issuance and maintenance of the letters of credit issued pursuant to
the letters of credit sub-facility. Additionally, we will be required to pay to the
administrative agent certain agency fees under both Credit Facilities. Within 180 days of
closing of the Credit Facilities we are required to hedge a portion of the obligations under the
Credit Facilities.Certain events, including asset sales, excess cash flow, recovery events in respect of property,
and debt and equity issuances will require us to make payments on the outstanding obligations
under the Credit Facilities. These prepayments are separate from the events of default and any
related acceleration described below.The Credit Facilities include certain negative covenants restricting or 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 Credit Facilities include quarterly requirements for Total
Leverage Ratio, First Lien Coverage Ratio, Fixed Charge Coverage Ratio, Consolidated Capital
Expenditures and minimum Consolidated EBITDA. The Credit Facilities also contain 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
Credit Facilities prior to their stated maturity and the commitments under the First Lien Credit
Facility may be terminated.On November 30, 2005, we borrowed $65,000 under the First Lien Credit Facility term loan and
$20,000 under the Second Lien Credit Facility. Net proceeds of $83,323, after debt issuance
costs of $1,677, were used to fund a portion of the AFC Business acquisition price. Debt issue
costs are
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classified as other assets and are amortized over the term of the Credit Facilities
using the interest method.As of March 31, 2006, we had outstanding borrowings of $6,000 under the First Lien revolving
credit line. As of March 31, 2006, we were in compliance with the various covenants contained
in the Credit Facilities.Seller Subordinated Note:In connection with our acquisition of the AFC Business, discussed in
Note 2, we issued an unsecured subordinated seller note in the principal amount of $25,500 to
Aerojet-General Corporation, a subsidiary of GenCorp. The note accrues PIK Interest at a rate
equal to the threemonth U.S. dollar LIBOR as from time to time in effect plus a margin equal to
the weighted average of the interest rate margin for the loans outstanding under the Credit
Facilities, including certain changes in interest rates due to subsequent amendments or
refinancing of the Credit Facilities. All principal and accrued and unpaid PIK Interest will be
due on November 30, 2012. Subject to the terms of the Credit Facilities, we may be required to
repay up to $6,500 of the note and interest thereon after September 30, 2007. The note is
subordinated to the senior debt under or related to the Credit Facilities, our other
indebtedness in respect to any working capital, revolving credit or term loans, or any other
extension of credit by a bank or insurance company or other financial institution, other
indebtedness relating to leases, indebtedness in connection with the acquisition of businesses
or assets, and the guarantees of each of the previously listed items, provided that the
aggregate principal amount of obligations of the Company or any of our Subsidiaries shall not
exceed the greater of (i) the sum of (A) the aggregate principal amount of the outstanding First
Lien Obligations (as such term is defined in the Intercreditor Agreement referred to in the
Credit Facilities) not in excess of $95,000 plus (B) the aggregate principal amount of the
outstanding Second Lien Obligations (as defined in the Intercreditor Agreement) not in excess of
$20,000, and (ii) an aggregate principal balance of Senior Debt (as defined in the note) which
would not cause the Company to exceed as of the end of any fiscal quarter a Total Leverage Ratio
of 4.50 to 1.00 (as such term is defined in, and as such ratio is determined under, the First
Lien Credit Facility) (disregarding any obligations in respect of Hedging Agreements (as defined
in the First Lien Credit Facility) constituting First Lien Obligations or Second Lien
Obligations or any increase in the amount of the Senior Debt resulting from any payment-in-kind
interest added to principal each to be disregarded in calculating the aggregate principal amount
of such obligations).Principal maturities for term loans under the Credit Facilities and the Seller Subordinated Note
are as follows:
 Years ending September 30:2006
    
    $
    6502007
    
    
    3,2502008
    
    
    13,0002009
    
    
    6,5002010
    
    
    36,075Thereafter
    
    
    51,025Total
    
    $
    110,500
 Capital Leases and Other:Capital leases and other includes $500 payable to our ES joint
venture partner. The remaining balance represents bank borrowings by our ES joint venture and
capital lease obligations.Letters of Credit:As of March 31, 2006, we had $2,330 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.
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8.
    
    COMMITMENTS AND CONTINGENCIESEnvironmental Matters:Review of Perchlorate Toxicity by EPA Perchlorate (the anion) is not currently included in the list of hazardous substances compiled
by the 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 (NAS). This NAS report was released on January 11, 2005. The
recommendations contained in this NAS report indicate that human health is protected in drinking
water at a level of 24.5 parts per billion (ppb). Certain states have also conducted risk
assessments and have set preliminary levels from 1  14 ppb. The EPA has established a
reference dose for perchlorate of .0007 mg/kg/day which is equal to a Drinking Water Equivalent
Level (DWEL) of 24.5 ppb. A decision as to whether or not to establish a Maximum Contaminate
Level (MCL) is pending. The outcome of these federal EPA actions, as well as any similar
state regulatory action, will influence the number, if any, of potential sites that may be
subject to remediation action.Perchlorate Remediation Project in Henderson, Nevada We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (the
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 Corp
(KMCC) also operated a perchlorate production facility in Henderson, Nevada during 1967 to
1998. Between 1956 to 1967, American Potash operated a perchlorate production facility at the
same site. For many years prior to 1956, other entities also manufactured perchlorate chemicals
at that site. In 1998, Kerr-McGee Chemical LLC became the operating entity and it ceased the
production of perchlorate at the Kerr McGee Henderson Site. Thereafter, it continued to produce
other chemicals at this site until it was recently sold. As a result of a longer production
history at 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. 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 extensive investigation of groundwater near
the Ampac Henderson site and down gradient toward the Las Vegas Wash. That investigation and
related characterization which lasted more than six years, was rigorous employing some of the
most qualified experts in the field of hydrogeology. This investigation concluded that,
although there is perchlorate in the groundwater in the vicinity of the Ampac Henderson Site up
to 700 ppm, perchlorate from this Site does not materially impact, if at all, water flowing in
the Las Vegas Wash toward Lake Mead. It has been well established, however, by data generated
by SNWA and NDEP, that perchlorate from the Kerr McGee Henderson Site did materially impact the
Las Vegas Wash and Lake Mead. Kerr McGees successor, Tronox LLC, operates an ex situ
perchlorate groundwater remediation facility at their Henderson site and this facility has had a
significant effect on the load of perchlorate entering Lake Mead over the last 5 years. 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 EPA, we conducted a rigorous
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
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efficient and appropriate is in situ bioremediation (ISB). The technology 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 Leading Edge Remediation Facility (Athens System) 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
Leading Edge and Source Remediation Facilities that will address perchlorate from the Ampac
Henderson Site. We commenced construction of the Athens System in July, 2005.Henderson Site Environmental Remediation Reserve During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate
of the probable costs of our remediation efforts at the Henderson Site, including the costs for
equipment, operating and maintenance costs, and consultants. Key factors in determining the
total estimated cost include an estimate of the speed of groundwater entering the treatment
area, which was then used to estimate a project life of 45 years, as well as estimates for
capital expenditures and annual operating and maintenance costs. The project consists of two
primary phases; the initial construction of the remediation equipment and the operating and
maintenance phase. We commenced the construction phase in late fiscal 2005 and expect to
complete this phase by the end of fiscal 2006. During our fiscal 2006 second quarter, we
increased our total cost estimate for the construction phase by $2,800 due primarily to changes
in the engineering designs, delays in receiving permits and the resulting extension of
construction time. 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.A summary of our environmental reserve activity for the six months ended March 31, 2006 is
shown below:
 Balance, September 30, 2005
    
    $
    20,587Additions or adjustments
    
    
    2,800Expenditures
    
    
    (3,997
    )Balance, March 31, 2006
    
    $
    19,390
 DTSC Matters The California Department of Toxic Substances Control (DTSC) contends that the AFC Business
neutralization or stabilization of several liquid stream processes within a closed loop
manufacturing system constitutes treatment of a hazardous waste without the required
authorizations from DTSC. We disagree. On September 2, 2005, the DTSC Inspector issued an
Inspection Report relevant to the DTSCs June 2004 inspection of the AFC Business facility. The
Inspection Report concluded that the referenced activities constitute treatment of hazardous
waste and directed Aerojet Fine Chemicals to submit an application for a permit modification to
treat hazardous waste.On November 28, 2005, AFC and DTSC entered into a Consent Agreement (Consent Agreement) which,
effective upon close of the sale of the AFC Business to us, authorizes AFC to continue
operations for up to two years while the parties resolve whether the manufacturing processes are
exempt from regulation by the DTSC. The Consent Agreement is deemed a full settlement of the
DTSC Allegations and any other violations that could have been brought against AFC based upon
information known to DTSC on the date of the Consent Agreement.
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We believe that if AFC is ultimately required to obtain a permit to treat hazardous waste it may
have to spend additional capital to modify its facilities. The effects on our operating results,
liquidity and cash flow could be significant. In addition, we may not be able to pass along any
increases in operating costs to our customers.The AFC Business facility was subject to several National Emissions Standards for Hazardous Air
Pollutants for pharmaceutical manufacturing under the Clean Air Act because of its location on
property contiguous with Aerojet and under common control of GenCorp. AFC requested that the EPA
make a determination that, upon close of the sale of Aerojet Fine Chemicals to us, AFCs
facility would no longer be subject to these requirements.On December 1, 2005, the Air Division of the EPA Region IX notified the Company that, effective
upon close of the sale of the AFC Business to us, AFC would not be a major source subject to
National Emissions Standards for Hazardous Air Pollutants for pharmaceutical manufacturing under
the Clean Air Act.AFCs facility is located on land leased from Aerojet. The leased land is part of a tract of
land owned by Aerojet designated as a Superfund Site under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA). The tract of land had been used by Aerojet
and affiliated companies to manufacture and test rockets and related equipment since the 1950s.
Although the chemicals identified as contaminants on the leased land were not used by Aerojet
Fine Chemicals as part of its operations, CERCLA, among other things, provides for joint and
severable liability for environmental liabilities including, for example, the environmental
remediation expenses.As part of the agreement to sell the AFC Business, an Environmental Indemnity Agreement was
entered into whereby GenCorp agreed to indemnify us against any and all environmental costs and
liabilities arising out of or resulting from any violation of environmental law prior to the
effective date of the sale, or any release of hazardous substances by the AFC Business, Aerojet
or GenCorp on the 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 Fine Chemicals property for existing contamination, provided that the lessees do not
contribute to or do not exacerbate existing contamination on or under the Aerojet Superfund
site.Employment Matters:Effective March 25, 2006, the employment of Seth Van Voorhees, as our Chief Financial Officer,
Vice President and Treasurer, terminated. We are currently negotiating the terms of Dr. Van
Voorhees departure. Dr. Van Voorhees was employed by us pursuant to an employment agreement
dated December 1, 2005. Under the employment agreement, if we terminate Dr. Van Voorhees
without cause or if Dr. Van Voorhees terminates his employment for good reason, Dr. Van Voorhees
is entitled to receive severance payments in the form of salary continuation for three years.
In addition, all unvested stock options granted to Dr. Van Voorhees become fully vested. These
severance benefits are not available if employment is terminated by us for cause, or if Dr. Van
Voorhees terminated his employment without good reason.Other Matters:We are from time to time involved in other claims or lawsuits. We believe that current claims or
lawsuits against us, individually and in the aggregate, will not have a material adverse effect
on our financial condition, cash flows or results of operations.
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9.
    
    SEGMENT INFORMATIONWe report our business in four operating segments: Specialty Chemicals, Fine Chemicals,
Aerospace Equipment and Other Businesses. These segments are based upon business units that
offer distinct products and services, are operationally managed separately and produce products
using different production methods. Segment operating profit includes all sales and expenses
directly associated with each segment. Environmental remediation costs are charged to our
Specialty Chemicals segment. 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.Effective January 1, 2006, we revised our method to measure segment operating
results to a method management believes is a more meaningful measure of segment performance.
Prior to that date we had included an allocation of corporate expenses to our operating segment.
All periods presented have been reclassified to reflect our current measure of segment
operating results.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, used principally in the inflation of certain automotive airbag
systems, (iii) Halotronâ, clean gas fire extinguishing agents designed to replace halons,
and (iv) the ES joint venture which manufactures commercial explosives and specializes in the
development and testing of energetic compounds.One perchlorates customer accounted for 23% and 18% of our consolidated revenues for the three
months and six months ended March 31, 2006, and 24% and 28% of our consolidated revenues for the
three months and six months ended March 31, 2005, respectively.Fine Chemicals:On November 30, 2005, we created a new operating segment, Fine Chemicals, to
report the financial performance of AFC (See Note 2). 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.We had one Fine Chemicals customer that accounted for 24% and 22% of our consolidated revenues
during the three months and six months ended March 31, 2006, respectively.Aerospace Equipment:On October 1, 2004, we created a new operating segment, Aerospace
Equipment, to report the financial performance of our ISP business (see Note 2). The ISP
business 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. We have completed all planned sales of our improved land in the Gibson Business Park
(near Las Vegas, Nevada) and we do not anticipate significant real estate sales activity in
future financial reporting periods.
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The following provides financial information about our segment operations:
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Revenues:Specialty Chemicals
    
    $
    20,626
    
    
    $
    13,097
    
    
    $
    27,963
    
    
    $
    26,734Fine Chemicals
    
    
    18,931
    
    
    
    
    
    
    
    24,103
    
    
    
    Aerospace Equipment
    
    
    3,489
    
    
    
    2,144
    
    
    
    8,134
    
    
    
    5,879Other Businesses
    
    
    878
    
    
    
    3,272
    
    
    
    2,841
    
    
    
    4,154Total Revenues
    
    $
    43,924
    
    
    $
    18,513
    
    
    $
    63,041
    
    
    $
    36,767Segment Operating Income (Loss):Specialty Chemicals (a)
    
    $
    4,244
    
    
    $
    1,219
    
    
    $
    3,893
    
    
    $
    2,990Fine Chemicals
    
    
    (275
    )
    
    
    
    
    
    
    676
    
    
    
    Aerospace Equipment
    
    
    58
    
    
    
    (235
    )
    
    
    319
    
    
    
    (248
    )Other Businesses
    
    
    154
    
    
    
    2,519
    
    
    
    671
    
    
    
    3,053Total Segment Operating Income (Loss)
    
    
    4,181
    
    
    
    3,503
    
    
    
    5,559
    
    
    
    5,795Corporate Expenses
    
    
    (4,726
    )
    
    
    (4,089
    )
    
    
    (7,994
    )
    
    
    (7,367
    )Interest and Other Income (Expense), Net
    
    
    (3,081
    )
    
    
    106
    
    
    
    (3,348
    )
    
    
    149Loss before Income Taxes and Extraordinary Gain
    
    $
    (3,626
    )
    
    $
    (480
    )
    
    $
    (5,783
    )
    
    $
    (1,423
    )Depreciation and Amortization:Specialty Chemicals
    
    $
    1,446
    
    
    $
    1,381
    
    
    $
    2,886
    
    
    $
    2,753Fine Chemicals
    
    
    4,048
    
    
    
    
    
    
    
    5,348
    
    
    
    Aerospace Equipment
    
    
    18
    
    
    
    
    
    
    
    35
    
    
    
    Other Businesses
    
    
    3
    
    
    
    3
    
    
    
    6
    
    
    
    7Corporate
    
    
    140
    
    
    
    130
    
    
    
    281
    
    
    
    258Total Depreciation and Amortization
    
    $
    5,655
    
    
    $
    1,514
    
    
    $
    8,556
    
    
    $
    3,018
 (a)
    
    Specialty Chemical operating profit for the three-month and six-month periods ended
March 31, 2006 includes a charge for $2,800 related environmental remediation at our
Henderson, NV project, see Note 8.10.
    
    INTEREST AND OTHER INCOMEInterest and other income consist of the following:
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Interest income
    
    $
    48
    
    
    $
    148
    
    
    $
    294
    
    
    $
    257Gain on sale of Hughes Parkway
    
    
    
    
    
    
    
    
    
    
    580
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    $
    48
    
    
    $
    148
    
    
    $
    923
    
    
    $
    257
 We owned a 70% interest as general and limited partner in Gibson Business Park Associates
1986-I (the Partnership), a real estate development limited partnership. The remaining 30%
limited partners include certain current and former members of our Board of Directors. The
Partnership, in turn, owned a 33% limited partner interest in 3770 Hughes Parkway Associates
Limited Partnership, a
Nevada limited partnership (Hughes Parkway). Hughes Parkway owns the building in which we
lease office space in Las Vegas, Nevada.
 - 18 -




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##### Table of Contents



In October 2005, Partnership sold its interest in Hughes Parkway, which resulted in a net gain
and cash distribution to us of $2,395. Concurrent with, and as a condition of, the sale of the
Partnerships interest in Hughes Parkway, we renewed our office space lease through February
2009. We accounted for the transaction as a sale leaseback. Accordingly, we deferred gain
totaling $1,815 representing the present value of future lease payments. We amortize the
deferred gain (as a reduction of rental expense), using the straight-line method over the term
of the lease. We recognized the remaining gain of $580, which is reported as interest and other
income.11.
    
    DEFINED BENEFIT PLANSNet periodic pension cost related to our defined benefit pension plans consists of the
following:
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Defined Benefit Pension Plan:Service Cost
    
    $
    309
    
    
    $
    250
    
    
    $
    535
    
    
    $
    536Interest Cost
    
    
    477
    
    
    
    400
    
    
    
    827
    
    
    
    827Expected Return on Plan Assets
    
    
    (393
    )
    
    
    (343
    )
    
    
    (682
    )
    
    
    (682
    )Recognized Actuarial Losses
    
    
    16
    
    
    
    15
    
    
    
    29
    
    
    
    28Amortization of Prior Service Costs
    
    
    134
    
    
    
    102
    
    
    
    232
    
    
    
    232Net Periodic Pension Cost
    
    $
    543
    
    
    $
    424
    
    
    $
    941
    
    
    $
    941Supplemental Executive Retirement Plan:Service Cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest Cost
    
    
    38
    
    
    
    37
    
    
    
    74
    
    
    
    74Expected Return on Plan Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognized Actuarial Losses
    
    
    11
    
    
    
    11
    
    
    
    21
    
    
    
    21Amortization of Prior Service Costs
    
    
    7
    
    
    
    7
    
    
    
    16
    
    
    
    16Net Periodic Pension Cost
    
    $
    56
    
    
    $
    55
    
    
    $
    111
    
    
    $
    111
 For the six months ended March 31, 2006, we contributed $1,364 to the Defined Benefit Pension
Plan to fund benefit payments and anticipate making approximately $479 in additional
contributions through September 30, 2006. For the six months ended March 31, 2006, we
contributed $63 to the Supplemental Executive Retirement Plan to fund benefit payments and
anticipate making approximately $63 in additional contributions through September 30, 2006.In connection with our acquisition of the AFC Business, we assumed the pension obligations for
existing employees and received related plan assets. These assets and pension obligations were
placed into two newly formed defined benefit pension plans that cover substantially all of AFCs
employees. As part of our purchase price allocation, we are in the process of determining the
actuarially calculated fair value of the assets and pension obligations in accordance with
applicable accounting standards.
 - 19 -




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands)
   OVERVIEW
  Specialty Chemicals:
 Fine Chemicals:
 Aerospace Equipment:
 Other Businesses:
 - 20 -




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##### Table of Contents



Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Specialty Chemicals:Perchlorates
    
    
    33
    %
    
    
    40
    %
    
    
    29
    %
    
    
    44
    %Packages explosives
    
    
    9
    %
    
    
    22
    %
    
    
    11
    %
    
    
    21
    %Sodium Azide
    
    
    2
    %
    
    
    3
    %
    
    
    2
    %
    
    
    3
    %Halotron
    
    
    3
    %
    
    
    5
    %
    
    
    3
    %
    
    
    5
    %Total Specialty Chemicals
    
    
    47
    %
    
    
    70
    %
    
    
    45
    %
    
    
    73
    %Fine Chemicals
    
    
    43
    %
    
    
    0
    %
    
    
    38
    %
    
    
    0
    %Aerospace Equipment
    
    
    8
    %
    
    
    12
    %
    
    
    13
    %
    
    
    16
    %Other Businesses:Real Estate
    
    
    1
    %
    
    
    17
    %
    
    
    1
    %
    
    
    9
    %Water Treatment Equipment
    
    
    1
    %
    
    
    1
    %
    
    
    3
    %
    
    
    2
    %Total Other Businesses
    
    
    2
    %
    
    
    18
    %
    
    
    4
    %
    
    
    11
    %Total Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Specialty Chemicals Segment
 Perchlorate Chemicals 
        - 21 -




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##### Table of Contents



Packaged
Explosives 
   - 22 -




---



##### Table of Contents



Sodium Azide 
   Halotron ® Fire Extinguishing Agents 
  Fine Chemicals Segment
    - 23 -




---



##### Table of Contents



Aerospace Equipment Segment
    Other Businesses Segment
  - 24 -




---



##### Table of Contents



Water Treatment Equipment 
   Real Estate 
  Raw Materials and Manufacturing Costs
   Profitability
  
    
    as discussed in Note 8 to our consolidated financial statements, we may
incur material legal and other costs associated with environmental remediation,
litigation and other contingencies;
    
    the volume and timing of perchlorate chemicals, fine chemicals, sodium
azide, Halotron, packaged explosives and water treatment equipment sales in the future
is uncertain;
    
    the results of periodic reviews for impairments of long-lived assets; and
the ability to pass on increases in raw material costs to our customers.
 - 25 -




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##### Table of Contents



RESULTS OF OPERATIONS
 Revenues
 March 31,
    
    Increase
    
    Percentage2006
    
    2005
    
    (Decrease)
    
    ChangeThree Months Ended:Specialty Chemicals
    
    $
    20,626
    
    
    $
    13,097
    
    
    $
    7,529
    
    
    
    57
    %Fine Chemicals
    
    
    18,931
    
    
    
    
    
    
    
    18,931
    
    
    
    Aerospace Equipment
    
    
    3,489
    
    
    
    2,144
    
    
    
    1,345
    
    
    
    63
    %Other Businesses
    
    
    878
    
    
    
    3,272
    
    
    
    (2,394
    )
    
    
    (73
    %)Total Revenues
    
    $
    43,924
    
    
    $
    18,513
    
    
    $
    25,411
    
    
    
    137
    %Six Months Ended:Specialty Chemicals
    
    $
    27,963
    
    
    $
    26,734
    
    
    $
    1,229
    
    
    
    5
    %Fine Chemicals
    
    
    24,103
    
    
    
    
    
    
    
    24,103
    
    
    
    Aerospace Equipment
    
    
    8,134
    
    
    
    5,879
    
    
    
    2,255
    
    
    
    38
    %Other Businesses
    
    
    2,841
    
    
    
    4,154
    
    
    
    (1,313
    )
    
    
    (32
    %)Total Revenues
    
    $
    63,041
    
    
    $
    36,767
    
    
    $
    26,274
    
    
    
    71
    %
  
    
    An increase in Specialty Chemicals segment revenues is principally due to both higher volumes and prices
during the fiscal 2006 three month and six month periods compared to the prior year periods. Perchlorate sales
tend to vary significantly in any given quarter based on the timing of orders and shipments to customers.
    
    An increase due to the inclusion of our newly-acquired AFC Business.
    
    An increase in Aerospace Equipment segment revenues. Our Aerospace Equipment segment ended fiscal 2005 with a
strong backlog at its domestic location and continues to have strong commercial and government new order bookings
in fiscal 2006. This has resulted in greater production and revenue levels during fiscal 2006.
    
    A decrease in revenues from our Other Businesses segment. The fiscal 2005 periods include significant
revenues from the sale of real estate. Our sales of real estate were substantially complete in fiscal 2005.
 Cost of Revenues
 March 31,
    
    Increase
    
    Percentage2006
    
    2005
    
    (Decrease)
    
    ChangeThree Months Ended:Revenues
    
    $
    43,924
    
    
    $
    18,513
    
    
    $
    25,411
    
    
    
    137
    %Cost of Revenues
    
    
    30,055
    
    
    
    11,986
    
    
    
    18,069
    
    
    
    151
    %Gross Margin
    
    
    13,869
    
    
    
    6,527
    
    
    
    7,342
    
    
    
    112
    %Gross Margin Percentage
    
    
    32
    %
    
    
    35
    %Six Months Ended:Revenues
    
    $
    63,041
    
    
    $
    36,767
    
    
    $
    26,274
    
    
    
    71
    %Cost of Revenues
    
    
    44,631
    
    
    
    24,531
    
    
    
    20,100
    
    
    
    82
    %Gross Margin
    
    
    18,410
    
    
    
    12,236
    
    
    
    6,174
    
    
    
    50
    %Gross Margin Percentage
    
    
    29
    %
    
    
    33
    %
  - 26 -




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##### Table of Contents



Operating Expenses
 March 31,
    
    Increase
    
    Percentage2006
    
    2005
    
    (Decrease)
    
    ChangeThree Months Ended:Operating Expenses
    
    $
    11,614
    
    
    $
    7,113
    
    
    $
    4,501
    
    
    
    63
    %Percentage of Revenues
    
    
    26
    %
    
    
    38
    %Six Months Ended:Operating Expenses
    
    $
    18,045
    
    
    $
    13,808
    
    
    $
    4,237
    
    
    
    31
    %Percentage of Revenues
    
    
    29
    %
    
    
    38
    %
  Environmental Remediation Charge
  Segment Operating Profit and Operating Loss
 March 31,
    
    Increase
    
    Percentage2006
    
    2005
    
    (Decrease)
    
    ChangeThree Months Ended:Specialty Chemicals
    
    $
    4,244
    
    
    $
    1,219
    
    
    $
    3,025
    
    
    
    248
    %Fine Chemicals
    
    
    (275
    )
    
    
    
    
    
    
    (275
    )
    
    
    Aerospace Equipment
    
    
    58
    
    
    
    (235
    )
    
    
    293
    
    
    
    (125
    %)Other Businesses
    
    
    154
    
    
    
    2,519
    
    
    
    (2,365
    )
    
    
    (94
    %)Segment Operating Profit
    
    
    4,181
    
    
    
    3,503
    
    
    
    678
    
    
    
    19
    %Corporate Expenses
    
    
    (4,726
    )
    
    
    (4,089
    )
    
    
    (637
    )
    
    
    16
    %Operating Loss
    
    $
    (545
    )
    
    $
    (586
    )
    
    $
    41
    
    
    
    (7
    %)Six Months Ended:Specialty Chemicals
    
    $
    3,893
    
    
    $
    2,990
    
    
    $
    903
    
    
    
    30
    %Fine Chemicals
    
    
    676
    
    
    
    
    
    
    
    676
    
    
    
    Aerospace Equipment
    
    
    319
    
    
    
    (248
    )
    
    
    567
    
    
    
    (229
    %)Other Businesses
    
    
    671
    
    
    
    3,053
    
    
    
    (2,382
    )
    
    
    (78
    %)Segment Operating Profit
    
    
    5,559
    
    
    
    5,795
    
    
    
    (236
    )
    
    
    (4
    %)Corporate Expenses
    
    
    (7,994
    )
    
    
    (7,367
    )
    
    
    (627
    )
    
    
    9
    %Operating Loss
    
    $
    (2,435
    )
    
    $
    (1,572
    )
    
    $
    (863
    )
    
    
    55
    %
  - 27 -




---



##### Table of Contents



Interest Income/Interest and Other Expense
 March 31,
    
    Increase
    
    Percentage2006
    
    2005
    
    (Decrease)
    
    ChangeThree Months Ended:Interest Income
    
    $
    48
    
    
    $
    148
    
    
    $
    (100
    )
    
    
    (68
    %)Interest and Other Expense
    
    $
    3,129
    
    
    $
    42
    
    
    $
    3,087
    
    
    
    7,350
    %Six Months Ended:Interest Income
    
    $
    923
    
    
    $
    257
    
    
    $
    666
    
    
    
    259
    %Interest and Other Expense
    
    $
    4,271
    
    
    $
    108
    
    
    $
    4,163
    
    
    
    3,855
    %
   Income Taxes
  Extraordinary Gain
  CRITICAL ACCOUNTING POLICIES
   - 28 -




---



##### Table of Contents



Sales and Revenue Recognition
   Depreciable or Amortizable Lives of Long-Lived Assets
   Impairment of Long-Lived Assets
  - 29 -




---



##### Table of Contents



Environmental Costs
   Income Taxes
   Pension Benefits
  - 30 -




---



##### Table of Contents



Recently Issued or Adopted Accounting Standards
   LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
 Operating Activities:
 Six Months EndedMarch 31,
    
    Increase
    
    Percentage2006
    
    2005
    
    (Decrease)
    
    ChangeLoss before extraordinary gain
    
    $
    (3,643
    )
    
    $
    (897
    )
    
    $
    (2,746
    )
    
    
    306
    %Depreciation and amortization
    
    
    8,556
    
    
    
    3,018
    
    
    
    5,538
    
    
    
    183
    %Stock based compensation
    
    
    233
    
    
    
    
    
    
    
    233
    
    
    
    Amortization of debt issue costs and Seller Note Discount
    
    
    397
    
    
    
    
    
    
    
    397
    
    
    
    Payment -in-kind interest
    
    
    897
    
    
    
    
    
    
    
    897
    
    
    
    Changes in Operating Assets and Liabilities:Accounts receivable
    
    
    (2,979
    )
    
    
    9,772
    
    
    
    (12,751
    )
    
    
    (130
    %)Inventories
    
    
    (5,528
    )
    
    
    (1,506
    )
    
    
    (4,022
    )
    
    
    267
    %Prepaid expenses
    
    
    (2,417
    )
    
    
    (664
    )
    
    
    (1,753
    )
    
    
    264
    %Environmental remediation reserves
    
    
    (1,197
    )
    
    
    
    
    
    
    (1,197
    )
    
    
    Accounts payable and accrued expenses
    
    
    3,772
    
    
    
    (110
    )
    
    
    3,882
    
    
    
    (3,529
    %)Other
    
    
    (1,917
    )
    
    
    222
    
    
    
    (2,139
    )
    
    
    (964
    %)Cash Flow Provided (Used) in Operating Activities
    
    $
    (3,826
    )
    
    $
    9,835
    
    
    $
    (13,661
    )
    
    
    (139
    %)
  
    
    Fluctuations in our accounts receivable and inventory
balances. These balances fluctuate based primarily on the
timing of shipments of our Specialty Chemicals products. We
do not grant significant extended payment terms and we have no
material balances that have aged significantly past their due
dates.
    
    Cash used in the current year for the Henderson
Remediation project of $3,997, offset by additional reserves
recorded of $2,800. This project had not commenced in the
prior year.
 - 31 -




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##### Table of Contents




    
    Cash used for prepaid expenses, primarily annual
insurance policies which are paid at the beginning of the
fiscal year.
  Investing Activities:
 Six Months EndedMarch 31,
    
    Increase
    
    Percentage2006
    
    2005
    
    (Decrease)
    
    ChangeAcquisition of businesses
    
    $
    (108,451
    )
    
    $
    (4,468
    )
    
    $
    (103,983
    )
    
    
    2,327
    %Capital expenditures
    
    
    (8,251
    )
    
    
    (1,147
    )
    
    
    (7,104
    )
    
    
    619
    %Proceeds from sale of assets
    
    
    2,395
    
    
    
    
    
    
    
    2,395
    
    
    
    Cash Flow Used in Investing Activities
    
    $
    (114,307
    )
    
    $
    (5,615
    )
    
    $
    (108,692
    )
    
    
    1,936
    %
     Financing Activities:
 March 31,
    
    Increase
    
    Percentage2006
    
    2005
    
    (Decrease)
    
    ChangeProceeds from the issuance of long-term debt
    
    $
    85,000
    
    
    $
    
    
    
    $
    85,000
    
    
    
    Payments of long-term debt
    
    
    (325
    )
    
    
    
    
    
    
    (325
    )
    
    
    Short-term borrowings, net
    
    
    5,927
    
    
    
    
    
    
    
    5,927
    
    
    
    Debt issue costs
    
    
    (1,716
    )
    
    
    
    
    
    
    (1,716
    )
    
    
    Other
    
    
    31
    
    
    
    449
    
    
    
    (418
    )
    
    
    (93
    %)Cash Flow Used in Investing Activities
    
    $
    88,917
    
    
    $
    449
    
    
    $
    88,468
    
    
    
    19,703
    %
  Liquidity and Capital Resources
  - 32 -




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Credit Facilities and Seller Subordinated Note
 Credit Facilities
     - 33 -




---



##### Table of Contents




    
    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  Henderson Site
  - 34 -




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##### Table of Contents



Dividend and Stock Repurchase Program
  Contractual Obligations and Off-Balance Sheet Arrangements
    - 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
     
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS
  1.
    
    (a) Declining demand (including excess customer inventories) or downward pricing pressure for
our products as a result of general or specific economic conditions,
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(b)
    
    governmental budget decreases affecting the DOD or NASA, including the status of the Space
Shuttle Program (including President Bushs current plan to ultimately terminate shuttle
operations), that would cause further decreases in demand for Grade I AP,(c)
    
    technological advances and improvements with respect to existing or new competitive products
causing a reduction or elimination of demand for Grade I AP and other perchlorates, sodium
azide, Halotron, explosives or thrusters, and fine chemicals,(d)
    
    the ability and desire of purchasers to change existing products or substitute other
products for our products based upon perceived quality, environmental effects and pricing, and
(e) the fact that perchlorate chemicals, sodium azide, Halotron and our water treatment products
have limited applications and highly concentrated customer bases.(e)
    
    the fact that perchlorate chemicals, sodium azide, Halotron and our water treatment products
have limited applications and highly concentrated customer bases.2.
    
    Our ability to attain sufficient cash liquidity due to adverse operating performance, adverse
developments concerning the availability of credit under our revolving credit facility due to
covenant limitations or other factors could limit the overall availability of funds to us. We
may not have successfully anticipated our future capital needs or the timing of such needs and
we may need to raise additional funds in order to take advantage of unanticipated
opportunities.3.
    
    The cost and effects of legal and administrative proceedings, settlements and investigations,
particularly those investigations described in Note 8 to our condensed consolidated financial
statements, as well as the costs resulting from regulatory and environmental matters that may
have a negative impact on sales or costs.4.
    
    Our ability to profitably integrate, manage and operate new businesses and/or investments
competitively and cost effectively (including the recently acquired AFC).5.
    
    Competitive factors including, but not limited to, our limitations respecting financial
resources and our ability to compete against companies with substantially greater resources,
significant excess market supply in the sodium azide market and in the perchlorate market,
potential patent coverage issues, and the development or penetration of competing new
products, particularly in the propulsion, airbag inflation, fire extinguishing and explosives
businesses.6.
    
    Underutilization of our manufacturing facilities resulting in production inefficiencies and
increased costs, the inability to recover facility costs, reductions in margins, and
impairment issues.7.
    
    The effects of, and changes in, trade, monetary and fiscal policies, laws and regulations and
other activities of governments, agencies or similar organizations, including, but not limited
to, environmental, safety and transportation issues.8.
    
    Provisions of our Certificate of Incorporation and Bylaws and Series D Preferred Stock, and
the dividend of preference stock purchase rights and related Rights Agreement, could have the
effect of making it more difficult for potential acquirers to obtain a control position in us.
 
 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
   Name
    
    Votes For
    
    Votes WithheldC. Keith Rooker
    
    
    4,280,832
    
    
    
    2,812,503
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Name
    
    Votes For
    
    Votes WithheldFred D. Gibson, Jr.
    
    
    4,311,343
    
    
    
    2,781,992Berlyn D. Miller
    
    
    4,981,755
    
    
    
    2,111,580
   Votes For
    
    Against
    
    Abstained2,024,570
    
    
    3,198,587
    
    
    
    16,202
  Votes For
    
    Against
    
    Abstained7,032,529
    
    
    49,730
    
    
    
    11,077
 
 ITEM 5. OTHER INFORMATION  None.
 
 ITEM 6. EXHIBITS
 10.1+
    
    Modification #3 to the Thiokol Long Term Pricing Agreement dated April 5, 2006.10.2
    
    Interim agreement between the Registrant and Dana M. Kelley, as acting Chief Financial
Officer dated March 27, 2006.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1*
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2*
    
    Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002+
    
    Confidential treatment has been requested with respect to certain portions of this document.*
    
    Exhibits 32.1 and 32.2 are furnished to accompany this quarterly report on Form 10-Q but
shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of
1934 or otherwise and shall not be deemed incorporated by reference into any registration
statements filed under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as
amended.
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SIGNATURES
  AMERICAN PACIFIC CORPORATIONDate: May 15, 2006
    
    /s/ JOHN R. GIBSONJohn R. GibsonChief Executive Officer and PresidentDate: May 15, 2006
    
    /s/ DANA M. KELLEYDana M. KelleyActing Chief Financial Officer
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10.1+
    
    Modification #3 to the Thiokol Long Term Pricing Agreement dated April 5, 2006.10.2
    
    Interim agreement between the Registrant and Dana M. Kelley, as acting Chief Financial
Officer dated March 27, 2006.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1*
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2*
    
    Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002+
    
    Confidential treatment has been requested with respect to certain portions of this document.*
    
    Exhibits 32.1 and 32.2 are furnished to accompany this quarterly report on Form 10-Q but
shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of
1934 or otherwise and shall not be deemed incorporated by reference into any registration
statements filed under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as
amended.
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