##### 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 December 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
(State or other jurisdiction of incorporation or organization)
    
    59-6490478
(I.R.S. Employer Identification No.)
 3883 Howard Hughes Parkway, Suite 700
Las Vegas, Nevada 89169
 702) 735-2200
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



AMERICAN PACIFIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    
    1Condensed Consolidated Statements of Operations (unaudited)
    
    
    1Condensed Consolidated Balance Sheets (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows (unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    4ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    21ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35ITEM 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    36ITEM 1A. Risk Factors
    
    
    36ITEM 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 EndedDecember 31,2008
    
    2007Revenues
    
    $
    45,629
    
    
    $
    46,890Cost of Revenues
    
    
    30,895
    
    
    
    29,461Gross Profit
    
    
    14,734
    
    
    
    17,429Operating Expenses
    
    
    11,309
    
    
    
    10,205Operating Income
    
    
    3,425
    
    
    
    7,224Interest and Other Income, Net
    
    
    61
    
    
    
    378Interest Expense
    
    
    2,694
    
    
    
    2,704Income before Income Tax
    
    
    792
    
    
    
    4,898Income Tax Expense
    
    
    335
    
    
    
    2,035Net Income
    
    $
    457
    
    
    $
    2,863Earnings per Share:Basic
    
    $
    0.06
    
    
    $
    0.39Diluted
    
    $
    0.06
    
    
    $
    0.38Weighted Average Shares Outstanding:Basic
    
    
    7,480,000
    
    
    
    7,434,000Diluted
    
    
    7,573,000
    
    
    
    7,584,000
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Balance Sheets
(Unaudited, Dollars in Thousands, Except per Share Amounts)
 December 31,
    
    September 30,2008
    
    2008ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    25,308
    
    
    $
    26,893Accounts Receivable, Net
    
    
    23,007
    
    
    
    27,445Inventories
    
    
    42,983
    
    
    
    40,357Prepaid Expenses and Other Assets
    
    
    3,443
    
    
    
    3,392Income Taxes Receivable
    
    
    1,802
    
    
    
    1,804Deferred Income Taxes
    
    
    6,859
    
    
    
    6,859Total Current Assets
    
    
    103,402
    
    
    
    106,750Property, Plant and Equipment, Net
    
    
    118,134
    
    
    
    118,608Intangible Assets, Net
    
    
    4,962
    
    
    
    3,013Goodwill
    
    
    3,063
    
    
    
    Deferred Income Taxes
    
    
    13,851
    
    
    
    13,849Other Assets
    
    
    10,102
    
    
    
    9,193TOTAL ASSETS
    
    $
    253,514
    
    
    $
    251,413LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    8,889
    
    
    $
    10,554Accrued Liabilities
    
    
    6,368
    
    
    
    5,526Accrued Interest
    
    
    4,159
    
    
    
    1,650Employee Related Liabilities
    
    
    4,296
    
    
    
    6,917Income Taxes Payable
    
    
    425
    
    
    
    111Deferred Revenues and Customer Deposits
    
    
    5,131
    
    
    
    3,091Current Portion of Environmental Remediation Reserves
    
    
    959
    
    
    
    996Current Portion of Long-Term Debt
    
    
    300
    
    
    
    254Total Current Liabilities
    
    
    30,527
    
    
    
    29,099Long-Term Debt
    
    
    110,181
    
    
    
    110,120Environmental Remediation Reserves
    
    
    12,952
    
    
    
    13,282Pension Obligations
    
    
    16,268
    
    
    
    15,692Other Long-Term Liabilities
    
    
    531
    
    
    
    258Total Liabilities
    
    
    170,459
    
    
    
    168,451Commitments 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,
9,550,541 and 9,523,541 issued
    
    
    955
    
    
    
    952Capital in Excess of Par Value
    
    
    88,666
    
    
    
    88,496Retained Earnings
    
    
    16,413
    
    
    
    15,956Treasury Stock  2,045,950 and 2,045,950 shares
    
    
    (17,175
    )
    
    
    (17,175
    )Accumulated Other Comprehensive Loss
    
    
    (5,804
    )
    
    
    (5,267
    )Total Shareholders Equity
    
    
    83,055
    
    
    
    82,962TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    253,514
    
    
    $
    251,413
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited, Dollars in Thousands)
 Three Months EndedDecember 31,2008
    
    2007Cash Flows from Operating Activities:Net Income
    
    $
    457
    
    
    $
    2,863Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:Depreciation and amortization
    
    
    3,969
    
    
    
    4,815Non-cash interest expense
    
    
    159
    
    
    
    164Share-based compensation
    
    
    132
    
    
    
    29Excess tax benefit from stock option exercises
    
    
    (3
    )
    
    
    (28
    )Deferred income taxes
    
    
    (58
    )
    
    
    (13
    )Loss on sale of assets
    
    
    53
    
    
    
    Changes in operating assets and liabilities:Accounts receivable, net
    
    
    6,661
    
    
    
    11,238Inventories
    
    
    (3,052
    )
    
    
    (3,071
    )Prepaid expenses and other current assets
    
    
    (12
    )
    
    
    (283
    )Accounts payable
    
    
    (2,627
    )
    
    
    (265
    )Income taxes
    
    
    325
    
    
    
    2,140Accrued liabilities
    
    
    631
    
    
    
    (131
    )Accrued interest
    
    
    2,509
    
    
    
    2,439Employee related liabilities
    
    
    (2,739
    )
    
    
    (2,079
    )Deferred revenues and customer deposits
    
    
    415
    
    
    
    1,027Environmental remediation reserves
    
    
    (367
    )
    
    
    (293
    )Pension obligations, net
    
    
    576
    
    
    
    227Other
    
    
    (79
    )
    
    
    (560
    )Net Cash Provided by Operating Activities
    
    
    6,950
    
    
    
    18,219Cash Flows from Investing Activities:Capital expenditures
    
    
    (1,809
    )
    
    
    (1,500
    )Acquisition of business, net of cash acquired
    
    
    (6,653
    )
    
    
    Net Cash Used by Investing Activities
    
    
    (8,462
    )
    
    
    (1,500
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    (108
    )
    
    
    (62
    )Issuances of common stock, net
    
    
    32
    
    
    
    49Excess tax benefit from stock option exercises
    
    
    3
    
    
    
    28Net Cash Provided (Used) by Financing Activities
    
    
    (73
    )
    
    
    15Net Change in Cash and Cash Equivalents
    
    
    (1,585
    )
    
    
    16,734Cash and Cash Equivalents, Beginning of Period
    
    
    26,893
    
    
    
    21,426Cash and Cash Equivalents, End of Period
    
    $
    25,308
    
    
    $
    38,160Cash Paid (Received) For:Interest
    
    $
    55
    
    
    $
    101Income taxes
    
    
    6
    
    
    
    (152
    )Non-Cash Investing and Financing Transactions:Additions to Property,
Plant and Equipment not
yet paid
    
    
    897
    
    
    
    1,542
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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, 2008.
The operating results and cash flows for the three-month period ended December 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, 2008.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.Effective October 1, 2008, we completed the acquisition of Marotta Holdings Limited
(subsequently renamed Ampac ISP Holdings Limited) and its wholly-owned subsidiaries
(collectively AMPAC ISP Holdings). AMPAC ISP Holdings is included in our consolidated
financial statements beginning on October 1, 2008 and is a component of our Aerospace Equipment
segment. See Note 2.Recently Issued or Adopted Accounting Standards.In September 2006, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (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 was effective for us on October 1, 2008. We have not
adopted all the provisions of SFAS No. 157 as the FASB delayed the effective date of the
application of SFAS No. 157 to non-financial assets and liabilities. The remaining provisions
of SFAS No. 157 become effective for us beginning October 1, 2009. The partial adoption of SFAS
No. 157 did not have a material impact on our financial statements. The adoption of the
remaining provisions of SFAS No. 157 is not expected to have a material impact on our results of
operations, financial position or cash flows.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
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1.
    
    INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)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 was effective for us on October 1,
2008. We chose not to elect the fair value option for any of our financial instruments.In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS
No. 141R). SFAS No. 141R will significantly change the accounting for business combinations.
Under SFAS No. 141R, an acquiring entity is required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions.
SFAS No. 141R also includes a substantial number of new disclosure requirements. SFAS No. 141R
applies to us prospectively for business combinations with acquisition dates on or after October
1, 2009. We expect that SFAS No. 141R, once adopted, will have an impact on accounting for
business combinations, but the effect is dependent upon acquisitions at that time.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements  An Amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 establishes
new accounting and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. Specifically, SFAS No. 160 requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated financial statements
and separate from the parents equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face of the income
statement. SFAS No. 160 clarifies that changes in a parents ownership interest in a subsidiary
that do not result in deconsolidation are equity transactions if the parent retains its
controlling financial interest. In addition, SFAS No. 160 requires that a parent recognize a
gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the noncontrolling equity investment on the deconsolidation
date. SFAS No.160 also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest. SFAS No. 160 is effective for us beginning on October
1, 2009. We currently have no entities or arrangements that will be affected by the adoption of
SFAS No. 160. However, determination of the ultimate effect of this pronouncement will depend
on our structure at the date of adoption.In April 2008, the FASB issued FASB Staff Position (FSP) FAS No. 142-3, Determination of the
Useful Life of Intangible Assets (FSP No. 142-3), which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The
guidance contained in this FSP for determining the useful life of a recognized intangible asset
shall be applied prospectively to intangible assets acquired after the effective date. However,
the disclosure requirements of FSP No. 142-3 must be applied prospectively to all intangible
assets recognized in the Companys financial statements as of the effective date. FSP No. 142-3
is effective for us beginning October 1, 2009.In December 2008, the FASB issued FSP FAS 132(R)-1, Employers Disclosures about Postretirement
Benefit Plan Assets, to provide guidance on an employers disclosures about plan assets of a
defined benefit pension or other postretirement plan. The objectives of the disclosures include
investment allocation decisions, major categories of plan assets, inputs and valuation
techniques used to measure the fair value of plan assets, the effect of certain fair value
measurements, and significant concentrations of risk within plan assets. The expanded
disclosure requirements are effective for our fiscal year ending September 30, 2010.2.
    
    ACQUISITIONEffective October 1, 2008, we completed the acquisition of AMPAC ISP Holdings for a cash
purchase price, including direct expenses and net of cash acquired, of $6,653. AMPAC ISP
Holdings designs,
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2.
    
    ACQUISITION (continued)develops and manufactures high performance valves, pressure regulators, cold-gas propulsion
systems, and precision structures for space applications, especially in the European space
market. These products are used on various satellites and spacecraft, as well as on the Ariane 5
launch vehicle. The business has two locations, Dublin, Ireland and Cheltenham, U.K.The acquisition of AMPAC ISP Holdings enhances our opportunities to penetrate the European space
market and provides us with the opportunity to further expand our Aerospace Equipment segment
product offerings through the development and manufacture of additional space valves and space
structures. These factors result in the recognition of intangible assets for customer
relationships and goodwill.We are accounting for this acquisition 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. We engaged outside consultants to assist in the valuation of property, plant and
equipment and intangible assets. As of December 31, 2008, the allocation of the purchase price
and the related determination of the useful lives of property, plant and equipment were
preliminary and subject to change pending receipt and evaluation of the final valuation report.
In addition, amounts allocated to deferred tax assets and liabilities are preliminary pending
completion of AMPAC ISP Holdingss tax filings for calendar 2008.The following table indicates the preliminary amounts assigned to each major asset and liability
caption of AMPAC ISP Holdings as of the acquisition date:
 Accounts Receivable
    
    $
    2,291Inventory
    
    
    552Prepaid Expenses
    
    
    39Property, Plant and Equipment
    
    
    912Intangible Assets
    
    
    2,840Goodwill
    
    
    3,086Total Assets Acquired
    
    
    9,720Accounts Payable, Accrued Expenses and Other
Current Liabilities
    
    
    978Customer Deposits
    
    
    1,625Long-Term Liabilities
    
    
    464Total Liabilities Assumed
    
    
    3,067Purchase Price
    
    $
    6,653
 Intangible assets, consisting of customer relationships (average life of 5 years) and existing
customer backlog (average life of 1.5 years), have definite lives and are being amortized over
their estimated useful lives using the straight-line method.3.
    
    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.
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3.
    
    SHARE-BASED COMPENSATION (continued)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 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. As of December 31,
2008, there were 20,000 shares available for grant under the 2001 Plan. This plan was approved
by our stockholders.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, and expire ten years from the date of grant. As of December 31, 2008, there
were 3 shares available for grant under the 2002 Directors Plan. This plan was approved by our
stockholders.The American Pacific Corporation 2008 Stock Incentive Plan (the 2008 Plan) permits the
granting 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
authorized 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 and restricted stock units. As of
December 31, 2008, there were 172,000 shares available for grant under the 2008 plan. This plan
was approved by our stockholders.A summary of our stock option and restricted stock activity for the three months ended December
31, 2008 is as follows:
 Stock Options
    
    Restricted StockOutstanding
    
    Non Vested
    
    Outstanding and Non VestedWeighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Fair
    
    
    
    
    
    FairPrice
    
    
    
    
    
    Value
    
    
    
    
    
    ValueShares
    
    Per Share
    
    Shares
    
    Per Share
    
    Shares
    
    Per ShareBalance, September 30, 2008
    
    
    394,997
    
    
    $
    7.72
    
    
    
    24,997
    
    
    $
    7.86
    
    
    
    
    
    
    $
    Granted
    
    
    156,000
    
    
    
    10.98
    
    
    
    156,000
    
    
    
    5.41
    
    
    
    22,000
    
    
    
    11.25Vested
    
    
    
    
    
    
    
    
    
    
    (12,502
    )
    
    
    7.89
    
    
    
    
    
    
    
    Exercised
    
    
    (5,000
    )
    
    
    6.34
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired / Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2008
    
    
    545,997
    
    
    
    8.66
    
    
    
    168,495
    
    
    
    5.59
    
    
    
    22,000
    
    
    
    11.25
 A summary of our exercisable stock options as of December 31, 2008 is as follows:
 Number of vested stock options
    
    
    377,502Weighted-average exercise price per share
    
    $
    7.43Aggregate intrinsic value
    
    $
    411Weighted-average remaining contractual term in years
    
    
    5.7
 We determine the fair value of stock option awards at their grant date, using a Black-Scholes
Option-Pricing model applying the assumptions in the following table. We determine the fair
value of restricted stock awards based on the fair market value of our common stock on the grant
date. Actual compensation, if any, ultimately realized by optionees may differ significantly
from the amount estimated using an option valuation model.
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3.
    
    SHARE-BASED COMPENSATION (continued)
 Three Months EndedDecember 31,2008
    
    2007Weighted-average grant date fair value per share of options granted
    
    $
    5.41
    
    
    $
    7.86Significant fair value assumptions:Expected term in years
    
    
    6.00
    
    
    
    5.75Expected volatility
    
    
    48.7
    %
    
    
    45.0
    %Expected dividends
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rates
    
    
    2.7
    %
    
    
    3.4
    %Total intrinsic value of options exercised
    
    $
    21
    
    
    $
    70Aggregate cash received for option exercises
    
    $
    32
    
    
    $
    49Compensation cost (included in operating expenses)Stock options
    
    $
    108
    
    
    $
    29Restricted stock
    
    
    24
    
    
    
    Total
    
    
    132
    
    
    
    29Tax benefit recognized
    
    
    29
    
    
    
    12Net compensation cost
    
    $
    103
    
    
    $
    17As of period end date:Total compensation cost for non-vested awards
not yet recognized:Stock options
    
    $
    807
    
    
    $
    168Restricted stock
    
    $
    223
    
    
    
    Weighted-average years to be recognizedStock options
    
    
    1.9
    
    
    
    1.4Restricted stock
    
    
    1.9
    
    
    
    
 4.
    
    SELECTED BALANCE SHEET DATAInventories.Inventories consist of the following:
 December 31,
    
    September 30,2008
    
    2008Finished goods
    
    $
    2,841
    
    
    $
    2,475Work-in-process
    
    
    24,123
    
    
    
    22,698Raw materials and supplies
    
    
    15,211
    
    
    
    14,469Deferred cost of revenues
    
    
    808
    
    
    
    715Total
    
    $
    42,983
    
    
    $
    40,357
 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:
 December 31,
    
    September 30,2008
    
    2008Perchlorate customer list
    
    $
    38,697
    
    
    $
    38,697Less accumulated amortization
    
    
    (38,697
    )
    
    
    (38,697
    )
    
    
    
    Customer relationships
    
    
    6,487
    
    
    
    5,488Less accumulated amortization
    
    
    (2,785
    )
    
    
    (2,475
    )3,702
    
    
    
    3,013Backlog
    
    
    1,460
    
    
    
    Less accumulated amortization
    
    
    (200
    )
    
    
    1,260
    
    
    
    Total
    
    $
    4,962
    
    
    $
    3,013
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4.
    
    SELECTED BALANCE SHEET DATA (continued)The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject to
amortization. Amortization expense was zero and $975 for the three-month periods ended December
31, 2008 and 2007, respectively.Customer relationships are assets of our Fine Chemicals and Aerospace Equipment segments and are
subject to amortization. Amortization expense was $310 and $309 for the three-month periods
ended December 31, 2008 and 2007, respectively.Backlog is an asset of our Aerospace Equipment segment and is subject to amortization.
Amortization expense was $200 and zero for the three-month periods ended December 31, 2008 and
2007, respectively.In connection with our acquisition of AMPAC ISP Holdings (See Note 2), as of October 1, 2008, we
recorded customer relationships in the amount of $1,097 and backlog in the amount of $1,743,
based on our preliminary allocation of the purchase price to the fair values of assets acquired
and liabilities assumed.Goodwill.In connection with our acquisition of AMPAC ISP Holdings (See Note 2), we recorded
goodwill in the amount of $3,086, based on our preliminary allocation of the purchase price to
the fair values of assets acquired and liabilities assumed. Goodwill is an asset of our
Aerospace Equipment segment and is not expected to be deductible for tax purposes. As of
December 31, 2008, the balance was $3,063, reflecting the changes in the foreign currency rates
used to consolidate our foreign subsidiaries.5.
    
    COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSSComprehensive income (loss) consists of the following:
 Three Months EndedDecember 31,2008
    
    2007Net Income
    
    $
    457
    
    
    $
    2,863Other Comprehensive Income (Loss) Foreign currency translation adjustment
    
    
    (537
    )
    
    
    (47
    )SERP Amendment, net of tax
    
    
    
    
    
    
    (2,110
    )Comprehensive Income (Loss)
    
    $
    (80
    )
    
    $
    706The components of accumulated other comprehensive loss are as follows:December 31,
    
    September 30,2008
    
    2008Cumulative currency translation adjustment
    
    $
    (580
    )
    
    $
    (43
    )Unamortized benefit plan costs, net of tax of $3,482 and $3,482
    
    
    (5,224
    )
    
    
    (5,224
    )Total
    
    $
    (5,804
    )
    
    $
    (5,267
    )
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6.
    
    EARNINGS PER SHAREShares used to compute earnings per share are as follows:
 Three Months EndedDecember 31,2008
    
    2007Net income
    
    $
    457
    
    
    $
    2,863Basic weighted-average shares
    
    
    7,480,000
    
    
    
    7,434,000Diluted:Weighted-average shares, basic
    
    
    7,480,000
    
    
    
    7,434,000Dilutive effect of stock options
    
    
    93,000
    
    
    
    150,000Weighted-average shares, diluted
    
    
    7,573,000
    
    
    
    7,584,000Basic earnings per share
    
    $
    0.06
    
    
    $
    0.39Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.38
 As of December 31, 2008, we had 202,997 antidilutive options outstanding. As of December 31,
2007 we had no antidilutive options outstanding.7.
    
    DEBTOur outstanding debt balances consist of the following:
 December 31,
    
    September 30,2008
    
    2008Senior Notes, 9%, due 2015
    
    $
    110,000
    
    
    $
    110,000Capital Leases, due through 2012
    
    
    481
    
    
    
    374Total Debt
    
    
    110,481
    
    
    
    110,374Less Current Portion
    
    
    (300
    )
    
    
    (254
    )Total Long-term Debt
    
    $
    110,181
    
    
    $
    110,120
 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:
 
    
    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 by the Company, 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% of the
principal amount to be redeemed and reducing to 100% by February 1, 2013;
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7.
    
    DEBT (continued)
 
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a
redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest
thereon, with the proceeds of certain sales of our equity securities; and
    
    under certain changes of control, we must offer to purchase the Senior Notes at 101% of
their aggregate principal amount, plus accrued interest.
 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.In February 2007, we entered into an Amended and Restated Credit
Agreement (the Revolving Credit Facility) with Wachovia Bank, National Association, and
certain other lenders, which provides a secured revolving credit facility in an aggregate
principal amount of up to $20,000 with an initial maturity of 5 years. We may prepay and
terminate the Revolving Credit Facility at any time. The annual interest rates applicable to
loans under the Revolving Credit Facility are, at our option, either the Alternate Base Rate or
LIBOR Rate (each as defined in the Revolving Credit Facility) plus, in each case, an applicable
margin. The applicable margin is tied to our total leverage ratio (as defined in the Revolving
Credit Facility). In addition, we pay commitment fees, other fees related to the issuance and
maintenance of letters of credit, and certain agency fees.The Revolving Credit Facility is guaranteed by and secured by substantially all of the assets of
our current and future domestic subsidiaries, subject to certain exceptions as set forth in the
Revolving Credit Facility. The Revolving Credit Facility contains certain negative covenants
restricting and limiting our ability to, among other things:
 
    
    incur debt, incur contingent obligations and issue certain types of preferred stock;
    
    create liens;
    
    pay dividends, distributions or make other specified restricted payments;
    
    make certain investments and acquisitions;
    
    enter into certain transactions with affiliates;
    
    enter into sale and leaseback transactions; and
    
    merge or consolidate with any other entity or sell, assign, transfer, lease, convey or
otherwise dispose of assets.
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7.
    
    DEBT (continued)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. As of December 31, 2008, our total leverage ratio was 3.12 to 1.00 and our
interest coverage ratio was 3.55 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 December 31, 2008, under our Revolving Credit Facility, we had no borrowings outstanding,
availability of $18,042, 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 December 31, 2008, we had $1,958 in outstanding standby letters of
credit which mature through July 2013. These letters of credit principally secure performance of
certain water treatment equipment sold by us and payment of fees associated with the delivery of
natural gas and power.8.
    
    COMMITMENTS AND CONTINGENCIESEnvironmental Matters.Review of Perchlorate Toxicity by the EPA.Perchlorate is not currently included in the list of
hazardous substances compiled by the U.S. Environmental Protection Agency (the EPA), but it is
on the EPAs Contaminant Candidate List. The EPA has conducted a risk assessment relating to
perchlorate, two drafts of which were subject to formal peer reviews held in 1999 and 2002.
Following the 2002 peer review, the EPA perchlorate risk assessment together with other
perchlorate related science was reviewed by the National Academy of Sciences (NAS). This NAS
report was released on January 11, 2005. The recommendations contained in this NAS report
indicate that human health is protected in drinking water with perchlorate at a level of 24.5
parts per billion (ppb). Certain states have also conducted risk assessments and have set
preliminary levels from 1  14 ppb. The EPA has established a reference dose for perchlorate
of .0007 mg/kg/day which is equal to a drinking water equivalent level of 24.5 ppb. A decision
as to whether or not to establish a minimum contaminate level is pending. The outcome of the
federal EPA action, as well as any similar state regulatory action, will influence the number,
if any, of potential sites that may be subject to remediation action. On October 10, 2008, the
EPA announced a preliminary determination not to regulate perchlorate in drinking water at a
national level. Following the end of the comment period on EPAs October determination, the EPA
established an interim health advisory of 15 ppb. The EPA also requested that the NAS provide a
final review of the EPAs science-based risk assessment.Perchlorate Remediation Project in Henderson, Nevada.We commercially manufactured perchlorate
chemicals at a facility in Henderson, Nevada (AMPAC Henderson Site) from 1958 until the
facility was destroyed in May 1988, after which we relocated our production to a new facility in
Iron County, Utah. Kerr-McGee Chemical Corporation (KMCC) also operated a perchlorate
production facility in Henderson, Nevada (the KMCC Site) from 1967 to 1998. In addition,
between 1956 and 1967, American Potash operated a perchlorate production facility and, for many
years prior to 1956, other entities also manufactured perchlorate chemicals at the KMCC Site.
As a result of a longer production history in Henderson, KMCC and its predecessor operations
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.
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8.
    
    COMMITMENTS AND CONTINGENCIES (continued)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 (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.Henderson Site Environmental Remediation Reserve.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.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 capital equipment, operating and maintenance (O&M), and consultants. 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. 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.ISB is a new technology on the scale being used at the AMPAC Henderson Site. Accordingly, as we
gain ISB operational experience, we have and are observing certain conditions, operating results
and other data which we consider in updating the assumptions used to determine our costs
estimates. The two most significant assumptions are the estimated speed of groundwater flowing
to our remediation extraction wells and the estimated annual O&M costs.
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8.
    
    COMMITMENTS AND CONTINGENCIES (continued)Groundwater speed is one key variable along with the required pore volumes of groundwater used
to estimate the number of years that may be required to operate the facility. Groundwater speed
is estimated by utilizing periodic data that measures, among other things, perchlorate
concentrations upgradient from the treatment area, in addition to hydraulic conductivity and
porosity. As time passes, and as we continue to add reference data and analysis, our estimates
of the total years of operation may change. Initially, data suggested that the total project
life would extend for a period of 45 years. More recent data indicates that the total project
life may be 23 years. We are unable to predict over the longer term the most probable life and
accordingly have used an assumed range of 23 to 45 years of operation.O&M costs include primarily labor, utilities, repairs, maintenance supplies and professional
service costs. Since the inception of operations of the new ISB technology operations in fiscal
2007, we have not consistently achieved the targeted levels of groundwater remediation. We have
experienced annualized O&M cost levels of approximately $1,000, which is higher than our initial
estimates. This higher level of cost reflects costs to evaluate methods to optimize operating
performance and maintenance of reinjection wells. In addition, we anticipate incurring similar
O&M cost levels in fiscal 2009 as we continue our evaluation of methods to achieve targeted
remediation results. Our range of estimated costs assumes that we will be successful in
optimizing the remediation plant performance and that average annual O&M costs beyond 2012 and
for the duration of the project will be approximately $380.As of December 31, 2008, the aggregate range of anticipated environmental remediation costs was
from approximately $11,100 to approximately $23,200, and the accrued amount was $13,911. 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 three months ended December 31, 2008 is
shown below:
 Balance, September 30, 2008
    
    $
    14,278Additions or adjustments
    
    
    Expenditures
    
    
    (367
    )Balance, December, 2008
    
    $
    13,911
 AFC Environmental Matters.Our Fine Chemicals segment, Ampac Fine Chemicals LLC (AFC), is
located on land leased from Aerojet-General Corporation (Aerojet), a wholly-owned subsidiary
of GenCorp Inc. (GenCorp). 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, 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.
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8.
    
    COMMITMENTS AND CONTINGENCIES (continued)On November 29, 2005, EPA Region IX provided us with a letter indicating that the EPA does not
intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the
Aerojet property for existing contamination, provided that the lessees do not contribute to or
do not exacerbate existing contamination on or under the Aerojet Superfund site.Other Matters.Although we are not currently party to any material pending legal proceedings,
we are from time to time subject to claims and lawsuits related to our business operations. We
accrue for loss contingencies when a loss is probable and the amount can be reasonably
estimated. Legal fees, which can be material in any given period, are expensed as incurred. We
believe that current claims or lawsuits against us, individually and in the aggregate, will not
result in loss contingencies that will have a material adverse effect on our financial
condition, cash flows or results of operations.9.
    
    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 or loss 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 custom manufacturer of active pharmaceutical
ingredients and registered intermediates under current Good Manufacturing Practices (cGMP)
guidelines for commercial customers in the pharmaceutical industry. AFC has distinctive
competencies and specialized engineering capabilities in performing chiral separations,
manufacturing highly potent (including cytotoxic) products, and performing energetic and
nucleoside/nucleotide chemistries at a commercial scale.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 (iii)
Halotronâ, a series of clean fire extinguishing agents used in fire extinguishing products
ranging from portable fire extinguishers to total flooding systems.Aerospace Equipment. Our Aerospace Equipment segment includes the operating results of our
wholly-owned subsidiary Ampac-ISP Corp. (ISP). ISP manufactures monopropellant and
bipropellant liquid propulsion systems and thrusters for satellites, launch vehicles, and
interceptors.Effective October 1, 2008, we completed the acquisition of AMPAC ISP Holdings. AMPAC ISP
Holdings is included in our consolidated financial statements beginning on October 1, 2008 and
is a component of our Aerospace Equipment segment. AMPAC ISP Holdings designs, develops and
manufactures high performance valves, pressure regulators, cold-gas propulsion systems, and
precision structures for space applications, especially in the European space market. These
products are used on various satellites and spacecraft, as well as on the Ariane 5 launch
vehicle. See Note 2.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 not material.
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9.
    
    SEGMENT INFORMATION (continued)Our revenues are characterized by individually significant orders and a 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 EndedDecember 31,2008
    
    2007Fine chemicals customer
    
    
    25
    %
    
    
    24
    %Fine chemicals customer
    
    
    
    
    
    
    21
    %Fine chemicals customer
    
    
    10
    %Specialty chemicals customer
    
    
    29
    %
    
    
    24
    %
 The following provides financial information about our segment operations:
 Three Months EndedDecember 31,2008
    
    2007Revenues:Fine Chemicals
    
    $
    20,384
    
    
    $
    26,762Specialty Chemicals
    
    
    17,359
    
    
    
    15,549Aerospace Equipment
    
    
    5,756
    
    
    
    3,735Other Businesses
    
    
    2,130
    
    
    
    844Total Revenues
    
    $
    45,629
    
    
    $
    46,890Segment Operating Income (Loss):Fine Chemicals
    
    $
    (1,024
    )
    
    $
    4,661Specialty Chemicals
    
    
    7,606
    
    
    
    5,879Aerospace Equipment
    
    
    410
    
    
    
    173Other Businesses
    
    
    545
    
    
    
    (18
    )Total Segment Operating Income
    
    
    7,537
    
    
    
    10,695Corporate Expenses
    
    
    (4,112
    )
    
    
    (3,471
    )Operating Income
    
    $
    3,425
    
    
    $
    7,224Depreciation and Amortization:Fine Chemicals
    
    $
    3,208
    
    
    $
    3,372Specialty Chemicals
    
    
    304
    
    
    
    1,258Aerospace Equipment
    
    
    331
    
    
    
    57Other Businesses
    
    
    3
    
    
    
    3Corporate
    
    
    123
    
    
    
    125Total Depreciation and Amortization
    
    $
    3,969
    
    
    $
    4,815
 10.
    
    INCOME TAXESFIN 48.We account for uncertain tax positions in accordance with FASB Interpretation No. FIN
48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109
(FIN 48). Accordingly, we review our portfolio of uncertain tax positions and recorded
liabilities based on the 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.
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10.
    
    INCOME TAXES (continued)As of both December 31, 2008 and September 30, 2008, our recorded liability for unrecognized tax
benefits was $313, of which $241 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 $53 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 December 31, 2008 and September 30, 2008, we had accrued $223 and $225,
respectively for the payment of tax-related interest and penalties. For the three months ended
December 31, 2008 and 2007, income tax expense includes expense of $2 and a benefit of $20 for
interest and penalties.We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions,
Ireland and the U.K. With few exceptions, we are no longer subject to federal or state income
tax examinations for years before 2005.11.
    
    DEFINED BENEFIT PLANSWe maintain three defined benefit pension plans which cover substantially all of our U.S.
employees, excluding employees of our Aerospace Equipment segment: the Amended and Restated
American Pacific Corporation Defined Benefit Pension Plan, the Ampac Fine Chemicals LLC Pension
Plan for Salaried Employees, and the Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit
Employees (collectively, the Pension Plans). In addition, we maintain a Supplemental
Executive Retirement Plan (the SERP) which includes certain of our existing and prior
executive officers.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 EndedDecember 31,2008
    
    2007Pension Plans:Service Cost
    
    $
    507
    
    
    $
    507Interest Cost
    
    
    670
    
    
    
    563Expected Return on Plan Assets
    
    
    (601
    )
    
    
    (521
    )Recognized Actuarial Losses
    
    
    109
    
    
    
    107Amortization of Prior Service Costs
    
    
    19
    
    
    
    14Net Periodic Pension Cost
    
    $
    704
    
    
    $
    670Supplemental Executive Retirement Plan:Service Cost
    
    $
    98
    
    
    $
    87Interest Cost
    
    
    102
    
    
    
    86Expected Return on Plan Assets
    
    
    
    
    
    
    Recognized Actuarial Losses
    
    
    
    
    
    
    Amortization of Prior Service Costs
    
    
    105
    
    
    
    106Net Periodic Pension Cost
    
    $
    305
    
    
    $
    279
 - 17 -




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##### Table of Contents



11.
    
    DEFINED BENEFIT PLANS (continued)For the three months ended December 31, 2008, we contributed $381 to the Pension Plans to fund
benefit payments and anticipate making approximately $2,560 in additional contributions through
September 30, 2009. For the three months ended December 31, 2008, we contributed $32 to the
SERP to fund benefit payments and anticipate making approximately $95 in additional
contributions through September 30, 2009.12.
    
    GUARANTOR SUBSIDIARIESAs discussed in Note 7, in February 2007, American Pacific Corporation, a Delaware corporation
(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 foreign
subsidiaries (Non-Guarantor Subsidiaries) are not a guarantors of the Senior Notes. Each of
the Parents subsidiaries is 100% 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 Subsidiaries.Condensed Consolidating Balance Sheet  December 31, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    22,994
    
    
    $
    2,314
    
    
    $
    
    
    
    $
    25,308Accounts Receivable, Net
    
    
    
    
    
    
    20,713
    
    
    
    2,307
    
    
    
    (13
    )
    
    
    23,007Inventories
    
    
    
    
    
    
    41,768
    
    
    
    1,215
    
    
    
    
    
    
    
    42,983Prepaid Expenses and Other Assets
    
    
    
    
    
    
    5,158
    
    
    
    87
    
    
    
    
    
    
    
    5,245Deferred Income Taxes
    
    
    
    
    
    
    6,859
    
    
    
    
    
    
    
    
    
    
    
    6,859Total Current Assets
    
    
    
    
    
    
    97,492
    
    
    
    5,923
    
    
    
    (13
    )
    
    
    103,402Property, Plant and Equipment, Net
    
    
    
    
    
    
    116,927
    
    
    
    1,207
    
    
    
    
    
    
    
    118,134Intangible Assets, Net
    
    
    
    
    
    
    2,704
    
    
    
    2,258
    
    
    
    
    
    
    
    4,962Goodwill
    
    
    
    
    
    
    
    
    
    
    3,063
    
    
    
    
    
    
    
    3,063Deferred Income Taxes
    
    
    
    
    
    
    13,851
    
    
    
    
    
    
    
    
    
    
    
    13,851Other Assets
    
    
    
    
    
    
    10,102
    
    
    
    
    
    
    
    
    
    
    
    10,102Intercompany Advances
    
    
    79,921
    
    
    
    3,175
    
    
    
    
    
    
    
    (83,096
    )
    
    
    Investment in Subsidiaries, Net
    
    
    113,134
    
    
    
    5,345
    
    
    
    
    
    
    
    (118,479
    )
    
    
    Total Assets
    
    $
    193,055
    
    
    $
    249,596
    
    
    $
    12,451
    
    
    $
    (201,588
    )
    
    $
    253,514Liabilities and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    23,011
    
    
    $
    1,139
    
    
    $
    (13
    )
    
    $
    24,137Environmental Remediation Reserves
    
    
    
    
    
    
    959
    
    
    
    
    
    
    
    
    
    
    
    959Deferred Revenues and Customer Deposits
    
    
    
    
    
    
    2,799
    
    
    
    2,332
    
    
    
    
    
    
    
    5,131Current Portion of Long-Term Debt
    
    
    
    
    
    
    234
    
    
    
    66
    
    
    
    
    
    
    
    300Intercompany Advances
    
    
    
    
    
    
    79,921
    
    
    
    3,175
    
    
    
    (83,096
    )
    
    
    Total Current Liabilities
    
    
    
    
    
    
    106,924
    
    
    
    6,712
    
    
    
    (83,109
    )
    
    
    30,527Long-Term Debt
    
    
    110,000
    
    
    
    56
    
    
    
    125
    
    
    
    
    
    
    
    110,181Environmental Remediation Reserves
    
    
    
    
    
    
    12,952
    
    
    
    
    
    
    
    
    
    
    
    12,952Pension Obligations and Other Long-Term Liabilities
    
    
    
    
    
    
    16,530
    
    
    
    269
    
    
    
    
    
    
    
    16,799Total Liabilities
    
    
    110,000
    
    
    
    136,462
    
    
    
    7,106
    
    
    
    (83,109
    )
    
    
    170,459Total Shareholders Equity
    
    
    83,055
    
    
    
    113,134
    
    
    
    5,345
    
    
    
    (118,479
    )
    
    
    83,055Total Liabilities and Shareholders Equity
    
    $
    193,055
    
    
    $
    249,596
    
    
    $
    12,451
    
    
    $
    (201,588
    )
    
    $
    253,514
 - 18 -




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##### Table of Contents



12.
    
    GUARANTOR SUBSIDIARIES (continued)Condensed Consolidating Balance Sheet  September 30, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    26,664
    
    
    $
    229
    
    
    $
    
    
    
    $
    26,893Accounts Receivable, Net
    
    
    
    
    
    
    27,083
    
    
    
    649
    
    
    
    (287
    )
    
    
    27,445Inventories
    
    
    
    
    
    
    39,669
    
    
    
    688
    
    
    
    
    
    
    
    40,357Prepaid Expenses and Other Assets
    
    
    
    
    
    
    5,085
    
    
    
    111
    
    
    
    
    
    
    
    5,196Deferred Income Taxes
    
    
    
    
    
    
    6,859
    
    
    
    
    
    
    
    
    
    
    
    6,859Total Current Assets
    
    
    
    
    
    
    105,360
    
    
    
    1,677
    
    
    
    (287
    )
    
    
    106,750Property, Plant and Equipment, Net
    
    
    
    
    
    
    118,437
    
    
    
    171
    
    
    
    
    
    
    
    118,608Intangible Assets, Net
    
    
    
    
    
    
    3,013
    
    
    
    
    
    
    
    
    
    
    
    3,013Deferred Income Taxes
    
    
    
    
    
    
    13,849
    
    
    
    
    
    
    
    
    
    
    
    13,849Other Assets
    
    
    
    
    
    
    9,193
    
    
    
    
    
    
    
    
    
    
    
    9,193Intercompany Advances
    
    
    79,886
    
    
    
    2,664
    
    
    
    
    
    
    
    (82,550
    )
    
    
    Investment in Subsidiaries, Net
    
    
    113,076
    
    
    
    (1,143
    )
    
    
    
    
    
    
    (111,933
    )
    
    
    Total Assets
    
    $
    192,962
    
    
    $
    251,373
    
    
    $
    1,848
    
    
    $
    (194,770
    )
    
    $
    251,413Liabilities and Shareholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    24,718
    
    
    $
    327
    
    
    $
    (287
    )
    
    $
    24,758Environmental Remediation Reserves
    
    
    
    
    
    
    996
    
    
    
    
    
    
    
    
    
    
    
    996Deferred Revenues and Customer Deposits
    
    
    
    
    
    
    3,091
    
    
    
    
    
    
    
    
    
    
    
    3,091Current Portion of Long-Term Debt
    
    
    
    
    
    
    254
    
    
    
    
    
    
    
    
    
    
    
    254Intercompany Advances
    
    
    
    
    
    
    79,886
    
    
    
    2,664
    
    
    
    (82,550
    )
    
    
    Total Current Liabilities
    
    
    
    
    
    
    108,945
    
    
    
    2,991
    
    
    
    (82,837
    )
    
    
    29,099Long-Term Debt
    
    
    110,000
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    110,120Environmental Remediation Reserves
    
    
    
    
    
    
    13,282
    
    
    
    
    
    
    
    
    
    
    
    13,282Pension Obligations and Other Long-Term Liabilities
    
    
    
    
    
    
    15,950
    
    
    
    
    
    
    
    
    
    
    
    15,950Total Liabilities
    
    
    110,000
    
    
    
    138,297
    
    
    
    2,991
    
    
    
    (82,837
    )
    
    
    168,451Total Shareholders Equity
    
    
    82,962
    
    
    
    113,076
    
    
    
    (1,143
    )
    
    
    (111,933
    )
    
    
    82,962Total Liabilities and Shareholders Equity
    
    $
    192,962
    
    
    $
    251,373
    
    
    $
    1,848
    
    
    $
    (194,770
    )
    
    $
    251,413
 Condensed Consolidating Statement of Operations  Three Months Ended December 31, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    43,902
    
    
    $
    1,745
    
    
    $
    (18
    )
    
    $
    45,629Cost of Revenues
    
    
    
    
    
    
    29,809
    
    
    
    1,104
    
    
    
    (18
    )
    
    
    30,895Gross Profit (Loss)
    
    
    
    
    
    
    14,093
    
    
    
    641
    
    
    
    
    
    
    
    14,734Operating Expenses
    
    
    
    
    
    
    10,711
    
    
    
    598
    
    
    
    
    
    
    
    11,309Operating Income (Loss)
    
    
    
    
    
    
    3,382
    
    
    
    43
    
    
    
    
    
    
    
    3,425Interest and Other Income
    
    
    2,668
    
    
    
    89
    
    
    
    1
    
    
    
    (2,668
    )
    
    
    90Interest Expense
    
    
    2,668
    
    
    
    2,686
    
    
    
    37
    
    
    
    (2,668
    )
    
    
    2,723Income (Loss) before Income Tax and
Equity Account for Subsidiaries
    
    
    
    
    
    
    785
    
    
    
    7
    
    
    
    
    
    
    
    792Income Tax Expense
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    
    
    
    
    335Income (Loss) before
Equity Account for Subsidiaries
    
    
    
    
    
    
    450
    
    
    
    7
    
    
    
    
    
    
    
    457Equity Account for Subsidiaries
    
    
    457
    
    
    
    7
    
    
    
    
    
    
    
    (464
    )
    
    
    Net Income (Loss)
    
    $
    457
    
    
    $
    457
    
    
    $
    7
    
    
    $
    (464
    )
    
    $
    457
 - 19 -




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##### Table of Contents



12.
    
    GUARANTOR SUBSIDIARIES (continued)Condensed Consolidating Statement of Operations  Three Months Ended December 31, 2007
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    46,522
    
    
    $
    379
    
    
    $
    (11
    )
    
    $
    46,890Cost of Revenues
    
    
    
    
    
    
    29,067
    
    
    
    405
    
    
    
    (11
    )
    
    
    29,461Gross Profit (Loss)
    
    
    
    
    
    
    17,455
    
    
    
    (26
    )
    
    
    
    
    
    
    17,429Operating Expenses
    
    
    
    
    
    
    10,042
    
    
    
    163
    
    
    
    
    
    
    
    10,205Operating Income (Loss)
    
    
    
    
    
    
    7,413
    
    
    
    (189
    )
    
    
    
    
    
    
    7,224Interest and Other Income
    
    
    2,670
    
    
    
    379
    
    
    
    (1
    )
    
    
    (2,670
    )
    
    
    378Interest Expense
    
    
    2,670
    
    
    
    2,704
    
    
    
    
    
    
    
    (2,670
    )
    
    
    2,704Income (Loss) before Income Tax and
Equity Account for Subsidiaries
    
    
    
    
    
    
    5,088
    
    
    
    (190
    )
    
    
    
    
    
    
    4,898Income Tax Expense
    
    
    
    
    
    
    2,035
    
    
    
    
    
    
    
    
    
    
    
    2,035Income (Loss) before
Equity Account for Subsidiaries
    
    
    
    
    
    
    3,053
    
    
    
    (190
    )
    
    
    
    
    
    
    2,863Equity Account for Subsidiaries
    
    
    2,863
    
    
    
    (190
    )
    
    
    
    
    
    
    (2,673
    )
    
    
    Net Income (Loss)
    
    $
    2,863
    
    
    $
    2,863
    
    
    $
    (190
    )
    
    $
    (2,673
    )
    
    $
    2,863
 Condensed Consolidating Statement of Cash Flows  Three Months Ended December 31, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet Cash Provided by Operating Activities
    
    $
    
    
    
    $
    5,535
    
    
    $
    1,415
    
    
    $
    
    
    
    $
    6,950Cash Flows from Investing Activities:Capital expenditures
    
    
    
    
    
    
    (1,626
    )
    
    
    (183
    )
    
    
    
    
    
    
    (1,809
    )Acquisition on business, net of cash acquired
    
    
    
    
    
    
    (7,132
    )
    
    
    479
    
    
    
    
    
    
    
    (6,653
    )Net Cash Used in Investing Activities
    
    
    
    
    
    
    (8,758
    )
    
    
    296
    
    
    
    
    
    
    
    (8,462
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    
    
    
    
    (84
    )
    
    
    (24
    )
    
    
    
    
    
    
    (108
    )Issuance of common stock
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Excess tax
benefit from exercise of stock options
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Intercompany advances, net
    
    
    (35
    )
    
    
    (363
    )
    
    
    398
    
    
    
    
    
    
    
    Net Cash Provided by Financing Activities
    
    
    
    
    
    
    (447
    )
    
    
    374
    
    
    
    
    
    
    
    (73
    )Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    (3,670
    )
    
    
    2,085
    
    
    
    
    
    
    
    (1,585
    )Cash and Cash Equivalents, Beginning of Period
    
    
    
    
    
    
    26,664
    
    
    
    229
    
    
    
    
    
    
    
    26,893Cash and Cash Equivalents, End of Period
    
    $
    
    
    
    $
    22,994
    
    
    $
    2,314
    
    
    $
    
    
    
    $
    25,308
 Condensed Consolidating Statement of Cash Flows  Three Months Ended December 31, 2007
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedNet Cash Provided by Operating Activities
    
    $
    
    
    
    $
    18,174
    
    
    $
    45
    
    
    $
    
    
    
    $
    18,219Cash Flows from Investing Activities:Capital expenditures
    
    
    
    
    
    
    (1,500
    )
    
    
    
    
    
    
    
    
    
    
    (1,500
    )Net Cash Used in Investing Activities
    
    
    
    
    
    
    (1,500
    )
    
    
    
    
    
    
    
    
    
    
    (1,500
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    (62
    )Issuance of common stock
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Excess tax
benefit from exercise of stock options
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28Intercompany advances, net
    
    
    (77
    )
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    Net Cash Provided by Financing Activities
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    15Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    16,689
    
    
    
    45
    
    
    
    
    
    
    
    16,734Cash and Cash Equivalents, Beginning of Period
    
    
    
    
    
    
    21,352
    
    
    
    74
    
    
    
    
    
    
    
    21,426Cash and Cash Equivalents, End of Period
    
    $
    
    
    
    $
    38,041
    
    
    $
    119
    
    
    $
    
    
    
    $
    38,160
 - 20 -




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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
  - 21 -




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##### Table of Contents



OUR BUSINESS SEGMENTS
  Three Months EndedDecember 31,2008
    
    2007Fine Chemicals
    
    
    45
    %
    
    
    57
    %Specialty Chemicals:Perchlorates
    
    
    35
    %
    
    
    31
    %Sodium Azide
    
    
    1
    %
    
    
    0
    %*Halotron
    
    
    2
    %
    
    
    2
    %Total Specialty
Chemicals
    
    
    38
    %
    
    
    33
    %Aerospace Equipment
    
    
    13
    %
    
    
    8
    %Other Businesses:Real Estate
    
    
    1
    %
    
    
    1
    %Water Treatment Equipment
    
    
    3
    %
    
    
    1
    %Total Other Businesses
    
    
    4
    %
    
    
    2
    %Total Revenues
    
    
    100
    %
    
    
    100
    %
 
 *
    
    less than 1% FINE CHEMICALS.
   - 22 -




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##### Table of Contents




    
    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 six months to two years.
    
    Significant Financial Costs. Switching contractors and amending various filings 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.
 - 23 -




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##### Table of Contents



RESULTS OF OPERATIONS
 REVENUES
 December 31,
    
    Increase
    
    Percentage2008
    
    2007
    
    (Decrease)
    
    ChangeThree Months Ended:Fine Chemicals
    
    $
    20,384
    
    
    $
    26,762
    
    
    $
    (6,378
    )
    
    
    (24
    %)Specialty Chemicals
    
    
    17,359
    
    
    
    15,549
    
    
    
    1,810
    
    
    
    12
    %Aerospace Equipment
    
    
    5,756
    
    
    
    3,735
    
    
    
    2,021
    
    
    
    54
    %Other Businesses
    
    
    2,130
    
    
    
    844
    
    
    
    1,286
    
    
    
    152
    %Total Revenues
    
    $
    45,629
    
    
    $
    46,890
    
    
    $
    (1,261
    )
    
    
    (3
    %)
 Fine Chemicals
  Specialty Chemicals.
  
    
    A 7% decrease in perchlorate volume and a 17% increase in the related average price per
pound.
    
    Sodium azide revenues increased $210.
    
    Halotron revenues increased $358.
    Aerospace Equipment.
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Other Businesses.
 COST OF REVENUES AND GROSS MARGIN
 December 31,
    
    Increase
    
    Percentage2008
    
    2007
    
    (Decrease)
    
    ChangeThree Months Ended:Revenues
    
    $
    45,629
    
    
    $
    46,890
    
    
    $
    (1,261
    )
    
    
    (3
    %)Cost of Revenues
    
    
    30,895
    
    
    
    29,461
    
    
    
    1,434
    
    
    
    5
    %Gross Margin
    
    
    14,734
    
    
    
    17,429
    
    
    
    (2,695
    )
    
    
    (15
    %)Gross Margin Percentage
    
    
    32
    %
    
    
    37
    %
    
    
    A decrease in the gross margin percentage of approximately nineteen points for our Fine
Chemicals segment. Factors that contributed to this decline in gross margin percentage
include:
 o
    
    During the fourth quarter of fiscal 2008, we implemented a new process for a
large-volume anti-viral product and experienced start-up difficulties that negatively
impacted margins for this product. During the fiscal 2009 first quarter, gross margins
for this product improved somewhat as we continued to strive to improve the production
process. However, despite progress, gross margins for this product remain
significantly below historical levels.o
    
    During the fiscal 2008 first quarter, an atypical mix of starting materials
resulted in unusually high gross margin for our central nervous system products. In
the fiscal 2009 first quarter, gross margins for these products were at a more
normalized level. As a result, the quarter over quarter comparison reflects a decline.
 
    
    Specialty Chemicals segment gross margin percentage improved five points for the fiscal
2009 first quarter primarily due to a reduction in amortization expense from $975 for the
fiscal 2008 first quarter to zero for the fiscal 2009 first quarter. In 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.
 OPERATING EXPENSES
 December 31,
    
    Increase
    
    Percentage2008
    
    2007
    
    (Decrease)
    
    ChangeThree Months Ended:Operating Expenses
    
    $
    11,309
    
    
    $
    10,205
    
    
    $
    1,104
    
    
    
    11
    %Percentage of Revenues
    
    
    25
    %
    
    
    22
    %
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
    
    A $265 decrease in Fine Chemicals segment operating expenses reflecting a reduction in
incentive compensation.
    
    A $649 increase in Aerospace Equipment segment operating expenses primarily due to the
acquisition of AMPAC ISP Holdings.
    
    A $641 increase in corporate operating expenses, including increases in rent of $220,
consulting and professional services of $135, and stock-based compensation expense of $103.
The remaining increases in corporate expenses are individually insignificant.
 SEGMENT OPERATING INCOME (LOSS)
 December 31,
    
    Increase
    
    Percentage2008
    
    2007
    
    (Decrease)
    
    ChangeThree Months Ended:Fine Chemicals
    
    $
    (1,024
    )
    
    $
    4,661
    
    
    $
    (5,685
    )
    
    
    (122
    %)Specialty Chemicals
    
    
    7,606
    
    
    
    5,879
    
    
    
    1,727
    
    
    
    29
    %Aerospace Equipment
    
    
    410
    
    
    
    173
    
    
    
    237
    
    
    
    137
    %Other Businesses
    
    
    545
    
    
    
    (18
    )
    
    
    563
    
    
    NMSegment Operating
Income
    
    
    7,537
    
    
    
    10,695
    
    
    
    (3,158
    )
    
    
    (30
    %)Corporate Expenses
    
    
    (4,112
    )
    
    
    (3,471
    )
    
    
    (641
    )
    
    
    18
    %Operating Income
    
    $
    3,425
    
    
    $
    7,224
    
    
    $
    (3,799
    )
    
    
    (53
    %)
 
 NM =
    
    Not Meaningful   BACKLOG
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LIQUIDITY AND CAPITAL RESOURCES
 CASH FLOWS
 Three Months Ended December 31,
    
    
    
    
    
    Percentage2008
    
    2007
    
    Change
    
    ChangeCash Provided (Used) By:Operating activities
    
    $
    6,950
    
    
    $
    18,219
    
    
    $
    (11,269
    )
    
    
    (62
    %)Investing activities
    
    
    (8,462
    )
    
    
    (1,500
    )
    
    
    (6,962
    )
    
    
    (464
    %)Financing activities
    
    
    (73
    )
    
    
    15
    
    
    
    (88
    )
    
    
    587
    %Net change in cash for period
    
    $
    (1,585
    )
    
    $
    16,734
    
    
    $
    (18,319
    )
    
    
    (109
    %)
 Operating Activities .
  
    
    A decrease in cash due to less profit from our operations of $4,859.
    
    A decrease in cash provided by working capital accounts of $7,131, excluding the effects of
interest and income taxes.
    
    An increase in cash taxes paid of $158.
    
    A decrease in cash paid for interest of $75.
    
    An increase in cash used for environmental remediation of $74.
    
    Other increases in cash provided by operating activities of $878.
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Investing Activities
 
    
    Capital expenditures increased by $309 in the fiscal 2009 first quarter as compared to the
prior fiscal year first quarter.
    
    Cash used for acquisition of business reflects the purchase of AMPAC ISP Holdings for
$7,132, net of cash acquired of $479.
 LIQUIDITY AND CAPITAL RESOURCES
    LONG TERM DEBT AND REVOLVING CREDIT FACILITIES
 Senior Notes.
 
    
    ranked equally in right of payment with all of our existing and future senior indebtedness;
    
    ranked senior in right of payment to all of our existing and future senior subordinated and
subordinated indebtedness;
    
    effectively junior to our existing and future secured debt to the extent of the value of
the assets securing such debt; and
    
    structurally subordinated to all of the existing and future liabilities (including trade
payables) of each of our subsidiaries that do not guarantee the Senior Notes.
  
    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus an applicable premium as defined in the related indenture;
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the
principal amount to be redeemed and reducing to 100% by February 1, 2013;
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
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a redemption
price of 109% of the principal amount thereof, plus accrued and unpaid interest thereon, with
the proceeds of certain sales of our equity securities; and
    
    under certain changes of control, we must offer to purchase the Senior Notes at 101% of
their aggregate principal amount, plus accrued interest.
  
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
  Revolving Credit Facility.
  
    
    incur debt, incur contingent obligations and issue certain types of preferred stock;
    
    create liens;
    
    pay dividends, distributions or make other specified restricted payments;
    
    make certain investments and acquisitions;
    
    enter into certain transactions with affiliates;
    
    enter into sale and leaseback transactions; and
    
    merge or consolidate with any other entity or sell, assign, transfer, lease, convey or
otherwise dispose of assets.
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ENVIRONMENTAL REMEDIATION  AMPAC HENDERSON SITE.
     - 30 -




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CONTRACTUAL OBLIGATIONS
   
    
    We have recorded an estimated liability for environmental remediation of $13,911 (see Note
8 to the condensed consolidated financial statements included in Item 1 of this report). We
expect to spend approximately $996 for environmental remediation during fiscal 2009.
    
    We have recorded aggregate defined benefit pension plan and supplemental executive
retirement plan (SERP) obligations of $16,268 (see Note 10 to the condensed consolidated
financial statements included in Item 1 of this report). We expect to contribute $3,068 to
our defined benefit pension plans and SERP during fiscal 2009.
    
    We have uncertain tax positions totaling $313. We are unable to reasonably estimate the
timing of the related payments, if any.
    
    We also maintain the Revolving Credit Facility, which provides revolving credit in an
aggregate principal amount of up to $20,000 with an initial maturity in February 2012. At
December 31, 2008, we had no balance outstanding under the Revolving Credit Facility. We may
prepay and terminate the Revolving Credit Facility at any time.
 OFF-BALANCE SHEET ARRANGEMENTS
 Letters of Credit.
 Employee Agreements.
   CRITICAL ACCOUNTING POLICIES
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SALES AND REVENUE RECOGNITION.
  DEPRECIABLE OR AMORTIZABLE LIVES OF LONG-LIVED ASSETS.
  IMPAIRMENT OF LONG-LIVED ASSETS.
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ENVIRONMENTAL COSTS .
  INCOME TAXES.
   - 33 -




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PENSION BENEFITS.
 RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in Thousands)
  
 ITEM 4. CONTROLS AND PROCEDURES
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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 financial position, results of operations and cash
flows.
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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.
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A significant portion of our business depends on contracts with the government or its prime
contractors and these contracts are impacted by governmental priorities and are subject to
potential fluctuations in funding or early termination, including for convenience, any of which
could have a material adverse effect on our operating results, financial condition or cash flows.
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We may be subject to potentially material costs and liabilities in connection with environmental
liabilities.
  Review of Perchlorate Toxicity by the EPA.
 Perchlorate Remediation Project in Henderson, Nevada.
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Henderson Site Environmental Remediation Reserve.
 Other Environmental Matters.
 Although we have established an environmental reserve for remediation activities in Henderson,
Nevada, given the many uncertainties involved in assessing environmental liabilities, our
environmental-related risks may from time to time exceed any related reserves.
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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.
  The release or explosion of dangerous materials used in our business could disrupt our operations
and cause us to incur additional costs and liability.
  Disruptions in the supply of key raw materials and difficulties in the supplier qualification
process, as well as increases in prices of raw materials, could adversely impact our operations.
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Each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments may be unable to
comply with customer specifications and manufacturing instructions or may experience delays or
other problems with existing or new products, which could result in increased costs, losses of
sales and potential breach of customer contracts.
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Successful commercialization of pharmaceutical products and product line extensions is very
difficult and subject to many uncertainties. If a customer is not able to successfully
commercialize its products for which AFC produces compounds 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.
  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 liability claims for our products or services that could affect our
earnings and financial condition and harm our reputation.
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Technology innovations in the markets that we serve may create alternatives to our products and
result in reduced sales.
  We are subject to strong competition in certain industries in which we participate and therefore
may not be able to compete successfully.
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Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating
results to fluctuate.
  The inherent volatility of the chemical industry affects our capacity utilization and causes
fluctuations in our results of operations.
  A loss of key personnel or highly skilled employees could disrupt our operations.
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We may continue to expand our operations in part 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 any other 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.
 If we are unable to generate sufficient cash flow to service our debt and fund our operating costs,
our liquidity may be adversely affected.
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
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
  Significant changes in discount rates, rates of return on pension assets, mortality tables and
other factors could affect our estimates of pension obligations, which in turn could affect future
earnings, equity and pension funding requirements.
  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.
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Our proprietary and intellectual property rights may be violated, compromised, circumvented or
invalidated, which could damage our operations.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  None.
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES  None.
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  None.
 
 ITEM 5. OTHER INFORMATION  None.
 
 ITEM 6. EXHIBITS  See attached exhibit index.
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SIGNATURES
  AMERICAN PACIFIC CORPORATIONDate: February 6, 2009
    
    /S/ JOHN R. GIBSONJohn R. GibsonChairman of the Board and Chief Executive Officer(Principal Executive Officer)/S/ DANA M. KELLEYDana M. KelleyVice President, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
 EXHIBIT NO.
    
    DOCUMENT DESCRIPTION3.1
    
    Restated Certificate of Incorporation, as amended, of American Pacific Corporation
(incorporated by reference to Exhibit 4.(a) to the Registrants Registration Statement on Form
S-3 (File No. 33-15674))3.2
    
    Articles of Amendment to the Restated Certificate of Incorporation of American Pacific
Corporation, as filed with the Secretary of State, State of Delaware, on October 7, 1991
(incorporated by reference to Exhibit 4.3 to the Registrants Registration Statement on Form
S-3 (File No. 33-52196))3.3
    
    Articles of Amendment to the Restated Certificate of Incorporation of American Pacific
Corporation, as filed with the Secretary of State, State of Delaware, on April 21, 1992
(incorporated by reference to Exhibit 4.4 to the Registrants Registration Statement on Form
S-3 (File No. 33-52196))3.4
    
    American Pacific Corporation Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on Form 8-K (File No. 001-08137) filed by the
Registrant with the Securities and Exchange Commission on September 15, 2008)3.5
    
    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 that accompanied copies of the Summary of Rights to Purchase
Preferred Shares (incorporated by reference to Exhibit 2 to the Registrants Registration
Statement on Form 8-A (File No. 001-08137) filed by the Registrant with the Securities and
Exchange Commission on August 6, 1999)3.7
    
    Amendment, dated as of July 11, 2008, between American Pacific Corporation and American Stock
Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Registrants Current
Report on Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and
Exchange Commission on July 11, 2008)10.1+
    
    Employment Agreement, effective October 15, 2006, between American Pacific Corporation and
Joseph Carleone, as amended and restated on November 14, 2008 (incorporated by reference to
Exhibit 10.1 to the Registrants Annual Report on Form 10-K (File No. 001-08137) for the year
ended September 30, 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
 
 +
    
    Management contract or compensatory plan or arrangement*
    
    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. - 50 -