##### 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, 2009
 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
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




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##### 



AMERICAN PACIFIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    
    1Condensed Consolidated Statements of Operations (unaudited)
    
    
    1Condensed Consolidated Balance Sheets (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows (unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    4ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    22ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38ITEM 4. Controls and Procedures
    
    
    38PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    40ITEM 1A. Risk Factors
    
    
    40ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    53ITEM 3. Defaults Upon Senior Securities
    
    
    53ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    53ITEM 5. Other Information
    
    
    53ITEM 6. Exhibits
    
    
    53EX-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 31,2009
    
    
    2008Revenues
    
    $
    34,064
    
    
    $
    45,629Cost of Revenues
    
    
    21,618
    
    
    
    30,895Gross Profit
    
    
    12,446
    
    
    
    14,734Operating Expenses
    
    
    12,307
    
    
    
    11,309Operating Income
    
    
    139
    
    
    
    3,425Interest and Other Income (Expense), Net
    
    
    (8
    )
    
    
    61Interest Expense
    
    
    2,691
    
    
    
    2,694Income (Loss) before Income Tax
    
    
    (2,560
    )
    
    
    792Income Tax Expense (Benefit)
    
    
    (1,120
    )
    
    
    335Net Income (Loss)
    
    $
    (1,440
    )
    
    $
    457Earnings (Loss) per Share:Basic
    
    $
    (0.19
    )
    
    $
    0.06Diluted
    
    $
    (0.19
    )
    
    $
    0.06Weighted Average Shares Outstanding:Basic
    
    
    7,487,000
    
    
    
    7,480,000Diluted
    
    
    7,487,000
    
    
    
    7,573,000
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AMERICAN
PACIFIC CORPORATION
 
 Condensed Consolidated Balance Sheets
(Unaudited, Dollars in Thousands, Except per Share Amounts)
 December 31,
    
    
    September 30,2009
    
    
    2009ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    38,619
    
    
    $
    21,681Accounts Receivable, Net
    
    
    23,889
    
    
    
    44,028Inventories
    
    
    47,783
    
    
    
    36,356Prepaid Expenses and Other Assets
    
    
    2,353
    
    
    
    1,811Income Taxes Receivable
    
    
    2,439
    
    
    
    2,148Deferred Income Taxes
    
    
    6,317
    
    
    
    6,317Total Current Assets
    
    
    121,400
    
    
    
    112,341Property, Plant and Equipment, Net
    
    
    112,634
    
    
    
    114,645Intangible Assets, Net
    
    
    3,005
    
    
    
    3,553Goodwill
    
    
    3,088
    
    
    
    3,144Deferred Income Taxes
    
    
    21,122
    
    
    
    21,121Other Assets
    
    
    10,150
    
    
    
    10,037TOTAL ASSETS
    
    $
    271,399
    
    
    $
    264,841LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    8,217
    
    
    $
    7,444Accrued Liabilities
    
    
    7,084
    
    
    
    5,295Accrued Interest
    
    
    4,125
    
    
    
    1,650Employee Related Liabilities
    
    
    5,282
    
    
    
    6,930Income Taxes Payable
    
    
    201
    
    
    
    189Deferred Revenues and Customer Deposits
    
    
    11,101
    
    
    
    6,911Current Portion of Environmental Remediation Reserves
    
    
    2,110
    
    
    
    2,522Current Portion of Long-Term Debt
    
    
    121
    
    
    
    151Total Current Liabilities
    
    
    38,241
    
    
    
    31,092Long-Term Debt
    
    
    110,131
    
    
    
    110,097Environmental Remediation Reserves
    
    
    23,898
    
    
    
    24,168Pension Obligations
    
    
    28,573
    
    
    
    27,720Other Long-Term Liabilities
    
    
    628
    
    
    
    667Total Liabilities
    
    
    201,471
    
    
    
    193,744Commitments 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, 7,540,591 and 7,504,591 issued
    
    
    754
    
    
    
    750Capital in Excess of Par Value
    
    
    72,664
    
    
    
    72,322Retained Earnings
    
    
    8,557
    
    
    
    9,997Accumulated Other Comprehensive Loss
    
    
    (12,047
    )
    
    
    (11,972
    )Total Shareholders Equity
    
    
    69,928
    
    
    
    71,097TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $271,399
    
    $
    264,841
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AMERICAN
PACIFIC CORPORATION
 
 Condensed Consolidated Statements of Cash Flows


(Unaudited, Dollars in Thousands)
 Three Months EndedDecember 31,2009
    
    
    2008Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    (1,440
    )
    
    $
    457Adjustments to Reconcile Net Income (Loss)to Net Cash Provided by Operating Activities:Depreciation and amortization
    
    
    4,053
    
    
    
    3,969Non-cash interest expense
    
    
    159
    
    
    
    159Share-based compensation
    
    
    346
    
    
    
    132Excess tax benefit from stock option exercises
    
    
    
    
    
    
    (3
    )Deferred income taxes
    
    
    (44
    )
    
    
    (58
    )Loss on sale of assets
    
    
    5
    
    
    
    53Changes in operating assets and liabilities:Accounts receivable, net
    
    
    20,141
    
    
    
    6,661Inventories
    
    
    (11,323
    )
    
    
    (3,052
    )Prepaid expenses and other current assets
    
    
    (540
    )
    
    
    (12
    )Accounts payable
    
    
    296
    
    
    
    (2,627
    )Income taxes
    
    
    (279
    )
    
    
    325Accrued liabilities
    
    
    1,791
    
    
    
    631Accrued interest
    
    
    2,475
    
    
    
    2,509Employee related liabilities
    
    
    (1,643
    )
    
    
    (2,739
    )Deferred revenues and customer deposits
    
    
    4,208
    
    
    
    415Environmental remediation reserves
    
    
    (682
    )
    
    
    (367
    )Pension obligations, net
    
    
    853
    
    
    
    576Other
    
    
    (269
    )
    
    
    (79
    )Net Cash Provided by Operating Activities
    
    
    18,107
    
    
    
    6,950Cash Flows from Investing Activities:Capital expenditures
    
    
    (1,099
    )
    
    
    (1,809
    )Acquisition of business, net of cash acquired
    
    
    
    
    
    
    (6,653
    )Net Cash Used by Investing Activities
    
    
    (1,099
    )
    
    
    (8,462
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    (59
    )
    
    
    (108
    )Issuances of common stock, net
    
    
    
    
    
    
    32Excess tax benefit from stock option exercises
    
    
    
    
    
    
    3Net Cash Used by Financing Activities
    
    
    (59
    )
    
    
    (73
    )Effect of Changes in Currency Exchnage Rates on Cash
    
    
    (11
    )
    
    
    Net Change in Cash and Cash Equivalents
    
    
    16,938
    
    
    
    (1,585
    )Cash and Cash Equivalents, Beginning of Period
    
    
    21,681
    
    
    
    26,893Cash and Cash Equivalents, End of Period
    
    $
    38,619
    
    
    $
    25,308Cash Paid (Received) For:Interest
    
    $
    57
    
    
    $
    55Income taxes
    
    
    (801
    )
    
    
    6Non-Cash Investing and Financing Transactions:Additions to Property, Plant and Equipment not yet paid
    
    
    778
    
    
    
    897Capital Leases Originated
    
    
    65
    
    
    
    
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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 POLICIES
 Interim Basis of Presentation. ,
 Accounting Policies.
 Principles of Consolidation.
  Fair Value Disclosure of Financial Instruments.
 Depreciation and Amortization Expense.
  Bill and Hold Transactions.
 Recently Issued or Adopted Accounting Standards.
 - 4 -




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1.
    
    INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
      - 5 -




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2.
    
    SHARE-BASED COMPENSATION
      - 6 -




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2.
    
    SHARE-BASED COMPENSATION (continued)
  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, 2009
    
    
    540,997
    
    
    $
    8.64
    
    
    
    161,710
    
    
    $
    5.57
    
    
    
    22,000
    
    
    $
    11.25Granted
    
    
    149,000
    
    
    
    7.21
    
    
    
    149,000
    
    
    
    3.65
    
    
    
    36,000
    
    
    
    7.15Vested
    
    
    
    
    
    
    
    
    
    
    (61,065
    )
    
    
    5.62
    
    
    
    (7,336
    )
    
    
    11.25Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired / Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2009
    
    
    689,997
    
    
    
    8.33
    
    
    
    249,645
    
    
    
    4.41
    
    
    
    50,664
    
    
    
    8.34
  Number of vested stock options
    
    
    440,352Weighted-average exercise price per share
    
    $
    8.11Aggregate intrinsic value
    
    $
    277Weighted-average remaining contractual term in years
    
    
    4.9
  Three Months EndedDecember 31,2009
    
    
    2008Weighted-average grant date fair value per share of options granted Significant fair value assumptions:
    
    $
    3.65
    
    
    $
    5.41Expected term in years
    
    
    6.00
    
    
    
    6.00Expected volatility
    
    
    51.3
    %
    
    
    48.7
    %Expected dividends
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rates
    
    
    2.3
    %
    
    
    2.7
    %Total intrinsic value of options exercised
    
    $
    
    
    
    $
    21Aggregate cash received for option exercises
    
    $
    
    
    
    $
    32Compensation cost (included in operating expenses)Stock options
    
    $
    211
    
    
    $
    108Restricted stock
    
    
    135
    
    
    
    24Total
    
    
    346
    
    
    
    132Tax benefit recognized
    
    
    73
    
    
    
    29Net compensation cost
    
    $
    273
    
    
    $
    103As of period end date:Total compensation cost for non-vested awards
not yet recognized:Stock options
    
    $
    635
    
    
    $
    807Restricted stock
    
    $
    187
    
    
    $
    223Weighted-average years to be recognizedStock options
    
    
    1.8
    
    
    
    1.9Restricted stock
    
    
    1.8
    
    
    
    1.9
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3.
    
    SELECTED BALANCE SHEET DATA
 Inventories.
 December 31,
    
    
    September 30,2009
    
    
    2009Finished goods
    
    $
    8,646
    
    
    $
    1,951Work-in-process
    
    
    24,233
    
    
    
    22,080Raw materials and supplies
    
    
    10,401
    
    
    
    9,930Deferred cost of revenues
    
    
    5,079
    
    
    
    2,395Under(over) applied manufacturing overhead costs
    
    
    (576
    )
    
    
    Total
    
    $
    47,783
    
    
    $
    36,356
  Intangible Assets.
 December 31,
    
    
    September 30,2009
    
    
    2009Perchlorate customer list
    
    $
    38,697
    
    
    $
    38,697Less accumulated amortization
    
    
    (38,697
    )
    
    
    (38,697
    )
    
    
    
    Customer relationships
    
    
    9,008
    
    
    
    9,018Less accumulated amortization
    
    
    (6,527
    )
    
    
    (6,182
    )2,481
    
    
    
    2,836Backlog
    
    
    1,577
    
    
    
    1,579Less accumulated amortization
    
    
    (1,053
    )
    
    
    (862
    )524
    
    
    
    717Total
    
    $
    3,005
    
    
    $
    3,553
    Goodwill.
 - 8 -




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4. COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS
  Three Months EndedDecember 31,2009
    
    
    2008Net Income (Loss)
    
    $
    (1,440
    )
    
    $
    457Other Comprehensive Income (Loss) -Foreign currency translation adjustment
    
    
    (75
    )
    
    
    (537
    )Comprehensive Loss
    
    $
    (1,515
    )
    
    $
    (80
    )
  December 31,
    
    
    September 30,2009
    
    
    2009Cumulative currency translation adjustment
    
    $
    (201
    )
    
    $
    (126
    )Unamortized benefit plan costs, net of tax of $7,898
    
    
    (11,846
    )
    
    
    (11,846
    )Total
    
    $
    (12,047
    )
    
    $
    (11,972
    )
 5. EARNINGS (LOSS) PER SHARE
  Three Months EndedDecember 31,2009
    
    
    2008Net income (loss)
    
    $
    (1,440
    )
    
    $
    457Basic weighted-average shares
    
    
    7,487,000
    
    
    
    7,480,000Diluted:Weighted-average shares, basic
    
    
    7,487,000
    
    
    
    7,480,000Dilutive effect of stock options
    
    
    
    
    
    
    93,000Weighted-average shares, diluted
    
    
    7,487,000
    
    
    
    7,573,000Basic earnings (loss) per share
    
    $
    (0.19
    )
    
    $
    0.06Diluted earnings (loss) per share
    
    $
    (0.19
    )
    
    $
    0.06
  6. DEBT
  December 31,
    
    
    September 30,2009
    
    
    2009Senior Notes, 9%, due 2015
    
    $
    110,000
    
    
    $
    110,000Capital Leases, due through 2014
    
    
    252
    
    
    
    248Total Debt
    
    
    110,252
    
    
    
    110,248Less Current Portion
    
    
    (121
    )
    
    
    (151
    )Total Long-term Debt
    
    $
    110,131
    
    
    $
    110,097
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6. DEBT (continued)
 Senior Notes.
 
    
    ranked equally in right of payment with all of our existing and future senior
indebtedness;
    
    ranked senior in right of payment to all of our existing and future senior subordinated
and subordinated indebtedness;
    
    effectively junior to our existing and future secured debt to the extent of the value of
the assets securing such debt; and
    
    structurally subordinated to all of the existing and future liabilities (including trade
payables) of each of our subsidiaries that do not guarantee the Senior Notes.
  
    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus an applicable premium as defined in the related indenture;
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the
principal amount to be redeemed and reducing to 100% by February 1, 2013;
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a
redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest
thereon, with the proceeds of certain sales of our equity securities; and
    
    under certain changes of control, we must offer to purchase the Senior Notes at 101% of
their aggregate principal amount, plus accrued interest.
  
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
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6. DEBT (continued)
  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.
  - 11 -




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6. DEBT (continued)
   Letters of Credit.
 7. COMMITMENTS AND CONTINGENCIES
 Regulatory Review of Perchlorates.
 Perchlorate Remediation Project in Henderson, Nevada.
   - 12 -




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7. COMMITMENTS AND CONTINGENCIES (Continued)
    Henderson Site Environmental Remediation Reserve.
    - 13 -




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7. COMMITMENTS AND CONTINGENCIES (Continued)
      Balance, September 30, 2009
    
    $
    26,690Additions or adjustments
    
    
    Expenditures
    
    
    (682
    )Balance, December 31, 2009
    
    $
    26,008
 AFC Environmental Matters.
 - 14 -




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7. COMMITMENTS AND CONTINGENCIES (Continued)
    Other Matters.
 8. SEGMENT INFORMATION
  Fine Chemicals.
 Specialty Chemicals. â
 - 15 -




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8. SEGMENT INFORMATION (Continued)
 Aerospace Equipment
 Other Businesses.
   Three Months EndedDecember 31,2009
    
    
    2008Fine chemicals customer
    
    
    
    
    
    
    25
    %Fine chemicals customer
    
    
    15
    %Fine chemicals customer
    
    
    
    
    
    
    10
    %Specialty chemicals customer
    
    
    28
    %
    
    
    29
    %
  Three Months EndedDecember 31,2009
    
    
    2008Revenues:Fine Chemicals
    
    $
    9,504
    
    
    $
    20,384Specialty Chemicals
    
    
    12,803
    
    
    
    17,359Aerospace Equipment
    
    
    8,325
    
    
    
    5,756Other Businesses
    
    
    3,432
    
    
    
    2,130Total Revenues
    
    $
    34,064
    
    
    $
    45,629Segment Operating Income (Loss):Fine Chemicals
    
    $
    (740
    )
    
    $
    (1,024
    )Specialty Chemicals
    
    
    5,831
    
    
    
    7,606Aerospace Equipment
    
    
    (362
    )
    
    
    410Other Businesses
    
    
    (17
    )
    
    
    545Total Segment Operating Income
    
    
    4,712
    
    
    
    7,537Corporate Expenses
    
    
    (4,573
    )
    
    
    (4,112
    )Operating Income (Loss)
    
    $
    139
    
    
    $
    3,425Depreciation and Amortization:Fine Chemicals
    
    $
    3,328
    
    
    $
    3,208Specialty Chemicals
    
    
    171
    
    
    
    304Aerospace Equipment
    
    
    423
    
    
    
    331Other Businesses
    
    
    4
    
    
    
    3Corporate
    
    
    127
    
    
    
    123Total Depreciation and Amortization
    
    $
    4,053
    
    
    $
    3,969
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9. INCOME TAXES
     10. DEFINED BENEFIT PLANS
    - 17 -




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10. DEFINED BENEFIT PLANS (Continued)
  Three Months EndedDecember 31,2009
    
    
    2008Pension Plans:Service Cost
    
    $
    625
    
    
    $
    507Interest Cost
    
    
    798
    
    
    
    670Expected Return on Plan Assets
    
    
    (603
    )
    
    
    (601
    )Recognized Actuarial Losses
    
    
    263
    
    
    
    109Amortization of Prior Service Costs
    
    
    19
    
    
    
    19Net Periodic Pension Cost
    
    $
    1,102
    
    
    $
    704Supplemental Executive Retirement Plan:Service Cost
    
    $
    110
    
    
    $
    98Interest Cost
    
    
    93
    
    
    
    102Expected Return on Plan Assets
    
    
    
    
    
    
    Recognized Actuarial Losses
    
    
    
    
    
    
    Amortization of Prior Service Costs
    
    
    105
    
    
    
    105Net Periodic Pension Cost
    
    $
    308
    
    
    $
    305
  - 18 -




---



##### Table of Contents



11. GUARANTOR SUBSIDIARIES
  Condensed Consolidating Balance Sheet  December 31, 2009
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    36,903
    
    
    $
    1,716
    
    
    $
    
    
    
    $
    38,619Accounts Receivable, Net
    
    
    
    
    
    
    20,587
    
    
    
    3,565
    
    
    
    (263
    )
    
    
    23,889Inventories
    
    
    
    
    
    
    46,466
    
    
    
    1,317
    
    
    
    
    
    
    
    47,783Prepaid Expenses and Other Assets
    
    
    
    
    
    
    2,273
    
    
    
    80
    
    
    
    
    
    
    
    2,353Income Taxes Receivable and Deferred Income Taxes
    
    
    
    
    
    
    8,756
    
    
    
    
    
    
    
    
    
    
    
    8,756Total Current Assets
    
    
    
    
    
    
    114,985
    
    
    
    6,678
    
    
    
    (263
    )
    
    
    121,400Property, Plant and Equipment, Net
    
    
    
    
    
    
    111,110
    
    
    
    1,524
    
    
    
    
    
    
    
    112,634Intangible Assets, Net
    
    
    
    
    
    
    1,465
    
    
    
    1,540
    
    
    
    
    
    
    
    3,005Goodwill
    
    
    
    
    
    
    
    
    
    
    3,088
    
    
    
    
    
    
    
    3,088Deferred Income Taxes
    
    
    
    
    
    
    21,122
    
    
    
    
    
    
    
    
    
    
    
    21,122Other Assets
    
    
    
    
    
    
    10,150
    
    
    
    
    
    
    
    
    
    
    
    10,150Intercompany Advances
    
    
    79,918
    
    
    
    2,879
    
    
    
    
    
    
    
    (82,797
    )
    
    
    Investment in Subsidiaries, Net
    
    
    100,010
    
    
    
    5,827
    
    
    
    
    
    
    
    (105,837
    )
    
    
    Total Assets
    
    $
    179,928
    
    
    $
    267,538
    
    
    $
    12,830
    
    
    $
    (188,897
    )
    
    $
    271,399Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    23,354
    
    
    $
    1,818
    
    
    $
    (263
    )
    
    $
    24,909Environmental Remediation Reserves
    
    
    
    
    
    
    2,110
    
    
    
    
    
    
    
    
    
    
    
    2,110Deferred Revenues and Customer Deposits
    
    
    
    
    
    
    9,016
    
    
    
    2,085
    
    
    
    
    
    
    
    11,101Current Portion of Long-Term Debt
    
    
    
    
    
    
    69
    
    
    
    52
    
    
    
    
    
    
    
    121Intercompany Advances
    
    
    
    
    
    
    79,918
    
    
    
    2,879
    
    
    
    (82,797
    )
    
    
    Total Current Liabilities
    
    
    
    
    
    
    114,467
    
    
    
    6,834
    
    
    
    (83,060
    )
    
    
    38,241Long-Term Debt
    
    
    110,000
    
    
    
    48
    
    
    
    83
    
    
    
    
    
    
    
    110,131Environmental Remediation Reserves
    
    
    
    
    
    
    23,898
    
    
    
    
    
    
    
    
    
    
    
    23,898Pension Obligations and Other Long-Term Liabilities
    
    
    
    
    
    
    29,115
    
    
    
    86
    
    
    
    
    
    
    
    29,201Total Liabilities
    
    
    110,000
    
    
    
    167,528
    
    
    
    7,003
    
    
    
    (83,060
    )
    
    
    201,471Total Shareholders Equity
    
    
    69,928
    
    
    
    100,010
    
    
    
    5,827
    
    
    
    (105,837
    )
    
    
    69,928Total Liabilities and Shareholders Equity
    
    $
    179,928
    
    
    $
    267,538
    
    
    $
    12,830
    
    
    $
    (188,897
    )
    
    $
    271,399
 - 19 -




---



##### Table of Contents



11. GUARANTOR SUBSIDIARIES (Continued)
 Condensed Consolidating Balance Sheet  September 30, 2009
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    20,046
    
    
    $
    1,635
    
    
    $
    
    
    
    $
    21,681Accounts Receivable, Net
    
    
    
    
    
    
    40,399
    
    
    
    3,951
    
    
    
    (322
    )
    
    
    44,028Inventories
    
    
    
    
    
    
    35,223
    
    
    
    1,133
    
    
    
    
    
    
    
    36,356Prepaid Expenses and Other Assets
    
    
    
    
    
    
    1,645
    
    
    
    166
    
    
    
    
    
    
    
    1,811Income Taxes Receivable and Deferred Income Taxes
    
    
    
    
    
    
    8,465
    
    
    
    
    
    
    
    
    
    
    
    8,465Total Current Assets
    
    
    
    
    
    
    105,778
    
    
    
    6,885
    
    
    
    (322
    )
    
    
    112,341Property, Plant and Equipment, Net
    
    
    
    
    
    
    113,143
    
    
    
    1,502
    
    
    
    
    
    
    
    114,645Intangible Assets, Net
    
    
    
    
    
    
    1,775
    
    
    
    1,778
    
    
    
    
    
    
    
    3,553Goodwill
    
    
    
    
    
    
    
    
    
    
    3,144
    
    
    
    
    
    
    
    3,144Deferred Income Taxes
    
    
    
    
    
    
    21,121
    
    
    
    
    
    
    
    
    
    
    
    21,121Other Assets
    
    
    
    
    
    
    10,037
    
    
    
    
    
    
    
    
    
    
    
    10,037Intercompany Advances
    
    
    79,918
    
    
    
    2,535
    
    
    
    
    
    
    
    (82,453
    )
    
    
    Investment in Subsidiaries, Net
    
    
    101,179
    
    
    
    6,229
    
    
    
    
    
    
    
    (107,408
    )
    
    
    Total Assets
    
    $
    181,097
    
    
    $
    260,618
    
    
    $
    13,309
    
    
    $
    (190,183
    )
    
    $
    264,841Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    19,894
    
    
    $
    1,936
    
    
    $
    (322
    )
    
    $
    21,508Environmental Remediation Reserves
    
    
    
    
    
    
    2,522
    
    
    
    
    
    
    
    
    
    
    
    2,522Deferred Revenues and Customer Deposits
    
    
    
    
    
    
    4,579
    
    
    
    2,332
    
    
    
    
    
    
    
    6,911Current Portion of Long-Term Debt
    
    
    
    
    
    
    99
    
    
    
    52
    
    
    
    
    
    
    
    151Intercompany Advances
    
    
    
    
    
    
    79,918
    
    
    
    2,535
    
    
    
    (82,453
    )
    
    
    Total Current Liabilities
    
    
    
    
    
    
    107,012
    
    
    
    6,855
    
    
    
    (82,775
    )
    
    
    31,092Long-Term Debt
    
    
    110,000
    
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    110,097Environmental Remediation Reserves
    
    
    
    
    
    
    24,168
    
    
    
    
    
    
    
    
    
    
    
    24,168Pension Obligations and Other Long-Term Liabilities
    
    
    
    
    
    
    28,259
    
    
    
    128
    
    
    
    
    
    
    
    28,387Total Liabilities
    
    
    110,000
    
    
    
    159,439
    
    
    
    7,080
    
    
    
    (82,775
    )
    
    
    193,744Total Shareholders Equity
    
    
    71,097
    
    
    
    101,179
    
    
    
    6,229
    
    
    
    (107,408
    )
    
    
    71,097Total Liabilities and Shareholders Equity
    
    $
    181,097
    
    
    $
    260,618
    
    
    $
    13,309
    
    
    $
    (190,183
    )
    
    $
    264,841
 Condensed Consolidating Statement of Operations  Three Months Ended December 31, 2009
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    31,728
    
    
    $
    2,503
    
    
    $
    (167
    )
    
    $
    34,064Cost of Revenues
    
    
    
    
    
    
    20,012
    
    
    
    1,773
    
    
    
    (167
    )
    
    
    21,618Gross Profit
    
    
    
    
    
    
    11,716
    
    
    
    730
    
    
    
    
    
    
    
    12,446Operating Expenses
    
    
    
    
    
    
    11,257
    
    
    
    1,050
    
    
    
    
    
    
    
    12,307Operating Income (Loss)
    
    
    
    
    
    
    459
    
    
    
    (320
    )
    
    
    
    
    
    
    139Interest and Other Income
    
    
    2,669
    
    
    
    40
    
    
    
    (48
    )
    
    
    (2,669
    )
    
    
    (8
    )Interest Expense
    
    
    2,669
    
    
    
    2,689
    
    
    
    2
    
    
    
    (2,669
    )
    
    
    2,691Loss before Income Tax and Equity Account for Subsidiaries
    
    
    
    
    
    
    (2,190
    )
    
    
    (370
    )
    
    
    
    
    
    
    (2,560
    )Income Tax Benefit
    
    
    
    
    
    
    (1,077
    )
    
    
    (43
    )
    
    
    
    
    
    
    (1,120
    )Loss before Equity Account for Subsidiaries
    
    
    
    
    
    
    (1,113
    )
    
    
    (327
    )
    
    
    
    
    
    
    (1,440
    )Equity Account for Subsidiaries
    
    
    (1,440
    )
    
    
    (327
    )
    
    
    
    
    
    
    1,767
    
    
    
    Net Loss
    
    $
    (1,440
    )
    
    $
    (1,440
    )
    
    $
    (327
    )
    
    $
    1,767
    
    
    $
    (1,440
    )
 - 20 -




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##### Table of Contents



11. GUARANTOR SUBSIDIARIES (Continued)
 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
    
    
    
    
    
    
    14,093
    
    
    
    641
    
    
    
    
    
    
    
    14,734Operating Expenses
    
    
    
    
    
    
    10,711
    
    
    
    598
    
    
    
    
    
    
    
    11,309Operating Income
    
    
    
    
    
    
    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
before Income Tax and Equity Account for Subsidiaries
    
    
    
    
    
    
    785
    
    
    
    7
    
    
    
    
    
    
    
    792Income Tax Expense
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    
    
    
    
    335Income
before Equity Account for Subsidiaries
    
    
    
    
    
    
    450
    
    
    
    7
    
    
    
    
    
    
    
    457Equity Account for Subsidiaries
    
    
    457
    
    
    
    7
    
    
    
    
    
    
    
    (464
    )
    
    
    Net Income
    
    $
    457
    
    
    $
    457
    
    
    $
    7
    
    
    $
    (464
    )
    
    $
    457
 Condensed Consolidating Statement of Cash Flows  Three Months Ended December 31, 2009
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet Cash Provided (Used) by Operating Activities
    
    $
    
    
    
    $
    18,205
    
    
    $
    (98
    )
    
    $
    
    
    
    $
    18,107Cash Flows from Investing Activities:Capital expenditures
    
    
    
    
    
    
    (957
    )
    
    
    (142
    )
    
    
    
    
    
    
    (1,099
    )Net Cash Used in Investing Activities
    
    
    
    
    
    
    (957
    )
    
    
    (142
    )
    
    
    
    
    
    
    (1,099
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    
    
    
    
    (47
    )
    
    
    (12
    )
    
    
    
    
    
    
    (59
    )Intercompany advances, net
    
    
    
    
    
    
    (344
    )
    
    
    344
    
    
    
    
    
    
    
    Net Cash Provided (Used) by Financing Activities
    
    
    
    
    
    
    (391
    )
    
    
    332
    
    
    
    
    
    
    
    (59
    )Effect of Changes in Currency Exchange Rates
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    16,857
    
    
    
    81
    
    
    
    
    
    
    
    16,938Cash and Cash Equivalents, Beginning of Period
    
    
    
    
    
    
    20,046
    
    
    
    1,635
    
    
    
    
    
    
    
    21,681Cash and Cash Equivalents, End of Period
    
    $
    
    
    
    $
    36,903
    
    
    $
    1,716
    
    
    $
    
    
    
    $
    38,619
 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 exrecise 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
 - 21 -




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##### Table of Contents



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




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##### Table of Contents



OUR BUSINESS SEGMENTS
  Three Months EndedDecember 31,2009
    
    
    2008Fine Chemicals
    
    
    28
    %
    
    
    45
    %Specialty Chemicals:Perchlorates
    
    
    32
    %
    
    
    35
    %Sodium Azide
    
    
    3
    %
    
    
    1
    %Halotron
    
    
    3
    %
    
    
    2
    %Total Specialty Chemicals
    
    
    38
    %
    
    
    38
    %Aerospace Equipment
    
    
    24
    %
    
    
    13
    %Other Businesses:Real Estate
    
    
    0
    %*
    
    
    1
    %Water Treatment Equipment
    
    
    10
    %
    
    
    3
    %Total Other Businesses
    
    
    10
    %
    
    
    4
    %Total Revenues
    
    
    100
    %
    
    
    100
    %
 
 *
    
    less than 1% FINE CHEMICALS.
   - 23 -




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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 approvals and could take as long as two years to complete.
    
    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.
 - 24 -




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##### Table of Contents



RESULTS OF OPERATIONS
 REVENUES
 December 31,
    
    Increase
    
    Percentage2009
    
    2008
    
    (Decrease)
    
    ChangeThree Months Ended:Fine Chemicals
    
    $
    9,504
    
    
    $
    20,384
    
    
    $
    (10,880
    )
    
    
    (53
    %)Specialty Chemicals
    
    
    12,803
    
    
    
    17,359
    
    
    
    (4,556
    )
    
    
    (26
    %)Aerospace Equipment
    
    
    8,325
    
    
    
    5,756
    
    
    
    2,569
    
    
    
    45
    %Other Businesses
    
    
    3,432
    
    
    
    2,130
    
    
    
    1,302
    
    
    
    61
    %Total Revenues
    
    $
    34,064
    
    
    $
    45,629
    
    
    $
    (11,565
    )
    
    
    (25
    %)
 Fine Chemicals .
 Specialty Chemicals.
 
    
    A 46% decrease in perchlorate volume offset by a 27% increase in the related average price
per pound.
    
    Sodium azide revenues increased $729 for the Fiscal 2010 first quarter, reflecting
increased sales outside the U.S.
    
    Halotron revenues were consistent between the first quarter periods.
  Aerospace
Equipment .
 - 25 -




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##### Table of Contents



COST OF REVENUES AND GROSS MARGIN
 December 31,
    
    Increase
    
    Percentage2009
    
    2008
    
    (Decrease)
    
    ChangeThree Months Ended:Revenues
    
    $
    34,064
    
    
    $
    45,629
    
    
    $
    (11,565
    )
    
    
    (25
    %)Cost of Revenues
    
    
    21,618
    
    
    
    30,895
    
    
    
    (9,277
    )
    
    
    (30
    %)Gross Margin
    
    
    12,446
    
    
    
    14,734
    
    
    
    (2,288
    )
    
    
    (16
    %)Gross Margin Percentage
    
    
    37
    %
    
    
    32
    %
   Fine Chemicals.
 Specialty Chemicals.
 Aerospace Equipment .
 OPERATING EXPENSES
 December 31,
    
    Increase
    
    Percentage2009
    
    2008
    
    (Decrease)
    
    ChangeThree Months Ended:Operating Expenses
    
    $
    12,307
    
    
    $
    11,309
    
    
    $
    998
    
    
    
    9
    %Percentage of Revenues
    
    
    36
    %
    
    
    25
    %
  
    
    A decrease in Specialty Chemicals segment operating expenses primarily due to a decrease of
$167 in employee related costs.
    
    An increase in Aerospace Equipment segment operating expenses of $595 primarily due to
additional management and organization structure which was added to support this segments
European growth strategy.
    
    An increase in corporate expenses, the largest component of which is an increase of $215 in
non-cash, stock-based compensation.
    
    Fine Chemicals segment operating expenses were consistent between the Fiscal 2010 and
Fiscal 2009 first quarters.
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SEGMENT OPERATING INCOME (LOSS)
 December 31,
    
    Favorable
    
    Percentage2009
    
    2008
    
    (Unfavorable)
    
    ChangeThree Months Ended:Fine Chemicals
    
    $
    (740
    )
    
    $
    (1,024
    )
    
    $
    284
    
    
    
    28
    %Specialty Chemicals
    
    
    5,831
    
    
    
    7,606
    
    
    
    (1,775
    )
    
    
    (23
    %)Aerospace Equipment
    
    
    (362
    )
    
    
    410
    
    
    
    (772
    )
    
    NMOther Businesses
    
    
    (17
    )
    
    
    545
    
    
    
    (562
    )
    
    NMSegment Operating Income
    
    
    4,712
    
    
    
    7,537
    
    
    
    (2,825
    )
    
    
    (37
    %)Corporate Expenses
    
    
    (4,573
    )
    
    
    (4,112
    )
    
    
    (461
    )
    
    
    11
    %Operating Income (Loss)
    
    $
    139
    
    
    $
    3,425
    
    
    $
    (3,286
    )
    
    
    (96
    %)
 
 NM=Not meaningful.  BACKLOG
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LIQUIDITY AND CAPITAL RESOURCES
 CASH FLOWS
 Three Months Ended December 31,
    
    
    
    
    
    Percentage2009
    
    2008
    
    Change
    
    ChangeCash Provided (Used) By:Operating activities
    
    $
    18,107
    
    
    $
    6,950
    
    
    $
    11,157
    
    
    
    161
    %Investing activities
    
    
    (1,099
    )
    
    
    (8,462
    )
    
    
    7,363
    
    
    
    (87
    %)Financing activities
    
    
    (59
    )
    
    
    (73
    )
    
    
    14
    
    
    
    (19
    %)Effect of changes in exchange rates on cash
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )
    
    NMNet change in cash for period
    
    $
    16,938
    
    
    $
    (1,585
    )
    
    $
    18,523
    
    
    NM
 
 NM = Not meanginful. Operating Activities .
  
    
    A decrease in cash due to less profit from our operations of $3,057.
    
    An increase in cash provided by working capital accounts of $13,653, excluding the effects
of interest and income taxes.
    
    An increase in cash taxes refunded of $807.
    
    An increase in cash paid for interest of $31.
    
    An increase in cash used for environmental remediation of $315.
    
    Other increases in cash provided by operating activities of $100.
   Investing Activities
  LIQUIDITY AND CAPITAL RESOURCES.
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
    
    current results of operations, cash flows and backlog;
    
    anticipated changes in operating trends, including anticipated changes in revenues and
margins;
    
    cash requirements related to our debt agreements and pension plans; and
    
    cash requirements related to our remediation activities, including amounts that we expect
to spend through fall 2011 for the engineering, design, installation and cost of additional
remediation equipment (Remediation Capital). See further discussion under the heading
Environmental Remediation  AMPAC Henderson Site below.
  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.
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
    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus an applicable premium as defined in the related indenture;
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the
principal amount to be redeemed and reducing to 100% by February 1, 2013;
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a
redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest
thereon, with the proceeds of certain sales of our equity securities; and
    
    under certain changes of control, we must offer to purchase the Senior Notes at 101% of
their aggregate principal amount, plus accrued interest.
 
  
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
  Revolving Credit Facility.
  
    
    incur debt, incur contingent obligations and issue certain types of preferred stock;
    
    create liens;
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
    
    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.
    PENSION BENEFITS.
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ENVIRONMENTAL REMEDIATION  AMPAC HENDERSON SITE.
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CONTRACTUAL OBLIGATIONS.
  
    
    We have recorded an estimated liability for environmental remediation of $26,608 (see Note
7 to the condensed consolidated financial statements included in Item 1 of this report). We
expect to spend approximately $2,522 for environmental remediation during Fiscal 2010.
    
    We have recorded aggregate unfunded Pension Plans and SERP obligations of $29,055 (see Note
10 to the condensed consolidated financial statements included in Item 1 of this report). We
expect to contribute $3,050 to our Pension Plans and SERP during Fiscal 2010.
    
    We have uncertain tax positions totaling $652. 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, 2009, we had no balance outstanding under the Revolving Credit Facility. We may
prepay and terminate the Revolving Credit Facility at any time.
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OFF-BALANCE SHEET ARRANGEMENTS
 Letters of Credit.
 Employee Agreements.
   CRITICAL ACCOUNTING POLICIES
   SALES AND REVENUE RECOGNITION.
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DEPRECIABLE OR AMORTIZABLE LIVES OF LONG-LIVED ASSETS.
  IMPAIRMENT OF LONG-LIVED ASSETS .
  - 35 -




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GOODWILL.
 ENVIRONMENTAL COSTS .
  INCOME TAXES .
   - 36 -




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PENSION BENEFITS .
   RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS.
 - 37 -




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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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
    
    Developed and implemented a comprehensive Fine Chemicals segment revenue recognition
testing work program based on a risk assessment that determined the scope of transactions
to be tested.
    
    Reviewed significant manufacturing agreements, customer proposals and purchase orders,
including contractual arrangements documented outside of the customers written contract or
purchase order, related to revenues recorded in our Fiscal 2010 first quarter.
   
    
    Improving the Fine Chemicals segment contract administration process to ensure the
proper approval and circulation of all sales arrangements, including non-standard
commitments;
    
    Providing additional and on-going training to Fine Chemicals segment finance and
accounting staff on the application of technical accounting pronouncements, especially in
the area of revenue recognition. Additionally, we have begun to provide training to Fine
Chemicals segment product managers and others involved in negotiating contractual
arrangements with our customers to heighten the awareness of revenue recognition concepts,
with emphasis on non-standard contracts; and
    
    Establishing a process whereby corporate finance personnel provide a second review of
the Fine Chemicals segments accounting treatment for significant sales arrangements.
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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 effect 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 or subcontractors 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 or
health matters.
  Review of Perchlorate Toxicity by the EPA.
 - 43 -




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Perchlorate Remediation Project in Henderson, Nevada.
 Henderson Site Environmental Remediation Reserve.
 - 44 -




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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.
  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.
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The release or explosion of dangerous materials used in our business could disrupt our operations
and cause us to incur additional costs and liabilities.
  Disruptions in the supply of key raw materials and difficulties in the supplier qualification
process, as well as increases in prices of raw materials, could adversely impact our operations.
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Each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments may be unable to
comply with customer specifications and manufacturing instructions or may experience delays or
other problems with existing or new products, which could result in increased costs, losses of
sales and potential breach of customer contracts.
    Successful commercialization of pharmaceutical products and product line extensions is very
difficult and subject to many uncertainties. If a customer is not able to successfully
commercialize its products for which AFC produces compounds or if a product is subsequently
recalled, then the operating results of AFC may be negatively impacted.
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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.
  Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating
results to fluctuate.
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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, or the inability to attract and retain such
personnel, could disrupt our operations or impede our growth.
  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.
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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.
  
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
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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
funding requirements and related costs and impact our future earnings.
  Our shareholder rights plan, Restated Certificate of Incorporation, as amended, and Amended and
Restated By-laws discourage unsolicited takeover proposals and could prevent stockholders from
realizing a premium on their common stock.
  
    
    a classified board of directors;
    
    the ability of our board of directors to designate the terms of and issue new series of
preferred stock;
    
    advance notice requirements for nominations for election to our board of directors; and
    
    special voting requirements for the amendment, in certain cases, of our Restated
Certificate of Incorporation, as amended, and our Amended and Restated By-laws.
  Our proprietary and intellectual property rights may be violated, compromised, circumvented or
invalidated, which could damage our operations.
  Our common stock price may fluctuate substantially, and a stockholders investment could decline in
value.
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
    
    actual or anticipated fluctuations in our results of operations;
    
    events or concerns related to our products or operations or those of our competitors,
including public health, environmental and safety concerns related to products and operations;
    
    material public announcements by us or our competitors;
    
    changes in government regulations or policies, such as new legislation, laws or regulatory
decisions that are adverse to us and/or our products;
    
    changes in key members of management;
    
    developments in our industries;
    
    changes in investors acceptable levels of risk;
    
    trading volume of our common stock; and
    
    general economic conditions.
  
 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
  Date: February 12, 2010
    AMERICAN PACIFIC CORPORATION/s/ Joseph CarleoneJoseph Carleone
President and Chief Executive Officer
(Principal Executive Officer)/s/ Dana M. KelleyDana M. Kelley
Vice President, Chief Financial Officer and Treasurer
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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)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
 
 *
    
    Exhibits 32.1 and 32.2 are furnished to accompany this Quarterly Report on Form 10-Q but
shall not be deemed filed for 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. - 55 -