##### Table of Contents



United States Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-08137
 AMERICAN PACIFIC CORPORATION
  
 Delaware
    
    59-6490478(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 3770 Howard Hughes Parkway, Suite 300
Las Vegas, Nevada 89169
 702) 735-2200
 þ o
  o o þ
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##### Table of Contents



AMERICAN PACIFIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 DEFINITIONS
    
    
    iiPART I. FINANCIAL INFORMATIONITEM 1. Condensed Consolidated Statements of Operations (unaudited)
    
    
    2Condensed Consolidated Balance Sheets (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows (unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    5ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    19ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30ITEM 4. Controls and Procedures
    
    
    30PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    32ITEM 1A. Risk Factors
    
    
    32ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43ITEM 3. Defaults Upon Senior Securities
    
    
    43ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    43ITEM 5. Other Information
    
    
    43ITEM 6. Exhibits
    
    
    43EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
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Abbreviation
    
    DefinitionAFC
    
    Ampac Fine Chemicals LLCAFC Business
    
    fine chemicals business of GenCorp, Inc. acquired through acquisition in November, 2005AICPA
    
    American Institute of Certified Public AccountantsATK
    
    Alliant Techsystems, Inc.Ampac Henderson Site
    
    Perchlorate chemicals manufacturing facility in Henderson, Nevada from 1958 until the facility was
destroyed in May 1988.AP
    
    ammonium perchlorateAPIs
    
    active pharmaceutical ingredientsCERCLA
    
    Comprehensive Environmental Response Compensation and Liability ActcGMP
    
    current good manufacturing practicesCompany
    
    American Pacific CorporationDOD
    
    Department of DefenseDWEL
    
    Drinking Water Equivalent LevelEMEA
    
    European Agency for the Evaluation of Medical ProductsEPA
    
    U.S. Environmental Protection AgencyESI
    
    Energetic Systems Inc., LLCFASB
    
    Financial Accounting Standards BoardFDA
    
    U.S. Food and Drug AdministrationFIN
    
    Financial Interpretation NumberGenCorp
    
    GenCorp, Inc.ISB
    
    in situ bioremediationISP
    
    Ampac In-Space Propulsion or our Aerospace Equipment segmentKMCC
    
    Kerr-McGee Chemical Corp.MCL
    
    Maximum Contaminate LevelNAS
    
    National Academy of SciencesNASA
    
    National Aeronautics and Space AdministrationNDEP
    
    Nevada Division of Environmental Protectionour
    
    American Pacific CorporationPIK Interest
    
    payment-in-kind interestppb
    
    parts per billionregistrant
    
    American Pacific CorporationSAB
    
    Securities and Exchange Commission Staff Accounting BulletinSEC
    
    Securities and Exchange CommissionSecurities Act
    
    Securities and Exchange Commission Securities Act of 1933, as amendedSERP
    
    supplemental executive retirement planSFAS
    
    Statement of Financial Accounting StandardsSMB
    
    simulated moving bedSNWA
    
    Southern Nevada Water Authorityus
    
    American Pacific Corporationwe
    
    American Pacific Corporation
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PART I. FINANCIAL STATEMENTS
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited, Dollars in Thousands, Except per Share Amounts)
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Revenues
    
    $
    43,589
    
    
    $
    39,777
    
    
    $
    78,477
    
    
    $
    56,262Cost of Revenues
    
    
    27,378
    
    
    
    27,218
    
    
    
    49,358
    
    
    
    39,357Gross Profit
    
    
    16,211
    
    
    
    12,559
    
    
    
    29,119
    
    
    
    16,905Operating Expenses
    
    
    10,091
    
    
    
    10,816
    
    
    
    18,604
    
    
    
    16,281Environmental Remediation Charge
    
    
    
    
    
    
    2,800
    
    
    
    
    
    
    
    2,800Operating
Income (Loss)
    
    
    6,120
    
    
    
    (1,057
    )
    
    
    10,515
    
    
    
    (2,176
    )Interest and Other Income
    
    
    90
    
    
    
    48
    
    
    
    184
    
    
    
    923Interest Expense
    
    
    3,157
    
    
    
    3,056
    
    
    
    6,460
    
    
    
    4,125Debt
Repayment Charges
    
    
    2,714
    
    
    
    
    
    
    
    2,714
    
    
    
    Income Loss from Continuing Operations
before Income Tax
    
    
    339
    
    
    
    (4,065
    )
    
    
    1,525
    
    
    
    (5,378
    )Income Tax Expense (Benefit)
    
    
    221
    
    
    
    (1,459
    )
    
    
    768
    
    
    
    (1,982
    )Income (Loss) from Continuing Operations
    
    
    118
    
    
    
    (2,606
    )
    
    
    757
    
    
    
    (3,396
    )Income (Loss) from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    268
    
    
    
    
    
    
    
    (247
    )Net Income (Loss)
    
    $
    118
    
    
    $
    (2,338
    )
    
    $
    757
    
    
    $
    (3,643
    )Basic Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    0.02
    
    
    $
    (0.36
    )
    
    $
    0.10
    
    
    $
    (0.47
    )Discontinued Operations, Net of Tax
    
    
    
    
    
    
    0.04
    
    
    
    
    
    
    
    (0.03
    )Net Income (Loss)
    
    $
    0.02
    
    
    $
    (0.32
    )
    
    $
    0.10
    
    
    $
    (0.50
    )Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    0.02
    
    
    $
    (0.36
    )
    
    $
    0.10
    
    
    $
    (0.47
    )Discontinued Operations, Net of Tax
    
    
    
    
    
    
    0.04
    
    
    
    
    
    
    
    (0.03
    )Net Income (Loss)
    
    $
    0.02
    
    
    $
    (0.32
    )
    
    $
    0.10
    
    
    $
    (0.50
    )Weighted Average Shares Outstanding:Basic
    
    
    7,335,000
    
    
    
    7,297,000
    
    
    
    7,330,000
    
    
    
    7,297,000Diluted
    
    
    7,429,000
    
    
    
    7,297,000
    
    
    
    7,398,000
    
    
    
    7,297,000
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Balance Sheets
 (Unaudited, Dollars in Thousands)
 March 31,
    
    September 30,2007
    
    2006ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    9,613
    
    
    $
    6,872Accounts Receivable
    
    
    15,603
    
    
    
    19,474Notes Receivable
    
    
    
    
    
    
    7,510Inventories
    
    
    55,732
    
    
    
    39,755Prepaid
Expenses and Other Current Assets
    
    
    1,989
    
    
    
    1,845Deferred Income Taxes
    
    
    1,887
    
    
    
    1,887Total Current Assets
    
    
    84,824
    
    
    
    77,343Property, Plant and Equipment, Net
    
    
    117,652
    
    
    
    119,746Intangible Assets, Net
    
    
    8,682
    
    
    
    14,237Deferred Income Taxes
    
    
    21,701
    
    
    
    21,701Other Assets
    
    
    8,355
    
    
    
    6,428TOTAL ASSETS
    
    $
    241,214
    
    
    $
    239,455LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    9,756
    
    
    $
    11,158Accrued Liabilities
    
    
    6,619
    
    
    
    11,257Employee Related Liabilities
    
    
    4,509
    
    
    
    4,600Environmental Remediation Reserves
    
    
    589
    
    
    
    1,631Deferred Revenues
    
    
    10,901
    
    
    
    5,683Current Portion of Debt
    
    
    229
    
    
    
    9,593Total Current Liabilities
    
    
    32,603
    
    
    
    43,922Long-Term Debt
    
    
    110,485
    
    
    
    97,771Environmental Remediation Reserves
    
    
    15,468
    
    
    
    15,880Pension Obligations and Other Long-Term Liabilities
    
    
    9,686
    
    
    
    9,998Total Liabilities
    
    
    168,242
    
    
    
    167,571Commitments and ContingenciesStockholders EquityPreferred Stock  No par value; 3,000,000 authorized; none outstanding
    
    
    
    
    
    
    Common Stock  $.10 par value; 20,000,000 shares authorized,
9,387,541 and 9,359,041 issued
    
    
    936
    
    
    
    933Capital in Excess of Par Value
    
    
    87,025
    
    
    
    86,724Retained Earnings
    
    
    3,069
    
    
    
    2,312Treasury Stock - 2,034,870 shares
    
    
    (16,982
    )
    
    
    (16,982
    )Accumulated Other Comprehensive Loss
    
    
    (1,076
    )
    
    
    (1,103
    )Total Shareholders Equity
    
    
    72,972
    
    
    
    71,884TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    241,214
    
    
    $
    239,455
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AMERICAN PACIFIC CORPORATION
 
 Condensed Consolidated Statements of Cash Flow
 (Unaudited, Dollars in Thousands)
 Six Months EndedMarch 31,2007
    
    2006Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    757
    
    
    $
    (3,643
    )Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating Activities:Depreciation and amortization
    
    
    9,643
    
    
    
    8,232Non-cash interest expense
    
    
    1,819
    
    
    
    1,294Share-based compensation
    
    
    67
    
    
    
    233Non-cash
component of debt repayment charge
    
    
    2,309
    
    
    
    Gain on sale of assets
    
    
    
    
    
    
    (630
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    3,893
    
    
    
    (3,192
    )Inventories
    
    
    (15,977
    )
    
    
    (5,853
    )Prepaid
expenses and other current assets
    
    
    (144
    )
    
    
    (2,418
    )Accounts
payable, accrued liabilities, and employee related liabilities
    
    
    766
    
    
    
    2,727Deferred revenues
    
    
    5,218
    
    
    
    (344
    )Environmental remediation reserves
    
    
    (1,454
    )
    
    
    (1,197
    )Pension obligations, net
    
    
    19
    
    
    
    (367
    )Discontinued operations, net
    
    
    
    
    
    
    675Other
    
    
    (269
    )
    
    
    657Net Cash Provided (Used) by Operating Activities
    
    
    6,647
    
    
    
    (3,826
    )Cash Flows from Investing Activities:Acquisition
of business and earnout payment
    
    
    (6,000
    )
    
    
    (108,451
    )Capital expenditures
    
    
    (2,565
    )
    
    
    (7,904
    )Proceeds from sale of assets
    
    
    
    
    
    
    2,395Discontinued operations, net
    
    
    7,510
    
    
    
    (347
    )Net Cash Used by Investing Activities
    
    
    (1,055
    )
    
    
    (114,307
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    110,000
    
    
    
    85,000Payments of long-term debt
    
    
    (108,472
    )
    
    
    (325
    )Short-term borrowings, net
    
    
    
    
    
    
    5,995Debt issuance costs
    
    
    (4,574
    )
    
    
    (1,716
    )Issuances of common stock
    
    
    195
    
    
    
    31Discontinued operations, net
    
    
    
    
    
    
    (68
    )Net Cash Provided (Used) by Financing Activities
    
    
    (2,851
    )
    
    
    88,917Net Change in Cash and cash Equivalents
    
    
    2,741
    
    
    
    (29,216
    )Cash and Cash Equivalents, Beginning of Period
    
    
    6,872
    
    
    
    37,213Cash and Cash Equivalents, End of Period
    
    $
    9,613
    
    
    $
    7,997Cash Paid For:Interest
    
    $
    3,260
    
    
    $
    2,713Income taxes
    
    
    81
    
    
    
    (353
    )Non-Cash Transactions:Capital leases originated
    
    $
    321
    
    
    $
    
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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:
 Discontinued Operations:
 Recently Issued or Adopted Accounting Standards:
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2.
ACQUISITIONS
 AFC Business Acquisition:
  Cash
    
    $
    88,500Fair value of Seller Subordinated Note (Face value $25,500)
    
    
    19,400Capital expenditures adjustment
    
    
    17,431Working capital adjustment
    
    
    (1,268
    )Earnout adjustment
    
    
    5,000Other direct acquisition costs
    
    
    4,348Total purchase price
    
    $
    133,411
 Subordinated Seller Note
 Capital Expenditures Adjustment
 Working Capital Adjustment
 Earnout and EBITDAP Adjustments
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Direct Acquisition Costs
    Accounts
Receivable
    
    $
    7,746Inventories
    
    
    15,941Other Current Assets
    
    
    123Property, Plant and Equipment
    
    
    114,494Customer relationships, average life of 5.5 years
    
    
    7,957Backlog, average life of 1.5 years
    
    
    2,287Other Assets
    
    
    382Total Assets Acquired
    
    
    148,930Accounts Payable and Accrued Liabilities
    
    
    11,967Deferred
Revenues and Customer Deposits
    
    
    2,549Long-Term Liabilities
    
    
    1,003Total Liabilities Assumed
    
    
    15,519Purchase Price
    
    $
    133,411
  3. SHARE-BASED COMPENSATION
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Total Outstanding
    
    
    Non VestedWeighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    FairPrice
    
    
    
    
    
    
    ValueShares
    
    
    Per Share
    
    
    Shares
    
    
    Per ShareBalance, September 30, 2006
    
    
    515,500
    
    
    $
    6.95
    
    
    
    18,750
    
    
    $
    1.95Granted
    
    
    19,000
    
    
    
    7.64
    
    
    
    19,000
    
    
    
    3.63Vested
    
    
    
    
    
    
    
    
    
    
    (28,250
    )
    
    
    2.51Exercised
    
    
    (28,500
    )
    
    
    6.83
    
    
    
    
    
    
    
    Expired / Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance,
March 31, 2007
    
    
    506,000
    
    
    
    6.98
    
    
    
    9,500
    
    
    
    3.63
  Number of vested stock options
    
    
    496,500Weighted-average exercise price per share
    
    $
    6.97Aggregate intrinsic value
    
    $
    2,172Weighted-average remaining contractual term in years
    
    
    7.2
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Six Months EndedMarch 31,2007
    
    2006Weighted-average grant date fair value per share of options granted
    
    $
    3.68
    
    
    $
    2.00Significant
fair value assumptions:Expected term in years
    
    
    5.25
    
    
    
    4.75Expected volatility
    
    
    47.0
    %
    
    
    50.0
    %Expected dividends
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rates
    
    
    4.7
    %
    
    
    4.4
    %Total intrinsic value of options exercised
    
    $
    108
    
    
    $
    18Aggregate cash received for option exercises
    
    $
    195
    
    
    $
    31Total compensation cost (included in operating expenses)
    
    $
    67
    
    
    $
    233Tax benefit recognized
    
    
    28
    
    
    
    86Net compensation cost
    
    $
    39
    
    
    $
    147As of period end date:Total compensation cost for non-vested awards
not yet recognized
    
    $
    10
    
    
    $
    191Weighted-average years to be recognized
    
    
    0.5
    
    
    
    0.5
 4.
    
    SELECTED BALANCE SHEET DATA
 Inventories:
 March 31,
    
    September 30,2007
    
    2006Finished goods
    
    $
    9,562
    
    
    $
    7,170Work-in-process
    
    
    31,125
    
    
    
    20,196Raw materials and supplies
    
    
    15,424
    
    
    
    12,664Allowance for obsolete inventory
    
    
    (379
    )
    
    
    (275
    )Total
    
    $
    55,732
    
    
    $
    39,755
 Intangible Assets:
 March 31,
    
    September 30,2007
    
    2006Perchlorate customer list
    
    $
    38,697
    
    
    $
    38,697Less accumulated amortization
    
    
    (35,230
    )
    
    
    (33,280
    )3,467
    
    
    
    5,417Customer relationships and backlog
    
    
    10,244
    
    
    
    13,230Less accumulated amortization
    
    
    (5,375
    )
    
    
    (4,756
    )4,869
    
    
    
    8,474Pension-related intangible
    
    
    346
    
    
    
    346Total
    
    $
    8,682
    
    
    $
    14,237
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5. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Net Income (Loss)
    
    $
    118
    
    
    $
    (2,338
    )
    
    $
    757
    
    
    $
    (3,643
    )Other Comprehensive Income (Loss) -Foreign currency translation adjustment
    
    
    5
    
    
    
    5
    
    
    
    27
    
    
    
    (41
    )Comprehensive Income (Loss)
    
    $
    123
    
    
    $
    (2,333
    )
    
    $
    784
    
    
    $
    (3,684
    )
 6. EARNINGS (LOSS) PER SHARE
  Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Income (Loss) from Continuing Operations
    
    $
    118
    
    
    $
    (2,606
    )
    
    $
    757
    
    
    $
    (3,396
    )Basic:Weighted average shares
    
    
    7,335,000
    
    
    
    7,297,000
    
    
    
    7,330,000
    
    
    
    7,297,000Diluted:Weighted average shares, basic
    
    
    7,335,000
    
    
    
    7,297,000
    
    
    
    7,330,000
    
    
    
    7,297,000Dilutive effect of stock options
    
    
    94,000
    
    
    
    
    
    
    
    68,000
    
    
    
    Weighted average shares, diluted
    
    
    7,429,000
    
    
    
    7,297,000
    
    
    
    7,398,000
    
    
    
    7,297,000Basic (income) loss per share from continuing operations
    
    $
    0.02
    
    
    $
    (0.36
    )
    
    $
    0.10
    
    
    $
    (0.47
    )Diluted (income) loss per share from continuing operations
    
    $
    0.02
    
    
    $
    (0.36
    )
    
    $
    0.10
    
    
    $
    (0.47
    )
  7. DEBT
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March 31,
    
    September 30,2007
    
    2006Senior Notes, 9%, due 2015
    
    $
    110,000
    
    
    $
    Credit Facilities:First Lien Term Loan, 9.4%, due through 2010
    
    
    
    
    
    
    64,350First Lien Revolving Credit
    
    
    
    
    
    
    Second Lien Term Loan plus accrued PIK Interest of $170, 14.4%, due 2011
    
    
    
    
    
    
    20,170Subordinated Seller Note plus accrued PIK Interest of $2,226, 10.4%,Net of Discount of $5,424, due 2012
    
    
    
    
    
    
    22,304Capital Leases
    
    
    714
    
    
    
    540Total Debt
    
    
    110,714
    
    
    
    107,364Less Current Portion
    
    
    (229
    )
    
    
    (9,593
    )Total Long-term Debt
    
    $
    110,485
    
    
    $
    97,771
 Credit Facilities:
 Seller Subordinated Note:
  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 a make-whole premium as defined in the related indenture;
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% and
reducing to 100% by February 1, 2013; and
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
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes with the
proceeds of certain sales of its equity securities.
   
    
    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.
   
    
    file a registration statement with respect to an offer to exchange the Senior Notes for
notes that have substantially identical terms as the Senior Notes and are registered under
the Securities Act;
    
    cause the registration statement to become effective within 210 days after the closing; and
    
    consummate the exchange offer within 240 days after the closing.
  Revolving Credit Facility
  
    
    incur debt, incur contingent obligations and issue certain types of preferred stock;
    
    create liens;
 - 11 -




---



##### Table of Contents




    
    pay dividends, distributions or make other specified restricted payments;
    
    make certain investments and acquisitions;
    
    enter into certain transactions with affiliates;
    
    enter into sale and leaseback transactions; and
    
    merge or consolidate with any other entity or sell, assign, transfer, lease, convey or
otherwise dispose of assets.
   Letters of Credit:
 Interest Rate Swap Agreements
 Debt Issue Costs and Debt Repayment Charges:
 8. COMMITMENTS AND CONTINGENCIES
 Environmental Matters:
 Review of Perchlorate Toxicity by the EPA 
  - 12 -




---



##### Table of Contents



Perchlorate Remediation Project in Henderson, Nevada 
      Henderson Site Environmental Remediation Reserve 
 - 13 -




---



##### Table of Contents



Balance, September 30, 2006
    
    $
    17,511Additions or adjustments
    
    
    Expenditures
    
    
    (1,454
    )Balance, March 31, 2007
    
    $
    16,057
 AFC Environmental Matters 
    - 14 -




---



##### Table of Contents



Employment Matters
 Other Matters:
 9. SEGMENT INFORMATION
  Specialty Chemicals: â
 Fine Chemicals:
 Aerospace Equipment:
 Other Businesses:
  Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Specialty chemicals customer
    
    
    18
    %
    
    
    26
    %
    
    
    14
    %
    
    
    20
    %Specialty chemicals customer
    
    
    11
    %
    
    
    
    
    
    
    13
    %Fine chemicals customer
    
    
    26
    %
    
    
    
    
    
    
    15
    %Fine chemicals customer
    
    
    12
    %
    
    
    
    
    
    
    16
    %Fine chemicals customer
    
    
    
    
    
    
    27
    %
    
    
    
    
    
    
    20
    %
  - 15 -




---



##### Table of Contents



Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Revenues:Specialty Chemicals
    
    $
    16,132
    
    
    $
    16,479
    
    
    $
    27,922
    
    
    $
    21,184Fine Chemicals
    
    
    22,366
    
    
    
    18,931
    
    
    
    39,957
    
    
    
    24,103Aerospace Equipment
    
    
    4,465
    
    
    
    3,489
    
    
    
    8,441
    
    
    
    8,134Other Businesses
    
    
    626
    
    
    
    878
    
    
    
    2,157
    
    
    
    2,841Total Revenues
    
    $
    43,589
    
    
    $
    39,777
    
    
    $
    78,477
    
    
    $
    56,262Segment Operating Income:Specialty Chemicals
    
    $
    6,418
    
    
    $
    6,532
    
    
    $
    9,911
    
    
    $
    6,952Fine Chemicals
    
    
    2,926
    
    
    
    (275
    )
    
    
    5,845
    
    
    
    676Aerospace Equipment
    
    
    111
    
    
    
    58
    
    
    
    297
    
    
    
    319Other Businesses
    
    
    154
    
    
    
    154
    
    
    
    747
    
    
    
    671Total Segment Operating Income
    
    
    9,609
    
    
    
    6,469
    
    
    
    16,800
    
    
    
    8,618Corporate Expenses
    
    
    (3,489
    )
    
    
    (4,726
    )
    
    
    (6,285
    )
    
    
    (7,994
    )Environmental Remediation Charges
    
    
    
    
    
    
    (2,800
    )
    
    
    
    
    
    
    (2,800
    )Operating Income (Loss)
    
    $
    6,120
    
    
    $
    (1,057
    )
    
    $
    10,515
    
    
    $
    (2,176
    )Depreciation and Amortization:Specialty Chemicals
    
    $
    1,286
    
    
    $
    1,283
    
    
    $
    2,568
    
    
    $
    2,562Fine Chemicals
    
    
    3,048
    
    
    
    4,048
    
    
    
    6,745
    
    
    
    5,348Aerospace Equipment
    
    
    34
    
    
    
    18
    
    
    
    66
    
    
    
    35Other Businesses
    
    
    3
    
    
    
    3
    
    
    
    6
    
    
    
    6Corporate
    
    
    128
    
    
    
    140
    
    
    
    258
    
    
    
    281Total Depreciation and Amortization
    
    $
    4,499
    
    
    $
    5,492
    
    
    $
    9,643
    
    
    $
    8,232
 10. INTEREST AND OTHER INCOME
  Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Interest income
    
    $
    90
    
    
    $
    48
    
    
    $
    184
    
    
    $
    294Gain on sale of Hughes Parkway
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    580Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49$
    90
    
    
    $
    48
    
    
    $
    184
    
    
    $
    923
   11. DEFINED BENEFIT PLANS
  - 16 -




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##### Table of Contents



Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Pension Plans:Service Cost
    
    $
    487
    
    
    $
    309
    
    
    $
    974
    
    
    $
    535Interest Cost
    
    
    529
    
    
    
    477
    
    
    
    1,058
    
    
    
    827Expected Return on Plan Assets
    
    
    (468
    )
    
    
    (393
    )
    
    
    (936
    )
    
    
    (682
    )Recognized Actuarial Losses
    
    
    15
    
    
    
    16
    
    
    
    30
    
    
    
    29Amortization of Prior Service Costs
    
    
    153
    
    
    
    134
    
    
    
    305
    
    
    
    232Net Periodic Pension Cost
    
    $
    716
    
    
    $
    543
    
    
    $
    1,431
    
    
    $
    941Supplemental Executive Retirement Plan:Service Cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest Cost
    
    
    35
    
    
    
    38
    
    
    
    70
    
    
    
    74Expected Return on Plan Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognized Actuarial Losses
    
    
    11
    
    
    
    11
    
    
    
    22
    
    
    
    21Amortization of Prior Service Costs
    
    
    6
    
    
    
    7
    
    
    
    12
    
    
    
    16Net Periodic Pension Cost
    
    $
    52
    
    
    $
    56
    
    
    $
    104
    
    
    $
    111
  12. DISCONTINUED OPERATIONS
    Three Months
    
    
    Six MonthsEnded March 31, 2006Revenues
    
    $
    4,147
    
    
    $
    6,779Discontinued Operations:Operating income (loss) before tax
    
    
    439
    
    
    
    (405
    )Provision (benefit) for income taxes
    
    
    171
    
    
    
    (158
    )Net income (loss) from discontinued operations
    
    $
    268
    
    
    $
    (247
    )
 - 17 -




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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
   - 18 -




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##### Table of Contents



OUR BUSINESS SEGMENTS
  Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Specialty Chemicals:Perchlorates
    
    
    34
    %
    
    
    36
    %
    
    
    32
    %
    
    
    32
    %Sodium Azide
    
    
    1
    %
    
    
    2
    %
    
    
    1
    %
    
    
    2
    %Halotron
    
    
    2
    %
    
    
    3
    %
    
    
    2
    %
    
    
    4
    %Total Specialty Chemicals
    
    
    37
    %
    
    
    41
    %
    
    
    35
    %
    
    
    38
    %Fine Chemicals
    
    
    51
    %
    
    
    48
    %
    
    
    51
    %
    
    
    43
    %Aerospace Equipment
    
    
    10
    %
    
    
    9
    %
    
    
    11
    %
    
    
    14
    %Other Businesses:Real Estate
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Water Treatment Equipment
    
    
    1
    %
    
    
    1
    %
    
    
    2
    %
    
    
    4
    %Total Other Businesses
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %
    
    
    5
    %Total Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Specialty Chemicals:
    Fine Chemicals .
  - 19 -




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##### Table of Contents



Aerospace Equipment:
 Other
Businesses :
 Discontinued Operations
 RESULTS OF OPERATIONS
 Revenues
 March 31,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeThree Months Ended:Specialty Chemicals
    
    $
    16,132
    
    
    $
    16,479
    
    
    $
    (347
    )
    
    
    (2
    %)Fine Chemicals
    
    
    22,366
    
    
    
    18,931
    
    
    
    3,435
    
    
    
    18
    %Aerospace Equipment
    
    
    4,465
    
    
    
    3,489
    
    
    
    976
    
    
    
    28
    %Other Businesses
    
    
    626
    
    
    
    878
    
    
    
    (252
    )
    
    
    (29
    %)Total Revenues
    
    $
    43,589
    
    
    $
    39,777
    
    
    $
    3,812
    
    
    
    10
    %Six Months Ended:Specialty Chemicals
    
    $
    27,922
    
    
    $
    21,184
    
    
    $
    6,738
    
    
    
    32
    %Fine Chemicals
    
    
    39,957
    
    
    
    24,103
    
    
    
    15,854
    
    
    
    66
    %Aerospace Equipment
    
    
    8,441
    
    
    
    8,134
    
    
    
    307
    
    
    
    4
    %Other Businesses
    
    
    2,157
    
    
    
    2,841
    
    
    
    (684
    )
    
    
    (24
    %)Total Revenues
    
    $
    78,477
    
    
    $
    56,262
    
    
    $
    22,215
    
    
    
    39
    %
  - 20 -




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##### Table of Contents



Cost of Revenues and Gross Margin
 March 31,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeThree Months Ended:Revenues
    
    $
    43,589
    
    
    $
    39,777
    
    
    $
    3,812
    
    
    
    10
    %Cost of Revenues
    
    
    27,378
    
    
    
    27,218
    
    
    
    160
    
    
    
    1
    %Gross Margin
    
    
    16,211
    
    
    
    12,559
    
    
    
    3,652
    
    
    
    29
    %Gross Margin Percentage
    
    
    37
    %
    
    
    32
    %Six Months Ended:Revenues
    
    $
    78,477
    
    
    $
    56,262
    
    
    $
    22,215
    
    
    
    39
    %Cost of Revenues
    
    
    49,358
    
    
    
    39,357
    
    
    
    10,001
    
    
    
    25
    %Gross Margin
    
    
    29,119
    
    
    
    16,905
    
    
    
    12,214
    
    
    
    72
    %Gross Margin Percentage
    
    
    37
    %
    
    
    30
    %
  
    
    Specialty Chemicals segment gross margin percentage improved three points for the quarter and four points for the six
months ended March 31, 2007 compared to the prior year periods due to product mix. During the 2007 periods, our more
profitable perchlorate products accounted for a greater percentage of volume than in the prior year periods.
 
    
    Fine Chemicals segment gross margin percentage improved ten points for the quarter and eleven points for the six months
ended March 31, 2007 compared to the prior year periods due to better production efficiency that resulted from the
segments continuous improvement initiatives.
 
    
    Aerospace Equipment segment gross margin improved four points for the quarter and five points for the six months ended
March 31, 2007 compared to the prior year periods primarily due
to the fiscal 2007 periods included a greater volume of standard
production thruster work compared to the prior periods that included more development activities.
 
    
    Gross margin dollars from our Other Businesses segment was consistent for the periods presented.
 - 21 -




---



##### Table of Contents



Operating Expenses
 March 31,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeThree Months Ended:Operating Expenses
    
    $
    10,091
    
    
    $
    10,816
    
    
    $
    (725
    )
    
    
    (7
    %)Percentage of Revenues
    
    
    23
    %
    
    
    27
    %Six Months Ended:Operating Expenses
    
    $
    18,604
    
    
    $
    16,281
    
    
    $
    2,323
    
    
    
    14
    %Percentage of Revenues
    
    
    24
    %
    
    
    29
    %
   
    
    An increase in Fine Chemicals segment operating expenses of $2,603 because the 2007 period includes six months of
operations compared to four months of operations in the prior year period.
 
    
    An increase in Aerospace equipment segment operating expenses of $507. The most significant factor contributing to the
increase was higher bid and proposal costs on potential new contract awards.
 
    
    An increase in Specialty Chemical operating cost, with most significant components being an increase in insurance of
$287 and contract administration costs of $456.
 
    
    A decrease in corporate expenses of $1,709 due to the above mentioned reduction in legal expenses.
 Segment Operating Profit (Loss)
 March 31,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeThree Months Ended:Specialty Chemicals
    
    $
    6,418
    
    
    $
    6,532
    
    
    $
    (114
    )
    
    
    (2
    %)Fine Chemicals
    
    
    2,926
    
    
    
    (275
    )
    
    
    3,201
    
    
    
    NMAerospace Equipment
    
    
    111
    
    
    
    58
    
    
    
    53
    
    
    
    91
    %Other Businesses
    
    
    154
    
    
    
    154
    
    
    
    
    
    
    
    0
    %Segment Operating Profit
    
    
    9,609
    
    
    
    6,469
    
    
    
    3,140
    
    
    
    49
    %Corporate Expenses
    
    
    (3,489
    )
    
    
    (4,726
    )
    
    
    (1,237
    )
    
    
    26
    %Environmental Remediation Charges
    
    
    
    
    
    
    (2,800
    )
    
    
    (2,800
    )
    
    
    100
    %Operating Income (Loss)
    
    $
    6,120
    
    
    $
    (1,057
    )
    
    $
    7,177
    
    
    
    NMSix Months Ended:Specialty Chemicals
    
    $
    9,911
    
    
    $
    6,952
    
    
    $
    2,959
    
    
    
    43
    %Fine Chemicals
    
    
    5,845
    
    
    
    676
    
    
    
    5,169
    
    
    
    765
    %Aerospace Equipment
    
    
    297
    
    
    
    319
    
    
    
    (22
    )
    
    
    (7
    %)Other Businesses
    
    
    747
    
    
    
    671
    
    
    
    76
    
    
    
    11
    %Segment Operating Profit
    
    
    16,800
    
    
    
    8,618
    
    
    
    8,182
    
    
    
    95
    %Corporate Expenses
    
    
    (6,285
    )
    
    
    (7,994
    )
    
    
    (1,709
    )
    
    
    21
    %Environmental Remediation Charges
    
    
    
    
    
    
    (2,800
    )
    
    
    (2,800
    )
    
    
    100
    %Operating Income (Loss)
    
    $
    10,515
    
    
    $
    (2,176
    )
    
    $
    12,691
    
    
    
    NM
   - 22 -




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
 Six Months Ended March 31,
    
    Increase
    
    Percentage2007
    
    2006
    
    (Decrease)
    
    ChangeCash Provided (Used) By:Operating activities
    
    $
    6,647
    
    
    $
    (3,826
    )
    
    $
    10,473
    
    
    
    274
    %Financing activities
    
    
    (1,055
    )
    
    
    (114,307
    )
    
    
    113,252
    
    
    
    99
    %Investing activities
    
    
    (2,851
    )
    
    
    88,917
    
    
    
    (91,768
    )
    
    
    (103
    %)Net change in cash for period
    
    $
    2,741
    
    
    $
    (29,216
    )
    
    
    31,957
    
    
    
    109
    %
 Operating Activities:
 
    
    An increase in cash due to improved profitability of our
operations of $10,397.
 
    
    A decrease in cash used to fund working capital increases of $858,
excluding the effect of interest and income taxes.
 
    
    An increase in cash used for interest payments of $547.
 
    
    An increase in cash used for income taxes of $434.
 
    
    A reduction in cash used for environmental remediation of $2,543.
 
    
    Other increases in cash used for operating activities of $628.
   Investing Activities:
  
    
    Cash received from the sale of ESI of $7,510.
 
    
    Cash used to fund the AFC acquisition earnout adjustment of $6,000.
 
    
    Cash used for capital expenditures of $2,565.
  
    
    Cash used for our acquisition of AFC of $108,451.
 
    
    Cash used for capital expenditures of $7,904.
 
    
    Cash provided by proceeds from the sale of our interest in a real estate partnership of $2,395.
 Financing Activities:
 Liquidity and Capital Resources
 - 23 -




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Long Term Debt and Revolving Credit Facilities
 Credit Facilities:
 Seller Subordinated Note:
  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.
  - 24 -




---



##### Table of Contents




    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus a make-whole premium as defined in the related indenture;
 
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% and
reducing to 100% by February 1, 2013; and
 
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes with the
proceeds of certain sales of its equity securities.
   
    
    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.
   
    
    file a registration statement with respect to an offer to exchange the Senior Notes for notes that have substantially
identical terms as the Senior Notes and are registered under the Securities Act;
 
    
    cause the registration statement to become effective within 210 days after the closing; and
 
    
    consummate the exchange offer within 240 days after the closing.
  Revolving Credit Facility
  - 25 -




---



##### Table of Contents




    
    incur debt, incur contingent obligations and issue certain types of preferred stock;
 
    
    create liens;
 
    
    pay dividends, distributions or make other specified restricted payments;
 
    
    make certain investments and acquisitions;
 
    
    enter into certain transactions with affiliates;
 
    
    enter into sale and leaseback transactions; and
 
    
    merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.
   Debt Issue Costs and Debt Repayment Charges:
 Interest Rate Swap Agreements
  Environmental Remediation  Henderson Site
  - 26 -




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Contractual Obligations and Off-Balance Sheet Arrangements
  Payments Due by Year Ending September 30,2007
    
    2008-09
    
    2010-11
    
    Thereafter
    
    TotalSenior Notes, due 2015
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    110,000
    
    
    $
    110,000Interest on Senior Notes (a)
    
    
    6,401
    
    
    
    19,800
    
    
    
    19,800
    
    
    
    33,199
    
    
    
    79,200Capital Leases
    
    
    171
    
    
    
    369
    
    
    
    
    
    
    
    
    
    
    
    540Interest on Capital Leases
    
    
    36
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    51Operating Leases
    
    
    1,013
    
    
    
    1,430
    
    
    
    76
    
    
    
    4
    
    
    
    2,523Total
    
    $
    7,621
    
    
    $
    21,614
    
    
    $
    19,876
    
    
    $
    143,203
    
    
    $
    192,314
 
 (a)
    
    2007 amount represents interest obligation from the issuance date on February 6, 2007
through September 30, 2007.  CRITICAL ACCOUNTING POLICIES
   Sales and Revenue Recognition
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Depreciable or Amortizable Lives of Long-Lived Assets
   Impairment of Long-Lived Assets
   Environmental Costs
  - 28 -




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Income Taxes
   Pension Benefits
   Recently Issued or Adopted Accounting Standards
   - 29 -




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in Thousands)
   
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal controls
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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM
1A. RISK FACTORS (Dollars in Thousands)
  We can be adversely impacted by reductions or changes in NASA or U.S. government military spending.
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We depend on a limited number of customers for most of our sales in our Specialty Chemicals,
Aerospace Equipment and Fine Chemicals segments and the loss of one or more of these customers
could have a material adverse affect on our revenues.
   Our existing U.S. government contracts and contracts based on U.S. government contracts are subject
to continued appropriations by Congress and may be terminated if future funding is not made
available.
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The inherent limitations of our cost-plus or fixed-price government contracts may impact our
profitability.
   Our U.S. government contracts and our customers U.S. government contracts are subject to
termination.
  
    
    the contractor is paid an amount agreed upon for completed and
partially completed products and services accepted by the U.S.
government;
 
    
    the U.S. government is not liable for the contractors costs for
unaccepted items, and is entitled to repayment of any advance
payments and progress payments related to the terminated portions
of the contract; and
 
    
    the contractor may be liable for excess costs incurred by the U.S.
government in procuring undelivered items from another source.
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We are subject to procurement and other related laws and regulations, non-compliance with which may
expose us to adverse consequences.
   Our operations and properties are currently the subject of numerous environmental and other
government regulations, which may become more stringent in the future and may reduce our
profitability and liquidity.
  Review of Perchlorate Toxicity by EPA
 Perchlorate Remediation Project in Henderson, Nevada
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Henderson Site Environmental Remediation Reserve
 Other AFC Environmental Matters
 The production of most of our Specialty Chemicals products is conducted in a single facility and
our operations will be materially affected if production at that facility is disrupted.
  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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Our Fine Chemicals segment may be unable to comply with customer specifications and manufacturing
instructions, experience schedule delays or other problems with existing or new products and
systems, which could result in increased costs and loss of sales.
  Failure to meet strict timing or delivery requirements could cause AFC to be in breach of material
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, then the operating results of AFC may
be negatively impacted.
  AFC or its customers may be unable to obtain government approval for its products or comply with
government regulations relating to its business.
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Recall or withdrawal of a customers product from the market or the failure of the customer to
obtain regulatory approval of its products will impact forecasted revenues.
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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
enough capital to finance the necessary capital expenditures, its business and results of
operations may be harmed.
  Although we have established reserves for our environmental liabilities, given the many
uncertainties involved in assessing liability for environmental claims, our reserves may not be
sufficient.
  The release or explosion of dangerous materials used in our business could disrupt our operations
and cause us to incur additional costs and liability.
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Our inability to adapt to rapid technological changes could impair our ability to remain
competitive.
  
    
    adversely impact our competitive position if we are unable to react to these developments in a timely or efficient
manner;
 
    
    require us to write-down obsolete facilities, equipment and technology;
 
    
    require us to discontinue production of obsolete products before we can recover any or all of our related research,
development and commercialization expenses; or
 
    
    require significant capital expenditures for research, development and launch of new products or processes.
 Our proprietary rights may be violated or compromised, which could damage our operations.
  We are subject to intense competition in certain of the industries where we compete 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 cyclicality and 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.
  We may continue to expand our operations through acquisitions, which could divert managements
attention and expose us to unanticipated liabilities and costs. We may experience difficulties
integrating the acquired operations, and we may incur costs relating to acquisitions that are never
consummated.
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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 or our liquidity or financial condition.
   
    
    make it more difficult for us to satisfy our outstanding debt obligations;
 
    
    require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, reducing the
amount of our cash flow available for working capital, capital expenditures, acquisitions, developing our real estate
assets and other general corporate purposes;
 
    
    limit our flexibility in planning for, or reacting to, changes in the industries in which we compete;
 
    
    place us at a competitive disadvantage compared to our competitors, some of which have lower debt service obligations
and greater financial resources than we do;
 
    
    limit our ability to borrow additional funds; or
 
    
    increase our vulnerability to general adverse economic and industry conditions.
 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, incur contingent obligations and issue additional preferred stock;
 
    
    create liens;
 
    
    pay dividends, distributions or make other specified restricted payments, and restrict the ability of certain of our
subsidiaries to pay dividends or make other payments to us;
 
    
    sell assets;
 
    
    make certain capital expenditures, investments and acquisitions;
 
    
    enter into certain transactions with affiliates;
 
    
    enter into sale and leaseback transactions; and
 
    
    merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets.
  Our Shareholder Rights Plan, Certificate of Incorporation and Bylaws discourage unsolicited
takeover proposals and could prevent stockholders from realizing a premium on their common stock.
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
    
    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 of our certificate of incorporation and bylaws.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  None.
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES  None.
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Name
    
    Votes For
    
    Votes WithheldC. Keith Rooker
    
    
    6,014,311
    
    
    
    1,070,371
  Name
    
    Votes For
    
    Votes WithheldFred D. Gibson, Jr.
    
    
    6,041,362
    
    
    
    1,043,320Berlyn D. Miller
    
    
    6,048,692
    
    
    
    1,035,720
  Name
    
    Votes For
    
    Votes WithheldJohn R. Gibson
    
    
    6,043,968
    
    
    
    1,040,714Jan H. Loeb
    
    
    5,994,294
    
    
    
    1,090,388Dean M. Willard
    
    
    6,007,378
    
    
    
    1,077,304
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Votes For
    
    Against
    
    Abstained7,071,712
    
    
    5,328
    
    
    
    7,641
 
  Name
    
    Class
    
    
    Term ExpiresNorval F. Pohl
    
    Class B
    
    
    2008Jane L. Williams
    
    Class B
    
    
    2008Joseph Carleone
    
    Class C
    
    
    2009
 ITEM 5. OTHER INFORMATION
  
    
    Monthly payments equal to regular straight-time salary in effect on the date of
termination for 24 months;
 
    
    Reimbursement of Dr. Maliks COBRA premiums on his current health care coverage for a
period of six months; and
 
    
    If Dr. Maliks employment is terminated after he was employed for at least six months in a
fiscal year, Dr. Malik shall be entitled to a portion of his bonus pursuant to the bonus
plan in effect for such year applicable to him, equal to the bonus he would have achieved
for that year, multiplied by the number of weeks that he was employed during the fiscal
year, divided by 52, payable at the time normally payable under such bonus plan. 
 ITEM 6. EXHIBITS
 10.1
    
    AMPAC Fine Chemicals LLC Severance
Pay Plan10.2
    
    Notice of Eligibility for Dr. Aslam
Malik under AMPAC Fine Chemicals LLC Severance Pay Plan, dated
January 24, 2007.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2*
    
    Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002*
    
    Exhibits 32.1 and 32.2 are furnished to accompany this quarterly report on Form 10-Q but
shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of
1934 or otherwise and shall not be deemed incorporated by reference into any registration
statements filed under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as
amended.
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SIGNATURES
  AMERICAN PACIFIC CORPORATIONDate:  May 15, 2007
    /s/ JOHN R. GIBSONJohn R. GibsonChief Executive Officer - 44 -




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10.1
    
    AMPAC Fine Chemicals LLC Severance
Pay Plan10.2
    
    Notice of Eligibility for Dr. Aslam
Malik under AMPAC Fine Chemicals LLC Severance Pay Plan, dated
January 24, 2007.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2*
    
    Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002*
    
    Exhibits 32.1 and 32.2 are furnished to accompany this quarterly report on Form 10-Q but
shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of
1934 or otherwise and shall not be deemed incorporated by reference into any registration
statements filed under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as
amended.
 - 45 -