##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 Commission File Number: 001-08137
 AMERICAN PACIFIC CORPORATION
  
 Delaware
    
    59-6490478(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 3883 Howard Hughes Parkway, Suite 700
Las Vegas, Nevada 89169
 702) 735-2200
 x o
 o o
  Large accelerated filer o
    
    Accelerated filer oNon-accelerated filer o (Do not check if a smaller reporting company)
    
    Smaller reporting company x
 o x




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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
    
    
    39ITEM 1A. Risk Factors
    
    
    39ITEM 2.   Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    53ITEM 3.   Defaults Upon Senior Securities
    
    
    53ITEM 4.   (Removed and Reserved)
    
    
    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 31,2010
    
    
    2009Revenues
    
    $
    35,184
    
    
    $
    34,064Cost of Revenues
    
    
    28,568
    
    
    
    21,618Gross Profit
    
    
    6,616
    
    
    
    12,446Operating Expenses
    
    
    11,423
    
    
    
    12,307Other Operating Gains
    
    
    1,337
    
    
    
    Operating Income (Loss)
    
    
    (3,470
    )
    
    
    139Interest Income and Other (Expense), Net
    
    
    (133
    )
    
    
    (8
    )Interest Expense
    
    
    2,714
    
    
    
    2,691Loss before Income Tax
    
    
    (6,317
    )
    
    
    (2,560
    )Income Tax Benefit
    
    
    (2,698
    )
    
    
    (1,120
    )Net Loss
    
    $
    (3,619
    )
    
    $
    (1,440
    )Loss per Share:Basic
    
    $
    (0.48
    )
    
    $
    (0.19
    )Diluted
    
    $
    (0.48
    )
    
    $
    (0.19
    )Weighted-Average Shares Outstanding:Basic
    
    
    7,504,000
    
    
    
    7,487,000Diluted
    
    
    7,504,000
    
    
    
    7,487,000
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets

(Unaudited, Dollars in Thousands, Except per Share Amounts)
 December 31,
    
    
    September 30,2010
    
    
    2010ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    30,705
    
    
    $
    23,985Accounts Receivable, Net
    
    
    32,803
    
    
    
    51,900Inventories
    
    
    38,404
    
    
    
    36,126Prepaid Expenses and Other Assets
    
    
    4,881
    
    
    
    1,542Income Taxes Receivable
    
    
    3,474
    
    
    
    2,802Deferred Income Taxes
    
    
    10,672
    
    
    
    10,672Total Current Assets
    
    
    120,939
    
    
    
    127,027Property, Plant and Equipment, Net
    
    
    114,345
    
    
    
    113,873Intangible Assets, Net
    
    
    1,066
    
    
    
    1,420Goodwill
    
    
    2,856
    
    
    
    2,933Deferred Income Taxes
    
    
    20,242
    
    
    
    20,254Other Assets
    
    
    9,419
    
    
    
    10,236TOTAL ASSETS
    
    $
    268,867
    
    
    $
    275,743LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    12,384
    
    
    $
    9,197Accrued Liabilities
    
    
    8,142
    
    
    
    8,062Accrued Interest
    
    
    3,938
    
    
    
    1,575Employee Related Liabilities
    
    
    5,611
    
    
    
    6,472Income Taxes Payable
    
    
    250
    
    
    
    193Deferred Revenues and Customer Deposits
    
    
    13,340
    
    
    
    18,769Current Portion of Environmental Remediation Reserves
    
    
    10,164
    
    
    
    8,694Current Portion of Long-Term Debt
    
    
    70
    
    
    
    70Total Current Liabilities
    
    
    53,899
    
    
    
    53,032Long-Term Debt
    
    
    105,084
    
    
    
    105,102Environmental Remediation Reserves
    
    
    13,189
    
    
    
    15,176Pension Obligations
    
    
    35,062
    
    
    
    37,161Other Long-Term Liabilities
    
    
    1,633
    
    
    
    1,615Total Liabilities
    
    
    208,867
    
    
    
    212,086Commitments 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,
7,543,091 issued and outstanding
    
    
    754
    
    
    
    754Capital in Excess of Par Value
    
    
    73,169
    
    
    
    73,091Retained Earnings
    
    
    3,101
    
    
    
    6,720Accumulated Other Comprehensive Loss
    
    
    (17,024
    )
    
    
    (16,908
    )Total Shareholders Equity
    
    
    60,000
    
    
    
    63,657TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    268,867
    
    
    $
    275,743
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited, Dollars in Thousands)
 Three Months EndedDecember 31,2010
    
    
    2009Cash Flows from Operating Activities:Net Loss
    
    $
    (3,619
    )
    
    $
    (1,440
    )Adjustments to Reconcile Net Loss
to Net Cash Provided by Operating Activities:Depreciation and amortization
    
    
    3,739
    
    
    
    4,053Non-cash interest expense
    
    
    297
    
    
    
    159Share-based compensation
    
    
    100
    
    
    
    346Deferred income taxes
    
    
    (10
    )
    
    
    (44
    )Loss on sale of assets
    
    
    -
    
    
    
    5Changes in operating assets and liabilities:Accounts receivable, net
    
    
    18,970
    
    
    
    20,141Inventories
    
    
    (2,118
    )
    
    
    (11,323
    )Prepaid expenses and other current assets
    
    
    (2,481
    )
    
    
    (540
    )Accounts payable
    
    
    1,588
    
    
    
    296Income taxes
    
    
    (611
    )
    
    
    (279
    )Accrued liabilities
    
    
    87
    
    
    
    1,791Accrued interest
    
    
    2,363
    
    
    
    2,475Employee related liabilities
    
    
    (852
    )
    
    
    (1,643
    )Deferred revenues and customer deposits
    
    
    (5,418
    )
    
    
    4,208Environmental remediation reserves
    
    
    (517
    )
    
    
    (682
    )Pension obligations, net
    
    
    (2,099
    )
    
    
    853Other
    
    
    (172
    )
    
    
    (269
    )Net Cash Provided by Operating Activities
    
    
    9,247
    
    
    
    18,107Cash Flows from Investing Activities:Capital expenditures
    
    
    (2,493
    )
    
    
    (1,099
    )Net Cash Used by Investing Activities
    
    
    (2,493
    )
    
    
    (1,099
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    (16
    )
    
    
    (59
    )Net Cash Used by Financing Activities
    
    
    (16
    )
    
    
    (59
    )Effect of Changes in Currency Exchange Rates on Cash
    
    
    (18
    )
    
    
    (11
    )Net Change in Cash and Cash Equivalents
    
    
    6,720
    
    
    
    16,938Cash and Cash Equivalents, Beginning of Period
    
    
    23,985
    
    
    
    21,681Cash and Cash Equivalents, End of Period
    
    $
    30,705
    
    
    $
    38,619Cash Paid (Received) For:Interest
    
    $
    54
    
    
    $
    57Income taxes
    
    
    (2,095
    )
    
    
    (801
    )Non-Cash Investing and Financing Transactions:Additions to Property,
Plant and Equipment not
yet paid
    
    
    2,243
    
    
    
    778Capital 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 POLICIESInterim Basis of Presentation.The accompanying condensed consolidated financial statements of
American Pacific Corporation and its subsidiaries (collectively, the Company, we, us, or
our) are unaudited, but in the opinion of management, include all adjustments, which are of a
normal recurring nature, necessary to a fair statement of the results for the interim periods
presented. These statements should be read in conjunction with our consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the year ended
September 30, 2010. The operating results and cash flows for the three-month period ended
December 31, 2010 are not necessarily indicative of the results that will be achieved for the
full fiscal year or for future periods.Accounting Policies and Principles of Consolidation.A description of our significant
accounting policies is included in Note 1 to our consolidated financial statements included in
our Annual Report on Form 10-K for the year ended September 30, 2010. Our consolidated
financial statements include the accounts of American Pacific Corporation and our wholly-owned
subsidiaries. All intercompany accounts have been eliminated.Fair Value Disclosure of Financial Instruments.The current authoritative guidance on fair
value clarifies the definition of fair value, prescribes methods for measuring fair value,
establishes a fair value hierarchy based on the inputs used to measure fair value and expands
disclosures about the use of fair value measurements. The valuation techniques utilized are
based upon observable and unobservable inputs. Observable inputs reflect market data obtained
from independent sources, while unobservable inputs reflect internal market assumptions. These
two types of inputs create the following fair value hierarchy:Level 1  Quoted prices for identical instruments in active markets.Level 2  Quoted prices for similar instruments in active markets; quoted prices for identical
or similar instruments in markets that are not active; and model-derived valuations whose inputs
are observable or whose significant value drivers are observable.Level 3  Significant inputs to the valuation model are unobservable.We estimate the fair value of cash and cash equivalents, accounts receivable, accounts payable
and accrued liabilities approximate their carrying values due to their short-term nature. We
estimate the fair value of our fixed-rate long-term debt as of December 31, 2010 to be
approximately $103,688 based on level 1 data which was trade data on December 31, 2010. We
estimated the fair value of our fixed-rate long-term debt as of September 30, 2010 to be
approximately $103,688 based on the trade date closest to that date, which was October 13, 2010.Depreciation and Amortization Expense.Depreciation and amortization expense is classified as
follows in our statements of operations:
 Three Months EndedDecember 31,2010
    
    
    2009Classified as cost of revenuesDepreciation
    
    $
    3,259
    
    
    $
    3,361Classified as operating expensesDepreciation
    
    
    145
    
    
    
    148Amortization
    
    
    335
    
    
    
    544Total
    
    $
    3,739
    
    
    $
    4,053
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1.
    
    INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)Bill and Hold Transactions.Some of our perchlorate and fine chemicals products customers have
requested that we store materials purchased from us in our facilities (Bill and Hold
arrangements). The sales value of inventory, subject to Bill and Hold arrangements, at our
facilities was $10,725 and $19,606 as of December 31, 2010 and September 30, 2010, respectively.Recently Issued or Adopted Accounting Standards.In April 2010, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-17, which provides
guidance on defining a milestone under Topic 605 and determining when it may be appropriate to
apply the milestone method of revenue recognition for research or development transactions.
Consideration that is contingent on achievement of a milestone in its entirety may be recognized
as revenue in the period in which the milestone is achieved only if the milestone is judged to
meet certain criteria to be considered substantive. Milestones should be considered substantive
in their entirety and may not be bifurcated. An arrangement may contain both substantive and
nonsubstantive milestones that should be evaluated individually. This standard became effective
for us beginning on October 1, 2010. The adoption of this standard did not have a material
impact on our results of operations, financial position or cash flows.In December 2010, the FASB issued ASU No. 2010-28 that affects entities that have recognized
goodwill and have one or more reporting units whose carrying amount for purposes of performing
Step 1 of the goodwill impairment test is zero or negative. The amendments in the ASU modify
Step 1 so that for those reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill impairment exists, an entity
should consider whether there are any adverse qualitative factors indicating that an impairment
may exist. The qualitative factors are consistent with existing guidance, which requires that
goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. This standard is effective for us beginning on October 1, 2011. The
adoption of this standard is not expected to have a material impact on our results of
operations, financial position or cash flows.
 2.
    
    SHARE-BASED COMPENSATIONWe account for our share-based compensation arrangements under an accounting standard which
requires us to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant date fair value of the award. The fair values of awards are
recognized as additional compensation expense, which is classified as operating expenses,
proportionately over the vesting period of the awards.Our share-based compensation arrangements are designed to advance the long-term interests of the
Company, including by attracting and retaining employees and directors and aligning their
interests with those of our stockholders. The amount, frequency, and terms of share-based awards
may vary based on competitive practices, our operating results, government regulations and
availability under our equity incentive plans. Depending on the form of the share-based award,
new shares of our common stock may be issued upon grant, option exercise or vesting of the
award. We maintain three share based plans, each as discussed below.The American Pacific Corporation Amended and Restated 2001 Stock Option Plan (the 2001 Plan)
permits the granting of stock options to employees, officers, directors and consultants. Options
granted under the 2001 Plan generally vested 50% at the grant date and 50% on the one-year
anniversary of the grant date, and expire ten years from the date of grant. As of December 31,
2010, there were 10,750 shares available for grant under the 2001 Plan. This plan was approved
by our stockholders.
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2.
    
    SHARE-BASED COMPENSATION (continued)The American Pacific Corporation 2002 Directors Stock Option Plan, as amended and restated (the
2002 Directors Plan) compensates non-employee directors with stock options granted annually or
upon other discretionary events. Options granted under the 2002 Directors Plan prior to
September 30, 2007 generally vested 50% at the grant date and 50% on the one-year anniversary of
the grant date, and expire ten years from the date of grant. Options granted under the 2002
Directors Plan in November 2007 vested 50% one year from the date of grant and 50% two years
from the date of grant, and expire ten years from the date of grant. As of December 31, 2010,
there were no shares available for grant under the 2002 Directors Plan. This plan was approved
by our stockholders.The American Pacific Corporation 2008 Stock Incentive Plan (the 2008 Plan) permits the
granting of stock options, restricted stock, restricted stock units and stock appreciation
rights to employees, directors and consultants. A total of 350,000 shares of common stock are
authorized for issuance under the 2008 Plan, provided that no more than 200,000 shares of common
stock may be granted pursuant to awards of restricted stock and restricted stock units.
Generally, awards granted under the 2008 Plan vest in three equal annual installments beginning
on the first anniversary of the grant date, and in the case of option awards, expire ten years
from the date of grant. As of December 31, 2010, there were 12,000 shares available for grant
under the 2008 Plan, excluding any additional shares included in the currently proposed
amendment and restatement of the 2008 plan. This plan was approved by our stockholders. In
December 2010, our board of directors approved an amendment and restatement of the 2008 Plan
that, among other things, increases the total shares of common stock authorized under the 2008
Plan from 350,000 to 800,000. The effectiveness of this amendment and restatement will be
subject to stockholder approval.A summary of our outstanding and non-vested stock option and restricted stock activity for the
three months ended December 31, 2010 is as follows:
 Stock Options
    
    
    Restricted StockOutstanding
    
    
    Non-Vested
    
    
    Outstanding and Non-VestedWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Fair
    
    
    
    
    
    
    FairPrice
    
    
    
    
    
    
    Value
    
    
    
    
    
    
    ValueShares
    
    
    Per Share
    
    
    Shares
    
    
    Per Share
    
    
    Shares
    
    
    Per ShareBalance, September 30, 2010
    
    
    658,176
    
    
    $
    8.32
    
    
    
    248,895
    
    
    $
    4.41
    
    
    
    50,664
    
    
    $
    8.34Granted
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Vested
    
    
    -
    
    
    
    -
    
    
    
    (100,770
    )
    
    
    4.51
    
    
    
    (19,336
    )
    
    
    8.70Exercised
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Expired / Cancelled
    
    
    (10,000
    )
    
    
    6.34
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Balance, December 31, 2010
    
    
    648,176
    
    
    
    8.35
    
    
    
    148,125
    
    
    
    4.35
    
    
    
    31,328
    
    
    
    8.11
 A summary of our exercisable stock options as of December 31, 2010 is as follows:
 Number of vested stock options
    
    
    500,051Weighted-average exercise price per share
    
    $
    8.31Aggregate intrinsic value
    
    $
    42Weighted-average remaining contractual term in years
    
    
    5.0
 We determine the fair value of stock option awards at their grant date, using a
Black-Scholes Option-Pricing model applying the assumptions in the following table. We determine
the fair value of restricted stock awards based on the fair market value of our common stock on
the grant date. Actual compensation, if any, ultimately realized by optionees may differ
significantly from the amount estimated using an option valuation model.
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2.
    
    SHARE-BASED COMPENSATION (continued)
 Three Months EndedDecember 31,2010
    
    
    2009Weighted-average grant date fair value per share of options granted
    
    
    -
    
    
    $
    3.65Significant fair value assumptions:
    
    
    -Expected term in years
    
    
    -
    
    
    
    6.00Expected volatility
    
    
    -
    
    
    
    51.3
    %Expected dividends
    
    
    -
    
    
    
    0.0
    %Risk-free interest rates
    
    
    -
    
    
    
    2.3
    %Total intrinsic value of options exercised
    
    
    -
    
    
    $
    -Aggregate cash received for option exercises
    
    
    -
    
    
    $
    -Compensation cost (included in operating expenses)Stock options
    
    $
    78
    
    
    $
    211Restricted stock
    
    
    22
    
    
    
    135Total
    
    
    100
    
    
    
    346Tax benefit recognized
    
    
    18
    
    
    
    73Net compensation cost
    
    $
    82
    
    
    $
    273As of period end date:Total compensation cost for non-vested awards
not yet recognized:Stock options
    
    $
    220
    
    
    $
    635Restricted stock
    
    $
    66
    
    
    $
    187Weighted-average years to be recognizedStock options
    
    
    1.3
    
    
    
    1.8Restricted stock
    
    
    1.3
    
    
    
    1.8
 3.
    
    SELECTED BALANCE SHEET DATAInventories.Inventories consist of the following:
 December 31,
    
    
    September 30,2010
    
    
    2010Finished goods
    
    $
    2,978
    
    
    $
    2,977Work-in-process
    
    
    20,055
    
    
    
    18,318Raw materials and supplies
    
    
    9,859
    
    
    
    9,103Deferred cost of revenues
    
    
    3,257
    
    
    
    5,728Under(over) applied manufacturing overhead costs
    
    
    2,255
    
    
    
    -Total
    
    $
    38,404
    
    
    $
    36,126
 For our Specialty Chemicals segment, purchase price variances or volume or capacity cost
variances associated with indirect manufacturing costs and that are planned and expected to be
absorbed by goods produced through the end of our fiscal year are deferred at interim reporting
dates as under(over) applied manufacturing overhead costs. The effect of unplanned or
unanticipated purchase price or volume variances are applied to goods produced in the period.Intangible Assets.Intangible assets consist of the following:
 December 31,
    
    
    September 30,2010
    
    
    2010Customer relationships
    
    
    8,951
    
    
    
    8,976Less accumulated amortization
    
    
    (7,885
    )
    
    
    (7,556
    )1,066
    
    
    
    1,420Backlog
    
    
    1,525
    
    
    
    1,559Less accumulated amortization
    
    
    (1,525
    )
    
    
    (1,559
    )-
    
    
    
    -Total
    
    $
    1,066
    
    
    $
    1,420
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3.
    
    SELECTED BALANCE SHEET DATA (continued)Customer relationships are assets of our Fine Chemicals and Aerospace Equipment segments and are
subject to amortization. Amortization expense was $335 and $347 for the three months ended
December 31, 2010 and 2009, respectively. Backlog is an asset of our Aerospace Equipment segment
and is subject to amortization. Amortization expense was zero and $197 for the three months
ended December 31, 2010 and 2009, respectively.Goodwill.Goodwill is an asset of our Aerospace Equipment segment and is not expected to be
deductible for tax purposes. Changes in the reported value for goodwill are a result of
fluctuations in the underlying foreign currency translation rate.
 4.
    
    COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSSComprehensive loss consists of the following:
 Three Months EndedDecember 31,2010
    
    
    2009Net Loss
    
    $
    (3,619
    )
    
    $
    (1,440
    )Other Comprehensive Loss -Foreign currency translation adjustment
    
    
    (116
    )
    
    
    (75
    )Comprehensive Loss
    
    $
    (3,735
    )
    
    $
    (1,515
    )
  December 31,
    
    
    September 30,2010
    
    
    2010Cumulative currency translation adjustment
    
    $
    (577
    )
    
    $
    (461
    )Unamortized benefit plan costs, net of tax of $10,964
    
    
    (16,447
    )
    
    
    (16,447
    )Total
    
    $
    (17,024
    )
    
    $
    (16,908
    )
 5.
    
    EARNINGS (LOSS) PER SHAREShares used to compute loss per share are as follows:
 Three Months EndedDecember 31,2010
    
    
    2009Net loss
    
    $
    (3,619
    )
    
    $
    (1,440
    )Basic weighted-average shares
    
    
    7,504,000
    
    
    
    7,487,000Diluted:Weighted-average shares, basic
    
    
    7,504,000
    
    
    
    7,487,000Dilutive effect of stock options
    
    
    -
    
    
    
    -Weighted-average shares, diluted
    
    
    7,504,000
    
    
    
    7,487,000Basic loss per share
    
    $
    (0.48
    )
    
    $
    (0.19
    )Diluted loss per share
    
    $
    (0.48
    )
    
    $
    (0.19
    )
 As of December 31, 2010 and 2009, we had an aggregate of 679,504 and 689,997 antidilutive
options and unvested restricted shares outstanding, respectively.
 - 8 -




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6.
    
    DEBT
  December 31,
    
    September 30,2010
    
    2010Senior Notes, 9%, due 2015
    
    $
    105,000
    
    
    $
    105,000Capital Leases, due through 2014
    
    
    154
    
    
    
    172Total Debt
    
    
    105,154
    
    
    
    105,172Less Current Portion
    
    
    (70
    )
    
    
    (70
    )Total Long-term Debt
    
    $
    105,084
    
    
    $
    105,102
 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; 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.
 - 9 -




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##### Table of Contents



6.
    
    DEBT (continued)
  Revolving Credit Facility.
 ABL Credit Facility.
  
    
    incur debt, incur contingent obligations and issue certain types of preferred stock, or
prepay certain debt;
    
    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.
  - 10 -




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##### Table of Contents



6.
    
    DEBT (continued)
   Letters of Credit.
 7.
    
    COMMITMENTS AND CONTINGENCIES
 Regulatory Review of Perchlorates
 Perchlorate Remediation Project in Henderson, Nevada.
   - 11 -




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7.
    
    COMMITMENTS AND CONTINGENCIES (continued)
     Henderson Site Environmental Remediation Reserve.
  - 12 -




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##### Table of Contents



7.
    
    COMMITMENTS AND CONTINGENCIES (continued)
      - 13 -




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7.
    
    COMMITMENTS AND CONTINGENCIES (continued)
  Balance, September 30, 2010
    
    $
    23,870Additions or adjustments
    
    
    -Expenditures
    
    
    (517
    )Balance, December 31, 2010
    
    $
    23,353
 AFC Environmental Matters.
   Other Matters.
 8.
    
    SEGMENT INFORMATION
  Fine Chemicals.
 - 14 -




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8.
    
    SEGMENT INFORMATION (continued)
  Specialty Chemicals. â
 Aerospace Equipment
 Other Businesses.
  Three Months EndedDecember 31,2010
    
    2009Fine chemicals customer
    
    
    12
    %Fine chemicals customer
    
    
    15
    %Fine chemicals customer
    
    
    
    
    
    
    15
    %Specialty chemicals customer
    
    
    13
    %Specialty chemicals customer
    
    
    
    
    
    
    28
    %
 - 15 -




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##### Table of Contents



8.
    
    SEGMENT INFORMATION (continued)
  Three Months EndedDecember 31,2010
    
    2009Revenues:Fine Chemicals
    
    $
    13,889
    
    
    $
    9,504Specialty Chemicals
    
    
    9,041
    
    
    
    12,803Aerospace Equipment
    
    
    11,452
    
    
    
    8,325Other Businesses
    
    
    802
    
    
    
    3,432Total Revenues
    
    $
    35,184
    
    
    $
    34,064Segment Operating Income (Loss):Fine Chemicals
    
    $
    (3,633
    )
    
    $
    (740
    )Specialty Chemicals
    
    
    3,557
    
    
    
    5,831Aerospace Equipment
    
    
    678
    
    
    
    (362
    )Other Businesses
    
    
    (321
    )
    
    
    (17
    )Total Segment Operating Income
    
    
    281
    
    
    
    4,712Corporate Expenses
    
    
    (3,751
    )
    
    
    (4,573
    )Operating Income (Loss)
    
    $
    (3,470
    )
    
    $
    139Depreciation and Amortization:Fine Chemicals
    
    $
    3,237
    
    
    $
    3,328Specialty Chemicals
    
    
    118
    
    
    
    171Aerospace Equipment
    
    
    261
    
    
    
    423Other Businesses
    
    
    4
    
    
    
    4Corporate
    
    
    119
    
    
    
    127Total Depreciation and Amortization
    
    $
    3,739
    
    
    $
    4,053
 9.
    
    INCOME TAXES
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10.
    
    DEFINED BENEFIT PLANS
 Defined Benefit Plan Descriptions
 Defined Contribution Plan Descriptions .
  Three Months EndedDecember 31,2010
    
    2009Pension Plans:Service Cost
    
    $
    616
    
    
    $
    625Interest Cost
    
    
    878
    
    
    
    798Expected Return on Plan Assets
    
    
    (722
    )
    
    
    (603
    )Recognized Actuarial Losses
    
    
    420
    
    
    
    263Amortization of Prior Service Costs
    
    
    15
    
    
    
    19Net Periodic Pension Cost
    
    $
    1,207
    
    
    $
    1,102Supplemental Executive Retirement Plan:Service Cost
    
    $
    81
    
    
    $
    110Interest Cost
    
    
    89
    
    
    
    93Expected Return on Plan Assets
    
    
    -
    
    
    
    -Recognized Actuarial Losses
    
    
    -
    
    
    
    -Amortization of Prior Service Costs
    
    
    105
    
    
    
    105Net Periodic Pension Cost
    
    $
    275
    
    
    $
    308
  - 17 -




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##### Table of Contents



11.
    
    GUARANTOR SUBSIDIARIES
 As discussed in Note 6, in February 2007, American Pacific Corporation, a Delaware corporation
(Parent) issued and sold $110,000 aggregate principal amount of Senior Notes. In connection
with the issuance of the Senior Notes, the Parents material U.S. subsidiaries (Guarantor
Subsidiaries) jointly, fully, severally, and unconditionally guaranteed the Senior Notes. The
Parents foreign subsidiaries (Non-Guarantor Subsidiaries) are not guarantors of the Senior
Notes. Each of the Parents subsidiaries is 100% owned. The Parent has no independent assets or
operations. The following presents condensed consolidating financial information separately for
the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
 Condensed Consolidating Balance Sheet - December 31, 2010Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    -
    
    
    $
    29,008
    
    
    $
    1,697
    
    
    $
    -
    
    
    $
    30,705Accounts Receivable, Net
    
    
    -
    
    
    
    30,089
    
    
    
    4,935
    
    
    
    (2,221
    )
    
    
    32,803Inventories
    
    
    -
    
    
    
    37,255
    
    
    
    1,149
    
    
    
    -
    
    
    
    38,404Prepaid Expenses and Other Assets
    
    
    -
    
    
    
    4,709
    
    
    
    172
    
    
    
    -
    
    
    
    4,881Income Taxes Receivable and Deferred Income Taxes
    
    
    -
    
    
    
    14,146
    
    
    
    -
    
    
    
    -
    
    
    
    14,146Total Current Assets
    
    
    -
    
    
    
    115,207
    
    
    
    7,953
    
    
    
    (2,221
    )
    
    
    120,939Property, Plant and Equipment, Net
    
    
    -
    
    
    
    112,283
    
    
    
    2,062
    
    
    
    -
    
    
    
    114,345Intangible Assets, Net
    
    
    -
    
    
    
    276
    
    
    
    790
    
    
    
    -
    
    
    
    1,066Goodwill
    
    
    -
    
    
    
    -
    
    
    
    2,856
    
    
    
    -
    
    
    
    2,856Deferred Income Taxes
    
    
    -
    
    
    
    20,242
    
    
    
    -
    
    
    
    -
    
    
    
    20,242Other Assets
    
    
    -
    
    
    
    9,002
    
    
    
    417
    
    
    
    -
    
    
    
    9,419Intercompany Advances
    
    
    91,545
    
    
    
    5,046
    
    
    
    -
    
    
    
    (96,591
    )
    
    
    -Investment in Subsidiaries, Net
    
    
    73,455
    
    
    
    4,600
    
    
    
    -
    
    
    
    (78,055
    )
    
    
    -Total Assets
    
    $
    165,000
    
    
    $
    266,656
    
    
    $
    14,078
    
    
    $
    (176,867
    )
    
    $
    268,867Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    -
    
    
    $
    28,785
    
    
    $
    3,761
    
    
    $
    (2,221
    )
    
    $
    30,325Environmental Remediation Reserves
    
    
    -
    
    
    
    10,164
    
    
    
    -
    
    
    
    -
    
    
    
    10,164Deferred Revenues and Customer Deposits
    
    
    -
    
    
    
    12,749
    
    
    
    591
    
    
    
    -
    
    
    
    13,340Current Portion of Long-Term Debt
    
    
    -
    
    
    
    22
    
    
    
    48
    
    
    
    -
    
    
    
    70Intercompany Advances
    
    
    -
    
    
    
    91,545
    
    
    
    5,046
    
    
    
    (96,591
    )
    
    
    -Total Current Liabilities
    
    
    -
    
    
    
    143,265
    
    
    
    9,446
    
    
    
    (98,812
    )
    
    
    53,899Long-Term Debt
    
    
    105,000
    
    
    
    52
    
    
    
    32
    
    
    
    -
    
    
    
    105,084Environmental Remediation Reserves
    
    
    -
    
    
    
    13,189
    
    
    
    -
    
    
    
    -
    
    
    
    13,189Pension Obligations and Other Long-Term Liabilities
    
    
    -
    
    
    
    36,695
    
    
    
    -
    
    
    
    -
    
    
    
    36,695Total Liabilities
    
    
    105,000
    
    
    
    193,201
    
    
    
    9,478
    
    
    
    (98,812
    )
    
    
    208,867Total Shareholders Equity
    
    
    60,000
    
    
    
    73,455
    
    
    
    4,600
    
    
    
    (78,055
    )
    
    
    60,000Total Liabilities and Shareholders Equity
    
    $
    165,000
    
    
    $
    266,656
    
    
    $
    14,078
    
    
    $
    (176,867
    )
    
    $
    268,867
 - 18 -




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##### Table of Contents



11.
    
    GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Balance Sheet - September 30, 2010Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    -
    
    
    $
    22,991
    
    
    $
    994
    
    
    $
    -
    
    
    $
    23,985Accounts Receivable, Net
    
    
    -
    
    
    
    48,194
    
    
    
    6,054
    
    
    
    (2,348
    )
    
    
    51,900Inventories
    
    
    -
    
    
    
    34,968
    
    
    
    1,158
    
    
    
    -
    
    
    
    36,126Prepaid Expenses and Other Assets
    
    
    -
    
    
    
    1,249
    
    
    
    293
    
    
    
    -
    
    
    
    1,542Income Taxes Receivable and Deferred Income Taxes
    
    
    -
    
    
    
    13,474
    
    
    
    -
    
    
    
    -
    
    
    
    13,474Total Current Assets
    
    
    -
    
    
    
    120,876
    
    
    
    8,499
    
    
    
    (2,348
    )
    
    
    127,027Property, Plant and Equipment, Net
    
    
    -
    
    
    
    111,946
    
    
    
    1,927
    
    
    
    -
    
    
    
    113,873Intangible Assets, Net
    
    
    -
    
    
    
    537
    
    
    
    883
    
    
    
    -
    
    
    
    1,420Goodwill
    
    
    -
    
    
    
    -
    
    
    
    2,933
    
    
    
    -
    
    
    
    2,933Deferred Income Taxes
    
    
    -
    
    
    
    20,222
    
    
    
    32
    
    
    
    -
    
    
    
    20,254Other Assets
    
    
    -
    
    
    
    9,945
    
    
    
    291
    
    
    
    -
    
    
    
    10,236Intercompany Advances
    
    
    91,545
    
    
    
    4,896
    
    
    
    -
    
    
    
    (96,441
    )
    
    
    -Investment in Subsidiaries, Net
    
    
    77,112
    
    
    
    4,817
    
    
    
    -
    
    
    
    (81,929
    )
    
    
    -Total Assets
    
    $
    168,657
    
    
    $
    273,239
    
    
    $
    14,565
    
    
    $
    (180,718
    )
    
    $
    275,743Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    -
    
    
    $
    23,931
    
    
    $
    3,916
    
    
    $
    (2,348
    )
    
    $
    25,499Environmental Remediation Reserves
    
    
    -
    
    
    
    8,694
    
    
    
    -
    
    
    
    -
    
    
    
    8,694Deferred Revenues and Customer Deposits
    
    
    -
    
    
    
    17,927
    
    
    
    842
    
    
    
    -
    
    
    
    18,769Current Portion of Long-Term Debt
    
    
    -
    
    
    
    21
    
    
    
    49
    
    
    
    -
    
    
    
    70Intercompany Advances
    
    
    -
    
    
    
    91,545
    
    
    
    4,896
    
    
    
    (96,441
    )
    
    
    -Total Current Liabilities
    
    
    -
    
    
    
    142,118
    
    
    
    9,703
    
    
    
    (98,789
    )
    
    
    53,032Long-Term Debt
    
    
    105,000
    
    
    
    57
    
    
    
    45
    
    
    
    -
    
    
    
    105,102Environmental Remediation Reserves
    
    
    -
    
    
    
    15,176
    
    
    
    -
    
    
    
    -
    
    
    
    15,176Pension Obligations and Other Long-Term Liabilities
    
    
    -
    
    
    
    38,776
    
    
    
    -
    
    
    
    -
    
    
    
    38,776Total Liabilities
    
    
    105,000
    
    
    
    196,127
    
    
    
    9,748
    
    
    
    (98,789
    )
    
    
    212,086Total Shareholders Equity
    
    
    63,657
    
    
    
    77,112
    
    
    
    4,817
    
    
    
    (81,929
    )
    
    
    63,657Total Liabilities and Shareholders Equity
    
    $
    168,657
    
    
    $
    273,239
    
    
    $
    14,565
    
    
    $
    (180,718
    )
    
    $
    275,743Condensed Consolidating Statement of Operations - Three Months Ended December 31, 2010Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    -
    
    
    $
    32,902
    
    
    $
    2,360
    
    
    $
    (78
    )
    
    $
    35,184Cost of Revenues
    
    
    -
    
    
    
    27,209
    
    
    
    1,437
    
    
    
    (78
    )
    
    
    28,568Gross Profit
    
    
    -
    
    
    
    5,693
    
    
    
    923
    
    
    
    -
    
    
    
    6,616Operating Expenses, Net
    
    
    -
    
    
    
    9,296
    
    
    
    790
    
    
    
    -
    
    
    
    10,086Operating Income (Loss)
    
    
    -
    
    
    
    (3,603
    )
    
    
    133
    
    
    
    -
    
    
    
    (3,470
    )Interest and Other Income
    
    
    2,696
    
    
    
    53
    
    
    
    (186
    )
    
    
    (2,696
    )
    
    
    (133
    )Interest Expense
    
    
    2,696
    
    
    
    2,713
    
    
    
    1
    
    
    
    (2,696
    )
    
    
    2,714Loss before Income Tax andEquity Account for Subsidiaries
    
    
    -
    
    
    
    (6,263
    )
    
    
    (54
    )
    
    
    -
    
    
    
    (6,317
    )Income Tax Benefit
    
    
    -
    
    
    
    (2,745
    )
    
    
    47
    
    
    
    -
    
    
    
    (2,698
    )Loss beforeEquity Account for Subsidiaries
    
    
    -
    
    
    
    (3,518
    )
    
    
    (101
    )
    
    
    -
    
    
    
    (3,619
    )Equity Account for Subsidiaries
    
    
    (3,619
    )
    
    
    (101
    )
    
    
    -
    
    
    
    3,720
    
    
    
    -Net Loss
    
    $
    (3,619
    )
    
    $
    (3,619
    )
    
    $
    (101
    )
    
    $
    3,720
    
    
    $
    (3,619
    )
 - 19 -




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##### Table of Contents



11.
    
    GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Operations - Three Months Ended December 31, 2009Guarantor
    
    
    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 andEquity Account for Subsidiaries
    
    
    -
    
    
    
    (2,190
    )
    
    
    (370
    )
    
    
    -
    
    
    
    (2,560
    )Income Tax Benefit
    
    
    -
    
    
    
    (1,077
    )
    
    
    (43
    )
    
    
    -
    
    
    
    (1,120
    )Loss beforeEquity 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
    )Condensed Consolidating Statement of Cash Flows - Three Months Ended December 31, 2010Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet Cash Provided (Used) by Operating Activities
    
    $
    -
    
    
    $
    8,409
    
    
    $
    838
    
    
    $
    -
    
    
    $
    9,247Cash Flows from Investing Activities:Capital expenditures
    
    
    -
    
    
    
    (2,238
    )
    
    
    (255
    )
    
    
    -
    
    
    
    (2,493
    )Net Cash Used in Investing Activities
    
    
    -
    
    
    
    (2,238
    )
    
    
    (255
    )
    
    
    -
    
    
    
    (2,493
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    -
    
    
    
    (4
    )
    
    
    (12
    )
    
    
    -
    
    
    
    (16
    )Intercompany advances, net
    
    
    -
    
    
    
    (150
    )
    
    
    150
    
    
    
    -
    
    
    
    -Net Cash Provided (Used) by Financing
Activities
    
    
    -
    
    
    
    (154
    )
    
    
    138
    
    
    
    -
    
    
    
    (16
    )Effect of Changes in Currency Exchange Rates
    
    
    -
    
    
    
    -
    
    
    
    (18
    )
    
    
    
    
    
    
    (18
    )Net Change in Cash and Cash Equivalents
    
    
    -
    
    
    
    6,017
    
    
    
    703
    
    
    
    -
    
    
    
    6,720Cash and Cash Equivalents, Beginning of Period
    
    
    -
    
    
    
    22,991
    
    
    
    994
    
    
    
    -
    
    
    
    23,985Cash and Cash Equivalents, End of Period
    
    $
    -
    
    
    $
    29,008
    
    
    $
    1,697
    
    
    $
    -
    
    
    $
    30,705Condensed Consolidating Statement of Cash Flows - Three Months Ended December 31, 2009Guarantor
    
    
    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
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##### Table of Contents



12.
    
    GAIN CONTINGENCIES  OTHER OPERATING GAINS
 We recognize gain contingencies in our consolidated statement of operations when all
contingencies have been resolved, which generally coincides with the receipt of cash, if
applicable. During the three months ended December 31, 2010, our Fine Chemicals segment
reported other operating gains that resulted from the resolution of gain contingencies. The
total reported gain of $1,337 is comprised of the following two matters.
 We made a series of filings with the County of Sacramento, California, to appeal the assessed
values in prior years of our real and personal property located at our Fine Chemicals segments
Rancho Cordova, California facility. During the quarter ended December 31, 2010, we received
$1,079 for cash property tax refunds resulting from certain of our appeals and the related
favorable reassessment of historical property values. As of December 31, 2010, we have
additional appeals outstanding, which may result in additional gains depending on their outcome.
 Our Fine Chemicals segment is undertaking several mandatory capital projects. Certain of the
capital activities are complete and others are anticipated to be completed during the year
ending September 30, 2011. In connection with these projects, our Fine Chemicals segment held,
and continues to hold, negotiations with the former owner of the facilities. During the three
months ended December 31, 2010, we received from the former owner cash consideration in the
amount of $258 for a limited release of liability of the former owner with respect to one of the
completed projects.
 13.
    
    SUBSEQUENT EVENT
 On January 31, 2011, we established an asset based lending credit facility which provides for a
committed revolving credit line, up to a maximum of $20,000, based on our eligible accounts
receivable and inventories. See Note 6.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
   - 22 -




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OUR COMPANY
   OUR BUSINESS SEGMENTS
  Three Months EndedDecember 31,2010
    
    
    2009Fine Chemicals
    
    
    39
    %
    
    
    28
    %Specialty Chemicals:Perchlorates
    
    
    21
    %
    
    
    32
    %Sodium Azide
    
    
    2
    %
    
    
    3
    %Halotron
    
    
    3
    %
    
    
    3
    %Total Specialty Chemicals
    
    
    26
    %
    
    
    38
    %Aerospace Equipment
    
    
    33
    %
    
    
    24
    %Other Businesses:Real Estate
    
    
    0
    %*
    
    
    0
    %*Water Treatment Equipment
    
    
    2
    %
    
    
    10
    %Total Other Businesses
    
    
    2
    %
    
    
    10
    %Total Revenues
    
    
    100
    %
    
    
    100
    %
 * less than 1% - 23 -




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FINE CHEMICALS.
   
    
    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 . ®
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AEROSPACE EQUIPMENT.
   OTHER BUSINESSES.
 RESULTS OF OPERATIONS
 REVENUES
 December 31,
    
    
    Increase
    
    
    Percentage2010
    
    
    2009
    
    
    (Decrease)
    
    
    ChangeThree Months Ended:Fine Chemicals
    
    $
    13,889
    
    
    $
    9,504
    
    
    $
    4,385
    
    
    
    46
    %Specialty Chemicals
    
    
    9,041
    
    
    
    12,803
    
    
    
    (3,762
    )
    
    
    (29
    %)Aerospace Equipment
    
    
    11,452
    
    
    
    8,325
    
    
    
    3,127
    
    
    
    38
    %Other Businesses
    
    
    802
    
    
    
    3,432
    
    
    
    (2,630
    )
    
    
    (77
    %)Total Revenues
    
    $
    35,184
    
    
    $
    34,064
    
    
    $
    1,120
    
    
    
    3
    %
 Fine Chemicals .
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Specialty Chemicals.
 
    
    A 31% decrease in perchlorate volume and a 3% decrease in the related average price per
pound for the Fiscal 2011 first quarter compared to the prior fiscal year first quarter.
    
    Sodium azide revenues decreased by $425.
    
    Halotron revenues increased $130.
   
    
    The average price per pound of Grade I AP increased approximately proportionate and inverse
to the decrease in Grade I AP volume consistent with the contractual Grade I AP price-volume
matrix, under which price and volume move inversely, and comparable catalog pricing.
    
    This was offset by our other lower-priced perchlorate products, such as sodium perchlorate
and potassium perchlorate, which accounted for a greater percentage of all perchlorate product
volume in the Fiscal 2011 period.
 Aerospace Equipment .
 COST OF REVENUES AND GROSS MARGIN
 December 31,
    
    
    Increase
    
    
    Percentage2010
    
    
    2009
    
    
    (Decrease)
    
    
    ChangeThree Months Ended:Revenues
    
    $
    35,184
    
    
    $
    34,064
    
    
    $
    1,120
    
    
    
    3
    %Cost of Revenues
    
    
    28,568
    
    
    
    21,618
    
    
    
    6,950
    
    
    
    32
    %Gross Margin
    
    
    6,616
    
    
    
    12,446
    
    
    
    (5,830
    )
    
    
    (47
    %)Gross Margin Percentage
    
    
    19
    %
    
    
    37
    %
  Fine Chemicals.
 Specialty Chemicals.
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Aerospace Equipment .
 OPERATING EXPENSES
 December 31,
    
    
    Increase
    
    
    Percentage2010
    
    
    2009
    
    
    (Decrease)
    
    
    ChangeThree Months Ended:Operating Expenses
    
    $
    11,423
    
    
    $
    12,307
    
    
      $
    (884
    )
    
    
    (7
    %)Percentage of Revenues
    
    
    32
    %
    
    
    36
    %
  OTHER OPERATING GAINS
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SEGMENT OPERATING INCOME (LOSS)
 December 31,
    
    
    Favorable
    
    
    Percentage2010
    
    
    2009
    
    
    (Unfavorable)
    
    
    ChangeThree Months Ended:Fine Chemicals
    
      $
    (3,633
    )
    
      $
    (740
    )
    
      $
    (2,893
    )
    
    
    (391
    %)Specialty Chemicals
    
    
    3,557
    
    
    
    5,831
    
    
    
    (2,274
    )
    
    
    (39
    %)Aerospace Equipment
    
    
    678
    
    
    
    (362
    )
    
    
    1,040
    
    
    NMOther Businesses
    
    
    (321
    )
    
    
    (17
    )
    
    
    (304
    )
    
    
    (1,788
    %)Segment Operating Income
    
    
    281
    
    
    
    4,712
    
    
    
    (4,431
    )
    
    
    (94
    %)Corporate Expenses
    
    
    (3,751
    )
    
    
    (4,573
    )
    
    
    822
    
    
    
    18
    %Operating Income (Loss)
    
      $
    (3,470
    )
    
    $
    139
    
    
      $
    (3,609
    )
    
    NM
   BACKLOG
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LIQUIDITY AND CAPITAL RESOURCES
 CASH FLOWS
 Three Months Ended December 31,
    
    
    
    
    
    
    Percentage2010
    
    
    2009
    
    
    Change
    
    
    ChangeCash Provided (Used) By:Operating activities
    
    $
    9,247
    
    
    $
    18,107
    
    
      $
    (8,860
    )
    
    
    (49
    %)Investing activities
    
    
    (2,493
    )
    
    
    (1,099
    )
    
    
    (1,394
    )
    
    
    127
    %Financing activities
    
    
    (16
    )
    
    
    (59
    )
    
    
    43
    
    
    
    (73
    %)Effect of changes in exchange rates on cash
    
    
    (18
    )
    
    
    (11
    )
    
    
    (7
    )
    
    
    64
    %Net change in cash for period
    
    $
    6,720
    
    
    $
    16,938
    
    
      $
    (10,218
    )
    
    
    (60
    %)
 Operating Cash Flows 
  
    
    A decrease in cash due to a decline in the cash profits provided by our operations.
    
    A decrease in cash provided by working capital accounts of $3,154, excluding the effects of
interest and income taxes.
    
    An increase in cash income taxes refunded of $1,294.
    
    A decrease in cash used for environmental remediation of $165.
    
    An increase in cash used to fund pension obligations of $2,952.
    Investing Cash Flows
 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 calendar 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 CREDIT FACILITIES
 Senior Notes.
 
    
    ranked equally in right of payment with all of our existing and future senior indebtedness;
    
    ranked senior in right of payment to all of our existing and future senior subordinated and
subordinated indebtedness;
    
    effectively junior to our existing and future secured debt to the extent of the value of
the assets securing such debt; and
    
    structurally subordinated to all of the existing and future liabilities (including trade
payables) of each of our subsidiaries that do not guarantee the Senior Notes.
  
    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus an applicable premium as defined in the related indenture;
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the
principal amount to be redeemed and reducing to 100% by February 1, 2013; and
    
    under certain changes of control, we must offer to purchase the Senior Notes at 101% of
their aggregate principal amount, plus accrued interest.
 - 30 -




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
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
  ABL Credit Facility.
  
    
    incur debt, incur contingent obligations and issue certain types of preferred stock, or
prepay certain debt;
    
    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.
 - 31 -




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Letters of Credit.
 PENSION BENEFITS.
   - 32 -




---



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ENVIRONMENTAL REMEDIATION  AMPAC HENDERSON SITE.
    - 33 -




---



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CRITICAL ACCOUNTING POLICIES
   SALES AND REVENUE RECOGNITION.
  - 34 -




---



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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
 
 ITEM 4. CONTROLS AND PROCEDURES
   - 38 -




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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.
   - 39 -




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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.
   - 40 -




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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.
  - 41 -




---



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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
 - 42 -




---



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Perchlorate Remediation Project in Henderson, Nevada.
 Henderson Site Environmental Remediation Reserve.
 - 43 -




---



##### Table of Contents



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.
  - 44 -




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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.
  - 45 -




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##### Table of Contents



Each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments may be unable to
comply with customer specifications and manufacturing instructions or may experience delays or
other problems with existing or new products, which could result in increased costs, losses of
sales and potential breach of customer contracts.
   Successful commercialization of pharmaceutical products and product line extensions is very
difficult and subject to many uncertainties. If a customer is not able to successfully
commercialize its products for which AFC produces compounds or if a product is subsequently
recalled, then the operating results of AFC may be negatively impacted.
  - 46 -




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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.
  - 47 -




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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.
  - 48 -




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Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating
results to fluctuate.
  The inherent volatility of the chemical industry affects our capacity utilization and causes
fluctuations in our results of operations.
  A loss of key personnel or highly skilled employees, or the inability to attract and retain such
personnel, could disrupt our operations or impede our growth.
  - 49 -




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We may continue to expand our operations through acquisitions, but the acquisitions could divert
managements attention and expose us to unanticipated liabilities and costs. We may experience
difficulties integrating the acquired operations, and we may incur costs relating to acquisitions
that are never consummated.
   We have a substantial amount of debt, and the cost of servicing that debt could adversely affect
our ability to take actions, our liquidity or our financial condition.
  
    
    make it more difficult for us to satisfy any other outstanding debt obligations;
    
    require us to dedicate a substantial portion of our cash flow from operations to payments
on our debt, reducing the amount of our cash flow available for working capital, capital
expenditures, acquisitions, developing our real estate assets and other general corporate
purposes;
    
    limit our flexibility in planning for, or reacting to, changes in the industries in which
we compete;
    
    place us at a competitive disadvantage compared to our competitors, some of which have
lower debt service obligations and greater financial resources than we do;
    
    limit our ability to borrow additional funds; or
    
    increase our vulnerability to general adverse economic and industry conditions.
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We are obligated to comply with various ongoing covenants in our debt, which could restrict our
operations, and if we should fail to satisfy any of these covenants, the payment under our debt
could be accelerated, which would negatively impact our liquidity.
  
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
  Significant changes in discount rates, rates of return on pension assets, mortality tables and
other factors could affect our estimates of pension obligations, which in turn could affect future
funding requirements and related costs and impact our future earnings.
  Our suspended 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.
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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, 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.
  
    
    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.
  - 52 -




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  None.
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES  None.
 
 ITEM 4. (REMOVED AND RESERVED)
 
 ITEM 5. OTHER INFORMATION  None.
 
 ITEM 6. EXHIBITS  See attached exhibit index.
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SIGNATURES
  AMERICAN PACIFIC CORPORATIONDate:  February 10, 2011
    
    /s/ JOSEPH CARLEONEJoseph CarleonePresident and Chief Executive Officer
(Principal Executive Officer)/s/ DANA M. KELLEYDana M. KelleyVice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) - 54 -




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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 20, 2010)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)3.8
    
    Amendment No. 2 to Rights Agreement, dated as of September 14, 2010, 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 September 20, 2010)10.1
    
    Settlement Agreement, dated as of December 14, 2010, by and among American Pacific
Corporation, Golconda Capital Portfolio, L.P., Golconda Capital Management, LLC and William D.
Summitt (incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form
8-K (File No. 001-08137) filed by the registrant with the Securities and Exchange Commission
on December 15, 2010)10.2
    
    Credit Agreement, dated as of January 31, 2011, by and among American Pacific Corporation, Wells Fargo Bank, National Association, and certain domestic
subsidiaries of American Pacific Corporation (incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form 8-K (File No. 001-08137) filed
by the registrant with the Securities and Exchange Commission on February 4, 2011)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 -