##### 



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C. 20549
  FORM 10-K
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
    THE
 SECURITIES EXCHANGE ACT OF 1934
  For the Fiscal Year Ended September 30, 2006
 Commission File Number
    001-08137
  AMERICAN PACIFIC
    CORPORATION
 (Exact name of registrant as
    specified in its charter)
  Delaware

59-6490478(State or other jurisdiction
    of incorporation)

(IRS Employer
    Identification No.)   3770 Howard Hughes Parkway,
    Suite 300,
    Las Vegas, Nevada

89169(Address of principal executive
    offices)

(Zip Code)   (702) 735-2200
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to
    Section 12(b) of the Act: Common Stock ($.10 par value)
  Securities registered pursuant to
    Section 12(g) of the Act: None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2 o o þ
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE
 Part III Hereof




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##### 



PART I
  Forward
    Looking Statements
  Form 10-K
    Item 1.
    Business (Dollars in Thousands)
  Our
    Company
     1




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##### 



Our
    Business Segments
    2006


2005


2004Specialty Chemicals:Perchlorates


28
%


65
%


85
%Sodium azide


2
%


3
%


6
%Halotron


3
%


6
%


5
%Total specialty chemicals


33
%


74
%


96
%Fine Chemicals


52
%


0
%


0
%Aerospace Equipment


12
%


18
%


0
%Other Businesses:Real estate


1
%


5
%


1
%Water treatment equipment


2
%


3
%


3
%Total other businesses


3
%


8
%


4
%Total revenues


100
%


100
%


100
%   Form 10-K
  Specialty Chemicals:
      Fine Chemicals:
  
    We have distinctive competencies and specialized engineering
    capabilities in chiral separation, highly potent/cytoxic
    compounds and energetic and nucleoside chemistries and have
    invested significant resources in our facilities and technology
    base. We are the leader in chiral compound production using the
    first commercial-scale simulated moving bed (SMB)
    technology in the United States and own and operate two of the
    largest SMB machines in the world. SMB is utilized to produce
    compounds used in drugs treating central nervous system
    disorders. We believe our distinctive competency in handling
    energetic and toxic chemicals and our specialized 2




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##### 



high containment facilities provides us a significant
    competitive advantage in competing for various opportunities
    associated with highly potent/cytoxic compounds, such as drugs
    used for oncology (i.e. anti-cancer drugs). Due to our
    significant experience and specially engineered facilities, we
    are one of the few companies in the world with the capability to
    use energetic chemistry on a commercial-scale under cGMP. We use
    this capability in development and production of HIV-related and
    influenza-combating drugs.    
    Alternative Supply May Not Be Readily Available  we
    are the sole source supplier on a majority of our fine chemicals
    products.
    Regulatory Approval  applications to and approvals
    from the FDA and other regulatory authorities generally requires
    the chemical contractor to be named. Switching contractors may
    require additional regulatory approval and could take as long as
    18 months.
    Significant Financial Costs  switching contractors
    can result in significant costs associated with technology
    transfer, process validation and re-filing with the FDA and
    other regulatory authorities.    Aerospace Equipment:
    Other Businesses:
  Discontinued Operations:
 3




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##### 



Our
    Strategy
    Leverage Our
    Leadership Positions within Existing Markets
    Specialty Chemicals.
  Fine Chemicals.
  Aerospace Equipment.
  Preserve and
    Build Strong Customer Relationships
   4




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##### 



Develop New
    Products and Technologies
    Pursue Growth
    Opportunities Organically and through Selective
    Acquisitions
    Our
    Specialty Chemicals Segment
  Perchlorate
    Chemicals
    Market
           5




---



##### 



Customers
              Manufacturing
    Capacity and Process
   6




---



##### 



Competition
    Sodium
    Azide
    Market
         7




---



##### 




    The licensing to Gowan of our rights to intellectual property
    regarding azide-based pest management products, including the
    trademark
    SEPtm
    100,
    Joint investment and efforts to further develop and obtain
    regulatory registration of azide-based pest management products,
    Our supply of the products to Gowan, and
    Gowans exclusive marketing and sales of the products
    worldwide.      Customers
    Competition
    Halotron
  mono-ammonium
     8




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##### 



Customers and
    Market
      460-500
  2
  1997-1999,
    1992-1994
   9




---



##### 



Competition
      tm tm tm tm tm tm ).
    Inert gas blends (based on argon
    and/or
    nitrogen) and water mist based systems also compete in the clean
    agent total flooding market.
  Our
    Fine Chemicals Segment
         10




---



##### 



Customers and
    Markets
   11




---



##### 




    Alternative Supply May Not Be Available  AFC is
    currently the sole-source supplier of a number of oncology
    products that involve handling highly toxic compounds.
    Regulatory Approval  applications to and approvals
    from the FDA and other regulatory authorities generally require
    the chemical contractor to be named. Switching contractors
    requires additional regulatory approval and could take as long
    as 18 months.
    Significant Financial Costs  switching contractors
    can result in significant costs associated with technology
    transfer, process validation and re-filing with the FDA and
    other regulatory authorities.  Competition
      Raw
    Materials
    Our
    Aerospace Equipment Segment
    Customers and
    Market
   12




---



##### 



Competition
    Our
    Other Businesses Segment
  Water
    Treatment Equipment
  tm tm tm
  ®
      Real
    Estate
    Regulatory
    Compliance
  Federal Acquisition Regulations: and/or
  FDA and Similar Regulatory
    Agencies:
 13




---



##### 



Environmental Matters:
  
  
       14




---



##### 




  DTSC Matters:
      Other AFC Environmental
    Matters: A
   15




---



##### 



Other
    Matters
  Backlog
    Intellectual
    Property
  ® tm ® ® ® ® ®
  American Pacific v. Bejaro
    Brandskyddsföretaget AB
  Raw
    materials and Manufacturing Costs
     16




---



##### 



Profitability
    
    as discussed in Note 11 to our consolidated financial
    statements, we may incur material legal and other costs
    associated with environmental remediation, litigation and other
    contingencies;
    the volume and timing of sales in the future is uncertain;
    certain products in our Fine Chemicals segment require multiple
    quarters to produce;
    the results of periodic reviews for impairments of long-lived
    assets;
    And the ability to pass on increases in raw material costs to
    our customers.  Government
    Contract Subject to Termination
    Insurance
    Employees
      Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
 17




---



##### 



Item 1A.
    Risk Factors
  We can be
    adversely impacted by reductions or changes in NASA or
    U.S. government military spending.
                We depend on a
    limited number of customers for most of our sales in our
    Specialty Chemicals and Aerospace Equipment segments and the
    loss of one or more of these customers could have a material
    adverse affect on our net sales.
   18




---



##### 



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.
    Our
    U.S. government or U.S. government contractor
    contracts can be categorized as either cost-plus or
    fixed-price.
    fixed-price-level-of-effort price-level-of-effort
  Our
    U.S. government contracts and our customers
    U.S. government contracts are subject to
    termination.
   19




---



##### 




    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.    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
 20




---



##### 



Perchlorate Remediation Project in Henderson,
    Nevada
          Henderson Site Environmental Remediation
    Reserve
 21




---



##### 



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.
  and/or
    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.
   22




---



##### 



Because AFC
    currently manufactures a limited number of products for a small
    number of customers, a problem with any of its significant
    customers or the final products that our chemical compound is a
    part could materially adversely affect its results of operations
    and cash flow.
    AFC depends
    heavily on third parties for the supply of certain raw materials
    used in its production processes.
    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.
  scale-up.
  AFC or its
    customers may be unable to obtain government approval for its
    products or comply with government regulations relating to its
    business.
   23




---



##### 



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.
    AFC involves
    hazardous and highly potent materials and if it is unable to
    comply with the environmental laws and regulations to which it
    is subject, its results may be adversely affected.
   24




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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.
    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; 25




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##### 




    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.    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.
     26




---



##### 



three-mile 15-month
  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.
   27




---



##### 



The cyclicality
    and volatility of the chemical industry affects our capacity
    utilization and causes fluctuations in our results of
    operations.
  period-to-period
  A loss of key
    personnel or highly skilled employees could disrupt our
    operations.
    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.
    
    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.    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.
   28




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##### 



Item 1B.
    Unresolved Staff Comments
   29




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##### 



Item 2.
    Properties
    Approximate Area




ApproximateLocation

Principal Use

or Floor Space

Status


Annual Rent(a) Iron County, UT

Perchlorate and Water Treatment
    Equipment Manufacturing Facility

217 Acres


Owned


N/A(b) Iron County, UT

Sodium Azide Manufacturing Facility

41 Acres


Owned


N/A(c) Iron County, UT

Halotron Manufacturing Facility

6,720 sq. ft.


Owned


N/A(d) Las Vegas, NV

Executive Offices

22,262 sq.ft.


Leased


$500,000(e) Henderson, NV

Goundwater Remediation Site

1.75 Acres


Leased


$20,000(f) Niagara Falls, NY

Aerospace Equipment
    Manufacturing Facility

81,425 sq. ft.


Leased


$165,000(g) Westcott, Buckinghamshire, UK

Aerospace Equipment
    Manufacturing Facility

65 Acres


Leased


$320,000(h) Rancho Cordova, CA

Fine Chemicals Manufacturing
    Facility

240 Acres


Leased


$10,000   (a)
    
    This facility is shared by the Specialty Chemicals segment and
    our Other Businesses segment for the production of perchlorate
    products and water treatment equipment. Presently, this facility
    has significant remaining capacity.(b)
    
    This facility is used by the Specialty Chemicals segment for the
    production of sodium azide. Presently, this facility has
    significant remaining capacity.(c)
    
    This facility is used by the Specialty Chemicals segment for the
    production of Halotron. Presently, this facility has significant
    remaining capacity.(d)
    
    These facilities are leased from 3770 Howard Hughes Parkway
    Associates-Limited Partnership for an initial term of
    10 years, which began on March 1, 1991, and has been
    extended through February 2009. Approximately 16% of this space
    is currently sublet at an annual rent of approximately $98,000.(e)
    
    This facility is used for the groundwater remediation activities
    of the Company.(f)
    
    This facility is used for the design, manufacture and test of
    our Aerospace Equipment segment products. Presently, this
    facility has adequate capacity available to support its
    operations and expand, as may be required, through the addition
    of multiple labor shifts.(g)
    
    This facility is used for the design, manufacture and test of
    our Aerospace Equipment segment products. Presently, this
    facility has significant remaining capacity.(h)
    
    This facility is used by the Fine Chemicals segment for the
    production of active pharmaceutical ingredients and registered
    intermediates. Presently, this facility is at near capacity.   30




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##### 



Item 3.
    Legal Proceedings
    Item 4.
    Submission of Matters to a Vote of Security
    Holders
   31




---



##### 



PART II
  Item 5.
    Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities
  Stock Listing: ®
  2006


2005High


Low


High


LowFirst Quarter

$
8.12


$
4.11


$
8.78


$
7.30Second Quarter


9.98



4.79



8.99



7.03Third Quarter


9.63



6.78



8.52



7.00Fourth Quarter


8.45



6.05



8.79



5.90     Dividend Policy:
    Transfer Agent: (800) 937-5449.
  Securities Authorized for Issuance Under Equity
    Compensation Plans:
 32




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##### 



Item 6.
    Selected Financial Data
  FIVE-YEAR SUMMARY OF
    SELECTED CONSOLIDATED FINANCIAL DATA FOR THE YEARS ENDED
    SEPTEMBER 30,
    2006


2005


2004


2003


2002STATEMENT OF OPERATIONS
    DATA(a)(b):Revenues

$
141,904


$
67,813


$
51,458


$
68,866


$
73,588Cost of revenues


97,043



43,916



34,402



37,349



43,529Gross profit


44,861



23,897



17,056



31,517



30,059Operating expenses


38,202



21,805



18,980



14,480



13,776Environmental remediation charges


3,600



22,400



-



-



-Operating income (loss)


3,059



(20,308
)


(1,924
)


17,037



16,283Interest and other expense
    (income), net


10,362



(1,398
)


(693
)


1,544



3,235Loss on debt extinguishments


-



-



-



984



149Income (loss) from continuing
    operations before income tax


(7,303
)


(18,910
)


(1,231
)


14,509



12,899Income tax provision (benefit)


(4,300
)


(8,367
)


(2,160
)


4,958



4,257Income (loss) from continuing
    operations

$
(3,003
)

$
(10,543
)

$
929


$
9,551


$
8,642Earnings (loss) per share from
    continuing operations:Basic

$
(0.41
)

$
(1.45
)

$
0.13


$
1.32


$
1.21Diluted

$
(0.41
)

$
(1.45
)

$
0.13


$
1.30


$
1.18Dividends declared per share

$
-


$
-


$
-


$
0.42


$
-BALANCE SHEET DATA:Cash and cash equivalents

$
6,872


$
37,213


$
23,777


$
27,140


$
65,826Inventories and accounts receivable


59,229



26,390



30,058



22,885



21,156Property, plant and equipment, net


119,746



15,646



16,573



9,223



7,918Intangible assets, net


14,237



9,763



13,679



17,579



21,297Total assets


239,455



115,000



101,576



101,685



131,971Working capital


33,421



49,235



45,741



42,599



81,783Long-term debt(c)


97,771



-



-



-



40,600     (a)
    
    As discussed in Note 2 to our consolidated financial
    statements, we acquired the AFC Business effective
    November 30, 2005 and ISP effective October 1, 2004.(b)
    
    As discussed in Note 1 to our consolidated financial
    statements, the consolidation of the ESI joint venture as of
    March 31, 2004 significantly changes various line items of
    our balance sheet, statement of operations and cash flow
    presentations as compared to financial presentations in earlier
    reports. As discussed in Note 14 to our consolidated
    financial statements, effective September 30, 2006, we sold
    our interest in ESI. Revenues and expenses associated with
    ESIs operations are classified as discontinued operations
    for all periods presented.(c)
    
    As discussed in Note 6 to our consolidated financial
    statements, we entered into debt agreements regarding the Credit
    Facilities and Seller Subordinated Note in connection with our
    acquisition of the AFC Business in November 2005. 33




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##### 



Item 7.
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations (Dollars in Thousands)
    Our
    Company
      Our Business
    Segments
    2006

2005

2004Specialty Chemicals:Perchlorates

28%

65%

85%Sodium azide

2%

3%

6%Halotron

3%

6%

5%Total specialty chemicals

33%

74%

96%Fine Chemicals

52%

0%

0%Aerospace Equipment

12%

18%

0%Other Businesses:Real estate

1%

5%

1%Water treatment equipment

2%

3%

3%Total other businesses

3%

8%

4%Total revenues

100%

100%

100%   Specialty Chemicals:.
 34




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##### 



Fine Chemicals.
      
    Alternative Supply May Not Be Readily Available  we
    are the sole source supplier on a majority of our fine chemicals
    products.
    Regulatory Approval  applications to and approvals
    from the FDA and other regulatory authorities generally requires
    the chemical contractor to be named. Switching contractors may
    require additional regulatory approval and could take as long as
    18 months.
    Significant Financial Costs  switching contractors
    can result in significant costs associated with technology
    transfer, process validation and re-filing with the FDA and
    other regulatory authorities.   35




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##### 



Aerospace Equipment.
    Other Businesses.
  Discontinued Operations:
  Results of
    Operations
  Revenues
  Year Ended
    September 30,


Percentage Change2006


2005


2004


06 vs. 05

05 vs. 04Specialty Chemicals

$
46,450


$
49,936


$
49,459


(7%)

1%Fine Chemicals


74,026



-



-


-

-Aerospace Equipment


17,394



12,429



-


40%

-Other Businesses


4,034



5,448



1,999


(26%)

173%Total Revenues

$
141,904


$
67,813


$
51,458


109%

32%     
    A 45% decline in Grade I AP volume in fiscal 2006 compared to
    the prior fiscal year, substantially offset by more favorable
    pricing for Grade 1 AP under the Amendment to the Thiokol
    Agreement. Grade I AP volume and pricing for fiscal 2005 was
    consistent with fiscal 2004. We expect demand over the next
    several years to be consistent with demand in fiscal 2006.
    A increase in sodium azide sales in fiscal 2006 compared to the
    prior fiscal year due to additional demand for pharmaceutical
    applications
    Consistent year over year sales of Halotron products.     36




---



##### 




    Fiscal 2005 included a significant real estate sale of $3,190.
    There were no significant real estate sales in fiscal 2004 or
    2006 and we do not expect significant real estate sales in the
    future.
    Water treatment equipment sales increased $1,291 in fiscal 2006
    compared to fiscal 2005 and decreased $194 in fiscal 2005
    compared to fiscal 2004. The revenue variances are largely due
    to the timing of new system sales which are relatively
    infrequent and can vary from year to year.  Cost of
    Revenues and Gross Margin
  Year Ended
    September 30,


Percentage Change2006


2005


2004


06 vs. 05

05 vs. 04Revenues

$
141,904


$
67,813


$
51,458


109%

32%Cost of Revenues


97,043



43,916



34,402


121%

28%Gross Margin

$
44,861


$
23,897


$
17,056


88%

40%Gross Margin Percentage


32%



35%



33%


(10%)

6%     
    Gross margin percentage for our Specialty Chemicals and
    Aerospace Equipment segments improved in fiscal 2006 compared to
    the prior year period primarily due to more favorable pricing of
    Specialty Chemicals products and better manufacturing overhead
    absorption for our Aerospace Equipment segment.
    While AFC contributes significant gross margin dollars, its
    gross margin percentage is less than that of our Specialty
    Chemicals segment. Thus, the effect of including AFC in fiscal
    2006 is a reduction in the consolidated gross margin percentage
    due to the change in product mix.
    Gross margin from our Other Businesses segment declined in
    fiscal 2006. Fiscal 2005 includes a significant real estate sale
    which contributed approximately 2 margin points to the prior
    year consolidated gross margin percentage.    
    Fiscal 2005 was the first year to include our Aerospace
    Equipment segment products, which carry lower gross margin
    percentages than our Specialty Chemicals products. Thus, the
    effect of including Aerospace Equipment in fiscal 2006 is a
    reduction in the consolidated gross margin percentage due to the
    change in product mix.
    Fiscal 2005 gross margins benefited from the aforementioned real
    estate sale.  Operating
    Expenses
  Year Ended
    September 30,


Percentage Change2006


2005


2004


06 vs. 05

05 vs. 04Operating Expenses

$
38,202


$
21,805


$
18,980


75%

15%Percentage of Revenues


27%



32%



37%


(16%)

(13%)      37




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##### 



Environmental
    Charge
    Segment
    Operating Profit and Operating Income (Loss)
  Year Ended
    September 30,


Percentage Change2006


2005


2004


06 vs. 05

05 vs. 04Specialty Chemicals

$
14,755


$
12,504


$
12,232


18%

2%Fine Chemicals


7,245



-



-


-

-Aerospace Equipment


802



95



-


744%

-Other Businesses


264



3,300



316


(92%)

944%Total Segment Operating Profit


23,066



15,899



12,548


45%

27%Corporate Expenses


(16,407
)


(13,807
)


(14,472
)

19%

(5%)Environmental Remediation Charges


(3,600
)


(22,400
)


-


(84%)

-Operating Income (Loss)

$
3,059


$
(20,308
)

$
(1,924
)

(115%)

956%         
    Higher gross margins on our perchlorate products due to
    favorable pricing.
    A reduction in environmental evaluation costs that were incurred
    prior to the inception of our remediation project in June 2005.
    A decrease in operating losses generated by our azide products
    due to greater volume to cover fixed costs in fiscal 2006.     38




---



##### 




    Higher insurance costs associated with the increase in the size
    of the Company as a result of the AFC acquisition.
    Higher legal fees associated with the renegotiation of our
    contract with ATK.
    A charge for $600 recorded in fiscal 2006 related to a
    settlement with our former chief financial officer (see
    Note 11 to our consolidated financial statements)    Interest and
    Other Income / Interest Expense
  Year Ended
    September 30,


Percentage Change2006


2005


2004


06 vs. 05

05 vs. 04Interest and Other Income:Interest Income

$
459


$
636


$
623


(28%)

2%Real Estate Partnership Income


580



762



-


(24%)

-Other Income


30



-



70


-

(100%)Total

$
1,069


$
1,398


$
693


(24%)

102%Interest Expense

$
11,431


$
-


$
-


-

-             Income
    Taxes
   39




---



##### 



2006

2005

2004Federal income tax at the statutory
    rate

(35.0%)

(35.0%)

(35.0%)State income tax, net of federal
    benefit

(3.1%)

(2.5%)

(4.1%)Nondeductible expenses

1.0%

0.6%

3.7%Valuation allowance

1.8%

1.3%

40.0%Change in state income tax rate

(13.7%)

0.0%

0.0%Basis differences in partnerships

(5.6%)

0.0%

0.0%Change in deferred tax liability
    estimate

0.0%

0.0%

(168.7%)Other

(4.3%)

(8.6%)

(11.4%)Effective tax rate

(58.9%)

(44.2%)

(175.5%)       Extraordinary
    Gain
    Cumulative
    Effect of Accounting Change
   40




---



##### 



Liquidity and
    Capital Resources
  Cash
    Flows
  Operating Activities:
  Year Ended
    September 30,


Percentage Change2006


2005


2004


06 vs. 05

05 vs. 04Net Loss

$
(3,894
)

$
(9,691
)

$
(397
)

(60%)

2,341%Depreciation and Amortization


20,181



5,639



5,424


258%

4%Non-cash Interest Expense


3,967



-



-


-

-Stock-based Compensation


359



-



-


-

-Additions to remediation reserves


3,600



22,400



-


(84%)

-Expenditures against remediation
    reserves


(6,676
)


(1,813
)


-


268%

-Deferred taxes


(3,442
)


(8,241
)


(1,598
)

(58%)

416%Extraordinary gain, net


-



(1,554
)


-


(100%)

-Cumulative effect of accounting
    change, net


-



-



769


-

(100%)Changes in Operating Assets and
    Liabilities


-



-



-


-

-Accounts Receivable


(1,135
)


9,437



(4,070
)

(112%)

(332%)Inventories


(11,821
)


2,156



1,331


(648%)

62%Accounts Payable and Accrued
    Expenses


6,860



41



(1,025
)

16,632%

(104%)Other


204



810



(71
)

(75%)

(1,241%)Discontinued Operations, Net


1,287



(31
)


1,037


(4,252%)

(103%)Cash Provided by Operating
    Activities

$
9,490


$
19,153


$
1,400


(50%)

1,268%     
    Operating cash flow was increased by significant improvement in
    operating income before depreciation, amortization and
    remediation charges during fiscal 2006 compared to fiscal 2005.
    Operating cash flow was decreased by cash used for changes in
    accounts receivable, inventories, accounts payable and accrued
    expenses increased by $17,730 during fiscal 2006 compared to
    fiscal 2005. Uses of cash for these items in fiscal 2006 relate
    primarily to funding post-acquisition working capital growth at
    AFC.
    Operating cash flow was decreased in fiscal 2006 by increases in
    expenditures for environmental remediation activities of $4,863.
    Our Henderson remediation project includes a capital
    construction phase followed by an operation and maintenance
    phase. A substantial portion of the capital construction phase
    occurred during fiscal 2006. See further discussion under the
    heading Environmental Remediation  Henderson
    Site below.
    Operating cash flow was decreased in fiscal 2006 by cash paid
    for interest expense of $7,376.    Investing Activities:
  Year Ended
    September 30,


Percentage Change2006


2005


2004


06 vs. 05

05 vs. 04Acquisition of Businesses

$
(108,011
)

$
(4,505
)

$
-


2,298%

-Capital Expenditures


(15,018
)


(1,686
)


(470
)

791%

259%Proceeds from Sale of Assets


2,395










-

-Discontinued Operations, Net


(411
)


212



(998
)

(294%)

(121%)Cash Used in Investing Activities

$
(121,045
)

$
(5,979
)

$
(1,468
)

1,925%

307%    41




---



##### 



Financing Activities:
  Year Ended
    September 30,


Percentage Change2006


2005


2004


06 vs. 05

05 vs. 04Proceeds from Issuance of Long-term
    Debt

$
85,000


$
-


$
-


-

-Payments of Long-term Debt


(678
)


-



-


-

-Debt Issuance Costs


(3,119
)


-



-


-

-Issuance of Common Stock


158



24



2,291


558%

(99%)Treasury Stock Acquired


-



-



(2,752
)

-

(100%)Dividends


-



-



(3,080
)

-

(100%)Discontinued Operations, Net


(147
)


238



246


(162%)

(3%)Cash Provided (Used) in Financing
    Activities

$
81,214


$
262


$
(3,295
)

30,898%

(108%)   
    Cash flows for long-term debt and debt issuances cost relate to
    our Credit Facilities established in fiscal 2006 which are
    discussed in detail below.
    Cash provided by the issuance of common stock decreased due to a
    significantly lower level of stock option exercises in fiscal
    2006 and 2005 compared fiscal 2004.
    During fiscal 2003, our Board of Directors declared a cash
    dividend of $0.42 per share. The total cash dividend of
    $3,080 was paid in January 2004.  Liquidity and
    Capital Resources
          Credit
    Facilities and Seller Subordinated Note
  Credit Facilities:
 42




---



##### 



sub-facility sub-facility
  payment-in-kind
  sub-facility.
      
    incur debt, incur contingent obligations and issue certain types
    of preferred stock;
    create liens;
    pay dividends, distributions or make other specified restricted
    payments;
    make certain investments and acquisitions;
    enter into certain transactions with affiliates;
    enter into sale and leaseback transactions; and
    merge or consolidate with any other entity or sell, assign,
    transfer, lease, convey or otherwise dispose of assets.        Seller Subordinated Note:
 43




---



##### 



payment-in-kind
  Environmental
    Remediation  Henderson Site
    Dividend and
    Stock Repurchase Program
   44




---



##### 



Contractual
    Obligations
    Payments Due by Year
    Ending September 30,2007


2008-09


2010-11


Thereafter


TotalFirst Lien Term Loan(a)

$
9,422


$
11,686


$
32,431


$
10,811


$
64,350Interest on First Lien Term Loan(b)


5,385



9,335



2,531



252



17,503Second Lien Term Loan


-



-



-



20,000



20,000Interest in Second Lien Term Loan(b)


2,149



3,851



3,929



1,399



11,328Seller Subordinated Note


-



6,500



-



19,000



25,500Interest on Seller Subordinated
    Note(b)


-



1,470



-



19,963



21,433Capital Leases


171



369



-



-



540Interest on Capital Leases


36



15



-



-



51Operating Leases


637



1,202



284



-



2,123Total

$
17,800


$
34,428


$
39,175


$
71,425


$
162,828   (a)
    
    In connection with our sale of ESI, we repaid $6,500 of our
    First Lien term Loan in October 2006. This amount has been
    included in the payments due for fiscal year ending
    September 30, 2007.(b)
    
    Our First Lien Term Loan, Second Lien Term Loan, and Seller
    Subordinated Note each bear variable interest at the three month
    Libor rate plus an applicable fixed spread. At
    September 30, 2006, the interest rates on these obligations
    were 9.37%, 14.37%, and 10.42%, respectively. The
    September 30, 2006 rates were used for the purpose of
    estimating the future variable interest payments. Actual future
    interest payments may be higher or lower than these estimates
    depending on the then current three month Libor rate.    Off-Balance
    Sheet Arrangements
  Letters of Credit:
  Employee Agreements:
  Interest Rate Swap Agreements:
   45




---



##### 



Inflation
    Critical
    Accounting Policies
      Sales and
    Revenue Recognition
    No. 81-1, percentage-of-completion cost-to-cost percentage-of-completion
  Depreciable or
    Amortizable Lives of Long-Lived Assets
     46




---



##### 



Impairment of
    Long-Lived Assets
      Environmental
    Costs
      Income
    Taxes
      Pension
    Benefits
   47




---



##### 



Recently
    Issued or Adopted Accounting Standards
           48




---



##### 



Item 7A. Quantitative
    and Qualitative Disclosures About Market Risk
    (Dollars in Thousands)
          Item 8. Financial
    Statements and Supplementary Data
    PageReport of Independent Registered
    Public Accounting Firm


F-1Consolidated Balance Sheets


F-2Consolidated Statements of
    Operations


F-3Consolidated Statements of Changes
    in Stockholders Equity


F-4Consolidated Statements of Cash
    Flows


F-5Notes to Consolidated Financial
    Statements


F-7  49




---



##### 



SUMMARIZED
    QUARTERLY FINANCIAL DATA
    (unaudited)
    (amounts in thousands except per share amounts)
  Quarters For Fiscal
    Year 2006(a)1st (b)


2nd


3rd


4th


TotalRevenues

$
16,485


$
39,777


$
42,840


$
42,802


$
141,904Gross Profit


4,346



12,559



11,909



16,047



44,861Income (Loss) from Continuing
    Operations


(790
)


(2,606
)


(861
)


1,254



(3,003
)Net Income (Loss)


(1,305
)


(2,338
)


(1,053
)


802



(3,894
)Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing
    Operations

$
(0.11
)

$
(0.36
)

$
(0.12
)

$
0.17


$
(0.41
)Net Income (Loss)

$
(0.18
)

$
(0.32
)

$
(0.14
)

$
0.11


$
(0.53
)   Quarters For Fiscal
    Year 2005(a)1st


2nd


3rd


4th


TotalRevenues

$
14,700


$
14,354


$
12,580


$
26,179


$
67,813Gross Profit


4,819



5,395



3,063



10,620



23,897Income (Loss) from Continuing
    Operations


(373
)


(367
)


(15,713
)


5,910



(10,543
)Net Income (Loss)


1,028



(303
)


(15,792
)


5,376



(9,691
)Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing
    Operations

$
(0.05
)

$
(0.05
)

$
(2.15
)

$
0.81


$
(1.45
)Net Income (Loss)

$
0.14


$
(0.04
)

$
(2.16
)

$
0.74


$
(1.33
)   (a)
    
    Effective September 30, 2006, we completed the sale of our
    interest in ESI. Revenues and expenses associated with
    ESIs operations are presented as discontinued operations
    for all periods presented. See Note 14 to our consolidated
    financial statements.(b)
    
    On November 30, 2005, we completed the acquisition of the
    fine chemical business (the AFC Business) of
    GenCorp, Inc. (GenCorp). See Note 2 to our
    consolidated financial statements. 50




---



##### 



Item 9. Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure
    Item 9A. Controls
    and Procedures
    Rules 13a-15(e) 15d-15(e)
      Item 9B. Other
    Information
   51




---



##### 



PART III
  Item 10. Directors
    and Executive Officers of the Registrant
  www.apfc.com
  Item 11. Executive
    Compensation
    Item 12. Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters
    Item 13. Certain
    Relationships and Related Transactions
    Item 14. Principal
    Accounting Fees and Services
    PART IV
  Item 15. Exhibits
    and Financial Statement Schedules
  (a) (1)
    Financial Statements    (2)
    Financial Statement Schedules   52




---



##### 



(3)
    Exhibits  Regulation S-K
  2.1

Purchase Agreement, dated as of
    July 12, 2005, by and among Aerojet Fine Chemicals LLC,
    Aerojet-General Corporation and American Pacific Corporation,
    incorporated by reference to exhibit 2.1 of the
    Registrants Current Report on
    Form 8-K
    dated July 12, 2005.2.2

First Amendment to Purchase
    Agreement, dated November 30, 2005, by and among American
    Pacific Corporation, Aerojet Fine Chemicals LLC and
    Aerojet-General Corporation, incorporated by reference to
    Exhibit 2.2 of the Registrants Current Report on
    Form 8-K
    dated November 30, 2005 (the 2005
    November 8-K).2.3

Assignment and Assumption
    Agreement, dated October 22, 2005, by and between American
    Pacific Corporation and Ampac Fine Chemicals LLC, incorporated
    by reference to Exhibit 2.3 of the 2005
    November 8-K.2.4

Amended and Restated Assignment and
    Assumption Agreement, dated November 30, 2005, by and
    between American Pacific Corporation and Ampac Fine Chemicals
    LLC, incorporated by reference to Exhibit 2.4 of the 2005
    November 8-K.2.5

Unconditional Guaranty of Payment
    and Performance, dated November 30, 2005, for the benefit
    of Aerojet-General Corporation and Aerojet Fine Chemicals, LLC,
    incorporated by reference to Exhibit 2.5 of the 2005
    November 8-K.3.1

Registrants Restated
    Certificate of Incorporation, incorporated by reference to
    Exhibit 3A to Registrants Registration Statement on
    Form S-14
    (File No. 2-70830), (the
    S-14).3.2

Registrants By-Laws,
    incorporated by reference to Exhibit 3B to
    the S-14.3.3

Amendments to Registrants
    By-Laws, incorporated by Reference to the Registrants
    Current Report on
    Form 8-K
    dated November 9, 1999.3.4

Certificate of Amendment of the
    By-Laws, incorporated by Reference to the Registrants
    Current Report on
    Form 8-K
    dated September 12, 2006.3.5

Articles of Amendment to the
    Restated Certificate of Incorporation, as filed with the
    Secretary of State, State of Delaware, on October 7, 1991,
    incorporated by reference to Exhibit 4.3 to Registrants
    Registration Statement on
    Form S-3
    (File No.
    33-52196)
    (the
    S-3).3.6

Articles of Amendment to the
    Restated Certificate of Incorporation as filed with the
    Secretary of State, State of Delaware, on April 21, 1992,
    incorporated by reference to Exhibit 4.4 to
    the S-3.4.1

American Pacific Corporation 1997
    Stock Option Plan (the 1997 Plan), incorporated by
    reference to Exhibit 4.1 to Registrants Registration
    Statement on
    Form S-8
    (File
    No. 333-53449)
    (the 1998 S-8).4.2

Form of Option Agreement under the
    1997 Plan, incorporated by reference to Exhibit 4.2 to the
    1998 S-8.4.3

American Pacific Corporation 2001
    Amended and Restated Stock Option Plan (the 2001
    Plan), incorporated by reference to Exhibit 4.1 to
    Registrants Registration Statement on
    Form S-8
    (File No.
    333-104732)
    (the 2003 S-8).4.4

Form of Option Agreement under the
    2001 Plan, incorporated by reference to Exhibit 4.3 to the
    2003 S-8.4.5

American Pacific Corporation
    Amended and Restated 2002 Directors Stock Option Plan (the
    2002 Plan), incorporated by reference to
    Exhibit 99.1 in the Registrants Current Report on
    Form 8-K
    dated September 13, 2005.4.6

Form of Option Agreement under the
    2002 Plan, incorporated by reference to Exhibit 4.4 to the
    2003 S-8.4.7

Form of Rights Agreement, dated as
    of August 3, 1999, between Registrant and American Stock
    Transfer & Trust Company, incorporated by reference to
    the Registrants Registration Statement on
    Form 8-A
    dated August 6, 1999 (the
    Form 8-A).4.8

Form of Letter to Stockholders with
    copies of Summary of Rights to Purchase Preference Shares,
    incorporated by reference to the
    Form 8-A.10.1

Employment agreement dated
    January 1, 2002, between the Registrant and David N. Keys,
    incorporated by reference to Exhibit 10.1 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended September 30, 2002 (the
    2002 10-K).10.2

Employment agreement dated
    January 1, 2002, between the Registrant and John R. Gibson,
    incorporated by reference to Exhibit 10.2 to the
    Registrants
    2002 10-K.10.3

Employment agreement dated
    December 1, 2005, between the Registrant and Seth Van
    Voorhees, incorporated by reference to Exhibit 10.6 to the
    Registrants Current Report on
    Form 8-K/A
    dated September 13, 2006 (the
    2006 8-K/A). 53




---



##### 



10.4

Interim employment agreement dated
    March 27, 2006, between the Registration and Dana M.
    Kelley, incorporated by reference to Exhibit 10.2 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended March 30, 2006 (the 2006
    March 10-Q).*10.5

Employment agreement dated
    October 15, 2006, between the Registrant and Joseph
    Carleone.10.6

Amended and Restated American
    Pacific Corporation Defined Benefit Pension Plan, incorporated
    by reference to Exhibit 10.4 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended September 30, 1999 (the
    1999 10-K).*10.7

Ampac Fine Chemicals LLC Pension
    Plan for Bargaining Employees.*10.8

Ampac Fine Chemicals LLC Pension
    Plan for Salaried Employees.10.9

The Ampac Fine Chemicals LLC
    Bargaining Unit 401(k) Plan, incorporated by reference to
    Exhibit 4.6 to Registrants Registration Statement on
    Form S-8
    (File
    No. 333-131945).10.10

Amended and Restated American
    Pacific Corporation Supplemental Executive Retirement Plan
    effective January 1, 1999, incorporated by reference to
    Exhibit 10.5 to the
    1999 10-K.10.11

Trust Agreement for the Amended and
    Restated American Pacific Corporation Supplemental Executive
    Retirement Plan, incorporated by reference to Exhibit 10.6
    to the
    1999 10-K.10.12

Lease Agreement between 3770 Hughes
    Parkway Associates Limited Partnership and the Registrant, dated
    July 31, 1990, incorporated by reference to
    Exhibit 10.22 to the Registrants Registration
    Statement on
    Form S-2
    (File
    No. 33-36664)
    (the 1990 S-2).10.13

Limited Partnership Agreement of
    3770 Hughes Parkway Associates, Limited Partnership,
    incorporated by reference to Exhibit 10.23 to the 1990 S-2.10.14

Cooperation and Stock Option
    Agreement dated as of July 4, 1990, by and between Dynamit
    Nobel AG and the Registrant, including exhibits thereto,
    incorporated by reference to Exhibit 10.24 to the
    1990 S-2.10.15

Long-Term Pricing Agreement dated
    as of December 12, 1997, between Thiokol
    Corporation-Propulsion and the Registrant, incorporated by
    reference to Exhibit 10.1 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended March 31, 1998 (the 1998
    March 10-Q).10.16

Modification No. 1 dated
    September 13, 2000, to Long-Term Pricing Agreement between
    Thiokol Propulsion and the Registrant, incorporated by reference
    to Exhibit 10.14 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended September 30, 2000 (the
    2000 10-K).10.17

Modification No. 3 dated
    April 5, 2006, to Long-Term Pricing Agreement between
    Alliant Techsystems Incorporated (ATK) (formerly
    known as Thiokol Propulsion) and the Registrant, incorporated by
    reference to Exhibit 10.1 to the 2006
    March 10-Q.10.18

Partnershipping Agreement between
    ATK and Western Electrochemical Company and letter dated
    November 24, 1997, from the Registrant to ATK and revised
    Exhibit B with respect thereto, incorporated by reference
    to Exhibit 10.2 to the 1998
    March 10-Q.10.19

Articles of Organization of
    Energetic Systems Inc., LLC, incorporated by reference to
    Exhibit 10.12 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended September 30, 2003 (the
    2003 10-K).10.20

Operating Agreement of Energetic
    Systems Inc., LLC, incorporated by reference to
    Exhibit 10.13 to the
    2003 10-K.10.21

First Lien Credit Agreement, dated
    November 30, 2005, by and among American Pacific
    Corporation as borrower, the domestic subsidiaries of American
    Pacific Corporation as guarantors, Wachovia Bank, National
    Association, as administrative agent, Bank of America, N.A., as
    syndication agent, and certain lending parties specified
    therein, incorporated by reference to Exhibit 10.1 of the
    2005
    November 8-K.10.22

Second Lien Credit Agreement, dated
    November 30, 2005, by and among American Pacific
    Corporation as borrower, the domestic subsidiaries of American
    Pacific Corporation as guarantors, Wachovia Bank, National
    Association, as administrative agent, Bank of America, N.A., as
    syndication agent, and certain lending parties specified
    therein, incorporated by reference to Exhibit 10.2 of the
    2005
    November 8-K.10.23

The Intercreditor Agreement, dated
    as of November 30, 2005, by and among American Pacific
    Corporation, the domestic subsidiaries of American Pacific
    Corporation as may time to time party become a party therein and
    Wachovia Bank, National Association, in its capacity as
    administrative agent for the First Lien Obligations, Wachovia
    Bank, National Association, in its capacity as administrative
    agent for the Second Lien Obligations and Wachovia Bank,
    National Association, in its capacity as control agent for the
    First Lien Administrative Agent and the Second Lien
    Administrative Agent, incorporated by reference to
    Exhibit 10.3 of the 2005
    November 8-K.10.24

American Pacific Corporation
    Subordinated Promissory Note, dated November 30, 2005, in
    the principal amount of $25,500,000, incorporated by reference
    to Exhibit 10.4 of the 2005
    November 8-K. 54




---



##### 



10.25

Ground Lease, dated
    November 30, 2005, by and between Aerojet-General
    Corporation and Ampac Fine Chemicals LLC, incorporated by
    reference to Exhibit 10.5 of the 2005
    November 8-K.10.26

Master International Swaps and
    Derivatives Association (ISDA) Agreement, between
    the Registrant and Bank of America, N.A., incorporated by
    reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended June 30, 2006, (the 2006
    June 10-Q).10.27

Schedule No. 1 to Master ISDA
    Agreement, between the Registrant and Bank of America, N.S.,
    incorporated by reference to the 2006
    June 10-Q.10.28

Schedule No. 2 to Master ISDA
    Agreement, between the Registrant and Bank of America, N.S.,
    incorporated by reference to the 2006
    June 10-Q.10.29

Form of Indemnification Agreement
    between the Registrant and all Directors of the Registrant,
    incorporated by reference to Exhibit 3.6 to the
    Registrants Annual Report on
    Form 10-K
    for
    2000 10-K.*14

Standards of Business Conduct dated
    May 9, 2006.*21

Subsidiaries of the Registrant.*23

Consent of Deloitte &
    Touche LLP.*24

Power of Attorney, included on
    signature page.*31.1

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.*31.2

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.*32.1

Certification of Principal
    Executive Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.*32.2

Certification of Principal
    Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.*  Filed herewith.   (b)
    
    See (a)(3) above.(c)
    
    None applicable. 55




---



##### 



SIGNATURES
         By:
    /s/  JOHN
    R.
    GIBSON     By:
    /s/  DANA
    M.
    KELLEY      56




---



##### 



POWER OF
    ATTORNEY
      /s/  JOHN
    R. GIBSONJohn
    R. Gibson, Chief Executive Officer, President, and Director

Date: January 10, 2007/s/  DANA
    M. KELLEYDana
    M. Kelley, Vice President,
    Chief Financial Officer, and
    Treasurer; Principal Financial and
    Accounting Officer

Date: January 10, 2007/s/  JOSEPH
    CARLEONEJoseph
    Carleone, Director

Date: January 10, 2007/s/  FRED
    D. GIBSON, JR.Fred
    D. Gibson, Jr., Director

Date: January 10, 2007/s/  JAN
    H. LOEBJan
    H. Loeb, Director

Date: January 10, 2007/s/  BERLYN
    D. MILLERBerlyn
    D. Miller, Director

Date: January 10, 2007/s/  NORVAL
    F. POHLNorval
    F. Pohl, Ph.D., Director

Date: January 10, 2007/s/  C.
    KEITH ROOKERC.
    Keith Rooker, Director

Date: January 10, 2007/s/  DEAN
    M. WILLARDDean
    M. Willard, Director

Date: January 10, 2007/s/  JANE
    L. WILLIAMSJane
    L. Williams, Director

Date: January 10, 2007  57




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the Board of Directors and
    Stockholders of
 American Pacific Corporation:
        Share-Based Payment
  Consolidation of Variable Interest Entities
  DELOITTE &
    TOUCHE LLP
    F-1




---



##### 



AMERICAN PACIFIC
    CORPORATIONConsolidated Balance Sheets
    September 30, 2006 and 2005
    (Dollars in Thousands)
  2006


2005ASSETSCurrent Assets:Cash and Cash Equivalents

$
6,872


$
37,213Accounts Receivable


19,474



12,572Notes Receivable


7,510



-Inventories


39,755



13,818Prepaid Expenses and Other Assets


1,845



1,365Deferred Income Taxes


1,887



834Total Current Assets


77,343



65,802Property, Plant and Equipment, Net


119,746



15,646Intangible Assets, Net


14,237



9,763Deferred Income Taxes


21,701



19,312Other Assets


6,428



4,477TOTAL ASSETS

$
239,455


$
115,000LIABILITIES AND STOCKHOLDERS
    EQUITYCurrent Liabilities:Accounts Payable

$
11,158


$
5,231Accrued Liabilities


11,257



2,786Employee Related Liabilities


4,600



2,023Environmental Remediation Reserves


1,631



4,967Deferred Revenues


5,683



792Current Portion of Debt


9,593



768Total Current Liabilities


43,922



16,567Long-Term Debt


97,771



-Environmental Remediation Reserves


15,880



15,620Pension Obligations and Other
    Long-Term Liabilities


9,998



8,144Total Liabilities


167,571



40,331Commitments and ContingenciesStockholders EquityPreferred Stock - No par value;
    3,000,000 authorized; none outstanding


-



-Common Stock - $.10 par value;
    20,000,000 shares authorized, 9,359,041 and 9,331,787 issued


933



932Capital in Excess of Par Value


86,724



86,187Retained Earnings


2,312



6,206Treasury Stock -
    2,034,870 shares


(16,982
)


(16,982
)Accumulated Other Comprehensive Loss


(1,103
)


(1,674
)Total Shareholders Equity


71,884



74,669TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY

$
239,455


$
115,000    F-2




---



##### 



AMERICAN PACIFIC
    CORPORATIONConsolidated Statements of
    Operations
    For the Years Ended September 30, 2006, 2005, and 2004
    (Dollars in Thousands, Except per Share
    Amounts)
   2006


2005


2004Revenues

$
141,904


$
67,813


$
51,458Cost of Revenues


97,043



43,916



34,402Gross Profit


44,861



23,897



17,056Operating Expenses


38,202



21,805



18,980Environmental Remediation Charges


3,600



22,400



-Operating Income (Loss)


3,059



(20,308
)


(1,924
)Interest and Other Income


1,069



1,398



693Interest Expense


11,431



-



-Loss from Continuing Operations
    before Income Tax


(7,303
)


(18,910
)


(1,231
)Income Tax Benefit


(4,300
)


(8,367
)


(2,160
)Income (Loss) from Continuing
    Operations


(3,003
)


(10,543
)


929Loss from Discontinued Operations,
    Net of Tax


(891
)


(702
)


(557
)Extraordinary Gain, Net of Tax


-



1,554



-Cumulative Effect of Accounting
    Change, Net of Tax


-



-



(769
)Net Loss

$
(3,894
)

$
(9,691
)

$
(397
)Basic Earnings (Loss) Per Share:Income (Loss) from Continuing
    Operations

$
(0.41
)

$
(1.45
)

$
0.13Loss from Discontinued Operations,
    Net of Tax


(0.12
)


(0.09
)


(0.08
)Extraordinary Gain, Net of Tax


-



0.21



-Cumulative Effect of Accounting
    Change, Net of Tax


-



-



(0.10
)Net Loss

$
(0.53
)

$
(1.33
)

$
(0.05
)Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing
    Operations

$
(0.41
)

$
(1.45
)

$
0.13Loss from Discontinued Operations,
    Net of Tax


(0.12
)


(0.09
)


(0.08
)Extraordinary Gain, Net of Tax


-



0.21



-Cumulative Effect of Accounting
    Change, Net of Tax


-



-



(0.10
)Net Loss

$
(0.53
)

$
(1.33
)

$
(0.05
)Weighted Average
    Shares Outstanding:Basic


7,305,000



7,294,000



7,281,000Diluted


7,305,000



7,294,000



7,328,000    F-3




---



##### 



AMERICAN PACIFIC
    CORPORATIONConsolidated Statements of Changes
    in Stockholders Equity
    For the Years Ended September 30, 2006, 2005 and 2004
    (Dollars in Thousands)
   CommonSharesOutstanding,


Par











Accumulated


TotalNet of


Value of


Capital in








Other


Stock-Treasury


Common


Excess of


Retained


Treasury


Comprehensive


holdersShares


Stock


Par Value


Earnings


Stock


Loss


EquityBALANCES, October 1, 2003


7,242,829


$
898


$
83,554


$
16,180


$
(14,230
)

$
(1,568
)

$
84,834-Comprehensive Income
    (Loss):Net Loss














(397
)










(397
)Additional Minimum PensionLiability, Net of Tax






















373



373Total Comprehensive
    Loss


























(24
)Issuance of Common Stock


49,088



34



2,257















2,291Reclassification of Warrants














3,569











3,569Dividends














(3,080
)










(3,080
)Equity Investment Consolidation














(375
)










(375
)Tax Benefit From Stock Options










337















337Treasury Stock Acquired


















(2,752
)






(2,752
)BALANCES, September 30, 2004


7,291,917



932



86,148



15,897



(16,982
)


(1,195
)


84,800Comprehensive Income
    (Loss):Net Loss














(9,691
)










(9,691
)Currency Translation






















7



7Additional Minimum PensionLiability, Net of Tax






















(486
)


(486
)Total Comprehensive
    Loss


























(10,177
)Issuance of Common Stock


5,000







24















24Tax Benefit From Stock Options










15















15BALANCES, September 30, 2005


7,296,917



932



86,187



6,206



(16,982
)


(1,674
)


74,669Comprehensive Income
    (Loss):Net Loss














(3,894
)










(3,894
)Currency Translation






















15



15Additional Minimum PensionLiability, Net of Tax






















556



556Total Comprehensive
    Loss


























(3,338
)Issuance of Common Stock


27,254



1



157















158Tax Benefit From Stock Options










21















21Share-based Compensation










359















359BALANCES, September 30, 2006


7,324,171


$
933


$
86,724


$
2,312


$
(16,982
)

$
(1,103
)

$
71,884    F-4




---



##### 



AMERICAN PACIFIC
    CORPORATIONConsolidated Statements of Cash
    Flows
    For the Years Ended September 30, 2006, 2005 and 2004
    (Dollars in Thousands)
   2006


2005


2004Cash Flows from Operating
    Activities:Net Loss

$
(3,894
)

$
(9,691
)

$
(397
)Adjustments to Reconcile Net Loss
    to Net Cash Provided by Operating Activities:Depreciation and amortization


20,181



5,639



5,424Non-cash interest expense


3,967



-



-Share-based compensation


359



-



-Deferred income taxes


(3,442
)


(8,241
)


(1,598
)Tax benefit from stock option
    exercises


21



15



337Gain on sale of assets


(610
)


-



-Extraordinary gain, net


-



(1,554
)


-Cumulative effect of accounting
    change, net


-



-



769Changes in operating assets and
    liabilities:Accounts receivable


(1,135
)


9,437



(4,070
)Inventories


(11,821
)


2,156



1,331Prepaid expenses


(1,131
)


-



-Accounts payable and accrued
    liabilities


6,860



41



(1,025
)Deferred revenues


975



-



-Environmental remediation reserves


(3,076
)


20,587



-Pension obligations, net


650



926



(384
)Discontinued operations, net


1,287



(31
)


1,037Other


299



(131
)


(24
)Net Cash Provided by Operating
    Activities


9,490



19,153



1,400Cash Flows from Investing
    Activities:Acquisition of businesses


(108,011
)


(4,505
)


-Capital expenditures


(15,018
)


(1,686
)


(470
)Proceeds from sale of assets


2,395



-



-Discontinued operations, net


(411
)


212



(998
)Net Cash Used in Investing
    Activities


(121,045
)


(5,979
)


(1,468
)Cash Flows from Financing
    Activities:Proceeds from the issuance of
    long-term debt


85,000



-



-Payments of long-term debt


(678
)


-



-Debt issuance costs


(3,119
)


-



-Issuance of common stock


158



24



2,291Treasury stock acquired


-



-



(2,752
)Dividends


-



-



(3,080
)Discontinued operations, net


(147
)


238



246Net Cash Provided (Used) by
    Financing Activities


81,214



262



(3,295
)Net Change in Cash and Cash
    Equivalents


(30,341
)


13,436



(3,363
)Cash and Cash Equivalents,
    Beginning of Year


37,213



23,777



27,140Cash and Cash Equivalents, End of
    Year

$
6,872


$
37,213


$
23,777    F-5




---



##### 



AMERICAN PACIFIC
    CORPORATIONConsolidated Statements of Cash
    Flows (Continued)
    For the Years Ended September 30, 2006, 2005 and 2004
    (Dollars in Thousands)
   2006


2005


2004Cash Paid (Refunded) For:Interest

$
7,376


$
-


$
-Income taxes


407



-



551Non-Cash Transactions:Issuance of Seller Subordinated
    Note, net of discount

$
19,400


$
-


$
-AFC Earnout Payment due seller
    (included in accrued liabilities)


6,000



-



-Capital leases originated


527



-



-Initial consolidation of ESI under
    FIN 46(R) -Fair value of assets


-



-



11,958Fair value of liabilities


-



-



3,231Reclassification of warrants


-



-



3,569    F-6




---



##### 



AMERICAN PACIFIC
    CORPORATION AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004(Dollars in Thousands, Except Per
    Share Amounts)
   1.
    SUMMARY OF
    SIGNIFICANT ACCOUNTING POLICIES  Principles of Consolidation:
          Use of Estimates:
  Revenue Recognition:
 F-7




---



##### 



81-1, percentage-of-completion cost-to-cost percentage-of-completion
  Environmental Remediation:
    Related Party Transactions:
  Cash and Cash Equivalents:
  Fair Value Disclosure of Financial
    Instruments:
  Concentration of Credit Risk:
 F-8




---



##### 



Inventories:
  Property, Plant and
    Equipment:
  Intangible Assets:
  Impairment of Long-Lived Assets:
  Earnings (Loss) Per Share:
  Foreign Currency:
  Recently Issued or Adopted Accounting
    Standards:
     F-9




---



##### 



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
 F-10




---



##### 



Direct Acquisition Costs
        Historical book value of Aerojet
    Fine Chemicals as of November 30, 2005

$
93,181Less liabilities not acquiredPayable to GenCorp


24,916Cash overdraft


3,761Adjusted historical book value of
    Aerojet Fine Chemicals as of November 30, 2005


121,858Estimated fair value adjustments
    relating to:Inventories


(84
)Prepaid expenses


(29
)Property, plant and equipment


(353
)Customer relationships, average
    life of 5.5 years


9,930Backlog, average life of
    1.5 years


3,300Accrued liabilities


651Pension assets / liabilities


(1,823
)Other


(39
)$
133,411       2006


2005Revenues

$
160,146


$
132,257Loss from Continuing Operations


(4,814
)


(20,283
)Net Loss


(5,705
)


(19,431
)Basic and Diluted Loss per Share:Loss from continuing Operations

$
(0.66
)

$
(2.78
)Net Loss


(0.78
)


(2.66
)    F-11




---



##### 



ISP Acquisition:
    3.
    SHARE-BASED
    COMPENSATION            Total Outstanding


Non VestedWeighted





WeightedAverage





AverageExercise





FairPrice





ValueShares


Per Share


Shares


Per ShareBalance, October 1, 2005


523,500


$
7.08



143,750


$
3.06Granted


37,500



4.21



37,500



2.00Vested


-



-



(142,500
)


2.95Exercised


(25,500
)


6.17



-



-Expired / Cancelled


(20,000
)


6.34



(20,000
)


2.90Balance, September 30, 2006


515,500



6.95



18,750



1.95  F-12




---



##### 



Number of vested stock options


496,750Weighted average exercise price per
    share

$
7.47Aggregate intrinsic value

$
344Weighted average remaining
    contractual term in years


7.34       2006

2005

2004Weighted average grant date fair
    value per share of options granted

$
2.00

$
3.00

$
4.18Significant fair value assumptions:Expected term in years


5.25


4.50


4.50Expected volatility


47.0%


50.0%


50.0%Expected dividends


0.0%


0.0%


0.0%Risk-free interest rates


4.4%


3.9%


3.0%Total intrinsic value of options
    exercised

$
54

$
12

$
908Aggregate cash received for option
    exercises

$
158

$
24

$
2,291Total compensation cost (included
    in operating expenses)

$
359

$
-

$
-Tax benefit recognized


141


-


-Net compensation cost

$
218

$
-

$
-As of period end date:Total compensation cost for
    non-vested awards not yet recognized

$
6Weighted-average years to be
    recognized


0.2     2005


2004Net loss, as reported

$
(9,691
)

$
(397
)Pro forma compensation, net of tax


(324
)


(167
)Pro forma net loss

$
(10,015
)

$
(564
)Basic loss per share:As reported

$
(1.33
)

$
(0.05
)Pro Forma

$
(1.37
)

$
(0.08
)Diluted loss per shareAs reported

$
(1.33
)

$
(0.05
)Pro forma

$
(1.37
)

$
(0.08
)   4.
    BALANCE SHEET
    DATA    2006


2005Accounts Receivable:Trade Receivables

$
17,438


$
8,001Unbilled Receivables


1,985



4,300Employee and Other Receivables


51



271Total

$
19,474


$
12,572   percentage-of-completion
 F-13




---



##### 



2006


2005Inventories:Finished goods

$
7,170


$
2,475Work-in-progress


20,196



2,940Raw materials and supplies


12,664



8,403Allowance for obsolete inventory


(275
)


-Total

$
39,755


$
13,818Property, Plant and Equipment:Land

$
3,116


$
391Buildings and improvements


39,566



4,803Machinery and equipment


99,097



25,317Construction in progress


3,517



1,152Total Cost


145,296



31,663Less: accumulated depreciation


(25,550
)


(16,017
)Total

$
119,746


$
15,646     5.
    INTANGIBLE
    ASSETS    2006


2005Perchlorate customer list

$
38,697


$
38,697Less accumulated amortization


(33,280
)


(29,380
)5,417



9,317Customer relationships and backlog


13,230



-Less accumulated amortization


(4,756
)


-8,474



-Pension-related intangible


346



446Total

$
14,237


$
9,763           Years ending September 30:2007

$
8,5412008


4,0242009


2,5072010


2,5072011


1,182Total

$
18,761  F-14




---



##### 



6.
    DEBT    2006


2005Credit Facilities:First Lien Term Loan, 9.37%

$
64,350


$
-First Lien Revolving Credit, 9.37%


-



-Second Lien Term Loan plus accrued
    PIK Interest of $170, 14.37%


20,170



-Subordinated Seller Note plus
    accrued PIK Interest of $2,226, 10.42%,Net of Discount of $5,424


22,304



-Capital Leases


540



-ESI Debt - Discontinued Operations


-



768Total Debt


107,364



768Less Current Portion


(9,593
)


(768
)Total Long-term Debt

$
97,771


$
-   Credit Facilities:
  sub-facility sub-facility
  payment-in-kind
  sub-facility.
      
    incur debt, incur contingent obligations and issue certain types
    of preferred stock;
    create liens;
    pay dividends, distributions or make other specified restricted
    payments;
    make certain investments and acquisitions;
    enter into certain transactions with affiliates; F-15




---



##### 




    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.        Seller Subordinated Note: payment-in-kind
    Years ending September 30:2007

$
9,5952008


12,7122009


5,8432010


32,4312011


10,811Thereafter


39,000Total

$
110,392  F-16




---



##### 



Letters of Credit:
  Interest Rate Swap Agreements:
  7.
    EARNINGS (LOSS)
    PER SHARE    2006


2005


2004Income (Loss) from Continuing
    Operations

$
(3,003
)

$
(10,543
)

$
929Basic:Weighted Average Shares


7,305,000



7,294,000



7,281,000Diluted:Weighted Average Shares, Basic


7,305,000



7,294,000



7,281,000Dilutive Effect of Stock Options


-



-



47,000Weighted Average Shares, Diluted


7,305,000



7,294,000



7,328,000Basic Earnings (Loss) per Share
    from Continuing Operations

$
(0.41
)

$
(1.45
)

$
0.13Diluted Earnings (Loss) per Share
    from Continuing Operations

$
(0.41
)

$
(1.45
)

$
0.13     8.
    STOCKHOLDERS
    EQUITY  Preferred Stock and Purchase Rights:
     F-17




---



##### 



Warrants:
  Dividend and Share Repurchase
    Program:
  9.
    INCOME
    TAXES    2006


2005


2004Current

$
(1,179
)

$
(507
)

$
(526
)Deferred


(3,121
)


(7,860
)


(1,634
)Income tax benefit

$
(4,300
)

$
(8,367
)

$
(2,160
)     2006


2005Deferred tax assets:Property

$
3,546


$
5,763Intangible assets


6,216



3,951Pension obligations


2,167



2,095Environmental remediation reserves


9,613



7,707Tax credits and carryforwards


785



842Accrued expenses


1,284



596Inventory capitalization


652



477Other


803



-Subtotal


25,066



21,431Valuation allowance


(785
)


(431
)Deferred tax assets


24,281



21,000Deferred tax liabilities:Prepaid expenses


(586
)


(239
)Other


(107
)


(615
)Deferred tax liabilities


(693
)


(854
)Net deferred tax assets

$
23,588


$
20,146    F-18




---



##### 



2006

2005

2004Federal income tax at the statutory
    rate

(35.0%)

(35.0%)

(35.0%)State income tax, net of federal
    benefit

(3.1%)

(2.5%)

(4.1%)Nondeductible expenses

1.0%

0.6%

3.7%Valuation allowance

1.8%

1.3%

40.0%Change in state income tax rate

(13.7%)

0.0%

0.0%Basis differences in partnerships

(5.6%)

0.0%

0.0%Change in deferred tax liability
    estimate

0.0%

0.0%

(168.7%)Other

(4.3%)

(8.6%)

(11.4%)Effective tax rate

(58.9%)

(44.2%)

(175.5%)     10.
    EMPLOYEE BENEFIT
    PLANS       F-19




---



##### 



Pension Plan


SERP2006


2005


2006


2005Change in Benefit Obligation:Benefit obligation, beginning of
    year

$
31,249


$
27,099


$
2,498


$
2,540Business acquired, AFC


4,464



-



-



-Service cost


1,863



1,072



-



-Interest cost


2,024



1,653



140



148Actuarial (gains) losses


(312
)


2,263



(148
)


(64
)Benefits paid


(874
)


(838
)


(126
)


(126
)Benefit obligation, end of year


38,414



31,249



2,364



2,498Change in Plan Assets:Fair value of plan assets,
    beginning of year


18,658



16,654



-



-Business acquired, AFC


3,889



-



-



-Actual return on plan assets


1,516



1,251



-



-Employer contributions


1,835



1,591



126



126Benefits paid


(874
)


(838
)


(126
)


(126
)Fair value of plan assets, end of
    year


25,024



18,658



-



-Reconciliation of Funded Status:Funded status


(13,390
)


(12,591
)


(2,364
)


(2,498
)Unrecognized net actuarial losses


8,477



9,098



365



537Unrecognized prior service costs


289



347



57



99Net amount recognized

$
(4,624
)

$
(3,146
)

$
(1,942
)

$
(1,862
)Amounts Recognized:Accrued benefit liabilities

$
(6,558
)

$
(5,646
)

$
(2,364
)

$
(2,498
)Prepaid benefit costs


209



-



-



-Intangible assets


289



347



57



99Accumulated other comprehensive
    loss before tax


1,436



2,153



365



537Net amount recognized

$
(4,624
)

$
(3,146
)

$
(1,942
)

$
(1,862
)     2006


2005Plan Assets:Ampac Plan

$
21,112


$
18,657AFC Salaried Plan


2,354



-AFC Bargaining Plan


1,558



-Accumulated Benefit Obligation:Ampac Plan


26,261



24,304AFC Salaried Plan


2,628



-AFC Bargaining Plan


1,372



-Projected Benefit Obligation:Ampac Plan


33,340



31,249AFC Salaried Plan


3,702



-AFC Bargaining Plan


1,372



-     Target

Actual2006

2006

2005Equity securities

70%

62%

62%Debt securities

30%

27%

14%Other

0%

11%

24%Total

100%

100%

100%  F-20




---



##### 



Pension Plan








SERP2006


2005


2004


2006


2005


2004Net Periodic Pension Cost:Service cost

$
1,863


$
1,072


$
944


$
-


$
-


$
18Interest cost


2,024



1,653



1,466



140



148



183Expected return on plan assets


(1,791
)


(1,364
)


(1,165
)


-



-



-Recognized actuarial losses


584



464



474



24



30



29Amortization of prior service costs


58



58



58



43



43



43Net periodic pension cost

$
2,738


$
1,883


$
1,777


$
207


$
221


$
273Actuarial Assumptions:Discount rate


6.00
%


5.75
%


6.00
%


6.00
%


5.75
%


6.00
%Rate of compensation increase


4.50
%


4.50
%


4.50
%


4.50
%


4.50
%


4.50
%Expected return on plan assets


8.00
%


8.00
%


8.00
%


8.00
%


8.00
%


8.00
%     Pension Plan


SERPYears ending September 30:2007

$
1,214


$
1262008


1,268



3072009


1,304



30720010


1,358



3072011


1,403



3072012-2016


7,833



1,533   11.
    COMMITMENTS AND
    CONTINGENCIES  Operating Leases:
    Years ending September 30:2007

$
1,0132008


9042009


5262010


762011


4Thereafter


-Total

$
2,523   Purchase Commitments:
  Employee Agreements:
   F-21




---



##### 



Environmental
    Matters:
  Review of
    Perchlorate Toxicity by EPA 
    Perchlorate
    Remediation Project in Henderson, Nevada 
       F-22




---



##### 



Henderson Site Environmental Remediation Reserve
      Balance, September 30, 2005

$
20,587Additions or adjustments


3,600Expenditures


(6,676
)Balance, September 30, 2006

$
17,511   DTSC Matters
     F-23




---



##### 



Other AFC Environmental Matters
        Other Matters:
    12.
    SEGMENT
    INFORMATION      Specialty Chemicals: ®
 F-24




---



##### 



Fine Chemicals:
    Aerospace Equipment:
  Other Businesses:
 F-25




---



##### 



2006


2005


2004Revenues:Specialty Chemicals

$
46,450


$
49,936


$
49,459Fine Chemicals


74,026



-



-Aerospace Equipment


17,394



12,429



-Other Businesses


4,034



5,448



1,999Total Revenues

$
141,904


$
67,813


$
51,458Segment Operating Income (Loss):Specialty Chemicals

$
14,755


$
12,504


$
12,232Fine Chemicals


7,245



-



-Aerospace Equipment


802



95



-Other Businesses


264



3,300



316Total Segment Operating Income
    (Loss)


23,066



15,899



12,548Corporate Expenses


(16,407
)


(13,807
)


(14,472
)Environmental Remediation Charges


(3,600
)


(22,400
)


-Interest and Other Income
    (Expense), Net


(10,362
)


1,398



693Loss from Continuing Operations
    before Tax

$
(7,303
)

$
(18,910
)

$
(1,231
)Depreciation and Amortization:Specialty Chemicals

$
5,149


$
5,080


$
4,908Fine Chemicals


14,379



-



-Aerospace Equipment


93



16



-Other Businesses


11



20



-Corporate


549



523



516Total

$
20,181


$
5,639


$
5,424Capital Expenditures:Specialty Chemicals

$
816


$
1,351


$
127Fine Chemicals


13,486



-



-Aerospace Equipment


414



236



-Other Businesses


2



-



-Corporate


300



99



343Total

$
15,018


$
1,686


$
470Assets, at year end:Specialty Chemicals

$
23,934


$
29,183


$
42,985Fine Chemicals


158,151



-



-Aerospace Equipment


9,411



9,865



-Other Businesses


4



3,850



3,316Corporate


47,955



72,102



55,275Total

$
239,455


$
115,000


$
101,576     13.
    INTEREST AND
    OTHER INCOME    2006


2005


2004Interest Income

$
459


$
636


$
623Real Estate Partnership Income


580



762



-Other


30



-



70$
1,069


$
1,398


$
693    F-26




---



##### 



14.
    DISCONTINUED
    OPERATIONS        2006


2005


2004Revenues

$
13,285


$
15,534


$
8,031Discontinued Operations:Operating loss before tax


(813
)


(1,008
)


(899
)Benefit for income tax


(258
)


(306
)


(342
)Net loss from discontinued
    operations


(555
)


(702
)


(557
)Gain (Loss) on Sale of Discontinued
    Operations:Gain on sale of discontinued
    operations before tax


258



-



-Income tax expense


594



-



-Net loss on sale of discontinued
    operations


(336
)


-



-$
(891
)

$
(702
)

$
(557
)  F-27




---



##### 



EXHIBIT
    INDEX
  2.1

Purchase Agreement, dated as of
    July 12, 2005, by and among Aerojet Fine Chemicals LLC,
    Aerojet-General Corporation and American Pacific Corporation,
    incorporated by reference to exhibit 2.1 of the
    Registrants Current Report on
    Form 8-K
    dated July 12, 2005.2.2

First Amendment to Purchase
    Agreement, dated November 30, 2005, by and among American
    Pacific Corporation, Aerojet Fine Chemicals LLC and
    Aerojet-General Corporation, incorporated by reference to
    Exhibit 2.2 of the Registrants Current Report on
    Form 8-K
    dated November 30, 2005 (the 2005
    November 8-K).2.3

Assignment and Assumption
    Agreement, dated October 22, 2005, by and between American
    Pacific Corporation and Ampac Fine Chemicals LLC, incorporated
    by reference to Exhibit 2.3 of the 2005
    November 8-K.2.4

Amended and Restated Assignment and
    Assumption Agreement, dated November 30, 2005, by and
    between American Pacific Corporation and Ampac Fine Chemicals
    LLC, incorporated by reference to Exhibit 2.4 of the 2005
    November 8-K.2.5

Unconditional Guaranty of Payment
    and Performance, dated November 30, 2005, for the benefit
    of Aerojet-General Corporation and Aerojet Fine Chemicals, LLC,
    incorporated by reference to Exhibit 2.5 of the 2005
    November 8-K.3.1

Registrants Restated
    Certificate of Incorporation, incorporated by reference to
    Exhibit 3A to Registrants Registration Statement on
    Form S-14
    (File No. 2-70830), (the
    S-14).3.2

Registrants By-Laws,
    incorporated by reference to Exhibit 3B to
    the S-14.3.3

Amendments to Registrants
    By-Laws, incorporated by Reference to the Registrants
    Current Report on
    Form 8-K
    dated November 9, 1999.3.4

Certificate of Amendment of the
    By-Laws, incorporated by Reference to the Registrants
    Current Report on
    Form 8-K
    dated September 12, 2006.3.5

Articles of Amendment to the
    Restated Certificate of Incorporation, as filed with the
    Secretary of State, State of Delaware, on October 7, 1991,
    incorporated by reference to Exhibit 4.3 to Registrants
    Registration Statement on
    Form S-3
    (File No.
    33-52196)
    (the
    S-3).3.6

Articles of Amendment to the
    Restated Certificate of Incorporation as filed with the
    Secretary of State, State of Delaware, on April 21, 1992,
    incorporated by reference to Exhibit 4.4 to
    the S-3.4.1

American Pacific Corporation 1997
    Stock Option Plan (the 1997 Plan),
    incorporated by reference to Exhibit 4.1 to
    Registrants Registration Statement on
    Form S-8
    (File
    No. 333-53449)
    (the 1998 S-8).4.2

Form of Option Agreement under the
    1997 Plan, incorporated by reference to Exhibit 4.2 to the
    1998 S-8.4.3

American Pacific Corporation 2001
    Amended and Restated Stock Option Plan (the 2001
    Plan), incorporated by reference to Exhibit 4.1 to
    Registrants Registration Statement on
    Form S-8
    (File No. 333-104732)
    (the 2003 S-8).4.4

Form of Option Agreement under the
    2001 Plan, incorporated by reference to Exhibit 4.3 to the
    2003 S-8.4.5

American Pacific Corporation
    Amended and Restated 2002 Directors Stock Option Plan (the
    2002 Plan), incorporated by reference to
    Exhibit 99.1 in the Registrants Current Report on
    Form 8-K
    dated September 13, 2005.4.6

Form of Option Agreement under the
    2002 Plan, incorporated by reference to Exhibit 4.4 to the
    2003 S-8.4.7

Form of Rights Agreement, dated as
    of August 3, 1999, between Registrant and American Stock
    Transfer & Trust Company, incorporated by reference to
    the Registrants Registration Statement on
    Form 8-A
    dated August 6, 1999 (the
    Form 8-A).4.8

Form of Letter to Stockholders with
    copies of Summary of Rights to Purchase Preference Shares,
    incorporated by reference to the
    Form 8-A.10.1

Employment agreement dated
    January 1, 2002, between the Registrant and David N. Keys,
    incorporated by reference to Exhibit 10.1 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended September 30, 2002 (the
    2002 10-K).10.2

Employment agreement dated
    January 1, 2002, between the Registrant and John R. Gibson,
    incorporated by reference to Exhibit 10.2 to the
    Registrants
    2002 10-K.10.3

Employment agreement dated
    December 1, 2005, between the Registrant and Seth Van
    Voorhees, incorporated by reference to Exhibit 10.6 to the
    Registrants Current Report on
    Form 8-K/A
    dated September 13, 2006 (the
    2006 8-K/A).10.4

Interim employment agreement dated
    March 27, 2006, between the Registration and Dana M.
    Kelley, incorporated by reference to Exhibit 10.2 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended March 30, 2006 (the 2006
    March 10-Q). F-28




---



##### 



*10.5

Employment agreement dated
    October 15, 2006, between the Registrant and Joseph
    Carleone.10.6

Amended and Restated American
    Pacific Corporation Defined Benefit Pension Plan, incorporated
    by reference to Exhibit 10.4 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended September 30, 1999 (the
    1999 10-K).*10.7

Ampac Fine Chemicals LLC Pension
    Plan for Bargaining Employees.*10.8

Ampac Fine Chemicals LLC Pension
    Plan for Salaried Employees.10.9

The Ampac Fine Chemicals LLC
    Bargaining Unit 401(k) Plan, incorporated by reference to
    Exhibit 4.6 to Registrants Registration Statement on
    Form S-8
    (File
    No. 333-131945).10.10

Amended and Restated American
    Pacific Corporation Supplemental Executive Retirement Plan
    effective January 1, 1999, incorporated by reference to
    Exhibit 10.5 to the
    1999 10-K.10.11

Trust Agreement for the Amended and
    Restated American Pacific Corporation Supplemental Executive
    Retirement Plan, incorporated by reference to Exhibit 10.6
    to the
    1999 10-K.10.12

Lease Agreement between 3770 Hughes
    Parkway Associates Limited Partnership and the Registrant, dated
    July 31, 1990, incorporated by reference to
    Exhibit 10.22 to the Registrants Registration
    Statement on
    Form S-2
    (File
    No. 33-36664)
    (the 1990 S-2).10.13

Limited Partnership Agreement of
    3770 Hughes Parkway Associates, Limited Partnership,
    incorporated by reference to Exhibit 10.23 to the 1990 S-2.10.14

Cooperation and Stock Option
    Agreement dated as of July 4, 1990, by and between Dynamit
    Nobel AG and the Registrant, including exhibits thereto,
    incorporated by reference to Exhibit 10.24 to the
    1990 S-2.10.15

Long-Term Pricing Agreement dated
    as of December 12, 1997, between Thiokol
    Corporation-Propulsion and the Registrant, incorporated by
    reference to Exhibit 10.1 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended March 31, 1998 (the
    1998
    March 10-Q).10.16

Modification No. 1 dated
    September 13, 2000, to Long-Term Pricing Agreement between
    Thiokol Propulsion and the Registrant, incorporated by reference
    to Exhibit 10.14 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended September 30, 2000 (the
    2000 10-K).10.17

Modification No. 3 dated
    April 5, 2006, to Long-Term Pricing Agreement between
    Alliant Techsystems Incorporated (ATK) (formerly
    known as Thiokol Propulsion) and the Registrant, incorporated by
    reference to Exhibit 10.1 to the 2006
    March 10-Q.10.18

Partnershipping Agreement between
    ATK and Western Electrochemical Company and letter dated
    November 24, 1997, from the Registrant to ATK and revised
    Exhibit B with respect thereto, incorporated by reference
    to Exhibit 10.2 to the 1998
    March 10-Q.10.19

Articles of Organization of
    Energetic Systems Inc., LLC, incorporated by reference to
    Exhibit 10.12 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended September 30, 2003 (the
    2003 10-K).10.20

Operating Agreement of Energetic
    Systems Inc., LLC, incorporated by reference to
    Exhibit 10.13 to the
    2003 10-K.10.21

First Lien Credit Agreement, dated
    November 30, 2005, by and among American Pacific
    Corporation as borrower, the domestic subsidiaries of American
    Pacific Corporation as guarantors, Wachovia Bank, National
    Association, as administrative agent, Bank of America, N.A., as
    syndication agent, and certain lending parties specified
    therein, incorporated by reference to Exhibit 10.1 of the
    2005
    November 8-K.10.22

Second Lien Credit Agreement, dated
    November 30, 2005, by and among American Pacific
    Corporation as borrower, the domestic subsidiaries of American
    Pacific Corporation as guarantors, Wachovia Bank, National
    Association, as administrative agent, Bank of America, N.A., as
    syndication agent, and certain lending parties specified
    therein, incorporated by reference to Exhibit 10.2 of the
    2005
    November 8-K.10.23

The Intercreditor Agreement, dated
    as of November 30, 2005, by and among American Pacific
    Corporation, the domestic subsidiaries of American Pacific
    Corporation as may time to time party become a party therein and
    Wachovia Bank, National Association, in its capacity as
    administrative agent for the First Lien Obligations, Wachovia
    Bank, National Association, in its capacity as administrative
    agent for the Second Lien Obligations and Wachovia Bank,
    National Association, in its capacity as control agent for the
    First Lien Administrative Agent and the Second Lien
    Administrative Agent, incorporated by reference to
    Exhibit 10.3 of the 2005
    November 8-K.10.24

American Pacific Corporation
    Subordinated Promissory Note, dated November 30, 2005, in
    the principal amount of $25,500,000, incorporated by reference
    to Exhibit 10.4 of the 2005
    November 8-K.10.25

Ground Lease, dated
    November 30, 2005, by and between Aerojet-General
    Corporation and Ampac Fine Chemicals LLC, incorporated by
    reference to Exhibit 10.5 of the 2005
    November 8-K. F-29




---



##### 



10.26

Master International Swaps and
    Derivatives Association (ISDA) Agreement, between
    the Registrant and Bank of America, N.A., incorporated by
    reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended June 30, 2006, (the 2006
    June 10-Q).10.27

Schedule No. 1 to Master ISDA
    Agreement, between the Registrant and Bank of America, N.S.,
    incorporated by reference to the 2006
    June 10-Q.10.28

Schedule No. 2 to Master ISDA
    Agreement, between the Registrant and Bank of America, N.S.,
    incorporated by reference to the 2006
    June 10-Q.10.29

Form of Indemnification Agreement
    between the Registrant and all Directors of the Registrant,
    incorporated by reference to Exhibit 3.6 to the
    Registrants Annual Report on
    Form 10-K
    for
    2000 10-K.*14

Standards of Business Conduct dated
    May 9, 2006.*21

Subsidiaries of the Registrant.*23

Consent of Deloitte &
    Touche LLP.*24

Power of Attorney, included on
    signature page.*31.1

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.*31.2

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.*32.1

Certification of Principal
    Executive Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.*32.2

Certification of Principal
    Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.*  Filed herewith.   (b)
    
    See (a)(3) above.(c)
    
    None applicable. F-30