##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended September 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-08137
 AMERICAN PACIFIC CORPORATION
  
 Delaware
    
    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
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, Par Value $0.10 Per Share
    
    The Nasdaq Stock Market LLC
  None
 o þ
 o þ
 þ o
 þ
  Large accelerated filer
o

    

  Accelerated filer
þ

    

    Non-accelerated filer o
(Do not check if a smaller reporting company)

  

    Smaller reporting company
o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IItem 1. Business (Dollars in Thousands)Item 1A. Risk Factors (Dollars in Thousands)Item 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Thousands)Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Dollars in Thousands)Item 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesSIGNATURESEX-10.1EX-21EX-23EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART I
 FORWARD LOOKING STATEMENTS
   
 Item 1. Business (Dollars in Thousands)
 OUR COMPANY
   1




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www.apfc.com
 OUR BUSINESS SEGMENTS
  2008
    
    2007
    
    2006Fine Chemicals
    
    
    61
    %
    
    
    57
    %
    
    
    52
    %Specialty Chemicals:Perchlorates
    
    
    26
    %
    
    
    28
    %
    
    
    28
    %Sodium azide
    
    
    0
    %*
    
    
    1
    %
    
    
    2
    %Halotron
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %Total specialty chemicals
    
    
    28
    %
    
    
    31
    %
    
    
    33
    %Aerospace Equipment
    
    
    8
    %
    
    
    9
    %
    
    
    12
    %Other Businesses:Real estate
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Water treatment equipment
    
    
    2
    %
    
    
    2
    %
    
    
    2
    %Total other businesses
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %Total revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 *
    
    less than 1%  FINE CHEMICALS.
  2




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
    
    Alternative Supply May Not Be Readily Available.We are currently the sole-source supplier
on several of our fine chemicals products.
 
    
    Regulatory Approval.Applications to and approvals from the FDA and other regulatory
authorities generally require the chemical contractor to be named. Switching contractors may
require additional regulatory approval and could take as long as six months to two years.
 
    
    Significant Financial Costs.Switching contractors and amending various filings can result
in significant costs associated with technology transfer, process validation and re-filing
with the FDA and other regulatory authorities.
  SPECIALTY CHEMICALS. ®
   3




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AEROSPACE EQUIPMENT.
  OTHER BUSINESSES.
 DISCONTINUED OPERATIONS.
 OUR STRENGTHS
 LEADING MARKET POSITIONS WITH SIGNIFICANT BARRIERS TO ENTRY.
 Fine Chemicals.
 4




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Specialty Chemicals.
 Aerospace Equipment.
 STRATEGIC CUSTOMER RELATIONSHIPS.
 MANUFACTURING EXCELLENCE.
 Fine Chemicals.
 Specialty Chemicals.
 5




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Aerospace Equipment.
 SIGNIFICANT REVENUE VISIBILITY THROUGH LONG-TERM CONTRACTS.
 ATTRACTIVE PORTFOLIO OF PRODUCTS.
 OUR STRATEGY
 PURSUE GROWTH OPPORTUNITIES THROUGH SELECTIVE ACQUISITIONS AND ORGANICALLY.
  LEVERAGE OUR EXISTING EXPERTISE TO MAINTAIN OUR LEADERSHIP POSITIONS.
 6




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##### Table of Contents



Fine Chemicals.
 Specialty Chemicals.
 Aerospace Equipment.
 PRESERVE AND BUILD STRONG CUSTOMER RELATIONSHIPS.
 OUR FINE CHEMICALS SEGMENT
  Energetic and Nucleoside/Nucleotide Chemistry.
 7




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High-Potency (including Cytotoxic) Chemical Compounds .
  Chiral Separations .
  Customers and Markets.
 8




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##### Table of Contents



® ®
 Competition.
    Energetic andHigh Potency
    
    Nucleosides/Nucleotides
    
    SMB TechnologySAFC (1)
    
    Novasep
    
    NovasepHelsinn (2)
    
    OmniChem (3)
    
    SAFC (1)Cambrex Corp.
    
    ZaCH Systems (4)
    
    Saltigo
 
 (1)
    
    the fine chemicals division of Sigma-Aldrich Corporation(2)
    
    the chemicals operations division of Helsinn Group(3)
    
    a component of the pharmaceuticals division of Ajinomoto Company(4)
    
    a subsidiary of the Zambon Company OUR SPECIALTY CHEMICALS SEGMENT
 PERCHLORATE CHEMICALS.
 9




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##### Table of Contents



Market.
      Customers.
  10




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Manufacturing Capacity and Process.
   Competition.
 SODIUM AZIDE.
 Market.
  Customers.
 Competition.
 HALOTRON.
  11




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Customers and Market
   Competition. ä
  OUR AEROSPACE EQUIPMENT SEGMENT
 Customers and Market.
 12




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Competition.
 Recent Acquisition.
   OUR OTHER BUSINESSES SEGMENT
 WATER TREATMENT EQUIPMENT.
    13




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REAL ESTATE.
 REGULATORY COMPLIANCE
 FEDERAL ACQUISITION REGULATIONS.
 FDA AND SIMILAR REGULATORY AGENCIES.
 ENVIRONMENTAL MATTERS.
 Review of Perchlorate Toxicity by the EPA .
 14




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Perchlorate Remediation Project in Henderson, Nevada.
     Henderson Site Environmental Remediation Reserve.
  15




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AFC Environmental Matters.
   16




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OTHER MATTERS
 BACKLOG.
   INTELLECTUAL PROPERTY. ® ® ® ® ® ®
 RAW MATERIALS AND MANUFACTURING COSTS.
   17




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PROFITABILITY.
 
    
    as discussed in Note 11 to our consolidated financial statements included in Item 8 of this
report, we may incur material 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;
 
    
    changes as a result of periodic reviews for impairments of long-lived assets; and
 
    
    the ability to pass on increases in raw material costs to our customers.
 GOVERNMENT CONTRACTS SUBJECT TO TERMINATION.
 INSURANCE.
 EMPLOYEES.
  AVAILABLE INFORMATION.
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Item 1A. Risk Factors (Dollars in Thousands)
  We depend on a limited number of customers for most of our sales in our Specialty Chemicals,
Aerospace Equipment and Fine Chemicals segments and the loss of one or more of these customers
could have a material adverse affect on our financial position, results of operations and cash
flows.
   19




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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.
   20




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A significant portion of our business depends on contracts with the government or its prime
contractors and these contracts are impacted by governmental priorities and are subject to
potential fluctuations in funding or early termination, including for convenience, any of which
could have a material adverse effect on our operating results, financial condition or cash flows.
   21




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We may be subject to potentially material costs and liabilities in connection with environmental
liabilities.
  Review of Perchlorate Toxicity by the EPA.
 Perchlorate Remediation Project in Henderson, Nevada.
 22




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Henderson Site Environmental Remediation Reserve.
 Other Environmental Matters.
 Although we have established an environmental reserve for remediation activities in Henderson,
Nevada, given the many uncertainties involved in assessing such liabilities, our
environmental-related risks may from time to time exceed any related reserves.
  23




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For each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments, most
production is conducted in a single facility and any significant disruption or delay at a
particular facility could have a material adverse effect on our business, financial position and
results of operations.
  The release or explosion of dangerous materials used in our business could disrupt our operations
and cause us to incur additional costs and liability.
  Disruptions in the supply of key raw materials and difficulties in the supplier qualification
process, as well as increases in prices of raw materials, could adversely impact our operations.
  24




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Each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments may be unable to
comply with customer specifications and manufacturing instructions or may experience delays or
other problems with existing or new products, which could result in increased costs, losses of
sales and potential breach of customer contracts.
    Successful commercialization of pharmaceutical products and product line extensions is very
difficult and subject to many uncertainties. If a customer is not able to successfully
commercialize its products for which AFC produces compounds or if a product is subsequently
recalled, then the operating results of AFC may be negatively impacted.
  25




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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.
  26




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Technology innovations in the markets that we serve may create alternatives to our products and
result in reduced sales.
  We are subject to strong competition in certain industries in which we participate and therefore
may not be able to compete successfully.
  Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating
results to fluctuate.
  27




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The inherent volatility of the chemical industry affects our capacity utilization and causes
fluctuations in our results of operations.
  A loss of key personnel or highly skilled employees could disrupt our operations.
  We may continue to expand our operations in part through acquisitions, which could divert
managements attention and expose us to unanticipated liabilities and costs. We may experience
difficulties integrating the acquired operations, and we may incur costs relating to acquisitions
that are never consummated.
  28




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We have a substantial amount of debt, and the cost of servicing that debt could adversely affect
our ability to take actions, our liquidity or our financial condition.
  
    
    make it more difficult for us to satisfy any other outstanding debt obligations;
 
    
    require us to dedicate a substantial portion of our cash flow from operations to payments
on our debt, reducing the amount of our cash flow available for working capital, capital
expenditures, acquisitions, developing our real estate assets and other general corporate
purposes;
 
    
    limit our flexibility in planning for, or reacting to, changes in the industries in which
we compete;
 
    
    place us at a competitive disadvantage compared to our competitors, some of which have
lower debt service obligations and greater financial resources than we do;
 
    
    limit our ability to borrow additional funds; or
 
    
    increase our vulnerability to general adverse economic and industry conditions.
 If we are unable to generate sufficient cash flow to service our debt and fund our operating costs,
our liquidity may be adversely affected.
  
    
    incur additional debt;
 
    
    pay dividends or make other restricted payments;
 
    
    create liens on assets to secure debt;
 
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
 
    
    transfer or sell assets;
 
    
    enter into transactions with affiliates;
 
    
    enter into sale and leaseback transactions;
 
    
    create an unrestricted subsidiary;
 
    
    enter into certain business activities; or
 
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
  29




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Significant changes in discount rates, rates of return on pension assets, mortality tables and
other factors could affect our future earnings, equity and pension funding requirements.
  Our shareholder rights plan, Restated Certificate of Incorporation, as amended, and Amended and
Restated By-laws discourage unsolicited takeover proposals and could prevent stockholders from
realizing a premium on their common stock.
  
    
    a classified board of directors;
 
    
    the ability of our board of directors to designate the terms of and issue new series of
preferred stock;
 
    
    advance notice requirements for nominations for election to our board of directors; and
 
    
    special voting requirements for the amendment, in certain cases, of our Restated
Certificate of Incorporation, as amended, and our Amended and Restated By-laws.
  Our proprietary and intellectual property rights may be violated, compromised, circumvented or
invalidated, which could damage our operations.
  
 Item 1B. Unresolved Staff Comments
  30




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Item 2. Properties
  Approximate Area
    
    
    
    ApproximateLocation
    
    Principal Use
    
    or Floor Space
    
    Status
    
    Annual Rent(a)(d)
    
    Iron County, UT
    
    Perchlorate and Water Treatment
Equipment Manufacturing Facility
    
    217 Acres
    
    Owned
    
    
    N/A(b)(d)
    
    Iron County, UT
    
    Sodium Azide Manufacturing Facility
    
    41 Acres
    
    Owned
    
    
    N/A(c)(d)
    
    Iron County, UT
    
    Halotron Manufacturing Facility
    
    6,720 sq. ft.
    
    Owned
    
    
    N/A(e)
    
    Las Vegas, NV
    
    Executive Offices
    
    22,531 sq.ft.
    
    Leased
    
    $
    947(f)
    
    Henderson, NV
    
    Goundwater Remediation Site
    
    1.75 Acres
    
    Leased
    
    $
    52(g)
    
    Niagara Falls, NY
    
    Aerospace Equipment Manufacturing
    
    81,425 sq. ft.
    
    Leased
    
    $
    165(h)
    
    Westcott, Buckinghamshire, UK
    
    Aerospace Equipment Manufacturing
    
    40 Acres
    
    Leased
    
    $
    193(i)
    
    Rancho Cordova, CA
    
    Fine Chemicals Manufacturing
Facility
    
    241 Acres
    
    Owned/Leased
    
    $
    5(j)
    
    Chartsworth, CA
    
    Aerospace Equipment Offices
    
    3,495 sq. ft.
    
    Leased
    
    $
    67
 
 (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)
    
    We own approximately 5000 acres of land that is utilized and adjacent to our Utah facilities.
The acreage indicated in the chart represents land currently utilized by our manufacturing
facilitates.(e)
    
    These offices are used for our corporate office functions.
(f) This facility is used for the groundwater remediation activities of the Company.(g)
    
    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.(h)
    
    This facility is used for the design, manufacture and test of our Aerospace Equipment segment
products. Presently, this facility has significant remaining capacity.(i)
    
    This facility is used by the Fine Chemicals segment for the production of active
pharmaceutical ingredients and registered intermediates. All buildings and improvements are
owned. The land is leased under a capital lease arrangement with a bargain purchase option.
Presently, this facility is at near capacity.(j)
    
    These offices are used for certain Aerospace Equipment segment business development and
engineering personnel.  
 Item 3. Legal Proceedings
  31




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Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
 STOCK LISTING.
 2008
    
    2007High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    19.20
    
    
    $
    13.37
    
    
    $
    8.39
    
    
    $
    6.96Second Quarter
    
    
    17.32
    
    
    
    13.61
    
    
    
    12.22
    
    
    
    7.91Third Quarter
    
    
    18.89
    
    
    
    15.45
    
    
    
    17.42
    
    
    
    10.60Fourth Quarter
    
    
    17.50
    
    
    
    12.60
    
    
    
    16.27
    
    
    
    12.51
  DIVIDEND AND STOCK REPURCHASE PROGRAM.
   32




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TRANSFER AGENT.
 SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
 Notwithstanding anything to the contrary set forth in any of our previous and future filings under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that
might incorporate filings made by the Company, including this annual report on Form 10-K , in whole
or in part, the following Performance Graph shall not be deemed to be soliciting material or
filed with the SEC or to be incorporated by reference into any prior or future filings made by
the Company.
 PERFORMANCE GRAPH.
 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 Item 6. Selected Financial Data
  33




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FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA FOR THE YEARS ENDED SEPTEMBER 30,  (Dollars in Thousands, Except per Share Amounts)
 2008
    
    2007
    
    2006
    
    2005
    
    2004STATEMENT OF OPERATIONS DATA (a) (b):Revenues
    
    $
    203,129
    
    
    $
    183,928
    
    
    $
    141,904
    
    
    $
    67,813
    
    
    $
    51,458Cost of revenues
    
    
    135,388
    
    
    
    120,230
    
    
    
    97,043
    
    
    
    43,916
    
    
    
    34,402Gross profit
    
    
    67,741
    
    
    
    63,698
    
    
    
    44,861
    
    
    
    23,897
    
    
    
    17,056Operating expenses
    
    
    42,865
    
    
    
    39,841
    
    
    
    38,202
    
    
    
    21,805
    
    
    
    18,980Environmental remediation charges
    
    
    
    
    
    
    
    
    
    
    3,600
    
    
    
    22,400
    
    
    
    Operating income (loss)
    
    
    24,876
    
    
    
    23,857
    
    
    
    3,059
    
    
    
    (20,308
    )
    
    
    (1,924
    )Interest and other expense (income), net
    
    
    9,437
    
    
    
    11,352
    
    
    
    10,362
    
    
    
    (1,398
    )
    
    
    (693
    )Debt repayment charges and
loss on debt extinguishments
    
    
    
    
    
    
    2,916
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations
before income tax
    
    
    15,439
    
    
    
    9,589
    
    
    
    (7,303
    )
    
    
    (18,910
    )
    
    
    (1,231
    )Income tax expense (benefit)
    
    
    6,488
    
    
    
    4,605
    
    
    
    (4,300
    )
    
    
    (8,367
    )
    
    
    (2,160
    )Income (loss) from continuing operations
    
    $
    8,951
    
    
    $
    4,984
    
    
    $
    (3,003
    )
    
    $
    (10,543
    )
    
    $
    929Earnings (loss) per share from continuing operations:Basic
    
    $
    1.20
    
    
    $
    0.68
    
    
    $
    (0.41
    )
    
    $
    (1.45
    )
    
    $
    0.13Diluted
    
    $
    1.18
    
    
    $
    0.67
    
    
    $
    (0.41
    )
    
    $
    (1.45
    )
    
    $
    0.13Dividends declared per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    BALANCE SHEET DATA (a) (b):Cash and cash equivalents
    
    $
    26,893
    
    
    $
    21,426
    
    
    $
    6,872
    
    
    $
    37,213
    
    
    $
    23,777Inventories and accounts receivable
    
    
    67,802
    
    
    
    72,259
    
    
    
    59,229
    
    
    
    26,390
    
    
    
    30,058Property, plant and equipment, net
    
    
    118,608
    
    
    
    116,965
    
    
    
    119,746
    
    
    
    15,646
    
    
    
    16,573Intangible assets, net
    
    
    3,013
    
    
    
    5,767
    
    
    
    14,237
    
    
    
    9,763
    
    
    
    13,679Total assets
    
    
    251,413
    
    
    
    249,407
    
    
    
    239,455
    
    
    
    115,000
    
    
    
    101,576Working capital
    
    
    77,651
    
    
    
    61,707
    
    
    
    33,421
    
    
    
    49,235
    
    
    
    45,741Long-term debt (c)
    
    
    110,120
    
    
    
    110,373
    
    
    
    97,771
    
    
    
    
    
    
    
    
 
 (a)
    
    As discussed in Note 2 to our consolidated financial statements included in Item 8 of this
report, we acquired the AFC Business effective on November 30, 2005. We acquired our
Aerospace Equipment segment, which includes the operating results of our wholly-owned
subsidiary Ampac-ISP Corp. (ISP), effective on October 1, 2004.(b)
    
    As discussed in Note 14 to our consolidated financial statements included in Item 8 of this
report, 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)
    
    We entered into credit agreements in connection with our acquisition of the AFC Business in
November 2005. These credit agreements were refinanced in February 2007. 34




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in Thousands)
  OUR COMPANY
   35




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OUR BUSINESS SEGMENTS
  2008
    
    2007
    
    2006Fine Chemicals
    
    
    61
    %
    
    
    57
    %
    
    
    52
    %Specialty Chemicals:Perchlorates
    
    
    26
    %
    
    
    28
    %
    
    
    28
    %Sodium azide
    
    
    0
    %*
    
    
    1
    %
    
    
    2
    %Halotron
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %Total specialty chemicals
    
    
    28
    %
    
    
    31
    %
    
    
    33
    %Aerospace Equipment
    
    
    8
    %
    
    
    9
    %
    
    
    12
    %Other Businesses:Real estate
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Water treatment equipment
    
    
    2
    %
    
    
    2
    %
    
    
    2
    %Total other businesses
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %Total revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 *
    
    Less than 1% FINE CHEMICALS.
   
    
    Alternative Supply May Not Be Readily Available.We are currently the sole-source supplier
on several of our fine chemicals products.
 36




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
    
    Regulatory Approval.Applications to and approvals from the FDA and other regulatory
authorities generally require the chemical contractor to be named. Switching contractors may
require additional regulatory approval and could take as long as six months to two years.
 
    
    Significant Financial Costs. Switching contractors and amending various filings can result
in significant costs associated with technology transfer, process validation and re-filing
with the FDA and other regulatory authorities.
 SPECIALTY CHEMICALS .
   AEROSPACE EQUIPMENT.
  OTHER BUSINESSES.
 DISCONTINUED OPERATIONS.
 37




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##### Table of Contents



RESULTS OF OPERATIONS
 REVENUES
 Year Ended September 30,
    
    Percentage Change2008
    
    2007
    
    2006
    
    08 vs. 07
    
    07 vs. 06Fine Chemicals
    
    $
    124,187
    
    
    $
    104,441
    
    
    $
    74,026
    
    
    
    19
    %
    
    
    41
    %Specialty Chemicals
    
    
    57,097
    
    
    
    57,088
    
    
    
    46,450
    
    
    
    0
    %
    
    
    23
    %Aerospace Equipment
    
    
    16,435
    
    
    
    17,348
    
    
    
    17,394
    
    
    
    (5
    %)
    
    
    (0
    %)Other Businesses
    
    
    5,410
    
    
    
    5,051
    
    
    
    4,034
    
    
    
    7
    %
    
    
    25
    %Total Revenues
    
    $
    203,129
    
    
    $
    183,928
    
    
    $
    141,904
    
    
    
    10
    %
    
    
    30
    %
 Fine Chemicals .
  
    
    The volume for our largest (measured in terms of revenues) anti-viral product increased by
45% to support our customers increase in safety stock inventory of the final drug.
 
    
    Volume for our second largest anti-viral product increased by 21% in support of increases
in demand for our customers end product.
 
    
    Volume for our largest oncology product declined in fiscal 2008 because fiscal 2007
included additional quantities purchased by our customer to build on-hand safety stock
quantities.
   Specialty Chemicals .
 
    
    A 13% increase in perchlorate volume in fiscal 2008 and a 10% decline in the related
average price per pound.
 
    
    A 31% increase in Grade I AP volume in fiscal 2007 and a 2% increase in the related average
price per pound.
 
    
    Sodium azide revenues decreased 63% in fiscal 2008 and 35% in fiscal 2007, each compared to
the prior fiscal year.
 
    
    Halotron revenues increased 4% in fiscal 2008 and 11% in fiscal 2007, each compared to the
prior fiscal year.
 38




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##### Table of Contents



Aerospace Equipment .
  
    
    a contract to develop a liquid divert and attitude control system (DACS) for the
Ballistic Missile Defense System. The work will apply proven component and subsystem design to
develop a modular and scalable DACS. The program will leverage ISPs design for manufacturing
experience to develop a low cost, low risk propulsion system for interceptor kill vehicles.
The cost-plus-fixed-fee contract, of approximately $15,000, is anticipated to culminate in the
delivery of a qualification unit and two flight test units in September 2010. ISP is teamed
with Moog Inc. Space and Defense Group, East Aurora, New York, which will provide subsystem
design and component support.
 
    
    initial funding from General Dynamics Advanced Information Systems to initiate the Landsat
Data Continuity Mission (LDCM) contract. The expected value of the contract is approximately
$4,000 to deliver a propulsion system for the Landsat satellite. This satellite is funded by
NASA Goddard and provides earth observation for land and water resource planning.
 
    
    a contract by Microsat Systems to provide 18 propulsion systems to be used on the Orbcomm
OG2 program. The initial multimillion dollar contract for 18 systems also has an option for
another 30 systems. Orbcomm satellites provide GPS data for tracking and global satellite data
communications.
  39




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##### Table of Contents



Other Businesses.
 COST OF REVENUES AND GROSS MARGIN
 Year Ended September 30,
    
    Percentage Change2008
    
    2007
    
    2006
    
    08 vs. 07
    
    07 vs. 06Revenues
    
    $
    203,129
    
    
    $
    183,928
    
    
    $
    141,904
    
    
    
    10
    %
    
    
    30
    %Cost of Revenues
    
    
    135,388
    
    
    
    120,230
    
    
    
    97,043
    
    
    
    13
    %
    
    
    24
    %Gross Margin
    
    
    67,741
    
    
    
    63,698
    
    
    
    44,861
    
    
    
    6
    %
    
    
    42
    %Gross Margin
Percentage
    
    
    33
    %
    
    
    35
    %
    
    
    32
    %
   
    
    Fine Chemicals segment gross margin percentage for the fiscal 2008 declined five points
compared to the prior fiscal year, reflecting the following:
 o
    
    Our product mix changed such that fiscal 2008 contained a greater percentage of
lower-margin products than fiscal 2007.o
    
    During the fourth quarter of fiscal 2008, we implemented a new process for a
large-volume anti-viral product and experienced start-up difficulties. This negatively
impacted margins. While we have made progress toward our expectations for the new
process, the effects are expected to continue into the early part of fiscal 2009.
 
    
    Specialty Chemicals segment gross margin percentage improved approximately eight points for
fiscal 2008 compared to the prior fiscal year, reflecting the following:
 o
    
    Mid fiscal 2008 second quarter, the Specialty Chemicals segment completed the
amortization of the value assigned to the perchlorate customer list acquired in fiscal
1998. This reduction in amortization expense improved the Specialty Chemicals segment
gross margin percentage by four points for fiscal 2008.o
    
    The remaining improvement in the Specialty Chemicals segment gross margin
percentage reflects better absorption of fixed manufacturing costs due to the higher
production volume in fiscal 2008.
 
    
    Aerospace Equipment segment gross margin percentage was the same in fiscal 2008 and fiscal
2007.
 40




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##### Table of Contents




    
    Fine Chemicals segment gross margin percentage for fiscal 2007 improved two points compared
to the prior fiscal year because of a change in product mix and the effect of several
continuous improvement projects.
 
    
    Specialty Chemicals segment gross margin percentage improved approximately four points for
fiscal 2007 compared to the prior fiscal year primarily because the higher volumes and average
selling price per pound in fiscal 2007 resulted in improved coverage of fixed manufacturing
overhead costs.
 
    
    Aerospace Equipment segment gross margin percentage improved approximately five points for
fiscal 2007 compared to the prior fiscal year largely due to fiscal 2007 activity including
more standard production thruster work compared to the prior fiscal year which included a
greater volume of development activities.
 OPERATING EXPENSES
 Year Ended September 30,
    
    Percentage Change2008
    
    2007
    
    2006
    
    08 vs. 07
    
    07 vs. 06Operating Expenses
    
    $
    42,865
    
    
    $
    39,841
    
    
    $
    38,202
    
    
    
    8
    %
    
    
    4
    %Percentage of Revenues
    
    
    21
    %
    
    
    22
    %
    
    
    27
    %
    
    
    (3
    %)
    
    
    (20
    %)
  
    
    A decrease in Fine Chemicals segment operating expenses including a decrease in incentive
compensation of $742 offset partially by an increase in recruiting and personnel relocation
expenses of $482.
 
    
    A $125 decrease in Specialty Chemicals segment operating expenses due to various
individually insignificant changes in general and administrative expenses.
 
    
    A $506 increase in Aerospace Equipment segment operating expenses due to various
individually insignificant changes in staffing and marketing expenses.
 
    
    An increase in corporate operating expenses including increases in supplemental executive
retirement expenses of $938, rent of $421, and legal and professional services of $437.
  
    
    A net increase in Fine Chemicals operating expenses of $1,222 primarily because fiscal 2007
included twelve months of operations compared to ten months of operations in the prior fiscal
year.
 
    
    A decrease of $3,518 in amortization expense related to AFC intangible assets.
 
    
    An increase of $1,970 for incentive compensation at our Specialty Chemicals segment and
corporate operations due to improved performance in fiscal 2007.
 
    
    An increase of $848 due to Sarbanes-Oxley compliance costs and related additional audit
fees.
 
    
    A decrease of $600 in corporate severance costs. In fiscal 2006 we recorded a charge for
$600 related to a settlement with the Companys former chief financial officer.
 ENVIRONMENTAL REMEDIATION CHARGES.
 41




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SEGMENT OPERATING PROFIT AND OPERATING INCOME
 Year Ended September 30,
    
    Percentage Change2008
    
    2007
    
    2006
    
    08 vs. 07
    
    07 vs. 06Fine Chemicals
    
    $
    16,246
    
    
    $
    16,790
    
    
    $
    7,245
    
    
    
    (3
    %)
    
    
    132
    %Specialty Chemicals
    
    
    23,128
    
    
    
    18,223
    
    
    
    14,755
    
    
    
    27
    %
    
    
    24
    %Aerospace Equipment
    
    
    736
    
    
    
    1,458
    
    
    
    802
    
    
    
    (50
    %)
    
    
    82
    %Other Businesses
    
    
    1,022
    
    
    
    1,210
    
    
    
    264
    
    
    
    (16
    %)
    
    
    358
    %Total Segment Operating Profit
    
    
    41,132
    
    
    
    37,681
    
    
    
    23,066
    
    
    
    9
    %
    
    
    63
    %Corporate Expenses
    
    
    (16,256
    )
    
    
    (13,824
    )
    
    
    (16,407
    )
    
    
    18
    %
    
    
    (16
    %)Environmental Remediation Charges
    
    
    
    
    
    
    
    
    
    
    (3,600
    )
    
    
    
    
    
    
    (100
    %)Operating Income
    
    $
    24,876
    
    
    $
    23,857
    
    
    $
    3,059
    
    
    
    4
    %
    
    
    680
    %
   BACKLOG
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INTEREST AND DEBT REPAYMENT CHARGES
 Year Ended September 30,
    
    Percentage Change2008
    
    2007
    
    2006
    
    08 vs. 07
    
    07 vs. 06Interest and Other Income:Interest Income
    
    $
    937
    
    
    $
    644
    
    
    $
    459
    
    
    
    45
    %
    
    
    40
    %Gain on Sale of Assets
    
    
    429
    
    
    
    
    
    
    
    610
    
    
    
    
    
    
    
    (100
    %)Total
    
    $
    1,366
    
    
    $
    644
    
    
    $
    1,069
    
    
    
    112
    %
    
    
    (40
    %)Interest and Other Expense
    
    $
    10,803
    
    
    $
    11,996
    
    
    $
    11,431
    
    
    
    (10
    %)
    
    
    5
    %Debt Repayment Charges
    
    $
    
    
    
    $
    2,916
    
    
    $
    
    
    
    
    (100
    %)
    
    
    
     INCOME TAXES.
  2008
    
    2007
    
    2006Federal income tax at the statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    (35.0
    %)State income tax, net of federal benefit
    
    
    5.2
    %
    
    
    4.0
    %
    
    
    (3.1
    %)Nondeductible expenses
    
    
    1.5
    %
    
    
    1.3
    %
    
    
    1.0
    %Valuation allowance
    
    
    1.0
    %
    
    
    2.0
    %
    
    
    1.8
    %Change in effective state income tax rate
    
    
    (2.3
    %)
    
    
    5.4
    %
    
    
    (13.7
    %)Interest and penalties
    
    
    1.4
    %
    
    
    0.0
    %
    
    
    0.0
    %Basis differences in partnerships
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (5.6
    %)Other
    
    
    0.2
    %
    
    
    0.3
    %
    
    
    (4.3
    %)Effective tax rate
    
    
    42.0
    %
    
    
    48.0
    %
    
    
    (58.9
    %)
 43




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LIQUIDITY AND CAPITAL RESOURCES
 CASH FLOWS
 Year Ended September 30,
    
    Percentage Change2008
    
    2007
    
    2006
    
    08 vs. 07
    
    07 vs. 06Cash Provided (Used) By:Operating activities
    
    $
    20,333
    
    
    $
    24,138
    
    
    $
    9,469
    
    
    
    (16
    %)
    
    
    155
    %Investing activities
    
    
    (15,284
    )
    
    
    (6,911
    )
    
    
    (121,045
    )
    
    
    121
    %
    
    
    (94
    %)Financing activities
    
    
    418
    
    
    
    (2,673
    )
    
    
    81,235
    
    
    
    (116
    %)
    
    
    (103
    %)Net change in cash for period
    
    $
    5,467
    
    
    $
    14,554
    
    
    $
    (30,341
    )
    
    
    (62
    %)
    
    
    (148
    %)
 Operating Activities
 Fiscal Year 2008 compared to Fiscal Year 2007
  
    
    A decrease in cash due to a decline in cash profits generated by our operations of $1,214.
 
    
    An improvement in cash used to fund working capital increases of $1,703 excluding the
effect of interest and income taxes.
 
    
    An increase in cash taxes paid of $4,147.
 
    
    An increase in cash used for interest payments of $1,378.
 
    
    A reduction in cash used for environmental remediation of $943.
 
    
    Other decreases in cash used for operating activities of $288.
      44




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##### Table of Contents



Fiscal Year 2007 compared to Fiscal Year 2006
  
    
    An increase in cash due to improved profitability of our operations of $15,769.
 
    
    An increase in cash used to fund working capital increases of $89, excluding the effect of
interest and income taxes.
 
    
    An increase in cash taxes paid of $1,564.
 
    
    An increase in cash used for interest payments of $1,409, including payments totaling $607
for the early payment and termination of our Second Lien Credit Facility in February 2007
(described below in Long Term Debt and Revolving Credit Facilities).
 
    
    A reduction in cash used for environmental remediation of $4,588.
 
    
    Other increases in cash used for operating activities of $2,626.
     Investing Activities
 Fiscal 2008 compared to Fiscal 2007
  Fiscal Year 2007 compared to Fiscal Year 2006
  
    
    Fiscal 2007 includes cash received from the sale of ESI of $7,510 and cash used to fund the
AFC acquisition earnout adjustment of $6,000. See Notes 14 and 2, respectively, to our
consolidated financial statements included in Item 8 of this report.
 
    
    Fiscal 2006 includes cash used for our acquisition of AFC of $108,011 and cash provided by
proceeds from the sale of our one-third interest in an office building located in Las Vegas,
Nevada of $2,395. See Notes 2 and 13, respectively, to our consolidated financial statements
included in Item 8 of this report.
 
    
    Capital expenditures for fiscal 2007 decreased to $8,421 compared to $15,018 for fiscal
2006.
  45




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##### Table of Contents



Financing Activities
  LIQUIDITY AND CAPITAL RESOURCES.
   LONG TERM DEBT AND REVOLVING CREDIT FACILITIES
 Senior Notes.
 
    
    ranked equally in right of payment with all of our existing and future senior indebtedness;
 
    
    ranked senior in right of payment to all of our existing and future senior subordinated and
subordinated indebtedness;
 
    
    effectively junior to our existing and future secured debt to the extent of the value of
the assets securing such debt; and
 
    
    structurally subordinated to all of the existing and future liabilities (including trade
payables) of each of our subsidiaries that do not guarantee the Senior Notes.
  
    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus an applicable premium as defined in the related indenture;
 46




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##### Table of Contents




    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the
principal amount to be redeemed and reducing to 100% by February 1, 2013;
 
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a
redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest
thereon, with the proceeds of certain sales of our equity securities; and
 
    
    under certain changes of control, we must offer to purchase the Senior Notes at 101% of
their aggregate principal amount, plus accrued interest.
  
    
    incur additional debt;
 
    
    pay dividends or make other restricted payments;
 
    
    create liens on assets to secure debt;
 
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
 
    
    transfer or sell assets;
 
    
    enter into transactions with affiliates;
 
    
    enter into sale and leaseback transactions;
 
    
    create an unrestricted subsidiary;
 
    
    enter into certain business activities; or
 
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
  Revolving Credit Facility.
  
    
    incur debt, incur contingent obligations and issue certain types of preferred stock;
 
    
    create liens;
 
    
    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.
 47




---



##### Table of Contents



Prior Credit Facilities.
 Seller Subordinated Note.
  Debt Issue Costs and Debt Repayment Charges.
 INTEREST RATE SWAP AGREEMENTS.
 48




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##### Table of Contents



ENVIRONMENTAL REMEDIATION  AMPAC HENDERSON SITE.
     CONTRACTUAL OBLIGATIONS.
 49




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##### Table of Contents



Payments Due by Year Ending September 30,2009
    
    2010-2011
    
    2012-2013
    
    Thereafter
    
    TotalSenior Notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    110,000
    
    
    $
    110,000Interest on Senior Notes at 9% annually
    
    
    9,900
    
    
    
    19,800
    
    
    
    19,800
    
    
    
    13,200
    
    
    
    62,700Capital Leases
    
    
    254
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    374Interest on Capital Leases
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    13Operating Leases
    
    
    1,679
    
    
    
    2,750
    
    
    
    2,661
    
    
    
    5,737
    
    
    
    12,827Total
    
    $
    11,845
    
    
    $
    22,671
    
    
    $
    22,461
    
    
    $
    128,937
    
    
    $
    185,914
  
    
    We have recorded an estimated liability for environmental remediation of $14,278 (see Note
11 to the consolidated financial statements included in Item 8 of this report). We expect to
spend approximately $996 for environmental remediation during fiscal 2009.
    
    We have recorded aggregate defined benefit pension plan and supplemental executive
retirement plan (SERP) obligations of $15,819 (see Note 10 to the consolidated financial
statements included in Item 8 of this report). We expect to contribute $3,067 to our defined
benefit pension plans and SERP during fiscal 2009.
    
    We have uncertain tax positions totaling $313. We are unable to reasonably estimate the
timing of the related payments, if any.
    
    We also maintain the Revolving Credit Facility, which provides revolving credit in an
aggregate principal amount of up to $20,000 with an initial maturity in February 2012. At
September 30, 2008, we had no balance outstanding under the Revolving Credit Facility. We may
prepay and terminate the Revolving Credit Facility at any time.
 OFF-BALANCE SHEET ARRANGEMENTS
 Letters of Credit.
 Employee Agreements.
   INFLATION
  50




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CRITICAL ACCOUNTING POLICIES
   SALES AND REVENUE RECOGNITION.
  DEPRECIABLE OR AMORTIZABLE LIVES OF LONG-LIVED ASSETS.
  51




---



##### Table of Contents



IMPAIRMENT OF LONG-LIVED ASSETS.
  ENVIRONMENTAL COSTS .
  INCOME TAXES.
   52




---



##### Table of Contents



PENSION BENEFITS.
 RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS.
    53




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##### Table of Contents



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
 54




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##### Table of Contents



SUMMARIZED QUARTERLY FINANCIAL DATA
(unaudited)
(amounts in thousands except per share amounts)
 Quarters For Fiscal Year 20081st
    
    2nd
    
    3rd
    
    4th
    
    TotalRevenues
    
    $
    46,890
    
    
    $
    48,347
    
    
    $
    36,740
    
    
    $
    71,152
    
    
    $
    203,129Gross Profit
    
    
    17,429
    
    
    
    16,610
    
    
    
    12,750
    
    
    
    20,952
    
    
    
    67,741Net Income
    
    
    2,863
    
    
    
    1,633
    
    
    
    128
    
    
    
    4,327
    
    
    
    8,951Basic Earnings Per Share
    
    $
    0.39
    
    
    $
    0.22
    
    
    $
    0.02
    
    
    $
    0.58
    
    
    $
    1.20Diluted Earnings Per Share
    
    $
    0.38
    
    
    $
    0.22
    
    
    $
    0.02
    
    
    $
    0.57
    
    
    $
    1.18
 Quarters For Fiscal Year 20071st
    
    2nd
    
    3rd
    
    4th
    
    TotalRevenues
    
    $
    34,888
    
    
    $
    43,589
    
    
    $
    43,723
    
    
    $
    61,728
    
    
    $
    183,928Gross Profit
    
    
    12,908
    
    
    
    16,211
    
    
    
    13,365
    
    
    
    21,214
    
    
    
    63,698Net Income
    
    
    639
    
    
    
    118
    
    
    
    606
    
    
    
    3,621
    
    
    
    4,984Basic Earnings Per Share
    
    $
    0.09
    
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.49
    
    
    $
    0.68Diluted Earnings Per Share
    
    $
    0.09
    
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.48
    
    
    $
    0.67
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Item 9A. Controls and Procedures
 DISCLOSURE CONTROLS AND PROCEDURES.
 CHANGES IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING
 MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
 55




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##### Table of Contents



Internal ControlIntegrated Framework
 56




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal
Control  Integrated Framework
    Internal Control
 Integrated Framework
 Employers Accounting for Defined Benefit
Pension and other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106, and
132(R), Accounting for Uncertainty
in Income Taxes
  
 57




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##### Table of Contents



Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Code of Ethics www.apfc.com
 
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  58




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    (1)     Financial Statements
 See Part II, Item 8 of the report for an index to the
registrants financial statements and supplementary data.(2)
    
    Financial Statement SchedulesNone applicable.(3)
    
    ExhibitsThe following exhibits are filed as part of, or incorporated by reference into, this report
(references to exhibit numbers are to the number assigned to the exhibit pursuant to Item
601 of Regulation S-K):
 ExhibitNumber
    
    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)).
 59




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##### Table of Contents



ExhibitNumber
    
    Description3.4
    
    American Pacific Corporation Amended and Restated By-Laws
(incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K (File No.
001-08137) filed by the Registrant with the Securities and
Exchange Commission on September 15, 2008).3.5
    
    Rights Agreement, dated as of August 3, 1999, between
American Pacific Corporation and American Stock Transfer &
Trust Company (incorporated by reference to Exhibit 1 to
the Registrants Registration Statement on Form 8-A (File
No. 001-08137) filed by the Registrant with the Securities
and Exchange Commission on August 6, 1999).3.6
    
    Form of Letter to Stockholders that accompanied copies of
the Summary of Rights to Purchase Preferred Shares
(incorporated by reference to Exhibit 2 to the Registrants
Registration Statement on Form 8-A (File No. 001-08137)
filed by the Registrant with the Securities and Exchange
Commission on August 6, 1999).3.7
    
    Amendment, dated as of July 11, 2008, between American
Pacific Corporation and American Stock Transfer & Trust
Company (incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K (File No.
001-08137) filed by the Registrant with the Securities and
Exchange Commission on July 11, 2008).4.1
    
    Form of 9% Senior Note due 2015 (incorporated by reference
to Exhibit A of Exhibit 4.2 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 6, 2007).4.2
    
    Indenture, dated as of February 6, 2007, by and among
American Pacific Corporation, certain subsidiaries thereof
and Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 4.2 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 6,
2007).10.1*+
    
    Employment Agreement, effective October 15, 2006, between
American Pacific Corporation and Joseph Carleone, as
amended and restated on November 14, 2008.10.2+
    
    Notice of Eligibility for Dr. Aslam Malik under Ampac Fine
Chemicals LLC Severance Pay Plan, dated January 24, 2007
(incorporated by reference to Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-Q (File No.
001-08137) for the fiscal quarter ended March 31, 2007).10.3+
    
    Ampac Fine Chemicals LLC Severance Pay Plan (incorporated
by reference to Exhibit 10.1 to the Registrants Quarterly
Report on Form 10-Q (File No. 001-08137) for the fiscal
quarter ended March 31, 2007).10.4+
    
    Form of Indemnification Agreement between American Pacific
Corporation and each Director of American Pacific
Corporation (incorporated by reference to Exhibit 3.6 to
the Registrants Annual Report on Form 10-K (File No.
001-08137) for the fiscal year ended September 30, 2000).10.5+
    
    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 (File
No. 001-08137) for the fiscal year ended September 30,
1999).
 60




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##### Table of Contents



ExhibitNumber
    
    Description10.6+
    
    American Pacific Corporation Supplemental Executive
Retirement Plan, amended and restated and effective on and
after October 1, 2007 (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 November 15, 2007).10.7+
    
    Trust Agreement for American Pacific Corporation
Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit 10.6 to the Registrants Annual Report
on Form 10-K (File No. 001-08137) for the fiscal year ended
September 30, 1999).10.8++
    
    Long-Term Pricing Agreement, dated as of December 12, 1997,
between Thiokol Corporation-Propulsion Group and American
Pacific Corporation (incorporated by reference to Exhibit
10.1 to the Registrants Quarterly Report on Form 10-Q
(File No. 001-08137) for the fiscal quarter ended March 31,
1998).10.9++
    
    Modification No. 1 to Long Term Pricing Agreement, dated
September 13, 2000, between Thiokol Propulsion and American
Pacific Corporation (incorporated by reference to Exhibit
10.14 to the Registrants Annual Report on Form 10-K (File
No. 001-08137) for the fiscal year ended September 30,
2000).10.10++
    
    Partnershipping Agreement, between Alliant Techsystems
Incorporated (Alliant) and Western Electrochemical
Company and letter, dated November 24, 1997, from American
Pacific Corporation to Alliant and revised Exhibit B with
respect thereto (incorporated by reference to Exhibit 10.2
to the Registrants Quarterly Report on Form 10-Q (File No.
001-08137) for the fiscal quarter ended March 31, 1998).10.11
    
    Ground Lease, dated as of November 30, 2005, by and between
Aerojet-General Corporation and Ampac Fine Chemicals LLC
(incorporated by reference to Exhibit 10.5 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 1, 2005).10.12++
    
    Modification #3 to the Thiokol Long Term Pricing Agreement,
dated April 5, 2006 (incorporated by reference to Exhibit
10.1 to the Registrants Quarterly Report on Form 10-Q
(File No. 001-08137) for the fiscal quarter ended March 31,
2006).10.13+
    
    Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit
Employees (incorporated by reference to Exhibit 10.7 to the
Registrants Annual Report on Form 10-K (File No.
001-08137) for the fiscal year ended September 30, 2006).10.14+
    
    Ampac Fine Chemicals LLC Pension Plan for Salaried
Employees (incorporated by reference to Exhibit 10.8 to the
Registrants Annual Report on Form 10-K (File No.
001-08137) for the fiscal year ended September 30, 2006).10.15
    
    Amended and Restated Credit Agreement, dated as of February
6, 2007, among American Pacific Corporation, certain
subsidiaries thereof, the lenders party thereto, Wachovia
Bank, National Association and Bank of America, N.A.
(incorporated by reference to Exhibit 10.3 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 6, 2007).10.16+
    
    Executive Officer and Director Compensation as of September
30, 2007 (incorporated by reference to Exhibit 10.23 to the
Registrants Annual Report on Form 10-K (File No.
001-08137) for the fiscal year ended September 30, 2007).
 61




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##### Table of Contents



ExhibitNumber
    
    Description10.17+
    
    American Pacific Corporation Amended and Restated 2001
Stock Option Plan (incorporated by reference to Exhibit 4.1
to the Registrants Registration Statement on Form S-8
(File No. 333-104732) filed by the Registrant with the
Securities and Exchange Commission on April 24, 2003).10.18+
    
    Form of Option Agreement under the American Pacific
Corporation Amended and Restated 2001 Stock Option Plan
(incorporated by reference to Exhibit 4.3 to the
Registrants Registration Statement on Form S-8 (File No.
333-104732) filed by the Registrant with the Securities and
Exchange Commission on April 24, 2003).10.19+
    
    American Pacific Corporation 2002 Directors Stock Option
Plan, as amended and restated (incorporated by reference to
Exhibit 99.1 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 October 25, 2005).10.20+
    
    Form of Option Agreement under the American Pacific
Corporation 2002 Directors Stock Option Plan (incorporated
by reference to Exhibit 4.4 to the Registrants
Registration Statement on Form S-8 (File No. 333-104732)
filed by the Registrant with the Securities and Exchange
Commission on April 24, 2003).10.21+
    
    American Pacific Corporation 2008 Stock Incentive Plan
(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 March 17, 2008).10.22+
    
    Form of Notice of Stock Option Award and Stock Option Award
Agreement under the American Pacific Corporation 2008 Stock
Incentive Plan (incorporated by reference to Exhibit 10.2
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 March 17, 2008).10.23+
    
    Form of Notice of Restricted Stock Bonus Award and
Restricted Stock Bonus Award Agreement under the American
Pacific Corporation 2008 Stock Incentive Plan (incorporated
by reference to Exhibit 10.3 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
March 17, 2008).10.24+
    
    American Pacific Corporation Incentive Compensation Plan
(incorporated by reference to Exhibit 10.4 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 March 17, 2008).10.25+
    
    Severance Agreement, dated as of July 8, 2008, between
American Pacific Corporation and Linda G. Ferguson
(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 July 11, 2008).10.26+
    
    Severance Agreement, dated as of July 8, 2008, between
American Pacific Corporation and Dana M. Kelley
(incorporated by reference to Exhibit 10.2 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).*21
    
    Subsidiaries of the Registrant.*23
    
    Consent of Independent Registered Public Accounting Firm.
 62




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##### Table of Contents



ExhibitNumber
    
    Description*24
    
    Powers of Attorney (included on the signature pages).*31.1
    
    Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.+
    
    Management contract or compensatory plan or arrangement.++
    
    Confidential treatment has been requested and obtained with
regard to certain portions of this document. Such portions
have been omitted from filing and have been filed
separately with the Securities and Exchange Commission.   63




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##### Table of Contents



SIGNATURES
  Dated:  December 12, 2008
    AMERICAN PACIFIC CORPORATION
                  (Registrant)By:
    /s/  JOHN R. GIBSONJohn R. GibsonChairman of the Board and Chief Executive Officer
(Principal Executive Officer)By:
    /s/  DANA M. KELLEYDana M. KelleyVice President, Chief Financial
Officer, and Treasurer
(Principal Financial and Accounting Officer) 64




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##### Table of Contents



POWER OF ATTORNEY
   /s/ JOHN R. GIBSON
    
    
    
    Date: December 12, 2008John R. Gibson, Chairman of the Boardand Chief Executive Officer(Principal Executive Officer)/s/ DANA M. KELLEY
    
    
    
    Date: December 12, 2008Dana M. Kelley, Vice President,Chief Financial Officer, and Treasurer(Principal Financial and Accounting Officer)/s/ JOSEPH CARLEONE
    
    
    
    Date: December 12, 2008Joseph Carleone, Director/s/ FRED D. GIBSON, JR.
    
    
    
    Date: December 12, 2008Fred D. Gibson, Jr., Director/s/ JAN H. LOEB
    
    
    
    Date: December 12, 2008Jan H. Loeb, Director/s/ BERLYN D. MILLER
    
    
    
    Date: December 12, 2008Berlyn D. Miller, Director/s/ NORVAL F. POHL
    
    
    
    Date: December 12, 2008Norval F. Pohl, Ph.D., Director/s/ C. KEITH ROOKER
    
    
    
    Date: December 12, 2008C. Keith Rooker, Director/s/ DEAN M. WILLARD
    
    
    
    Date: December 12, 2008Dean M. Willard, Director/s/ JANE L. WILLIAMS
    
    
    
    Date: December 12, 2008Jane L. Williams, Director
 65




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Employers Accounting for
Defined Benefit Pension and other Postretirement Plans  an Amendment of FASB Statements No. 87,
88, 106, and 132(R)
 Accounting for
Uncertainty in Income Taxes
 Internal Control Integrated Framework
  
 F-1




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##### Table of Contents



AMERICAN PACIFIC CORPORATION
Consolidated Balance Sheets
September 30, 2008 and 2007
(Dollars in Thousands)
 2008
    
    2007ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    26,893
    
    
    $
    21,426Accounts Receivable, Net
    
    
    27,445
    
    
    
    25,236Inventories
    
    
    40,357
    
    
    
    47,023Prepaid Expenses and Other Assets
    
    
    3,392
    
    
    
    1,882Income Taxes Receivable
    
    
    1,804
    
    
    
    376Deferred Income Taxes
    
    
    6,859
    
    
    
    2,101Total Current Assets
    
    
    106,750
    
    
    
    98,044Property, Plant and Equipment, Net
    
    
    118,608
    
    
    
    116,965Intangible Assets, Net
    
    
    3,013
    
    
    
    5,767Deferred Income Taxes
    
    
    13,849
    
    
    
    19,385Other Assets
    
    
    9,193
    
    
    
    9,246TOTAL ASSETS
    
    $
    251,413
    
    
    $
    249,407LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    10,554
    
    
    $
    10,784Accrued Liabilities
    
    
    5,526
    
    
    
    7,829Accrued Interest
    
    
    1,650
    
    
    
    1,686Employee Related Liabilities
    
    
    6,917
    
    
    
    7,222Income Taxes Payable
    
    
    111
    
    
    
    83Deferred Revenues and Customer Deposits
    
    
    3,091
    
    
    
    7,755Current Portion of Environmental Remediation Reserves
    
    
    996
    
    
    
    726Current Portion of Long-Term Debt
    
    
    254
    
    
    
    252Total Current Liabilities
    
    
    29,099
    
    
    
    36,337Long-Term Debt
    
    
    110,120
    
    
    
    110,373Environmental Remediation Reserves
    
    
    13,282
    
    
    
    14,697Pension Obligations and Other Long-Term Liabilities
    
    
    15,950
    
    
    
    12,311Total Liabilities
    
    
    168,451
    
    
    
    173,718Commitments and ContingenciesShareholders EquityPreferred Stock  $1.00 par value; 3,000,000 authorized; none outstanding
    
    
    
    
    
    
    Common Stock  $0.10 par value; 20,000,000 shares authorized,
9,523,541 and 9,463,541 issued
    
    
    952
    
    
    
    946Capital in Excess of Par Value
    
    
    88,496
    
    
    
    87,513Retained Earnings
    
    
    15,956
    
    
    
    7,296Treasury Stock - 2,045,950 and 2,034,870 shares
    
    
    (17,175
    )
    
    
    (16,982
    )Accumulated Other Comprehensive Loss
    
    
    (5,267
    )
    
    
    (3,084
    )Total Shareholders Equity
    
    
    82,962
    
    
    
    75,689TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    251,413
    
    
    $
    249,407
  F-2




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##### Table of Contents



AMERICAN PACIFIC CORPORATION
Consolidated Statements of Operations
For the Years Ended September 30, 2008, 2007, and 2006
(Dollars in Thousands, Except per Share Amounts)
 2008
    
    2007
    
    2006Revenues
    
    $
    203,129
    
    
    $
    183,928
    
    
    $
    141,904Cost of Revenues
    
    
    135,388
    
    
    
    120,230
    
    
    
    97,043Gross Profit
    
    
    67,741
    
    
    
    63,698
    
    
    
    44,861Operating Expenses
    
    
    42,865
    
    
    
    39,841
    
    
    
    38,202Environmental Remediation Charges
    
    
    
    
    
    
    
    
    
    
    3,600Operating Income
    
    
    24,876
    
    
    
    23,857
    
    
    
    3,059Interest and Other Income, Net
    
    
    1,366
    
    
    
    644
    
    
    
    1,069Interest and Other Expense
    
    
    10,803
    
    
    
    11,996
    
    
    
    11,431Debt Repayment Charges
    
    
    
    
    
    
    2,916
    
    
    
    Income (Loss) from ContinuingOperations before Income Tax
    
    
    15,439
    
    
    
    9,589
    
    
    
    (7,303
    )Income Tax Expense (Benefit)
    
    
    6,488
    
    
    
    4,605
    
    
    
    (4,300
    )Income (Loss) from Continuing Operations
    
    
    8,951
    
    
    
    4,984
    
    
    
    (3,003
    )Loss from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    
    
    
    
    (891
    )Net Income (Loss)
    
    $
    8,951
    
    
    $
    4,984
    
    
    $
    (3,894
    )Basic Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    1.20
    
    
    $
    0.68
    
    
    $
    (0.41
    )Loss from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    
    
    
    
    (0.12
    )Net Income (Loss)
    
    $
    1.20
    
    
    $
    0.68
    
    
    $
    (0.53
    )Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    1.18
    
    
    $
    0.67
    
    
    $
    (0.41
    )Loss from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    
    
    
    
    (0.12
    )Net Income (Loss)
    
    $
    1.18
    
    
    $
    0.67
    
    
    $
    (0.53
    )Weighted Average Shares Outstanding:Basic
    
    
    7,451,000
    
    
    
    7,365,000
    
    
    
    7,305,000Diluted
    
    
    7,599,000
    
    
    
    7,471,000
    
    
    
    7,305,000
  F-3




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##### Table of Contents



AMERICAN PACIFIC CORPORATION
Consolidated Statements of Changes in Stockholders Equity
For the Years Ended September 30, 2008, 2007 and 2006
(Dollars in Thousands)
 CommonShares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedOutstanding,
    
    
    Par
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalNet of
    
    
    Value of
    
    
    Capital in
    
    
    
    
    
    
    
    
    
    
    Compre-
    
    
    Stock-Treasury
    
    
    Common
    
    
    Excess of
    
    
    Retained
    
    
    Treasury
    
    
    hensive
    
    
    holdersShares
    
    
    Stock
    
    
    Par Value
    
    
    Earnings
    
    
    Stock
    
    
    Loss
    
    
    EquityBALANCES, October 1, 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 Pension   Liability, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    556
    
    
    
    556Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,323
    )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
    )
    
    
    71,884Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,984
    
    
    
    
    
    
    
    
    
    
    
    4,984Currency Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    62Additional
Minimum Pension   Liability, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,094
    
    
    
    1,094Total Comprehensive
Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,140Adoption of SFAS 158, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,137
    )
    
    
    (3,137
    )Issuance of Common Stock
    
    
    104,500
    
    
    
    13
    
    
    
    682
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    695Tax Benefit From Stock Options
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Share-based Compensation
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75BALANCES, September 30, 2007
    
    
    7,428,671
    
    
    
    946
    
    
    
    87,513
    
    
    
    7,296
    
    
    
    (16,982
    )
    
    
    (3,084
    )
    
    
    75,689Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,951
    
    
    
    
    
    
    
    
    
    
    
    8,951Currency Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (127
    )
    
    
    (127
    )Change in Unamortized Benefit
Plan Costs, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    296
    
    
    
    296Retirement Plan Amendments,
Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,352
    )
    
    
    (2,352
    )Total Comprehensive
Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,768Adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (291
    )
    
    
    
    
    
    
    
    
    
    
    (291
    )Purchase of Treasury Stock
    
    
    (11,080
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (193
    )
    
    
    
    
    
    
    (193
    )Issuance of Common Stock
    
    
    60,000
    
    
    
    6
    
    
    
    375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    381Tax Benefit From Stock Options
    
    
    
    
    
    
    
    
    
    
    481
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481Share-based Compensation
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127BALANCES, September 30, 2008
    
    
    7,477,591
    
    
    $
    952
    
    
    $
    88,496
    
    
    $
    15,956
    
    
    $
    (17,175
    )
    
    $
    (5,267
    )
    
    $
    82,962
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AMERICAN PACIFIC CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2008, 2007 and 2006
(Dollars in Thousands)
 2008
    
    2007
    
    2006Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    8,951
    
    
    $
    4,984
    
    
    $
    (3,894
    )Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:Depreciation and amortization
    
    
    16,454
    
    
    
    19,461
    
    
    
    20,181Non-cash interest expense
    
    
    637
    
    
    
    2,142
    
    
    
    3,967Share-based compensation
    
    
    127
    
    
    
    75
    
    
    
    359Deferred income taxes
    
    
    3,355
    
    
    
    2,102
    
    
    
    (3,442
    )Non-cash component of debt repayment charges
    
    
    
    
    
    
    2,309
    
    
    
    Excess tax benefit from stock option exercises
    
    
    (481
    )
    
    
    (32
    )
    
    
    (21
    )Loss (Gain) on sale of assets
    
    
    (416
    )
    
    
    22
    
    
    
    (610
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (2,317
    )
    
    
    (5,712
    )
    
    
    (1,135
    )Inventories
    
    
    6,666
    
    
    
    (7,622
    )
    
    
    (11,821
    )Prepaid expenses and other current assets
    
    
    (1,510
    )
    
    
    (292
    )
    
    
    (1,251
    )Accounts payable
    
    
    (349
    )
    
    
    238
    
    
    
    4,323Income taxes
    
    
    (919
    )
    
    
    (63
    )
    
    
    198Accrued liabilities
    
    
    (1,765
    )
    
    
    2,621
    
    
    
    75Accrued interest
    
    
    (36
    )
    
    
    1,637
    
    
    
    49Employee related liabilities
    
    
    (431
    )
    
    
    2,622
    
    
    
    2,356Deferred revenues and customer deposits
    
    
    (4,664
    )
    
    
    2,072
    
    
    
    975Environmental remediation reserves
    
    
    (1,145
    )
    
    
    (2,088
    )
    
    
    (3,076
    )Pension obligations, net
    
    
    277
    
    
    
    1,677
    
    
    
    650Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    1,287Other
    
    
    (2,101
    )
    
    
    (2,015
    )
    
    
    299Net Cash Provided by Operating Activities
    
    
    20,333
    
    
    
    24,138
    
    
    
    9,469Cash Flows from Investing Activities:Acquisition of businesses and earnout adjustment
    
    
    
    
    
    
    (6,000
    )
    
    
    (108,011
    )Capital expenditures
    
    
    (15,284
    )
    
    
    (8,421
    )
    
    
    (15,018
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    2,395Discontinued operations, net
    
    
    
    
    
    
    7,510
    
    
    
    (411
    )Net Cash Used in Investing Activities
    
    
    (15,284
    )
    
    
    (6,911
    )
    
    
    (121,045
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    
    
    
    
    110,000
    
    
    
    85,000Payments of long-term debt
    
    
    (251
    )
    
    
    (108,586
    )
    
    
    (678
    )Debt issuance costs
    
    
    
    
    
    
    (4,814
    )
    
    
    (3,119
    )Issuance of common stock
    
    
    381
    
    
    
    695
    
    
    
    158Excess tax benefit from stock option exercises
    
    
    481
    
    
    
    32
    
    
    
    21Purchase of treasury stock
    
    
    (193
    )
    
    
    
    
    
    
    Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    (147
    )Net Cash Provided (Used) by Financing Activities
    
    
    418
    
    
    
    (2,673
    )
    
    
    81,235Net Change in Cash and Cash Equivalents
    
    
    5,467
    
    
    
    14,554
    
    
    
    (30,341
    )Cash and Cash Equivalents, Beginning of Year
    
    
    21,426
    
    
    
    6,872
    
    
    
    37,213Cash and Cash Equivalents, End of Year
    
    $
    26,893
    
    
    $
    21,426
    
    
    $
    6,872
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AMERICAN PACIFIC CORPORATION
Consolidated Statements of Cash Flows (Continued)
For the Years Ended September 30, 2008, 2007 and 2006
(Dollars in Thousands)
 2008
    
    2007
    
    2006Cash Paid For:Interest
    
    $
    10,141
    
    
    $
    8,217
    
    
    $
    7,415Income taxes
    
    
    5,304
    
    
    
    1,157
    
    
    
    (407
    )Non-Cash Investing and Financing Transactions:Issuance of Seller Subordinated Note, net of discount
    
    $
    
    
    
    $
    
    
    
    $
    19,400AFC Earnout Payment due seller (included in accrued liabilities)
    
    
    
    
    
    
    
    
    
    
    6,000Capital leases originated
    
    
    
    
    
    
    346
    
    
    
    527Additions to Property, Plant and Equipment not yet paid
    
    
    119
    
    
    
    379
    
    
    
    1,281
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AMERICAN PACIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2008, 2007 AND 2006
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of Consolidation.Our consolidated financial statements include the accounts of
American Pacific Corporation and our subsidiaries (the Company, we, us or our). In
connection with our acquisition of the fine chemicals business (the AFC Business) of GenCorp,
Inc. (GenCorp), through the purchase of substantially all the assets of Aerojet Fine Chemicals
LLC and the assumption of certain of its liabilities, we began consolidating our newly-formed,
wholly-owned subsidiary, Ampac Fine Chemicals LLC (AFC) on November 30, 2005 (see Note 2). All
intercompany accounts have been eliminated.Discontinued Operations.In June 2006, our board of directors approved, and we committed to a
plan to sell our 50% interest in our joint venture Energetic Systems, Inc. (ESI) based on our
determination that ESIs product lines were no longer a strategic fit with our business
strategies. We consolidated ESI in accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities,
which requires companies to consolidate variable interest entities that either (1) do not have
sufficient equity investment at risk to permit the entity to finance its activities without
additional subordinated financial support, or (2) hold a significant variable interest in, or
have significant involvement with, an existing variable interest entity. Revenues, expenses and
cash flows associated with ESIs operations are presented as discontinued operations for all
periods presented. Effective September 30, 2006, we completed the sale of our interest in ESI.
ESI was formerly reported within our Specialty Chemicals segment (see Note 14).Use of Estimates.The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities and the reported amounts of revenue and expenses. Judgments and
assessments of uncertainties are required in applying our accounting policies in many areas. For
example, key assumptions and estimates are particularly important when determining our projected
liabilities for pension benefits, useful lives for depreciable and amortizable assets, estimated
costs to complete long-term contracts, deferred tax assets and long-lived assets, including
intangible assets. Other areas in which significant judgment exists include, but are not limited
to, costs that may be incurred in connection with environmental matters and the resolution of
litigation and other contingencies. Actual results may differ from estimates on which our
consolidated financial statements were prepared.Revenue Recognition.Revenues from our Specialty Chemicals segment, Fine Chemicals segment, and
Other Businesses segment are recognized when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, title passes, the price is fixed or
determinable and collectability is reasonably assured. Almost all products sold by our Fine
Chemicals segment are subject to customer acceptance periods and at times we receive payment for
the product prior to customer acceptance. If we receive payment in advance of customer
acceptance, we record deferred revenues upon delivery of the product and recognize these
revenues in the period when the acceptance period lapses or customers acceptance has occurred.
Some of our perchlorate and fine chemicals products customers have requested that we store
materials purchased from us in our facilities (Bill and Hold transactions). We recognize
revenue prior to shipment of these Bill and Hold transactions when we have satisfied the
criteria of Staff Accounting Bulletin No. 101 Revenue Recognition in the Financial Statements,
as amended by Staff Accounting Bulletin No. 104, Revenue Recognition, which include the point
at which title and risk of ownership transfer to our customers. These customers have
specifically requested in writing, pursuant to a contract, that we invoice for the finished
product and hold the finished product until a later date.
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##### Table of Contents



1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Revenues from our Aerospace Equipment segment are derived from contracts that are accounted for
in conformity with the American Institute of Certified Public Accountants (AICPA) audit and
accounting guide, Audits of Federal Government Contracts and the AICPAs Statement of Position
No. 81-1, Accounting for Performance of Construction-Type and Certain Production Type
Contracts. We account for these contracts using the percentage-of-completion method and measure
progress on a cost-to-cost basis. The percentage-of-completion method recognizes revenue as work
on a contract progresses. Revenues are calculated based on the percentage of total costs
incurred in relation to total estimated costs at completion of the contract. For fixed-price and
fixed-price-incentive contracts, if at any time expected costs exceed the value of the contract,
the loss is recognized immediately.Environmental Remediation.We are subject to environmental regulations that relate to our past
and current operations. We record liabilities for environmental remediation costs when our
assessments indicate that remediation efforts are probable and the costs can be reasonably
estimated. On a quarterly basis, we review our estimates of future costs that could be incurred
for remediation activities. In some cases, only a range of reasonably possible costs can be
estimated. In establishing our reserves, the most probable estimate is used; otherwise, we
accrue the minimum amount of the range. Estimates of liabilities are based on currently
available facts, existing technologies and presently enacted laws and regulations. These
estimates are subject to revision in future periods based on actual costs or new circumstances.
Accrued environmental remediation costs include the undiscounted cost of equipment, operating
and maintenance costs, and fees to outside law firms and consultants, for the estimated duration
of the remediation activity. Estimating environmental cost requires us to exercise substantial
judgment regarding the cost, effectiveness and duration of our remediation activities. Actual
future expenditures could differ materially from our current estimates.We evaluate potential claims for recoveries from other parties separately from our estimated
liabilities. We record an asset for expected recoveries when recoveries of the amounts are
probable.Related Party Transactions.Our related party transactions generally fall into the following
categories: payments of professional fees to firms affiliated with certain members of our board
of directors, and payments to certain directors for consulting services outside of the scope of
their duties as directors. For the years ended September 30, 2008, 2007 and 2006, such
transactions totaled approximately $19, $41 and $83, respectively.Cash and Cash Equivalents.All highly liquid investment securities with a maturity of three
months or less when acquired are considered to be cash equivalents. We maintain cash balances
that exceed federally insured limits; however, we have incurred no losses on such accounts.Fair Value Disclosure of Financial Instruments.We estimate the fair values of cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities approximate their
carrying values due to their short-term nature. We estimate that the fair value of our
fixed-rate long-term debt to be approximately $97,900 based on the most recent trade data, which
was as of November 17, 2008.Concentration of Credit Risk.Financial instruments that have potential concentrations of credit
risk include cash and cash equivalents and accounts receivable. We place our cash and cash
equivalents with high quality credit institutions. Our accounts receivable have concentration
risk because significant amounts relate to customers in the aerospace and defense or
pharmaceutical industries. From time to time we make sales to a customer that exceed 10% of our
then outstanding accounts receivable balance. The following table provides disclosure of the
percentage of our consolidated accounts receivable attributed to customers that exceed ten
percent of the total for the fiscal years ended September 30:
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##### Table of Contents



1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 2008
    
    2007
    
    2006Fine chemicals customer
    
    
    13
    %
    
    
    11
    %
    
    
    23
    %Fine chemicals customer
    
    
    19
    %
    
    
    
    
    
    
    13
    %Fine chemicals customer
    
    
    10
    %
    
    
    
    
    
    
    12
    %Specialty chemicals customer
    
    
    
    
    
    
    22
    %Specialty chemicals customer
    
    
    
    
    
    
    17
    %Aerospace equipment customer
    
    
    12
    %
    
    
    
    
    
    
    13
    %
 Inventories.Inventories are stated at the lower of cost or market. Inventoried costs include
materials, labor and manufacturing overhead. Inventoried costs also include certain overhead
parts and supplies. General and administrative costs are expensed as incurred. Raw materials
cost of the Specialty Chemicals segment inventories is determined on a moving average basis. We
expense the cost of inventories which are considered to be excess because on-hand inventory
quantities exceed our estimates of future demand.Property, Plant and Equipment.Property, plant and equipment are carried at cost less
accumulated depreciation. Depreciation is computed on the straight-line method over the
estimated productive lives of the assets of 3 to 15 years for machinery and equipment and 30
years for buildings. Leasehold improvements are depreciated over the shorter of the estimated
productive life of 7 to 9 years or the term of the lease.Intangible Assets.Intangible assets are recorded at cost and are amortized using the
straight-line method over their estimated period of benefit of 1 to 10 years. We evaluate the
recoverability of intangible assets periodically and take into account events or circumstances
that warrant revised estimates of useful lives or that indicate that impairment exists. All of
our intangible assets are subject to amortization. No impairments of intangible assets have been
recorded during any of the years presented.Income Taxes.We account for income taxes under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment date. Taxes on
income of the Companys foreign subsidiary is provided at the tax rate applicable to the tax
jurisdiction in which it is located.On October 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48), which creates a single
model to address uncertainty in income tax positions and prescribes the minimum recognition
threshold a tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition. The Companys
adoption of this standard was consistent with FASB Staff Position FIN 48-1, Definition
of Settlement in FASB Interpretation No. 48, that was issued in May 2007 that provides guidance
on how to determine whether a tax position is effectively settled for the purpose of recognizing
unrecognized tax benefits.Under FIN 48, the Company may recognize tax benefits from an uncertain position only if it is
more likely than not that the position will be sustained upon examination by taxing authorities
based on the technical merits of the issue. The amount recognized is the largest benefit that
the Company believes has greater than a 50% likelihood of being realized upon settlement.
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1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Impairment of Long-Lived Assets.We test our property, plant and equipment and amortizable
intangible assets for recoverability when events or changes in circumstances indicate that their
carrying amounts may not be recoverable. Examples of such circumstances include, but are not
limited to, operating or cash flow losses from the use of such assets or changes in our intended
uses of such assets. The carrying amount of a long-lived asset is not recoverable if it exceeds
the sum of the undiscounted cash flows expected to result from the use and eventual disposition
of the asset. If we determine that an asset is not recoverable, then we would record an
impairment charge if the carrying value of the asset exceeds its fair value.Earnings (Loss) Per Share.Basic earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average shares outstanding during the year. Diluted earnings (loss) per
share is calculated by dividing net income by the weighted average shares outstanding plus the
dilutive effect of common share equivalents, which is computed using the treasury stock method.Foreign Currency.We translate our foreign subsidiarys assets and liabilities into U.S. dollars
using the year-end exchange rate. Revenue and expense amounts are translated at the average
exchange rate for the year. Foreign currency translation gains or losses are reported as
cumulative currency translation adjustments as a component of stockholders equity. For the
year ended September 30, 2008, we recorded foreign currency transaction losses of $61, which are
reported as a component of interest and other expenses on our consolidated statement of
operations. Gains or losses resulting from transactions in foreign currencies were not material
for the years ended September 30, 2007 and 2006.Recently Issued or Adopted Accounting Standards.In September 2006, the FASB issued SFAS No.
157, Fair Value Measurements (SFAS No. 157), which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles in the United
States of America, and expands disclosures about fair value measurements. In February 2008, the
FASB deferred the adoption of SFAS No. 157 for one year as it applies to certain items,
including assets and liabilities initially measured at fair value in a business combination,
reporting units and certain assets and liabilities measured at fair value in connection with
goodwill impairment tests in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, and long-lived assets measured at fair value for impairment assessments under SFAS No.
144, Accounting for the Impairment and Disposal of Long-Lived Assets. SFAS No. 157 applies
under other accounting pronouncements that require or permit fair value measurements, the FASB
having previously concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. SFAS No. 157 was effective for us on October 1, 2008. The adoption of
SFAS No. 157 is not expected to have a material impact on our results of operations, financial
position or cash flows.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159). SFAS No. 159 permits companies to choose to measure
many financial instruments and certain other items at fair value. The objective is to improve
financial reporting by providing companies with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently without having
to apply complex hedge accounting provisions. The fair value option established by SFAS No. 159
permits all companies to choose to measure eligible items at fair value at specified election
dates. At each subsequent reporting date, a company must report in earnings any unrealized gains
and losses on items for which
the fair value option has been elected. SFAS No. 159 was effective for us on October 1, 2008.
The adoption of SFAS No. 159 is not expected to have a material impact on our results of
operations, financial position or cash flows.In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS
No. 141R). SFAS No. 141R will significantly change the accounting for business combinations.
Under SFAS No. 141R, an acquiring entity is required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with limited
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##### Table of Contents



1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)exceptions. SFAS No. 141R also includes a substantial number of new disclosure requirements.
SFAS No. 141R applies to us prospectively for business combinations with acquisition dates on or
after October 1, 2009. We expect that SFAS No. 141R, once adopted, will have an impact on
accounting for business combinations, but the effect is dependent upon acquisitions at that
time.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements  An Amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 establishes
new accounting and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. Specifically, SFAS No. 160 requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated financial statements
and separate from the parents equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face of the income
statement. SFAS No. 160 clarifies that changes in a parents ownership interest in a subsidiary
that do not result in deconsolidation are equity transactions if the parent retains its
controlling financial interest. In addition, SFAS No. 160 requires that a parent recognize a
gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the noncontrolling equity investment on the deconsolidation
date. SFAS No.160 also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest. SFAS No. 160 is effective for us beginning on October
1, 2009. We currently have no entities or arrangements that will be affected by the adoption of
SFAS No. 160. However, determination of the ultimate effect of this pronouncement will depend
on our structure at the date of adoption.2.
    
    ACQUISITIONSAFC Business Acquisition.On November 30, 2005, we completed the acquisition of the AFC Business
of GenCorp through the purchase of substantially all of the assets of Aerojet Fine Chemicals LLC
and the assumption of certain of its liabilities. The assets were acquired and liabilities
assumed by our newly formed, wholly-owned subsidiary, Ampac Fine Chemicals LLC or AFC. AFC is
a manufacturer of active pharmaceutical ingredients and registered intermediates under the U.S.
Food and Drug Administrations current Good Manufacturing Practices or cGMP guidelines for
customers in the pharmaceutical industry.The total consideration for the AFC Business acquisition was comprised of the following:
 Cash
    
    $
    88,500Fair value of Seller Subordinated Noted (Face value $25,500)
    
    
    19,400Capital expenditures adjustment
    
    
    17,431Working capital adjustment
    
    
    (1,268
    )Earnout adjustment
    
    
    5,000Direct acquisition costs
    
    
    4,348$
    133,411
 Seller Subordinated Note.The fair value of the unsecured subordinated seller note (the Seller
Subordinated Note) in the principal amount of $25,500, was determined by discounting the
required principal and interest payments at a rate of 15%, which the Company believed was
appropriate for instruments with comparable terms. This Seller Subordinated Note was paid in
full in February 2007.Capital Expenditures Adjustment.The capital expenditures adjustment represents net
reimbursements to GenCorp for their cash capital investments, as defined in the acquisition
agreements, during the period July 2005 through the closing date on November 30, 2005.Working Capital Adjustment. The working capital adjustment represents a net adjustment to the
purchase price based on actual working capital as of the closing date compared to a target
working capital amount specified in the acquisition agreements.
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##### Table of Contents



2.
    
    ACQUISITIONS (continued)Earnout and EBITDAP Adjustments.The acquisition agreements included a reduction of the
purchase price if AFC did not achieve a specified level of earnings before interest, taxes,
depreciation, amortization, and pension expense (EBITDAP) for the three months ended December
31, 2005, equal to four times the difference between the targeted EBITDAP and the actual EBITDAP
achieved, not to exceed $1,000. This target was not met, and accordingly, we received $1,000
from GenCorp. In addition to the amounts paid at closing, the purchase price was subject to an
additional contingent cash payment of up to $5,000 based on targeted financial performance of
AFC during the year ended September 30, 2006. If the full earnout adjustment became payable to
GenCorp, the EBITDAP adjustment also became refundable to GenCorp. During the year ended
September 30, 2006, the AFC financial performance target was exceeded. Accordingly, we recorded
a $6,000 payable to GenCorp as of September 30, 2006 (classified as accrued liabilities)
comprised of the $5,000 Earnout Payment and the $1,000 refund of the EBITDAP adjustment. We
paid GenCorp $6,000 in February 2007.Direct Acquisition Costs. Direct acquisition costs, consisting primarily of legal and due
diligence fees, were $4,348.In connection with the AFC Business acquisition, we entered into the credit facilities and a
seller subordinated note which were refinanced and repaid, respectively, in February 2007. The
total purchase price was funded with net proceeds from these credit facilities of $81,881, the
seller subordinated note of $25,500 and existing cash.This acquisition was accounted for using the purchase method of accounting, under which the
total purchase price was allocated to the fair values of the assets acquired and liabilities
assumed. The following table indicates the amounts assigned to each major asset and liability
caption of AFC as of the acquisition date:
 Accounts Receivable
    
    $
    7,746Inventories
    
    
    15,941Other Current Assets
    
    
    123Property, Plant and Equipment
    
    
    114,494Customer relationships, average life of 5.5 years
    
    
    7,957Backlog, average life of 1.5 years
    
    
    2,287Other Assets
    
    
    382Total Assets Acquired
    
    
    148,930Accounts Payable and Accrued Liabilities
    
    
    11,967Deferred Revenues and Customer Deposits
    
    
    2,549Long-Term Liabilities
    
    
    1,003Total Liabilities Assumed
    
    
    15,519Purchase Price
    
    $
    133,411
 Intangible assets, consisting of customer relationships and existing customer backlog, have
definite lives and are being amortized over their estimated useful lives using the straight-line
method.The following pro forma information has been prepared from our historical financial statements
and those of the AFC Business. The unaudited pro forma information gives effect to the
combination as if it had occurred on October 1, 2004.
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##### Table of Contents



2.
    
    ACQUISITIONS (continued)
 2006Revenues
    
    $
    160,146Loss from Continuing Operations
    
    
    (4,814
    )Net Loss
    
    
    (5,705
    )Basic Diluted Loss per Share:Loss from Continuing Operations
    
    $
    (0.66
    )Net Loss
    
    
    (0.78
    )
 The pro forma financial information is not necessarily indicative of what the financial
position or results of operations would have been if the combination had occurred on the
above-mentioned date.Recent Acquisition.Effective October 1, 2008, we completed the acquisition of Marotta
Holdings, Ltd. and its wholly-owned subsidiaries (collectively Marotta Europe) for a
Euro-denominated cash purchase price of 4.7 million, or approximately $6,451. The acquired
business will become a component of our Aerospace Equipment segment and be accounted for using
the purchase method of accounting.Marotta Europe designs, develops and manufactures high performance valves, pressure regulators,
cold-gas propulsion systems, and precision structures for space applications, especially in the
European space market. These products are used on various satellites and spacecraft, as well as
on the Ariane 5 launch vehicle. The business has two locations, Dublin, Ireland and Cheltenham,
U.K.3.
    
    SHARE-BASED COMPENSATIONWe account for our share-based compensation arrangements under the provisions of SFAS No. 123
(Revised 2004), Share-Based Payment, which requires us to measure the cost of employee
services received in exchange for an award of equity instruments based on the grant date fair
value of the award. The fair values of awards are recognized as additional compensation
expense, which is classified as operating expenses, proportionately over the vesting period of
the awards.Our share-based compensation arrangements are designed to advance the long-term interests of the
Company, including by attracting and retaining employees and directors and aligning their
interests with those of our stockholders. The amount, frequency, and terms of share-based awards
may vary based on competitive practices, our operating results, government regulations and
availability under our equity incentive plans. Depending on the form of the share-based award,
new shares of our common stock may be issued upon grant, option exercise or vesting of the
award. We maintain three share based plans, each as discussed below.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 September 30,
2008, there were 20,000 shares available for grant under the 2001 Plan. This plan was approved
by our stockholders.
  F-13




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##### Table of Contents



3.
    
    SHARE-BASED COMPENSATION (continued)November 2007 vest 50% one year from the date of grant and 50% two years from the date of grant,
and expire ten years from the date of grant. As of September 30, 2008, there were 3 shares
available for grant under the 2002 Directors Plan. This plan was approved by our stockholders.In November 2007, our board of directors adopted, and in March 2008, our stockholders approved,
the American Pacific Corporation 2008 Stock Incentive Plan (the 2008 Plan). The 2008 Plan
permits the granting of stock options, restricted stock, restricted stock units and stock
appreciation rights to employees, directors and consultants. A total of 350,000 shares of
common stock are authorized for issuance under the 2008 Plan, provided that no more than 200,000
shares of common stock may be granted pursuant to awards of restricted stock and restricted
stock units. As of September 30, 2008, there were 350,000 shares available for grant under the
2008 plan.A summary of our outstanding and vested stock option activity for the year ended September 30,
2008 is as follows:
 Total Outstanding
    
    Non VestedWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    FairPrice
    
    
    
    
    
    ValueShares
    
    Per Share
    
    Shares
    
    Per ShareBalance, October 1, 2007
    
    
    430,000
    
    
    $
    7.05
    
    
    
    9,500
    
    
    $
    3.77Granted
    
    
    24,997
    
    
    
    16.93
    
    
    
    24,997
    
    
    
    7.86Vested
    
    
    
    
    
    
    
    
    
    
    (9,500
    )
    
    
    3.77Exercised
    
    
    (60,000
    )
    
    
    6.77
    
    
    
    
    
    
    
    Expired / Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, September 30, 2008
    
    
    394,997
    
    
    $
    7.72
    
    
    
    24,997
    
    
    $
    7.86
 A summary of our exercisable stock options as of September 30, 2008 is as follows:
 Number of vested stock options
    
    
    370,000Weighted average exercise price per share
    
    $
    7.10Aggregate intrinsic value
    
    $
    2,206Weighted average remaining contractual term in years
    
    
    5.8
 We determine the fair value of share-based awards at their grant date, using a Black-Scholes
Option-Pricing model applying the assumptions in the following table. Actual compensation, if
any, ultimately realized by optionees may differ significantly from the amount estimated using
an option valuation model.The following stock option information is as of September 30:
 F-14




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##### Table of Contents



3. SHARE-BASED COMPENSATION (continued)
 2008
    
    2007
    
    2006Weighted average grant date fair value per share of options granted
    
    $
    7.86
    
    
    $
    3.68
    
    
    $
    2.00Significant fair value assumptions:Expected term in years
    
    
    5.75
    
    
    
    5.25
    
    
    
    5.25Expected volatility
    
    
    44.5
    %
    
    
    47.0
    %
    
    
    47.0
    %Expected dividends
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rates
    
    
    3.4
    %
    
    
    4.7
    %
    
    
    4.4
    %Total intrinsic value of options exercised
    
    $
    629
    
    
    $
    760
    
    
    $
    54Aggregate cash received for option exercises
    
    $
    406
    
    
    $
    695
    
    
    $
    158Total compensation cost (included in operating expenses)
    
    $
    127
    
    
    $
    75
    
    
    $
    359Tax benefit recognized
    
    
    50
    
    
    
    30
    
    
    
    141Net compensation cost
    
    $
    77
    
    
    $
    45
    
    
    $
    218As of period end date:Total compensation cost for non-vested awards
not yet recognized
    
    $
    70
    
    
    $
    1
    
    
    $
    6Weighted-average years to be recognized
    
    
    0.6
    
    
    
    
    
    
    
    0.2
   4. BALANCE SHEET DATA
  2008
    
    2007Accounts Receivable:Trade receivables
    
    $
    23,201
    
    
    $
    22,392Unbilled receivables
    
    
    3,827
    
    
    
    2,908Employee and other receivables
    
    
    491
    
    
    
    108Allowance for bad debt
    
    
    (74
    )
    
    
    (172
    )Total
    
    $
    27,445
    
    
    $
    25,236
  F-15




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##### Table of Contents



4. BALANCE SHEET DATA (continued)
 2008
    
    2007Inventories:Finished goods
    
    $
    2,475
    
    
    $
    817Work-in-progress
    
    
    22,698
    
    
    
    29,225Raw materials and supplies
    
    
    14,469
    
    
    
    14,537Deferred cost of revenues
    
    
    715
    
    
    
    2,444Total
    
    $
    40,357
    
    
    $
    47,023Property, Plant and Equipment:Land and improvements
    
    $
    2,945
    
    
    $
    2,924Buildings and improvements
    
    
    45,879
    
    
    
    43,926Machinery and equipment
    
    
    114,224
    
    
    
    106,348Construction in progress
    
    
    7,542
    
    
    
    3,318Total Cost
    
    
    170,590
    
    
    
    156,516Less: accumulated depreciation
    
    
    (51,982
    )
    
    
    (39,551
    )Total
    
    $
    118,608
    
    
    $
    116,965
  5. INTANGIBLE ASSETS
  2008
    
    2007Perchlorate customer list
    
    $
    38,697
    
    
    $
    38,697Less accumulated amortization
    
    
    (38,697
    )
    
    
    (37,180
    )
    
    
    
    1,517Customer relationships and backlog
    
    
    10,244
    
    
    
    10,244Less accumulated amortization
    
    
    (7,231
    )
    
    
    (5,994
    )3,013
    
    
    
    4,250Total
    
    $
    3,013
    
    
    $
    5,767
    Years ending September 30:2009
    
    $
    1,2382010
    
    
    1,2382011
    
    
    537Total
    
    $
    3,013
 F-16




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##### Table of Contents



6. DEBT
  2008
    
    2007Senior Notes, 9%, due 2015
    
    $
    110,000
    
    
    $
    110,000Capital Leases, due 2010
    
    
    374
    
    
    
    625Total Debt
    
    
    110,374
    
    
    
    110,625Less Current Portion
    
    
    (254
    )
    
    
    (252
    )Total Long-term Debt
    
    $
    110,120
    
    
    $
    110,373
 Senior Notes.
 
    
    ranked equally in right of payment with all of our existing and future senior
indebtedness;
    
    ranked senior in right of payment to all of our existing and future senior subordinated
and subordinated indebtedness;
    
    effectively junior to our existing and future secured debt to the extent of the value of
the assets securing such debt; and
    
    structurally subordinated to all of the existing and future liabilities (including trade
payables) of each of our subsidiaries that do not guarantee the Senior Notes.
  
    
    at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of
the Senior Notes plus an applicable premium as defined in the related indenture;
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the
principal amount to be redeemed and reducing to 100% by February 1, 2013;
    
    until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a
redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest
thereon, with the proceeds of certain sales of our equity securities; and
    
    under certain changes of control, we must offer to purchase the Senior Notes at 101% of
their aggregate principal amount, plus accrued interest.
  
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create liens on assets to secure debt;
    
    incur dividend or other payment restrictions with regard to restricted subsidiaries;
    
    transfer or sell assets;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions;
    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
 F-17




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##### Table of Contents



6. DEBT (continued)
  Revolving Credit Facility.
  
    
    incur debt, incur contingent obligations and issue certain types of preferred stock;
    
    create liens;
    
    pay dividends, distributions or make other specified restricted payments;
    
    make certain investments and acquisitions;
    
    enter into certain transactions with affiliates;
    
    enter into sale and leaseback transactions; and
    
    merge or consolidate with any other entity or sell, assign, transfer, lease, convey or
otherwise dispose of assets.
   Principal Maturities
 F-18




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##### Table of Contents



6. DEBT (continued)
 Years ending September 30:2009
    
    $
    2542010
    
    
    1202011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    110,000Total
    
    $
    110,374
 Debt Issue Costs and Debt Repayment Charges.
 Letters of Credit.
 Interest Rate Swap Agreements.
 7. EARNINGS (LOSS) PER SHARE
  2008
    
    2007
    
    2006Income (Loss) from Continuing Operations
    
    $
    8,951
    
    
    $
    4,984
    
    
    $
    (3,003
    )Basic:Weighted Average Shares
    
    
    7,451,000
    
    
    
    7,365,000
    
    
    
    7,305,000Diluted:Weighted Average Shares, Basic
    
    
    7,451,000
    
    
    
    7,365,000
    
    
    
    7,305,000Dilutive Effect of Stock Options
    
    
    148,000
    
    
    
    106,000
    
    
    
    Weighted Average Shares, Diluted
    
    
    7,599,000
    
    
    
    7,471,000
    
    
    
    7,305,000Basic Earnings (Loss) per Share from Continuing Operations
    
    $
    1.20
    
    
    $
    0.68
    
    
    $
    (0.41
    )Diluted Earnings (Loss) per Share from Continuing Operations
    
    $
    1.18
    
    
    $
    0.67
    
    
    $
    (0.41
    )
 F-19




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##### Table of Contents



7. EARNINGS (LOSS) PER SHARE (continued)
  8. STOCKHOLDERS EQUITY
 Preferred Stock.
 Shareholder Rights Plan.
  
    
    are attached to and trade with the outstanding shares of common stock.
    
    generally become exercisable if a person or group of affiliated persons becomes an
Acquiring Person by acquiring or commencing a tender offer to acquire 20% or more of the
outstanding shares of our common stock.
    
    do not become exercisable in the case of Qualifying Offers or Permitted Offers,
which include, among others, tender or exchange offers for all outstanding common stock of
the Company, the terms of which are approved by at least a majority of the non-employee
directors on our board of directors.
    
    
    have 100 votes each, voting together with the common stock.
    
    are entitled to receive the greater of a declared dividend payment of $1.00 per share or
a dividend of 100 times the dividend declared per share of common stock.
    
    are, in the event of a liquidation of the Company, entitled to the greater of $100 per
share, plus any accrued and unpaid dividends, or 100 times the aggregate amount per share
payable to holders of common stock.
 9. INCOME TAXES
  F-20




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##### Table of Contents



9. INCOME TAXES (continued)
 2008
    
    2007
    
    2006United States
    
    $
    15,934
    
    
    $
    10,228
    
    
    $
    (6,779
    )Foreign
    
    
    (495
    )
    
    
    (639
    )
    
    
    (524
    )Total
    
    $
    15,439
    
    
    $
    9,589
    
    
    $
    (7,303
    )
  2008
    
    2007
    
    2006Current
    
    $
    1,580
    
    
    $
    1,355
    
    
    $
    (1,179
    )Deferred
    
    
    4,908
    
    
    
    3,250
    
    
    
    (3,121
    )Income tax expense (benefit)
    
    $
    6,488
    
    
    $
    4,605
    
    
    $
    (4,300
    )
  2008
    
    2007Deferred tax assets:Environmental remediation reserves
    
    $
    7,386
    
    
    $
    8,354Tax credits and carryforwards
    
    
    2,988
    
    
    
    5,531Pension obligations
    
    
    5,447
    
    
    
    3,083Intangible assets
    
    
    3,507
    
    
    
    3,452Inventory
    
    
    4,848
    
    
    
    1,398Accrued expenses
    
    
    2,292
    
    
    
    946Other
    
    
    529
    
    
    
    616Subtotal
    
    
    26,997
    
    
    
    23,380Valuation allowance
    
    
    (891
    )
    
    
    (855
    )Deferred tax assets
    
    
    26,106
    
    
    
    22,525Deferred tax liabilities:Prepaid expenses
    
    
    (627
    )
    
    
    (714
    )Property, plant and equipment
    
    
    (4,613
    )
    
    
    (217
    )Other
    
    
    (158
    )
    
    
    (108
    )Deferred tax liabilities
    
    
    (5,398
    )
    
    
    (1,039
    )Net deferred tax assets
    
    $
    20,708
    
    
    $
    21,486
   F-21




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##### Table of Contents



9. INCOME TAXES (continued)
 2008
    
    2007
    
    2006Federal income tax at the statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    (35.0
    %)State income tax, net of federal benefit
    
    
    5.2
    %
    
    
    4.0
    %
    
    
    (3.1
    %)Nondeductible expenses
    
    
    1.5
    %
    
    
    1.3
    %
    
    
    1.0
    %Valuation allowance
    
    
    1.0
    %
    
    
    2.0
    %
    
    
    1.8
    %Change in effective state income tax rate
    
    
    (2.3
    %)
    
    
    5.4
    %
    
    
    (13.7
    %)Interest and penalties
    
    
    1.4
    %
    
    
    0.0
    %
    
    
    0.0
    %Basis differences in partnerships
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (5.6
    %)Other
    
    
    0.2
    %
    
    
    0.3
    %
    
    
    (4.3
    %)Effective tax rate
    
    
    42.0
    %
    
    
    48.0
    %
    
    
    (58.9
    %)
 FIN 48.
 Balance, October 1, 2007
    
    $
    3,949Additions for tax positions of prior years
    
    
    998Reductions for tax positions of prior years
    
    
    (4,572
    )Lapse of statute of limitations
    
    
    (62
    )Balance, September 30, 2008
    
    $
    313
   10. EMPLOYEE BENEFIT PLANS
  F-22




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##### Table of Contents



10. EMPLOYEE BENEFIT PLANS (continued)
    -
  Pension Plans
    
    SERPNet actuarial loss (gain)
    
    $
    685
    
    
    $
    (184
    )Prior service costs
    
    
    242
    
    
    
    3,516Amortization of:Net actuarial loss from previous years
    
    
    (296
    )
    
    
    Prior service costs
    
    
    (76
    )
    
    
    (434
    )Income tax benefits related to above items
    
    
    (238
    )
    
    
    (1,159
    )Changes in unrecognized benefit plan costs
    
    $
    317
    
    
    $
    1,739
  Pension Plans
    
    SERP2008
    
    2007
    
    2008
    
    2007Net actuarial loss (gain)
    
    $
    5,343
    
    
    $
    4,953
    
    
    $
    (130
    )
    
    $
    54Prior service costs
    
    
    398
    
    
    
    232
    
    
    
    3,096
    
    
    
    14Income tax benefits related to above items
    
    
    (2,296
    )
    
    
    (2,057
    )
    
    
    (1,186
    )
    
    
    (27
    )Unrecognized benefit plan costs, net of tax
    
    $
    3,445
    
    
    $
    3,128
    
    
    $
    1,780
    
    
    $
    41
  Pension Plans
    
    SERPAmortization of net actuarial loss
    
    $
    244
    
    
    $
    Amortization of prior service costs
    
    
    76
    
    
    
    434Total
    
    $
    320
    
    
    $
    434
 F-23




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##### Table of Contents



10. EMPLOYEE BENEFIT PLANS (continued)
  Pension Plans
    
    SERP2008
    
    2007
    
    2008
    
    2007Change in Benefit Obligation:Benefit obligation, beginning of year
    
    $
    39,694
    
    
    $
    38,414
    
    
    $
    2,076
    
    
    $
    2,364Service cost
    
    
    2,078
    
    
    
    2,027
    
    
    
    351
    
    
    
    Interest cost
    
    
    2,526
    
    
    
    2,252
    
    
    
    346
    
    
    
    138Amendments
    
    
    241
    
    
    
    
    
    
    
    3,516
    
    
    
    Actuarial gains
    
    
    (6,021
    )
    
    
    (1,984
    )
    
    
    (184
    )
    
    
    (300
    )Benefits paid
    
    
    (1,126
    )
    
    
    (1,015
    )
    
    
    (126
    )
    
    
    (126
    )Benefit obligation, end of year
    
    
    37,392
    
    
    
    39,694
    
    
    
    5,979
    
    
    
    2,076Change in Plan Assets:Fair value of plan assets, beginning of year
    
    
    29,908
    
    
    
    25,024
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    (4,241
    )
    
    
    3,194
    
    
    
    
    
    
    
    Employer contributions
    
    
    3,011
    
    
    
    2,705
    
    
    
    126
    
    
    
    126Benefits paid
    
    
    (1,126
    )
    
    
    (1,015
    )
    
    
    (126
    )
    
    
    (126
    )Fair value of plan assets, end of year
    
    
    27,552
    
    
    
    29,908
    
    
    
    
    
    
    
    Funded status
    
    $
    (9,840
    )
    
    $
    (9,786
    )
    
    $
    (5,979
    )
    
    $
    (2,076
    )
  Pension Plans
    
    SERP2008
    
    2007
    
    2008
    
    2007Other assets (Prepaid benefit costs)
    
    $
    
    
    
    $
    225
    
    
    $
    
    
    
    $
    Employee related liabilities
    
    
    
    
    
    
    
    
    
    
    (126
    )Pension obligations and other long-term liabilities
    
    
    (9,840
    )
    
    
    (10,011
    )
    
    
    (5,853
    )
    
    
    (2,076
    )Net amount recognized
    
    $
    (9,840
    )
    
    $
    (9,786
    )
    
    $
    (5,979
    )
    
    $
    (2,076
    )
  2008
    
    2007Plan Assets:Ampac Plan
    
    $
    22,929
    
    
    $
    24,753AFC Salaried Plan
    
    
    2,978
    
    
    
    3,204AFC Bargaining Plan
    
    
    1,645
    
    
    
    1,951Accumulated Benefit Obligation:Ampac Plan
    
    
    25,948
    
    
    
    26,950AFC Salaried Plan
    
    
    3,285
    
    
    
    3,220AFC Bargaining Plan
    
    
    2,067
    
    
    
    1,726Projected Benefit Obligation:Ampac Plan
    
    
    31,148
    
    
    
    33,698AFC Salaried Plan
    
    
    4,177
    
    
    
    4,270AFC Bargaining Plan
    
    
    2,067
    
    
    
    1,726
  F-24




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##### Table of Contents



10. EMPLOYEE BENEFIT PLANS (continued)
 Target
    
    Actual2008
    
    2008
    
    2007Equity securities
    
    
    70
    %
    
    
    62
    %
    
    
    72
    %Debt securities
    
    
    27
    %
    
    
    23
    %
    
    
    11
    %Cash and marketable securities
    
    
    3
    %
    
    
    15
    %
    
    
    17
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Pension Plans
    
    SERP2008
    
    2007
    
    2006
    
    2008
    
    2007
    
    2006Net Periodic Pension Cost:Service cost
    
    $
    2,078
    
    
    $
    2,027
    
    
    $
    1,863
    
    
    $
    351
    
    
    $
    
    
    
    $
    Interest cost
    
    
    2,526
    
    
    
    2,252
    
    
    
    2,024
    
    
    
    346
    
    
    
    138
    
    
    
    140Expected return on plan assets
    
    
    (2,466
    )
    
    
    (2,084
    )
    
    
    (1,791
    )
    
    
    
    
    
    
    
    
    
    
    Recognized actuarial losses
    
    
    296
    
    
    
    429
    
    
    
    584
    
    
    
    
    
    
    
    11
    
    
    
    24Amortization of prior service costs
    
    
    76
    
    
    
    58
    
    
    
    58
    
    
    
    434
    
    
    
    43
    
    
    
    43Net periodic pension cost
    
    $
    2,510
    
    
    $
    2,682
    
    
    $
    2,738
    
    
    $
    1,131
    
    
    $
    192
    
    
    $
    207Actuarial Assumptions:Discount rate
    
    
    7.25
    %
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    7.25
    %
    
    
    6.25
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.00
    %
    
    
    4.50
    %
    
    
    4.50
    %Expected return on plan assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    
    
    
    
    
    
    
    
    
  Years ending September 30:
    
    Pension Plans
    
    SERP2009
    
    $
    1,469
    
    
    $
    1262010
    
    
    1,529
    
    
    
    1142011
    
    
    1,544
    
    
    
    7002012
    
    
    1,573
    
    
    
    6742013
    
    
    1,685
    
    
    
    8682014-2018
    
    
    9,945
    
    
    
    3,777
 11. COMMITMENTS AND CONTINGENCIES
 Operating
Leases.
  Years ending September 30:2009
    
    $
    1,6792010
    
    
    1,3862011
    
    
    1,3642012
    
    
    1,3772013
    
    
    1,284Thereafter
    
    
    5,737Total
    
    $
    12,827
 F-25




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##### Table of Contents



11. COMMITMENTS AND CONTINGENCIES (continued)
 Purchase Commitments.
 Employee Agreements.
    Environmental Matters.
 Review of Perchlorate Toxicity by the EPA.
 Perchlorate Remediation Project in Henderson, Nevada.
 F-26




---



##### Table of Contents



11. COMMITMENTS AND CONTINGENCIES (continued)
      Henderson Site Environmental Remediation Reserve.
  F-27




---



##### Table of Contents



11. COMMITMENTS AND CONTINGENCIES (continued)
     Balance, September 30, 2007
    
    $
    15,423Additions or adjustments
    
    
    Expenditures
    
    
    (1,145
    )Balance, September 30, 2008
    
    $
    14,278
 AFC Environmental Matters.
  F-28




---



##### Table of Contents



11. COMMITMENTS AND CONTINGENCIES (continued)
  Other Matters.
 12. SEGMENT INFORMATION
  Fine Chemicals.
 Specialty Chemicals. â
 Aerospace Equipment
 Other Businesses.
  F-29




---



##### Table of Contents



12. SEGMENT INFORMATION (continued)
 2008
    
    2007
    
    2006Fine chemicals customer
    
    
    13
    %
    
    
    11
    %
    
    
    28
    %Fine chemicals customer
    
    
    31
    %
    
    
    25
    %Fine chemicals customer
    
    
    10
    %
    
    
    10
    %Specialty chemicals customer
    
    
    16
    %
    
    
    15
    %
    
    
    18
    %Specialty chemicals customer
    
    
    
    
    
    
    10
    %
  2008
    
    2007
    
    2006RevenuesFine Chemicals
    
    $
    124,187
    
    
    $
    104,441
    
    
    $
    74,026Specialty Chemicals
    
    
    57,097
    
    
    
    57,088
    
    
    
    46,450Aerospace Equipment
    
    
    16,435
    
    
    
    17,348
    
    
    
    17,394Other Businesses
    
    
    5,410
    
    
    
    5,051
    
    
    
    4,034Total Revenues
    
    $
    203,129
    
    
    $
    183,928
    
    
    $
    141,904Segment Operating Income:Fine Chemicals
    
    $
    16,246
    
    
    $
    16,790
    
    
    $
    7,245Specialty Chemicals
    
    
    23,128
    
    
    
    18,223
    
    
    
    14,755Aerospace Equipment
    
    
    736
    
    
    
    1,458
    
    
    
    802Other Businesses
    
    
    1,022
    
    
    
    1,210
    
    
    
    264Total Segment Operating Income
    
    
    41,132
    
    
    
    37,681
    
    
    
    23,066Corporate Expenses
    
    
    (16,256
    )
    
    
    (13,824
    )
    
    
    (16,407
    )Environmental Remediation Charges
    
    
    
    
    
    
    
    
    
    
    (3,600
    )Operating Income
    
    $
    24,876
    
    
    $
    23,857
    
    
    $
    3,059Depreciation and Amortization:Fine Chemicals
    
    $
    12,876
    
    
    $
    13,637
    
    
    $
    14,379Specialty Chemicals
    
    
    2,825
    
    
    
    5,159
    
    
    
    5,149Aerospace Equipment
    
    
    222
    
    
    
    142
    
    
    
    93Other Businesses
    
    
    12
    
    
    
    12
    
    
    
    11Corporate
    
    
    519
    
    
    
    511
    
    
    
    549Total
    
    $
    16,454
    
    
    $
    19,461
    
    
    $
    20,181Capital Expenditures:Fine Chemicals
    
    $
    10,667
    
    
    $
    7,004
    
    
    $
    13,486Specialty Chemicals
    
    
    1,687
    
    
    
    1,026
    
    
    
    816Aerospace Equipment
    
    
    686
    
    
    
    337
    
    
    
    414Other Businesses
    
    
    1
    
    
    
    
    
    
    
    2Corporate
    
    
    2,243
    
    
    
    54
    
    
    
    300Total
    
    $
    15,284
    
    
    $
    8,421
    
    
    $
    15,018Assets, at year end:Fine Chemicals
    
    $
    155,807
    
    
    $
    156,370
    
    
    $
    158,151Specialty Chemicals
    
    
    18,282
    
    
    
    28,058
    
    
    
    23,934Aerospace Equipment
    
    
    10,563
    
    
    
    8,989
    
    
    
    9,411Other Businesses
    
    
    4,963
    
    
    
    3,946
    
    
    
    4Corporate
    
    
    61,798
    
    
    
    52,044
    
    
    
    47,955Total
    
    $
    251,413
    
    
    $
    249,407
    
    
    $
    239,455
  F-30




---



##### Table of Contents



12. SEGMENT INFORMATION (continued)
  13. INTEREST AND OTHER INCOME
  2008
    
    2007
    
    2006Interest Income
    
    $
    937
    
    
    $
    644
    
    
    $
    459Gain in Sales of Assets
    
    
    429
    
    
    
    
    
    
    
    610$
    1,366
    
    
    $
    644
    
    
    $
    1,069
  14. DISCONTINUED OPERATIONS
   2006Revenues
    
    $
    13,285Discontinued Operations:Operating loss before tax
    
    
    (813
    )Benefit for income tax
    
    
    (258
    )Net loss from discontinued operations
    
    
    (555
    )Gain (Loss) on Sale of Discontinued Operations:Gain on sale of discontinued operations before tax
    
    
    258Income tax expense
    
    
    594Net loss on sale of discontinued operations
    
    
    (336
    )$
    (891
    )
 F-31




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##### Table of Contents



15. GUARANTOR SUBSIDIARIES
  Condensed Consolidating Balance Sheet -
September 30, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    26,664
    
    
    $
    229
    
    
    $
    
    
    
    $
    26,893Accounts Receivable, Net
    
    
    
    
    
    
    27,083
    
    
    
    649
    
    
    
    (287
    )
    
    
    27,445Inventories
    
    
    
    
    
    
    39,669
    
    
    
    688
    
    
    
    
    
    
    
    40,357Prepaid Expenses and Other Assets
    
    
    
    
    
    
    5,085
    
    
    
    111
    
    
    
    
    
    
    
    5,196Deferred Income Taxes
    
    
    
    
    
    
    6,859
    
    
    
    
    
    
    
    
    
    
    
    6,859Total Current Assets
    
    
    
    
    
    
    105,360
    
    
    
    1,677
    
    
    
    (287
    )
    
    
    106,750Property, Plant and Equipment, Net
    
    
    
    
    
    
    118,437
    
    
    
    171
    
    
    
    
    
    
    
    118,608Intangible Assets, Net
    
    
    
    
    
    
    3,013
    
    
    
    
    
    
    
    
    
    
    
    3,013Deferred Income Taxes
    
    
    
    
    
    
    13,849
    
    
    
    
    
    
    
    
    
    
    
    13,849Other Assets
    
    
    
    
    
    
    9,193
    
    
    
    
    
    
    
    
    
    
    
    9,193Intercompany Advances
    
    
    79,886
    
    
    
    2,664
    
    
    
    
    
    
    
    (82,550
    )
    
    
    Investment in Subsidiaries, Net
    
    
    113,076
    
    
    
    (1,143
    )
    
    
    
    
    
    
    (111,933
    )
    
    
    Total Assets
    
    $
    192,962
    
    
    $
    251,373
    
    
    $
    1,848
    
    
    $
    (194,770
    )
    
    $
    251,413Liabilitites and Shareholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    24,718
    
    
    $
    327
    
    
    $
    (287
    )
    
    $
    24,758Environmental Remediation Reserves
    
    
    
    
    
    
    996
    
    
    
    
    
    
    
    
    
    
    
    996Deferred Revenues and Customer Deposits
    
    
    
    
    
    
    3,091
    
    
    
    
    
    
    
    
    
    
    
    3,091Current Portion of Long-Term Debt
    
    
    
    
    
    
    254
    
    
    
    
    
    
    
    
    
    
    
    254Intercompany Advances
    
    
    
    
    
    
    79,886
    
    
    
    2,664
    
    
    
    (82,550
    )
    
    
    Total Current Liabilities
    
    
    
    
    
    
    108,945
    
    
    
    2,991
    
    
    
    (82,837
    )
    
    
    29,099Long-Term Debt
    
    
    110,000
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    110,120Environmental Remediation Reserves
    
    
    
    
    
    
    13,282
    
    
    
    
    
    
    
    
    
    
    
    13,282Pension Obligations and Other Long-Term Liabilities
    
    
    
    
    
    
    15,950
    
    
    
    
    
    
    
    
    
    
    
    15,950Total Liabilities
    
    
    110,000
    
    
    
    138,297
    
    
    
    2,991
    
    
    
    (82,837
    )
    
    
    168,451Total Shareholders Equity
    
    
    82,962
    
    
    
    113,076
    
    
    
    (1,143
    )
    
    
    (111,933
    )
    
    
    82,962Total Liabilities and Shareholders Equity
    
    $
    192,962
    
    
    $
    251,373
    
    
    $
    1,848
    
    
    $
    (194,770
    )
    
    $
    251,413
 F-32




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##### Table of Contents



15. GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Balance Sheet -

      September 30, 2007
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    21,352
    
    
    $
    74
    
    
    $
    
    
    
    $
    21,426Accounts Receivable, Net
    
    
    
    
    
    
    25,262
    
    
    
    1,053
    
    
    
    (1,079
    )
    
    
    25,236Inventories
    
    
    
    
    
    
    46,311
    
    
    
    712
    
    
    
    
    
    
    
    47,023Prepaid Expenses and Other Assets
    
    
    
    
    
    
    2,160
    
    
    
    98
    
    
    
    
    
    
    
    2,258Deferred Income Taxes
    
    
    
    
    
    
    2,101
    
    
    
    
    
    
    
    
    
    
    
    2,101Total Current Assets
    
    
    
    
    
    
    97,186
    
    
    
    1,937
    
    
    
    (1,079
    )
    
    
    98,044Property, Plant and Equipment, Net
    
    
    
    
    
    
    116,814
    
    
    
    151
    
    
    
    
    
    
    
    116,965Intangible Assets, Net
    
    
    
    
    
    
    5,767
    
    
    
    
    
    
    
    
    
    
    
    5,767Deferred Income Taxes
    
    
    
    
    
    
    19,385
    
    
    
    
    
    
    
    
    
    
    
    19,385Other Assets
    
    
    
    
    
    
    9,246
    
    
    
    
    
    
    
    
    
    
    
    9,246Intercompany Advances
    
    
    78,976
    
    
    
    1,840
    
    
    
    
    
    
    
    (80,816
    )
    
    
    Investment in Subsidiaries, Net
    
    
    106,713
    
    
    
    (521
    )
    
    
    
    
    
    
    (106,192
    )
    
    
    Total Assets
    
    $
    185,689
    
    
    $
    249,717
    
    
    $
    2,088
    
    
    $
    (188,087
    )
    
    $
    249,407Liabilitites and Shareholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    27,914
    
    
    $
    769
    
    
    $
    (1,079
    )
    
    $
    27,604Environmental Remediation Reserves
    
    
    
    
    
    
    726
    
    
    
    
    
    
    
    
    
    
    
    726Deferred Revenues and Customer Deposits
    
    
    
    
    
    
    7,755
    
    
    
    
    
    
    
    
    
    
    
    7,755Current Portion of Debt
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    252Intercompany Advances
    
    
    
    
    
    
    78,976
    
    
    
    1,840
    
    
    
    (80,816
    )
    
    
    Total Current Liabilities
    
    
    
    
    
    
    115,623
    
    
    
    2,609
    
    
    
    (81,895
    )
    
    
    36,337Long-Term Debt
    
    
    110,000
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    110,373Environmental Remediation Reserves
    
    
    
    
    
    
    14,697
    
    
    
    
    
    
    
    
    
    
    
    14,697Pension Obligations and Other Long-Term Liabilities
    
    
    
    
    
    
    12,311
    
    
    
    
    
    
    
    
    
    
    
    12,311Total Liabilities
    
    
    110,000
    
    
    
    143,004
    
    
    
    2,609
    
    
    
    (81,895
    )
    
    
    173,718Total Shareholders Equity
    
    
    75,689
    
    
    
    106,713
    
    
    
    (521
    )
    
    
    (106,192
    )
    
    
    75,689Total Liabilities and Shareholders Equity
    
    $
    185,689
    
    
    $
    249,717
    
    
    $
    2,088
    
    
    $
    (188,087
    )
    
    $
    249,407
 F-33




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##### Table of Contents



15. GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Operations -
      Year Ended September 30, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    200,611
    
    
    $
    2,742
    
    
    $
    (224
    )
    
    $
    203,129Cost of Revenues
    
    
    
    
    
    
    133,043
    
    
    
    2,569
    
    
    
    (224
    )
    
    
    135,388Gross Profit
    
    
    
    
    
    
    67,568
    
    
    
    173
    
    
    
    
    
    
    
    67,741Operating Expenses
    
    
    
    
    
    
    42,245
    
    
    
    620
    
    
    
    
    
    
    
    42,865Operating Income (Loss)
    
    
    
    
    
    
    25,323
    
    
    
    (447
    )
    
    
    
    
    
    
    24,876Interest and
Other Income, Net
    
    
    10,654
    
    
    
    1,353
    
    
    
    13
    
    
    
    (10,654
    )
    
    
    1,366Interest and
other Expense
    
    
    10,654
    
    
    
    10,742
    
    
    
    61
    
    
    
    (10,654
    )
    
    
    10,803Income (Loss) before Income Tax and
Equity Account for Subsidiaries
    
    
    
    
    
    
    15,934
    
    
    
    (495
    )
    
    
    
    
    
    
    15,439Income Tax Expense
    
    
    
    
    
    
    6,488
    
    
    
    
    
    
    
    
    
    
    
    6,488Income (Loss) before
Equity Account for Subsidiaries
    
    
    
    
    
    
    9,446
    
    
    
    (495
    )
    
    
    
    
    
    
    8,951Equity Account for Subsidiaries
    
    
    8,951
    
    
    
    (495
    )
    
    
    
    
    
    
    (8,456
    )
    
    
    Net Income (Loss)
    
    $
    8,951
    
    
    $
    8,951
    
    
    $
    (495
    )
    
    $
    (8,456
    )
    
    $
    8,951
 Condensed Consolidating Statement of Operations -
      Year Ended September 30, 2007
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    182,458
    
    
    $
    1,699
    
    
    $
    (229
    )
    
    $
    183,928Cost of Revenues
    
    
    
    
    
    
    118,710
    
    
    
    1,749
    
    
    
    (229
    )
    
    
    120,230Gross Profit
    
    
    
    
    
    
    63,748
    
    
    
    (50
    )
    
    
    
    
    
    
    63,698Operating Expenses
    
    
    
    
    
    
    39,247
    
    
    
    594
    
    
    
    
    
    
    
    39,841Operating Income (Loss)
    
    
    
    
    
    
    24,501
    
    
    
    (644
    )
    
    
    
    
    
    
    23,857Interest and
Other Income, Net
    
    
    11,846
    
    
    
    639
    
    
    
    5
    
    
    
    (11,846
    )
    
    
    644Interest Expense and Debt Refinance Charges
    
    
    11,846
    
    
    
    14,912
    
    
    
    
    
    
    
    (11,846
    )
    
    
    14,912Income (Loss) before Income Tax and
and Equity Account for Subsidiaries
    
    
    
    
    
    
    10,228
    
    
    
    (639
    )
    
    
    
    
    
    
    9,589Income Tax Expense
    
    
    
    
    
    
    4,605
    
    
    
    
    
    
    
    
    
    
    
    4,605Income (Loss) before
Equity Account for Subsidiaries
    
    
    
    
    
    
    5,623
    
    
    
    (639
    )
    
    
    
    
    
    
    4,984Equity Account for Subsidiaries
    
    
    4,984
    
    
    
    (639
    )
    
    
    
    
    
    
    (4,345
    )
    
    
    Net Income (Loss)
    
    $
    4,984
    
    
    $
    4,984
    
    
    $
    (639
    )
    
    $
    (4,345
    )
    
    $
    4,984
 F-34




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##### Table of Contents



15. GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Operations -
      Year Ended September 30, 2006
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    140,694
    
    
    $
    1,573
    
    
    $
    (363
    )
    
    $
    141,904Cost of Revenues
    
    
    
    
    
    
    95,935
    
    
    
    1,471
    
    
    
    (363
    )
    
    
    97,043Gross Profit
    
    
    
    
    
    
    44,759
    
    
    
    102
    
    
    
    
    
    
    
    44,861Operating Expenses
    
    
    
    
    
    
    37,572
    
    
    
    630
    
    
    
    
    
    
    
    38,202Environmental Remediation Charges
    
    
    
    
    
    
    3,600
    
    
    
    
    
    
    
    
    
    
    
    3,600Operating Income (Loss)
    
    
    
    
    
    
    3,587
    
    
    
    (528
    )
    
    
    
    
    
    
    3,059Interest and
Other Income, Net
    
    
    11,409
    
    
    
    1,065
    
    
    
    4
    
    
    
    (11,409
    )
    
    
    1,069Interest Expense
    
    
    11,409
    
    
    
    11,431
    
    
    
    
    
    
    
    (11,409
    )
    
    
    11,431Loss from Continuing Operations before Income Tax
and Equity Account for Subsidiaries
    
    
    
    
    
    
    (6,779
    )
    
    
    (524
    )
    
    
    
    
    
    
    (7,303
    )Income Tax Benefit
    
    
    
    
    
    
    (4,259
    )
    
    
    (41
    )
    
    
    
    
    
    
    (4,300
    )Loss from Continuing Operations before
Equity Account for Subsidiaries
    
    
    
    
    
    
    (2,520
    )
    
    
    (483
    )
    
    
    
    
    
    
    (3,003
    )Equity Account for Subsidiaries
    
    
    (3,003
    )
    
    
    (483
    )
    
    
    
    
    
    
    3,486
    
    
    
    Net Loss from Continuing Operations
    
    $
    (3,003
    )
    
    $
    (3,003
    )
    
    $
    (483
    )
    
    $
    3,486
    
    
    $
    (3,003
    )
 Condensed Consolidating Statement of Cash Flows -
      Year Ended September 30, 2008
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    ConsolidatedNet cash Provided (Used) by Operating Activities
    
    $
    
    
    
    $
    20,960
    
    
    $
    (627
    )
    
    $
    
    
    
    $
    20,333Cash Flows from Investing Activities:Capital expenditures
    
    
    
    
    
    
    (15,242
    )
    
    
    (42
    )
    
    
    
    
    
    
    (15,284
    )Net Cash Used in Investing Activities
    
    
    
    
    
    
    (15,242
    )
    
    
    (42
    )
    
    
    
    
    
    
    (15,284
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    
    
    
    
    (251
    )
    
    
    
    
    
    
    
    
    
    
    (251
    )Issuance of common stock
    
    
    381
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    381Excess tax benefit from stock option exercises
    
    
    481
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481Purchases of treasury stock
    
    
    (193
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (193
    )Intercompany advances, net
    
    
    (669
    )
    
    
    (155
    )
    
    
    824
    
    
    
    
    
    
    
    Net Cash Provided (Used) by Financing Activities
    
    
    
    
    
    
    (406
    )
    
    
    824
    
    
    
    
    
    
    
    418Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    5,312
    
    
    
    155
    
    
    
    
    
    
    
    5,467Cash and Cash Equivalents, Beginning of Period
    
    
    
    
    
    
    21,352
    
    
    
    74
    
    
    
    
    
    
    
    21,426Cash and Cash Equivalents, End of Period
    
    $
    
    
    
    $
    26,664
    
    
    $
    229
    
    
    $
    
    
    
    $
    26,893
 F-35




---



##### Table of Contents



15. GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Cash Flows -
      Year Ended September 30, 2007
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    ConsolidatedNet cash provided (used) by operating activities
    
    $
    
    
    
    $
    24,984
    
    
    $
    (846
    )
    
    $
    
    
    
    $
    24,138Cash Flows from Investing Activities:Acquisition of businesses
    
    
    
    
    
    
    (6,000
    )
    
    
    
    
    
    
    
    
    
    
    (6,000
    )Capital expenditures
    
    
    
    
    
    
    (8,362
    )
    
    
    (59
    )
    
    
    
    
    
    
    (8,421
    )Discontinued operations, net
    
    
    
    
    
    
    7,510
    
    
    
    
    
    
    
    
    
    
    
    7,510Net Cash Used in Investing Activities
    
    
    
    
    
    
    (6,852
    )
    
    
    (59
    )
    
    
    
    
    
    
    (6,911
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,000Payments of long-term debt
    
    
    (108,326
    )
    
    
    (260
    )
    
    
    
    
    
    
    
    
    
    
    (108,586
    )Debt issuance costs
    
    
    (4,814
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,814
    )Issuance of common stock
    
    
    727
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    727Intercompany advances, net
    
    
    2,413
    
    
    
    (3,278
    )
    
    
    865
    
    
    
    
    
    
    
    Net Cash Provided (Used) by Financing Activities
    
    
    
    
    
    
    (3,538
    )
    
    
    865
    
    
    
    
    
    
    
    (2,673
    )Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    14,594
    
    
    
    (40
    )
    
    
    
    
    
    
    14,554Cash and Cash Equivalents, Beginning of Year
    
    
    
    
    
    
    6,758
    
    
    
    114
    
    
    
    
    
    
    
    6,872Cash and Cash Equivalents, End of Year
    
    $
    
    
    
    $
    21,352
    
    
    $
    74
    
    
    $
    
    
    
    $
    21,426
 Condensed Consolidating Statement of Cash Flows -
      Year Ended September 30, 2006
 Guarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedNet cash provided (used) by operating activities
    
    $
    
    
    
    $
    9,565
    
    
    $
    (96
    )
    
    $
    
    
    
    $
    9,469Cash Flows from Investing Activities:Acquisition of businesses
    
    
    
    
    
    
    (108,011
    )
    
    
    
    
    
    
    
    
    
    
    (108,011
    )Capital expenditures
    
    
    
    
    
    
    (14,906
    )
    
    
    (112
    )
    
    
    
    
    
    
    (15,018
    )Proceeds from sale of assets
    
    
    
    
    
    
    2,395
    
    
    
    
    
    
    
    
    
    
    
    2,395Discontinued operations, net
    
    
    
    
    
    
    (411
    )
    
    
    
    
    
    
    
    
    
    
    (411
    )Net Cash Used in Investing Activities
    
    
    
    
    
    
    (120,933
    )
    
    
    (112
    )
    
    
    
    
    
    
    (121,045
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    85,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,000Payments of long-term debt
    
    
    (650
    )
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    (678
    )Debt issuance costs
    
    
    (3,119
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,119
    )Issuance of common stock
    
    
    179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179Intercompany advances, net
    
    
    (81,410
    )
    
    
    80,694
    
    
    
    716
    
    
    
    
    
    
    
    Discontinued operations, net
    
    
    
    
    
    
    (147
    )
    
    
    
    
    
    
    
    
    
    
    (147
    )Net Cash Provided by Financing Activities
    
    
    
    
    
    
    80,519
    
    
    
    716
    
    
    
    
    
    
    
    81,235Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    (30,321
    )
    
    
    (20
    )
    
    
    
    
    
    
    (30,341
    )Cash and Cash Equivalents, Beginning of Year
    
    
    
    
    
    
    37,079
    
    
    
    134
    
    
    
    
    
    
    
    37,213Cash and Cash Equivalents, End of Year
    
    $
    
    
    
    $
    6,758
    
    
    $
    114
    
    
    $
    
    
    
    $
    6,872
 F-36