##### 



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, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission file number 001-08137
 AMERICAN PACIFIC CORPORATION
  
 Delaware
(State or other jurisdiction of incorporation or organization)
    
    59-6490478
(I.R.S. Employer Identification No.)
 3770 Howard Hughes Parkway, Suite 300
Las Vegas, Nevada 89169
 702) 735-2200
  Title of each classCommon Stock, Par Value $0.10
    
    Name of each exchange on which registeredThe Nasdaq Stock Market LLC
  None
 o þ
 o þ
 þ o
 o
 o þ o
 o þ




---



##### 



DOCUMENTS INCORPORATED BY REFERENCE
 PART I
 Forward Looking Statements
   Item 1. Business (Dollars in Thousands)
 Our Company
   1




---



##### 



Our Business Segments
  2007
    
    
    2006
    
    
    2005Specialty Chemicals:Perchlorates
    
    
    28
    %
    
    
    28
    %
    
    
    65
    %Sodium azide
    
    
    1
    %
    
    
    2
    %
    
    
    3
    %Halotron
    
    
    2
    %
    
    
    3
    %
    
    
    6
    %Total specialty chemicals
    
    
    31
    %
    
    
    33
    %
    
    
    74
    %Fine Chemicals
    
    
    57
    %
    
    
    52
    %
    
    
    0
    %Aerospace Equipment
    
    
    9
    %
    
    
    12
    %
    
    
    18
    %Other Businesses:Real estate
    
    
    1
    %
    
    
    1
    %
    
    
    5
    %Water treatment equipment
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %Total other businesses
    
    
    3
    %
    
    
    3
    %
    
    
    8
    %Total revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Specialty Chemicals.
    2




---



##### 



Fine Chemicals.
   
    
    Alternative Supply May Not Be Readily Available  we are
currently the sole source supplier on several of our fine chemicals products.
    
    Regulatory Approval  applications to and approvals from the FDA and other regulatory
authorities generally require the chemical contractor to be named. Switching contractors may
require additional regulatory approval and could take as long as 1-2
years.
    
    Significant Financial Costs  switching contractors can result in significant costs
associated with technology transfer, process validation and re-filing with the FDA and other
regulatory authorities.
  Aerospace Equipment.
  3




---



##### 



Other Businesses.
 Discontinued Operations.
 Our Strengths
 Leading Market Positions with Significant Barriers to Entry.
 Specialty Chemicals.
 Fine Chemicals.
  Aerospace Equipment.
 4




---



##### 



Strategic Customer Relationships.
 Manufacturing Excellence.
 Specialty Chemicals.
 Fine Chemicals.
 Aerospace Equipment.
 Significant Revenue Visibility through Long-Term Contracts.
 5




---



##### 



Attractive Portfolio of Products.
 Our Strategy
 Leverage Our Leadership Positions within Existing Markets.
 Specialty Chemicals.
 Fine Chemicals.
 Aerospace Equipment.
 Preserve and Build Strong Customer Relationships.
 6




---



##### 



Develop New Products and Technologies.
 Specialty Chemicals
 
    
    Next generation formulations of our Halotron fire suppression product for flooding
applications.
 Fine Chemicals
 
    
    Continuous processing of both registered intermediates and
APIs.
 Aerospace Equipment
 
    
    Higher performance chemical thrusters for the satellite market.
    
    Electric propulsion thrusters for satellites to reduce the weight of satellites or to
provide increased payload capacity.
  Pursue Growth Opportunities Organically and through Selective Acquisitions.
 Our Specialty Chemicals Segment
 Perchlorate Chemicals
  Market
   7




---



##### 



Customers
   Manufacturing Capacity and Process
   8




---



##### 



Competition
  Sodium Azide
  Market
   Customers
  Competition
  Halotron
  9




---



##### 



Customers and Market
    Competition
 tm
   10




---



##### 



Our Fine Chemicals Segment
  Energetic and Nucleoside Chemistry
 High-Potency/Cytotoxic Chemical Compounds
  Chiral
Separations
  11




---



##### 



Customers and Markets
  Competition
   12




---



##### 



Our Aerospace Equipment Segment
 Customers and Market
  Competition
  Our Other Businesses Segment
 Water Treatment Equipment
     Real Estate
  13




---



##### 



Regulatory Compliance
 Federal
Acquisition Regulations.
 FDA and
Similar Regulatory Agencies
 Environmental
Matters
 Review
of Perchlorate Toxicity by the EPA
 Perchlorate
Remediation Project in Henderson, Nevada
 14




---



##### 



Henderson
Site Environmental Remediation Reserve.
 AFC
Environmental Matters.
 15




---



##### 



Other Matters
 Backlog
  Intellectual Property
 ® ® ® ® ®, ®
 Raw Materials and Manufacturing Costs
    16




---



##### 



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
   17




---



##### 



Available Information
   18




---



##### 



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 revenues.
 %
  The inherent limitations of our fixed-price or similar contracts may impact our profitability.
  19




---



##### 



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




---



##### 



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 material adversely effect our operating results, financial condition or cash flows.
   21




---



##### 



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




---



##### 



Although we have established reserves for our environmental liabilities, given the many
uncertainties involved in assessing liability for environmental claims, our reserves may not be
sufficient.
  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.
  23




---



##### 



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.
    24




---



##### 



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 the product is subsequently
recalled, then the operating results of AFC may be negatively impacted.
  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 product liability claims that could affect our earnings and
financial condition and harm our reputation.
  25




---



##### 



Technology innovations in the markets that we serve may create alternatives to our products and
result in reduced sales.
  We are subject to competition in certain of the industries where 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.
  26




---



##### 



The volatility of the chemical industry affects our capacity utilization and causes fluctuations in
our results of operations.
  A loss of key personnel or highly skilled employees could disrupt our operations.
  We may continue to expand our operations through acquisitions, which could divert managements
attention and expose us to unanticipated liabilities and costs. We may experience difficulties
integrating the acquired operations, and we may incur costs relating to acquisitions that are never
consummated.
   27




---



##### 



We have a substantial amount of debt, and the cost of servicing that debt could adversely affect
our ability to take actions or our liquidity or financial condition.
   
    
    make it more difficult for us to satisfy our outstanding debt obligations;
 
    
    require us to dedicate a substantial portion of our cash flow from operations to payments
on our debt, reducing the amount of our cash flow available for working capital, capital
expenditures, acquisitions, developing our real estate assets and other general corporate
purposes;
 
    
    limit our flexibility in planning for, or reacting to, changes in the industries in which
we compete;
 
    
    place us at a competitive disadvantage compared to our competitors, some of which have
lower debt service obligations and greater financial resources than we do;
 
    
    limit our ability to borrow additional funds; or
 
    
    increase our vulnerability to general adverse economic and industry conditions.
 If we are unable to generate sufficient cash flow to service our debt and fund our operating costs,
our liquidity may be adversely affected.
  
    
    incur additional debt;
 
    
    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.
  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.
  28




---



##### 




    
    a classified board of directors;
 
    
    the ability of our board of directors to designate the terms of and issue new series of
preferred stock;
 
    
    advance notice requirements for nominations for election to our board of directors; and
 
    
    special voting requirements for the amendment of our Restated Certificate of Incorporation,
as amended, and Amended and Restated By-laws.
  Our proprietary rights may be violated or compromised, which could damage our operations.
  Item 1B. Unresolved Staff Comments
  29




---



##### 



Item 2. Properties
  Approximate Area
    
    
    
    ApproximateLocation
    
    Principal Use
    
    or Floor Space
    
    Status
    
    Annual Rent(a) Iron County, UT
    
    Perchlorate and Water Treatment
Equipment Manufacturing Facility
    
    217 Acres
    
    Owned
    
    
    N/A(b) Iron County, UT
    
    Sodium Azide Manufacturing Facility
    
    41 Acres
    
    Owned
    
    
    N/A(c) Iron County, UT
    
    Halotron Manufacturing Facility
    
    6,720 sq. ft.
    
    Owned
    
    
    N/A(d) Las Vegas, NV
    
    Executive Offices
    
    22,262 sq.ft.
    
    Leased
    
    $
    638(e) Henderson, NV
    
    Goundwater Remediation Site
    
    1.75 Acres
    
    Leased
    
    $
    47(f) Niagara Falls, NY
    
    Aerospace Equipment Manufacturing
Facility
    
    81,425 sq. ft.
    
    Leased
    
    $
    165(g) Westcott,
Buckinghamshire, UK
    
    Aerospace Equipment Manufacturing
Facility
    
    65 Acres
    
    Leased
    
    $
    366(h) Rancho Cordova, CA
    
    Fine Chemicals Manufacturing Facility
    
    241 Acres
    
    Owned/Leased
    
    $
    5
 
 (a)
    
    This facility is shared by the Specialty Chemicals segment and our Other Businesses segment
for the production of perchlorate products and water treatment equipment. Presently, this
facility has significant remaining capacity.(b)
    
    This facility is used by the Specialty Chemicals segment for the production of sodium azide.
Presently, this facility has significant remaining capacity.(c)
    
    This facility is used by the Specialty Chemicals segment for the production of Halotron.
Presently, this facility has significant remaining capacity.(d)
    
    These facilities are leased through February 2009. We were formerly a partial owner of this
building, see Note 13 to the consolidated financial statements included in Item 8 of this
report. Approximately 16% of this space is currently sublet at an annual rent of
approximately $98. The current building owner has indicated that it will not renew our
lease. We have entered into a new lease at a new location for our executive offices with approximately the same square footage. We anticipate
moving in Spring 2008. We expect annual rental expense to increase to approximately $1,000 when
we relocate to the new offices.(e)
    
    This facility is used for the groundwater remediation activities of the Company.(f)
    
    This facility is used for the design, manufacture and test of our Aerospace Equipment segment
products. Presently, this facility has adequate capacity available to support its operations
and expand, as may be required, through the addition of multiple labor shifts.(g)
    
    This facility is used for the design, manufacture and test of our Aerospace Equipment segment
products. Presently, this facility has significant remaining capacity.(h)
    
    This facility is used by the Fine Chemicals segment for the production of active
pharmaceutical ingredients and registered intermediates. 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.  30




---



##### 



Item 3. Legal Proceedings
  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:
 2007
    
    2006High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    8.39
    
    
    $
    6.96
    
    
    $
    8.12
    
    
    $
    4.11Second Quarter
    
    
    12.22
    
    
    
    7.91
    
    
    
    9.98
    
    
    
    4.79Third Quarter
    
    
    17.42
    
    
    
    10.60
    
    
    
    9.63
    
    
    
    6.78Fourth Quarter
    
    
    16.27
    
    
    
    12.51
    
    
    
    8.45
    
    
    
    6.05
   Dividend
and Stock Repurchase Program.
  Transfer
Agent.
 Securities
Authorized for Issuance Under Equity Compensation Plans.
 31




---



##### 



Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate
future filings, including this annual report on Form 10-K , in whole or in part, the Performance
Graph which follows shall not be deemed to be incorporated by reference in to any such filings
except to the extent that we specifically incorporate any such information into any such future
filings. The Performance Graph is not, and shall not be deemed to be, soliciting material or
filed with the SEC.
 Performance Graph.
 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among American Pacific Corporation
 
 
 *
    
    $100 invested on 9/30/02 in stock or index-including
reinvestment of dividends. Fiscal year ending september 30.
Copyright © 2007, Standard & Poors, a division
of The McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
 32




---



##### 



Item 6. Selected Financial Data
  
 
 2007
    
    2006
    
    2005
    
    2004
    
    2003STATEMENT OF OPERATIONS DATA (a) (b):Revenues
    
    $
    183,928
    
    
    $
    141,904
    
    
    $
    67,813
    
    
    $
    51,458
    
    
    $
    68,866Cost of revenues
    
    
    120,230
    
    
    
    97,043
    
    
    
    43,916
    
    
    
    34,402
    
    
    
    37,349Gross profit
    
    
    63,698
    
    
    
    44,861
    
    
    
    23,897
    
    
    
    17,056
    
    
    
    31,517Operating expenses
    
    
    39,841
    
    
    
    38,202
    
    
    
    21,805
    
    
    
    18,980
    
    
    
    14,480Environmental remediation charges
    
    
    
    
    
    
    3,600
    
    
    
    22,400
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    23,857
    
    
    
    3,059
    
    
    
    (20,308
    )
    
    
    (1,924
    )
    
    
    17,037Interest and other expense (income), net
    
    
    11,352
    
    
    
    10,362
    
    
    
    (1,398
    )
    
    
    (693
    )
    
    
    1,544Debt repayment charges and
loss on debt extinguishments
    
    
    2,916
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    984Income (loss) from continuing operations
before income tax
    
    
    9,589
    
    
    
    (7,303
    )
    
    
    (18,910
    )
    
    
    (1,231
    )
    
    
    14,509Income tax expense (benefit)
    
    
    4,605
    
    
    
    (4,300
    )
    
    
    (8,367
    )
    
    
    (2,160
    )
    
    
    4,958Income (loss) from continuing operations
    
    $
    4,984
    
    
    $
    (3,003
    )
    
    $
    (10,543
    )
    
    $
    929
    
    
    $
    9,551Earnings (loss) per share from continuing operations:Basic
    
    $
    0.68
    
    
    $
    (0.41
    )
    
    $
    (1.45
    )
    
    $
    0.13
    
    
    $
    1.32Diluted
    
    $
    0.67
    
    
    $
    (0.41
    )
    
    $
    (1.45
    )
    
    $
    0.13
    
    
    $
    1.30Dividends declared per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.42BALANCE SHEET DATA:Cash and cash equivalents
    
    $
    21,426
    
    
    $
    6,872
    
    
    $
    37,213
    
    
    $
    23,777
    
    
    $
    27,140Inventories and accounts receivable
    
    
    72,259
    
    
    
    59,229
    
    
    
    26,390
    
    
    
    30,058
    
    
    
    22,885Property, plant and equipment, net
    
    
    116,965
    
    
    
    119,746
    
    
    
    15,646
    
    
    
    16,573
    
    
    
    9,223Intangible assets, net
    
    
    5,767
    
    
    
    14,237
    
    
    
    9,763
    
    
    
    13,679
    
    
    
    17,579Total assets
    
    
    249,407
    
    
    
    239,455
    
    
    
    115,000
    
    
    
    101,576
    
    
    
    101,685Working capital
    
    
    61,707
    
    
    
    33,421
    
    
    
    49,235
    
    
    
    45,741
    
    
    
    42,599Long-term debt (c)
    
    
    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 and 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)
    
    As discussed in Note 6 to our consolidated financial statements included in Item 8 of this
report, we entered into debt agreements in connection with our acquisition of the AFC
Business in November 2005. The debt agreements were refinanced in February 2007. 33




---



##### 



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in Thousands)
  Our Company
   Our Business Segments
  34




---



##### 



2007
    
    2006
    
    2005Specialty Chemicals:Perchlorates
    
    
    28
    %
    
    
    28
    %
    
    
    65
    %Sodium azide
    
    
    1
    %
    
    
    2
    %
    
    
    3
    %Halotron
    
    
    2
    %
    
    
    3
    %
    
    
    6
    %Total specialty chemicals
    
    
    31
    %
    
    
    33
    %
    
    
    74
    %Fine Chemicals
    
    
    57
    %
    
    
    52
    %
    
    
    0
    %Aerospace Equipment
    
    
    9
    %
    
    
    12
    %
    
    
    18
    %Other Businesses:Real estate
    
    
    1
    %
    
    
    1
    %
    
    
    5
    %Water treatment equipment
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %Total other businesses
    
    
    3
    %
    
    
    3
    %
    
    
    8
    %Total revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Specialty Chemicals.
   Fine Chemicals.
  35




---



##### 




    
    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 1-2
years.
    
    Significant Financial Costs  switching contractors can result in significant costs
associated with technology transfer, process validation and re-filing with the FDA and other
regulatory authorities.
 Aerospace
Equipment.
  Other
Businesses.
 Discontinued Operations.
 Results of Operations
 Revenues
 Year Ended September 30,
    
    Percentage Change2007
    
    2006
    
    2005
    
    07 vs. 06
    
    06 vs. 05Specialty Chemicals
    
    $
    57,088
    
    
    $
    46,450
    
    
    $
    49,936
    
    
    
    23
    %
    
    
    (7
    %)Fine Chemicals
    
    
    104,441
    
    
    
    74,026
    
    
    
    
    
    
    
    41
    %
    
    
    Aerospace Equipment
    
    
    17,348
    
    
    
    17,394
    
    
    
    12,429
    
    
    
    (0
    %)
    
    
    40
    %Other Businesses
    
    
    5,051
    
    
    
    4,034
    
    
    
    5,448
    
    
    
    25
    %
    
    
    (26
    %)Total Revenues
    
    $
    183,928
    
    
    $
    141,904
    
    
    $
    67,813
    
    
    
    30
    %
    
    
    109
    %
 Specialty Chemicals
 36




---



##### 




    
    A 31% increase in Grade I AP volume in fiscal 2007 and a 2% increase in the related average
price per pound.
    
    A 45% decline in Grade I AP volume in fiscal 2006 and a 62% increase in the related average
price per pound.
    
    Sodium azide revenues decreased 35% in fiscal 2007 and increased 48% in fiscal 2006, each
compared to the prior fiscal year.
    
    Halotron revenues increased 11% in fiscal 2007 and 2% in fiscal 2006, each compared to the
prior fiscal year.
     Fine Chemicals
  Aerospace Equipment
 37




---



##### 



Other Businesses
 
    
    Water treatment equipment sales increased $1,032 in fiscal 2007 and $1,291 in fiscal 2006,
each compared to the prior fiscal years. The revenue increases were driven by new system
sales.
 
    
    Fiscal 2005 included a significant real estate sale of $3,190. There were no significant
real estate sales in fiscal 2007 or 2006 and we do not expect significant real estate sales in
the future.
 Cost of Revenues and Gross Margin
 Year Ended September 30,
    
    Percentage Change2007
    
    2006
    
    2005
    
    07 vs. 06
    
    06 vs. 05Revenues
    
    $
    183,928
    
    
    $
    141,904
    
    
    $
    67,813
    
    
    
    30
    %
    
    
    109
    %Cost of Revenues
    
    
    120,230
    
    
    
    97,043
    
    
    
    43,916
    
    
    
    24
    %
    
    
    121
    %Gross Margin
    
    $
    63,698
    
    
    $
    44,861
    
    
    $
    23,897
    
    
    
    42
    %
    
    
    88
    %Gross Margin Percentage
    
    
    35
    %
    
    
    32
    %
    
    
    35
    %
    
    
    10
    %
    
    
    (10
    %)
    
    
    Specialty Chemicals segment gross margin percentage improved
approximately four points for
the 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.
 
    
    Fine Chemicals segment gross margin percentage for the fiscal 2007 improved two points
compared to the prior year because of a change in product mix and the effect of several
continuous improvement projects. We expect that the Fine Chemicals segment gross margins percentage may depress slightly in fiscal 2008 as the business continues to grow and diversify.
 
    
    Aerospace Equipment segment gross margin percentage improved approximately five points for
fiscal 2007 compared to the prior 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.
  38




---



##### 




    
    Gross margin percentage for our Specialty Chemicals and Aerospace Equipment segments improved
four points and seven points, respectively, in fiscal 2006 compared to the prior fiscal year
primarily due to more favorable pricing of Specialty Chemicals products and better manufacturing
overhead absorption for our Aerospace Equipment segment.
 
    
    While AFC contributes significant gross profit, its gross margin percentage is less
than that of our Specialty Chemicals segment. Thus, the effect of including AFC in fiscal 2006
is a reduction in the consolidated gross margin percentage due to the change in product mix.
 
    
    Gross margin from our Other Businesses segment declined in fiscal 2006. Fiscal 2005
includes a significant real estate sale which contributed approximately two margin points to the
prior year consolidated gross margin percentage.
 Operating Expenses
 Year Ended September 30,
    
    Percentage Change2007
    
    2006
    
    2005
    
    07 vs. 06
    
    06 vs. 05Operating Expenses
    
    $
    39,841
    
    
    $
    38,202
    
    
    $
    21,805
    
    
    
    4
    %
    
    
    75
    %Percentage of Revenues
    
    
    22
    %
    
    
    27
    %
    
    
    32
    %
    
    
    (20
    %)
    
    
    (16
    %)
   
    
    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.
  
    
    Higher legal fees associated with the renegotiation of our contract with ATK.
 
    
    A charge for $600 recorded in fiscal 2006 related to a settlement with our former chief
financial officer (see Note 11 to our consolidated financial statements included in Item 8 of
this report)
 Environmental Remediation Charges
  39




---



##### 



Segment Operating Profit and Operating Income (Loss)
 Year Ended September 30,
    
    Percentage Change2007
    
    2006
    
    2005
    
    07 vs. 06
    
    06 vs. 05Specialty Chemicals
    
    $
    18,223
    
    
    $
    14,755
    
    
    $
    12,504
    
    
    
    24
    %
    
    
    18
    %Fine Chemicals
    
    
    16,790
    
    
    
    7,245
    
    
    
    
    
    
    
    132
    %
    
    
    Aerospace Equipment
    
    
    1,458
    
    
    
    802
    
    
    
    95
    
    
    
    82
    %
    
    
    744
    %Other Businesses
    
    
    1,210
    
    
    
    264
    
    
    
    3,300
    
    
    
    358
    %
    
    
    (92
    %)Total Segment Operating Profit
    
    
    37,681
    
    
    
    23,066
    
    
    
    15,899
    
    
    
    63
    %
    
    
    45
    %Corporate Expenses
    
    
    (13,824
    )
    
    
    (16,407
    )
    
    
    (13,807
    )
    
    
    (16
    %)
    
    
    19
    %Environmental Remediation Charges
    
    
    
    
    
    
    (3,600
    )
    
    
    (22,400
    )
    
    
    (100
    %)
    
    
    (84
    %)Operating Income (Loss)
    
    $
    23,857
    
    
    $
    3,059
    
    
    $
    (20,308
    )
    
    
    680
    %
    
    
    (115
    %)
   Interest and Debt Repayment Charges
 Year Ended September 30,
    
    Percentage Change2007
    
    2006
    
    2005
    
    07 vs. 06
    
    06 vs. 05Interest and Other Income:Interest Income
    
    $
    644
    
    
    $
    459
    
    
    $
    636
    
    
    
    40
    %
    
    
    (28
    %)Real Estate Partnership Income
    
    
    
    
    
    
    580
    
    
    
    762
    
    
    
    (100
    %)
    
    
    (24
    %)Other Income
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    (100
    %)
    
    
    Total
    
    $
    644
    
    
    $
    1,069
    
    
    $
    1,398
    
    
    
    (40
    %)
    
    
    (24
    %)Interest Expense
    
    $
    11,996
    
    
    $
    11,431
    
    
    $
    
    
    
    
    5
    %
    
    
    Debt Repayment Charges
    
    $
    2,916
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    
    
    40




---



##### 



Income Taxes
   2007
    
    2006
    
    2005Federal income tax at the statutory rate
    
    
    35.0
    %
    
    
    (35.0
    %)
    
    
    (35.0
    %)State income tax, net of federal benefit
    
    
    4.0
    %
    
    
    (3.1
    %)
    
    
    (2.5
    %)Nondeductible expenses
    
    
    1.3
    %
    
    
    1.0
    %
    
    
    0.6
    %Valuation allowance
    
    
    2.0
    %
    
    
    1.8
    %
    
    
    1.3
    %Change in effective state income tax rate
    
    
    5.4
    %
    
    
    (13.7
    %)
    
    
    0.0
    %Basis differences in partnerships
    
    
    0.0
    %
    
    
    (5.6
    %)
    
    
    0.0
    %Other
    
    
    0.3
    %
    
    
    (4.3
    %)
    
    
    (8.6
    %)Effective tax rate
    
    
    48.0
    %
    
    
    (58.9
    %)
    
    
    (44.2
    %)
  Extraordinary Gain
  41




---



##### 



Liquidity and Capital Resources
 Cash Flows
 2007
    
    
    2006
    
    
    2005
    
    
    07 vs. 06
    
    
    06 vs. 05Cash Provided (Used) By:Operating activities
    
    $
    24,138
    
    
    $
    9,469
    
    
    $
    19,153
    
    
    
    155
    %
    
    
    (51
    %)Investing activities
    
    
    (6,911
    )
    
    
    (121,045
    )
    
    
    (5,979
    )
    
    
    (94
    %)
    
    
    1,925
    %Financing activities
    
    
    (2,673
    )
    
    
    81,235
    
    
    
    262
    
    
    
    (103
    %)
    
    
    30,906
    %Net change in cash for period
    
    $
    14,554
    
    
    $
    (30,341
    )
    
    $
    13,436
    
    
    
    (148
    %)
    
    
    (326
    %)
 Operating Activities.
 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.
     Fiscal Year 2006 compared to Fiscal Year 2005
  
    
    An increase in cash due to improved profitability of our operations of $19,139.
 
    
    An increase in cash used to fund working capital increases of $17,618, excluding the effect
of interest and income taxes.
 
    
    An increase in cash used for interest payments of $7,415.
 
    
    An increase in cash provided by tax refunds of $407.
 42




---



##### 




    
    An increase in cash used for environmental remediation of $4,863.
    
    Other increases in cash provided by operating activities of $666.
    Investing Activities.
 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 interest in a real estate partnership 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.
  Fiscal Year 2006 compared to Fiscal Year 2005
  
    
    Fiscal 2006 includes cash used for our acquisition of AFC of $108,011 and cash provided by
proceeds from the sale of our interest in a real estate partnership of $2,395.
 
    
    Fiscal 2005 includes cash used for our acquisition of ISP of $4,505. See Note 2 to our
consolidated financial statements included in Item 8 of this
report.
 
    
    Capital expenditures for fiscal 2006 increased to $15,018 compared to $1,686 for fiscal
2005.
  Financing Activities.
  Liquidity and Capital Resources
  43




---



##### 



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;
 
    
    at any time on or after February 1, 2011 at redemption prices beginning at 104.5% 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% with the proceeds of certain sales of its 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;
 44




---



##### 




    
    create an unrestricted subsidiary;
    
    enter into certain business activities; or
    
    effect a consolidation, merger or sale of all or substantially all of our assets.
  Credit Facilities.
 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.
  45




---



##### 



Seller Subordinated Note.
  Debt Issue Costs and Debt Repayment Charges.
 Interest Rate Swap Agreements
  Environmental Remediation  AMPAC Henderson Site
  46




---



##### 



Contractual Obligations
  Payments Due by Year Ending September 30,2008
    
    2009-10
    
    2011-12
    
    Thereafter
    
    TotalSenior Notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    110,000
    
    
    $
    110,000Interest on Senior Notes at 9% annually
    
    
    9,900
    
    
    
    19,800
    
    
    
    19,800
    
    
    
    23,100
    
    
    
    72,600Capital Leases
    
    
    252
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    625Interest on Capital Leases
    
    
    23
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    37Operating Leases
    
    
    1,558
    
    
    
    1,604
    
    
    
    815
    
    
    
    4,058
    
    
    
    8,035Purchase Commitments
    
    
    1,230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,230Total
    
    $
    12,963
    
    
    $
    21,791
    
    
    $
    20,615
    
    
    $
    137,158
    
    
    $
    192,527
 
 Off-Balance Sheet Arrangements
 Letters of Credit.
 Employee Agreements.
  Inflation
  47




---



##### 



Critical Accounting Policies
   Sales and Revenue Recognition
 Revenue Recognition in the Financial Statements Revenue Recognition
  Depreciable or Amortizable Lives of Long-Lived Assets
   48




---



##### 



Impairment of Long-Lived Assets
   Environmental Costs
   Income Taxes
   49




---



##### 



Pension Benefits
  Recently Issued or Adopted Accounting Standards
      50




---



##### 



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
  51




---



##### 



SUMMARIZED QUARTERLY FINANCIAL DATA
(unaudited)
(amounts in thousands except per share amounts)
 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
    
    
    
    63,698Income from Continuing Operations
    
    
    639
    
    
    
    118
    
    
    
    606
    
    
    
    3,621
    
    
    
    4,984Net Income
    
    
    639
    
    
    
    118
    
    
    
    606
    
    
    
    3,621
    
    
    
    4,984Basic Earnings Per Share:Income from Continuing Operations
    
    $
    0.09
    
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.49
    
    
    $
    0.68Net Income
    
    $
    0.09
    
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.49
    
    
    $
    0.68Diluted Earnings Per Share:Income from Continuing Operations
    
    $
    0.09
    
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.48
    
    
    $
    0.67Net Income
    
    $
    0.09
    
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.48
    
    
    $
    0.67
 Quarters For Fiscal Year 2006 (a)1st (b)
    
    2nd
    
    3rd
    
    4th
    
    TotalRevenues
    
    $
    16,485
    
    
    $
    39,777
    
    
    $
    42,840
    
    
    $
    42,802
    
    
    $
    141,904Gross Profit
    
    
    4,346
    
    
    
    12,559
    
    
    
    11,909
    
    
    
    16,047
    
    
    
    44,861Income (Loss) from Continuing Operations
    
    
    (790
    )
    
    
    (2,606
    )
    
    
    (861)
    
    
    
    1,254
    
    
    
    (3,003
    )Net Income (Loss)
    
    
    (1,305
    )
    
    
    (2,338
    )
    
    
    (1,053
    )
    
    
    802
    
    
    
    (3,894
    )Basic Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    (0.11
    )
    
    $
    (0.36
    )
    
    $
    (0.12
    )
    
    $
    0.17
    
    
    $
    (0.41
    )Net Income (Loss)
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (0.14
    )
    
    $
    0.11
    
    
    $
    (0.53
    )Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    (0.11
    )
    
    $
    (0.36
    )
    
    $
    (0.12
    )
    
    $
    0.17
    
    
    $
    (0.41
    )Net Income (Loss)
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (0.14
    )
    
    $
    0.11
    
    
    $
    (0.53
    )
 
 (a)
    
    Effective September 30, 2006, we completed the sale of our interest in ESI. Revenues and
expenses associated with ESIs operations are presented as discontinued operations for all
periods presented. See Note 14 to our consolidated financial statements.(b)
    
    On November 30, 2005, we completed the acquisition of the AFC Business. See Note 2 to our
consolidated financial statements. 52




---



##### 



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
   Internal ControlIntegrated Framework
 53




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework
    Internal Control
 Integrated Framework
 Share-Based Payment Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106 and 132 (R)
  
 54




---



##### 



Item 9B. Other Information
  PART III
 Item 10. Directors and Executive Officers of the Registrant
 www.apfc.com.
 Item 11. Executive Compensation
  Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  Item 13. Certain Relationships and Related Transactions, and Director Independence
  Item 14. Principal Accounting Fees and Services
  55




---



##### 



PART IV
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    
    (1
    )
    
    Financial StatementsSee Part II, Item 8 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 this Report (references are to Regulation S-K
Exhibit Numbers):
 2.1
    
    Purchase Agreement, dated January 30, 2007, by and among American
Pacific Corporation, certain subsidiaries thereof and Wachovia
Capital Markets, LLC (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K, filed with the SEC on
February 6, 2007).3.1
    
    Registrants Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3A to the Companys Registration Statement on
Form S-14 (File No. 2-70830)).3.2
    
    Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.1 the Companys Current Report on Form 8-K,
filed with the SEC on November 15, 2007).3.3
    
    Articles of Amendment to Registrants Restated Certificate of
Incorporation, as filed with the Secretary of State, State of
Delaware, on October 7, 1991 (incorporated by reference to Exhibit
4.3 to the Companys Registration Statement on Form S-3 (File No.
33-52196).3.4
    
    Articles of Amendment to Registrants Restated Certificate of
Incorporation, as filed with the Secretary of State, State of
Delaware, on April 21, 1992 (incorporated by reference to Exhibit
4.4 to the Companys Registration Statement on Form S-3 (File No.
33-52196)).4.1
    
    Form of 9% Senior Note due 2015 (incorporated by reference to
Exhibit A of Exhibit 4.2 to the Companys Current Report on Form
8-K, filed with the SEC 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, as trustee (incorporated by reference
to Exhibit 4.2 to the Companys Current Report on Form 8-K, filed
with the SEC on February 6, 2007).4.3+
    
    American Pacific Corporation 1997 Stock Option Plan (the 1997
Plan) (incorporated by reference to Exhibit 4.1 to the Companys
Form S-8 (File No. 333-53449), filed with the SEC on May 22, 1998).4.4+
    
    Form of Option Agreement under the 1997 Plan (incorporated by
reference to Exhibit 4.2 to the Companys Form S-8 (File No.
333-53449), filed with the SEC on May 22, 1998).
 56




---



##### 



4.5+
    
    American Pacific Corporation 2001 Amended and Restated Stock Option
Plan (the 2001 Plan) (incorporated by reference to Exhibit 4.1 to
the Companys Form S-8 (File No. 333-104732), filed with the SEC on
April 24, 2003).4.6+
    
    Form of Option Agreement under the 2001 Plan (incorporated by
reference to Exhibit 4.3 to the Companys Form S-8 (File No.
333-104732), filed with the SEC on April 24, 2003).4.7
    
    Form of 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 Companys
Registration Statement on Form 8-A, filed with the SEC on August 6,
1999).4.8
    
    Form of Letter to Stockholders with copies of Summary of Rights to
Purchase Preference Shares (incorporated by reference to Exhibit 2
to the Companys Registration Statement on Form 8-A, filed with the
SEC on August 6, 1999).4.9+
    
    Amended and Restated 2002 Directors Stock Option Plan (the 2002
Plan) (incorporated by reference to Exhibit 99.1 to the Companys
Current Report on Form 8-K, filed with the SEC on October 25,
2005).4.10+
    
    Form of Option Agreement under the 2002 Plan (incorporated by
reference to Exhibit 4.4 to the Companys Form S-8 (File No.
333-104732), filed with the SEC on April 24, 2003).10.1+
    
    Employment agreement dated January 1, 2002, between American
Pacific Corporation and John R. Gibson (incorporated by reference
to Exhibit 10.2 to the Companys Annual Report on Form 10-K for the
fiscal year ended September 30, 2002).10.2+
    
    Interim agreement between the Company and Dana M. Kelley, as acting
Chief Financial Officer dated March 27, 2006 (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2006).10.3+
    
    Employment agreement dated October 15, 2006, between the Company
and Joseph Carleone (incorporated by reference to Exhibit 10.5 to
the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 2006).10.4+
    
    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 Companys
Quarterly Report on Form 10-Q for the quarter ended March 31,
2007).10.5+
    
    AMPAC Fine Chemicals LLC Severance Pay Plan (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2007).10.6+
    
    Form of Indemnification Agreement between American Pacific
Corporation and all Directors of American Pacific Corporation
(incorporated by reference to Exhibit 3.6 to the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2000).10.7+
    
    Amended and Restated American Pacific Corporation Defined Benefit
Pension Plan (incorporated by reference to Exhibit 10.4 to the
Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 1999 (the 1999 10-K)).
 57




---



##### 



10.8+
    
    American Pacific Corporation Supplemental Executive Retirement
Plan, amended and restated and effective as of October 1, 2007
(incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed with the SEC on November 15, 2007).10.9+
    
    Trust Agreement for the American Pacific Corporation Supplemental
Executive Retirement Plan (incorporated by reference to Exhibit
10.6 to the 1999 10-K).10.10
    
    Cooperation and Stock Option Agreement dated as of July 4, 1990, by
and between Dynamit Nobel AG and American Pacific Corporation,
including exhibits thereto (incorporated by reference to Exhibit
10.24 to the 1990 S-2).10.11++
    
    Long-Term Pricing Agreement dated as of December 12, 1997, between
Thiokol Corporation-Propulsion and American Pacific Corporation
(incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998).10.12++
    
    Modification No. 1 dated September 13, 2000, to Long-Term Pricing
Agreement between Thiokol Propulsion and American Pacific
Corporation (incorporated by reference to Exhibit 10.14 to the 2000
10-K).10.13++
    
    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 Companys Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1998).10.14
    
    Ground Lease, dated November 30, 2005, by and between
Aerojet-General Corporation and AMPAC Fine Chemicals LLC
(incorporated by reference to Exhibit 10.5 to the Companys Current
Report on Form 8-K, filed with the SEC on December 1, 2005).10.15++
    
    Modification #3 to the Thiokol Long Term Pricing Agreement dated
April 5, 2006 (incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2006).10.16
    
    Master International Swaps and Derivatives Association (ISDA)
Agreement, between the Company and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2006).10.17
    
    Schedule No. 1 to Master ISDA Agreement, between the Company and
Bank of America, N.A. (incorporated by reference to Exhibit 10.2 to
the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2006).10.18
    
    Schedule No. 2 to Master ISDA Agreement, between the Company and
Bank of America, N.A. (incorporated by reference to Exhibit 10.3 to
the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2006).10.19+
    
    AMPAC Fine Chemicals LLC Pension
Plan for Bargaining Employees
(incorporated by reference to Exhibit 10.7 to the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2006).10.20+
    
    AMPAC Fine Chemicals LLC Pension Plan for Salaried Employees
(incorporated by reference to Exhibit 10.8 to the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2006).
 58




---



##### 



10.21
    
    Amended and Restated Credit Agreement, dated as of February 6,
2007, by and 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 Companys Current Report on Form
8-K, filed with the SEC on February 6, 2007).10.22
    
    Registration Rights Agreement, dated as of February 6, 2007, by and
among American Pacific Corporation, certain subsidiaries thereof
and Wachovia Capital Markets, LLC (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K, filed
with the SEC on February 6, 2007).*10.23+
    
    Executive Officer and Director Compensation as of September 30, 2007*21
    
    Subsidiaries of the Registrant.*23
    
    Consent of Deloitte & Touche LLP.*24
    
    Powers of Attorney (included on the signature pages).*31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of Principal Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith+
    
    Management 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 SEC.
 (b)
    
    See (a)(3) above.(c)
    
    None applicable.
 59




---



##### 



SIGNATURES
  Dated: December 21, 2007
    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) 60




---



##### 



POWER OF ATTORNEY
   /s/ JOHN R. GIBSON

John R. Gibson, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
    
    Date: December 21, 2007/s/ DANA M. KELLEY

Dana M. Kelley, Vice President,
Chief Financial Officer, and Treasurer
(Principal Financial and Accounting Officer)
    
    Date: December 21, 2007/s/ JOSEPH CARLEONE
    
    Date: December 21, 2007Joseph Carleone, Director/s/ FRED D. GIBSON, JR.
    
    Date: December 21, 2007Fred D. Gibson, Jr., Director/s/ JAN H. LOEB
    
    Date: December 21, 2007Jan H. Loeb, Director/s/ BERLYN D. MILLER
    
    Date: December 21, 2007Berlyn D. Miller, Director/s/ NORVAL F. POHL
    
    Date: December 21, 2007Norval F. Pohl, Ph.D., Director/s/ C. KEITH ROOKER
    
    Date: December 21, 2007C. Keith Rooker, Director/s/ DEAN M. WILLARD
    
    Date: December 21, 2007Dean M. Willard, Director/s/ JANE L. WILLIAMS
    
    Date: December 21, 2007Jane L. Williams, Director
 61




---



##### 



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




---



##### 



AMERICAN PACIFIC CORPORATION
Consolidated Balance Sheets
September 30, 2007 and 2006
(Dollars in Thousands)
 2007
    
    2006ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    21,426
    
    
    $
    6,872Accounts Receivable, Net
    
    
    25,236
    
    
    
    19,474Notes Receivable
    
    
    
    
    
    
    7,510Inventories, Net
    
    
    47,023
    
    
    
    39,755Prepaid Expenses and Other Assets
    
    
    2,258
    
    
    
    1,845Deferred Income Taxes
    
    
    2,101
    
    
    
    1,887Total Current Assets
    
    
    98,044
    
    
    
    77,343Property, Plant and Equipment, Net
    
    
    116,965
    
    
    
    119,746Intangible Assets, Net
    
    
    5,767
    
    
    
    14,237Deferred Income Taxes
    
    
    19,385
    
    
    
    21,701Other Assets
    
    
    9,246
    
    
    
    6,428TOTAL ASSETS
    
    $
    249,407
    
    
    $
    239,455LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    10,867
    
    
    $
    11,158Accrued Liabilities
    
    
    9,515
    
    
    
    11,257Employee Related Liabilities
    
    
    7,222
    
    
    
    4,600Environmental Remediation Reserves
    
    
    726
    
    
    
    1,631Deferred Revenues and Customer Deposits
    
    
    7,755
    
    
    
    5,683Current Portion of Debt
    
    
    252
    
    
    
    9,593Total Current Liabilities
    
    
    36,337
    
    
    
    43,922Long-Term Debt
    
    
    110,373
    
    
    
    97,771Environmental Remediation Reserves
    
    
    14,697
    
    
    
    15,880Pension Obligations and Other Long-Term Liabilities
    
    
    12,311
    
    
    
    9,998Total Liabilities
    
    
    173,718
    
    
    
    167,571Commitments and ContingenciesStockholders EquityPreferred Stock  No par value; 3,000,000 authorized; none outstanding
    
    
    
    
    
    
    Common Stock  $.10 par value; 20,000,000 shares authorized,
9,463,541 and 9,359,041 issued
    
    
    946
    
    
    
    933Capital in Excess of Par Value
    
    
    87,513
    
    
    
    86,724Retained Earnings
    
    
    7,296
    
    
    
    2,312Treasury Stock - 2,034,870 shares
    
    
    (16,982
    )
    
    
    (16,982
    )Accumulated Other Comprehensive Loss
    
    
    (3,084
    )
    
    
    (1,103
    )Total Stockholders Equity
    
    
    75,689
    
    
    
    71,884TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    249,407
    
    
    $
    239,455
  F-2




---



##### 



AMERICAN PACIFIC CORPORATION
Consolidated Statements of Operations
For the Years Ended September 30, 2007, 2006, and 2005
(Dollars in Thousands, Except per Share Amounts)
 2007
    
    2006
    
    2005Revenues
    
    $
    183,928
    
    
    $
    141,904
    
    
    $
    67,813Cost of Revenues
    
    
    120,230
    
    
    
    97,043
    
    
    
    43,916Gross Profit
    
    
    63,698
    
    
    
    44,861
    
    
    
    23,897Operating Expenses
    
    
    39,841
    
    
    
    38,202
    
    
    
    21,805Environmental Remediation Charges
    
    
    
    
    
    
    3,600
    
    
    
    22,400Operating Income (Loss)
    
    
    23,857
    
    
    
    3,059
    
    
    
    (20,308
    )Interest and Other Income, Net
    
    
    644
    
    
    
    1,069
    
    
    
    1,398Interest Expense
    
    
    11,996
    
    
    
    11,431
    
    
    
    Debt Repayment Charges
    
    
    2,916
    
    
    
    
    
    
    
    Income (Loss) from ContinuingOperations before Income Tax
    
    
    9,589
    
    
    
    (7,303
    )
    
    
    (18,910
    )Income Tax Expense (Benefit)
    
    
    4,605
    
    
    
    (4,300
    )
    
    
    (8,367
    )Income (Loss) from Continuing Operations
    
    
    4,984
    
    
    
    (3,003
    )
    
    
    (10,543
    )Loss from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (891
    )
    
    
    (702
    )Income (Loss) before Extraordinary Gain
    
    
    4,984
    
    
    
    (3,894
    )
    
    
    (11,245
    )Extraordinary Gain, Net of Tax
    
    
    
    
    
    
    
    
    
    
    1,554Net Income (Loss)
    
    $
    4,984
    
    
    $
    (3,894
    )
    
    $
    (9,691
    )Basic Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    0.68
    
    
    $
    (0.41
    )
    
    $
    (1.45
    )Loss from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (0.12
    )
    
    
    (0.09
    )Extraordinary Gain, Net of Tax
    
    
    
    
    
    
    
    
    
    
    0.21Net Income (Loss)
    
    $
    0.68
    
    
    $
    (0.53
    )
    
    $
    (1.33
    )Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    0.67
    
    
    $
    (0.41
    )
    
    $
    (1.45
    )Loss from Discontinued Operations, Net of Tax
    
    
    
    
    
    
    (0.12
    )
    
    
    (0.09
    )Extraordinary Gain, Net of Tax
    
    
    
    
    
    
    
    
    
    
    0.21Net Income (Loss)
    
    $
    0.67
    
    
    $
    (0.53
    )
    
    $
    (1.33
    )Weighted Average Shares Outstanding:Basic
    
    
    7,365,000
    
    
    
    7,305,000
    
    
    
    7,294,000Diluted
    
    
    7,471,000
    
    
    
    7,305,000
    
    
    
    7,294,000
  F-3




---



##### 



AMERICAN PACIFIC CORPORATION
Consolidated Statements of Changes in Stockholders Equity
For the Years Ended September 30, 2007, 2006 and 2005
(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, 2004
    
    
    7,291,917
    
    
    $
    932
    
    
    $
    86,148
    
    
    $
    15,897
    
    
    $
    (16,982
    )
    
    $
    (1,195
    )
    
    $
    84,800Comprehensive Income (Loss):Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,691
    )
    
    
    
    
    
    
    
    
    
    
    (9,691
    )Currency Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Additional Minimum PensionLiability, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (486
    )
    
    
    (486
    )Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,177
    )Issuance of Common Stock
    
    
    5,000
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Tax Benefit From Stock Options
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15BALANCES, September 30, 2005
    
    
    7,296,917
    
    
    
    932
    
    
    
    86,187
    
    
    
    6,206
    
    
    
    (16,982
    )
    
    
    (1,674
    )
    
    
    74,669Comprehensive Income (Loss):Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,894
    )
    
    
    
    
    
    
    
    
    
    
    (3,894
    )Currency Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15Additional Minimum PensionLiability, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    556
    
    
    
    556Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,338
    )Issuance of Common Stock
    
    
    27,254
    
    
    
    1
    
    
    
    157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158Tax Benefit From Stock Options
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Share-based Compensation
    
    
    
    
    
    
    
    
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    359BALANCES, September 30, 2006
    
    
    7,324,171
    
    
    
    933
    
    
    
    86,724
    
    
    
    2,312
    
    
    
    (16,982
    )
    
    
    (1,103
    )
    
    
    71,884Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,984
    
    
    
    
    
    
    
    
    
    
    
    4,984Currency Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    62Additional Minimum PensionLiability, Net of Tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,094
    
    
    
    1,094Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,078Adoption 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
    )
    
    $
    75,689
  F-4




---



##### 



AMERICAN PACIFIC CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2007, 2006 and 2005
(Dollars in Thousands)
 2007
    
    2006
    
    2005Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    4,984
    
    
    $
    (3,894
    )
    
    $
    (9,691
    )Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:Depreciation and amortization
    
    
    19,461
    
    
    
    20,181
    
    
    
    5,639Non-cash interest expense
    
    
    2,142
    
    
    
    3,967
    
    
    
    Share-based compensation
    
    
    75
    
    
    
    359
    
    
    
    Deferred income taxes
    
    
    2,102
    
    
    
    (3,442
    )
    
    
    (8,241
    )Non-cash component of debt repayment charges
    
    
    2,309
    
    
    
    
    
    
    
    Excess tax benefit from stock option exercises
    
    
    (32
    )
    
    
    (21
    )
    
    
    15Loss (Gain) on sale of assets
    
    
    22
    
    
    
    (610
    )
    
    
    Extraordinary gain, net
    
    
    
    
    
    
    
    
    
    
    (1,554
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (5,712
    )
    
    
    (1,135
    )
    
    
    9,437Inventories, net
    
    
    (7,622
    )
    
    
    (11,821
    )
    
    
    2,156Prepaid expenses
    
    
    (292
    )
    
    
    (1,110
    )
    
    
    Accounts payable and accrued liabilities
    
    
    7,055
    
    
    
    6,860
    
    
    
    41Deferred revenues and customer deposits
    
    
    2,072
    
    
    
    975
    
    
    
    Environmental remediation reserves
    
    
    (2,088
    )
    
    
    (3,076
    )
    
    
    20,587Pension obligations, net
    
    
    1,677
    
    
    
    650
    
    
    
    926Discontinued operations, net
    
    
    
    
    
    
    1,287
    
    
    
    (31
    )Other
    
    
    (2,015
    )
    
    
    299
    
    
    
    (131
    )Net Cash Provided by Operating Activities
    
    
    24,138
    
    
    
    9,469
    
    
    
    19,153Cash Flows from Investing Activities:Acquisition of businesses and earnout adjustment
    
    
    (6,000
    )
    
    
    (108,011
    )
    
    
    (4,505
    )Capital expenditures
    
    
    (8,421
    )
    
    
    (15,018
    )
    
    
    (1,686
    )Proceeds from sale of assets
    
    
    
    
    
    
    2,395
    
    
    
    Discontinued operations, net
    
    
    7,510
    
    
    
    (411
    )
    
    
    212Net Cash Used in Investing Activities
    
    
    (6,911
    )
    
    
    (121,045
    )
    
    
    (5,979
    )Cash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    110,000
    
    
    
    85,000
    
    
    
    Payments of long-term debt
    
    
    (108,586
    )
    
    
    (678
    )
    
    
    Debt issuance costs
    
    
    (4,814
    )
    
    
    (3,119
    )
    
    
    Issuance of common stock
    
    
    695
    
    
    
    158
    
    
    
    24Excess tax benefit from stock option exercises
    
    
    32
    
    
    
    21
    
    
    
    Discontinued operations, net
    
    
    
    
    
    
    (147
    )
    
    
    238Net Cash Provided (Used) by Financing Activities
    
    
    (2,673
    )
    
    
    81,235
    
    
    
    262Net Change in Cash and Cash Equivalents
    
    
    14,554
    
    
    
    (30,341
    )
    
    
    13,436Cash and Cash Equivalents, Beginning of Year
    
    
    6,872
    
    
    
    37,213
    
    
    
    23,777Cash and Cash Equivalents, End of Year
    
    $
    21,426
    
    
    $
    6,872
    
    
    $
    37,213
  F-5




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##### 



AMERICAN PACIFIC CORPORATION
Consolidated Statements of Cash Flows (Continued)
For the Years Ended September 30, 2007, 2006 and 2005
(Dollars in Thousands)
 2007
    
    2006
    
    2005Cash Paid For:Interest
    
    $
    8,217
    
    
    $
    7,415
    
    
    $
    Income taxes
    
    
    1,157
    
    
    
    (407
    )
    
    
    Non-Cash Investing and Financing Transactions:Issuance of Seller Subordinated Note, net of discount
    
    $
    
    
    
    $
    19,400
    
    
    $
    AFC Earnout Payment due seller (included in accrued liabilities)
    
    
    
    
    
    
    6,000
    
    
    
    Capital leases originated
    
    
    346
    
    
    
    527
    
    
    
    Additions to Property, Plant and Equipment not yet paid
    
    
    379
    
    
    
    1,281
    
    
    
    
  F-6




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##### 



AMERICAN PACIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2006 AND 2005
(Dollars in Thousands, Except Per Share Amounts)
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of Consolidation.Our consolidated financial statements include the accounts of
American Pacific Corporation and our wholly-owned 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, 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. Management
believes that the accounting estimates are appropriate and the resulting balances are
reasonable. However, due to the inherent uncertainties in making estimates, actual results may
differ from estimates on which our consolidated financial statements were prepared.Revenue Recognition.Revenues for the Specialty Chemicals segment, the Fine Chemicals segment,
and for sales of water treatment equipment are recognized when persuasive evidence of an
arrangement exists, shipment has been made, title passes, the price is fixed or determinable and
collectibility is reasonably assured. Almost all products sold by our Fine Chemicals segment are
subject to customer acceptance periods. We record deferred revenues upon shipment 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 chemical 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 101 Revenue Recognition in the Financial Statements, as amended by Staff Accounting Bulletin 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.
 F-7




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##### 



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 or 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 recovery 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, 2007, 2006 and 2005, such
transactions totaled approximately $41, $83, and $97, 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 value of cash and cash
equivalents, accounts and notes receivable, accounts payable and accrued liabilities
approximates their carrying value due to their short-term nature. We estimate that the fair
value of our fixed-rate long-term debt to be approximately $112,750 based on trade data as of
September 30, 2007.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. At September 30, 2007, one Fine Chemicals
customer accounted for 11% and two separate Specialty Chemicals customers accounted for 22% and
17% of our consolidated trade accounts receivable. At September 30, 2006, one Aerospace
Equipment customer accounted for 13% and three separate Fine Chemicals customers accounted for
23%, 13% and 12% of our consolidated trade accounts receivable.
 F-8




---



##### 



1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Inventories.Inventories are stated at the lower of cost or market. Inventoried costs include
materials, labor and manufacturing overhead. 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 provide reserves for obsolete inventories if inventory quantities
exceed our estimates of future demand. At September 30, 2007 and 2006, we had recorded
inventory reserves of $1,448 and $275, respectively.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 7 to
30 years for buildings and improvements.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
identified during any of the years presented.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 acquired foreign operations in the United Kingdom (U.K.) with our
acquisition in October 2004 of the former Atlantic Research Corporations in-space propulsion
(ISP) business from Aerojet-General Corporation (See Note 2). 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. Gains or losses resulting from transactions in foreign
currencies are reported as other expenses and are not material for all years presented.Recently Issued or Adopted Accounting Standards.In July 2006, the FASB issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which clarifies
the accounting for uncertainty in income taxes recognized in the financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 provides guidance
on the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective
for our fiscal year beginning October 1, 2007. We are currently evaluating the impact of this
standard on our consolidated financial statements.In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108), which documents the SEC staffs views regarding the process of
quantifying financial statement misstatements. Under SAB 108, we must evaluate the materiality
of an identified unadjusted error by considering the impact of both the current year error and
the cumulative
 F-9




---



##### 



1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)error, if applicable. This also means that both the impact on the current period income
statement and the period-end balance sheet must be considered. SAB 108 is effective for our
fiscal year ended September 30, 2007. Any past adjustments required to be recorded as a result
of adopting SAB 108 have been recorded as a cumulative effect adjustment to the opening balance
of retained earnings. We recorded no adjustments to our consolidated financial statements upon the adoption of SAB 108.In September 2006, the FASB issued Statement of Financial Accounting Standards (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. 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 will be first effective for our financial statements issued
for the year ending September 30, 2008, and interim periods within that year. We are currently
evaluating the impact that the adoption of SFAS No. 157 will have on our consolidated financial
statements.In September 2006, FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R),
(SFAS No. 158) which requires a company to recognize the overfunded or underfunded status of a
defined benefit postretirement plan as an asset or liability in its balance sheet and to
recognize changes in that funded status in the year in which the changes occur through
comprehensive income. SFAS No. 158 became effective for us on September 30, 2007. The adoption
of SFAS No. 158 had the effect of increasing long-term pension obligations by $3,137 and
decreasing total stockholders equity by a corresponding amount (see Note 10).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 is effective
as of the beginning of our first fiscal year that begins on October 1, 2008. We are currently
evaluating whether to adopt the fair value option under SFAS No. 159 and evaluating what impact
adoption would have on our consolidated financial statements.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 Administrations current good manufacturing practices or cGMP
guidelines for customers in the pharmaceutical industry. AFC offers specialized engineering
capabilities including high containment for high potency compounds, energetic and nucleoside
chemistries, and chiral separation.
 F-10




---



##### 



2.
    
    ACQUISITIONS (continued)The total consideration for the AFC Business acquisition is comprised of the following:
 Cash
    
    $
    88,500Fair value of Seller Subordinated Note (Face value $25,500)
    
    
    19,400Capital expenditures adjustment
    
    
    17,431Working capital adjustment
    
    
    (1,268
    )Earnout adjustment
    
    
    5,000Other direct acquisition costs
    
    
    4,348Total purchase price
    
    $
    133,411
 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, see Note 6.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.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  Total 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 (as
defined in Note 6) and the Seller Subordinated Note, each as discussed further in Note 6. The
total purchase price was funded with net proceeds from the 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. We engaged outside consultants to assist in the valuation of property, plant and
equipment and intangible assets.  As of September 30, 2006, the allocation of the purchase price
and the related determination of the useful lives of property, plant and equipment were
preliminary and subject to change based on the then pending final valuation report. As a result
of the final valuation report, during the first quarter of fiscal 2007, we recorded a
reclassification of $2,986 of assigned purchase price from intangible
assets to property, plant and equipment, and finalized our estimates of the related remaining
useful lives.
 F-11




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##### 



2.
    
    ACQUISITIONS (continued)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.
 2006
    
    2005Revenues
    
    $
    160,146
    
    
    $
    132,257Loss from Continuing Operations
    
    
    (4,814
    )
    
    
    (20,283
    )Net Loss
    
    
    (5,705
    )
    
    
    (19,431
    )Basic and Diluted Loss per Share:Loss from continuing Operations
    
    $
    (0.66
    )
    
    $
    (2.78
    )Net Loss
    
    
    (0.78
    )
    
    
    (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
dates.Additionally, it is not indicative of future results of operations and does not reflect
any additional costs, synergies or other changes that may occur as a result of the acquisition.ISP Acquisition.On October 1, 2004, we acquired the former Atlantic Research Corporations ISP
business (the ISP Acquisition) from Aerojet-General Corporation for $4,505.We accounted for this acquisition using the purchase method of accounting. The fair value of
the current assets acquired and current liabilities assumed was approximately $6,972. Since the
purchase price was less than the fair value of the net current assets acquired, non-current
assets were recorded at zero and an after-tax extraordinary gain of $1,554 was recognized (net
of approximately $913 of income tax expense).3.
    
    SHARE-BASED COMPENSATIONOn October 1, 2005, we adopted SFAS No. 123R, Share-Based Payment (SFAS No. 123R) 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. We elected to use the Modified
Prospective Transition method such that SFAS No. 123R applies to the unvested portion of awards
granted prior to the adoption date and all awards that are granted, modified, repurchased or
canceled after the effective date. Accordingly, commencing October 1, 2005, we began recognition
of compensation expense in our statement of operations. Prior to fiscal 2006, we accounted for
share-based awards under the Accounting Principles Board Opinion No. 25 intrinsic value method, under
 F-12




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##### 



3.
    
    SHARE-BASED COMPENSATION (continued)which no compensation expense was recognized because all options granted were at an exercise
price equal to the market value of our stock on the grant date. Prior period financial
statements have not been adjusted to reflect share-based compensation expense under SFAS No.
123R.Our share-based compensation arrangements consist solely of stock options. Stock option grants
are designed to attract and retain employees and directors. The amount, frequency, and terms may
vary based on competitive practices, our operating results, government regulations and
availability under our equity incentive plans. New shares of our common stock are issued upon
the exercise of stock options. We do not settle equity instruments in cash. We have two share
based plans, each as discussed below.The American Pacific Corporation 2001 Stock Option Plan, as amended (the 2001 Plan), permits
the granting of incentive stock options meeting the requirements of Section 422 of the Internal
Revenue Code and nonqualified options that do not meet the requirements of Section 422 to
employees, officers, directors and consultants. Options granted under the 2001 Plan generally
vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in
ten years. As of September 30, 2007, there were 20,000 shares available for grant under the 2001
Plan. This plan was approved by our stockholders.The American Pacific Corporation 2002 Directors Stock Option Plan (the 2002 Directors Plan)
compensates non-employee directors with annual grants of stock options or upon other
discretionary events. Options are granted to each eligible director at a price equal to the
closing share price of our common stock on the date of the grant on the principal national
securities exchange on which the Companys common stock trades or, if such date is a date upon
which no shares of our common stock are traded on the principal national securities exchange,
the closing price on the next preceding trading day. Options granted under the 2002 Directors
Plan generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date,
and expire in ten years. As of September 30, 2007, there were 25,000 shares available for grant
under the 2002 Directors Plan. This plan was approved by our stockholders.A summary of our outstanding and vested stock option activity for the year ended September 30,
2007 is as follows:
 Total Outstanding
    
    Non VestedWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    FairPrice
    
    
    
    
    
    ValueShares
    
    Per Share
    
    Shares
    
    Per ShareBalance, October 1, 2006
    
    
    515,500
    
    
    $
    6.95
    
    
    
    18,750
    
    
    $
    1.95Granted
    
    
    19,000
    
    
    
    7.64
    
    
    
    19,000
    
    
    
    3.63Vested
    
    
    
    
    
    
    
    
    
    
    (28,250
    )
    
    
    2.51Exercised
    
    
    (104,500
    )
    
    
    6.63
    
    
    
    
    
    
    
    Expired / Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, September 30, 2007
    
    
    430,000
    
    
    
    7.05
    
    
    
    9,500
    
    
    
    3.63
 A summary of our exercisable stock options as of September 30, 2007 is as follows:
 Number of vested stock options
    
    
    420,500Weighted average exercise price per share
    
    $
    7.04Aggregate intrinsic value
    
    $
    3,608Weighted average remaining contractual term in years
    
    
    6.7
 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.
 F-13




---



##### 



3.
    
    SHARE-BASED COMPENSATION (continued)The following stock option information is as of September 30:
 2007
    
    2006
    
    2005Weighted average grant date fair value per share of options granted
    
    $
    3.68
    
    
    $
    2.00
    
    
    $
    3.00Significant fair value assumptions:Expected term in years
    
    
    5.25
    
    
    
    5.25
    
    
    
    4.50Expected volatility
    
    
    47.0
    %
    
    
    47.0
    %
    
    
    50.0
    %Expected dividends
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rates
    
    
    4.7
    %
    
    
    4.4
    %
    
    
    3.9
    %Total intrinsic value of options exercised
    
    $
    760
    
    
    $
    54
    
    
    $
    12Aggregate cash received for option exercises
    
    $
    695
    
    
    $
    158
    
    
    $
    24Total compensation cost (included in operating expenses)
    
    $
    75
    
    
    $
    359
    
    
    $
    Tax benefit recognized
    
    
    30
    
    
    
    141
    
    
    
    Net compensation cost
    
    $
    45
    
    
    $
    218
    
    
    $
    As of period end date:Total compensation cost for non-vested awards
not yet recognized
    
    $
    1
    
    
    $
    6Weighted-average years to be recognized
    
    
    
    
    
    
    0.2
 SFAS No. 123R requires us to present pro forma information for periods prior to the adoption as
if we had accounted for all stock-based compensation under the fair value method. Had
share-based compensation costs been recorded prior to the year ended September 30, 2006, the
effect on our net income and earnings per share would have been as follows for the year ended
September 30:
 2005Net loss, as reported
    
    $
    (9,691
    )Pro forma compensation, net of tax
    
    
    (324
    )Pro forma net loss
    
    $
    (10,015
    )Basic loss per share:As reported
    
    $
    (1.33
    )Pro forma
    
    $
    (1.37
    )Diluted loss per share:As reported
    
    $
    (1.33
    )Pro forma
    
    $
    (1.37
    )
 4.
    
    BALANCE SHEET DATAThe following tables provide additional disclosure for accounts receivable, inventories and
property, plant and equipment at September 30:
 2007
    
    2006Accounts Receivable:Trade receivables
    
    $
    22,392
    
    
    $
    17,438Unbilled receivables
    
    
    2,908
    
    
    
    1,985Employee and other receivables
    
    
    108
    
    
    
    51Allowance for bad debt
    
    
    (172
    )
    
    
    Total
    
    $
    25,236
    
    
    $
    19,474
 Unbilled receivables represent unbilled costs and accrued profits related to revenues recognized
on contracts that we account for using the percentage-of-completion method. Substantially all
of these
amounts are expected to be billed or invoiced within the next 12 months. We assess the
collectibility
 F-14




---



##### 



4.
    
    BALANCE SHEET DATA (continued)of our accounts receivable based on historical collection experience and provide allowances for
estimated credit losses. Typically, our customers consist of large corporations, many of which
are government contractors procuring products from us on behalf of or for the benefit of
government agencies.
 2007
    
    2006Inventories:Finished goods
    
    $
    4,709
    
    
    $
    7,170Work-in-progress
    
    
    29,225
    
    
    
    20,196Raw materials and supplies
    
    
    14,537
    
    
    
    12,664Allowance for excess or obsolete inventory
    
    
    (1,448
    )
    
    
    (275
    )Total
    
    $
    47,023
    
    
    $
    39,755Property, Plant and Equipment:Land
    
    $
    2,924
    
    
    $
    3,116Buildings and improvements
    
    
    43,926
    
    
    
    39,566Machinery and equipment
    
    
    106,348
    
    
    
    99,097Construction in progress
    
    
    3,318
    
    
    
    3,517Total Cost
    
    
    156,516
    
    
    
    145,296Less: accumulated depreciation
    
    
    (39,551
    )
    
    
    (25,550
    )Total
    
    $
    116,965
    
    
    $
    119,746
 Depreciation expense for continuing operations was approximately $14,323, $11,525 and $1,739 for
the years ended September 30, 2007, 2006 and 2005, respectively.5.
    
    INTANGIBLE ASSETSWe account for our intangible assets in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets. Intangible assets consist of the following as of September 30:
 2007
    
    2006Perchlorate customer list
    
    $
    38,697
    
    
    $
    38,697Less accumulated amortization
    
    
    (37,180
    )
    
    
    (33,280
    )1,517
    
    
    
    5,417Customer relationships and backlog
    
    
    10,244
    
    
    
    13,230Less accumulated amortization
    
    
    (5,994
    )
    
    
    (4,756
    )4,250
    
    
    
    8,474Pension-related intangible
    
    
    
    
    
    
    346Total
    
    $
    5,767
    
    
    $
    14,237
 The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject to
amortization. Amortization expense was $3,900 for each of the three years ended September 30,
2007, 2006 and 2005.In connection with our acquisition of the AFC Business, we acquired intangible assets with fair
values of $7,957 for customer relationships and $2,287 for existing customer backlog. These
assets have definite lives and are assigned to our Fine Chemicals segment. Amortization expense
for the years ended September 30, 2007 and 2006 was $1,238 and $4,756, respectively.At September 30, 2006, the pension-related intangible was an actuarially calculated amount
related to unrecognized prior service cost for our defined benefit pension plan and supplemental
executive retirement plan. In connection with our adoption of SFAS No. 158, effective on
September 30, 2007, this amount was reduced to zero.
 F-15




---



##### 



5.
    
    INTANGIBLE ASSETS (continued)Estimated future amortization expense for our intangible assets is as follows:
 Years ending September 30:2008
    
    $
    2,7542009
    
    
    1,2382010
    
    
    1,2382011
    
    
    537Total
    
    $
    5,767
 6.
    
    DEBTOur outstanding debt balances consist of the following as of September 30:
 2007
    
    2006Senior Notes, 9%, due 2015
    
    $
    110,000
    
    
    $
    Credit Facilities:First Lien
Term Loan, 9.4%, due through 2010
    
    
    
    
    
    
    64,350First Lien
Revolving Credit
    
    
    
    
    
    
    Second Lien
Term Loan plus accrued PIK Interest of $170,14.4%, due 2011
    
    
    
    
    
    
    20,170Subordinated Seller Note plus accrued PIK Interest of $2,226, 10.4%,Net of Discount of $5,424, due 2012
    
    
    
    
    
    
    22,304Capital Leases
    
    
    625
    
    
    
    540Total Debt
    
    
    110,625
    
    
    
    107,364Less Current Portion
    
    
    (252
    )
    
    
    (9,593
    )Total
Long-term Debt
    
    $
    110,373
    
    
    $
    97,771
 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% 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% with the proceeds of certain sales of its 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.
 F-16




---



##### 



6.
    
    DEBT (continued)The Senior Notes were issued pursuant to an indenture, which contains
certain customary events of default and certain other covenants limiting, subject to
exceptions, carve-outs and qualifications, our ability to:
 
    
    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.
  Credit Facilities.
 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;
 F-17




---



##### 



6.
    
    DEBT (continued)
 
    
    enter into certain transactions with affiliates;
    
    enter into sale and leaseback transactions; and
    
    merge or consolidate with any other entity or sell, assign, transfer, lease, convey or
otherwise dispose of assets.
   Seller Subordinated Note.
   Years ending September 30:2008
    
    $
    2522009
    
    
    2532010
    
    
    1202011
    
    
    2012
    
    
    Thereafter
    
    
    110,000Total
    
    $
    110,625
 Letters of Credit.
 Interest
Rate Swap Agreements.
 F-18




---



##### 



6.
    
    DEBT (continued)The differential to be paid or received was recorded as an adjustment to interest expense. The
swap agreements did not qualify for hedge accounting treatment. We recorded an asset or
liability for the fair value of the swap agreements, with the effect of marking these contracts
to fair value being recorded as an adjustment to interest expense. The aggregate fair value of
the swap agreements at September 30, 2006, which was recorded as other long-term liabilities,
was $314. In connection with the refinancing of our Credit Facilities, we terminated our swap
agreements at a cost of $268, which resulted in a gain of $46 that is recorded as a reduction of
interest expense in fiscal 2007.
 7.
    
    EARNINGS (LOSS) PER SHAREShares used to compute earnings (loss) per share from continuing operations are as follows for
the years ended September 30:
 2007
    
    2006
    
    2005Income (Loss) from Continuing Operations
    
    $
    4,984
    
    
    $
    (3,003
    )
    
    $
    (10,543
    )Basic:Weighted Average Shares
    
    
    7,365,000
    
    
    
    7,305,000
    
    
    
    7,294,000Diluted:Weighted Average Shares, Basic
    
    
    7,365,000
    
    
    
    7,305,000
    
    
    
    7,294,000Dilutive Effect of Stock Options
    
    
    106,000
    
    
    
    
    
    
    
    Weighted
Average Shares, Diluted
    
    
    7,471,000
    
    
    
    7,305,000
    
    
    
    7,294,000Basic Earnings (Loss) per Share from Continuing Operations
    
    $
    0.68
    
    
    $
    (0.41
    )
    
    $
    (1.45
    )Diluted Earnings (Loss) per Share from Continuing Operations
    
    $
    0.67
    
    
    $
    (0.41
    )
    
    $
    (1.45
    )
 As of September 30, 2007, we had no antidilutive options outstanding. As of September 30, 2006
and 2005, we had 515,500 and 523,500, respectively, antidilutive options outstanding. The stock
options are antidilutive because we reported a loss from continuing operations and the exercise
price of certain options exceeds the average fair market value of our common stock for the
period.8.
    
    STOCKHOLDERS EQUITYPreferred Stock and Purchase Rights.We have authorized 3,000,000 shares of preferred stock, of
which 125,000 shares have been designated as Series A, and 125,000 shares have been designated
as Series B. At September 30, 2007 and 2006, no shares of preferred stock are issued and
outstanding.On August 3, 1999, our board of directors adopted a shareholder rights plan (the Plan) and
declared a dividend of one preference share purchase right (a Right) for each outstanding
share of our common stock. The dividend was paid to stockholders of record on August 16, 1999.
Each Right entitles the registered holder to purchase from us one one-hundredth of a share of
Series D Participating Preference Stock, par value $1.00 per share (Preference Shares), at a
price of $24.00 per one one-hundredth of a Preference Share, subject to adjustment under certain
circumstances. The description and terms of the Rights are set forth in a Rights Agreement dated
as of August 3, 1999 (the Rights Agreement), between us and American Stock Transfer & Trust
Company, as Rights Agent. The Rights may also, under certain conditions, entitle the holders
(other than any Acquiring Person, as defined in the Rights Agreement), to receive our common
stock, common stock of an entity acquiring us, or other consideration, each having a market
value of two times the exercise price of each Right.
 F-19




---



##### 



8.
    
    STOCKHOLDERS EQUITY (continued)Three hundred and fifty-thousand (350,000) Preference Shares have been designated and are
reserved for issuance under the Plan. The Rights are redeemable at a price of $0.001 per Right
under the conditions provided in the Plan. If not exercised or redeemed (or exchanged by us),
the Rights expire on August 2, 2009.Dividend and Share Repurchase Program.In January 2003, our board of directors approved a
Dividend and Stock Repurchase Program which is designed to allocate a portion of our annual free
cash flows (as calculated) for the purposes of paying cash dividends and repurchasing our common
stock. In November 2005, we entered into our Credit Facilities, as amended in February 2007,
which substantially limits our ability to pay dividends. No dividends were paid for the years
ended September 30, 2007, 2006 and 2005.9.
    
    INCOME TAXESThe components of the income tax expense (benefit) for continuing operations are as follows for
the years ended September 30:
 2007
    
    2006
    
    2005Current
    
    $
    1,355
    
    
    $
    (1,179
    )
    
    $
    (507
    )Deferred
    
    
    3,250
    
    
    
    (3,121
    )
    
    
    (7,860
    )Income tax expense (benefit)
    
    $
    4,605
    
    
    $
    (4,300
    )
    
    $
    (8,367
    )
  2007
    
    2006Deferred tax assets:Environmental remediation reserves
    
    $
    8,354
    
    
    $
    9,613Tax credits and carryforwards
    
    
    5,531
    
    
    
    785Pension obligations
    
    
    3,083
    
    
    
    2,167Intangible assets
    
    
    3,452
    
    
    
    6,216Inventory
    
    
    1,398
    
    
    
    652Property, plant and equipment
    
    
    
    
    
    
    3,546Accrued expenses
    
    
    946
    
    
    
    1,284Other
    
    
    616
    
    
    
    803Subtotal
    
    
    23,380
    
    
    
    25,066Valuation allowance
    
    
    (855
    )
    
    
    (785
    )Deferred tax assets
    
    
    22,525
    
    
    
    24,281Deferred tax liabilities:Prepaid expenses
    
    
    (714
    )
    
    
    (586
    )Property, plant and equipment
    
    
    (217
    )
    
    
    Other
    
    
    (108
    )
    
    
    (107
    )Deferred tax liabilities
    
    
    (1,039
    )
    
    
    (693
    )Net deferred tax assets
    
    $
    21,486
    
    
    $
    23,588
 As of September 30, 2007, we had Federal operating loss
carryforwards of $10,884 available to reduce future Federal taxable
income, which begin expiring in 2027. Pursuant to SFAS No. 109,
net operating losses have been reduced by $691 relating to stock
option compensation, the tax effects of which will be credited to
additional paid-in capital when realized.
 As of September 30, 2007 and 2006, respectively, we have aggregate operating loss carryforwards
of $1,205 and $6,413 for certain U.S. states and $1,990 and $1,649 for the U.K. We do not
anticipate future taxable income in these states or the U.K., and accordingly have provided
valuation allowances of $855 and $785 as of September 30, 2007 and 2006, respectively. We
have not provided a U.S. federal income tax benefit for the U.K. because we intend to permanently
reinvest any earnings from the U.K.
 F-20




---



##### 



9.
    
    INCOME TAXES (continued)A reconciliation of the federal statutory rate to our effective tax (benefit) rate from
continuing operations is as follows for the years ended September 30:
 2007
    
    2006
    
    2005Federal income tax at the statutory rate
    
    
    35.0
    %
    
    
    (35.0
    %)
    
    
    (35.0
    %)State income tax, net of federal benefit
    
    
    4.0
    %
    
    
    (3.1
    %)
    
    
    (2.5
    %)Nondeductible expenses
    
    
    1.3
    %
    
    
    1.0
    %
    
    
    0.6
    %Valuation allowance
    
    
    2.0
    %
    
    
    1.8
    %
    
    
    1.3
    %Change in effective state income tax rate
    
    
    5.4
    %
    
    
    (13.7
    %)
    
    
    0.0
    %Basis differences in partnerships
    
    
    0.0
    %
    
    
    (5.6
    %)
    
    
    0.0
    %Other
    
    
    0.3
    %
    
    
    (4.3
    %)
    
    
    (8.6
    %)Effective tax rate
    
    
    48.0
    %
    
    
    (58.9
    %)
    
    
    (44.2
    %)
 10.
    
    EMPLOYEE BENEFIT PLANSWe maintain three defined benefit pension plans which cover substantially all of our U.S.
employees, excluding employees of our Aerospace Equipment segment: the American Pacific
Corporation Defined Benefit Pension Plan, the Ampac Fine Chemicals LLC Pension Plan for Salaried
Employees (the AFC Salaried Plan), and the Ampac Fine Chemicals LLC Pension Plan for
Bargaining Unit Employees (the AFC Bargaining Plan). Collectively, these three plans are
referred to as the Pension Plans. The AFC Salaried Plan and the AFC Bargaining Plan were
established in connection with our acquisition of the AFC Business and include the assumed
liabilities for pension benefits to existing employees at the acquisition date. Pension Plans
benefits are paid based on an average of earnings, retirement age, and length of service, among
other factors. In addition, we have a supplemental executive retirement plan (the SERP) that
includes our former and current Chief Executive Officer. We use a measurement date of September
30 to account for our Pension Plans and SERP.In November 2007, our board of directors approved an amendment and restatement of the SERP.
Under the terms of the amended and restated SERP, certain of our officers and their
beneficiaries are entitled to receive a monthly annuity benefit following their retirement from
the Company. The amendment and restatement of the SERP, which is effective as of October 1,
2007, amends, among other provisions, the list of participants in the SERP to include three
additional executive officers of the Company and the method of calculating a participants
benefit under the SERP.We maintain two 401(k) plans in which participating employees may make contributions. One covers
substantially all U.S. employees except AFC bargaining unit employees and the other covers AFC
bargaining unit employees (collectively, the 401(k) Plans). We make matching contributions
for AFC and Aerospace Equipment U.S. employees. In addition, we make a profit sharing
contribution for Aerospace Equipment U.S. employees. We made total contributions of $911 and
$204 to the 401(k) Plans during the years ended September 30, 2007 and 2006, respectively.We provide healthcare and life insurance benefits to substantially all of our employees.Effective September 30, 2007, we adopted SFAS No. 158, which requires the recognition of the
funded status of a defined benefit plan on our consolidated balance sheet. Upon adoption, we
recorded an adjustment to the end-of-year balance of accumulated other comprehensive income in
stockholders equity to recognize unamortized pension net losses and prior service costs as
components of the ending balance of accumulated other comprehensive income, net of tax.
 F-21




---



##### 



10.
    
    EMPLOYEE BENEFIT PLANS (continued)The following table sets forth the amounts recognized as components of accumulated other
comprehensive income at September 30, 2007:
 Pension Plans
    
    SERPNet actuarial loss
    
    $
    4,953
    
    
    $
    54Prior service costs
    
    
    232
    
    
    
    14Income tax benefits related to above items
    
    
    (2,057
    )
    
    
    (27
    )Unamortized pension plan costs, net of tax
    
    $
    3,128
    
    
    $
    41
  Pension Plans
    
    SERPAmortization of net actuarial loss
    
    $
    198
    
    
    $
    Amortization of prior service costs
    
    
    58
    
    
    
    228Total
    
    $
    256
    
    
    $
    228
   Before
    
    
    
    
    
    
    AfterApplication
    
    
    
    
    
    
    Applicationof SFAS
    
    
    
    
    
    
    of SFASNo. 158
    
    
    Adjustment
    
    
    No. 158Other assets
    
    $
    9,035
    
    
    $
    211
    
    
    $
    9,246Deferred income taxes
    
    
    17,322
    
    
    
    2,063
    
    
    
    19,385Total assets
    
    
    247,133
    
    
    
    2,274
    
    
    
    249,407Pension obligations and other long-term liabilities
    
    
    6,900
    
    
    
    5,411
    
    
    
    12,311Total liabilities
    
    
    168,307
    
    
    
    5,411
    
    
    
    173,718Accumulated other comprehensive income (loss)Unamortized plan benefit costs, net of tax
    
    
    
    
    
    
    (3,169
    )
    
    
    (3,169
    )Additional minimum pension liability, net of tax
    
    
    (32
    )
    
    
    32
    
    
    
    Total stockholders equity
    
    
    78,826
    
    
    
    (3,137
    )
    
    
    75,689
 The table below presents the annual changes in benefit obligations and plan assets and the
funded status of our Pension Plans and SERP as of and for the fiscal years ended September 30:
 F-22




---



##### 



10.
    
    EMPLOYEE BENEFIT PLANS (continued)
 Pension Plan
    
    SERP2007
    
    2006
    
    2007
    
    2006Change in Benefit Obligation:Benefit obligation, beginning of year
    
    $
    38,414
    
    
    $
    31,249
    
    
    $
    2,364
    
    
    $
    2,498Business acquired, AFC
    
    
    
    
    
    
    4,464
    
    
    
    
    
    
    
    Service cost
    
    
    2,027
    
    
    
    1,863
    
    
    
    
    
    
    
    Interest cost
    
    
    2,252
    
    
    
    2,024
    
    
    
    138
    
    
    
    140Actuarial (gains) losses
    
    
    (1,984
    )
    
    
    (312
    )
    
    
    (300
    )
    
    
    (148
    )Benefits paid
    
    
    (1,015
    )
    
    
    (874
    )
    
    
    (126
    )
    
    
    (126
    )Benefit obligation, end of year
    
    
    39,694
    
    
    
    38,414
    
    
    
    2,076
    
    
    
    2,364Change in Plan Assets:Fair value of plan assets, beginning of year
    
    
    25,024
    
    
    
    18,658
    
    
    
    
    
    
    
    Business acquired, AFC
    
    
    
    
    
    
    3,889
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    3,194
    
    
    
    1,516
    
    
    
    
    
    
    
    Employer contributions
    
    
    2,705
    
    
    
    1,835
    
    
    
    126
    
    
    
    126Benefits paid
    
    
    (1,015
    )
    
    
    (874
    )
    
    
    (126
    )
    
    
    (126
    )Fair value of plan assets, end of year
    
    
    29,908
    
    
    
    25,024
    
    
    
    
    
    
    
    Reconciliation of Funded Status:Funded status
    
    
    (9,786
    )
    
    
    (13,390
    )
    
    
    (2,076
    )
    
    
    (2,364
    )Unrecognized net actuarial losses
    
    
    
    
    
    
    8,477
    
    
    
    
    
    
    
    365Unrecognized prior service costs
    
    
    
    
    
    
    289
    
    
    
    
    
    
    
    57Net amount recognized
    
    $
    (9,786
    )
    
    $
    (4,624
    )
    
    $
    (2,076
    )
    
    $
    (1,942
    )
  Pension Plan
    
    SERP2007
    
    2006
    
    2007
    
    2006Years prior to the adoption of SFAS No. 158Accrued benefit liabilities
    
    $
    
    
    
    $
    (6,558
    )
    
    $
    
    
    
    $
    (2,364
    )Prepaid benefit costs
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    Intangible assets
    
    
    
    
    
    
    289
    
    
    
    
    
    
    
    57Accumulated other comprehensive loss before tax
    
    
    
    
    
    
    1,436
    
    
    
    
    
    
    
    365Net amount recognized
    
    $
    
    
    
    $
    (4,624
    )
    
    $
    
    
    
    $
    (1,942
    )Years after the adoption of SFAS No. 158Other assets (Prepaid benefit costs)
    
    $
    225
    
    
    $
    
    
    
    $
    
    
    
    $
    Pension obligations and other long-term liabilities
    
    
    (10,011
    )
    
    
    
    
    
    
    (2,076
    )
    
    
    Net amount recognized
    
    $
    (9,786
    )
    
    $
    
    
    
    $
    (2,076
    )
    
    $
    
  2007
    
    2006Plan Assets:Ampac Plan
    
    $
    24,753
    
    
    $
    21,112AFC Salaried Plan
    
    
    3,204
    
    
    
    2,354AFC Bargaining Plan
    
    
    1,951
    
    
    
    1,558Accumulated Benefit Obligation:Ampac Plan
    
    
    26,950
    
    
    
    26,261AFC Salaried Plan
    
    
    3,220
    
    
    
    2,628AFC Bargaining Plan
    
    
    1,726
    
    
    
    1,372Projected Benefit Obligation:Ampac Plan
    
    
    33,698
    
    
    
    33,340AFC Salaried Plan
    
    
    4,270
    
    
    
    3,702AFC Bargaining Plan
    
    
    1,726
    
    
    
    1,372
 F-23




---



##### 



10.
    
    EMPLOYEE BENEFIT PLANS (continued)The Pension Plans assets include no shares of our common stock. We developed assumptions for
expected long-term returns for the targeted asset classes of each of the Pension Plans based on
factors that include current market data such as yields/price-earnings ratios, and historical
market returns over long periods. Using policy target allocation percentages and the asset class
expected returns, a weighted average expected return was calculated. The actual and target
asset allocation for the Pension Plans is as follows at September 30:
 Target
    
    Actual2007
    
    2007
    
    2006Equity securities
    
    
    70
    %
    
    
    72
    %
    
    
    62
    %Debt securities
    
    
    25
    %
    
    
    11
    %
    
    
    27
    %Cash and marketable securities
    
    
    5
    %
    
    
    17
    %
    
    
    11
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Pension Plan
    
    SERP2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005Net Periodic Pension Cost:Service cost
    
    $
    2,027
    
    
    $
    1,863
    
    
    $
    1,072
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    2,252
    
    
    
    2,024
    
    
    
    1,653
    
    
    
    138
    
    
    
    140
    
    
    
    148Expected return on plan assets
    
    
    (2,084
    )
    
    
    (1,791
    )
    
    
    (1,364
    )
    
    
    
    
    
    
    
    
    
    
    Recognized actuarial losses
    
    
    58
    
    
    
    584
    
    
    
    464
    
    
    
    11
    
    
    
    24
    
    
    
    30Amortization of prior service costs
    
    
    429
    
    
    
    58
    
    
    
    58
    
    
    
    43
    
    
    
    43
    
    
    
    43Net periodic pension cost
    
    $
    2,682
    
    
    $
    2,738
    
    
    $
    1,883
    
    
    $
    192
    
    
    $
    207
    
    
    $
    221Actuarial Assumptions:Discount rate
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %Expected return on plan assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    
    
    
    
    
    
    
    
    
  Pension Plan
    
    SERPYears ending September 30:2008
    
    $
    1,326
    
    
    $
    1262009
    
    
    1,369
    
    
    
    1262010
    
    
    1,431
    
    
    
    1262011
    
    
    1,456
    
    
    
    3452012
    
    
    1,511
    
    
    
    3452013-2017
    
    
    9,718
    
    
    
    2,027
 11.
    
    COMMITMENTS AND CONTINGENCIESOperating Leases.We lease our corporate offices and production facilities for our Aerospace
Equipment segment under operating leases with lease periods extending through 2011. Total
rental expense under operating leases was $1,117, $981, and $741 for the years ended September
30, 2007, 2006, and 2005, respectively.
 F-24




---



##### 



11.
    
    COMMITMENTS AND CONTINGENCIES (continued)Estimated future minimum lease payments under operating leases as of September 30, 2007, are as
follows:
 Years ending September 30:2008
    
    $
    1,5582009
    
    
    1,1142010
    
    
    4902011
    
    
    4122012
    
    
    403Thereafter
    
    
    4,058Total
    
    $
    8,035
 Purchase Commitments.
 Employee Agreements.
  Environmental Matters.
 Review of Perchlorate Toxicity by the EPA 
  Perchlorate Remediation Project in Henderson, Nevada 
  F-25




---



##### 



11.
    
    COMMITMENTS AND CONTINGENCIES (continued)production to a new facility in Iron County, Utah. Kerr-McGee Chemical Corporation (KMCC)
also operated a perchlorate production facility in Henderson, Nevada (KMCC Site) from 1967 to
1998. In addition, between 1956 and 1967, American Potash operated a perchlorate production
facility and for many years prior to 1956, other entities also manufactured perchlorate
chemicals at the KMCC Site. As a result of a longer production history in Henderson, KMCC and
its predecessor operations have manufactured significantly greater amounts of perchlorate over
time than we did at the AMPAC Henderson Site.In 1997, the Southern Nevada Water Authority (SNWA) detected trace amounts of the perchlorate
anion in Lake Mead and the Las Vegas Wash. Lake Mead is a source of drinking water for Southern
Nevada and areas of Southern California. The Las Vegas Wash flows into Lake Mead from the Las
Vegas valley.In response to this discovery by SNWA, and at the request of the Nevada Division of
Environmental Protection (NDEP), we engaged in an investigation of groundwater near the AMPAC
Henderson Site and down gradient toward the Las Vegas Wash. The investigation and related
characterization which lasted more than six years employed experts in the field of hydrogeology.
This investigation concluded that, although there is perchlorate in the groundwater in the
vicinity of the AMPAC Henderson Site up to 700 ppm, perchlorate from this site does not
materially impact, if at all, water flowing in the Las Vegas Wash toward Lake Mead. It has
been well established, however, by data generated by SNWA and NDEP, that perchlorate from the
KMCC did impact the Las Vegas Wash and Lake Mead. Kerr McGees successor,
Tronox LLC, operates an ex situ perchlorate groundwater remediation facility at their Henderson
site. Recent measurements of perchlorate in Lake Mead made by SNWA have been less than 10 ppb.Notwithstanding these facts, and at the direction of NDEP and the EPA, we conducted an
investigation of remediation technologies for perchlorate in groundwater with the intention of
remediating groundwater near the AMPAC Henderson Site. The technology that was chosen as most
efficient and appropriate is in situ bioremediation or ISB. ISB reduces perchlorate in the
groundwater by precise addition of an appropriate carbon source to the groundwater itself while
it is still in the ground (as opposed to an above ground, more conventional, ex situ process).
This induces naturally occurring organisms in the groundwater to reduce the perchlorate among
other oxygen containing compounds.In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On
the basis of the successful test and other evaluations, in fiscal 2005 we submitted a work plan
to NDEP for the construction of a remediation facility near the AMPAC Henderson Site. The
conditional approval of the work plan by NDEP in our third quarter of fiscal 2005 allowed us to
generate estimated costs for the installation and operation of the remediation facility to
address perchlorate at AMPAC Henderson Site. We commenced construction in July 2005. In
December 2006, we began operations, reducing perchlorate concentrations in system extracted
groundwater in Henderson.Henderson Site Environmental Remediation Reserve During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate
of the probable costs of our remediation efforts at the AMPAC Henderson Site, including the
costs for equipment, operating and maintenance costs, and consultants. Key factors in
determining the total estimated cost include an estimate of the speed of groundwater entering
the treatment area, which was then used to estimate a project life of 45 years, as well as
estimates for capital expenditures and annual operating and maintenance costs. The project
consists of two primary phases; the initial construction of the remediation equipment phase and the
operating and maintenance phase. During our fiscal 2006, we increased our total cost estimate
of probable costs for the construction phase by $3,600 due primarily to changes in the
engineering designs, delays in receiving permits and the resulting extension of construction
time. We commenced the construction phase in late fiscal 2005, completed an interim system in
June 2006, and completed the permanent facility in December 2006.
 F-26




---



##### 



11.
    
    COMMITMENTS AND CONTINGENCIES (continued)In addition to the operating and maintenance costs, certain remediation activities are
conducted on public lands under operating permits. In general, these permits require us to
return the land to its original condition at the end of the permit period. Estimated costs
associated with removal of remediation equipment from the land are not material and are included
in our range of estimated costs. These estimates are based on information currently available
to us and may be subject to material adjustment upward or downward in future periods as new
facts or circumstances may indicate.We accrue for anticipated costs associated with environmental remediation that are probable and
estimable. 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. As of September 30, 2007, the aggregate range of
anticipated environmental remediation costs was from approximately $12,300 to approximately
$18,500, and the accrued amount was $15,423. A summary of our environmental reserve activity
for the year ended September 30, 2007 is shown below:
 Balance, September 30, 2006
    
    $
    17,511Additions or adjustments
    
    
    Expenditures
    
    
    (2,088
    )Balance, September 30, 2007
    
    $
    15,423
 AFC Environmental Matters 
    Other
Matters.
  F-27




---



##### 



12.
    
    SEGMENT INFORMATIONWe report our business in four operating segments: Specialty Chemicals, Fine Chemicals,
Aerospace Equipment and Other Businesses. These segments are based upon business units that
offer distinct products and services, are operationally managed separately and produce products
using different production methods. Segment operating profit includes all sales and expenses
directly associated with each segment. Environmental remediation charges, corporate general and
administrative costs, which consist primarily of executive, investor relations, accounting,
human resources and information technology expenses, and interest are not allocated to segment
operating results.
 Specialty Chemicals. â
 Fine Chemicals.
 Aerospace Equipment.
 Other Businesses.
  2007
    
    2006
    
    2005Specialty chemicals customer
    
    
    15
    %
    
    
    18
    %
    
    
    50
    %Specialty chemicals customer
    
    
    10
    %Fine chemicals customer
    
    
    11
    %
    
    
    28
    %Fine chemicals customer
    
    
    25
    %Fine chemicals customer
    
    
    10
    %
  2007
    
    2006
    
    2005Revenues:Specialty Chemicals
    
    $
    57,088
    
    
    $
    46,450
    
    
    $
    49,936Fine Chemicals
    
    
    104,441
    
    
    
    74,026
    
    
    
    Aerospace Equipment
    
    
    17,348
    
    
    
    17,394
    
    
    
    12,429Other Businesses
    
    
    5,051
    
    
    
    4,034
    
    
    
    5,448Total Revenues
    
    $
    183,928
    
    
    $
    141,904
    
    
    $
    67,813
 F-28




---



##### 



12.
    
    SEGMENT INFORMATION (continued)
 Segment Operating Income (Loss):Specialty Chemicals
    
    $
    18,223
    
    
    $
    14,755
    
    
    $
    12,504Fine Chemicals
    
    
    16,790
    
    
    
    7,245
    
    
    
    Aerospace Equipment
    
    
    1,458
    
    
    
    802
    
    
    
    95Other Businesses
    
    
    1,210
    
    
    
    264
    
    
    
    3,300Total
Segment Operating Income (Loss)
    
    
    37,681
    
    
    
    23,066
    
    
    
    15,899Corporate Expenses
    
    
    (13,824
    )
    
    
    (16,407
    )
    
    
    (13,807
    )Environmental Remediation Charges
    
    
    
    
    
    
    (3,600
    )
    
    
    (22,400
    )Operating Income (Loss)
    
    $
    23,857
    
    
    $
    3,059
    
    
    $
    (20,308
    )Depreciation and Amortization:Specialty Chemicals
    
    $
    5,159
    
    
    $
    5,149
    
    
    $
    5,080Fine Chemicals
    
    
    13,637
    
    
    
    14,379
    
    
    
    Aerospace Equipment
    
    
    142
    
    
    
    93
    
    
    
    16Other Businesses
    
    
    12
    
    
    
    11
    
    
    
    20Corporate
    
    
    511
    
    
    
    549
    
    
    
    523Total
    
    $
    19,461
    
    
    $
    20,181
    
    
    $
    5,639Capital Expenditures:Specialty Chemicals
    
    $
    1,026
    
    
    $
    816
    
    
    $
    1,351Fine Chemicals
    
    
    7,004
    
    
    
    13,486
    
    
    
    Aerospace Equipment
    
    
    337
    
    
    
    414
    
    
    
    236Other Businesses
    
    
    54
    
    
    
    2
    
    
    
    Corporate
    
    
    
    
    
    
    300
    
    
    
    99Total
    
    $
    8,421
    
    
    $
    15,018
    
    
    $
    1,686Assets, at year end:Specialty Chemicals
    
    $
    28,058
    
    
    $
    23,934
    
    
    $
    29,183Fine Chemicals
    
    
    156,370
    
    
    
    158,151
    
    
    
    Aerospace Equipment
    
    
    8,989
    
    
    
    9,411
    
    
    
    9,865Other Businesses
    
    
    3,946
    
    
    
    4
    
    
    
    3,850Corporate
    
    
    52,044
    
    
    
    47,955
    
    
    
    72,102Total
    
    $
    249,407
    
    
    $
    239,455
    
    
    $
    115,000
 Substantially all of our operations are located in the United States. Our operations in the U.K.
are not material in terms of both operating results and assets. Export sales, consisting mostly
of fine chemical and water treatment equipment sales, represent 40% of consolidated revenues for
the year ended September 30, 2007, with the U.K. representing 25% of consolidated revenues.
Export sales for year ended September 30, 2006 represented 19% of consolidated revenues, with
no single country accounting for more than 10% of our consolidated revenues. Export sales for
the year ended September 30, 2005 were less than 10% of consolidated revenues.13.
    
    INTEREST AND OTHER INCOMEInterest and other income consists of the following:
 2007
    
    2006
    
    2005Interest Income
    
    $
    644
    
    
    $
    459
    
    
    $
    636Real Estate Partnership Income
    
    
    
    
    
    
    580
    
    
    
    762Other
    
    
    
    
    
    
    30
    
    
    
    $
    644
    
    
    $
    1,069
    
    
    $
    1,398
  F-29




---



##### 



13.
    
    INTEREST AND OTHER INCOME (continued)a 33% limited partner interest in 3770 Hughes Parkway Associates Limited Partnership, a Nevada
limited partnership (Hughes Parkway). Hughes Parkway owns the building in which we lease
office space in Las Vegas, Nevada.During the year ended September 30, 2005, we received a cash distribution of $762 from the
Partnership which is recorded as other income.In October 2005, the Partnership sold its interest in Hughes Parkway, which resulted in a net
gain and cash distribution to us of $2,395. Concurrent with, and as a condition of, the sale of
the Partnerships interest in Hughes Parkway, we renewed our office space lease through February
2009. We accounted for the transaction as a sale leaseback. Accordingly, we deferred a gain
totaling $1,815 representing the present value of future lease payments. We amortize the
deferred gain (as a reduction of rental expense), using the straight-line method over the term
of the lease. We recognized the remaining gain of $580, which is reported in interest and other
income for the year ended September 30, 2006.
 14.
    
    DISCONTINUED OPERATIONSIn June 2006, our board of directors approved and we committed to a plan to sell our interest in
ESI, based on our determination that ESIs product lines were no longer a strategic fit with our
business strategies. Revenues and expenses associated with ESIs operations are presented as
discontinued operations for all periods presented. ESI was formerly reported within our
Specialty Chemicals segment. Effective September 30, 2006, we completed the sale of our
interest in ESI for $7,510, which, after deducting direct expenses, resulted in a gain on the
sale before income taxes of $258. The ESI sale proceeds are reflected as a note receivable as
of September 30, 2006 and we collected the amount in full in October 2006.Summarized financial information for ESI is as follows:
 2006
    
    2005Revenues
    
    $
    13,285
    
    
    $
    15,534Discontinued Operations:Operating loss before tax
    
    
    (813
    )
    
    
    (1,008
    )Benefit for income tax
    
    
    (258
    )
    
    
    (306
    )Net loss from discontinued operations
    
    
    (555
    )
    
    
    (702
    )Gain (Loss) on Sale of Discontinued Operations:Gain on sale of discontinued operations before tax
    
    
    258
    
    
    
    Income tax expense
    
    
    594
    
    
    
    Net loss on sale of discontinued operations
    
    
    (336
    )
    
    
    $
    (891
    )
    
    $
    (702
    )
 15.
    
    GUARANTOR SUBSIDIARIESAs discussed in Note 6, on February 6, 2007, American Pacific Corporation, a Delaware
corporation (Parent) issued and sold $110,000 aggregate principal amount of Senior Notes. In
connection with the issuance of the Senior Notes, the Companys U.S. subsidiaries (Guarantor
Subsidiaries) jointly, fully, severally, and unconditionally guaranteed the Senior Notes. The
Companys sole foreign subsidiary (Non-Guarantor Subsidiary) is not a guarantor of the Senior
Notes. Each of the Parents subsidiaries is wholly-owned. The Parent has no independent assets
or operations. The following tables
present condensed consolidating financial information separately for the Parent, Guarantor
Subsidiaries and Non-Guarantor Subsidiary.
 F-30




---



##### 



15.
    
    GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Balance Sheet -
    
    
    
    Guarantor
    
    Non-GuarantorSeptember 30, 2007
    
    Parent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    21,352
    
    
    $
    74
    
    
    $
    
    
    
    $
    21,426Accounts Receivable
    
    
    
    
    
    
    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
    
    
    106,713
    
    
    
    (521
    )
    
    
    
    
    
    
    (106,192
    )
    
    
    Total Assets
    
    $
    185,689
    
    
    $
    249,717
    
    
    $
    2,088
    
    
    $
    (188,087
    )
    
    $
    249,407Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    27,914
    
    
    $
    769
    
    
    $
    (1,079
    )
    
    $
    27,604Environmental Remediation Reserves
    
    
    
    
    
    
    726
    
    
    
    
    
    
    
    
    
    
    
    726Deferred Revenues
    
    
    
    
    
    
    7,755
    
    
    
    
    
    
    
    
    
    
    
    7,755Intercompany Advances
    
    
    
    
    
    
    78,976
    
    
    
    1,840
    
    
    
    (80,816
    )
    
    
    Current Portion of Debt
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    252Total Current Liabilities
    
    
    
    
    
    
    115,623
    
    
    
    2,609
    
    
    
    (81,895
    )
    
    
    36,337Long-Term Debt
    
    
    110,000
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    110,373Environmental Remediation Reserves
    
    
    
    
    
    
    14,697
    
    
    
    
    
    
    
    
    
    
    
    14,697Other Long-Term Liabilities
    
    
    
    
    
    
    12,311
    
    
    
    
    
    
    
    
    
    
    
    12,311Total Liabilities
    
    
    110,000
    
    
    
    143,004
    
    
    
    2,609
    
    
    
    (81,895
    )
    
    
    173,718Total Stockholders Equity
    
    
    75,689
    
    
    
    106,713
    
    
    
    (521
    )
    
    
    (106,192
    )
    
    
    75,689Total Liabilities and Stockholders Equity
    
    $
    185,689
    
    
    $
    249,717
    
    
    $
    2,088
    
    
    $
    (188,087
    )
    
    $
    249,407
 F-31




---



##### 



15.
    
    GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Balance Sheet -
    
    
    
    Guarantor
    
    Non-GuarantorSeptember 30, 2006
    
    Parent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedAssets:Cash and Cash Equivalents
    
    $
    
    
    
    $
    6,758
    
    
    $
    114
    
    
    $
    
    
    
    $
    6,872Accounts Receivable
    
    
    
    
    
    
    19,253
    
    
    
    1,040
    
    
    
    (819
    )
    
    
    19,474Notes Receivable
    
    
    
    
    
    
    7,510
    
    
    
    
    
    
    
    
    
    
    
    7,510Inventories
    
    
    
    
    
    
    39,152
    
    
    
    603
    
    
    
    
    
    
    
    39,755Prepaid Expenses and Other Assets
    
    
    
    
    
    
    1,745
    
    
    
    100
    
    
    
    
    
    
    
    1,845Deferred Income Taxes
    
    
    
    
    
    
    1,887
    
    
    
    
    
    
    
    
    
    
    
    1,887Total Current Assets
    
    
    
    
    
    
    76,305
    
    
    
    1,857
    
    
    
    (819
    )
    
    
    77,343Property, Plant and Equipment, Net
    
    
    
    
    
    
    119,623
    
    
    
    123
    
    
    
    
    
    
    
    119,746Intangible Assets, Net
    
    
    
    
    
    
    14,237
    
    
    
    
    
    
    
    
    
    
    
    14,237Deferred Income Taxes
    
    
    
    
    
    
    21,701
    
    
    
    
    
    
    
    
    
    
    
    21,701Other Assets
    
    
    
    
    
    
    6,428
    
    
    
    
    
    
    
    
    
    
    
    6,428Intercompany Advances
    
    
    81,389
    
    
    
    975
    
    
    
    
    
    
    
    (82,364
    )
    
    
    Investment in Subsidiaries
    
    
    97,320
    
    
    
    56
    
    
    
    
    
    
    
    (97,376
    )
    
    
    Total Assets
    
    $
    178,709
    
    
    $
    239,325
    
    
    $
    1,980
    
    
    $
    (180,559
    )
    
    $
    239,455Liabilitites and Stockholders Equity:Accounts Payable and Other Current Liabilities
    
    $
    
    
    
    $
    26,885
    
    
    $
    949
    
    
    $
    (819
    )
    
    $
    27,015Environmental Remediation Reserves
    
    
    
    
    
    
    1,631
    
    
    
    
    
    
    
    
    
    
    
    1,631Deferred Revenues
    
    
    
    
    
    
    5,683
    
    
    
    
    
    
    
    
    
    
    
    5,683Intercompany Advances
    
    
    
    
    
    
    81,389
    
    
    
    975
    
    
    
    (82,364
    )
    
    
    Current Portion of Debt
    
    
    9,422
    
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    9,593Total Current Liabilities
    
    
    9,422
    
    
    
    115,759
    
    
    
    1,924
    
    
    
    (83,183
    )
    
    
    43,922Long-Term Debt
    
    
    97,403
    
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    97,771Environmental Remediation Reserves
    
    
    
    
    
    
    15,880
    
    
    
    
    
    
    
    
    
    
    
    15,880Other Long-Term Liabilities
    
    
    
    
    
    
    9,998
    
    
    
    
    
    
    
    
    
    
    
    9,998Total Liabilities
    
    
    106,825
    
    
    
    142,005
    
    
    
    1,924
    
    
    
    (83,183
    )
    
    
    167,571Total Stockholders Equity
    
    
    71,884
    
    
    
    97,320
    
    
    
    56
    
    
    
    (97,376
    )
    
    
    71,884Total Liabilities and Stockholders Equity
    
    $
    178,709
    
    
    $
    239,325
    
    
    $
    1,980
    
    
    $
    (180,559
    )
    
    $
    239,455
 Condensed Consolidating Statement of Operations -
    
    
    
    Guarantor
    
    Non-GuarantorYear Ended September 30, 2007
    
    Parent
    
    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
    
    
    
    
    
    
    
    39,841Environmental Remediation Charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Income (Loss)
    
    
    
    
    
    
    24,501
    
    
    
    (644
    )
    
    
    
    
    
    
    23,857Interest and Other Income
    
    
    11,846
    
    
    
    639
    
    
    
    5
    
    
    
    (11,846
    )
    
    
    644Interest Expense and Debt Refinance Charges
    
    
    11,846
    
    
    
    14,912
    
    
    
    
    
    
    
    (11,846
    )
    
    
    14,912Loss from Continuing Operations before Income Tax
and Equity Account for Subsidiaries
    
    
    
    
    
    
    10,228
    
    
    
    (639
    )
    
    
    
    
    
    
    9,589Income Tax Expense
    
    
    
    
    
    
    4,605
    
    
    
    
    
    
    
    
    
    
    
    4,605Loss from Continuing Operations before
Equity Account for Subsidiaries
    
    
    
    
    
    
    5,623
    
    
    
    (639
    )
    
    
    
    
    
    
    4,984Equity Account for Subsidiaries
    
    
    4,984
    
    
    
    (639
    )
    
    
    
    
    
    
    (4,345
    )
    
    
    Net Loss from Continuing Operations
    
    $
    4,984
    
    
    $
    4,984
    
    
    $
    (639
    )
    
    $
    (4,345
    )
    
    $
    4,984
 F-32




---



##### 



15.
    
    GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Operations -
    
    
    
    Guarantor
    
    Non-GuarantorYear Ended September 30, 2006
    
    Parent
    
    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
    
    
    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 Operations -
    
    
    
    Guarantor
    
    Non-GuarantorYear Ended September 30, 2005
    
    Parent
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    65,136
    
    
    $
    2,677
    
    
    $
    
    
    
    $
    67,813Cost of Revenues
    
    
    
    
    
    
    41,094
    
    
    
    2,822
    
    
    
    
    
    
    
    43,916Gross Profit (Loss)
    
    
    
    
    
    
    24,042
    
    
    
    (145
    )
    
    
    
    
    
    
    23,897Operating Expenses
    
    
    
    
    
    
    21,582
    
    
    
    223
    
    
    
    
    
    
    
    21,805Environmental Remediation Charges
    
    
    
    
    
    
    22,400
    
    
    
    
    
    
    
    
    
    
    
    22,400Operating Loss
    
    
    
    
    
    
    (19,940
    )
    
    
    (368
    )
    
    
    
    
    
    
    (20,308
    )Interest and Other Income
    
    
    
    
    
    
    1,394
    
    
    
    4
    
    
    
    
    
    
    
    1,398Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from Continuing Operations before Income Tax
and Equity Account for Subsidiaries
    
    
    
    
    
    
    (18,546
    )
    
    
    (364
    )
    
    
    
    
    
    
    (18,910
    )Income Tax Benefit
    
    
    
    
    
    
    (8,367
    )
    
    
    
    
    
    
    
    
    
    
    (8,367
    )Loss from Continuing Operations before
Equity Account for Subsidiaries
    
    
    
    
    
    
    (10,179
    )
    
    
    (364
    )
    
    
    
    
    
    
    (10,543
    )Equity Account for Subsidiaries
    
    
    (10,543
    )
    
    
    (364
    )
    
    
    
    
    
    
    10,907
    
    
    
    Net Loss from Continuing Operations
    
    $
    (10,543
    )
    
    $
    (10,543
    )
    
    $
    (364
    )
    
    $
    10,907
    
    
    $
    (10,543
    )
 F-33




---



##### 



15.
    
    GUARANTOR SUBSIDIARIES (continued)
 Condensed Consolidating Statement of Cash Flows -
    
    
    
    
    Guarantor
    
    
    Non-GuarantorYear Ended September 30, 2007
    
    Parent
    
    
    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
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Cash Provided 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 -
    
    
    
    
    Guarantor
    
    
    Non-GuarantorYear Ended September 30, 2006
    
    Parent
    
    
    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
 Condensed Consolidating Statement of Cash Flows -
    
    
    
    
    Guarantor
    
    
    Non-GuarantorYear Ended September 30, 2005
    
    Parent
    
    
    Subsidiaries
    
    
    Subsidiary
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided (used) by operating activities
    
    $
    
    
    
    $
    19,249
    
    
    $
    (96
    )
    
    $
    
    
    
    $
    19,153Cash Flows from Investing Activities:Acquisition of businesses
    
    
    
    
    
    
    (4,505
    )
    
    
    
    
    
    
    
    
    
    
    (4,505
    )Capital expenditures
    
    
    
    
    
    
    (1,656
    )
    
    
    (30
    )
    
    
    
    
    
    
    (1,686
    )Discontinued operations, net
    
    
    
    
    
    
    212
    
    
    
    
    
    
    
    
    
    
    
    212Net Cash Used in Investing Activities
    
    
    
    
    
    
    (5,949
    )
    
    
    (30
    )
    
    
    
    
    
    
    (5,979
    )Cash Flows from Financing Activities:Issuance of common stock
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Intercompany advances, net
    
    
    (24
    )
    
    
    (232
    )
    
    
    256
    
    
    
    
    
    
    
    Discontinued operations, net
    
    
    
    
    
    
    238
    
    
    
    
    
    
    
    
    
    
    
    238Net Cash Provided by Financing Activities
    
    
    
    
    
    
    6
    
    
    
    256
    
    
    
    
    
    
    
    262Net Change in Cash and Cash Equivalents
    
    
    
    
    
    
    13,306
    
    
    
    130
    
    
    
    
    
    
    
    13,436Cash and Cash Equivalents, Beginning of Year
    
    
    
    
    
    
    23,773
    
    
    
    4
    
    
    
    
    
    
    
    23,777Cash and Cash Equivalents, End of Year
    
    $
    
    
    
    $
    37,079
    
    
    $
    134
    
    
    $
    
    
    
    $
    37,213
 F-34




---



##### 



2.1
    
    Purchase Agreement, dated January 30, 2007, by and among American
Pacific Corporation, certain subsidiaries thereof and Wachovia
Capital Markets, LLC (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K, filed with the SEC on
February 6, 2007).3.1
    
    Registrants Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3A to the Companys Registration Statement on
Form S-14 (File No. 2-70830)).3.2
    
    Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.1 the Companys Current Report on Form 8-K,
filed with the SEC on November 15, 2007).3.3
    
    Articles of Amendment to Registrants Restated Certificate of
Incorporation, as filed with the Secretary of State, State of
Delaware, on October 7, 1991 (incorporated by reference to Exhibit
4.3 to the Companys Registration Statement on Form S-3 (File No.
33-52196).3.4
    
    Articles of Amendment to Registrants Restated Certificate of
Incorporation, as filed with the Secretary of State, State of
Delaware, on April 21, 1992 (incorporated by reference to Exhibit
4.4 to the Companys Registration Statement on Form S-3 (File No.
33-52196)).4.1
    
    Form of 9% Senior Note due 2015 (incorporated by reference to
Exhibit A of Exhibit 4.2 to the Companys Current Report on Form
8-K, filed with the SEC 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, as trustee (incorporated by reference
to Exhibit 4.2 to the Companys Current Report on Form 8-K, filed
with the SEC on February 6, 2007).4.3+
    
    American Pacific Corporation 1997 Stock Option Plan (the 1997
Plan) (incorporated by reference to Exhibit 4.1 to the Companys
Form S-8 (File No. 333-53449), filed with the SEC on May 22, 1998).4.4+
    
    Form of Option Agreement under the 1997 Plan (incorporated by
reference to Exhibit 4.2 to the Companys Form S-8 (File No.
333-53449), filed with the SEC on May 22, 1998).




---



##### 



4.5+
    
    American Pacific Corporation 2001 Amended and Restated Stock Option
Plan (the 2001 Plan) (incorporated by reference to Exhibit 4.1 to
the Companys Form S-8 (File No. 333-104732), filed with the SEC on
April 24, 2003).4.6+
    
    Form of Option Agreement under the 2001 Plan (incorporated by
reference to Exhibit 4.3 to the Companys Form S-8 (File No.
333-104732), filed with the SEC on April 24, 2003).4.7
    
    Form of 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 Companys
Registration Statement on Form 8-A, filed with the SEC on August 6,
1999).4.8
    
    Form of Letter to Stockholders with copies of Summary of Rights to
Purchase Preference Shares (incorporated by reference to Exhibit 2
to the Companys Registration Statement on Form 8-A, filed with the
SEC on August 6, 1999).4.9+
    
    Amended and Restated 2002 Directors Stock Option Plan (the 2002
Plan) (incorporated by reference to Exhibit 99.1 to the Companys
Current Report on Form 8-K, filed with the SEC on October 25,
2005).4.10+
    
    Form of Option Agreement under the 2002 Plan (incorporated by
reference to Exhibit 4.4 to the Companys Form S-8 (File No.
333-104732), filed with the SEC on April 24, 2003).10.1+
    
    Employment agreement dated January 1, 2002, between American
Pacific Corporation and John R. Gibson (incorporated by reference
to Exhibit 10.2 to the Companys Annual Report on Form 10-K for the
fiscal year ended September 30, 2002).10.2+
    
    Interim agreement between the Company and Dana M. Kelley, as acting
Chief Financial Officer dated March 27, 2006 (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2006).10.3+
    
    Employment agreement dated October 15, 2006, between the Company
and Joseph Carleone (incorporated by reference to Exhibit 10.5 to
the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 2006).10.4+
    
    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 Companys
Quarterly Report on Form 10-Q for the quarter ended March 31,
2007).10.5+
    
    AMPAC Fine Chemicals LLC Severance Pay Plan (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2007).10.6+
    
    Form of Indemnification Agreement between American Pacific
Corporation and all Directors of American Pacific Corporation
(incorporated by reference to Exhibit 3.6 to the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2000).10.7+
    
    Amended and Restated American Pacific Corporation Defined Benefit
Pension Plan (incorporated by reference to Exhibit 10.4 to the
Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 1999 (the 1999 10-K)).




---



##### 



10.8+
    
    American Pacific Corporation Supplemental Executive Retirement
Plan, amended and restated and effective as of October 1, 2007
(incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed with the SEC on November 15, 2007).10.9+
    
    Trust Agreement for the American Pacific Corporation Supplemental
Executive Retirement Plan (incorporated by reference to Exhibit
10.6 to the 1999 10-K).10.10
    
    Cooperation and Stock Option Agreement dated as of July 4, 1990, by
and between Dynamit Nobel AG and American Pacific Corporation,
including exhibits thereto (incorporated by reference to Exhibit
10.24 to the 1990 S-2).10.11++
    
    Long-Term Pricing Agreement dated as of December 12, 1997, between
Thiokol Corporation-Propulsion and American Pacific Corporation
(incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998).10.12++
    
    Modification No. 1 dated September 13, 2000, to Long-Term Pricing
Agreement between Thiokol Propulsion and American Pacific
Corporation (incorporated by reference to Exhibit 10.14 to the 2000
10-K).10.13++
    
    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 Companys Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1998).10.14
    
    Ground Lease, dated November 30, 2005, by and between
Aerojet-General Corporation and AMPAC Fine Chemicals LLC
(incorporated by reference to Exhibit 10.5 to the Companys Current
Report on Form 8-K, filed with the SEC on December 1, 2005).10.15++
    
    Modification #3 to the Thiokol Long Term Pricing Agreement dated
April 5, 2006 (incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2006).10.16
    
    Master International Swaps and Derivatives Association (ISDA)
Agreement, between the Company and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2006).10.17
    
    Schedule No. 1 to Master ISDA Agreement, between the Company and
Bank of America, N.A. (incorporated by reference to Exhibit 10.2 to
the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2006).10.18
    
    Schedule No. 2 to Master ISDA Agreement, between the Company and
Bank of America, N.A. (incorporated by reference to Exhibit 10.3 to
the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2006).10.19+
    
    AMPAC Fine Chemicals LLC Pension Plan for Bargaining Employees
(incorporated by reference to Exhibit 10.7 to the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2006).10.20+
    
    AMPAC Fine Chemicals LLC Pension Plan for Salaried Employees
(incorporated by reference to Exhibit 10.8 to the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2006).




---



##### 



10.21
    
    Amended and Restated Credit Agreement, dated as of February 6,
2007, by and 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 Companys Current Report on Form
8-K, filed with the SEC on February 6, 2007).10.22
    
    Registration Rights Agreement, dated as of February 6, 2007, by and
among American Pacific Corporation, certain subsidiaries thereof
and Wachovia Capital Markets, LLC (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K, filed
with the SEC on February 6, 2007).*10.23+
    
    Executive Officer and Director Compensation as of September 30, 2007*21
    
    Subsidiaries of the Registrant.*23
    
    Consent of Deloitte & Touche LLP.*24
    
    Powers of Attorney (included on the signature pages).*31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of Principal Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith+
    
    Management 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 SEC.