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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
x
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
or
     
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 001-08137
AMERICAN PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
(AMPAC LOGO)
     
Delaware   59-6490478
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
3883 Howard Hughes Parkway, Suite 700
Las Vegas, Nevada 89169

(Address of principal executive offices) (Zip Code)
(702) 735-2200
(Registrant’s telephone number, including area code)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES x    No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o   No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
     
     Large accelerated filer o
  Accelerated filer o
     Non-accelerated filer o (Do not check if a smaller reporting company)
  Smaller reporting company x
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No x
     The number of shares of the registrant’s common stock outstanding as of April 29, 2011 was 7,559,591.

 


 

AMERICAN PACIFIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
         
PART I. FINANCIAL INFORMATION
 
       
    1  
 
       
    1  
 
       
    2  
 
       
    3  
 
       
    4  
 
       
    22  
 
       
    39  
 
       
    39  
 
       
PART II. OTHER INFORMATION
 
       
    40  
 
       
    40  
 
       
    54  
 
       
    54  
 
       
    54  
 
       
    54  
 
       
    54  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited, Dollars in Thousands, Except per Share Amounts)
 
                                 
     
    Three Months Ended     Six Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
Revenues
    $ 41,854       $ 59,395       $ 77,038       $ 93,459  
Cost of Revenues
    31,687       42,516       60,255       64,134  
     
Gross Profit
    10,167       16,879       16,783       29,325  
Operating Expenses
    11,820       11,444       23,243       23,751  
Other Operating Gains
    1,592             2,929        
     
Operating Income (Loss)
    (61 )     5,435       (3,531 )     5,574  
Interest Income and Other (Expense), Net
    505       (260 )     372       (268 )
Interest Expense
    2,571       2,740       5,285       5,431  
     
Income (Loss) before Income Tax
    (2,127 )     2,435       (8,444 )     (125 )
Income Tax Expense (Benefit)
    (914 )     1,319       (3,612 )     199  
     
Net Income (Loss)
    $ (1,213 )     $ 1,116       $ (4,832 )     $ (324 )
     
 
                               
Earnings (Loss) per Share:
                               
Basic
    $ (0.16 )     $ 0.15       $ (0.64 )     $ (0.04 )
Diluted
    $ (0.16 )     $ 0.15       $ (0.64 )     $ (0.04 )
 
                               
Weighted-Average Shares Outstanding:
                               
Basic
    7,512,000       7,490,000       7,508,000       7,489,000  
Diluted
    7,512,000       7,539,000       7,508,000       7,489,000  
See accompanying notes to condensed consolidated financial statements

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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited, Dollars in Thousands, Except per Share Amounts)
 
                 
     
    March 31,     September 30,  
    2011     2010  
ASSETS
               
Current Assets:
               
Cash and Cash Equivalents
    $ 31,697       $ 23,985  
Accounts Receivable, Net
    35,034       51,900  
Inventories
    45,127       36,126  
Prepaid Expenses and Other Assets
    4,776       1,542  
Income Taxes Receivable
    4,367       2,802  
Deferred Income Taxes
    10,672       10,672  
     
Total Current Assets
    131,673       127,027  
Property, Plant and Equipment, Net
    115,684       113,873  
Intangible Assets, Net
    864       1,420  
Goodwill
    3,038       2,933  
Deferred Income Taxes
    20,251       20,254  
Other Assets
    10,233       10,236  
     
TOTAL ASSETS
    $ 281,743       $ 275,743  
     
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts Payable
    $ 12,784       $ 9,197  
Accrued Liabilities
    4,587       8,062  
Accrued Interest
    1,575       1,575  
Employee Related Liabilities
    7,797       6,472  
Income Taxes Payable
    267       193  
Deferred Revenues and Customer Deposits
    30,711       18,769  
Current Portion of Environmental Remediation Reserves
    9,014       8,694  
Current Portion of Long-Term Debt
    73       70  
     
Total Current Liabilities
    66,808       53,032  
Long-Term Debt
    105,067       105,102  
Environmental Remediation Reserves
    13,437       15,176  
Pension Obligations
    35,641       37,161  
Other Long-Term Liabilities
    1,645       1,615  
     
Total Liabilities
    222,598       212,086  
     
Commitments and Contingencies
               
Shareholders’ Equity:
               
Preferred Stock - $1.00 par value; 3,000,000 authorized; none outstanding
    -       -  
Common Stock - $0.10 par value; 20,000,000 shares authorized, 7,543,091 issued and outstanding
    754       754  
Capital in Excess of Par Value
    73,267       73,091  
Retained Earnings
    1,888       6,720  
Accumulated Other Comprehensive Loss
    (16,764 )     (16,908 )
     
Total Shareholders’ Equity
    59,145       63,657  
     
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
    $ 281,743       $ 275,743  
     
See accompanying notes to condensed consolidated financial statements

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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited, Dollars in Thousands)
 
                 
     
    Six Months Ended  
    March 31,  
    2011     2010  
Cash Flows from Operating Activities:
               
Net Loss
    $ (4,832 )     $ (324 )
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
               
Depreciation and amortization
    7,411       8,176  
Non-cash interest expense
    454       315  
Share-based compensation
    198       489  
Deferred income taxes
    (19 )     (81 )
Loss on sale of assets
    2       5  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    16,959       2,375  
Inventories
    (8,715 )     (136 )
Prepaid expenses and other current assets
    (2,357 )     (591 )
Accounts payable
    2,448       1,395  
Income taxes
    (1,493 )     900  
Accrued liabilities
    (3,483 )     1,039  
Employee related liabilities
    1,317       (1,457 )
Deferred revenues and customer deposits
    11,924       2,418  
Environmental remediation reserves
    (1,419 )     (979 )
Pension obligations, net
    (1,520 )     1,546  
Other
    (588 )     (496 )
     
Net Cash Provided by Operating Activities
    16,287       14,594  
     
 
               
Cash Flows from Investing Activities:
               
Capital expenditures
    (7,729 )     (3,588 )
     
Net Cash Used by Investing Activities
    (7,729 )     (3,588 )
     
 
               
Cash Flows from Financing Activities:
               
Payments of long-term debt
    (35 )     (89 )
Debt issuance costs
    (869 )     -  
     
Net Cash Used by Financing Activities
    (904 )     (89 )
     
 
               
Effect of Changes in Currency Exchange Rates on Cash
    58       (84 )
     
 
               
Net Change in Cash and Cash Equivalents
    7,712       10,833  
Cash and Cash Equivalents, Beginning of Period
    23,985       21,681  
     
Cash and Cash Equivalents, End of Period
    $ 31,697       $ 32,514  
     
 
               
Cash Paid (Received) For:
               
Interest
    $ 4,831       $ 5,116  
Income taxes
    (2,130 )     (629 )
 
               
Non-Cash Investing and Financing Transactions:
               
Additions to Property, Plant and Equipment not yet paid
    1,746       387  
Capital Leases Originated
    -       98  
See accompanying notes to condensed consolidated financial statements

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AMERICAN PACIFIC CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited, Dollars in Thousands, Except per Share Amounts)
 
1.  
INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES
   
Interim Basis of Presentation. The accompanying condensed consolidated financial statements of American Pacific Corporation and its subsidiaries (collectively, the “Company”, “we”, “us”, or “our”) are unaudited, but in the opinion of management, include all adjustments, which are of a normal recurring nature, necessary to a fair statement of the results for the interim periods presented. These statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2010. The operating results for the three-month and six-month periods ended March 31, 2011 and cash flows for the six-month period ended March 31, 2011 are not necessarily indicative of the results that will be achieved for the full fiscal year or for future periods.
 
   
Accounting Policies and Principles of Consolidation. A description of our significant accounting policies is included in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2010. Our consolidated financial statements include the accounts of American Pacific Corporation and our wholly-owned subsidiaries. All intercompany accounts have been eliminated.
 
   
Fair Value Disclosure of Financial Instruments. The current authoritative guidance on fair value clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements. The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
 
   
Level 1 — Quoted prices for identical instruments in active markets.
 
   
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
 
   
Level 3 — Significant inputs to the valuation model are unobservable.
 
   
We estimate the fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying values due to their short-term nature. We estimate the fair value of our fixed-rate long-term debt as of March 31, 2011 to be approximately $104,738 based on level 2 data which was the trade date closest to March 31, 2011, which was March 23, 2011. We estimated the fair value of our fixed-rate long-term debt as of September 30, 2010 to be approximately $103,688 based on the trade date closest to that date, which was October 13, 2010.
 
   
Depreciation and Amortization Expense. Depreciation and amortization expense is classified as follows in our statements of operations:
                                 
     
    Three Months Ended     Six Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
     
Classified as cost of revenues
                               
Depreciation
    $ 3,287       $ 3,472       $ 6,546       $ 6,833  
Classified as operating expenses
                               
Depreciation
    146       145       291       293  
Amortization
    239       506       574       1,050  
     
Total
    $ 3,672       $ 4,123       $ 7,411       $ 8,176  
     

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1.  
INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued)
 
   
Bill and Hold Transactions. Some of our perchlorate and fine chemicals products customers have requested that we store materials purchased from us in our facilities (“Bill and Hold” arrangements). The sales value of inventory, subject to Bill and Hold arrangements, at our facilities was $16,517 and $19,606 as of March 31, 2011 and September 30, 2010, respectively.
 
   
Recently Issued or Adopted Accounting Standards. In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-17, which provides guidance on defining a milestone under Topic 605 and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. Milestones should be considered substantive in their entirety and may not be bifurcated. An arrangement may contain both substantive and nonsubstantive milestones that should be evaluated individually. This standard became effective for us beginning on October 1, 2010. The adoption of this standard did not have a material impact on our results of operations, financial position or cash flows.
 
   
In December 2010, the FASB issued ASU No. 2010-28 that affects entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in the ASU modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This standard is effective for us beginning on October 1, 2011. The adoption of this standard is not expected to have a material impact on our results of operations, financial position or cash flows.
2.  
SHARE-BASED COMPENSATION
   
We account for our share-based compensation arrangements under an accounting standard which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The fair values of awards are recognized as additional compensation expense, which is classified as operating expenses, proportionately over the vesting period of the awards.
 
   
Our share-based compensation arrangements are designed to advance the long-term interests of the Company, including by attracting and retaining employees and directors and aligning their interests with those of our stockholders. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, government regulations and availability under our equity incentive plans. Depending on the form of the share-based award, new shares of our common stock may be issued upon grant, option exercise or vesting of the award. We maintain three share based plans, each as discussed below.
 
   
The American Pacific Corporation Amended and Restated 2001 Stock Option Plan (the “2001 Plan”) permitted the granting of stock options to employees, officers, directors and consultants. Options granted under the 2001 Plan generally vested 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire ten years from the date of grant. Under the terms of the 2001 Plan, no options may be granted on or after January 16, 2011, but options previously granted, may extend beyond that date based on the terms of the relevant grant. This plan was approved by our stockholders.

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2.  
SHARE-BASED COMPENSATION (Continued)
 
   
The American Pacific Corporation 2002 Directors Stock Option Plan, as amended and restated (the “2002 Directors Plan”) compensates non-employee directors with stock options granted annually or upon other discretionary events. Options granted under the 2002 Directors Plan prior to September 30, 2007 generally vested 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire ten years from the date of grant. Options granted under the 2002 Directors Plan in November 2007 vested 50% one year from the date of grant and 50% two years from the date of grant, and expire ten years from the date of grant. As of March 31, 2011, there were no shares available for grant under the 2002 Directors Plan. This plan was approved by our stockholders.
 
   
The American Pacific Corporation 2008 Stock Incentive Plan, as amended and restated (the “2008 Plan”) permits the granting of stock options, restricted stock, restricted stock units and stock appreciation rights to employees, directors and consultants. A total of 800,000 shares of common stock are authorized for issuance under the 2008 Plan, provided that no more than 400,000 shares of common stock may be granted pursuant to awards of restricted stock and restricted stock units. Generally, awards granted under the 2008 Plan vest in three equal annual installments beginning on the first anniversary of the grant date, and in the case of option awards, expire ten years from the date of grant. As of March 31, 2011, there were 462,000 shares available for grant under the 2008 Plan. This plan was approved by our stockholders.
 
   
A summary of our outstanding and non-vested stock option and restricted stock activity for the six months ended March 31, 2011 is as follows:
                                                 
       
    Stock Options     Restricted Stock  
    Outstanding     Non-Vested     Outstanding and Non-Vested  
            Weighted             Weighted             Weighted  
            Average             Average             Average  
            Exercise             Fair             Fair  
            Price             Value             Value  
    Shares     Per Share     Shares     Per Share     Shares     Per Share  
     
Balance, September 30, 2010
    658,176       $ 8.32       248,895       $ 4.41       50,664       $ 8.34  
Granted
    -       -       -       -       -       -  
Vested
    -       -       (100,770 )     4.51       (19,336 )     8.70  
Exercised
    -       -       -       -       -       -  
Expired / Cancelled
    (10,000 )     6.34       -       -       -       -  
 
                                         
Balance, March 31, 2011
    648,176       8.35       148,125       4.35       31,328       8.11  
 
                                         
   
A summary of our exercisable stock options as of March 31, 2011 is as follows:
         
Number of vested stock options
    500,051  
Weighted-average exercise price per share
    $ 8.31  
Aggregate intrinsic value
    $ 53  
Weighted-average remaining contractual term in years
    4.8  
   
We determine the fair value of stock option awards at their grant date, using a Black-Scholes Option-Pricing model applying the assumptions in the following table. We determine the fair value of restricted stock awards based on the fair market value of our common stock on the grant date. Actual compensation, if any, ultimately realized by optionees may differ significantly from the amount estimated using an option valuation model.

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Table of Contents

2.  
SHARE-BASED COMPENSATION (Continued)
                 
     
    Six Months Ended  
    March 31,  
    2011     2010  
     
Weighted-average grant date fair value per share of options granted
    -       $ 3.65  
Significant fair value assumptions:
    -          
Expected term in years
    -       6.00  
Expected volatility
    -       51.3 %
Expected dividends
    -       0.0 %
Risk-free interest rates
    -       2.3 %
Total intrinsic value of options exercised
    -       $ -  
Aggregate cash received for option exercises
    -       $ -  
 
               
Compensation cost (included in operating expenses)
               
Stock options
    $ 144       $ 322  
Restricted stock
    54       167  
     
Total
    198       489  
Tax benefit recognized
    37       99  
     
Net compensation cost
    $ 161       $ 390  
     
 
               
As of period end date:
               
Total compensation cost for non-vested awards not yet recognized:
               
Stock options
    $ 154       $ 524  
Restricted stock
    $ 34       $ 155  
Weighted-average years to be recognized
               
Stock options
    1.1       1.6  
Restricted stock
    1.1       1.6  
3.  
SELECTED BALANCE SHEET DATA
   
Inventories. Inventories consist of the following:
                 
     
    March 31,     September 30,  
    2011     2010  
     
Finished goods
    $ 6,180       $ 2,977  
Work-in-process
    23,838       18,318  
Raw materials and supplies
    10,957       9,103  
Deferred cost of revenues
    4,551       5,728  
Under(over) applied manufacturing overhead costs
    (399 )     -  
     
Total
    $ 45,127       $ 36,126  
     
   
For our Specialty Chemicals segment, purchase price variances or volume or capacity cost variances associated with indirect manufacturing costs and that are planned and expected to be absorbed by goods produced through the end of our fiscal year are deferred at interim reporting dates as under(over) applied manufacturing overhead costs. The effect of unplanned or unanticipated purchase price or volume variances are applied to goods produced in the period.
 
   
Intangible Assets. Intangible assets consist of the following:
                 
     
    March 31,     September 30,  
    2011     2010  
     
Customer relationships
    9,002       8,976  
Less accumulated amortization
    (8,138 )     (7,556 )
     
 
    864       1,420  
     
Backlog
    1,584       1,559  
Less accumulated amortization
    (1,584 )     (1,559 )
     
 
    -       -  
     
Total
    $ 864       $ 1,420  
     

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3.  
SELECTED BALANCE SHEET DATA (Continued)
 
   
Customer relationships are assets of our Fine Chemicals and Aerospace Equipment segments and are subject to amortization. Amortization expense was $239 and $344 for the three months ended March 31, 2011 and 2010, respectively, and $574 and $691, for the six months ended March 31, 2011 and 2010, respectively. Backlog is an asset of our Aerospace Equipment segment and is subject to amortization. Amortization expense was zero and $162 for the three months ended March 31, 2011 and 2010, respectively, and zero and $359 for the six months ended March 31, 2011 and 2010, respectively.
 
   
Goodwill. Goodwill is an asset of our Aerospace Equipment segment and is not expected to be deductible for tax purposes. Changes in the reported value for goodwill are a result of fluctuations in the underlying foreign currency translation rate.
4.  
COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS
   
Comprehensive income (loss) consists of the following:
                                 
     
    Three Months Ended     Six Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
     
Net Income (Loss)
    $ (1,213 )     $ 1,116       $ (4,832 )     $ (324 )
Other Comprehensive Income (Loss) -
                               
Foreign currency translation adjustment
    260       (307 )     144       (382 )
     
Comprehensive Income (Loss)
    $ (953 )     $ 809       $ (4,688 )     $ (706 )
     
   
The components of accumulated other comprehensive loss are as follows:
                 
     
    March 31,     September 30,  
    2011     2010  
     
Cumulative currency translation adjustment
    $ (317 )     $ (461 )
Unamortized benefit plan costs, net of tax of $10,964
    (16,447 )     (16,447 )
     
Total
    $ (16,764 )     $ (16,908 )
     
5.  
EARNINGS (LOSS) PER SHARE
   
Shares used to compute earnings (loss) per share are as follows:
                                 
     
    Three Months Ended     Six Months Ended  
    March 31     March 31,  
    2011     2010     2011     2010  
     
Net Income (Loss)
    $ (1,213 )     $ 1,116       $ (4,832 )     $ (324 )
     
 
                               
Basic weighted-average shares
    7,512,000       7,490,000       7,508,000       7,489,000  
     
 
                               
Diluted:
                               
Weighted-average shares, basic
    7,512,000       7,490,000       7,508,000       7,489,000  
Dilutive effect of stock options
    -       49,000       -       -  
     
Weighted-average shares, diluted
    7,512,000       7,539,000       7,508,000       7,489,000  
     
 
                               
Basic income (loss) per share
    $ (0.16 )     $ 0.15       $ (0.64 )     $ (0.04 )
Diluted income (loss) per share
    $ (0.16 )     $ 0.15       $ (0.64 )     $ (0.04 )
   
As of March 31, 2011 and 2010, we had an aggregate of 679,504 and 689,997 antidilutive options and unvested restricted shares outstanding, respectively.

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6.  
DEBT
   
Our outstanding debt balances consist of the following:
                 
     
    March 31,   September 30,
    2011   2010
     
Senior Notes, 9%, due 2015
  $ 105,000     $ 105,000  
Capital Leases, due through 2014
    140       172  
     
Total Debt
    105,140       105,172  
Less Current Portion
    (73 )     (70 )
     
Total Long-term Debt
  $ 105,067     $ 105,102  
     
   
Senior Notes. In February 2007, we issued and sold $110,000 aggregate principal amount of 9.0% Senior Notes due February 1, 2015 (collectively, with the exchange notes issued in August 2007 as referenced below, the “Senior Notes”). Proceeds from the issuance of the Senior Notes were used to repay our former credit facilities. The Senior Notes accrue interest at an annual rate of 9.0%, payable semi-annually in February and August. The Senior Notes are guaranteed on a senior unsecured basis by all of our existing and future material U.S. subsidiaries. The Senior Notes are:
   
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.
   
The Senior Notes may be redeemed by the Company, in whole or in part, under the following circumstances:
   
at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the principal amount to be redeemed and reducing to 100% by February 1, 2013; and
   
under certain changes of control, we must offer to purchase the Senior Notes at 101% of their aggregate principal amount, plus accrued interest.
   
The Senior Notes were issued pursuant to an indenture which contains certain customary events of default, including cross default provisions if we default under our existing and future debt agreements having, individually or in the aggregate, a principal or similar amount outstanding of at least $10,000, 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.
   
In connection with the closing of the sale of the Senior Notes, we entered into a registration rights agreement which required us to file a registration statement to offer to exchange the Senior Notes for notes that have substantially identical terms as the Senior Notes and are registered under

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6.  
DEBT (Continued)
 
   
the Securities Act of 1933, as amended. In July 2007, we filed a registration statement with the SEC with respect to an offer to exchange the Senior Notes as required by the registration rights agreement, which registration statement was declared effective by the SEC. In August 2007, we completed the exchange of 100% of the Senior Notes for substantially identical notes which are registered under the Securities Act of 1933, as amended.
 
   
Revolving Credit Facility. In February 2007, we entered into an Amended and Restated Credit Agreement, as amended as of July 7, 2009 and September 17, 2010 (the “Revolving Credit Facility”), with Wachovia Bank, National Association (predecessor by merger to Wells Fargo Bank, National Association), and certain other lenders, which provided a secured revolving credit facility in an aggregate principal amount of up to $20,000. On December 31, 2010, we terminated the Revolving Credit Facility.
 
   
ABL Credit Facility. On January 31, 2011, American Pacific Corporation, as borrower, entered into an asset based lending credit agreement (the “ABL Credit Facility”) with Wells Fargo Bank, National Association, as agent and as lender, and certain domestic subsidiaries of the Company, as guarantors, which provides a secured revolving credit facility in an aggregate principal amount of up to $20,000 at any time outstanding with an initial maturity to be the earlier of (i) January 31, 2015 and (ii) 90 days prior to the maturity date of the Senior Notes, which is February 1, 2015. The ABL Credit Facility also provides for the issuance of new letters of credit with a letter of credit sublimit of $5,000. The maximum borrowing availability under the ABL Credit Facility is based upon a percentage of our eligible account receivables and eligible inventories. We may prepay and terminate the ABL Credit Facility at any time, without premium or penalty. The ABL Credit Facility contains certain mandatory prepayment provisions. The annual interest rates applicable to loans under the ABL Credit Facility will be, at our option, either at a Base Rate or LIBOR Rate (each as defined in the ABL Credit Facility) plus, in each case, an applicable margin of 2.50 percentage points. In addition, we will pay commitment fees, other fees related to the issuance and maintenance of the letters of credit, and certain agency fees.
 
   
The ABL Credit Facility is guaranteed by our current and future domestic subsidiaries and is secured by substantially all of our assets and the assets of our current and future domestic subsidiaries, subject to certain exceptions as set forth in the ABL Credit Facility. The ABL Credit Facility contains certain negative covenants, subject to customary exceptions and exclusions, restricting and limiting our ability to, among other things:
   
incur debt, incur contingent obligations and issue certain types of preferred stock, or prepay certain debt;
   
create liens;
   
pay dividends, distributions or make other specified restricted payments;
   
make certain investments and acquisitions;
   
enter into certain transactions with affiliates;
   
enter into sale and leaseback transactions; and
   
merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.
   
The ABL Credit Facility also contains financial covenants which are only triggered by utilization of the ABL Credit Facility and borrowing availability not exceeding a designated threshold amount. If the financial covenants are triggered, then we would be subject to the following financial covenants:
   
Minimum EBITDA. We would be required to achieve a minimum level of EBITDA for the twelve month period then ended. This covenant may become applicable through September 30, 2011.

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6.  
DEBT (Continued)
   
Fixed Charge Coverage Ratio. We would be required to maintain a minimum fixed charge coverage ratio on a rolling trailing 12 month basis of at least 1.10:1.00. This covenant may become applicable beginning with the 12 month period ending October 31, 2011 and through the remaining term of the ABL Credit Facility.
 
   
Maximum Capital Expenditures. The ABL Credit Facility limits our capital expenditures in any fiscal year to amounts set forth in the ABL Credit Facility.
The ABL Credit Facility also contains usual and customary events of default (in some cases, subject to certain threshold amounts and grace periods), including cross-default provisions that include the Senior Notes. If an event of default occurs and is continuing, we may be required to repay the obligations under the ABL Credit Facility prior to the ABL Credit Facility’s stated maturity and the related commitments may be terminated.
On March 31, 2011, under the ABL Credit Facility, we had no outstanding borrowings, had availability of $17,253, and were not subject to compliance with the financial covenants.
Letters of Credit. As of March 31, 2011, we had $1,670 in outstanding standby letters of credit which mature through July 2015. These letters of credit principally secure performance of certain water treatment equipment sold by us and payment of fees associated with the delivery of natural gas and power. The letters of credit are collateralized by cash on deposit with the issuing bank in the amount of 105% of the outstanding letters of credit. Collateral deposits are classified as other assets on our consolidated balance sheets.
7.  
COMMITMENTS AND CONTINGENCIES
Regulatory Review of Perchlorates. Our Specialty Chemicals segment manufactures and sells products that contain perchlorates. Federal and state regulators continue to review the effects of perchlorate, if any, on human health and the related allowable maximum level of contaminant from perchlorate. While the presence of regulatory review presents general business risk to the Company, we are currently unaware of any regulatory proposal that would have a material effect on our results of operations and financial position or that would cause us to significantly modify or curtail our business practices, including our remediation activities discussed below.
Perchlorate Remediation Project in Henderson, Nevada. We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (the “AMPAC Henderson Site”) from 1958 until the facility was destroyed in May 1988, after which we relocated our production to a new facility in Iron County, Utah. Kerr-McGee Chemical Corporation (“KMCC”) also operated a perchlorate production facility in Henderson, Nevada (the “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 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

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7.  
COMMITMENTS AND CONTINGENCIES (Continued)
Henderson Site up to 700 parts per million, 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 Site did impact the Las Vegas Wash and Lake Mead. KMCC’s successor, Tronox LLC, operates an above ground perchlorate groundwater remediation facility at their Henderson site.
Notwithstanding these facts, and at the direction of NDEP and the U.S. Environmental Protection Agency (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 was in situ bioremediation (“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 the fiscal year ended September 30, 2005 (“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 the AMPAC Henderson Site. We commenced construction in July 2005. In December 2006, we began operations of the permanent facility. The location of this facility is several miles, in the direction of groundwater flow, from the AMPAC Henderson Site.
At the request of NDEP, in the summer of 2009, we began renewed discussions with them to formalize our remediation efforts in an agreement that, if executed, would provide more detailed regulatory guidance on environmental characterization and remedies at the AMPAC Henderson Site and vicinity. The agreement under discussion would be expected to be similar to others previously executed by NDEP with other companies under similar circumstances. Typically, such agreements generally cover such matters as the scope of work plans, schedules, deliverables, remedies for non compliance, and reimbursement to the State of Nevada for past and future oversight costs.
Henderson Site Environmental Remediation Reserve. 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.
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 capital equipment, operating and maintenance (“O&M”), and consultants. The project consisted of two primary phases: the initial construction of the remediation equipment phase and the O&M phase. During the fiscal year ended September 30, 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.
Late in the fiscal year ended September 30, 2009 (“Fiscal 2009”), we gained additional information from groundwater modeling that indicates groundwater emanating from the AMPAC Henderson Site in certain areas in deeper zones (more than 150 feet below ground surface) is moving toward our existing remediation facility at a much slower pace than previously estimated. Utilization of our existing facilities alone, at this lower groundwater pace, could, according to this more recently created groundwater model, extend the life of our remediation project to well in excess of fifty years.

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7.  
COMMITMENTS AND CONTINGENCIES (Continued)
As a result of this additional data, related model interpretations and consultations with NDEP, we re-evaluated our remediation operations at the end of Fiscal 2009 and during the fiscal year ended September 30, 2010 (“Fiscal 2010”) as new data was generated. This evaluation indicates that we should be able to significantly reduce the total project time, and ultimately the total cost of the project, by installing additional groundwater extraction wells in the deeper, more concentrated areas, thereby providing for a more aggressive remediation treatment. The additional wells and related remediation equipment will incorporate above ground treatment to supplement or possibly replace by consolidation our existing ISB process. With the additional extraction wells and equipment, we estimated that the total remaining project life for the existing and new, more aggressive deep zone systems could range from 10 to 29 years, beginning with Fiscal 2010. Within that range, we estimated that a range of 13 to 23 years is more likely. Groundwater speed, perchlorate concentrations, aquifer characteristics and forecasted groundwater extraction rates continue to be key variables underlying our estimate of the life of the project and these variables are updated on a regular basis. If additional information becomes available in the future that lead to a different interpretation of the model, thereby dictating a change in equipment and operations, our estimate of the resulting project life could change significantly.
In our Fiscal 2009 fourth quarter, we accrued approximately $9,600 representing our estimate of the cost to engineer, design, and install this additional equipment. We anticipate that these amounts will be spent through and the new equipment will be operational by 2012. We are in the pre-construction, design and engineering steps, and as a result, this estimate involves a number of significant assumptions. Due to uncertainties inherent in making estimates, our estimate may later require significant revision as new facts become available and circumstances change.
In addition to accruing approximately $9,600 for engineering, design, installation and cost of additional equipment, in our Fiscal 2009 fourth quarter, we increased our estimate of total remaining O&M costs by $4,100 due primarily to incremental O&M costs to operate and maintain the additional equipment once installed. Total O&M expenses are currently estimated at approximately $1,000 per year and estimated to increase to approximately $1,300 per year after the additional equipment becomes operational. To estimate O&M costs, we consider, among other factors, the project scope and historical expense rates to develop assumptions regarding labor, utilities, repairs, maintenance supplies and professional services costs. If additional information becomes available in the future that is different than information currently available to us and thereby leads us to different conclusions, our estimate of O&M expenses could change significantly.
In addition, 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.
As of March 31, 2011, the aggregate range of anticipated environmental remediation costs was from approximately $18,700 to approximately $42,600. This range represents a significant estimate and is based on the estimable elements of cost for engineering, design, and equipment and an estimated remaining operating life of the project through a range from the years 2019 to 2038. As of March 31, 2011, the accrued amount was $22,451, based on an estimated remaining life of the project through the year 2022, or the low end of the more likely range of the expected life of the project. Cost estimates for engineering, design and equipment are based on our preliminary assessments of the facility configuration. As we proceed with the more detailed engineering of the project, we have, and may in the future, become aware of elements of the preliminary facility configuration that must be changed to meet the targeted operational requirements. Certain of these changes may result in corresponding cost increases. Costs associated with the changes are accrued when a reasonable alternative, or range of alternatives, is identified and the cost of such alternative is estimable. As of the date of this filing, we have identified several design change requirements which are under

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7.  
COMMITMENTS AND CONTINGENCIES (Continued)
evaluation to determine a reasonable solution. Our estimated reserve for environmental remediation is 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. A summary of our environmental reserve activity for the six months ended March 31, 2011 is shown below:
         
Balance, September 30, 2010
  $ 23,870  
Additions or adjustments
    -  
Expenditures
    (1,419 )
 
     
Balance, March 31, 2011
  $ 22,451  
 
     
AFC Environmental Matters. The primary operations of our Fine Chemicals segment are located on land leased from Aerojet-General Corporation (“Aerojet”). The leased land is part of a tract of land owned by Aerojet designated as a “Superfund site” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”). The tract of land had been used by Aerojet and affiliated companies to manufacture and test rockets and related equipment since the 1950s. Although the chemicals identified as contaminants on the leased land were not used by Aerojet Fine Chemicals LLC (predecessor in interest to Ampac Fine Chemicals LLC) as part of its operations, CERCLA, among other things, provides for joint and severable liability for environmental liabilities including, for example, environmental remediation expenses.
As part of the agreement by which we acquired our Fine Chemicals segment from GenCorp Inc. (“GenCorp”), an Environmental Indemnity Agreement was entered into whereby GenCorp agreed to indemnify us against any and all environmental costs and liabilities arising out of or resulting from any violation of environmental law prior to the effective date of the sale, or any release of hazardous substances by Aerojet Fine Chemicals LLC, Aerojet or GenCorp on the subject premises or Aerojet’s Sacramento site prior to the effective date of the sale.
On November 29, 2005, EPA Region IX provided us with a letter indicating that the EPA does not intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the Aerojet property for existing contamination, provided that the lessees do not contribute to or do not exacerbate existing contamination on or under the Aerojet Superfund site.
Other Matters. Although we are not currently party to any material pending legal proceedings, we are from time to time subject to claims and lawsuits related to our business operations. We accrue for loss contingencies when a loss is probable and the amount can be reasonably estimated. Legal fees, which can be material in any given period, are expensed as incurred. We believe that current claims or lawsuits against us, individually and in the aggregate, will not result in loss contingencies that will have a material adverse effect on our financial condition, cash flows or results of operations.
8.  
SEGMENT INFORMATION
We report our business in four operating segments: Fine Chemicals, Specialty 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 income or loss 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.
Fine Chemicals. Our Fine Chemicals segment includes the operating results of our wholly-owned subsidiaries Ampac Fine Chemicals LLC and AMPAC Fine Chemicals Texas, LLC (collectively, “AFC”). AFC is a custom manufacturer of active pharmaceutical ingredients and registered intermediates for commercial customers in the pharmaceutical industry. AFC operates in compliance with the U.S. Food and Drug Administration’s current Good Manufacturing Practices and the

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8.  
SEGMENT INFORMATION (Continued)
requirements of certain other regulatory agencies such as the European Union’s European Medicines Agency and Japan’s Pharmaceuticals and Medical Devices Agency. AFC has distinctive competencies and specialized engineering capabilities in performing chiral separations, manufacturing chemical compounds that require high containment and performing energetic chemistries at commercial scale.
Specialty Chemicals. Our Specialty Chemicals segment manufactures and sells: (i) perchlorate chemicals, principally ammonium perchlorate, which is the predominant oxidizing agent for solid propellant rockets, booster motors and missiles used in space exploration, commercial satellite transportation and national defense programs, (ii) sodium azide, a chemical used in pharmaceutical manufacturing, and (iii) Halotronâ, a series of clean fire extinguishing agents used in fire extinguishing products ranging from portable fire extinguishers to total flooding systems.
Aerospace Equipment. Our Aerospace Equipment segment includes the operating results of our wholly-owned subsidiary Ampac-ISP Corp. and its wholly-owned subsidiaries (collectively, “AMPAC ISP”). AMPAC ISP manufactures monopropellant and bipropellant liquid propulsion systems and thrusters for satellites, launch vehicles, and interceptors. In addition, AMPAC ISP designs, develops and manufactures liquid propulsion thrusters, high performance valves, pressure regulators, cold-gas propulsion systems, and precision structures for space applications, especially in the European space market.
Other Businesses. Our Other Businesses segment contains our water treatment equipment division and real estate activities. Our water treatment equipment business markets, designs, and manufactures electrochemical On Site Hypochlorite Generation, or OSHG, systems. These systems are used in the disinfection of drinking water, control of noxious odors, and the treatment of seawater to prevent the growth of marine organisms in cooling systems. We supply our equipment to municipal, industrial and offshore customers. Our real estate activities are not material.
Our revenues are characterized by individually significant orders and relatively few customers. As a result, in any given reporting period, certain customers may account for more than ten percent of our consolidated revenues. The following table provides disclosure of the percentage of our consolidated revenues attributed to customers that exceed ten percent of the total in each of the given periods.
                                 
     
    Three Months Ended   Six Months Ended
    March 31,   March 31,
    2011   2010   2011   2010
     
Fine chemicals customer
            40 %     11 %     27 %
Fine chemicals customer
                    11 %        
Fine chemicals customer
    11 %                        
Specialty chemicals customer
    15 %             11 %     16 %

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8.  
SEGMENT INFORMATION (Continued)
The following provides financial information about our segment operations:
                                 
     
    Three Months Ended   Six Months Ended
    March 31,   March 31,
    2011   2010   2011   2010
     
Revenues:
                               
Fine Chemicals
  $ 16,065     $ 33,673     $ 29,954     $ 43,177  
Specialty Chemicals
    10,828       14,086       19,869       26,889  
Aerospace Equipment
    14,372       10,168       25,824       18,493  
Other Businesses
    589       1,468       1,391       4,900  
     
Total Revenues
  $ 41,854     $ 59,395     $ 77,038     $ 93,459  
     
 
                               
Segment Operating Income (Loss):
                               
Fine Chemicals
  $ (838 )   $ 2,500     $ (4,471 )   $ 1,760  
Specialty Chemicals
    3,542       6,513       7,099       12,344  
Aerospace Equipment
    1,407       25       2,085       (337 )
Other Businesses
    (181 )     69       (502 )     52  
     
Total Segment Operating Income
    3,930       9,107       4,211       13,819  
Corporate Expenses
    (3,991 )     (3,672 )     (7,742 )     (8,245 )
     
Operating Income (Loss)
  $ (61 )   $ 5,435     $ (3,531 )   $ 5,574  
     
 
                               
Depreciation and Amortization:
                               
Fine Chemicals
  $ 3,040     $ 3,194     $ 6,277     $ 6,522  
Specialty Chemicals
    231       406       349       577  
Aerospace Equipment
    284       392       545       815  
Other Businesses
    5       4       9       8  
Corporate
    112       127       231       254  
     
Total Depreciation and Amortization
  $ 3,672     $ 4,123     $ 7,411     $ 8,176  
     
9.  
INCOME TAXES
We review our portfolio of uncertain tax positions and recorded liabilities based on the applicable recognition standards. In this regard, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. We classify uncertain tax positions as non-current income tax liabilities unless expected to be settled within one year.
As of both March 31, 2011 and September 30, 2010, our recorded liability for unrecognized tax benefits was $1,246, of which $386 would affect our effective tax rate if recognized. The remaining balance is related to deferred tax items which only impact the timing of tax payments. Due to the effects of filing tax carryback claims, we have no significant statutes of limitations that are anticipated to expire in the fiscal year ending September 30, 2011. As such, it is reasonably possible that none of the gross liability for unrecognized tax benefits will reverse during the fiscal year ending September 30, 2011.
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2011 and September 30, 2010, we had accrued $613 and $584, respectively, for the payment of tax-related interest and penalties. For the six months ended March 31, 2011 and 2010, income tax benefit includes an expense of $29 and a benefit of $49, respectively, for interest and penalties.
We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions. With few exceptions, we are no longer subject to federal or state income tax examinations for years before 2002.

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10.  
 DEFINED BENEFIT PLANS
Defined Benefit Plan Descriptions. We maintain three defined benefit pension plans which cover substantially all of our U.S. employees, excluding employees of our Aerospace Equipment segment: the Amended and Restated American Pacific Corporation Defined Benefit Pension Plan, the Ampac Fine Chemicals LLC Pension Plan for Salaried Employees, and the Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit Employees, each as amended to date. Collectively, these three plans are referred to as the “Pension Plans”. Benefits are paid based on an average of earnings, retirement age, and length of service, among other factors. In May 2010, our board of directors approved amendments to our Pension Plans which effectively closed the Pension Plans to participation by any new employees. Retirement benefits for existing U.S. employees and retirees through June 30, 2010 are not affected by this change. Beginning July 1, 2010, new U.S. employees will participate solely in one of the Company’s 401(k) plans. In addition, we maintain the American Pacific Corporation Supplemental Executive Retirement Plan (the “SERP”) that includes three executive officers and two former executive officers. We use a measurement date of September 30 to account for our Pension Plans and SERP.
Net periodic pension cost consists of the following:
                                 
     
    Three Months Ended   Six Months Ended
    March 31,   March 31,
    2011   2010   2011   2010
     
Pension Plans:
                               
Service Cost
  $ 616     $ 625     $ 1,232     $ 1,250  
Interest Cost
    878       798       1,756       1,596  
Expected Return on Plan Assets
    (722 )     (603 )     (1,444 )     (1,206 )
Recognized Actuarial Losses
    420       263       840       526  
Amortization of Prior Service Costs
    16       19       31       38  
     
Net Periodic Pension Cost
  $ 1,208     $ 1,102     $ 2,415     $ 2,204  
     
 
                               
Supplemental Executive Retirement Plan:
                               
Service Cost
  $ 81     $ 110     $ 162     $ 220  
Interest Cost
    89       94       178       187  
Expected Return on Plan Assets
    -       -       -       -  
Recognized Actuarial Losses
    -       -       -       -  
Amortization of Prior Service Costs
    105       105       210       210  
     
Net Periodic Pension Cost
  $ 275     $ 309     $ 550     $ 617  
     
Defined Contribution Plan Descriptions. We maintain two 401(k) plans in which participating employees may make contributions. One covers substantially all U.S. employees except bargaining unit employees of our Fine Chemicals segment and the other covers those bargaining unit employees. We make matching contributions for Fine Chemicals segment employees and U.S. employees of our Aerospace Equipment segment. In addition, we make a profit sharing contribution for U.S. employees of our Aerospace Equipment segment who were employed by us prior to June 30, 2010. Beginning July 1, 2010, for all eligible new U.S. employees we will make matching contributions.
Contributions and Benefit Payments. For the six months ended March 31, 2011, we contributed $4,220 to the Pension Plans to fund benefit payments and anticipate making approximately $1,603 in additional contributions through September 30, 2011. For the six months ended March 31, 2011, we contributed $264 to the SERP to fund benefit payments and anticipate making approximately $263 in additional contributions through September 30, 2011.

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11.  
GAIN CONTINGENCIES - OTHER OPERATING GAINS
   
We recognize gain contingencies in our consolidated statement of operations when all contingencies have been resolved, which generally coincides with the receipt of cash, if applicable. During the three months and six months ended March 31, 2011, our Fine Chemicals segment reported other operating gains of $1,592 and $2,929, respectively, that resulted from the resolution of gain contingencies. The total reported gain of $2,929 is comprised of the following two matters.
 
   
We made a series of filings with the County of Sacramento, California, to appeal the assessed values in prior years of our real and personal property located at our Fine Chemicals segment’s Rancho Cordova, California facility. During the six months ended March 31, 2011, we received $2,671 for cash property tax refunds resulting from our appeals and the related favorable reassessment of historical property values.
 
   
Our Fine Chemicals segment is undertaking several mandatory capital projects. Certain of the capital activities are complete and others are anticipated to be completed during the calendar year 2011. In connection with these projects, our Fine Chemicals segment held, and continues to hold, negotiations with the former owner of the facilities. During the six months ended March 31, 2011, we received from the former owner cash consideration in the amount of $258 for a limited release of liability of the former owner with respect to one of the completed projects.
12.  
GUARANTOR SUBSIDIARIES
   
As discussed in Note 6, in February 2007, American Pacific Corporation, a Delaware corporation (“Parent”) issued and sold $110,000 aggregate principal amount of Senior Notes. In connection with the issuance of the Senior Notes, the Parent’s material U.S. subsidiaries (“Guarantor Subsidiaries”) jointly, fully, severally, and unconditionally guaranteed the Senior Notes. The Parent’s foreign subsidiaries (“Non-Guarantor Subsidiaries”) are not guarantors of the Senior Notes. Each of the Parent’s subsidiaries is 100% owned. The Parent has no independent assets or operations. The following presents condensed consolidating financial information separately for the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
                                         
Condensed Consolidating Statement of Operations - Three Months Ended March 31, 2011
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     
Revenues
  $ -     $ 39,149     $ 2,869     $ (164 )   $ 41,854  
Cost of Revenues
    -       29,827       2,024       (164 )     31,687  
     
Gross Profit
    -       9,322       845       -       10,167  
Operating Expenses, Net
    -       9,132       1,096       -       10,228  
     
Operating Income (Loss)
    -       190       (251 )     -       (61 )
Interest and Other Income
    2,543       296       209       (2,543 )     505  
Interest Expense
    2,543       2,569       2       (2,543 )     2,571  
     
Loss before Income Tax and
                                       
Equity Account for Subsidiaries
    -       (2,083 )     (44 )     -       (2,127 )
Income Tax Benefit
    -       (931 )     17       -       (914 )
     
Loss before
                                       
Equity Account for Subsidiaries
    -       (1,152 )     (61 )     -       (1,213 )
Equity Account for Subsidiaries
    (1,213 )     (61 )     -       1,274       -  
     
Net Loss
  $ (1,213 )   $ (1,213 )   $ (61 )   $ 1,274     $ (1,213 )
     

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12.  
GUARANTOR SUBSIDIARIES (Continued)
                                         
Condensed Consolidating Statement of Operations - Six Months Ended March 31, 2011  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     
Revenues
  $ -     $ 72,051     $ 5,229     $ (242 )   $ 77,038  
Cost of Revenues
    -       57,036       3,461       (242 )     60,255  
     
Gross Profit
    -       15,015       1,768       -       16,783  
Operating Expenses, Net
    -       18,428       1,886       -       20,314  
     
Operating Income (Loss)
    -       (3,413 )     (118 )     -       (3,531 )
Interest and Other Income
    5,239       349       23       (5,239 )     372  
Interest Expense
    5,239       5,282       3       (5,239 )     5,285  
     
Loss before Income Tax and Equity Account for Subsidiaries
    -       (8,346 )     (98 )     -       (8,444 )
Income Tax Benefit
    -       (3,676 )     64       -       (3,612 )
     
Loss before Equity Account for Subsidiaries
    -       (4,670 )     (162 )     -       (4,832 )
Equity Account for Subsidiaries
    (4,832 )     (162 )     -       4,994       -  
     
Net Loss
  $ (4,832 )   $ (4,832 )   $ (162 )   $ 4,994     $ (4,832 )
     
                                         
Condensed Consolidating Statement of Operations - Three Months Ended March 31, 2010  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     
Revenues
  $ -     $ 56,648     $ 2,597     $ 150     $ 59,395  
Cost of Revenues
    -       40,360       2,006       150       42,516  
     
Gross Profit
    -       16,288       591       -       16,879  
Operating Expenses
    -       10,440       1,004       -       11,444  
     
Operating Income (Loss)
    -       5,848       (413 )     -       5,435  
Interest and Other Income
    2,664       36       (271 )     (2,689 )     (260 )
Interest Expense
    2,664       2,738       27       (2,689 )     2,740  
     
Income (Loss) before Income Tax and Equity Account for Subsidiaries
    -       3,146       (711 )     -       2,435  
Income Tax Benefit
    -       1,254       65       -       1,319  
     
Income (Loss) before Equity Account for Subsidiaries
    -       1,892       (776 )     -       1,116  
Equity Account for Subsidiaries
    1,116       (776 )     -       (340 )     -  
     
Net Income (Loss)
  $ 1,116     $ 1,116     $ (776 )   $ (340 )   $ 1,116  
     
                                         
Condensed Consolidating Statement of Operations - Six Months Ended March 31, 2010  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     
Revenues
  $ -     $ 88,376     $ 5,100     $ (17 )   $ 93,459  
Cost of Revenues
    -       60,372       3,779       (17 )     64,134  
     
Gross Profit
    -       28,004       1,321       -       29,325  
Operating Expenses
    -       21,697       2,054       -       23,751  
     
Operating Income (Loss)
    -       6,307       (733 )     -       5,574  
Interest and Other Income
    5,333       76       (296 )     (5,381 )     (268 )
Interest Expense
    5,333       5,427       52       (5,381 )     5,431  
     
Income (Loss) before Income Tax and Equity Account for Subsidiaries
    -       956       (1,081 )     -       (125 )
Income Tax Benefit
    -       177       22       -       199  
     
Income (Loss) before Equity Account for Subsidiaries
    -       779       (1,103 )     -       (324 )
Equity Account for Subsidiaries
    (324 )     (1,103 )     -       1,427       -  
     
Net Loss
  $ (324 )   $ (324 )   $ (1,103 )   $ 1,427     $ (324 )
     

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12.  
GUARANTOR SUBSIDIARIES (continued)
                                         
Condensed Consolidating Balance Sheet - March 31, 2011  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     
Assets:
                                       
Cash and Cash Equivalents
  $ -     $ 31,179     $ 518     $ -     $ 31,697  
Accounts Receivable, Net
    -       31,031       4,661       (658 )     35,034  
Inventories
    -       43,987       1,140       -       45,127  
Prepaid Expenses and Other Assets
    -       4,522       254       -       4,776  
Income Taxes Receivable and Deferred Income Taxes
    -       14,989       50       -       15,039  
     
Total Current Assets
    -       125,708       6,623       (658 )     131,673  
Property, Plant and Equipment, Net
    -       113,499       2,185       -       115,684  
Intangible Assets, Net
    -       111       753       -       864  
Goodwill
    -       -       3,038       -       3,038  
Deferred Income Taxes
    -       20,213       38       -       20,251  
Other Assets
    -       9,849       384       -       10,233  
Intercompany Advances
    92,414       5,046       -       (97,460 )     -  
Investment in Subsidiaries, Net
    71,731       4,799       -       (76,530 )     -  
     
Total Assets
  $ 164,145     $ 279,225     $ 13,021     $ (174,648 )   $ 281,743  
     
Liabilitites and Stockholders’ Equity:
                                       
Accounts Payable and Other Current Liabilities
  $ -     $ 25,258     $ 2,410     $ (658 )   $ 27,010  
Environmental Remediation Reserves
    -       9,014       -       -       9,014  
Deferred Revenues and Customer Deposits
    -       30,017       694       -       30,711  
Current Portion of Long-Term Debt
    -       22       51       -       73  
Intercompany Advances
    -       92,414       5,046       (97,460 )     -  
     
Total Current Liabilities
    -       156,725       8,201       (98,118 )     66,808  
Long-Term Debt
    105,000       46       21       -       105,067  
Environmental Remediation Reserves
    -       13,437       -       -       13,437  
Pension Obligations and Other Long-Term Liabilities
    -       37,286       -       -       37,286  
     
Total Liabilities
    105,000       207,494       8,222       (98,118 )     222,598  
Total Shareholders’ Equity
    59,145       71,731       4,799       (76,530 )     59,145  
     
Total Liabilities and Shareholders’ Equity
  $ 164,145     $ 279,225     $ 13,021     $ (174,648 )   $ 281,743  
     
                                         
Condensed Consolidating Statement of Cash Flows - Six Months Ended March 31, 2011  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     
Net Cash Provided (Used) by Operating Activities
  $ -     $ 16,589     $ (302 )   $ -     $ 16,287  
     
Cash Flows from Investing Activities:
                                       
Capital expenditures
    -       (7,372 )     (357 )     -       (7,729 )
     
Net Cash Used in Investing Activities
    -       (7,372 )     (357 )     -       (7,729 )
     
Cash Flows from Financing Activities:
                                       
Payments of long-term debt
    -       (10 )     (25 )     -       (35 )
Debt Issuance costs
    (869 )                             (869 )
Intercompany advances, net
    869       (1,019 )     150       -       -  
     
Net Cash Provided (Used) by Financing Activities
    -       (1,029 )     125       -       (904 )
     
Effect of Changes in Currency Exchange Rates
    -       -       58               58  
     
Net Change in Cash and Cash Equivalents
    -       8,188       (476 )     -       7,712  
Cash and Cash Equivalents, Beginning of Period
    -       22,991       994       -       23,985  
     
Cash and Cash Equivalents, End of Period
  $ -     $ 31,179     $ 518     $ -     $ 31,697  
     

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12.  
GUARANTOR SUBSIDIARIES (continued)
                                         
Condensed Consolidating Balance Sheet - September 30, 2010  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     
Assets:
                                       
Cash and Cash Equivalents
  $ -     $ 22,991     $ 994     $ -     $ 23,985  
Accounts Receivable, Net
    -       48,194       6,054       (2,348 )     51,900  
Inventories
    -       34,968       1,158       -       36,126  
Prepaid Expenses and Other Assets
    -       1,249       293       -       1,542  
Income Taxes Receivable and Deferred Income Taxes
    -       13,474       -       -       13,474  
     
Total Current Assets
    -       120,876       8,499       (2,348 )     127,027  
Property, Plant and Equipment, Net
    -       111,946       1,927       -       113,873  
Intangible Assets, Net
    -       537       883       -       1,420  
Goodwill
    -       -       2,933       -       2,933  
Deferred Income Taxes
    -       20,222       32       -       20,254  
Other Assets
    -       9,945       291       -       10,236  
Intercompany Advances
    91,545       4,896       -       (96,441 )     -  
Investment in Subsidiaries, Net
    77,112       4,817       -       (81,929 )     -  
     
Total Assets
  $ 168,657     $ 273,239     $ 14,565     $ (180,718 )   $ 275,743  
     
Liabilitites and Stockholders’ Equity:
                                       
Accounts Payable and Other Current Liabilities
  $ -     $ 23,931     $ 3,916     $ (2,348 )   $ 25,499  
Environmental Remediation Reserves
    -       8,694       -       -       8,694  
Deferred Revenues and Customer Deposits
    -       17,927       842       -       18,769  
Current Portion of Long-Term Debt
    -       21       49       -       70  
Intercompany Advances
    -       91,545       4,896       (96,441 )     -  
     
Total Current Liabilities
    -       142,118       9,703       (98,789 )     53,032  
Long-Term Debt
    105,000       57       45       -       105,102  
Environmental Remediation Reserves
    -       15,176       -       -       15,176  
Pension Obligations and Other Long-Term Liabilities
    -       38,776       -       -       38,776  
     
Total Liabilities
    105,000       196,127       9,748       (98,789 )     212,086  
Total Shareholders’ Equity
    63,657       77,112       4,817       (81,929 )     63,657  
     
Total Liabilities and Shareholders’ Equity
  $ 168,657     $ 273,239     $ 14,565     $ (180,718 )   $ 275,743  
     
                                         
Condensed Consolidating Statement of Cash Flows - Six Months Ended March 31, 2010  
            Guarantor     Non-Guarantor              
    Parent     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     
Net Cash Provided (Used) by Operating Activities
  $ -     $ 15,483     $ (889 )   $ -     $ 14,594  
     
Cash Flows from Investing Activities:
                                       
Capital expenditures
    -       (3,115 )     (473 )     -       (3,588 )
     
Net Cash Used in Investing Activities
    -       (3,115 )     (473 )     -       (3,588 )
     
Cash Flows from Financing Activities:
                                       
Payments of long-term debt
    -       (65 )     (24 )     -       (89 )
Intercompany advances, net
    -       (1,234 )     1,234       -       -  
     
Net Cash Provided (Used) by Financing Activities
    -       (1,299 )     1,210       -       (89 )
     
Effect of Changes in Currency Exchange Rates
    -       -       (84 )     -       (84 )
     
Net Change in Cash and Cash Equivalents
    -       11,069       (236 )     -       10,833  
Cash and Cash Equivalents, Beginning of Period
    -       20,046       1,635       -       21,681  
     
Cash and Cash Equivalents, End of Period
  $ -     $ 31,115     $ 1,399     $ -     $ 32,514  
     

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands)
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the safe harbor created by those sections. These forward-looking statements include, but are not limited to: our expectations regarding changes in cash flow and working capital and related variances in the future, our potential incurrence of additional debt, including through refinancing, or legal or other costs in the future, our belief that our cash flows and debt will be adequate for the foreseeable future to satisfy the needs of our operations and that existing circumstances will not materially affect our ability to meet future liquidity requirements, our expectations regarding anticipated contributions and obligations with respect to our defined benefit pension plans and supplemental executive retirement plan, our estimates and expectations regarding anticipated cash expenditures and timing in the short and long term for environmental remediation in connection with our former Henderson, Nevada site, our statement regarding one of the significant factors that will affect comparisons of our consolidated gross margins in the future, our expectations regarding the timing and receipt of revenues for the current fiscal year, our expectations regarding anticipated anti-viral product revenue increases in our Fine Chemicals segment during the second half of the fiscal year ending September 30, 2011, our statement regarding the impact of process improvements through the fourth quarter of the current fiscal year ending September 30, 2011, , our expectations with respect to the substantial fulfillment of existing backlog within the next twelve months, our statement regarding anticipated capital activities for the current fiscal year ending September 30, 2011, our belief regarding pharmaceutical controlled substances as an area of expansion for us, statements regarding the potential impact of future changes in critical accounting policies and accounting standards and judgments, estimates and assumptions relating thereto, and all plans, objectives, expectations and intentions contained in this report that are not historical facts. We usually use words such as “may,” “can,” “will,” “could,” “would,” “should,” “expect,” “anticipate,” “believe,” “estimate,” or “future,” or the negative of these terms or similar expressions to identify forward-looking statements. Discussions containing such forward-looking statements may be found throughout this document. These forward-looking statements involve certain risks and uncertainties, such as, for example, with respect to the actual placement, timing and delivery of orders for new and/or existing products, that could cause actual results to differ materially from future results or outcomes expressed or implied in such forward-looking statements. Please see the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for further discussion of factors that could affect future results. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement, unless otherwise required by law. Any business risks discussed later in this Item 2, among other things, should be considered in evaluating our prospects and future financial performance.
The terms “Company,” “we,” “us,” and “our” are used herein to refer to American Pacific Corporation and, where the context requires, one or more of the direct and indirect subsidiaries or divisions of American Pacific Corporation. The following discussion and analysis is intended to provide a narrative discussion of our financial results and an evaluation of our financial condition and results of operations with respect to the second fiscal quarter and six-month period of the year ending September 30, 2011 (“Fiscal 2011”) as compared to the second fiscal quarter and six-month period of the year ended September 30, 2010 (“Fiscal 2010”). The discussion should be read in conjunction with our Annual Report on Form 10-K for Fiscal 2010 filed with the Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for Fiscal 2010.

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OUR COMPANY
We are a leading custom manufacturer of fine chemicals, specialty chemicals and propulsion products within our focused markets. Our fine chemicals products represent the active pharmaceutical ingredient (“API”) or registered intermediate in certain anti-viral, oncology and central nervous system drugs. Our specialty chemicals and aerospace equipment products are utilized in national defense programs and provide access to, and movement in, space, via solid propellant and propulsion thrusters. Our technical and manufacturing expertise and customer service focus has gained us a reputation for quality, reliability, technical performance and innovation. Given the mission critical nature of our products, we maintain long-standing strategic customer relationships. We work collaboratively with our customers to develop customized solutions that meet rigorous federal and international regulatory standards. We generally sell our products through long-term contracts under which we are the sole-source or limited-source supplier.
We are the only North American producer of ammonium perchlorate, or “AP,” which is the predominant oxidizing agent for solid propellant rockets, booster motors and missiles used in space exploration, commercial satellite transportation and national defense programs. In order to diversify our business and leverage our strong technical and manufacturing capabilities, we have made three strategic acquisitions in recent years. Each of these acquisitions provided long-term customer relationships with sole-source and limited-source contracts and leadership positions in growing markets. On October 1, 2004, we acquired the former Atlantic Research Corporation’s liquid in-space propulsion business from Aerojet-General Corporation, which became our Aerospace Equipment segment. Effective October 1, 2008, we further expanded our Aerospace Equipment segment with the acquisition of Marotta Holdings Limited (subsequently renamed Ampac ISP Holdings Limited) and its wholly-owned subsidiaries (collectively “AMPAC ISP Holdings”). Our U.S.-based Aerospace Equipment operation is one of two major North American manufacturers of monopropellant and bipropellant liquid propulsion systems and thrusters for satellites, launch vehicles, and interceptors. AMPAC ISP Holdings designs, develops and manufactures high performance valves, pressure regulators, cold-gas propulsion systems, and precision structures for space applications, especially in the European space market. On November 30, 2005, we acquired GenCorp Inc.’s fine chemicals business, through our wholly-owned subsidiary Ampac Fine Chemicals LLC, which is now our Fine Chemicals segment. Our Fine Chemicals segment is a leading custom manufacturer of certain active pharmaceutical ingredients, or APIs, and registered intermediates for pharmaceutical and biotechnology companies.
OUR BUSINESS SEGMENTS
Our operations comprise four reportable business segments: Fine Chemicals, Specialty Chemicals, Aerospace Equipment and Other Businesses. The following table reflects the revenue contribution percentage from our business segments and each of their major product lines:
                                 
     
    Three Months Ended     Six Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
     
 
                               
Fine Chemicals
    39 %     57 %     39 %     46 %
     
Specialty Chemicals:
                               
Perchlorates
    21 %     22 %     21 %     26 %
Sodium Azide
    2 %     0 %*     2 %     1 %
Halotron
    3 %     2 %     3 %     2 %
     
Total Specialty Chemicals
    26 %     24 %     26 %     29 %
     
Aerospace Equipment
    34 %     17 %     34 %     20 %
     
Other Businesses:
                               
Real Estate
    0 %*     0 %*     0 %*     0 %*
Water Treatment Equipment
    1 %     2 %     1 %     5 %
     
Total Other Businesses
    1 %     2 %     1 %     5 %
     
Total Revenues
    100 %     100 %     100 %     100 %
     
* less than 1%

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FINE CHEMICALS. Our Fine Chemicals segment, operated through our wholly-owned subsidiaries Ampac Fine Chemicals LLC and AMPAC Fine Chemicals Texas, LLC (collectively “AFC”), is a custom manufacturer of APIs and registered intermediates for commercial customers in the pharmaceutical industry. The products we manufacture are used by our customers in drugs with indications in three primary areas: anti-viral, oncology, and central nervous system. We generate nearly all of our Fine Chemicals segment sales from manufacturing chemical compounds that are proprietary to our customers. We operate in compliance with the U.S. Food and Drug Administration’s (the “FDA”) current Good Manufacturing Practices (“cGMP”) and the requirements of certain other regulatory agencies such as the European Union’s European Medicines Agency and Japan’s Pharmaceuticals and Medical Devices Agency. Our Fine Chemicals segment’s strategy is to focus on high growth markets where our technological position, combined with our chemical process development and engineering expertise, leads to strong customer allegiances and limited competition. In addition, our unique location in Rancho Cordova, California provides us with advantages for the production of chemicals for pharmaceutical controlled substances. We believe that this will be an area of expansion for us.
We have distinctive competencies and specialized engineering capabilities in performing chiral separations, manufacturing chemical compounds that require high containment and performing energetic chemistries at commercial scale. We have invested significant resources in our facilities and technology base. We believe we are the U.S. leader in performing chiral separations using commercial-scale simulated moving bed, or “SMB,” technology and own and operate two large-scale SMB machines, both of which are among the largest in the world operating under cGMP. We believe our distinctive competency in manufacturing chemical compounds that require specialized high containment facilities and handling expertise provide us a significant competitive advantage in competing for various opportunities associated with high potency, highly toxic and cytotoxic products. Many oncology drugs are made with APIs that are high potency or cytotoxic. AFC is one of the few companies in the world that can manufacture such compounds at a multi-ton annual rate. Moreover, our significant experience and specially engineered facilities make us one of the few companies in the world with the capability to use energetic chemistry on a commercial-scale under cGMP. We use this capability in development and production of products such as those used in anti-viral drugs, including HIV-related and influenza-combating drugs.
We have established long-term, sole-source and limited-source contracts, which help provide us with earnings stability and visibility. In addition, the inherent nature of custom pharmaceutical fine chemicals manufacturing encourages stable, long-term customer relationships. We work collaboratively with our customers to develop reliable, safe and cost-effective, custom solutions. Once a custom manufacturer has been qualified as a supplier on a cGMP product, there are several potential barriers that discourage transferring the manufacturing of the product to an alternative supplier, including the following:
 
Alternative Supply May Not Be Readily Available. We are currently the sole-source supplier on several of our fine chemicals products.
 
 
Regulatory Approval. Applications to and approvals from the FDA and other regulatory authorities generally require the chemical contractor to be named. Switching contractors may require additional regulatory approvals and could take as long as two years to complete.
 
 
Significant Financial Costs. Switching contractors and amending various filings can result in significant costs associated with technology transfer, process validation and re-filing with the FDA and other regulatory authorities.
SPECIALTY CHEMICALS. Our Specialty Chemicals segment is principally engaged in the production of AP, which is the predominant oxidizing agent for solid propellant rockets, booster motors and missiles used in space exploration, commercial satellite transportation and national defense programs. In addition, we produce and sell sodium azide, a chemical primarily used in pharmaceutical manufacturing, and Halotron®, a series of clean fire extinguishing agents used in fire extinguishing products ranging from portable fire extinguishers to total flooding systems.

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We have supplied AP for use in space and defense programs for over 50 years and we have been the only AP supplier in North America since 1998, when we acquired the AP business of our principal competitor, Kerr-McGee Chemical Corporation. A significant number of existing and planned space launch vehicles use solid propellant and thus depend, in part, upon our AP. Many of the rockets and missiles used in national defense programs are also powered by solid propellant.
Alliant Techsystems Inc. or “ATK” is a significant AP customer. We sell Grade I AP to ATK under a long-term contract that requires us to maintain a ready and qualified capacity for Grade I AP and that requires ATK to purchase its Grade I AP requirements from us, subject to certain terms and conditions. The contract, which expires in 2013, provides fixed pricing in the form of a price volume matrix for annual Grade I AP volumes ranging from 3 million to 20 million pounds. Pricing varies inversely to volume and includes annual escalations.
AEROSPACE EQUIPMENT. Our Aerospace Equipment segment reflects the operating results of our wholly-owned subsidiary Ampac-ISP Corp. and its wholly-owned subsidiaries.
Our U.S.-based Aerospace Equipment operation is one of two major North American manufacturers of monopropellant and bipropellant liquid propulsion systems and thrusters for satellites, launch vehicles, and interceptors. Our products are utilized on various satellite and launch vehicle programs such as Space Systems/Loral’s 1300 series geostationary satellites.
Our European-based Aerospace Equipment operation designs, develops and manufactures liquid propulsion thrusters, high performance valves, pressure regulators, cold-gas propulsion systems, and precision structures for space applications, especially in the European space market. These products are used on various satellites and spacecraft, as well as on the Ariane 5 launch vehicle.
OTHER BUSINESSES. Our Other Businesses segment contains our water treatment equipment division and real estate activities. Our water treatment equipment business markets, designs, and manufactures electrochemical On Site Hypochlorite Generation, or OSHG systems. These systems are used in the disinfection of drinking water, control of noxious odors, and the treatment of seawater to prevent the growth of marine organisms in cooling systems. We supply our equipment to municipal, industrial and offshore customers. Our real estate activities are not material.
RESULTS OF OPERATIONS
REVENUES
                                 
     
    March 31,     Increase     Percentage  
    2011     2010     (Decrease)     Change  
     
 
                               
Three Months Ended:
                               
Fine Chemicals
    $ 16,065       $ 33,673       $ (17,608 )     (52 %)
Specialty Chemicals
    10,828       14,086       (3,258 )     (23 %)
Aerospace Equipment
    14,372       10,168       4,204       41 %
Other Businesses
    589       1,468       (879 )     (60 %)
             
Total Revenues
    $ 41,854       $ 59,395       $ (17,541 )     (30 %)
             
 
                               
Six Months Ended:
                               
Fine Chemicals
    $ 29,954       $ 43,177       $ (13,223 )     (31 %)
Specialty Chemicals
    19,869       26,889       (7,020 )     (26 %)
Aerospace Equipment
    25,824       18,493       7,331       40 %
Other Businesses
    1,391       4,900       (3,509 )     (72 %)
             
Total Revenues
    $ 77,038       $ 93,459       $ (16,421 )     (18 %)
             

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Fine Chemicals. Fine Chemicals segment revenues decreased in the Fiscal 2011 second quarter and six-month period primarily due to 90% and 92% declines, respectively, in revenues from anti-viral products. Anti-viral product production resumed in the Fiscal 2011 second quarter pursuant to a three-year supply agreement and is expected to result in significant higher anti-viral product revenues in the second half of Fiscal 2011 as compared to the first half of Fiscal 2011. The anti-viral product declines were partially offset by increases in oncology product revenues in both the Fiscal 2011 second quarter and six-month period. The increases in oncology product revenues reflect the timing of product deliveries. The oncology production lines were at similar levels of utilization for each comparative period.
Specialty Chemicals. Specialty Chemicals segment revenues include the operating results from our perchlorate, sodium azide and Halotron product lines, with our perchlorate product lines comprising 82% and 89% of Specialty Chemicals segment revenues in the Fiscal 2011 and Fiscal 2010 six-month periods, respectively. The variance in Specialty Chemicals segment revenues reflects the following factors:
 
A 31% decrease in perchlorate volume and a 1% increase in the related average price per pound for the Fiscal 2011 second quarter compared to the prior fiscal year second quarter.
 
 
A 31% decrease in perchlorate volume and a 1% decrease in the related average price per pound for the Fiscal 2011 six-month period compared to the prior fiscal year six-month period.
 
 
Sodium azide revenues increased by $633 for the Fiscal 2011 second quarter and $208 for the Fiscal 2011 six-month period.
 
 
Halotron revenues increased $89 for the Fiscal 2011 second quarter and $219 for the Fiscal 2011 six-month period.
The decrease in total perchlorate volume for the Fiscal 2011 periods is primarily due to limited demand for Grade I AP for usage on space programs. Tactical and strategic missile program demand continues to be stable and accounts for the largest component of Grade I AP volume in the Fiscal 2011 periods. The Ares program was the largest component of volume in the Fiscal 2010 periods. The decline in Grade I AP demand is offset by increases in volume for our other perchlorate products, which was approximately 28% higher in the Fiscal 2011 six-month period than in the comparable Fiscal 2010 period.
Average price per pound of perchlorates was consistent between the Fiscal 2011 and Fiscal 2010 periods, and reflects two offsetting factors:
 
The average price per pound of Grade I AP increased approximately proportionate and inverse to the decrease in Grade I AP volume consistent with the contractual Grade I AP price-volume matrix, under which price and volume move inversely, and comparable catalog pricing.
 
 
This was offset by our other lower-priced perchlorate products, such as sodium perchlorate and potassium perchlorate, which accounted for a greater percentage of all perchlorate product volume in the Fiscal 2011 periods.
Aerospace Equipment. Revenue growth of 41% and 40% for the Aerospace Equipment segment during the Fiscal 2011 second quarter and six-month period, respectively, as compared to the prior fiscal year periods, was generated primarily by increases in revenues from space propulsion systems contracts from the segment’s U.S. operations which continue to be successful in penetrating this market. Increases in revenues from in-space propulsion engines also contributed to the revenue growth in the Fiscal 2011 periods.

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COST OF REVENUES AND GROSS MARGIN
                                 
     
    March 31     Increase     Percentage  
    2011     2010     (Decrease)     Change  
     
Three Months Ended:
                               
Revenues
    $ 41,854       $ 59,395       $ (17,541 )     (30 %)
Cost of Revenues
    31,687       42,516       (10,829 )     (25 %)
             
Gross Margin
    10,167       16,879       (6,712 )     (40 %)
             
Gross Margin Percentage
    24 %     28 %                
 
                               
Six Months Ended:
                               
Revenues
    $ 77,038       $ 93,459       $ (16,421 )     (18 %)
Cost of Revenues
    60,255       64,134       (3,879 )     (6 %)
             
Gross Margin
    16,783       29,325       (12,542 )     (43 %)
             
Gross Margin Percentage
    22 %     31 %                
In addition to the factors detailed below, one of the most significant factors that affects, and should continue to affect, the comparison of our consolidated gross margins from period to period is the change in revenue mix between our segments.
Fine Chemicals. The Fine Chemicals gross margins declined significantly in the Fiscal 2011 second quarter and six-month period, each as compared to the prior fiscal year periods. Production volumes increased during the Fiscal 2011 second quarter. However, gross margin for final product that was sold in the Fiscal 2011 second quarter and six-month period continued to be negatively impacted by the use of intermediate materials that were produced in the Fiscal 2011 first quarter. The Fiscal 2011 first quarter included low production volumes with correspondingly high manufacturing overhead rates. Gross margins for the Fiscal 2011 second quarter were also affected by the implementation of process improvements, in particular related to a significant anti-viral product, most of which were completed late in the Fiscal 2011 second quarter. The favorable impact of these process improvements is not expected to be fully realized until the Fiscal 2011 fourth quarter.
Specialty Chemicals. Specialty Chemicals segment gross margin as a percentage of segment revenues for the Fiscal 2011 second quarter and six-month period declined eleven points and six points, respectively, each compared to the Fiscal 2010 periods. The primary reason for the declines in gross margin is the reduction in AP volume in the Fiscal 2011 periods and the corresponding effects of the volume decline on profits. These effects include increases in manufacturing cost per pound from reduced absorption of fixed manufacturing overhead.
Aerospace Equipment. The Aerospace Equipment segment gross margin percentage for the Fiscal 2011 second quarter and six-month period improved five points and four points, respectively, each compared to the Fiscal 2010 periods. The improvement in gross margin is primarily due to process improvement actions implemented for space propulsion systems contracts. As a result of these actions, cost increases experienced and investments required to keep programs on track in the Fiscal 2010 periods did not recur in the Fiscal 2011 periods.

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OPERATING EXPENSES
                                 
     
    March 31,     Increase     Percentage  
    2011     2010     (Decrease)     Change  
     
Three Months Ended:
                               
Operating Expenses
    $ 11,820       $ 11,444       $ 376       3 %
Percentage of Revenues
    28 %     19 %                
 
                               
Six Months Ended:
                               
Operating Expenses
    $ 23,243       $ 23,751       $ (508 )     (2 %)
Percentage of Revenues
    30 %     25 %                
For our Fiscal 2011 six-month period, operating expenses decreased $508 to $23,243 from $23,751 for the prior fiscal year six-month period. The variances in operating expenses are primarily associated with corporate expenses. Efforts to improve corporate cost efficiency have resulted in cost reductions, primarily in the areas of professional services and travel, of $991 for the Fiscal 2011 six-month period. These savings were partially offset by increases in incentive compensation of $213 and increases in board of directors expenses of $275.
For our Fiscal 2011 second quarter, operating expenses increased $376 to $11,820 from $11,444 for the prior fiscal year second quarter. While corporate expenses have decreased on a year-to-date basis, corporate expenses increased for the Fiscal 2011 second quarter due to a change in timing of costs and services between the first and second quarters. Segment operating expenses were consistent between the Fiscal 2011 and Fiscal 2010 periods.
OTHER OPERATING GAINS
During our Fiscal 2011 second quarter and six-month period, our Fine Chemicals segment reported other operating gains of $1,592 and $2,929 that resulted from the resolution of gain contingencies. The total reported gain of $2,929 is comprised of the following two matters.
We made a series of filings with the County of Sacramento, California, to appeal the assessed values in prior years of our real and personal property located at our Fine Chemical segment’s Rancho Cordova, California facility. During the six months ended March 31, 2011, we received $2,671 for cash property tax refunds resulting from our appeals and the related favorable reassessment of historical property values.
Our Fine Chemicals segment is undertaking several mandatory capital projects. Certain of the capital activities are complete and others are anticipated to be completed during the calendar year 2011. In connection with these projects, our Fine Chemicals held, and continues to hold, negotiations with the former owner of the facilities. During the six months ended March 31, 2011, we received from the former owner cash consideration in the amount of $258 for a limited release of liability of the former owner with respect to one of the completed projects.

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SEGMENT OPERATING INCOME (LOSS)
                                 
     
    March 31,     Favorable     Percentage  
    2011     2010     (Unfavorable)     Change  
     
Three Months Ended:
                               
Fine Chemicals
    $ (838 )     $ 2,500       $ (3,338 )   NM  
Specialty Chemicals
    3,542       6,513       (2,971 )     (46 %)
Aerospace Equipment
    1,407       25       1,382       5,528 %
Other Businesses
    (181 )     69       (250 )   NM  
             
Segment Operating Income
    3,930       9,107       (5,177 )     (57 %)
Corporate Expenses
    (3,991 )     (3,672 )     (319 )     (9 %)
             
Operating Income (Loss)
    $ (61 )     $ 5,435       $ (5,496 )   NM  
             
 
                               
Six Months Ended:
                               
Fine Chemicals
    $ (4,471 )     $ 1,760       $ (6,231 )   NM  
Specialty Chemicals
    7,099       12,344       (5,245 )     (42 %)
Aerospace Equipment
    2,085       (337 )     2,422     NM  
Other Businesses
    (502 )     52       (554 )   NM  
             
Segment Operating Income
    4,211       13,819       (9,608 )     (70 %)
Corporate Expenses
    (7,742 )     (8,245 )     503       6 %
             
Operating Income (Loss)
    $ (3,531 )     $ 5,574       $ (9,105 )   NM  
             
NM=Not meaningful
Segment operating income or loss includes all sales and expenses directly associated with each segment. Environmental remediation charges, corporate general and administrative costs and interest are not allocated to segment operating results. Fluctuations in segment operating income or loss are driven by changes in segment revenues, gross margins and operating expenses. Each significant fluctuation in these items is discussed in greater detail above.
BACKLOG
Agreements with our Fine Chemicals segment customers typically include multi-year supply agreements. These agreements may contain provisional order volumes, minimum order quantities, take-or-pay provisions, termination fees and other customary terms and conditions, which we do not include in our computation of backlog. Fine Chemicals segment backlog includes unfulfilled firm purchase orders received from a customer, including both purchase orders which are issued against a related supply agreement and stand-alone purchase orders. Fine Chemicals segment backlog was $88,100 and $49,700 as of March 31, 2011 and September 30, 2010, respectively. We anticipate order backlog as of March 31, 2011 to be substantially filled during the next twelve months.
Our Aerospace Equipment segment is a government contractor, and accordingly, total backlog includes both funded backlog (contracts, or portions of contracts, for which funding is contractually obligated by the customer) and unfunded backlog (contracts, or portions of contracts, for which funding is not currently contractually obligated by the customer). We compute Aerospace Equipment segment total and funded backlog as the total contract value less revenues that have been recognized under the percentage-of-completion method of accounting. Aerospace Equipment segment total backlog and funded backlog were approximately $54,900 and $49,600 as of March 31, 2011 and $67,900 and $61,100 as of September 30, 2010, respectively. We anticipate the majority of funded backlog as of March 31, 2011 to be completed during the next twelve months, with any remainder to be completed in the fiscal year ending September 30, 2012.
Backlog is not a meaningful measure for our other business lines. While a substantial portion of our anticipated revenues for Fiscal 2011 is currently in our backlog, the timing of our customer product requirements should result in at least a majority of our expected annual revenues for Fiscal 2011 occurring in the second half of the fiscal year.

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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
                                 
     
    Six Months Ended March 31,             Percentage  
    2011     2010     Change     Change  
     
Cash Provided (Used) By:
                               
Operating activities
    $ 16,287       $ 14,594       $ 1,693       12 %
Investing activities
    (7,729 )     (3,588 )     (4,141 )     115 %
Financing activities
    (904 )     (89 )     (815 )     916 %
Effect of changes in exchange rates on cash
    58       (84 )     142     NM  
             
Net change in cash for period
    $ 7,712       $ 10,833       $ (3,121 )     (29 %)
                 
NM=Not meaningful
Operating Cash Flows Operating activities provided cash of $16,287 for the Fiscal 2011 six-month period compared to $14,594 for the prior fiscal year six-month period, an increase of $1,693.
Significant components of the change in cash flow from operating activities include:
 
A decrease in cash due to a decline in the cash profits provided by our operations.
 
 
An increase in cash provided by working capital accounts of $13,050, excluding the effects of interest and income taxes.
 
 
An increase in cash income taxes refunded of $1,501.
 
 
A decrease in cash interest payments of $285.
 
 
An increase in cash used for environmental remediation of $440.
 
 
An increase in cash used to fund pension obligations of $3,066.
 
 
Other decreases in cash provided by operating activities of $116.
Cash provided by working capital during the Fiscal 2011 six-month period increased primarily due to additional customer deposits that resulted from favorable contract terms, as well as collections of accounts receivable balances. These increases were offset partially by funding requirements for growth in inventory levels.
We consider the working capital changes to be routine and within the normal production cycle of our products. The production of most fine chemical products requires a length of time that exceeds one quarter. In addition, the timing of Aerospace Equipment segment revenues recognized under the percentage-of-completion method differs from the timing of the related billings to customers. Therefore, in any given quarter, accounts receivable, work-in-progress inventory or deferred revenues and customer deposits can increase or decrease significantly. We expect that our working capital may vary normally by as much as $10,000 from quarter to quarter.
The increase in cash income taxes refunded is a result of federal income tax carryback claims that were filed and collected in the Fiscal 2011 first quarter.
Cash used to fund pension obligations increased because the return on pension plan assets alone was not sufficient to maintain the minimum funding requirements.
Investing Cash Flows — Capital expenditures of $7,729 for the Fiscal 2011 six-month period reflect an increase of $4,141 from capital expenditures of $3,588 in the Fiscal 2010 six-month period. The increase in capital expenditures relates to our Fine Chemicals segment, and in particular, to additional equipment to support a new three-year core product agreement for the supply of anti-viral products and facilities improvements to enhance quality compliance.
Financing Cash Flows — Cash used for financing activities for the Fiscal 2011 six-month period relates primarily to costs associated with the establishing our asset based lending facility in January 2011.

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LIQUIDITY AND CAPITAL RESOURCES. As of March 31, 2011, we had cash of $31,697. Our primary source of working capital is cash flows from operations. In addition, as of March 31, 2011, we had availability of approximately $17,253 under our asset based lending credit facility which provides for a committed revolving credit line, up to a maximum of $20,000, based on our eligible accounts receivable and inventories. For further discussion of this facility, see below under the heading “ABL Credit Facility”. We believe that changes in cash flow from operations during our fiscal periods reflect short-term timing and as such do not represent significant changes in our sources and uses of cash. Because our revenues, and related customer invoices and collections, are characterized by relatively few individually significant transactions, our working capital balances can vary normally by as much as $10,000 from period to period.
We may incur additional debt to fund capital projects, strategic initiatives or for other general corporate purposes, subject to our existing leverage, the value of our unencumbered assets and borrowing limitations imposed by our lenders. The availability of our cash inflows is affected by the timing, pricing and magnitude of orders for our products. From time to time, we may explore options to refinance our borrowings.
The timing of our cash outflows is affected by payments and expenses related to the manufacture of our products, capital projects, pension funding, interest on our debt obligations and environmental remediation or other contingencies, which may place demands on our short-term liquidity. Although we are not currently party to any material pending legal proceedings, we are from time to time subject to claims and lawsuits related to our business operations and we have incurred legal and other costs as a result of litigation and other contingencies. We may incur material legal and other costs associated with the resolution of litigation and contingencies in future periods, and, to the extent not covered by insurance, they may adversely affect our liquidity.
In contemplating the adequacy of our liquidity and available capital, we consider factors such as:
 
current results of operations, cash flows and backlog;
 
anticipated changes in operating trends, including anticipated changes in revenues and margins;
 
cash requirements related to our debt agreements and pension plans; and
 
cash requirements related to our remediation activities, including amounts that we expect to spend through calendar 2011 for the engineering, design, installation and cost of additional remediation equipment (“Remediation Capital”). See further discussion under the heading “Environmental Remediation — AMPAC Henderson Site” below.
We do not currently anticipate that the factors noted above will have material effects on our ability to meet our future liquidity requirements. We anticipate funding Remediation Capital with cash on hand. We continue to believe that our cash flows from operations, existing cash balances and existing or future debt arrangements will be adequate for the foreseeable future to satisfy the needs of our operations on both a short-term and long-term basis.
LONG TERM DEBT AND CREDIT FACILITIES
Senior Notes. In February 2007, we issued and sold $110,000 aggregate principal amount of 9.0% Senior Notes due February 1, 2015 (collectively, with the exchange notes issued in August 2007 as referenced below, the “Senior Notes”). Proceeds from the issuance of the Senior Notes were used to repay our former credit facilities. The Senior Notes accrue interest at an annual rate of 9.0%, payable semi-annually in February and August. The Senior Notes are guaranteed on a senior unsecured basis by all of our existing and future material U.S. subsidiaries. The Senior Notes are:
 
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;

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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.
The Senior Notes may be redeemed by us, in whole or in part, under the following circumstances:
 
at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the principal amount to be redeemed and reducing to 100% by February 1, 2013; and
 
under certain changes of control, we must offer to purchase the Senior Notes at 101% of their aggregate principal amount, plus accrued interest.
The Senior Notes were issued pursuant to an indenture which contains certain customary events of default, including cross-default provisions if we default under our existing and future debt agreements having, individually or in the aggregate, a principal or similar amount outstanding of at least $10,000, 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.
In connection with the closing of the sale of the Senior Notes, we entered into a registration rights agreement which required us to file a registration statement to offer to exchange the Senior Notes for notes that have substantially identical terms as the Senior Notes and are registered under the Securities Act of 1933, as amended. In July 2007, we filed a registration statement with the SEC with respect to an offer to exchange the Senior Notes as required by the registration rights agreement, which registration statement was declared effective by the SEC. In August 2007, we completed the exchange of 100% of the Senior Notes for substantially identical notes which are registered under the Securities Act of 1933, as amended.
ABL Credit Facility. On January 31, 2011, American Pacific Corporation, as borrower, entered into an asset based lending credit agreement (the “ABL Credit Facility”) with Wells Fargo Bank, National Association, as agent and as lender, and certain domestic subsidiaries of the Company, as guarantors, which provides a secured revolving credit facility in an aggregate principal amount of up to $20,000 at any time outstanding with an initial maturity to be the earlier of (i) January 31, 2015 and (ii) 90 days prior to the maturity date of the Senior Notes, which is February 1, 2015. The ABL Credit Facility also provides for the issuance of new letters of credit with a letter of credit sublimit of $5,000. The maximum borrowing availability under the ABL Credit Facility is based upon a percentage of our eligible account receivables and eligible inventories. We may prepay and terminate the ABL Credit Facility at any time, without premium or penalty. The ABL Credit Facility contains certain mandatory prepayment provisions. The annual interest rates applicable to loans under the ABL Credit Facility will be, at our option, either at a Base Rate or LIBOR Rate (each as defined in the ABL Credit Facility) plus, in each case, an applicable margin of 2.50 percentage points. In addition, we will pay commitment fees, other fees related to the issuance and maintenance of the letters of credit, and certain agency fees.

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The ABL Credit Facility is guaranteed by our current and future domestic subsidiaries and is secured by substantially all of our assets and the assets of our current and future domestic subsidiaries, subject to certain exceptions as set forth in the ABL Credit Facility. The ABL Credit Facility contains certain negative covenants, subject to customary exceptions and exclusions, restricting and limiting our ability to, among other things:
 
incur debt, incur contingent obligations and issue certain types of preferred stock, or prepay certain debt;
 
create liens;
 
pay dividends, distributions or make other specified restricted payments;
 
make certain investments and acquisitions;
 
enter into certain transactions with affiliates;
 
enter into sale and leaseback transactions; and
 
merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.
The ABL Credit Facility also contains financial covenants which are only triggered by utilization of the ABL Credit Facility and borrowing availability not exceeding a designated threshold amount. If the financial covenants are triggered, then we would be subject to the following financial covenants:
 
Minimum EBITDA. We would be required to achieve a minimum level of EBITDA for the twelve month period then ended. This covenant may become applicable through September 30, 2011.
 
Fixed Charge Coverage Ratio. We would be required to maintain a minimum fixed charge coverage ratio on a rolling trailing 12 month basis of at least 1.10:1.00. This covenant may become applicable beginning with the 12 month period ending October 31, 2011 and through the remaining term of the ABL Credit Facility.
 
Maximum Capital Expenditures. The ABL Credit Facility limits our capital expenditures in any fiscal year to amounts set forth in the ABL Credit Facility.
The ABL Credit Facility also contains usual and customary events of default (in some cases, subject to certain threshold amounts and grace periods), including cross-default provisions that include the Senior Notes. If an event of default occurs and is continuing, we may be required to repay the obligations under the ABL Credit Facility prior to the ABL Credit Facility’s stated maturity and the related commitments may be terminated.
On March 31, 2011, under the ABL Credit Facility, we had no outstanding borrowings, had availability of $17,253, and were not subject to compliance with the financial covenants.
Letters of Credit. As of March 31, 2011, we had $1,670 in outstanding standby letters of credit which mature through July 2015. These letters of credit principally secure performance of certain water treatment equipment sold by us and payment of fees associated with the delivery of natural gas and power. The letters of credit are collateralized by cash on deposit with the issuing bank in the amount of 105% of the outstanding letters of credit. Collateral deposits are classified as other assets on our consolidated balance sheets.
PENSION BENEFITS. We maintain three defined benefit pension plans which cover substantially all of our U.S. employees, excluding employees of our Aerospace Equipment segment: the Amended and Restated American Pacific Corporation Defined Benefit Pension Plan, the Ampac Fine Chemicals LLC Pension Plan for Salaried Employees, and the Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit Employees, each as amended to date. Collectively, these three plans are referred to as the “Pension Plans”. In May 2010, our board of directors approved amendments to our Pension Plans which effectively closed the Pension Plans to participation by any new employees. Retirement benefits for existing U.S. employees and retirees through June 30, 2010 are not affected by this change. Beginning July 1, 2010, new U.S. employees will participate solely in one of the Company’s 401(k) plans. Pension Plan benefits are paid based on an average of earnings, retirement age, and length of service, among other factors.

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Benefit obligations are measured annually as of September 30. As of September 30, 2010, the Pension Plans had an unfunded benefit obligation of $30,005. For Fiscal 2010, we made contributions to the Pension Plans in the amount of $3,300. We anticipate making Pension Plan contributions in the amount of $5,823 during Fiscal 2011. We are required to make minimum contributions to our Pension Plans pursuant to the minimum funding requirements of the Internal Revenue Code of 1986, as amended, and the Employee Retirement Income Security Act of 1974, as amended. In accordance with federal requirements, our minimum funding obligations are determined annually based on a measurement date of October 1. The fair value of Pension Plan assets is a key factor in determining our minimum funding obligations. Holding all other variables constant, a 10% decline in asset value as of September 30, 2010 would increase our minimum funding obligations for Fiscal 2011 by approximately $200.
In addition, we maintain the American Pacific Corporation Supplemental Executive Retirement Plan, as amended and restated (the “SERP”) that includes five participants comprised of active and former executive officers. The SERP is an unfunded plan and as of September 30, 2010, the SERP obligation was $7,683. For Fiscal 2010, we paid SERP retirement benefits of $427. We anticipate contributing the amount of $527 to the SERP during Fiscal 2011 for the payment of retirement benefits. Payments for retirement benefits should increase in future years when each of the three current active participants retires. The future increase in such retirement benefits will be determined based on certain variables including each participating individual’s actual retirement date, rate of compensation and years of service.
During Fiscal 2010, our aggregate Pension Plans and SERP liability increased significantly primarily due to changes in actuarial assumption such as the discount rate. The change was recorded as an increase in Pension Obligations and a corresponding decrease in Shareholders’ Equity (Accumulated Other Comprehensive Loss). The effect of the change in the discount rate increased our anticipated Fiscal 2011 funding requirements by approximately $2,800.
ENVIRONMENTAL REMEDIATION – AMPAC HENDERSON SITE. During the third quarter of our fiscal year ended September 30, 2005, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at our former perchlorate chemicals manufacturing facility in Henderson, Nevada (the “AMPAC Henderson Site”), including the costs for capital equipment, operating and maintenance (“O&M”), and consultants. The project consisted of two primary phases: the initial construction of the remediation equipment phase and the O&M phase. During the fiscal year ended September 30, 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.
Late in the fiscal year ended September 30, 2009 (“Fiscal 2009”), we gained additional information from groundwater modeling that indicates groundwater emanating from the AMPAC Henderson Site in certain areas in deeper zones (more than 150 feet below ground surface) is moving toward our existing remediation facility at a much slower pace than previously estimated. Utilization of our existing facilities alone, at this lower groundwater pace, could, according to this more recently created groundwater model, extend the life of our remediation project to well in excess of fifty years. As a result of this additional data, related model interpretations and consultations with the Nevada Division of Environmental Protection, we re-evaluated our remediation operations at the end of Fiscal 2009 and during Fiscal 2010 as new data was generated. This evaluation indicates that we should be able to significantly reduce the total project time, and ultimately the total cost of the project, by installing additional groundwater extraction wells in the deeper, more concentrated areas, thereby providing for a more aggressive remediation treatment. The additional wells and related remediation equipment will incorporate above ground treatment to supplement or possibly replace by consolidation our existing in situ bioremediation process. With the additional extraction wells and equipment, we estimated that the total remaining project life for the existing and new, more aggressive deep zone systems could range from 10 to 29 years, beginning with Fiscal 2010. Within that range, we estimated that a range of 13 to 23 years is more likely. Groundwater speed, perchlorate concentrations, aquifer characteristics and forecasted groundwater extraction rates continue to be key variables underlying our estimate of the life of the project and these variables are

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updated on a regular basis. If additional information becomes available in the future that lead to a different interpretation of the model, thereby dictating a change in equipment and operations, our estimate of the resulting project life could change significantly.
In our Fiscal 2009 fourth quarter, we accrued approximately $9,600 representing our estimate of the cost to engineer, design, and install this additional equipment. We anticipate that these amounts will be spent through and the new equipment will be operational by 2012. We are in the pre-construction, design and engineering steps, and as a result, this estimate involves a number of significant assumptions. Due to uncertainties inherent in making estimates, our estimate may later require significant revision as new facts become available and circumstances change.
In addition to accruing approximately $9,600 for engineering, design, installation and cost of additional equipment, in our Fiscal 2009 fourth quarter, we increased our estimate of total remaining O&M costs by $4,100 due primarily to incremental O&M costs to operate and maintain the additional equipment once installed. Total O&M expenses are currently estimated at approximately $1,000 per year and estimated to increase to approximately $1,300 per year after the additional equipment becomes operational. To estimate O&M costs, we consider, among other factors, the project scope and historical expense rates to develop assumptions regarding labor, utilities, repairs, maintenance supplies and professional services costs. If additional information becomes available in the future that is different than information currently available to us and thereby leads us to different conclusions, our estimate of O&M expenses could change significantly.
In addition, 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.
As of March 31, 2011, the aggregate range of anticipated environmental remediation costs was from approximately $18,700 to approximately $42,600. This range represents a significant estimate and is based on the estimable elements of cost for engineering, design, and equipment and an estimated remaining operating life of the project through a range from the years 2019 to 2038. As of March 31, 2011, the accrued amount was $22,451, based on an estimated remaining life of the project through the year 2022, or the low end of the more likely range of the expected life of the project. Cost estimates for engineering, design and equipment are based on our preliminary assessments of the facility configuration. As we proceed with the more detailed engineering of the project, we have, and may in the future, become aware of elements of the preliminary facility configuration that must be changed to meet the targeted operational requirements. Certain of these changes may result in corresponding increases in costs. Costs associated with the changes are accrued when a reasonable alternative, or range of alternatives, is identified and the cost of such alternative is estimable. As of the date of this filing, we have identified several design change requirements which are under evaluation to determine a reasonable solution. Our estimated reserve for environmental remediation is 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.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires that we adopt accounting policies and 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.
Application of the critical accounting policies discussed below requires significant judgment, often as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ materially from the estimates made, the reported results could be materially affected. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.

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SALES AND REVENUE RECOGNITION. Revenues from our Specialty Chemicals segment, Fine Chemicals segment, and Other Businesses segment are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, title passes, the price is fixed or determinable and collectability is reasonably assured. Almost all products sold by our Fine Chemicals segment are subject to customer acceptance periods. Specifically, these customers have contractually negotiated acceptance periods from the time they receive certificates of analysis and compliance (“Certificates”) to reject the material based on issues with the quality of the product, as defined in the applicable agreement. At times we receive payment in advance of customer acceptance. If we receive payment in advance of customer acceptance, we record deferred revenues and deferred costs of revenue upon delivery of the product and recognize revenues in the period when the acceptance period lapses or the customer’s acceptance has occurred.
Some of our perchlorate and fine chemicals products customers have requested that we store materials purchased from us in our facilities (“Bill and Hold” transactions or arrangements). We recognize revenue prior to shipment of these Bill and Hold transactions when we have satisfied the applicable revenue recognition criteria, 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. For our Bill and Hold arrangements that contain customer acceptance periods, we record deferred revenues and deferred costs of revenues when such products are available for delivery and Certificates have been delivered to the customers. We recognize revenue on our Bill and Hold transactions in the period when the acceptance period lapses or the customer’s acceptance has occurred. The sales value of inventory, subject to Bill and Hold arrangements, at our facilities was $16,517 and $19,606 as of March 31, 2011 and September 30, 2010, respectively.
Revenues from our Aerospace Equipment segment are derived from contracts that are accounted for using the percentage-of-completion method and measure progress on a cost-to-cost basis. Contract revenues include change orders and claims when approved by the customer. 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. We do not incur material pre-contract costs.
DEPRECIABLE OR AMORTIZABLE LIVES OF LONG-LIVED ASSETS. Our depreciable or amortizable long-lived assets include property, plant and equipment and intangible assets, which are recorded at cost. Depreciation or amortization is recorded using the straight-line method over the shorter of the asset’s estimated economic useful life or the lease term, if the asset is subject to a capital lease. Economic useful life is the duration of time that we expect the asset to be productively employed by us, which may be less than its physical life. Significant assumptions that affect the determination of estimated economic useful life include: wear and tear, obsolescence, technical standards, contract life, and changes in market demand for products.
The estimated economic useful life of an asset is monitored to determine its appropriateness, especially in light of changed business circumstances. For example, changes in technological advances, changes in the estimated future demand for products, or excessive wear and tear may result in a shorter estimated useful life than originally anticipated. In these cases, we would depreciate the remaining net book value over the new estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. Likewise, if the estimated useful life is increased, the adjustment to the useful life decreases depreciation expense per year on a prospective basis.
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. To test for recovery, we group assets (an “Asset Group”) in a manner that represents the lowest

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level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Our Asset Groups are typically identified by facility because each facility has a unique cost overhead and general and administrative expense structure that is supported by cash flows from products produced at the facility. The carrying amount of an Asset Group 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 Group.
If we determine that an Asset Group is not recoverable, then we would record an impairment charge if the carrying value of the Asset Group exceeds its fair value. Fair value is based on estimated discounted future cash flows expected to be generated by the Asset Group. The assumptions underlying cash flow projections would represent management’s best estimates at the time of the impairment review. Some of the factors that management would consider or estimate include: industry and market conditions, sales volume and prices, costs to produce and inflation. Changes in key assumptions or actual conditions which differ from estimates could result in an impairment charge. We would use reasonable and supportable assumptions when performing impairment reviews but cannot predict the occurrence of future events and circumstances that could result in impairment charges.
When we review Asset Groups for recoverability, we also consider depreciation estimates and methods or the amortization period, in each case as required by applicable accounting standards. Any revision to the remaining useful life of a long-lived asset resulting from that review also is considered in developing estimates of future cash flows used to test the Asset Group for recoverability.
GOODWILL. Goodwill is not amortized. We test goodwill for impairment at the reporting unit level on an annual basis, as of September 30, or more frequently if an event occurs or circumstances change that indicate that the fair value of a reporting unit could be below its carrying amount. The impairment test consists of comparing the fair value of a reporting unit with its carrying amount including goodwill, and, if the carrying amount of the reporting unit exceeds its fair value, comparing the implied fair value of goodwill with its carrying amount. An impairment loss would be recognized for the carrying amount of goodwill in excess of its implied fair value.
ENVIRONMENTAL COSTS. We are subject to environmental regulations that relate to our past and current operations. We record liabilities for environmental remediation costs when our assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. On a quarterly basis, we review our estimates of future costs that could be incurred for remediation activities. In some cases, only a range of reasonably possible costs can be estimated. In establishing our reserves, the most probable estimate is used; otherwise, we accrue the minimum amount of the range. Estimates of liabilities are based on currently available facts, existing technologies and presently enacted laws and regulations. These estimates are subject to revision in future periods based on actual costs or new circumstances. Accrued environmental remediation costs include the undiscounted cost of equipment, operating and maintenance costs, and fees to outside law firms and consultants, for the estimated duration of the remediation activity. Estimating environmental cost requires us to exercise substantial judgment regarding the cost, effectiveness and duration of our remediation activities. Actual future expenditures could differ materially from our current estimates.
We evaluate potential claims for recoveries from other parties separately from our estimated liabilities. We record an asset for expected recoveries when recoveries of the amounts are probable.
INCOME TAXES. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured, separately for each tax-paying entity in each tax jurisdiction, using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

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When measuring deferred tax assets, we assess whether a valuation allowance should be established. A valuation allowance is established if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The assessment of valuation allowance requirements, if any, involves significant estimates regarding the timing and amount of reversal of taxable temporary differences, future taxable income and the implementation of tax planning strategies. We rely on deferred tax liabilities in our assessment of the realizability of deferred tax assets if the temporary timing difference is anticipated to reverse in the same period and jurisdiction and the deferred tax liabilities are of the same character as the temporary differences giving rise to the deferred tax assets. We weigh both positive and negative evidence in determining whether it is more likely than not that a valuation allowance is required.
As of September 30, 2010, recovery of our U.S. jurisdiction deferred tax assets, net of applicable deferred tax liabilities, required that we generate approximately $75,000 in taxable income in periods ranging from one to at least 12 years in the future. To determine whether a valuation allowance is required, we project our future taxable income. The projections require us to make assumptions regarding our product revenues, gross margins and operating expenses.
For our U.S. tax jurisdictions, the most significant positive evidence is our historical long-term trend of profitable operations and our forecast that such trend will continue in future periods when temporary differences are anticipated to reverse. Positive evidence also includes the lack of reliance on success in implementing tax planning strategies, utilization of short carry-back periods or appreciated asset values. Further, we do not have a history of tax credits expiring unused. For foreign tax jurisdictions, the most compelling negative evidence is a history of unprofitable operations. Accordingly, we have fully reserved our foreign deferred tax assets.
We account for uncertain tax positions in accordance with an accounting standard which creates a single model to address uncertainty in income tax positions and prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The standard also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Under this standard, we may recognize tax benefits from an uncertain position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement. Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed.
PENSION BENEFITS. We sponsor four defined benefit pension plans in various forms for employees who meet eligibility requirements. Applicable accounting standards require that we make assumptions and use statistical variables in actuarial models to calculate our pension obligations and the related periodic pension expense. The most significant assumptions are the discount rate and the expected rate of return on plan assets. Additional assumptions include the future rate of compensation increases, which is based on historical plan data and assumptions on demographic factors such as retirement, mortality and turnover. Depending on the assumptions selected, pension expense could vary significantly and could have a material effect on reported earnings. The assumptions used can also materially affect the measurement of benefit obligations.
The discount rate is used to estimate the present value of projected future pension payments to all participants. The discount rate is generally based on the yield on AAA/AA-rated corporate long-term bonds. At September 30 of each year, the discount rate is determined using bond yield curve models matched with the timing of expected retirement plan payments. Our discount rate assumption was 5.80 percent as of September 30, 2010. Holding all other assumptions constant, a hypothetical increase or decrease of 25 basis points in the discount rate assumption would increase or decrease annual pension expense by approximately $400.

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The expected long-term rate of return on plan assets represents the average rate of earnings expected on the plan funds invested in a specific target asset allocation. The expected long-term rate of return assumption on pension plan assets was 8.00 percent in Fiscal 2010. Holding all other assumptions constant, a hypothetical 25 basis point increase or decrease in the assumed long-term rate of return would increase or decrease annual pension expense by approximately $100.
RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS. In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-17, which provides guidance on defining a milestone under Topic 605 and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. Milestones should be considered substantive in their entirety and may not be bifurcated. An arrangement may contain both substantive and nonsubstantive milestones that should be evaluated individually. This standard became effective for us beginning on October 1, 2010. The adoption of this standard did not have a material impact on our results of operations, financial position or cash flows.
In December 2010, the FASB issued ASU No. 2010-28 that affects entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in the ASU modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This standard is effective for us beginning on October 1, 2011. The adoption of this standard is not expected to have a material impact on our results of operations, financial position or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation as of March 31, 2011, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of such date to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Although we are not currently party to any material pending legal proceedings, we are from time to time subject to claims and lawsuits related to our business operations. Any such claims and lawsuits could be costly and time consuming and could divert our management and key personnel from our business operations. In connection with any such claims and lawsuits, we may be subject to significant damages or equitable remedies relating to the operation of our business. Any such claims and lawsuits may materially harm our business, results of operations and financial condition.
ITEM 1A. RISK FACTORS (Dollars in Thousands)
This description includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2010 (“Fiscal 2010”) and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended December 30, 2010.
We depend on a limited number of customers for most of our sales in our Specialty Chemicals, Aerospace Equipment and Fine Chemicals segments and the loss of one or more of these customers could have a material adverse effect on our financial position, results of operations and cash flows.
Most of the perchlorate chemicals we produce, which accounted for 90% of our total revenues in the Specialty Chemicals segment for Fiscal 2010 and approximately 32% of our total revenues for Fiscal 2010, are purchased by two customers. Should our relationship with one or more of our major Specialty Chemicals or Aerospace Equipment customers change adversely, the resulting loss of business could have a material adverse effect on our financial position, results of operations and cash flows. In addition, if one or more of our major Specialty Chemicals or Aerospace Equipment customers substantially reduced their volume of purchases from us or otherwise delayed some or all of their purchases from us, it could have a material adverse effect on our financial position, results of operations and cash flows. Should one of our major Specialty Chemicals or Aerospace Equipment customers encounter financial difficulties, the exposure on uncollectible receivables and unusable inventory could have a material adverse effect on our financial position, results of operations and cash flows.
Furthermore, our Fine Chemicals segment’s success is largely dependent upon the manufacturing by Ampac Fine Chemicals LLC (“AFC”) of a limited number of registered intermediates and active pharmaceutical ingredients for a limited number of key customers. One customer of AFC accounted for 18% of our consolidated revenue and the top four customers of AFC accounted for approximately 85% of its revenues, and 34% of our consolidated revenues, in Fiscal 2010. Negative development in these customer relationships or in the customer’s business, or failure to renew or extend certain contracts, may have a material adverse effect on the results of operations of AFC. Moreover, from time to time key customers have reduced their orders, and one or more of these customers might reduce their orders in the future, or one or more of them may attempt to renegotiate prices, any of which could have a similar negative effect on the results of operations of AFC. For example, in Fiscal 2010, Fine Chemicals segment revenues declined as compared to the fiscal year ended September 30, 2009 (“Fiscal 2009”), in part due to reductions in orders from certain primary customers for our core products. In addition, if the pharmaceutical products that AFC’s customers produce using its compounds experience any problems, including problems related to their safety or efficacy, delays in filing with or approval by the U.S. Food and Drug Administration, or “FDA”, failures in achieving success in the market, expiration or loss of patent/regulatory protection, or competition, including competition from generic drugs, these customers may substantially reduce or cease to purchase AFC’s compounds, which could have a material adverse effect on the revenues and results of operations of AFC.

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The inherent limitations of our fixed-price or similar contracts may impact our profitability.
A substantial portion of our revenues are derived from our fixed-price or similar contracts. When we enter into fixed-price contracts, we agree to perform the scope of work specified in the contract for a predetermined price. Many of our fixed-price or similar contracts require us to provide a customized product over a long period at a pre-established price or prices for such product. For example, when AFC is initially engaged to manufacture a product, we often agree to set the price for such product, and any time-based increases to such price, at the beginning of the contracting period and prior to fully testing and beginning the customized manufacturing process. Depending on the fixed price negotiated, these contracts may provide us with an opportunity to achieve higher profits based on the relationship between our total estimated contract costs and the contract’s fixed price. However, we bear the risk that increased or unexpected costs, or external factors that may impact contract costs, fixed prices or profit yields, such as fluctuations in international currency exchange rates, may reduce our profit or cause us to incur a loss on the contract, which could reduce our net sales and net earnings. Ultimately, fixed-price contracts and similar types of contracts present the inherent risk of un-reimbursed cost overruns and unanticipated external factors that negatively impact contract costs, fixed prices or profit yields, any of which could have a material adverse effect on our operating results, financial condition, or cash flows. Moreover, to the extent that we do not anticipate the increase in cost or the effect of external factors over time on the production or pricing of the products which are the subject of our fixed-price contracts, our profitability could be adversely affected.
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.
The nature of our operations subject us to extensive and often complex and frequently changing federal, state, local and foreign laws and regulations and regulatory oversight, including with respect to emissions to air, discharges to water and waste management as well as with respect to the sale and, in certain cases, export of controlled products. For example, in our Fine Chemicals segment, modifications, enhancements or changes in manufacturing sites of approved products are subject to complex regulations of the FDA, and, in many circumstances, such actions may require the express approval of the FDA, which in turn may require a lengthy application process and, ultimately, may not be obtainable. The facilities of AFC are periodically subject to scheduled and unscheduled inspection by the FDA and other governmental agencies. Operations at these facilities could be interrupted or halted if such inspections are unsatisfactory and we could experience fines and/or other regulatory actions if we are found not to be in regulatory compliance. AFC’s customers face similarly high regulatory requirements. Before marketing most drug products, AFC’s customers generally are required to obtain approval from the FDA based upon pre-clinical testing, clinical trials showing safety and efficacy, chemistry and manufacturing control data, and other data and information. The generation of these required data is regulated by the FDA and can be time-consuming and expensive, and the results might not justify approval. Even if AFC’s customers are successful in obtaining all required pre-marketing approvals, post-marketing requirements and any failure on either AFC’s or its customer’s part to comply with other regulations could result in suspension or limitation of approvals or commercial activities pertaining to affected products.
Because we operate in highly regulated industries, we may be affected significantly by legislative and other regulatory actions and developments concerning or impacting various aspects of our operations and products or our customers. To meet changing licensing and regulatory standards, we may be required to make additional significant site or operational modifications, potentially involving substantial expenditures or the reduction or suspension of certain operations. For example, in our Fine Chemicals segment, any regulatory changes could impose on AFC or its customers changes to manufacturing methods or facilities, pharmaceutical importation, expanded or different labeling, new approvals, the recall, replacement or discontinuance of certain products, additional record keeping, testing, price or purchase controls or limitations, and expanded documentation of the properties of certain products and scientific substantiation. AFC’s failure to comply with governmental regulations, in particular those of the FDA, can

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result in fines, unanticipated compliance expenditures, recall or seizure of products, delays in, or total or partial suspension or withdrawal of, approval of production or distribution, suspension of the FDA’s review of relevant product applications, termination of ongoing research, disqualification of data for submission to regulatory authorities, enforcement actions, injunctions and criminal prosecution. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Although we have instituted internal compliance programs, if regulations or the standards by which they are enforced change and/or compliance is deficient in any significant way, such as a failure to materially comply with the FDA’s current Good Manufacturing Practices or “cGMP” guidelines, or if a regulatory authority asserts publically or otherwise such a deficiency or takes action against us whether or not the underlying asserted deficiency is ultimately found to be sustainable, it could have a material adverse effect on us. In our Specialty Chemicals and Fine Chemicals segments, changes in environmental regulations could result in requirements to add or modify emissions control, water treatment, or waste handling equipment, processes or arrangements, which could impose significant additional costs for equipment at and operation of our facilities.
Moreover, in other areas of our business, we, like other government and military contractors and subcontractors, are subject directly or indirectly in many cases to government contracting regulations and the additional costs, burdens and risks associated with meeting these heightened contracting requirements. Failure to comply with government contracting regulations may result in contract termination, the potential for substantial civil and criminal penalties, and, under certain circumstances, our suspension and debarment from future U.S. government contracts for a period of time. For example, these consequences could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting standards, receiving or paying kickbacks or filing false claims. In addition, the U.S. government and its principal prime contractors periodically investigate the U.S. government’s contractors and subcontractors, including with respect to financial viability, as part of the U.S. government’s risk assessment process associated with the award of new contracts. Consequently, for example, if the U.S. government or one or more prime contractors were to determine that we were not financially viable, our ability to continue to act as a government contractor or subcontractor would be impaired. Further, a portion of our business involves the sale of controlled products overseas, such as supplying ammonium perchlorate, or “AP”, to various foreign defense programs and commercial space programs. Foreign sales subject us to numerous additional complex U.S. and foreign laws and regulations, including laws and regulations governing import-export controls applicable to the sale and export of munitions and other controlled products and commodities, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act, and the anti-boycott provisions of the U.S. Export Administration Act. The costs of complying with the various and often complex and frequently changing laws and regulations and regulatory oversight applicable to us and the businesses in which we engage, and the consequences should we fail to comply, even inadvertently, with such requirements, could be significant and could reduce our profitability and liquidity.
In addition, we are subject to numerous federal laws and regulations due to our status as a publicly traded company, as well as rules and regulations of The NASDAQ Stock Market LLC. Any changes in these legal and regulatory requirements could increase our compliance costs and negatively affect our results of operations.
A significant portion of our business depends on contracts with the government or its prime contractors or subcontractors and these contracts are impacted by governmental priorities and are subject to potential fluctuations in funding or early termination, including for convenience, any of which could have a material adverse effect on our operating results, financial condition or cash flows.
Sales to the U.S. government and its prime contractors and subcontractors represent a significant portion of our business. In Fiscal 2010, our Specialty Chemicals segment generated approximately 29% of consolidated revenues, primarily sales of Grade I AP, and our Aerospace Equipment segment generated approximately 5% of consolidated revenues, each from sales to the U.S. government, its prime contractors and subcontractors. One significant use of Grade I AP historically has been in NASA’s Space

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Shuttle program. Consequently, the long-term demand for Grade I AP may be driven by the timing of the retirement of the Space Shuttle fleet as well as by the development of next-generation space exploration vehicles, including the development and testing of a new heavy launch vehicle used to transport materials and supplies to the International Space Station, and potentially elsewhere, and the number of space exploration launches. Accordingly, demand for AP remains subject to potential changes in space exploration program direction and budgetary restrictions, which may result in changes in next-generation space exploration vehicles and the timing associated with their development. If the use of AP as the oxidizing agent for solid propellant rockets or the use of solid propellant rockets in NASA’s space exploration programs are discontinued or significantly reduced, it could have a material adverse effect on our operating results, financial condition, or cash flows.
The funding of U.S. governmental programs is generally subject to annual congressional appropriations, and congressional priorities are subject to change. In the case of major programs, U.S. government contracts are usually incrementally funded. In addition, U.S. government expenditures for defense and NASA programs may fluctuate from year to year and specific programs, in connection with which we may receive significant revenue, may be terminated or curtailed. Recent economic crises, and the U.S. government’s corresponding actions, may result in cutbacks in major government programs. A decline in government expenditures or any failure by Congress to appropriate additional funds to any program in which we or our customers participate, or any contract modification as a result of funding changes, could materially delay or terminate the program for us or for our customers. Moreover, the U.S. government may terminate its contracts with its suppliers either for its convenience or in the event of a default by the supplier. Since a significant portion of our customer base is either the U.S. government or U.S. government contractors or subcontractors, we may have limited ability to collect fully on our contracts when the U.S. government terminates its contracts. If a contract is terminated by the U.S. government for convenience, recovery of costs typically would be limited to amounts already incurred or committed, and our profit would be limited to work completed prior to termination. Moreover, in such situations where we are a subcontractor, the U.S. government contractor may cease purchasing our products if its contracts are terminated. We may have resources applied to specific government-related contracts and, if any of those contracts were terminated, we may incur substantial costs redeploying these resources. Given the significance to our business of U.S. government contracts or contracts based on U.S. government contracts, fluctuations or reductions in governmental funding for particular governmental programs and/or termination of existing governmental programs and related contracts may have a material adverse effect on our operating results, financial condition or cash flow.
We may be subject to potentially material costs and liabilities in connection with environmental or health matters.
Some of our operations may create risks of adverse environmental and health effects, any of which might not be covered by insurance. In the past, we have been required to take remedial action to address particular environmental and health concerns identified by governmental agencies in connection with the production of perchlorate. It is possible that we may be required to take further remedial action in the future in connection with our production of perchlorate, whether at our former facility in Henderson, Nevada, or at our current production facility in Iron County, Utah, or we may enter voluntary agreements with governmental agencies to take such actions. Moreover, in connection with other operations, we may become obligated in the future for environmental liabilities if we fail to abide by limitations placed on us by governmental agencies. There can be no assurance that material costs or liabilities will not be incurred or restrictions will not be placed upon us in order to rectify any past or future occurrences related to environmental or health matters. Such material costs or liabilities, or increases in, or charges associated with, existing environmental or health-related liabilities, also may have a material adverse effect on our operating results, earnings or financial condition.
Review of Perchlorate Toxicity by the EPA. Currently, perchlorate is on the EPA’s Contaminant Candidate List 3. In February 2011, the EPA announced that it had determined to move forward with the development of a regulation for perchlorates in drinking water, reversing its October 2008 preliminary determination not to promulgate such a regulation. Accordingly, the EPA announced its intention to begin to evaluate the feasibility and affordability of treatment technologies to remove perchlorate and to

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examine the costs and benefits of potential standards. The EPA stated that its intention is to publish a proposed regulation and analyses for public review and comment within 24 months, and, if a regulation is adopted, to promulgate a final regulation within 18 months after publication of its proposal. Regulatory review and anticipated regulatory actions present general business risk to the Company, but no regulatory proposal of the EPA or any state in which we operate, to date, has been publicly announced that we believe would have a material effect on our results of operations and financial position or that would cause us to significantly modify or curtail our business practices, including our remediation activities discussed below. However, the outcome of the federal EPA action, as well as any similar state regulatory action, will influence the number, if any, of potential sites that may be subject to remediation action, which could, in turn, cause us to incur material costs. It is possible that federal and, potentially, one or more state or local regulatory agencies may change existing, or establish new, standards for perchlorate, which could lead to additional expenditures for environmental remediation in the future, and/or additional, potentially material costs to defend against new claims resulting from such regulatory agency actions.
Perchlorate Remediation Project in Henderson, Nevada. We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada, or the “AMPAC Henderson Site,” until May 1988. In 1997, the Southern Nevada Water Authority, or 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, or NDEP, we engaged in an investigation of groundwater near the AMPAC Henderson Site and down gradient toward the Las Vegas Wash. 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. In the fiscal year ended September 30, 2005 (“Fiscal 2005”), we submitted a work plan to NDEP for the construction of a remediation facility near the AMPAC Henderson Site. The permanent plant began operation in December 2006. Late in Fiscal 2009, we gained additional information from groundwater modeling that indicates groundwater emanating from the AMPAC Henderson Site in certain areas in deeper zones (more than 150 feet below ground surface) is moving toward our existing remediation facility at a much slower pace than previously estimated. As a result of this additional data and related model interpretations, we re-evaluated our existing remediation operations and, working with NDEP, installed additional groundwater extraction wells in the deeper, more concentrated areas, thereby providing for a more aggressive remediation treatment. We currently anticipate that related new equipment including such extraction wells will become operational by 2012.
Henderson Site Environmental Remediation Reserve. During Fiscal 2005 and the fiscal year ended September 30, 2006, we recorded charges totaling $26,000 representing our estimate of the probable costs of our remediation efforts at the AMPAC Henderson Site, including the costs for capital equipment, operating and maintenance (“O&M”), and consultants. The project consisted of two primary phases: the initial construction of the remediation equipment phase and the O&M phase. We commenced the construction phase in late Fiscal 2005, completed an interim system in June 2006, and completed the permanent facility in December 2006. In the fiscal year ended September 30, 2007, we began the O&M phase. Following the receipt of new data regarding groundwater movement and our determination in late Fiscal 2009 to install additional groundwater extraction wells, we increased our accruals by approximately $9,600 for the engineering, design, installation and cost of additional remediation equipment. We separately increased our accruals by $4,100 for our estimate of total remaining O&M costs, due primarily to incremental O&M costs to operate and maintain the additional equipment once installed. The amount of $13,700, representing the sum of the estimated costs for the additional equipment and the anticipated incremental O&M costs, was recorded as a charge to earnings in our Fiscal 2009 fourth quarter. For future periods, total O&M expenses are currently estimated at approximately $1,000 per year and estimated to increase to approximately $1,300 per year after the additional above-ground remediation equipment becomes operational. With the additional extraction wells and equipment, we estimated that the total remaining project life for the existing and new, more aggressive deep zone systems could range from 10 to 29 years, beginning with Fiscal 2010. Within that range, we estimated that a range of 13 to 23 years is more likely. We are unable to predict over the longer term the most probable life. Key factors

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in determining the total estimated cost of our remediation efforts include groundwater speed, perchlorate concentrations, aquifer characteristics and forecasted groundwater extraction rates and annual O&M costs.
As of March 31, 2011, the aggregate range of anticipated environmental remediation costs was from approximately $18,700 to approximately $42,600. This range represents a significant estimate and is based on the estimable elements of cost for engineering, design, and equipment and an estimated remaining operating life of the project through a range from the years 2019 to 2038. As of March 31, 2011, the accrued amount was $22,451, based on an estimated remaining life of the project through the year 2022, or the low end of the more likely range of the expected life of the project. Cost estimates for engineering, design and equipment are based on our preliminary assessments of the facility configuration. As we proceed with the more detailed engineering of the project, we have, and may in the future, become aware of elements of the preliminary facility configuration that must be changed to meet the targeted operational requirements. Certain of these changes may result in corresponding increases in costs. Costs associated with the changes are accrued when a reasonable alternative, or range of alternatives, is identified and the cost of such alternative is estimable. As of the date of this filing, we have identified several design change requirements which are under evaluation to determine a reasonable solution. Our estimated reserve for environmental remediation is 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.
Other Environmental Matters. As part of our acquisition of the fine chemicals business of GenCorp Inc., AFC leased approximately 240 acres of land on a Superfund site in Rancho Cordova, California, owned by Aerojet-General Corporation, a wholly-owned subsidiary of GenCorp Inc. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, has very strict joint and several liability provisions that make any “owner or operator” of a “Superfund site” a “potentially responsible party” for remediation activities. AFC could be considered an “operator” for purposes of CERCLA and, in theory, could be a potentially responsible party for purposes of contribution to the site remediation, although we received a letter from the EPA in November 2005 indicating that the EPA does not intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the Aerojet property for existing contamination, provided that the lessees do not contribute to or do not exacerbate existing contamination on or under the Superfund site. Additionally, pursuant to the EPA consent order governing remediation for this site, AFC will have to abide by certain limitations regarding construction and development of the site which may restrict AFC’s operational flexibility and require additional substantial capital expenditures that could negatively affect the results of operations for AFC.
Although we have established an environmental reserve for remediation activities in Henderson, Nevada, given the many uncertainties involved in assessing environmental liabilities, our environmental-related risks may from time to time exceed any related reserves.
As of March 31, 2011, we had established reserves in connection with the AMPAC Henderson Site of approximately $22,451, which we believe to be sufficient to cover our estimated environmental liabilities for that site as of such time. However, as of such date, we had not established any other environmental-related reserves. Given the many uncertainties involved in assessing environmental liabilities, our environmental-related risks may, from time to time, exceed any related reserves, as we may not have established reserves with respect to such environmental liabilities, or any reserves we have established may prove to be insufficient. We continually evaluate the adequacy of our reserves on a quarterly basis, and they could change. For example, as of the end of Fiscal 2009, we increased our environmental reserves in connection with the AMPAC Henderson Site by approximately $13,700 as a result of an increase in anticipated costs associated with remediation efforts at the site. In addition, reserves with respect to environmental matters are based only on known sites and the known contamination at those sites. It is possible that additional remediation sites will be identified in the future or that unknown contamination, or further contamination beyond that which is currently known, at previously identified sites will be discovered. The discovery of additional environmental exposures at sites that we currently own or operate or at which we formerly operated, or at sites to which we have sent hazardous substances or

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wastes for treatment, recycling or disposal, could lead us to have additional expenditures for environmental remediation in the future and, given the many uncertainties involved in assessing environmental liabilities, we may not have adequately reserved for such liabilities or any reserves we have established may prove to be insufficient.
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.
Most of our Specialty Chemicals segment products are produced at our Iron County, Utah facility. Most of our Fine Chemicals segment products are produced at our Rancho Cordova, California facility and most of our Aerospace Equipment segment products are produced at our Niagara Falls, New York facility. Our Aerospace Equipment segment also has small manufacturing facilities in Ireland and the U.K. Any of these facilities could be disrupted or damaged by fire, floods, earthquakes, power loss, systems failures or similar events. Although we have contingency plans in effect for natural disasters or other catastrophic events, these events could still disrupt our operations. Even though we carry business interruption insurance, we may suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies. A significant disruption at one of our facilities, even on a short-term basis, could impair our ability to produce and ship the particular business segment’s products to market on a timely basis, which 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 liabilities.
Our operations involve the handling, production, storage, and disposal of potentially explosive or hazardous materials and other dangerous chemicals, including materials used in rocket propulsion. Despite our use of specialized facilities to handle dangerous materials and intensive employee training programs, the handling and production of hazardous materials could result in incidents that shut down (on a short-term basis or for longer periods) or otherwise disrupt our manufacturing operations and could cause production delays. Our manufacturing operations could also be the subject of an external or internal event, such as a terrorist attack or external or internal accident, that, despite our security, safety and other precautions, results in a disruption or delay in our operations. It is possible that a release of hazardous materials or other dangerous chemicals from one of our facilities or an explosion could result in death or significant injuries to employees and others. Material property damage to us and third parties could also occur. For example, on May 4, 1988, our former manufacturing and office facilities in Henderson, Nevada were destroyed by a series of massive explosions and associated fires. Extensive property damage occurred both at our facilities and in immediately adjacent areas, the principal damage occurring within a three-mile radius. Production of AP ceased for a 15-month period. Significant interruptions were also experienced in our other businesses, which occupied the same or adjacent sites. There can be no assurance that another incident would not interrupt some or all of the activities carried on at our current AP manufacturing site. The use of our products in applications by our customers could also result in liability if an explosion, fire or other similarly disruptive event were to occur. Any release or explosion could expose us to adverse publicity or liability for damages or cause production delays, any of which could have a material adverse effect on our reputation and profitability and could cause us to incur additional costs and liabilities.
Disruptions in the supply of key raw materials and difficulties in the supplier qualification process, as well as increases in prices of raw materials, could adversely impact our operations.
Key raw materials used in our operations include sodium chlorate, graphite, ammonia, sodium metal, nitrous oxide, HCFC-123, and hydrochloric acid. We closely monitor sources of supply to assure that adequate raw materials and other supplies needed in our manufacturing processes are available. In addition, as a U.S. government contractor or subcontractor, we are frequently limited to procuring

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materials and components from sources of supply that can meet rigorous government and/or customer specifications. In addition, as business conditions, the U.S. defense budget, and congressional allocations change, suppliers of specialty chemicals and materials sometimes consider dropping low volume items from their product lines, which may require, as it has in the past, qualification of new suppliers for raw materials on key programs. The qualification process may impact our profitability or ability to meet contract deliveries and/or delivery timelines. Moreover, we could experience inventory shortages if we are required to use an alternative supplier on short notice, which also could lead to raw materials being purchased on less favorable terms than we have with our regular suppliers. We are further impacted by the cost of raw materials used in production on fixed-price contracts. The increased cost of natural gas and electricity also has a significant impact on the cost of operating our Specialty Chemicals segment facility.
AFC uses substantial amounts of raw materials in its production processes, in particular chemicals, including specialty and bulk chemicals, which include petroleum-based solvents. Increases in the prices of raw materials which AFC purchases from third party suppliers could adversely impact operating results. In certain cases, the customer provides some of the raw materials which are used by AFC to produce or manufacture the customer’s products. Failure to receive raw materials in a timely manner, whether from a third party supplier or a customer, could cause AFC to fail to meet production schedules and adversely impact revenues and operating results. Certain key raw materials are obtained from sources from outside the U.S. Factors that can cause delays in the arrival of raw materials include weather or other natural events, political unrest in countries from which raw materials are sourced or through which they are delivered, terrorist attacks or related events in such countries or in the U.S., and work stoppages by suppliers or shippers. A delay in the arrival of the shipment of raw materials from a third party supplier could have a significant impact on AFC’s ability to meet its contractual commitments to customers.
Prolonged disruptions in the supply of any of our key raw materials, difficulty completing qualification of new sources of supply, implementing use of replacement materials or new sources of supply, or a continuing increase in the prices of raw materials and energy could have a material adverse effect on our operating results, financial condition or cash flows.
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.
Each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments produces products that are highly customized, require high levels of precision to manufacture and are subject to exacting customer and other requirements, including strict timing and delivery requirements. For example, our Fine Chemicals segment produces chemical compounds that are difficult to manufacture, including highly energetic and highly toxic materials. These chemical compounds are manufactured to exacting specifications of our customers’ filings with the FDA and other regulatory authorities worldwide. The production of these chemicals requires a high degree of precision and strict adherence to safety and quality standards. Regulatory agencies, such as the FDA and the European Medicines Agency, or EMEA, have regulatory oversight over the production process for many of the products that AFC manufactures for its customers. AFC employs sophisticated and rigorous manufacturing and testing practices to ensure compliance with the FDA’s cGMP guidelines and the International Conference on Harmonization Q7A. Because the chemical compounds produced by AFC are so highly customized, they are also subject to customer acceptance requirements, including strict timing and delivery requirements. If AFC is unable to adhere to the standards required or fails to meet the customer’s timing and delivery requirements, the customer may reject the chemical compounds. In such instances, AFC may also be in breach of its customer’s contract.

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Like our Fine Chemicals segment, our Specialty Chemicals and Aerospace Equipment segments face similar production demands and requirements. In each case, a significant failure or inability to comply with customer specifications and manufacturing requirements or delays or other problems with existing or new products could result in increased costs, losses of sales and potential breaches of customer contracts, which could affect our operating results and revenues.
Successful commercialization of pharmaceutical products and product line extensions is very difficult and subject to many uncertainties. If a customer is not able to successfully commercialize its products for which AFC produces compounds or if a product is subsequently recalled, then the operating results of AFC may be negatively impacted.
Successful commercialization of pharmaceutical products and product line extensions requires accurate anticipation of market and customer acceptance of particular products, customers’ needs, the sale of competitive products, and emerging technological trends, among other things. Additionally, for successful product development, our customers must complete many complex formulation and analytical testing requirements and timely obtain regulatory approvals from the FDA and other regulatory agencies. When developed, new or reformulated drugs may not exhibit desired characteristics or may not be accepted by the marketplace. Complications can also arise during production scale-up. In addition, a customer’s product that includes ingredients that are manufactured by AFC may be subsequently recalled or withdrawn from the market by the customer. The recall or withdrawal may be for reasons beyond the control of AFC. Moreover, products may encounter unexpected, irresolvable patent conflicts or may not have enforceable intellectual property rights. If the customer is not able to successfully commercialize a product for which AFC produces compounds, or if there is a subsequent recall or withdrawal of a product manufactured by AFC or that includes ingredients manufactured by AFC for its customers, it could have an adverse impact on AFC’s operating results, including its forecasted or actual revenues.
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.
As of September 30, 2010, AFC had approximately 118 employees that were covered by collective bargaining or similar agreements. We consider our relationships with our unionized employees to be satisfactory. In July 2010, AFC’s collective bargaining and similar agreements were renegotiated and extended to June 2013. If we are unable to negotiate acceptable new agreements with the union representing these employees upon expiration of the existing contracts, we could experience strikes or work stoppages. Even if AFC is successful in negotiating new agreements, the new agreements could call for higher wages or benefits paid to union members, which would increase AFC’s operating costs and could adversely affect its profitability. If the unionized workers were to engage in a strike or other work stoppage, or other non-unionized operations were to become unionized, AFC could experience a significant disruption of operations at its facilities or higher ongoing labor costs. A strike or other work stoppage in the facilities of any of its major customers or suppliers could also have similar effects on 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.
The pharmaceutical fine chemicals industry is a capital-intensive industry. Consequently, AFC’s capital expenditures consume cash from our Fine Chemicals segment and our other operations and may also consume cash from borrowings. Increases in capital expenditures may result in low levels of working capital or require us to finance working capital deficits, which may be potentially costly or even unavailable given on-going conditions of the credit markets in the U.S. Changes in the availability, terms and costs of capital or a reduction in credit rating or outlook could cause our cost of doing business to increase and place us at a competitive disadvantage. These factors could substantially constrain AFC’s growth, increase AFC’s costs and negatively impact its operating results.

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We may be subject to potential liability claims for our products or services that could affect our earnings and financial condition and harm our reputation.
We may face potential liability claims based on our products or services in our several lines of business under certain circumstances, and any such claims could result in significant expenses, disrupt sales and affect our reputation and that of our products. For example, a customer’s product may include ingredients that are manufactured by AFC. Although such ingredients are generally made pursuant to specific instructions from our customer and tested using techniques provided by our customer, the customer’s product may, nevertheless, be subsequently recalled or withdrawn from the market by the customer, and the recall or withdrawal may be due in part or wholly to product failures or inadequacies that may or may not be related to the ingredients we manufactured for the customer. In such a case, the recall or withdrawal may result in claims being made against us. Although we seek to reduce our potential liability through measures such as contractual indemnification provisions with customers, we cannot assure you that such measures will be enforced or effective. We could be materially and adversely affected if we were required to pay damages or incur defense costs in connection with a claim that is outside the scope of the indemnification agreements, if the indemnity, although legally enforceable, is not applicable in accordance with its terms or if our liability exceeds the amount of the applicable indemnification, or if the amount of the indemnification exceeds the financial capacity of our customer. In certain instances, we may have in place product liability insurance coverage, which is generally available in the market, but which may be limited in scope and amount. In other instances, we may have self-insured the risk for any such potential claim. There can be no assurance that our insurance coverage, if available, will be adequate or that insurance coverage will continue to be available on terms acceptable to us. Given the current economic environment, it is also possible that our insurers may not be able to pay on any claims we might bring. Unexpected results could cause us to have financial exposure in these matters in excess of insurance coverage and recorded reserves, requiring us to provide additional reserves to address these liabilities, impacting profits. Moreover, any claim brought against us, even if ultimately found to be insignificant or without merit, could damage our reputation, which, in turn, may impact our business prospects and future results.
Technology innovations in the markets that we serve may create alternatives to our products and result in reduced sales.
Technology innovations to which our current and potential customers might have access could reduce or eliminate their need for our products, which could negatively impact the sale of those products. Our customers constantly attempt to reduce their manufacturing costs and improve product quality, such as by seeking out producers using the latest manufacturing techniques or by producing component products themselves, if outsourcing is perceived to be not cost effective. To continue to succeed, we will need to manufacture and deliver products, and develop better and more efficient means of manufacturing and delivering products, that address evolving customer needs and changes in the market on a timely and cost-effective basis, using the latest and/or most efficient technology available. We may be unable to respond on a timely basis to any or all of the changing needs of our customer base. Separately, our competitors may develop technologies that render our existing technology and products obsolete or uncompetitive. Our competitors may also implement new technologies before we are able to do so, allowing them to provide products at more competitive prices. Technology developed by others in the future could, among other things, require us to write-down obsolete facilities, equipment and technology or require us to make significant capital expenditures in order to stay competitive. Our failure to develop, introduce or enhance products and technologies able to compete with new products and technologies in a timely manner could have an adverse effect on our business, results of operations and financial condition.
We are subject to strong competition in certain industries in which we participate and therefore may not be able to compete successfully.
Other than the sale of AP, for which we are the only North American provider, we face competition in all of the other industries in which we participate. Many of our competitors have financial, technical, production, marketing, research and development and other resources substantially greater than ours. As

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a result, they may be better able to withstand the effects of periodic economic or business segment downturns. Moreover, barriers to entry, other than capital availability, are low in some of the product segments of our business. Consequently, we may encounter intense bidding for contracts. Capacity additions or technological advances by existing or future competitors may also create greater competition, particularly in pricing. Further, the pharmaceutical fine chemicals market is fragmented and competitive. Pharmaceutical fine chemicals manufacturers generally compete based on their breadth of technology base, research and development and chemical expertise, flexibility and scheduling of manufacturing capabilities, safety record, regulatory compliance history and price. AFC faces increasing competition from pharmaceutical contract manufacturers, in particular competitors located in the People’s Republic of China and India, where facilities, construction and operating costs are significantly less. If AFC is unable to compete successfully, its results of operations may be materially adversely impacted. Furthermore, there is a worldwide over-capacity of the ability to produce sodium azide, which creates significant price competition for that product. Maintaining and improving our competitive position will require continued investment in our existing and potential future customer relationships as well as in our technical, production, and marketing operations. We may be unable to compete successfully with our competitors and our inability to do so could result in a decrease in revenues that we historically have generated from the sale of our products.
Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating results to fluctuate.
Our quarterly and annual sales are affected by a variety of factors that could lead to significant variability in our operating results, including as a result of the actual placement, timing and delivery of orders for new and/or existing products. In our Specialty Chemicals segment, the need for our products is generally based on contractually defined milestones that our customers are bound by and these milestones may fluctuate from quarter to quarter resulting in corresponding sales fluctuations. In our Fine Chemicals segment, some of our products require multiple steps of chemistry, the production of which can span multiple quarterly periods. Revenue is typically recognized after the final step and when the product has been delivered and accepted by the customer. As a result of this multi-quarter process, revenues and related profits can vary from quarter to quarter. Consequently, due to factors inherent in the process by which we sell our products, changes in our operating results may fluctuate from quarter to quarter and could result in volatility in our common stock price.
The inherent volatility of the chemical industry affects our capacity utilization and causes fluctuations in our results of operations.
Our Specialty Chemicals and Fine Chemicals segments are subject to volatility that characterizes the chemical industry generally. Thus, the operating rates at our facilities will impact the comparison of period-to-period results. Different facilities may have differing operating rates from period to period depending on many factors, such as transportation costs and supply and demand for the product produced at the facility during that period. As a result, individual facilities may be operated below or above rated capacities in any period. We may idle a facility for an extended period of time because an oversupply of a certain product or a lack of demand for that product makes production uneconomical. The expenses of the shutdown and restart of facilities may adversely affect quarterly results when these events occur. In addition, a temporary shutdown may become permanent, resulting in a write-down or write-off of the related assets. Moreover, workforce reductions in connection with any short-term or long-term shutdowns, or related cost-cutting measures, could result in an erosion of morale, affect the focus and productivity of our remaining employees, including those directly responsible for revenue generation, and impair our ability to retain and recruit talent, all of which in turn may adversely affect our future results of operations.
A loss of key personnel or highly skilled employees, or the inability to attract and retain such personnel, could disrupt our operations or impede our growth.

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Our executive officers are critical to the management and direction of our businesses. Our future success depends, in large part, on our ability to retain these officers and other capable management personnel. From time to time we have entered into employment or similar agreements with our executive officers and we may do so in the future, as competitive needs require. These agreements typically allow the officer to terminate employment with certain levels of severance under particular circumstances, such as a change of control affecting our company. In addition, these agreements generally provide an officer with severance benefits if we terminate the officer without cause. Although we believe that we will be able to attract and retain talented personnel and replace key personnel should the need arise, our inability to do so or to do so in a timely fashion could disrupt the operations of the segment affected or our overall operations. Furthermore, our business is very technical and the technological and creative skills of our personnel are essential to establishing and maintaining our competitive advantage. For example, customers often turn to AFC because very few companies have the specialized experience and capabilities and associated personnel required for energetic chemistries and projects that require high containment. Our future growth and profitability in part depends upon the knowledge and efforts of our highly skilled employees, in particular their ability to keep pace with technological changes in the fine chemicals, specialty chemicals and aerospace equipment industries, as applicable. We compete vigorously with various other firms to recruit these highly skilled employees. Our operations could be disrupted by a shortage of available skilled employees or if we are unable to attract and retain these highly skilled and experienced employees.
We may continue to expand our operations through acquisitions, but the acquisitions could divert management’s attention and expose us to unanticipated liabilities and costs. We may experience difficulties integrating the acquired operations, and we may incur costs relating to acquisitions that are never consummated.
Our business strategy includes growth through future possible acquisitions, in particular in connection with our Fine Chemicals segment. Our future growth is likely to depend, in significant part, on our ability to successfully implement this acquisition strategy. However, our ability to consummate and integrate effectively any future acquisitions on terms that are favorable to us may be limited by the number of attractive and suitable acquisition targets, internal demands on our resources and our ability to obtain or otherwise facilitate cost-effective financing, especially during difficult and unsettled economic times in the credit market. Any future acquisitions would currently challenge our existing resources. To the extent that we were to implement a new acquisition, if we did not properly meet the increasing expenses and demands on our resources resulting from such future growth, our results could be adversely affected. Our success in integrating newly acquired businesses will depend upon our ability to retain key personnel, avoid diversion of management’s attention from operational matters, integrate general and administrative services and key information processing systems and, where necessary, requalify our customer programs. In addition, future acquisitions could result in the incurrence of additional debt, costs and contingent liabilities. We may also incur costs and divert management’s attention to acquisitions that are never consummated. Integration of acquired operations may take longer, or be more costly or disruptive to our business, than originally anticipated. It is also possible that expected synergies from past or future acquisitions may not materialize.
Although we undertake a diligence investigation of each acquisition target that we pursue, there may be liabilities of the acquired companies or assets that we fail to or are unable to discover during the diligence investigation and for which we, as a successor owner, may be responsible. In connection with acquisitions, we generally seek to minimize the impact of these types of potential liabilities through indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the ultimate actual liabilities due to limitations in scope, amount or duration, financial limitations of the indemnitor or warrantor or other reasons.
We have a substantial amount of debt, and the cost of servicing that debt could adversely affect our ability to take actions, our liquidity or our financial condition.

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As of March 31, 2011, we had outstanding debt totaling $105,140, for which we are required to make interest payments. Subject to the limits contained in some of the agreements governing our outstanding debt, we may incur additional debt in the future or we may refinance some or all of this debt. Our level of debt places significant demands on our cash resources, which could:
 
make it more difficult for us to satisfy any other outstanding debt obligations;
 
require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, reducing the amount of our cash flow available for working capital, capital expenditures, acquisitions, developing our real estate assets and other general corporate purposes;
 
limit our flexibility in planning for, or reacting to, changes in the industries in which we compete;
 
place us at a competitive disadvantage compared to our competitors, some of which have lower debt service obligations and greater financial resources than we do;
 
limit our ability to borrow additional funds; or
 
increase our vulnerability to general adverse economic and industry conditions.
We are obligated to comply with various ongoing covenants in our debt, which could restrict our operations, and if we should fail to satisfy any of these covenants, the payment under our debt could be accelerated, which would negatively impact our liquidity.
We are obligated to comply with various ongoing covenants in our debt, including in certain cases financial covenants, that could restrict our operating activities, and the failure to comply could result in defaults that accelerate the payment under our debt. Our outstanding debt generally contains various restrictive covenants. These covenants include provisions restricting our ability to, among other things:
 
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.
Any of the covenants described above may restrict our operations and our ability to pursue potentially advantageous business opportunities. Our failure to comply with these covenants could also result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt, which would negatively impact our liquidity. In light of our recent financial performance, continued working capital requirements, and challenging market conditions, there is a risk that we may be unable to continue to comply with one or more of our debt covenants in the future. Such noncompliance could require us to re-negotiate new terms with our lenders which, in all likelihood, would lead to the incurrence of transaction costs and potentially other less favorable terms and conditions being placed upon us, thereby further negatively impacting our liquidity and results of operations.
Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could affect our estimates of pension obligations, which in turn could affect future funding requirements and related costs and impact our future earnings.
As of March 31, 2011, we had unfunded pension obligations, including the current and non-current portions, of $36,168. Pension obligations, periodic pension expense, and funding requirements are determined using actuarial valuations that involve several assumptions. The most critical assumptions are the discount rate and the expected long-term rate of return on plan assets. Other assumptions include the future rate of compensation increases and retirement age, mortality and turnover. Some of these assumptions, such as the discount rate and return on pension assets, are largely outside of our control.

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Changes in these assumptions could affect our estimates of pension obligations, which in turn could affect future funding requirements and related costs and impact our future earnings. Moreover, pension obligations can also be affected by changes in legislation and other governmental regulatory actions.
Our suspended shareholder rights plan, Restated Certificate of Incorporation, as amended, and Amended and Restated By-laws discourage unsolicited takeover proposals and could prevent stockholders from realizing a premium on their common stock.
We have a shareholder rights plan that, although currently suspended, may have the effect of discouraging unsolicited takeover proposals. The rights issued under the shareholder rights plan would cause substantial dilution to a person or group which attempts to acquire us on terms not approved in advance by our board of directors. In addition, our Restated Certificate of Incorporation, as amended, and Amended and Restated By-laws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include:
 
a classified board of directors;
 
the ability of our board of directors to designate the terms of and issue new series of preferred stock;
 
advance notice requirements for nominations for election to our board of directors; and
 
special voting requirements for the amendment, in certain cases, of our Restated Certificate of Incorporation, as amended, and our Amended and Restated By-laws.
We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, our charter provisions, Delaware law and the shareholder rights plan may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock.
Our proprietary and intellectual property rights may be violated, compromised, circumvented or invalidated, which could damage our operations.
We have numerous patents, patent applications, exclusive and non-exclusive licenses to patents, and unpatented trade secret technologies in the U.S. and certain foreign countries. There can be no assurance that the steps taken by us to protect our proprietary and intellectual property rights will be adequate to deter misappropriation of these rights. In addition, independent third parties may develop competitive or superior technologies that could circumvent the future need to use our intellectual property, thereby reducing its value. They may also attempt to invalidate patent rights that we own directly or that we are entitled to exploit through a license. If we are unable to adequately protect and utilize our intellectual property or proprietary rights, our results of operations may be adversely affected.
Our common stock price may fluctuate substantially, and a stockholder’s investment could decline in value.
The market price of our common stock has been highly volatile during the past several years. For example, during the 12 months ended September 30, 2010, the highest sale price for our common stock was $9.15 and the lowest sale price for our common stock was $3.84. The realization of any of the risks described in these Risk Factors or other unforeseen risks could have a dramatic and adverse effect on the market price of our common stock. Moreover, the market price of our common stock may fluctuate substantially due to many factors, including:
 
actual or anticipated fluctuations in our results of operations;
 
events or concerns related to our products or operations or those of our competitors, including public health, environmental and safety concerns related to products and operations;
 
material public announcements by us or our competitors;
 
changes in government regulations or policies, such as new legislation, laws or regulatory decisions that are adverse to us and/or our products;
 
changes in key members of management;

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developments in our industries;
 
changes in investors’ acceptable levels of risk;
 
trading volume of our common stock; and
 
general economic conditions.
In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to companies’ operating performance. In addition, the global economic environment and potential uncertainty have created significant additional volatility in the United States capital markets. Broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, stockholder derivative lawsuits and/or securities class action litigation has often been instituted against that company. Such litigation, if instituted against us, and whether with or without merit, could result in substantial costs and divert management’s attention and resources, which could harm our business and financial condition, as well as the market price of our common stock. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees or to use our stock to acquire other companies at a time when use of cash or financing for such acquisitions may not be available or in the best interests of our stockholders.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES – None.
ITEM 4. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION – None.
ITEM 6. EXHIBITS – See attached exhibit index.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  AMERICAN PACIFIC CORPORATION
 
 
Date: May 12, 2011  /s/ JOSEPH CARLEONE    
  Joseph Carleone   
  President and Chief Executive Officer
(Principal Executive Officer) 
 
 
     
  /s/ DANA M. KELLEY    
  Dana M. Kelley   
  Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)   

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EXHIBIT INDEX
     
EXHIBIT NO.   DOCUMENT DESCRIPTION
 
   
3.1
 
Restated Certificate of Incorporation, as amended, of American Pacific Corporation (incorporated by reference to Exhibit 4.(a) to the registrant’s Registration Statement on Form S-3 (File No. 33-15674))
 
   
3.2
 
Articles of Amendment to the Restated Certificate of Incorporation of American Pacific Corporation, as filed with the Secretary of State, State of Delaware, on October 7, 1991 (incorporated by reference to Exhibit 4.3 to the registrant’s Registration Statement on Form S-3 (File No. 33-52196))
 
   
3.3
 
Articles of Amendment to the Restated Certificate of Incorporation of American Pacific Corporation, as filed with the Secretary of State, State of Delaware, on April 21, 1992 (incorporated by reference to Exhibit 4.4 to the registrant’s Registration Statement on Form S-3 (File No. 33-52196))
 
   
3.4
 
Certificate of Amendment of Restated Certificate of Incorporation of American Pacific Corporation, as filed with the Secretary of State, State of Delaware, on March 8, 2011 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the registrant with the Securities and Exchange Commission on March 11, 2011)
 
   
3.5
 
American Pacific Corporation Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the registrant with the Securities and Exchange Commission on March 11, 2011)
 
   
3.6
 
Rights Agreement, dated as of August 3, 1999, between American Pacific Corporation and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 1 to the registrant’s Registration Statement on Form 8-A (File No. 001-08137) filed by the registrant with the Securities and Exchange Commission on August 6, 1999)
 
   
3.7
 
Form of Letter to Stockholders that accompanied copies of the Summary of Rights to Purchase Preferred Shares (incorporated by reference to Exhibit 2 to the registrant’s Registration Statement on Form 8-A (File No. 001-08137) filed by the registrant with the Securities and Exchange Commission on August 6, 1999)
 
   
3.8
 
Amendment, dated as of July 11, 2008, between American Pacific Corporation and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the registrant with the Securities and Exchange Commission on July 11, 2008)
 
   
3.9
 
Amendment No. 2 to Rights Agreement, dated as of September 14, 2010, between American Pacific Corporation and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the registrant with the Securities and Exchange Commission on September 20, 2010)
 
   
10.1
 
Credit Agreement, dated as of January 31, 2011, by and among American Pacific Corporation, Wells Fargo Bank, National Association, and certain domestic subsidiaries of American Pacific Corporation (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the registrant with the Securities and Exchange Commission on February 4, 2011)
 
   
10.2+
 
American Pacific Corporation Amended and Restated 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the registrant with the Securities and Exchange Commission on March 11, 2011)
 
   
31.1
 
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
31.2
 
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
32.1*
 
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
32.2*
 
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
+  
Management contract or compensatory arrangement.
 
*   Exhibits 32.1 and 32.2 are furnished to accompany this Quarterly Report on Form 10-Q but shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

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