e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009


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)


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

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 30, 2009 was 7,504,591.

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,
	2009			2008		2009		2008


Revenues	$	56,435		$	48,347	$	102,064	$	95,237
Cost of Revenues		39,138			31,737		70,033		61,198

Gross Profit		17,297			16,610		32,031		34,039
Operating Expenses		11,071			11,242		22,380		21,447

Operating Income		6,226			5,368		9,651		12,592
Interest and Other Income (Expense), Net		(19	)		268		42		646
Interest Expense		2,684			2,687		5,378		5,391

Income before Income Tax		3,523			2,949		4,315		7,847
Income Tax Expense		1,790			1,316		2,125		3,351

Net Income	$	1,733		$	1,633	$	2,190	$	4,496



Earnings per Share:
Basic	$	0.23		$	0.22	$	0.29	$	0.60
Diluted	$	0.23		$	0.22	$	0.29	$	0.59

Weighted Average Shares Outstanding:
Basic		7,483,000			7,440,000		7,481,000		7,437,000
Diluted		7,522,000			7,592,000		7,545,000		7,588,000

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,
	2009			2008

ASSETS
Current Assets:
Cash and Cash Equivalents	$	29,835		$	26,893
Accounts Receivable, Net		30,808			27,445
Inventories		34,382			40,357
Prepaid Expenses and Other Assets		2,412			3,392
Income Taxes Receivable		1,047			1,804
Deferred Income Taxes		6,859			6,859

Total Current Assets		105,343			106,750
Property, Plant and Equipment, Net		117,065			118,608
Intangible Assets, Net		4,374			3,013
Goodwill		2,903			-
Deferred Income Taxes		13,852			13,849
Other Assets		10,276			9,193

TOTAL ASSETS	$	253,813		$	251,413


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	8,247		$	10,554
Accrued Liabilities		6,024			5,526
Accrued Interest		1,650			1,650
Employee Related Liabilities		4,910			6,917
Income Taxes Payable		1,846			111
Deferred Revenues and Customer Deposits		5,341			3,091
Current Portion of Environmental Remediation Reserves		923			996
Current Portion of Long-Term Debt		291			254

Total Current Liabilities		29,232			29,099
Long-Term Debt		110,116			110,120
Environmental Remediation Reserves		12,638			13,282
Pension Obligations		16,700			15,692
Other Long-Term Liabilities		525			258

Total Liabilities		169,211			168,451

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, 9,550,541 and 9,523,541 issued		955			952
Capital in Excess of Par Value		88,840			88,496
Retained Earnings		18,146			15,956
Treasury Stock - 2,045,950 and 2,045,950 shares		(17,175	)		(17,175	)
Accumulated Other Comprehensive Loss		(6,164	)		(5,267	)

Total Shareholders’ Equity		84,602			82,962

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	253,813		$	251,413

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,
	2009			2008

Cash Flows from Operating Activities:
Net Income	$	2,190		$	4,496
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and amortization		7,870			8,837
Non-cash interest expense		315			320
Share-based compensation		305			53
Excess tax benefit from stock option exercises		(3	)		(82	)
Deferred income taxes		(68	)		(24	)
Loss on sale of assets		53			-
Changes in operating assets and liabilities:
Accounts receivable, net		(1,220	)		(192	)
Inventories		5,058			(2,466	)
Prepaid expenses and other current assets		1,019			(2,176	)
Accounts payable		(3,032	)		(98	)
Income taxes		2,502			2,380
Accrued liabilities		287			(2,557	)
Accrued interest		-			(36	)
Employee related liabilities		(2,125	)		(1,876	)
Deferred revenues and customer deposits		625			5,289
Environmental remediation reserves		(717	)		(548	)
Pension obligations, net		1,008			461
Other		85			(562	)

Net Cash Provided by Operating Activities		14,152			11,219


Cash Flows from Investing Activities:
Capital expenditures		(4,412	)		(5,297	)
Acquisition of business, net of cash acquired		(6,661	)		-

Net Cash Used by Investing Activities		(11,073	)		(5,297	)


Cash Flows from Financing Activities:
Payments of long-term debt		(172	)		(144	)
Issuances of common stock, net		32			117
Excess tax benefit from stock option exercises		3			82

Net Cash Provided (Used) by Financing Activities		(137	)		55


Net Change in Cash and Cash Equivalents		2,942			5,977
Cash and Cash Equivalents, Beginning of Period		26,893			21,426

Cash and Cash Equivalents, End of Period	$	29,835		$	27,403


Cash Paid (Received) For:
Interest	$	5,063		$	5,107
Income taxes		(380	)		853

Non-Cash Investing and Financing Transactions:
Additions to Property, Plant and Equipment not yet paid		660			1,066

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 our opinion, include all adjustments, which are of a normal recurring nature, necessary for the fair presentation of financial results for interim periods. 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, 2008. The operating results for the three-month and six-month periods ended March 31, 2009 and cash flows for the six-month period ended March 31, 2009, are not necessarily indicative of the results that will be achieved for the full fiscal year or for future periods.

		*Accounting Policies.* 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, 2008.

		*Principles of Consolidation.* Our consolidated financial statements include the accounts of American Pacific Corporation and our wholly-owned subsidiaries. All intercompany accounts have been eliminated.

		Effective October 1, 2008, we completed the acquisition of Marotta Holdings Limited (subsequently renamed Ampac ISP Holdings Limited) and its wholly-owned subsidiaries (collectively “AMPAC ISP Holdings”). AMPAC ISP Holdings is included in our consolidated financial statements beginning on October 1, 2008 and is a component of our Aerospace Equipment segment. See Note 2.

		*Depreciation and Amortization Expense.* Depreciation expense of $3,276, $6,602, $3,038 and $6,440 was classified as cost of revenues in our consolidated statements of operations for the three-month and six-month periods ended March 31, 2009 and 2008, respectively. Depreciation expense of $124, $258, $133 and $261 was classified as operating expenses in our consolidated statements of operations for the three-month and six-month periods ended March 31, 2009 and 2008, respectively.

		Amortization expense of $542 and $1,517 was classified as cost of revenues in our consolidated statements of operations for the three-month and six-month periods ended March 31, 2008, respectively. Amortization expense of $501, $1,010, $309 and $619 was classified as operating expenses in our consolidated statements of operations for the three-month and six-month periods ended March 31, 2009 and 2008, respectively.

		*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 $35,726 and $29,022 as of March 31, 2009 and September 30, 2008, respectively.

		*Recently Issued or Adopted Accounting Standards.* In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles in the United States of America, and expands disclosures about fair value measurements. In February 2008, the FASB deferred the adoption of SFAS No. 157 for one year as it applies to certain items, including assets and liabilities initially measured at fair value in a business combination, reporting units and certain assets and

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1.		INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)


		liabilities measured at fair value in connection with goodwill impairment tests in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, and long-lived assets measured at fair value for impairment assessments under SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.” SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 was effective for us on October 1, 2008. We have not adopted all the provisions of SFAS No. 157 as the FASB delayed the effective date of the application of SFAS No. 157 to non-financial assets and liabilities. The remaining provisions of SFAS No. 157 become effective for us beginning October 1, 2009. The partial adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements. The adoption of the remaining provisions of SFAS No. 157 is not expected to have a material impact on our results of operations, financial position or cash flows.


		In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by SFAS No. 159 permits all companies to choose to measure eligible items at fair value at specified election dates. At each subsequent reporting date, a company must report in earnings any unrealized gains and losses on items for which the fair value option has been elected. SFAS No. 159 was effective for us on October 1, 2008. We chose not to elect the fair value option for any of our financial instruments.

		In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R will significantly change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R also includes a substantial number of new disclosure requirements. SFAS No. 141R applies to us prospectively for business combinations with acquisition dates on or after October 1, 2009. We expect that SFAS No. 141R, once adopted, will have an impact on accounting for business combinations, but the effect is dependent upon acquisitions at that time.

		In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, SFAS No. 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, SFAS No. 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No.160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for us beginning on October 1, 2009. We currently have no entities or arrangements that will be affected by the adoption of SFAS No. 160. However, determination of the ultimate effect of this pronouncement will depend on our structure at the date of adoption.

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1.		INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)

		In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The guidance contained in this FSP for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date. However, the disclosure requirements of FSP No. 142-3 must be applied prospectively to all intangible assets recognized in the Company’s financial statements as of the effective date. FSP No. 142-3 is effective for us beginning October 1, 2009.

		In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The objectives of the disclosures include investment allocation decisions, major categories of plan assets, inputs and valuation techniques used to measure the fair value of plan assets, the effect of certain fair value measurements, and significant concentrations of risk within plan assets. The expanded disclosure requirements are effective for our fiscal year ending September 30, 2010.


		In April 2009, the FASB issued FSP No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157, when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on how to identify circumstances that indicate that a transaction is not orderly and emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation techniques used, the objective of a fair value measurement remains the same. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and is to be applied prospectively. We are currently evaluating the requirements of this pronouncement and have not determined the impact, if any, that the adoption will have on our consolidated financial statements.



		In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amend SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments in interim reporting periods. Such disclosures were previously required only in annual financial statements. FSP FAS 107-1 and APB 28-1 also amend Accounting Principles Board Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for interim and annual reporting periods ending after June 15, 2009. We are currently evaluating the requirements of FSP FAS 107-1 and APB 28-1 and have not determined the impact, if any, that the adoption will have on our consolidated financial statements.


2.		ACQUISITION

		Effective October 1, 2008, we completed the acquisition of AMPAC ISP Holdings for a cash purchase price, including direct expenses and net of cash acquired, of $6,661. 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. These products are used on various satellites and spacecraft, as well as on the Ariane 5 launch vehicle. The business has two locations, Dublin, Ireland and Cheltenham, U.K.

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2.		ACQUISITION (continued)

		The acquisition of AMPAC ISP Holdings enhances our opportunities to penetrate the European space market and provides us with the opportunity to further expand our Aerospace Equipment segment product offerings through the development and manufacture of additional space valves and space structures. These factors result in the recognition of intangible assets for customer relationships and goodwill.

		We are accounting for this acquisition using the purchase method of accounting, under which the total purchase price is allocated to the fair values of the assets acquired and liabilities assumed. We engaged outside consultants to assist in the valuation of property, plant and equipment and intangible assets. As of March 31, 2009, the allocation of the purchase price and the related determination of the useful lives of property, plant and equipment were preliminary and subject to change pending receipt and evaluation of the final valuation report. In addition, amounts allocated to deferred tax assets and liabilities are preliminary pending completion of AMPAC ISP Holdings’ tax filings for calendar 2008.

		The following table indicates the preliminary amounts assigned to each major asset and liability caption of AMPAC ISP Holdings as of the acquisition date:


Accounts Receivable	$	2,291
Inventory		552
Prepaid Expenses		39
Property, Plant and Equipment		912
Intangible Assets		2,840
Goodwill		3,094

Total Assets Acquired		9,728
Accounts Payable, Accrued Expenses and Other Current Liabilities		978
Customer Deposits		1,625
Long-Term Liabilities		464

Total Liabilities Assumed		3,067

Purchase Price	$	6,661

		Intangible assets, consisting of customer relationships (average life of 5 years) and existing customer backlog (average life of 1.5 years), have definite lives and are being amortized over their estimated useful lives using the straight-line method.

3.		SHARE-BASED COMPENSATION

		We account for our share-based compensation arrangements under the provisions of SFAS No. 123 (Revised 2004), “Share-Based Payment”, which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The fair values of awards are recognized as additional compensation expense, which is classified as operating expenses, proportionately over the vesting period of the awards.

		Our share-based compensation arrangements are designed to advance the long-term interests of the Company, including by attracting and retaining employees and directors and aligning their interests with those of our stockholders. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, government regulations and availability under our equity incentive plans. Depending on the form of the share-based award, new shares of our common stock may be issued upon grant, option exercise or vesting of the award. We maintain three share-based plans, each as discussed below.

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3.		SHARE-BASED COMPENSATION (continued)

		The American Pacific Corporation Amended and Restated 2001 Stock Option Plan (the “2001 Plan”) permits the granting of stock options to employees, officers, directors and consultants. Options granted under the 2001 Plan generally vested 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire ten years from the date of grant. As of March 31, 2009, there were 20,000 shares available for grant under the 2001 Plan. This plan was approved by our stockholders.

		The American Pacific Corporation 2002 Directors Stock Option Plan, 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 vest 50% one year from the date of grant and 50% two years from the date of grant, and expire ten years from the date of grant. As of March 31, 2009, there were 3 shares available for grant under the 2002 Directors Plan. This plan was approved by our stockholders.

		The American Pacific Corporation 2008 Stock Incentive Plan (the “2008 Plan”) permits the granting of stock options, restricted stock, restricted stock units and stock appreciation rights to employees, directors and consultants. A total of 350,000 shares of common stock are authorized for issuance under the 2008 Plan, provided that no more than 200,000 shares of common stock may be granted pursuant to awards of restricted stock and restricted stock units. As of March 31, 2009, there were 172,000 shares available for grant under the 2008 plan. This plan was approved by our stockholders.

		A summary of our stock option and restricted stock activity for the three months ended March 31, 2009 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, 2008		394,997		$	7.72		24,997		$	7.86		-	$	-
Granted		156,000			10.98		156,000			5.41		22,000		11.25
Vested		-			-		(12,502	)		7.89		-		-
Exercised		(5,000	)		6.34		-			-		-		-
Expired / Cancelled		-			-		-			-		-		-

Balance, March 31, 2009		545,997			8.66		168,495			5.59		22,000		11.25

A summary of our exercisable stock options as of March 31, 2009 is as follows:


Number of vested stock options		377,502
Weighted-average exercise price per share	$	7.43
Aggregate intrinsic value	$	22
Weighted-average remaining contractual term in years		5.4

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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SHARE-BASED COMPENSATION (continued)



	Six Months Ended,
	March 31,
	2009			2008

Weighted-average grant date fair value per share of options granted	$	5.41		$	7.86
Significant fair value assumptions:
Expected term in years		6.00			5.75
Expected volatility		48.7	%		44.5	%
Expected dividends		0.0	%		0.0	%
Risk-free interest rates		2.7	%		3.4	%
Total intrinsic value of options exercised	$	21		$	201
Aggregate cash received for option exercises	$	32		$	117

Compensation cost (included in operating expenses)
Stock options	$	244		$	53
Restricted stock		61			-

Total		305			53
Tax benefit recognized		63			22

Net compensation cost	$	242		$	31


As of period end date:
Total compensation cost for non-vested awards not yet recognized:
Stock options	$	670		$	144
Restricted stock	$	186			-
Weighted-average years to be recognized
Stock options		1.7			1.1
Restricted stock		1.7			-

4.		SELECTED BALANCE SHEET DATA

		*Inventories.* Inventories consist of the following:



	March 31,			September 30,
	2009			2008

Finished goods	$	3,789		$	2,475
Work-in-process		18,697			22,698
Raw materials and supplies		12,031			14,469
Deferred cost of revenues		1,495			715
Under (over) applied manufacturing overhead costs		(1,630	)		—

Total	$	34,382		$	40,357

Our Specialty Chemicals segment accounts for its interim period inventory balances in accordance with Accounting Principles Board Opinion No. 28 (As Amended) “Interim Financial Reporting”. 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. We account for our intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Intangible assets consist of the following:



	March 31,			September 30,
	2009			2008

Perchlorate customer list	$	38,697		$	38,697
Less accumulated amortization		(38,697	)		(38,697	)

		-			-

Customer relationships		8,912			7,957
Less accumulated amortization		(5,563	)		(4,944	)

		3,349			3,013

Backlog		1,411			-
Less accumulated amortization		(386	)		-

		1,025			-

Total	$	4,374		$	3,013

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4.		SELECTED BALANCE SHEET DATA (continued)

		The perchlorate customer list is an asset of our Specialty Chemicals segment and was fully amortized as of February 2008. Amortization expense was zero and $542 for the three-month periods ended March 31, 2009 and 2008, respectively, and zero and $1,517 for the six-month periods ended March 31, 2009 and 2008, respectively.

		Customer relationships are assets of our Fine Chemicals and Aerospace Equipment segments and are subject to amortization. Amortization expense was $310 and $309 for the three-month periods ended March 31, 2009 and 2008, respectively, and $619 for each of the six-month periods ended March 31, 2009 and 2008.

		Backlog is an asset of our Aerospace Equipment segment and is subject to amortization. Amortization expense was $192 and zero for the three-month periods ended March 31, 2009 and 2008, respectively, and $391 and zero for the six-month periods ended March 31, 2009 and 2008, respectively.

		In connection with our acquisition of AMPAC ISP Holdings (See Note 2), as of October 1, 2008, we recorded customer relationships in the amount of $1,097 and backlog in the amount of $1,743, based on our preliminary allocation of the purchase price to the fair values of assets acquired and liabilities assumed.

		*Goodwill.* In connection with our acquisition of AMPAC ISP Holdings (See Note 2), we recorded goodwill in the amount of $3,094, based on our preliminary allocation of the purchase price to the fair values of assets acquired and liabilities assumed. Goodwill is an asset of our Aerospace Equipment segment and is not expected to be deductible for tax purposes. As of March 31, 2009, the balance was $2,903, reflecting the changes in the foreign currency rates used to consolidate our foreign subsidiaries.

5.		COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS


		Comprehensive income consists of the following:



	Three Months Ended					Six Months Ended
	March 31,					March 31,
	2009			2008		2009			2008

Net Income	$	1,733		$	1,633	$	2,190		$	4,496
Other Comprehensive Income (Loss) -
Foreign currency translation adjustment		(360	)		-		(897	)		(47	)
SERP Amendment, net of tax		-			-					(2,110	)

Comprehensive Income	$	1,373		$	1,633	$	1,293		$	2,339

The components of accumulated other comprehensive loss are as follows:



	March 31,			September 30,
	2009			2008

Cumulative currency translation adjustment	$	(940	)	$	(43	)
Unamortized benefit plan costs, net of tax of $3,482 and $3,482		(5,224	)		(5,224	)

Total	$	(6,164	)	$	(5,267	)

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6.		EARNINGS PER SHARE

		Shares used to compute earnings per share are as follows:



	Three Months Ended				Six Month Ended
	March 31,				March 31,
	2009		2008		2009		2008

Net income	$	1,733	$	1,633	$	2,190	$	4,496


Basic weighted-average shares		7,483,000		7,440,000		7,481,000		7,437,000


Diluted:
Weighted-average shares, basic		7,483,000		7,440,000		7,481,000		7,437,000
Dilutive effect of stock options		39,000		152,000		64,000		151,000

Weighted-average shares, diluted		7,522,000		7,592,000		7,545,000		7,588,000


Basic earnings per share	$	0.23	$	0.22	$	0.29	$	0.60
Diluted earnings per share	$	0.23	$	0.22	$	0.29	$	0.59

		As of March 31, 2009 and 2008, we had 227,997 and 24,997 antidilutive options outstanding, respectively.

7.		DEBT

		Our outstanding debt balances consist of the following:



	March 31,			September 30,
	2009			2008

Senior Notes, 9%, due 2015	$	110,000		$	110,000
Capital Leases, due through 2012		407			374

Total Debt		110,407			110,374
Less Current Portion		(291	)		(254	)

Total Long-term Debt	$	110,116		$	110,120

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 prior to February 1, 2011 at a price equal to 100% of the purchase amount of the Senior Notes plus an applicable premium as defined in the related indenture;
	•		at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the principal amount to be redeemed and reducing to 100% by February 1, 2013;

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DEBT (continued)

	•		until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest thereon, with the proceeds of certain sales of our equity securities; and
	•		under certain changes of control, we must offer to purchase the Senior Notes at 101% of their aggregate principal amount, plus accrued interest.

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 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 (the “Revolving Credit Facility”) with Wachovia Bank, National Association, and certain other lenders, which provides a secured revolving credit facility in an aggregate principal amount of up to $20,000 with an initial maturity of 5 years. We may prepay and terminate the Revolving Credit Facility at any time. The annual interest rates applicable to loans under the Revolving Credit Facility are, at our option, either the Alternate Base Rate or LIBOR Rate (each as defined in the Revolving Credit Facility) plus, in each case, an applicable margin. The applicable margin is tied to our total leverage ratio (as defined in the Revolving Credit Facility). In addition, we pay commitment fees, other fees related to the issuance and maintenance of letters of credit, and certain agency fees.

		The Revolving Credit Facility is guaranteed by and secured by substantially all of the assets of our current and future domestic subsidiaries, subject to certain exceptions as set forth in the Revolving Credit Facility. The Revolving Credit Facility contains certain negative covenants restricting and limiting our ability to, among other things:

	•		incur debt, incur contingent obligations and issue certain types of preferred stock;
	•		create liens;
	•		pay dividends, distributions or make other specified restricted payments;
	•		make certain investments and acquisitions;
	•		enter into certain transactions with affiliates;

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DEBT (continued)

	•		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.

		Financial covenants under the Revolving Credit Facility include quarterly requirements for total leverage ratio of less than or equal to 5.25 to 1.00 (“Total Leverage Ratio”), and interest coverage ratio of at least 2.50 to 1.00 (“Interest Coverage Ratio”). The Revolving Credit Facility defines Total Leverage Ratio as the ratio of Consolidated Funded Debt to Consolidated EBITDA and Interest Coverage Ratio as the ratio of Consolidated EBITDA to Consolidated Interest Expense. With respect to these covenant compliance calculations, Consolidated EBITDA, as defined in the Revolving Credit Facility (hereinafter, referred to as “Credit Facility EBITDA”), differs from typical EBITDA calculations and our calculation of Adjusted EBITDA, which is used in certain of our public releases and in connection with our incentive compensation plan. The most significant difference in the Credit Facility EBITDA calculation is the inclusion of cash payments for environmental remediation as part of the calculation. The following statements summarize the elements of those definitions that are material to our computations. Consolidated Funded Debt generally includes principal amounts outstanding under our Senior Notes, Revolving Credit Facility, capital leases and notional amounts for outstanding letters of credit. Credit Facility EBITDA is generally computed as consolidated net income plus income tax expense, interest expense, depreciation and amortization, and stock-based compensation expense and less cash payments for environmental remediation and other non-recurring gains in excess of $50. In accordance with the definitions contained in the Revolving Credit Facility, as of March 31, 2009, our Total Leverage Ratio was 3.09 to 1.00 and our Interest Coverage Ratio was 3.60 to 1.00.

		The Revolving Credit Facility also contains usual and customary events of default (subject to certain threshold amounts and grace periods), including cross-default provisions that include our Senior Notes. If an event of default occurs and is continuing, we may be required to repay the obligations under the Revolving Credit Facility prior to its stated maturity and the related commitments may be terminated.

		As of March 31, 2009, under our Revolving Credit Facility, we had no borrowings outstanding, availability of $18,042, and we were in compliance with its various financial covenants. Availability is computed as the total commitment of $20,000 less outstanding borrowings and outstanding letters of credit, if any.

		*Letters of Credit.* As of March 31, 2009, we had $1,958 in outstanding standby letters of credit which mature through July 2013. 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.

8.		COMMITMENTS AND CONTINGENCIES

		*Environmental Matters.*

		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 contemplated regulatory action 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.

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8.		COMMITMENTS AND CONTINGENCIES (continued)

		Perchlorate Remediation Project in Henderson, Nevada. We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (“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 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 ex situ perchlorate groundwater remediation facility at their Henderson site. Recent measurements of perchlorate in Lake Mead made by SNWA have been less than 10 parts per billion.

		Notwithstanding these facts, and at the direction of NDEP and the EPA, we conducted an investigation of remediation technologies for perchlorate in groundwater with the intention of remediating groundwater near the AMPAC Henderson Site. The technology that was chosen as most efficient and appropriate is in situ bioremediation (“ISB”). ISB reduces perchlorate in the groundwater by precise addition of an appropriate carbon source to the groundwater itself while it is still in the ground (as opposed to an above ground, more conventional, ex situ process). This induces naturally occurring organisms in the groundwater to reduce the perchlorate among other oxygen containing compounds.

		In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On the basis of the successful test and other evaluations, in fiscal 2005 we submitted a work plan to NDEP for the construction of a remediation facility near the AMPAC Henderson Site. The conditional approval of the work plan by NDEP in our third quarter of fiscal 2005 allowed us to generate estimated costs for the installation and operation of the remediation facility to address perchlorate at the AMPAC Henderson Site. We commenced construction in July 2005. In December 2006, we began operations.

		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 consists of two primary phases: the initial construction of the remediation equipment phase and the O&M phase.

- 14 -

8.		COMMITMENTS AND CONTINGENCIES (continued)

		During fiscal 2006, we increased our total cost estimate of probable costs for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. 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.

		ISB is a new technology on the scale being used at the AMPAC Henderson Site. Accordingly, as we gain ISB operational experience, we have and are observing certain conditions, operating results and other data which we consider in updating the assumptions used to determine our costs estimates. The two most significant assumptions are the estimated speed of groundwater flowing to our remediation extraction wells and the estimated annual O&M costs.

		Groundwater speed is one key variable along with the required pore volumes of groundwater used to estimate the number of years that may be required to operate the facility. Groundwater speed is estimated by utilizing periodic data that measures, among other things, perchlorate concentrations upgradient from the treatment area, in addition to hydraulic conductivity and porosity. As time passes, and as we continue to add reference data and analysis, our estimates of the total years of operation may change. Initially, data suggested that the total project life would extend for a period of 45 years. More recent data indicates that the total project life may be 23 years. We are unable to predict over the longer term the most probable life and accordingly have used an assumed range of 23 to 45 years of operation.

		O&M costs include primarily labor, utilities, repairs, maintenance supplies and professional service costs. Since the inception of operations of the new ISB technology operations in fiscal 2007, we have not consistently achieved the targeted levels of groundwater remediation. We have experienced annualized O&M cost levels of approximately $1,000, which is higher than our initial estimates. This higher level of cost reflects costs to evaluate methods to optimize operating performance and maintenance of reinjection wells. In addition, we anticipate incurring similar O&M cost levels in fiscal 2009 as we continue our evaluation of methods to achieve targeted remediation results. Our range of estimated costs assumes that we will be successful in optimizing the remediation plant performance and that average annual O&M costs beyond 2012 and for the duration of the project will be approximately $380.

		As of March 31, 2009, the aggregate range of anticipated environmental remediation costs was from approximately $11,750 to approximately $23,840, and the accrued amount was $13,561. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate. A summary of our environmental reserve activity for the six months ended March 31, 2009 is shown below:


Balance, September 30, 2008	$	14,278
Additions or adjustments		-
Expenditures		(717	)

Balance, March 31, 2009	$	13,561

AFC Environmental Matters. Our Fine Chemicals segment, Ampac Fine Chemicals LLC (“AFC”), is located on land leased from Aerojet-General Corporation (“Aerojet”), a wholly-owned subsidiary of GenCorp Inc. (“GenCorp”). 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

- 15 -

8.		COMMITMENTS AND CONTINGENCIES (continued)

		identified as contaminants on the leased land were not used by Aerojet 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 the business of AFC from 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 AFC 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.

9.		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 subsidiary Ampac Fine Chemicals LLC or AFC. AFC is a custom manufacturer of active pharmaceutical ingredients and registered intermediates under current Good Manufacturing Practices (“cGMP”) guidelines for commercial customers in the pharmaceutical industry. AFC has distinctive competencies and specialized engineering capabilities in performing chiral separations, manufacturing highly potent (including cytotoxic) products, and performing energetic and nucleoside/nucleotide chemistries at a commercial scale.

		*Specialty Chemicals.* Our Specialty Chemicals segment manufactures and sells: (i) perchlorate chemicals, used principally in solid rocket propellants for the Space Shuttle and 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. (“ISP”). ISP manufactures monopropellant and bipropellant liquid propulsion systems and thrusters for satellites, launch vehicles, and interceptors.

		Effective October 1, 2008, we completed the acquisition of AMPAC ISP Holdings. AMPAC ISP Holdings is included in our consolidated financial statements beginning on October 1, 2008 and is a

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9.		SEGMENT INFORMATION (continued)

		component of our Aerospace Equipment segment. 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. These products are used on various satellites and spacecraft, as well as on the Ariane 5 launch vehicle. See Note 2.

		*Other Businesses.* Our Other Businesses segment contains our water treatment equipment and real estate activities. Our water treatment equipment business designs, manufactures and markets systems for the control of noxious odors, the disinfection of water streams and the treatment of seawater. Our real estate activities are not material.

		Our revenues are characterized by individually significant orders and a 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,
	2009			2008			2009			2008

Fine chemicals customer		21	%		15	%		22	%		20	%
Fine chemicals customer		21	%		22	%		13	%		22	%
Fine chemicals customer					18	%					12	%
Specialty chemicals customer		15	%		14	%		21	%		19	%
Specialty chemicals customer		11	%

The following provides financial information about our segment operations:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2009			2008			2009			2008

Revenues:
Fine Chemicals	$	31,738		$	30,504		$	52,122		$	57,266
Specialty Chemicals		17,283			12,787			34,641			28,336
Aerospace Equipment		7,135			4,235			12,892			7,970
Other Businesses		279			821			2,409			1,665

Total Revenues	$	56,435		$	48,347		$	102,064		$	95,237


Segment Operating Income (Loss):
Fine Chemicals	$	1,406		$	4,144		$	382		$	8,805
Specialty Chemicals		8,325			4,891			15,931			10,770
Aerospace Equipment		743			405			1,153			578
Other Businesses		(167	)		17			378			(1	)

Total Segment Operating Income		10,307			9,457			17,844			20,152
Corporate Expenses		(4,081	)		(4,089	)		(8,193	)		(7,560	)

Operating Income	$	6,226		$	5,368		$	9,651		$	12,592


Depreciation and Amortization:
Fine Chemicals	$	3,136		$	3,018		$	6,344		$	6,390
Specialty Chemicals		323			832			627			2,090
Aerospace Equipment		323			39			654			96
Other Businesses		3			3			6			6
Corporate		116			130			239			255


Total Depreciation and Amortization	$	3,901		$	4,022		$	7,870		$	8,837

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10.		INCOME TAXES

		*FIN 48.* We account for uncertain tax positions in accordance with FASB Interpretation No. FIN 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). Accordingly, we review our portfolio of uncertain tax positions and recorded liabilities based on the recognition standards established by FIN 48. 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.

		As of both March 31, 2009 and September 30, 2008, our recorded liability for unrecognized tax benefits was $313, of which $241 would impact our effective tax rate if we were to sustain the positions as filed. We expect that it is reasonably possible that our liability for unrecognized tax benefits will be reduced by $53 during the next twelve months due to the expiration of certain statutes of limitations.

		We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2009 and September 30, 2008, we had accrued $122 and $225, respectively for the payment of tax-related interest and penalties. For the six months ended March 31, 2009 and 2008, income tax expense includes expense of $6 and a benefit of $2 for interest and penalties.

		We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, Ireland and the U.K. With few exceptions, we are no longer subject to federal or state income tax examinations for years before 2005.

11.		DEFINED BENEFIT PLANS

		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 (collectively, the “Pension Plans”). In addition, we maintain a Supplemental Executive Retirement Plan (the “SERP”) which includes certain of our existing and prior executive officers.

		We maintain two 401(k) plans in which participating employees may make contributions. One covers substantially all U.S. employees except AFC bargaining unit employees and the other covers AFC bargaining unit employees. We make matching contributions for AFC and Aerospace Equipment U.S. employees. In addition, we make a profit sharing contribution for Aerospace Equipment U.S. employees.

		We provide healthcare and life insurance benefits to substantially all of our employees.

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11.		DEFINED BENEFIT PLANS (continued)

		Net periodic pension cost related to the Pension Plans consists of the following:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2009			2008			2009			2008

*Pension Plans:*
Service Cost	$	507		$	507		$	1,014		$	1,014
Interest Cost		670			563			1,340			1,126
Expected Return on Plan Assets		(601	)		(521	)		(1,202	)		(1,042	)
Recognized Actuarial Losses		109			107			218			214
Amortization of Prior Service Costs		19			14			38			28

Net Periodic Pension Cost	$	704		$	670		$	1,408		$	1,340


*Supplemental Executive Retirement Plan:*
Service Cost	$	97		$	89		$	195		$	176
Interest Cost		102			87			204			173
Expected Return on Plan Assets		-			-			-			-
Recognized Actuarial Losses		-			-			-			-
Amortization of Prior Service Costs		105			110			210			216

Net Periodic Pension Cost	$	304		$	286		$	609		$	565

		For the six months ended March 31, 2009, we contributed $908 to the Pension Plans to fund benefit payments and anticipate making approximately $2,034 in additional contributions through September 30, 2009. For the six months ended March 31, 2009, we contributed $63 to the SERP to fund benefit payments and anticipate making approximately $63 in additional contributions through September 30, 2009.

12.		GUARANTOR SUBSIDIARIES

		As discussed in Note 7, 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 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.

- 19 -

12.

GUARANTOR SUBSIDIARIES (continued)


Condensed Consolidating Balance Sheet - March 31, 2009

			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiaries			Eliminations			Consolidated

Assets:
Cash and Cash Equivalents	$	-	$	27,875		$	1,960		$	-		$	29,835
Accounts Receivable, Net		-		28,936			2,110			(238	)		30,808
Inventories		-		32,964			1,418			-			34,382
Prepaid Expenses and Other Assets		-		3,305			154			-			3,459
Deferred Income Taxes		-		6,859			-			-			6,859

Total Current Assets		-		99,939			5,642			(238	)		105,343
Property, Plant and Equipment, Net		-		115,861			1,204			-			117,065
Intangible Assets, Net		-		2,394			1,980			-			4,374
Goodwill		-		-			2,903			-			2,903
Deferred Income Taxes		-		13,852			-			-			13,852
Other Assets		-		10,276			-			-			10,276
Intercompany Advances		79,921		3,175			-			(83,096	)		-
Investment in Subsidiaries, Net		114,681		4,869			-			(119,550	)		-

Total Assets	$	194,602	$	250,366		$	11,729		$	(202,884	)	$	253,813


Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities	$	-	$	21,641		$	1,274		$	(238	)	$	22,677
Environmental Remediation Reserves		-		923			-			-			923
Deferred Revenues and Customer Deposits		-		3,350			1,991			-			5,341
Current Portion of Long-Term Debt		-		240			51			-			291
Intercompany Advances		-		79,921			3,175			(83,096	)		-

Total Current Liabilities		-		106,075			6,491			(83,334	)		29,232
Long-Term Debt		110,000		7			109			-			110,116
Environmental Remediation Reserves		-		12,638			-			-			12,638
Pension Obligations and Other Long-Term Liabilities		-		16,965			260			-			17,225

Total Liabilities		110,000		135,685			6,860			(83,334	)		169,211
Total Shareholders’ Equity		84,602		114,681			4,869			(119,550	)		84,602

Total Liabilities and Shareholders’ Equity	$	194,602	$	250,366		$	11,729		$	(202,884	)	$	253,813



Condensed Consolidating Statement of Operations - Three Months Ended March 31, 2009
			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues	$	-	$	54,711		$	1,823		$	(99	)	$	56,435
Cost of Revenues		-		37,936			1,301			(99	)		39,138

Gross Profit (Loss)		-		16,775			522			-			17,297
Operating Expenses		-		10,483			588			-			11,071

Operating Income (Loss)		-		6,292			(66	)		-			6,226
Interest and Other Income (Expense)		2,664		35			(44	)		(2,674	)		(19	)
Interest Expense		2,664		2,686			8			(2,674	)		2,684

Income (Loss) before Income Tax and Equity Account for Subsidiaries		-		3,641			(118	)		-			3,523
Income Tax Expense		-		1,790			-			-			1,790

Income (Loss) before Equity Account for Subsidiaries		-		1,851			(118	)		-			1,733
Equity Account for Subsidiaries		1,733		(118	)		-			(1,615	)		-

Net Income (Loss)	$	1,733	$	1,733		$	(118	)	$	(1,615	)	$	1,733

- 20 -

12.		GUARANTOR SUBSIDIARIES (continued)

		Condensed Consolidating Statement of Operations - Six Months Ended March 31, 2009


			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues	$	-	$	98,613		$	3,568		$	(117	)	$	102,064
Cost of Revenues		-		67,745			2,405			(117	)		70,033

Gross Profit (Loss)		-		30,868			1,163			-			32,031
Operating Expenses		-		21,194			1,186			-			22,380

Operating Income (Loss)		-		9,674			(23	)		-			9,651
Interest and Other Income (Expense)		5,333		122			(70	)		(5,343	)		42
Interest Expense		5,333		5,370			18			(5,343	)		5,378

Income (Loss) before Income Tax and Equity Account for Subsidiaries		-		4,426			(111	)		-			4,315
Income Tax Expense		-		2,125			-			-			2,125

Income (Loss) before Equity Account for Subsidiaries		-		2,301			(111	)		-			2,190
Equity Account for Subsidiaries		2,190		(111	)		-			(2,079	)		-

Net Income (Loss)	$	2,190	$	2,190		$	(111	)	$	(2,079	)	$	2,190

Condensed Consolidating Statement of Cash Flows - Six Months Ended March 31, 2009


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated

Net Cash Provided by Operating Activities	$	-		$	12,884		$	1,268		$	-	$	14,152


Cash Flows from Investing Activities:
Capital expenditures		-			(4,050	)		(362	)		-		(4,412	)
Acquisition on business, net of cash acquired		-			(7,132	)		471			-		(6,661	)

Net Cash Provided (Used) by Investing Activities		-			(11,182	)		109			-		(11,073	)


Cash Flows from Financing Activities:
Payments of long-term debt		-			(127	)		(45	)		-		(172	)
Issuance of common stock		32			-			-			-		32
Excess tax benefit from exercise of stock options		3			-			-			-		3
Intercompany advances, net		(35	)		(364	)		399			-		-

Net Cash Provided (Used) by Financing Activities		-			(491	)		354			-		(137	)


Net Change in Cash and Cash Equivalents		-			1,211			1,731			-		2,942
Cash and Cash Equivalents, Beginning of Period		-			26,664			229			-		26,893

Cash and Cash Equivalents, End of Period	$	-		$	27,875		$	1,960		$	-	$	29,835

- 21 -

12.		GUARANTOR SUBSIDIARIES (continued)

		Condensed Consolidating Balance Sheet - September 30, 2008


			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiary			Eliminations			Consolidated

Assets:
Cash and Cash Equivalents	$	-	$	26,664		$	229		$	-		$	26,893
Accounts Receivable, Net		-		27,083			649			(287	)		27,445
Inventories		-		39,669			688			-			40,357
Prepaid Expenses and Other Assets		-		5,085			111			-			5,196
Deferred Income Taxes		-		6,859			-			-			6,859

Total Current Assets		-		105,360			1,677			(287	)		106,750
Property, Plant and Equipment, Net		-		118,437			171			-			118,608
Intangible Assets, Net		-		3,013			-			-			3,013
Deferred Income Taxes		-		13,849			-			-			13,849
Other Assets		-		9,193			-			-			9,193
Intercompany Advances		79,886		2,664			-			(82,550	)		-
Investment in Subsidiaries, Net		113,076		(1,143	)		-			(111,933	)		-

Total Assets	$	192,962	$	251,373		$	1,848		$	(194,770	)	$	251,413


Liabilitites and Shareholders’ Equity:
Accounts Payable and Other Current Liabilities	$	-	$	24,718		$	327		$	(287	)	$	24,758
Environmental Remediation Reserves		-		996			-			-			996
Deferred Revenues and Customer Deposits		-		3,091			-			-			3,091
Current Portion of Long-Term Debt		-		254			-			-			254
Intercompany Advances		-		79,886			2,664			(82,550	)		-

Total Current Liabilities		-		108,945			2,991			(82,837	)		29,099
Long-Term Debt		110,000		120			-			-			110,120
Environmental Remediation Reserves		-		13,282			-			-			13,282
Pension Obligations and Other Long-Term Liabilities		-		15,950			-			-			15,950

Total Liabilities		110,000		138,297			2,991			(82,837	)		168,451
Total Shareholders’ Equity		82,962		113,076			(1,143	)		(111,933	)		82,962

Total Liabilities and Shareholders’ Equity	$	192,962	$	251,373		$	1,848		$	(194,770	)	$	251,413

Condensed Consolidating Statement of Operations - Three Months Ended March 31, 2008


			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues	$	-	$	47,611		$	736					$	48,347
Cost of Revenues		-		31,053			684						31,737

Gross Profit (Loss)		-		16,558			52			-			16,610
Operating Expenses		-		11,091			151			-			11,242

Operating Income (Loss)		-		5,467			(99	)		-			5,368
Interest and Other Income		2,662		267			1			(2,662	)		268
Interest Expense		2,662		2,687			-			(2,662	)		2,687

Income (Loss) before Income Tax and Equity Account for Subsidiaries		-		3,047			(98	)		-			2,949
Income Tax Expense		-		1,316			-			-			1,316

Income (Loss) before Equity Account for Subsidiaries		-		1,731			(98	)		-			1,633
Equity Account for Subsidiaries		1,633		(98	)		-			(1,535	)		-

Net Income (Loss)	$	1,633	$	1,633		$	(98	)	$	(1,535	)	$	1,633

- 22 -

12.		GUARANTOR SUBSIDIARIES (continued)

		Condensed Consolidating Statement of Operations - Six Months Ended March 31, 2008


			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiaries			Eliminations			Consolidated

Revenues	$	-	$	94,133		$	1,115		$	(11	)	$	95,237
Cost of Revenues		-		60,120			1,089			(11	)		61,198

Gross Profit (Loss)		-		34,013			26			-			34,039
Operating Expenses		-		21,133			314			-			21,447

Operating Income (Loss)		-		12,880			(288	)		-			12,592
Interest and Other Income		5,332		646			-			(5,332	)		646
Interest Expense		5,332		5,391			-			(5,332	)		5,391

Income (Loss) before Income Tax and Equity Account for Subsidiaries		-		8,135			(288	)		-			7,847
Income Tax Expense		-		3,351			-			-			3,351

Income (Loss) before Equity Account for Subsidiaries		-		4,784			(288	)		-			4,496
Equity Account for Subsidiaries		4,496		(288	)		-			(4,208	)		-

Net Income (Loss)	$	4,496	$	4,496		$	(288	)	$	(4,208	)	$	4,496

Condensed Consolidating Statement of Cash Flows - Six Months Ended March 31, 2008


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated

Net Cash Provided (Used) by Operating Activities	$	-		$	11,263		$	(44	)	$	-	$	11,219


Cash Flows from Investing Activities:
Capital expenditures		-			(5,288	)		(9	)		-		(5,297	)

Net Cash Used in Investing Activities		-			(5,288	)		(9	)		-		(5,297	)


Cash Flows from Financing Activities:
Payments of long-term debt		-			(144	)		-			-		(144	)
Issuance of common stock		117			-			-			-		117
Excess tax benefit from exercise of stock options		82			-			-			-		82
Intercompany advances, net		(199	)		129			70			-		-

Net Cash Provided (Used) by Financing Activities		-			(15	)		70			-		55


Net Change in Cash and Cash Equivalents		-			5,960			17			-		5,977
Cash and Cash Equivalents, Beginning of Period		-			21,352			74			-		21,426

Cash and Cash Equivalents, End of Period	$	-		$	27,312		$	91		$	-	$	27,403

- 23 -

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 expectation that our working capital may vary in the future, our potential incurrence of additional debt in the future, our belief that our cash flows will be adequate for the foreseeable future to satisfy the needs of our operations, our expectations regarding anticipated contributions to our defined benefit pension plans and supplemental executive retirement plan, our expectation regarding anticipated cash expenditures for environmental remediation at our former Henderson, Nevada site, our statement regarding anticipated spending for capital expenditures, our expectations regarding future compliance with material debt covenants, statements regarding our beliefs about future demand for Grade I ammonium perchlorate, our statement regarding one of the significant factors that will affect our consolidated gross margins in the future, statements regarding future segment revenues for our Fine Chemicals, Specialty Chemicals and Aerospace Equipment segments and factors that may potential affect them, including changes in volumes, business conditions and timing of orders and shipments, our expectations regarding fulfillment of existing backlog within the next twelve months, 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,” “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 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 these and other 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,” “AMPAC,” “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, 2009 (“fiscal 2009”) as compared to the second fiscal quarter and six-month period of the year ended September 30, 2008 (“fiscal 2008”). The discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended September 30, 2008 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 the year ended September 30, 2008.

OUR COMPANY

We are a leading manufacturer of fine and specialty chemicals within our focused markets. Our fine chemicals products are used by our customers to make drugs, primarily those with anti-viral, oncology and central nervous system indications. Our specialty chemicals and aerospace equipment products are utilized in national defense programs and provide access to, and movement in, space, via solid and liquid propellant rockets 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 other international regulatory standards. We generally sell our products through long-term contracts under which we are the sole-source or limited-source supplier.

- 24 -

OUR BUSINESS SEGMENTS

Our operations comprise four reportable business segments: (i) Fine Chemicals, (ii) Specialty Chemicals, (iii) Aerospace Equipment and (iv) 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,
	2009			2008			2009			2008


Fine Chemicals		56	%		63	%		51	%		60	%

Specialty Chemicals:
Perchlorates		28	%		23	%		31	%		27	%
Sodium Azide		1	%		0	%*		1	%		1	%
Halotron		2	%		3	%		2	%		2	%

Total Specialty Chemicals		31	%		26	%		34	%		30	%

Aerospace Equipment		13	%		9	%		13	%		8	%

Other Businesses:
Real Estate		0	%*		1	%		0	%*		1	%
Water Treatment Equipment		0	%*		1	%		2	%		1	%

Total Other Businesses		0	%		2	%		2	%		2	%

Total Revenues		100	%		100	%		100	%		100	%

* less than 1%

FINE CHEMICALS. On November 30, 2005, we acquired the fine chemicals business of GenCorp Inc. (the “AFC Business”) through our newly-formed, wholly-owned subsidiary Ampac Fine Chemicals LLC (“AFC”). Our Fine Chemicals segment is a custom manufacturer of active pharmaceutical ingredients (“APIs”) and registered intermediates. The pharmaceutical ingredients that we manufacture are used by our customers in drugs with applications in three primary areas: anti-viral, oncology, and central nervous system. We generate nearly all of our Fine Chemicals 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 or “cGMP” and other regulatory agencies such as the European Union’s European Medicines Agency (“EMEA”). 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.

We have distinctive competencies and specialized engineering capabilities in performing chiral separations, manufacturing highly potent (including cytotoxic) products, and performing energetic and nucleoside/nucleotide 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 (“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 have distinctive competency in handling highly toxic chemicals using our specialized high containment facilities in applications such as drugs used for oncology. We have significant experience and specially engineered facilities for 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 method to an alternative supplier, including the following:

- 25 -

•

Alternative Supply May Not Be Readily Available. We are currently the sole-source supplier on several of our fine chemicals products.

•

Regulatory Approval. Applications to and approvals from the FDA and other regulatory authorities generally require the chemical contractor to be named. Switching contractors may require additional regulatory approval and could take as long as six months to two years.

•

Significant Financial Costs. Switching contractors and amending various filings can result in significant costs associated with technology transfer, process validation and re-filing with the FDA and other regulatory authorities.

SPECIALTY CHEMICALS. Our Specialty Chemicals segment is principally engaged in the production of ammonium perchlorate (“AP”). We are the only North American producer 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 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.

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. 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 propellants.

Alliant Techsystems Inc. or “ATK” is our largest 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. On October 1, 2004, we acquired the former Atlantic Research Corporation’s liquid in-space propulsion business from Aerojet-General Corporation, which is now our Aerospace Equipment segment. Our Aerospace Equipment segment 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.

Effective October 1, 2008, our Aerospace Equipment segment completed the acquisition of Marotta Holdings Limited (subsequently renamed Ampac ISP Holdings Limited) and its wholly-owned subsidiaries (collectively “AMPAC ISP Holdings”) for a cash purchase price, including direct expenses and net of cash acquired, of $6,661. AMPAC ISP Holdings is included in our consolidated financial statements beginning on October 1, 2008. We are accounting for this acquisition using the purchase method of accounting. The allocation of the purchase price among the fair values of assets acquired and liabilities assumed is preliminary as of March 31, 2009.

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. These products are used on various satellites and spacecraft, as well as on the Ariane 5 launch vehicle. The business has two locations, Dublin, Ireland and Cheltenham, U.K.

OTHER BUSINESSES. Our Other Businesses segment contains our water treatment equipment and real estate activities. Our water treatment equipment business designs, manufactures and markets systems for the control of noxious odors, the disinfection of water streams and the treatment of seawater. Our real estate activities are not material.

- 26 -

RESULTS OF OPERATIONS

REVENUES



	March 31,				Increase			Percentage
	2009		2008		(Decrease)			Change

Three Months Ended:
Fine Chemicals	$	31,738	$	30,504	$	1,234			4	%
Specialty Chemicals		17,283		12,787		4,496			35	%
Aerospace Equipment		7,135		4,235		2,900			68	%
Other Businesses		279		821		(542	)		(66	%)

Total Revenues	$	56,435	$	48,347	$	8,088			17	%


Six Months Ended:
Fine Chemicals	$	52,122	$	57,266	$	(5,144	)		(9	%)
Specialty Chemicals		34,641		28,336		6,305			22	%
Aerospace Equipment		12,892		7,970		4,922			62	%
Other Businesses		2,409		1,665		744			45	%

Total Revenues	$	102,064	$	95,237	$	6,827			7	%

Fine Chemicals. The increase in Fine Chemicals segment revenues for the fiscal 2009 second quarter compared to the prior fiscal year second quarter is due to a 46% increase in revenues from anti-viral products offset partially by a 38% decrease in revenues from oncology products and a 51% decrease in revenues from central nervous system products. We typically do not manufacture and sell all product offerings in each quarter. As such, the quarter over quarter variances represent changes in the timing of customer orders within the fiscal years.

For the six months ended March 31, 2009, compared to the prior fiscal year six month period, the decrease in Fine Chemicals segment revenues reflects a decline in revenues from anti-viral products of 8%, a decline in revenues from oncology products of 7%, and a decline in revenues from central nervous system products of 22%.

Fine Chemicals segment revenues are anticipated to decline by approximately 25% in fiscal 2009 as compared to fiscal 2008. In addition, because our customer orders are typically based on calendar year requirements, we anticipate that these AFC business conditions will continue into the first quarter of fiscal 2010.


•		As previously disclosed, we expect a decline of approximately 85% in volume for the anti-viral product that was our largest product in fiscal 2008. We believe the fiscal 2009 decline in volume for this product is due to our customer’s supply chain strategy and their desire to reduce their current levels of inventory.



•		During our fiscal 2009 second quarter, a customer that utilizes our SMB technology instructed us to defer production of the product until calendar year 2010. This product is subject to a long-term manufacturing agreement that continues through 2011.



•		Product pipeline opportunities remain strong. However, the expected timing of revenues associated with firm purchase orders for new active pharmaceutical ingredients have moved into fiscal 2010.

Specialty Chemicals. Our Specialty Chemicals segment revenues include the operating results from our perchlorate, sodium azide and Halotron product lines, with perchlorates comprising 92% of Specialty Chemicals revenues in each of the fiscal 2009 and fiscal 2008 six-month periods.

The variances in Specialty Chemicals revenues for the three and six month periods ended March 31, 2009 as compared to the prior fiscal year three and six month periods reflect the following factors:

•

An 8% increase in perchlorate volume and a 32% increase in the related average price per pound for the fiscal 2009 second quarter.

•

A 1% decrease in perchlorate volume and a 24% increase in the related average price per pound for the fiscal 2009 six months ended March 31, 2009.

•

Sodium azide revenues increased $433 for the fiscal 2009 six month period.


•		Halotron revenues decreased $84 for the fiscal 2009 six month period.

The increase in perchlorate volume for the fiscal 2009 second quarter reflects the timing of orders related to tactical missile programs. The average price per pound increased for the fiscal 2009 second quarter because we sold more specialized blend product than in the comparable prior fiscal year quarter.

For the fiscal 2009 six month period, the greatest contribution to segment revenue was product for the Space Shuttle Reusable Solid Rocket Motor (“RSRM”) program. We currently expect annual demand for Grade I AP in fiscal 2009 to be consistent with

- 27 -

fiscal 2008. Increases in demand in fiscal 2009 for the Space Shuttle RSRM program, the Atlas V Solid Rocket Booster (SRB) program and the Guided Multiple Launch Rocket System (“MLRS”) program should offset declines from the completion in fiscal 2008 of the three-year Minuteman III propulsion replacement program.

Specialty Chemicals segment revenues are expected to be consistent to up 5% in fiscal 2009 as compared to fiscal 2008. The range of expected revenues, is partially subject to the ultimate timing of a firm order for AP that is currently scheduled to complete shipments in the last week of September 2009. Actual shipment of this order could vary by several weeks, which could cause revenues to move into fiscal 2010.

Over the longer term, we expect annual demand for Grade I AP to be within the range of 6 million to 9 million pounds based on current NASA and U.S. Department of Defense production programs. However, Grade I AP demand could increase if there is an extension of the Space Shuttle program and/or an acceleration of the Ares program.

Aerospace Equipment. Our Aerospace Equipment segment reflects the operating results of our wholly-owned subsidiary Ampac-ISP Corp. and its wholly-owned subsidiaries, which include the recently acquired AMPAC ISP Holdings beginning on October 1, 2008.

For the six months ended March 31, 2009, Aerospace Equipment segment revenues increased $4,922 compared to the prior fiscal year six month period due to organic growth and through the AMPAC ISP Holdings acquisition. AMPAC ISP Holdings contributed $2,581 in revenues. The remainder of the revenue increase is primarily attributed to this segment’s U.S. operations which experienced success in the latter part of fiscal 2008 with new contract awards. This improvement in backlog resulted in revenue increases in the first half of fiscal 2009.

Aerospace Equipment segment revenues are expected to increase substantially in fiscal 2009 as compared to fiscal 2008, reflecting at least 40% organic revenue growth and revenue contributions from our fiscal 2009 acquisition of AMPAC ISP Holdings.

Other Businesses. The variances in our Other Businesses segment revenues for the fiscal 2009 periods is due to an increase in water treatment equipment sales.

COST OF REVENUES AND GROSS MARGIN



	March 31,						Increase			Percentage
	2009			2008			(Decrease)			Change

Three Months Ended:
Revenues	$	56,435		$	48,347		$	8,088			17	%
Cost of Revenues		39,138			31,737			7,401			23	%

Gross Margin		17,297			16,610			687			4	%

Gross Margin Percentage		31	%		34	%

Six Months Ended:
Revenues	$	102,064		$	95,237		$	6,827			7	%
Cost of Revenues		70,033			61,198			8,835			14	%

Gross Margin		32,031			34,039			(2,008	)		(6	%)

Gross Margin Percentage		31	%		36	%

For our fiscal 2009 second quarter, cost of revenues was $39,138 compared to $31,737 for the prior fiscal year second quarter. The consolidated gross margin percentage was 31% and 34% for our fiscal 2009 and fiscal 2008 second quarters, respectively. For the six months ended March 31, 2009, cost of revenues was $70,033 compared to $61,198 for the prior fiscal year period. The consolidated gross margin percentage was 31% and 36% for our fiscal 2009 and fiscal 2008 six-month periods, respectively.

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 two largest segments. The revenue contribution by each of our segments is indicated in the table above under the heading “Our Business Segments”.

In addition, consolidated gross margins for our fiscal 2009 periods reflect:

•

A decrease in the Fine Chemicals segment gross margin percentage of approximately twelve points for the fiscal 2009 second quarter and fifteen points for the six months ended March 31, 2009. Factors that contributed to the decline in gross margin percentage include:

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•		During the fiscal 2009 second quarter, we experienced manufacturing difficulties related to equipment and a new process. The impact and resolution of these difficulties contributed approximately seven points of the gross margin reduction for the second quarter. Furthermore, pricing pressure associated with one of our products, offset by volume increases in the quarter, contributed the remaining five points of gross margin decrease.



•		During the fourth quarter of fiscal 2008, our Fine Chemicals segment implemented a new process for a large-volume anti-viral product and experienced start-up difficulties that negatively impacted margins for this product. During the fiscal 2009 six-month period, gross margins for this product remained significantly below historical levels. As of the end of the fiscal 2009 six-month period, the production process has been improved significantly and we are now achieving near targeted performance.



•		The combination of the fiscal 2009 first quarter and second quarter issues stated above resulted in eight points, of the fifteen point reduction in gross margin for fiscal 2009 year-to date, being caused by manufacturing difficulties, which are now largely resolved, and the remaining seven point decrease was attributed to pricing and volume decreases.

•

Specialty Chemicals segment gross margin percentage improved seven points for the fiscal 2009 second quarter and six points for the six months ended March 31, 2009, each compared to the prior year periods. Approximately one-half of the improvement is due to a reduction in amortization expense from $1,517 for the fiscal 2008 six month period to zero for the fiscal 2009 six month period. In mid-fiscal 2008 second quarter, the Specialty Chemicals segment completed the amortization of the value assigned to the perchlorate customer list acquired in fiscal 1998. The remaining improvement reflects the aforementioned higher average price per pound for the period.

OPERATING EXPENSES



	March 31,						Increase			Percentage
	2009			2008			(Decrease)			Change

Three Months Ended:
Operating Expenses	$	11,071		$	11,242		$	(171	)		(2	%)
Percentage of Revenues		20	%		23	%

Six Months Ended:
Operating Expenses	$	22,380		$	21,447		$	933			4	%
Percentage of Revenues		22	%		23	%

For our fiscal 2009 second quarter, operating expenses decreased $171 to $11,071 from $11,242 in the second quarter of the prior fiscal year primarily as a result of:


•		A $429 decrease in Fine Chemicals segment incentive compensation.



•		An increase in Aerospace Equipment segment operating expenses primarily due to additional operating expenses in the amount of $463 from the acquisition of AMPAC ISP Holdings.



•		Consistent corporate expenses, primarily including increases in rent of $257, increases in acquisition evaluation expenses of $195, increases in stock-based compensation of $149, offset by a decrease of $380 in incentive compensation. During the second quarter of fiscal 2009, corporate expenses include approximately $500 of due diligence costs related to a proposed acquisition that we determined did not meet our investment objectives.



•		Other decreases of $426.

For the six months ended March 31, 2009, operating expenses increased $933 to $22,380 from $21,447 for the six months ended March 31, 2008 as a result of:


•		An $803 decrease in Fine Chemicals segment operating expenses incentive compensation.



•		An increase in Aerospace Equipment segment operating expenses primarily due to additional operating expenses in the amount of $937 from the acquisition of AMPAC ISP Holdings.



•		An increase in corporate expenses, primarily including increases in rent of $476, increases in audit and tax services of $503, increases in stock-based compensation of $252, offset by a decrease of $713 in incentive compensation. The increase in audit and tax services is due to timing. These services were performed earlier in fiscal 2009 than in fiscal 2008.



•		Other increases of $281.

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SEGMENT OPERATING INCOME (LOSS)



	March 31,						Increase			Percentage
	2009			2008			(Decrease)			Change

Three Months Ended:
Fine Chemicals	$	1,406		$	4,144		$	(2,738	)		(66	%)
Specialty Chemicals		8,325			4,891			3,434			70	%
Aerospace Equipment		743			405			338			83	%
Other Businesses		(167	)		17			(184	)	NM

Segment Operating Income		10,307			9,457			850			9	%
Corporate Expenses		(4,081	)		(4,089	)		8			(0	%)

Operating Income	$	6,226		$	5,368		$	858			16	%


Six Months Ended:
Fine Chemicals	$	382		$	8,805		$	(8,423	)		(96	%)
Specialty Chemicals		15,931			10,770			5,161			48	%
Aerospace Equipment		1,153			578			575			99	%
Other Businesses		378			(1	)		379		NM

Segment Operating Income		17,844			20,152			(2,308	)		(11	%)
Corporate Expenses		(8,193	)		(7,560	)		(633	)		8	%

Operating Income	$	9,651		$	12,592		$	(2,941	)		(23	%)

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 of which 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 $43,300 and $61,800 as of March 31, 2009 and 2008, respectively. We anticipate backlog as of March 31, 2009 to be substantially filled during the next twelve months.

The decrease in Fine Chemicals segment backlog at March 31, 2009 as compared to March 31, 2008 generally reflects the timing of customer purchase orders against related supply agreements, as well as the previously mentioned expected decline in demand in fiscal 2009 for one of our anti-viral products.

Our Aerospace Equipment segment is a government contractor, and accordingly, total backlog includes both funded backlog (contracts for which funding is contractually obligated by the customer) and unfunded backlog (contracts for which funding is not currently contractually obligated by the customer).

We compute 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 $47,365 and $33,087, respectively, as of March 31, 2009 compared to total backlog and funded backlog of $25,506 and $13,877 as of September 30, 2008. We anticipate funded backlog as of March 31, 2009 to be substantially filled during the next twelve months.

The acquisition of AMPAC ISP Holdings contributed approximately $12,805 to total and funded backlog as of March 31, 2009.

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Backlog is not a meaningful measure for our other business lines.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS



	Six Months Ended March 31,									Percentage
	2009			2008			Change			Change

Cash Provided (Used) By:
Operating activities	$	14,152		$	11,219		$	2,933			26	%
Investing activities		(11,073	)		(5,297	)		(5,776	)		(109	%)
Financing activities		(137	)		55			(192	)		349	%

Net change in cash for period	$	2,942		$	5,977		$	(3,035	)		(51	%)

Operating Activities. Operating activities provided cash of $14,152 for the fiscal 2009 six-month period compared to $11,219 for the prior fiscal year six-month period, resulting in an increase of $2,933 from the prior fiscal year six-month period.

Significant components of the change in cash flow from operating activities include:

•	A decrease in cash due to less profit from our operations of $4,260.
•	An increase in cash provided by working capital accounts of $4,769, excluding the effects of interest and income taxes.
•	A decrease in cash taxes paid of $1,233.
•	A decrease in cash paid for interest of $44.
•	An increase in cash used for environmental remediation of $169.

•	Other increases in cash provided by operating activities of $1,316.

The increase in cash provided by working capital accounts is primarily due to lower working balances for our Fine Chemicals segment associated with the reduction in revenue.

We consider these working capital changes to be routine and within the normal production cycle of our products. The production of certain fine chemical products requires a length of time that exceeds one quarter. Therefore, in any given quarter, accounts receivable, work-in-progress inventory or deferred revenues 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 decrease in cash paid for income taxes is primarily due to the receipt of a $900 refund of fiscal 2008 taxes in the fiscal 2009 second quarter.

Other increases in cash provided by operating activities primarily reflect the timing of contributions to our defined benefit pension plans.

Investing Activities.

•

Capital expenditures decreased $885 to $4,412 in the fiscal 2009 six-month period as compared to $5,297 for the prior fiscal year six-month period.

For fiscal 2009, we anticipate spending approximately $10,000 for capital expenditures, most of which is related to maintenance capital.

•

Cash used for acquisition of business reflects the purchase of AMPAC ISP Holdings for $7,132, net of cash acquired of $471.

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LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2009, we had cash of $29,835. Our primary source of working capital is cash flows from operations. In addition, we have available funds under our committed revolving credit line, which matures in February 2012. Our revolving line of credit had availability of $18,042 as of March 31, 2009. Availability is computed as the total commitment of $20,000 less outstanding borrowings and outstanding letters of credit, if any. We believe that changes in cash flow from operations during the fiscal 2009 six-month period 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.

In addition, 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. If such costs are material, to the extent not covered by insurance, they would 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 aforementioned anticipated changes in revenues and margins; and


•		cash requirements related to our debt agreements, pension plans and remediation activities.

We do not currently anticipate that the factors noted above will have material affects on our ability to meet our future liquidity requirements. 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 REVOLVING CREDIT FACILITIES

•		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.

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The Senior Notes may be redeemed by the Company, in whole or in part, under the following circumstances:

•		at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of the Senior Notes plus an applicable premium as defined in the related indenture;

•		at any time on or after February 1, 2011 at redemption prices beginning at 104.5% of the principal amount to be redeemed and reducing to 100% by February 1, 2013;

•		until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest thereon, with the proceeds of certain sales of our equity securities; and

•		under certain changes of control, we must offer to purchase the Senior Notes at 101% of their aggregate principal amount, plus accrued interest.

•		incur additional debt;

•		pay dividends or make other restricted payments;

•		create liens on assets to secure debt;

•		incur dividend or other payment restrictions with regard to restricted subsidiaries;

•		transfer or sell assets;

•		enter into transactions with affiliates;

•		enter into sale and leaseback transactions;

•		create an unrestricted subsidiary;

•		enter into certain business activities; or

•		effect a consolidation, merger or sale of all or substantially all of our assets.

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 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 (the “Revolving Credit Facility”) with Wachovia Bank, National Association, and certain other lenders, which provides a secured revolving credit facility in an aggregate principal amount of up to $20,000 with an initial maturity of 5 years. We may prepay and terminate the Revolving Credit Facility at any time. The annual interest rates applicable to loans under the Revolving Credit Facility are, at our option, either the Alternate Base Rate or LIBOR Rate (each as defined in the Revolving Credit Facility) plus, in each case, an applicable margin. The applicable margin is tied to our total leverage ratio (as defined in the Revolving Credit Facility). In addition, we pay commitment fees, other fees related to the issuance and maintenance of letters of credit, and certain agency fees.

The Revolving Credit Facility is guaranteed by and secured by substantially all of the assets of our current and future domestic subsidiaries, subject to certain exceptions as set forth in the Revolving Credit Facility. The Revolving Credit Facility contains certain negative covenants restricting and limiting our ability to, among other things:

•		incur debt, incur contingent obligations and issue certain types of preferred stock;

•		create liens;

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•		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.

Financial covenants under the Revolving Credit Facility include quarterly requirements for total leverage ratio of less than or equal to 5.25 to 1.00 (“Total Leverage Ratio”), and interest coverage ratio of at least 2.50 to 1.00 (“Interest Coverage Ratio”). The Revolving Credit Facility defines Total Leverage Ratio as the ratio of Consolidated Funded Debt to Consolidated EBITDA and Interest Coverage Ratio as the ratio of Consolidated EBITDA to Consolidated Interest Expense. With respect to these covenant compliance calculations, Consolidated EBITDA, as defined in the Revolving Credit Facility (hereinafter, referred to as “Credit Facility EBITDA”), differs from typical EBITDA calculations and our calculation of Adjusted EBITDA, which is used in certain of our public releases and in connection with our incentive compensation plan. The most significant difference in the Credit Facility EBITDA calculation is the inclusion of cash payments for environmental remediation as part of the calculation. The following statements summarize the elements of those definitions that are material to our computations. Consolidated Funded Debt generally includes principal amounts outstanding under our Senior Notes, Revolving Credit Facility, capital leases and notional amounts for outstanding letters of credit. Credit Facility EBITDA is generally computed as consolidated net income plus income tax expense, interest expense, depreciation and amortization, and stock-based compensation expense and less cash payments for environmental remediation and other non-recurring gains in excess of $50. In accordance with the definitions contained in the Revolving Credit Facility, as of March 31, 2009, our Total Leverage Ratio was 3.09 to 1.00 and our Interest Coverage Ratio was 3.60 to 1.00.

The Revolving Credit Facility also contains usual and customary events of default (subject to certain threshold amounts and grace periods), including cross-default provisions that include our Senior Notes. If an event of default occurs and is continuing, we may be required to repay the obligations under the Revolving Credit Facility prior to its stated maturity and the related commitments may be terminated. We do not believe that it is reasonably likely, in the near or long-term, that we will be in violation of our debt covenants.

As of March 31, 2009, under our Revolving Credit Facility, we had no borrowings outstanding and availability of $18,042. Availability is computed as the total commitment of $20,000 less outstanding borrowings and outstanding letters of credit, if any.

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 (the “AFC Salaried Plan”), and the Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit Employees (the “AFC Bargaining Plan”). Collectively, these three plans are referred to as the “Pension Plans”. The AFC Salaried Plan and the AFC Bargaining Plan were established in connection with our acquisition of the AFC Business and include the assumed liabilities for pension benefits to existing employees at the acquisition date. Pension Plan benefits are paid based on an average of earnings, retirement age, and length of service, among other factors.

Benefit obligations are measured annually as of September 30. As of September 30, 2008, the Pension Plans had an unfunded benefit obligation of $9,840. For the years ended September 30, 2008 and 2007, we made contributions to the Pension Plans in the amounts of $3,011 and $2,705, respectively. We anticipate making minimum Pension Plan contributions in the amount of $2,942 during the year ending September 30, 2009. 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 September 30. The fair value of Pension Plan assets is a key factor in determining our minimum funding

- 34 -

obligations. Holding all other variables constant, a 10% decline in asset value as of September 30, 2008 would increase our minimum funding obligations for the year ending September 30, 2009 by approximately $500.

In addition, we have the American Pacific Corporation Supplemental Executive Retirement Plan (the “SERP”) that, as of September 30, 2008, included four executive officers and one former executive officer. The SERP is an unfunded plan and as of September 30, 2008, the SERP obligation was $5,979. For the years ended September 30, 2008 and 2007, we paid retirement benefits of $126 in each year. We anticipate paying retirement benefits in the amount of $126 during the year ending September 30, 2009. Payments for retirement benefits should increase in future years when each of the four active participants retires. The future increase in retirement benefits will be determined based on certain variables including each participating individual’s actual retirement date, rate of compensation and years of service.

ENVIRONMENTAL REMEDIATION — AMPAC HENDERSON SITE. 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 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 consists of two primary phases: the initial construction of the remediation equipment phase and the operating and maintenance phase. During fiscal 2006, we increased our total cost estimate of probable costs for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. 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 part of our efforts to remediate groundwater near the AMPAC Henderson Site, we chose to use in situ bioremediation (“ISB”), which is a new technology on the scale that we have employed it. Accordingly, as we gain ISB operational experience, we have been and are observing certain conditions, operating results and other data which we consider in updating the assumptions used to determine our costs estimates. The two most significant assumptions are the estimated speed of groundwater flowing to our remediation extraction wells and the estimated annual O&M costs.

Groundwater speed is one key variable along with the required pore volumes of groundwater used to estimate the number of years that may be required to operate the facility. Groundwater speed is estimated by utilizing periodic data that measures, among other things, perchlorate concentrations upgradient from the treatment area, in addition to hydraulic conductivity and porosity. As time passes, and as we continue to add reference data and analysis, our estimates of the total years of operation may change. Initially, data suggested that the total project life would extend for a period of 45 years. More recent data indicates that the total project life may be 23 years. We are unable to predict over the longer term the most probable life and accordingly have used an assumed range of 23 to 45 years of operation.

O&M costs include primarily labor, utilities, repairs, maintenance supplies and professional service costs. Since the inception of operations of the new ISB technology operations in fiscal 2007, we have not consistently achieved the targeted levels of groundwater remediation. We have experienced annualized O&M cost levels of approximately $1,000, which is higher than our initial estimates. This higher level of cost reflects costs to evaluate methods to optimize operating performance and maintenance of reinjection wells. In addition, we anticipate incurring similar O&M cost levels in fiscal 2009 as we continue our evaluation of methods to achieve targeted remediation results. Our range of estimated costs assumes that we will be successful in optimizing the remediation plant performance and that average annual O&M costs beyond 2012 and for the duration of the project will be approximately $380.

As of March 31, 2009, the aggregate range of anticipated environmental remediation costs was from approximately $11,750 to approximately $23,840, and the accrued amount was $13,561. These

- 35 -

estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

CONTRACTUAL OBLIGATIONS

Our contractual obligations are summarized in our Annual Report on Form 10-K for the year ended September 30, 2008. We have contractual obligations related to our Senior Notes, interest on Senior Notes, capital leases, interest on capital leases, and operating leases. As of March 31, 2009, there have been no material changes to our contractual obligations from September 30, 2008.

In addition, at March 31, 2009:

•		We have recorded an estimated liability for environmental remediation of $13,561 (see Note 8 to the condensed consolidated financial statements included in Item 1 of this report). We expect to spend approximately $996 for environmental remediation during fiscal 2009.

•		We have recorded aggregate Pension Plans and SERP obligations of $16,700 (see Note 11 to the condensed consolidated financial statements included in Item 1 of this report). We expect to contribute $3,068 to our Pension Plans and SERP during fiscal 2009.

•		We have uncertain tax positions totaling $313. We are unable to reasonably estimate the timing of the related payments, if any.

•		We also maintain the Revolving Credit Facility, which provides revolving credit in an aggregate principal amount of up to $20,000 with an initial maturity in February 2012. At March 31, 2009, we had no balance outstanding under the Revolving Credit Facility. We may prepay and terminate the Revolving Credit Facility at any time.

OFF-BALANCE SHEET ARRANGEMENTS

Letters of Credit. As of March 31, 2009, we had $1,958 in outstanding standby letters of credit which mature through July 2013. 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.

Employee Agreements. We have an employment agreement with our Chief Operating Officer, the term of which currently ends on September 30, 2011, unless amended or extended in accordance with the terms of the agreement or otherwise. Significant contract provisions include annual base salary, health care benefits, and non-compete provisions. The employment agreement is primarily an “at will” employment agreement, under which we may terminate the employment of our Chief Operating Officer for any or no reason. Generally, the agreement provides that a termination without cause obligates us to pay certain severance benefits specified in the contract.

We entered into severance agreements with each of our Vice President, Administration and our Chief Financial Officer, which, generally, provide that a termination of the executive without cause obligates us to pay certain severance benefits specified in the contract. In addition, certain other key divisional executives are eligible for severance benefits.

Estimated minimum aggregate severance benefits under all of these agreements and arrangements as of March 31, 2009 was approximately $4,200.

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.

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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.

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 criteria of Staff Accounting Bulletin No. 101, “Revenue Recognition in the Financial Statements”, as amended by Staff Accounting Bulletin No. 104, “Revenue Recognition”, which include the point at which title and risk of ownership transfer to our customers. These customers have specifically requested in writing, pursuant to a contract, that we invoice for the finished product and hold the finished product until a later date. 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 $35,726 and $29,022 as of March 31, 2009 and September 30, 2008, respectively.

Revenues from our Aerospace Equipment segment are derived from contracts that are accounted for in conformity with the American Institute of Certified Public Accountants (“AICPA”) audit and accounting guide, “Audits of Federal Government Contracts” and the AICPA’s Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Production Type Contracts.” We account for these contracts using the percentage-of-completion method and measure progress on a cost-to-cost basis. 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

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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 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 as required by Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3 (May 2005),” or the amortization period as required by SFAS No. 142, “Goodwill and Other Intangible Assets.” 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.

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

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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.

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 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, 2008, recovery of our U.S. jurisdiction deferred tax assets, net of applicable deferred tax liabilities, required that we generate approximately $49,000 in taxable income in periods ranging from one to 43 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 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 the provisions of FASB Interpretation No. FIN 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”), which creates a single model to address uncertainty in income tax positions and prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Our accounting policy is consistent with FASB Staff Position FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48”, that was issued in May 2007 that provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing unrecognized tax benefits.

Under FIN 48, the Company may recognize tax benefits from an uncertain position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized is the largest benefit that the Company believes has greater than a 50% likelihood of being realized upon settlement. 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, which are accounted for in accordance with SFAS No. 87, “Employers’ Accounting for Pensions” and SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132 (R).” These 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,

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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 7.25 percent as of September 30, 2008. 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 $300.

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 2008. 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 September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles in the United States of America, and expands disclosures about fair value measurements. In February 2008, the FASB deferred the adoption of SFAS No. 157 for one year as it applies to certain items, including assets and liabilities initially measured at fair value in a business combination, reporting units and certain assets and liabilities measured at fair value in connection with goodwill impairment tests in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, and long-lived assets measured at fair value for impairment assessments under SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.” SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 was effective for us on October 1, 2008. We have not adopted all the provisions of SFAS No. 157 as the FASB delayed the effective date of the application of SFAS No. 157 to non-financial assets and liabilities. The remaining provisions of SFAS No. 157 become effective for us beginning October 1, 2009. The partial adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements. The adoption of the remaining provisions of SFAS No. 157 is not expected to have a material impact on our results of operations, financial position or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by SFAS No. 159 permits all companies to choose to measure eligible items at fair value at specified election dates. At each subsequent reporting date, a company must report in earnings any unrealized gains and losses on items for which the fair value option has been elected. SFAS No. 159 was effective for us on October 1, 2008. We chose not to elect the fair value option for any of our financial instruments.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R will significantly change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R also includes a substantial number of new disclosure requirements. SFAS No. 141R applies to us prospectively for business combinations with acquisition dates on or after October 1, 2009. We expect that SFAS No. 141R, once adopted, will have an impact on accounting for business combinations, but the effect is dependent upon acquisitions at that time.

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, SFAS No. 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, SFAS No. 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for us beginning on October 1, 2009. We currently have no entities or arrangements that will be affected by the adoption of SFAS No. 160. However, determination of the ultimate effect of this pronouncement will depend on our structure at the date of adoption.

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The guidance contained in this FSP for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date. However, the disclosure requirements of FSP No. 142-3 must be applied prospectively to all intangible assets recognized in the Company’s financial statements as of the effective date. FSP No. 142-3 is effective for us beginning October 1, 2009.

In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The objectives of the disclosures include investment allocation decisions, major categories of plan assets, inputs and valuation techniques used to measure the fair value of plan assets, the effect of certain fair value measurements, and significant concentrations of risk within plan assets. The expanded disclosure requirements are effective for our fiscal year ending September 30, 2010.

In April 2009, the FASB issued FSP No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157, when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on how to identify circumstances that indicate that a transaction is not orderly and emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation techniques used, the objective of a fair value measurement remains the same. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and is to be applied prospectively. We are currently evaluating the requirements of this pronouncement and have not determined the impact, if any, that the adoption will have on our consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amend SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” , to require disclosures about fair value of financial instruments in interim reporting periods. Such disclosures were previously required only in annual financial statements. FSP FAS 107-1 and APB 28-1 also amend Accounting Principles Board Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for interim and annual reporting periods ending after June 15, 2009. We are currently evaluating the requirements of FSP FAS 107-1 and APB 28-1 and have not determined the impact, if any, that the adoption will have on our consolidated financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in Thousands)

As of March 31, 2009, there were no material changes to our market risk disclosures set forth in Item 7A of our Annual Report on Form 10-K for the year ended September 30, 2008. We are exposed to interest rate risk primarily due to changes in market interest rates as compared to the fixed rate for our long-term debt. As of March 31, 2009, our outstanding debt is comprised primarily of $110,000 aggregate principal of the Senior Notes. At March 31, 2009, we had no amount outstanding under our Revolving Credit Facility. Trading volume for our Senior Notes is limited. We estimate the fair value of the Senior Notes to be approximately $93,500 based on the most recent trade data, which was as of April 3, 2009.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation as of March 31, 2009, 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)

There have been no material changes in our assessment of risk factors affecting our business since those presented in Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2008. Our updated risk factors are included below in this Item 1A.

Our business, financial condition and operating results can be affected by a number of factors, including those described below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. Any of these risks could also materially and adversely affect our business, financial condition or the price of our common stock or other securities.

We depend on a limited number of customers for most of our sales in our Specialty Chemicals, Aerospace Equipment and Fine Chemicals segments and the loss of one or more of these customers could have a material adverse affect on our financial position, results of operations and cash flows.

Most of the perchlorate chemicals we produce, which accounted for 91% of our total revenues in the Specialty Chemicals segment for fiscal 2008 and approximately 26% of our total revenues for fiscal 2008, are purchased by a small number of customers. For example, Alliant Techsystems Inc., one of our ammonium perchlorate, or AP, customers, accounted for 16% of our total revenues for fiscal 2008. In our Aerospace Equipment segment, 74% of our total revenues in this segment for fiscal 2008 was from three 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 purchase 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 (“APIs”) for a limited number of key customers. One customer of AFC accounted for 31% of our consolidated revenue and the top three customers of AFC accounted for approximately 89% of its revenues, and 54% of our consolidated revenues, in fiscal 2008. 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, one or more of these customers might reduce their orders in the future, which could have a similar negative effect on the results of operations of AFC. 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

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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.

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 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, 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 over time to produce 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 inspection by the FDA and other governmental agencies, and operations at these facilities could be interrupted or halted if such inspections are unsatisfactory. 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 result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial

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suspension 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 change and compliance is deficient in any significant way, 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 are, like other government and military contractors and subcontractors, 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 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 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 2008, our Specialty Chemicals segment generated approximately 23% of consolidated revenues, primarily sales of Grade I AP, and our Aerospace Equipment segment generated approximately 2% 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 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, the Moon and Mars, and the number of space exploration launches. 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.

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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. Recent credit and other 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, 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 liabilities.

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. 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.

Review of Perchlorate Toxicity by the EPA. Perchlorate is not currently included in the list of hazardous substances compiled by the U.S. Environmental Protection Agency, or EPA, but it is on the EPA’s Contaminant Candidate List. The National Academy of Sciences, the EPA and certain states have set or discussed certain guidelines on the acceptable levels of perchlorate in water. 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. While the presence of regulatory review presents general business risk to the Company, we are currently unaware of any contemplated regulatory action 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. It is possible that the 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

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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 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.

Henderson Site Environmental Remediation Reserve. During fiscal 2005 and 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 consists 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 fiscal 2007, we began the O&M phase. Key factors in determining the total estimated cost of our remediation efforts at the AMPAC Henderson Site include an estimate of the speed of groundwater entering the treatment area and annual O&M costs. Groundwater speed is used to estimate the number of years that may be required to operate the facility. Initially, data suggested that the total project life would extend for a period of 45 years. More recent data indicates that the total project life may be 23 years. We are unable to predict over the longer term the most probable life and accordingly have used an assumed range of 23 to 45 years of operation. We have experienced annualized O&M cost levels of approximately $1,000, which is higher than our initial estimates. This higher level of cost reflects costs to evaluate methods to optimize operating performance and maintenance of reinjection wells. In addition, we anticipate incurring similar O&M cost levels in fiscal 2009 as we continue our evaluation of methods to achieve targeted remediation results. Our range of estimated costs assumes that we will be successful in optimizing the remediation plant performance and that average annual O&M costs beyond 2012 and for the duration of the project will be approximately $380. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

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, 2009, we had established reserves in connection with the AMPAC Henderson Site of approximately $13,561, 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,

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and they could change. 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 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. A significant disruption at a particular facility, 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 liability.

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 (temporarily 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 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. We are also 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 facilities.

AFC uses substantial amounts of raw materials in its production processes, including petroleum-based solvents. Increases in the prices of raw materials which AFC purchases from third party suppliers could adversely impact revenue and 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. 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, 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 current Good Manufacturing Practices or “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.

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.

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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, 2008, AFC had approximately 154 employees that were covered by collective bargaining or similar agreements. In June 2007, AFC’s collective bargaining and similar agreements were renegotiated and extended to June 2010. If we are unable to negotiate acceptable new agreements with the unions 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 that consumes cash from our Fine Chemicals segment and our other operations and 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 in the current conditions of the credit markets in the U.S. These factors could substantially increase AFC’s costs and negatively impact its operating results.

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

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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 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. Competition in the pharmaceutical fine chemicals market is based upon reputation, service, manufacturing capability and expertise, price and reliability of supply. 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

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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. 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.

A loss of key personnel or highly skilled employees could disrupt our operations.

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 some of 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 operations could be disrupted by a shortage of available skilled employees or if we are unable to retain these highly skilled and experienced employees.

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We may continue to expand our operations in part through acquisitions, which could divert management’s attention and expose us to unanticipated liabilities and costs. We may experience difficulties integrating the acquired operations, and we may incur costs relating to acquisitions that are never consummated.

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. 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 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 business that we acquire, there may be liabilities of the acquired companies 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.

As of March 31, 2009, we had outstanding debt totaling $110,407, 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.

If we are unable to generate sufficient cash flow to service our debt and fund our operating costs, our liquidity may be adversely affected.

We are obligated to comply with financial and other covenants in our debt that could restrict our operating activities, and the failure to comply could result in defaults that accelerate the payment under our debt.

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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.

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.

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 long-term expected return on assets. Other assumptions include salary 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. 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.

Our shareholder rights plan, Restated Certificate of Incorporation, as amended, and Amended and Restated By-laws discourage unsolicited takeover proposals and could prevent stockholders from realizing a premium on their common stock.

We have a shareholder rights plan that 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.

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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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES – None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

American Pacific Corporation (the “Company”) held its annual meeting of stockholders on March 10, 2009. The matters voted upon at the meeting and the results of the vote for each matter were as follows:

Item No. 1. To elect Dr. Joseph Carleone, Fred D. Gibson, Jr. and Berlyn D. Miller as the three Class C directors to the board of directors of the Company to serve three-year terms until the annual meeting of stockholders in 2012 or until their respective successors have been duly elected and qualified.

Each of the Class C director nominees received the affirmative vote of the holders of more than 73% but less than 80% of the shares present in person or represented by proxy and entitled to vote at the annual meeting, as set forth below:


Name	Votes For		Votes Withheld

Joseph Carleone		4,956,250		1,754,040

Fred D. Gibson, Jr.		4,958,738		1,751,552

Berlyn D. Miller		4,959,371		1,750,919

Consequently, in accordance with the Company’s Restated Certificate of Incorporation, as amended, and the Company’s Amended and Restated By-laws, Dr. Joseph Carleone, Fred D. Gibson, Jr. and Berlyn D. Miller will remain in office as Class C directors until the next annual meeting of stockholders in 2010, at which time they will each stand for election, if nominated, for the remainder of the Class C directors’ term.

In addition to the Class C directors set forth above, the term of office as a director of each of John R. Gibson, Jan H. Loeb, Norval F. Pohl, C. Keith Rooker, Dean M. Willard, and Jane L. Williams continued after the 2009 annual meeting of stockholders.

Item No. 2. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2009.

The ratification of the appointment of Deloitte & Touche LLP was approved in accordance with the voting set forth below:


Votes For	Against		Abstained		Broker Non-Votes

6,288,634		404,972		2,856	Not Applicable

ITEM 5. OTHER INFORMATION – None.

ITEM 6. EXHIBITS – See attached exhibit index.

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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		American Pacific Corporation Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on September 15, 2008)

3.5		Rights Agreement, dated as of August 3, 1999, between American Pacific Corporation and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on August 6, 1999)

3.6		Form of Letter to Stockholders that accompanied copies of the Summary of Rights to Purchase Preferred Shares (incorporated by reference to Exhibit 2 to the Registrant’s Registration Statement on Form 8-A (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on August 6, 1999)

3.7		Amendment, dated as of July 11, 2008, between American Pacific Corporation and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on July 11, 2008)

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


*		Exhibits 32.1 and 32.2 are furnished to accompany this Quarterly Report on Form 10-Q but shall not be deemed “filed” for the 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.

- 57 -




PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements	1

	Condensed Consolidated Statements of Operations (unaudited)	1

	Condensed Consolidated Balance Sheets (unaudited)	2

	Condensed Consolidated Statements of Cash Flows (unaudited)	3

	Notes to Condensed Consolidated Financial Statements (unaudited)	4

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	42

ITEM 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	43

ITEM 1A.	Risk Factors	43

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

ITEM 3.	Defaults Upon Senior Securities	55

ITEM 4.	Submission of Matters to a Vote of Security Holders	55

ITEM 5.	Other Information	55

ITEM 6.	Exhibits	55
EX-31.1
EX-31.2
EX-32.1
EX-32.2


		AMERICAN PACIFIC CORPORATION



Date: May 18, 2009		/S/ JOHN R. GIBSON

		John R. Gibson
		Chairman of the Board 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)

1.		I have reviewed this quarterly report on Form 10-Q of American Pacific Corporation;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	(i)		The Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2009 as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

	(ii)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.