UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2010

or

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

For the transition period from                      to                     

Commission File Number: 001-08137

AMERICAN PACIFIC CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		59-6490478
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3883 Howard Hughes Parkway, Suite 700
Las Vegas, Nevada 89169
(Address of principal executive offices) (Zip Code)

(702) 735-2200
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES x   No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o   No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o   No x

     The number of shares of the registrant’s common stock outstanding as of January 31, 2011 was 7,543,091.

AMERICAN PACIFIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

 

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			22
ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk			38
ITEM 4.   Controls and Procedures			38
PART II. OTHER INFORMATION
ITEM 1.   Legal Proceedings			39
ITEM 1A. Risk Factors			39
ITEM 2.   Unregistered Sales of Equity Securities and Use of Proceeds			53
ITEM 3.   Defaults Upon Senior Securities			53
ITEM 4.   (Removed and Reserved)			53
ITEM 5.   Other Information			53
ITEM 6.   Exhibits			53
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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
		December 31,
		2010				2009
Revenues		$	35,184			$	34,064
Cost of Revenues			28,568				21,618
Gross Profit			6,616				12,446
Operating Expenses			11,423				12,307
Other Operating Gains			1,337				—
Operating Income (Loss)			(3,470	)			139
Interest Income and Other (Expense), Net			(133	)			(8	)
Interest Expense			2,714				2,691
Loss before Income Tax			(6,317	)			(2,560	)
Income Tax Benefit			(2,698	)			(1,120	)
Net Loss		$	(3,619	)		$	(1,440	)
Loss per Share:
Basic		$	(0.48	)		$	(0.19	)
Diluted		$	(0.48	)		$	(0.19	)
Weighted-Average Shares Outstanding:
Basic			7,504,000				7,487,000
Diluted			7,504,000				7,487,000

See accompanying notes to condensed consolidated financial statements

AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited, Dollars in Thousands, Except per Share Amounts)

		December 31,				September 30,
		2010				2010
ASSETS
Current Assets:
Cash and Cash Equivalents		$	30,705			$	23,985
Accounts Receivable, Net			32,803				51,900
Inventories			38,404				36,126
Prepaid Expenses and Other Assets			4,881				1,542
Income Taxes Receivable			3,474				2,802
Deferred Income Taxes			10,672				10,672
Total Current Assets			120,939				127,027
Property, Plant and Equipment, Net			114,345				113,873
Intangible Assets, Net			1,066				1,420
Goodwill			2,856				2,933
Deferred Income Taxes			20,242				20,254
Other Assets			9,419				10,236
TOTAL ASSETS		$	268,867			$	275,743
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable		$	12,384			$	9,197
Accrued Liabilities			8,142				8,062
Accrued Interest			3,938				1,575
Employee Related Liabilities			5,611				6,472
Income Taxes Payable			250				193
Deferred Revenues and Customer Deposits			13,340				18,769
Current Portion of Environmental Remediation Reserves			10,164				8,694
Current Portion of Long-Term Debt			70				70
Total Current Liabilities			53,899				53,032
Long-Term Debt			105,084				105,102
Environmental Remediation Reserves			13,189				15,176
Pension Obligations			35,062				37,161
Other Long-Term Liabilities			1,633				1,615
Total Liabilities			208,867				212,086
Commitments and Contingencies
Shareholders’ Equity
Preferred Stock - $1.00 par value; 3,000,000 authorized; none outstanding			-				-
Common Stock - $0.10 par value; 20,000,000 shares authorized, 7,543,091 issued and outstanding			754				754
Capital in Excess of Par Value			73,169				73,091
Retained Earnings			3,101				6,720
Accumulated Other Comprehensive Loss			(17,024	)			(16,908	)
Total Shareholders’ Equity			60,000				63,657
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	268,867			$	275,743

See accompanying notes to condensed consolidated financial statements

AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited, Dollars in Thousands)

		Three Months Ended
		December 31,
		2010				2009
Cash Flows from Operating Activities:
Net Loss		$	(3,619	)		$	(1,440	)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
Depreciation and amortization			3,739				4,053
Non-cash interest expense			297				159
Share-based compensation			100				346
Deferred income taxes			(10	)			(44	)
Loss on sale of assets			-				5
Changes in operating assets and liabilities:
Accounts receivable, net			18,970				20,141
Inventories			(2,118	)			(11,323	)
Prepaid expenses and other current assets			(2,481	)			(540	)
Accounts payable			1,588				296
Income taxes			(611	)			(279	)
Accrued liabilities			87				1,791
Accrued interest			2,363				2,475
Employee related liabilities			(852	)			(1,643	)
Deferred revenues and customer deposits			(5,418	)			4,208
Environmental remediation reserves			(517	)			(682	)
Pension obligations, net			(2,099	)			853
Other			(172	)			(269	)
Net Cash Provided by Operating Activities			9,247				18,107
Cash Flows from Investing Activities:
Capital expenditures			(2,493	)			(1,099	)
Net Cash Used by Investing Activities			(2,493	)			(1,099	)
Cash Flows from Financing Activities:
Payments of long-term debt			(16	)			(59	)
Net Cash Used by Financing Activities			(16	)			(59	)
Effect of Changes in Currency Exchange Rates on Cash			(18	)			(11	)
Net Change in Cash and Cash Equivalents			6,720				16,938
Cash and Cash Equivalents, Beginning of Period			23,985				21,681
Cash and Cash Equivalents, End of Period		$	30,705			$	38,619
Cash Paid (Received) For:
Interest		$	54			$	57
Income taxes			(2,095	)			(801	)
Non-Cash Investing and Financing Transactions:
Additions to Property, Plant and Equipment not yet paid			2,243				778
Capital Leases Originated			-				65

See accompanying notes to condensed consolidated financial statements

AMERICAN PACIFIC CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited, Dollars in Thousands, Except per Share Amounts)

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

		Three Months Ended
		December 31,
		2010				2009
Classified as cost of revenues
Depreciation		$	3,259			$	3,361
Classified as operating expenses
Depreciation			145				148
Amortization			335				544
Total		$	3,739			$	4,053

1.		INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
		Bill and Hold Transactions. Some of our perchlorate and fine chemicals products customers have requested that we store materials purchased from us in our facilities (“Bill and Hold” arrangements). The sales value of inventory, subject to Bill and Hold arrangements, at our facilities was $10,725 and $19,606 as of December 31, 2010 and September 30, 2010, respectively.
		Recently Issued or Adopted Accounting Standards. In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-17, which provides guidance on defining a milestone under Topic 605 and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. Milestones should be considered substantive in their entirety and may not be bifurcated. An arrangement may contain both substantive and nonsubstantive milestones that should be evaluated individually. This standard became effective for us beginning on October 1, 2010. The adoption of this standard did not have a material impact on our results of operations, financial position or cash flows.
		In December 2010, the FASB issued ASU No. 2010-28 that affects entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in the ASU modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This standard is effective for us beginning on October 1, 2011. The adoption of this standard is not expected to have a material impact on our results of operations, financial position or cash flows.

2.		SHARE-BASED COMPENSATION
		We account for our share-based compensation arrangements under an accounting standard which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The fair values of awards are recognized as additional compensation expense, which is classified as operating expenses, proportionately over the vesting period of the awards.
		Our share-based compensation arrangements are designed to advance the long-term interests of the Company, including by attracting and retaining employees and directors and aligning their interests with those of our stockholders. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, government regulations and availability under our equity incentive plans. Depending on the form of the share-based award, new shares of our common stock may be issued upon grant, option exercise or vesting of the award. We maintain three share based plans, each as discussed below.
		The American Pacific Corporation Amended and Restated 2001 Stock Option Plan (the “2001 Plan”) 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 December 31, 2010, there were 10,750 shares available for grant under the 2001 Plan. This plan was approved by our stockholders.

2.		SHARE-BASED COMPENSATION (continued)
		The American Pacific Corporation 2002 Directors Stock Option Plan, as amended and restated (the “2002 Directors Plan”) compensates non-employee directors with stock options granted annually or upon other discretionary events. Options granted under the 2002 Directors Plan prior to September 30, 2007 generally vested 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire ten years from the date of grant. Options granted under the 2002 Directors Plan in November 2007 vested 50% one year from the date of grant and 50% two years from the date of grant, and expire ten years from the date of grant. As of December 31, 2010, there were no shares available for grant under the 2002 Directors Plan. This plan was approved by our stockholders.
		The American Pacific Corporation 2008 Stock Incentive Plan (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. Generally, awards granted under the 2008 Plan vest in three equal annual installments beginning on the first anniversary of the grant date, and in the case of option awards, expire ten years from the date of grant. As of December 31, 2010, there were 12,000 shares available for grant under the 2008 Plan, excluding any additional shares included in the currently proposed amendment and restatement of the 2008 plan. This plan was approved by our stockholders. In December 2010, our board of directors approved an amendment and restatement of the 2008 Plan that, among other things, increases the total shares of common stock authorized under the 2008 Plan from 350,000 to 800,000. The effectiveness of this amendment and restatement will be subject to stockholder approval.
		A summary of our outstanding and non-vested stock option and restricted stock activity for the three months ended December 31, 2010 is as follows:

		Stock Options																Restricted Stock
		Outstanding								Non-Vested								Outstanding and Non-Vested
						Weighted								Weighted								Weighted
						Average								Average								Average
						Exercise								Fair								Fair
						Price								Value								Value
		Shares				Per Share				Shares				Per Share				Shares				Per Share
Balance, September 30, 2010			658,176			$	8.32				248,895			$	4.41				50,664			$	8.34
Granted			-				-				-				-				-				-
Vested			-				-				(100,770	)			4.51				(19,336	)			8.70
Exercised			-				-				-				-				-				-
Expired / Cancelled			(10,000	)			6.34				-				-				-				-
Balance, December 31, 2010			648,176				8.35				148,125				4.35				31,328				8.11

A summary of our exercisable stock options as of December 31, 2010 is as follows:

Number of vested stock options			500,051
Weighted-average exercise price per share		$	8.31
Aggregate intrinsic value		$	42
Weighted-average remaining contractual term in years			5.0

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.

2.

SHARE-BASED COMPENSATION (continued)

		Three Months Ended
		December 31,
		2010				2009
Weighted-average grant date fair value per share of options granted			-			$	3.65
Significant fair value assumptions:			-
Expected term in years			-				6.00
Expected volatility			-				51.3	%
Expected dividends			-				0.0	%
Risk-free interest rates			-				2.3	%
Total intrinsic value of options exercised			-			$	-
Aggregate cash received for option exercises			-			$	-
Compensation cost (included in operating expenses)
Stock options		$	78			$	211
Restricted stock			22				135
Total			100				346
Tax benefit recognized			18				73
Net compensation cost		$	82			$	273
As of period end date:
Total compensation cost for non-vested awards not yet recognized:
Stock options		$	220			$	635
Restricted stock		$	66			$	187
Weighted-average years to be recognized
Stock options			1.3				1.8
Restricted stock			1.3				1.8

3.		SELECTED BALANCE SHEET DATA
		Inventories. Inventories consist of the following:

		December 31,				September 30,
		2010				2010
Finished goods		$	2,978			$	2,977
Work-in-process			20,055				18,318
Raw materials and supplies			9,859				9,103
Deferred cost of revenues			3,257				5,728
Under(over) applied manufacturing overhead costs			2,255				-
Total		$	38,404			$	36,126

		For our Specialty Chemicals segment, purchase price variances or volume or capacity cost variances associated with indirect manufacturing costs and that are planned and expected to be absorbed by goods produced through the end of our fiscal year are deferred at interim reporting dates as under(over) applied manufacturing overhead costs. The effect of unplanned or unanticipated purchase price or volume variances are applied to goods produced in the period.
		Intangible Assets. Intangible assets consist of the following:

		December 31,				September 30,
		2010				2010
Customer relationships			8,951				8,976
Less accumulated amortization			(7,885	)			(7,556	)
			1,066				1,420
Backlog			1,525				1,559
Less accumulated amortization			(1,525	)			(1,559	)
			-				-
Total		$	1,066			$	1,420

3.		SELECTED BALANCE SHEET DATA (continued)
		Customer relationships are assets of our Fine Chemicals and Aerospace Equipment segments and are subject to amortization. Amortization expense was $335 and $347 for the three months ended December 31, 2010 and 2009, respectively. Backlog is an asset of our Aerospace Equipment segment and is subject to amortization. Amortization expense was zero and $197 for the three months ended December 31, 2010 and 2009, respectively.
		Goodwill. Goodwill is an asset of our Aerospace Equipment segment and is not expected to be deductible for tax purposes. Changes in the reported value for goodwill are a result of fluctuations in the underlying foreign currency translation rate.

4.		COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSS
		Comprehensive loss consists of the following:

		Three Months Ended
		December 31,
		2010				2009
Net Loss		$	(3,619	)		$	(1,440	)
Other Comprehensive Loss -
Foreign currency translation adjustment			(116	)			(75	)
Comprehensive Loss		$	(3,735	)		$	(1,515	)

     The components of accumulated other comprehensive loss are as follows:

		December 31,				September 30,
		2010				2010
Cumulative currency translation adjustment		$	(577	)		$	(461	)
Unamortized benefit plan costs, net of tax of $10,964			(16,447	)			(16,447	)
Total		$	(17,024	)		$	(16,908	)

5.		EARNINGS (LOSS) PER SHARE
		Shares used to compute loss per share are as follows:

		Three Months Ended
		December 31,
		2010				2009
Net loss		$	(3,619	)		$	(1,440	)
Basic weighted-average shares			7,504,000				7,487,000
Diluted:
Weighted-average shares, basic			7,504,000				7,487,000
Dilutive effect of stock options			-				-
Weighted-average shares, diluted			7,504,000				7,487,000
Basic loss per share		$	(0.48	)		$	(0.19	)
Diluted loss per share		$	(0.48	)		$	(0.19	)

As of December 31, 2010 and 2009, we had an aggregate of 679,504 and 689,997 antidilutive options and unvested restricted shares outstanding, respectively.

6.

DEBT

Our outstanding debt balances consist of the following:

		December 31,				September 30,
		2010				2010
Senior Notes, 9%, due 2015		$	105,000			$	105,000
Capital Leases, due through 2014			154				172
Total Debt			105,154				105,172
Less Current Portion			(70	)			(70	)
Total Long-term Debt		$	105,084			$	105,102

Senior Notes. In February 2007, we issued and sold $110,000 aggregate principal amount of 9.0% Senior Notes due February 1, 2015 (collectively, with the exchange notes issued in August 2007 as referenced below, the “Senior Notes”). Proceeds from the issuance of the Senior Notes were used to repay our former credit facilities. The Senior Notes accrue interest at an annual rate of 9.0%, payable semi-annually in February and August. The Senior Notes are guaranteed on a senior unsecured basis by all of our existing and future material U.S. subsidiaries. The Senior Notes are:

	•		ranked equally in right of payment with all of our existing and future senior indebtedness;
	•		ranked senior in right of payment to all of our existing and future senior subordinated and subordinated indebtedness;
	•		effectively junior to our existing and future secured debt to the extent of the value of the assets securing such debt; and
	•		structurally subordinated to all of the existing and future liabilities (including trade payables) of each of our subsidiaries that do not guarantee the Senior Notes.

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

	•		at any time 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; 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.

6.

DEBT (continued)

In connection with the closing of the sale of the Senior Notes, we entered into a registration rights agreement which required us to file a registration statement to offer to exchange the Senior Notes for notes that have substantially identical terms as the Senior Notes and are registered under the Securities Act of 1933, as amended. In July 2007, we filed a registration statement with the SEC with respect to an offer to exchange the Senior Notes as required by the registration rights agreement, which registration statement was declared effective by the SEC. In August 2007, we completed the exchange of 100% of the Senior Notes for substantially identical notes which are registered under the Securities Act of 1933, as amended.

Revolving Credit Facility. In February 2007, we entered into an Amended and Restated Credit Agreement, as amended as of July 7, 2009 and September 17, 2010 (the “Revolving Credit Facility”), with Wachovia Bank, National Association (predecessor by merger to Wells Fargo Bank, National Association), and certain other lenders, which provided a secured revolving credit facility in an aggregate principal amount of up to $20,000. On December 31, 2010, we terminated the Revolving Credit Facility.

ABL Credit Facility. On January 31, 2011, American Pacific Corporation, as borrower, entered into an asset based lending credit agreement (the “ABL Credit Facility”) with Wells Fargo Bank, National Association, as agent and as lender, and certain domestic subsidiaries of the Company, as guarantors, which provides a secured revolving credit facility in an aggregate principal amount of up to $20,000 at any time outstanding with an initial maturity to be the earlier of (i) January 31, 2015 and (ii) 90 days prior to the maturity date of the Senior Notes, which is February 1, 2015. The ABL Credit Facility also provides for the issuance of new letters of credit with a letter of credit sublimit of $5,000. The maximum borrowing availability under the ABL Credit Facility is based upon a percentage of our eligible account receivables and eligible inventories. We may prepay and terminate the ABL Credit Facility at any time, without premium or penalty. The ABL Credit Facility contains certain mandatory prepayment provisions. The annual interest rates applicable to loans under the ABL Credit Facility will be, at our option, either at a Base Rate or LIBOR Rate (each as defined in the ABL Credit Facility) plus, in each case, an applicable margin of 2.50 percentage points. In addition, we will pay commitment fees, other fees related to the issuance and maintenance of the letters of credit, and certain agency fees. On January 31, 2011 there were no outstanding borrowings under the ABL Credit Facility.

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

	•		incur debt, incur contingent obligations and issue certain types of preferred stock, or prepay certain debt;
	•		create liens;
	•		pay dividends, distributions or make other specified restricted payments;
	•		make certain investments and acquisitions;
	•		enter into certain transactions with affiliates;
	•		enter into sale and leaseback transactions; and
	•		merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.

In each case, the covenants set forth above are subject to customary and negotiated exceptions and exclusions. Certain covenants, including financial covenants, are also only triggered by borrowing availability not exceeding a designated threshold amount and/or utilization of the ABL Credit Facility. The ABL Credit Facility also limits our capital expenditures in any fiscal year to amounts set forth in the ABL Credit Facility.

6.

DEBT (continued)

When the financial covenants are in effect, we will be required (i) to have a minimum level of EBITDA for the twelve month period then ended, which minimum varies for each month end, commencing with the month ended December 31, 2010 and continuing through the month ending September 30, 2011 and (ii) to maintain a minimum fixed charge coverage ratio on a rolling trailing 12 month basis of at least 1.10:1.00 initially for the 12 month period ending October 31, 2011 and thereafter for each 12 month period ending on the last day of the month continuing for the remainder of the term of the ABL Credit Facility. However, notwithstanding the financial covenants having come into effect, our obligation to continue to comply with such financial covenants shall terminate upon satisfaction of certain requirements relating to borrowing availability and utilization set forth in the ABL Credit Facility.

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

Letters of Credit. As of December 31, 2010, we had $1,769 in outstanding standby letters of credit which mature through July 2015. These letters of credit principally secure performance of certain water treatment equipment sold by us and payment of fees associated with the delivery of natural gas and power. The letters of credit are collateralized by cash on deposit with the issuing bank in the amount of 105% of the outstanding letters of credit. Collateral deposits are classified as other assets on our consolidated balance sheets.

7.

COMMITMENTS AND CONTINGENCIES

Regulatory Review of Perchlorates. Our Specialty Chemicals segment manufactures and sells products that contain perchlorates. Federal and state regulators continue to review the effects of perchlorate, if any, on human health and the related allowable maximum level of contaminant from perchlorate. While the presence of regulatory review presents general business risk to the Company, we are currently unaware of any regulatory proposal that would have a material effect on our results of operations and financial position or that would cause us to significantly modify or curtail our business practices, including our remediation activities discussed below.

Perchlorate Remediation Project in Henderson, Nevada. We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (the “AMPAC Henderson Site”) from 1958 until the facility was destroyed in May 1988, after which we relocated our production to a new facility in Iron County, Utah. Kerr-McGee Chemical Corporation (“KMCC”) also operated a perchlorate production facility in Henderson, Nevada (the “KMCC Site”) from 1967 to 1998. In addition, between 1956 and 1967, American Potash operated a perchlorate production facility and, for many years prior to 1956, other entities also manufactured perchlorate chemicals at the KMCC Site. As a result of a longer production history in Henderson, KMCC and its predecessor operations manufactured significantly greater amounts of perchlorate over time than we did at the AMPAC Henderson Site.

In 1997, the Southern Nevada Water Authority (“SNWA”) detected trace amounts of the perchlorate anion in Lake Mead and the Las Vegas Wash. Lake Mead is a source of drinking water for Southern Nevada and areas of Southern California. The Las Vegas Wash flows into Lake Mead from the Las Vegas valley.

In response to this discovery by SNWA, and at the request of the Nevada Division of Environmental Protection (“NDEP”), we engaged in an investigation of groundwater near the AMPAC Henderson

7.

COMMITMENTS AND CONTINGENCIES (continued)

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 above ground perchlorate groundwater remediation facility at their Henderson site.

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

In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On the basis of the successful test and other evaluations, in the fiscal year ended September 30, 2005 (“Fiscal 2005”), we submitted a work plan to NDEP for the construction of a remediation facility near the AMPAC Henderson Site. The conditional approval of the work plan by NDEP in our third quarter of Fiscal 2005 allowed us to generate estimated costs for the installation and operation of the remediation facility to address perchlorate at the AMPAC Henderson Site. We commenced construction in July 2005. In December 2006, we began operations of the permanent facility. The location of this facility is several miles, in the direction of groundwater flow, from the AMPAC Henderson Site.

At the request of NDEP, in the summer of 2009, we began renewed discussions with them to formalize our remediation efforts in an agreement that, if executed, would provide more detailed regulatory guidance on environmental characterization and remedies at the AMPAC Henderson Site and vicinity. The agreement under discussion would be expected to be similar to others previously executed by NDEP with other companies under similar circumstances. Typically, such agreements generally cover such matters as the scope of work plans, schedules, deliverables, remedies for non compliance, and reimbursement to the State of Nevada for past and future oversight costs.

Henderson Site Environmental Remediation Reserve. We accrue for anticipated costs associated with environmental remediation that are probable and estimable. On a quarterly basis, we review our estimates of future costs that could be incurred for remediation activities. In some cases, only a range of reasonably possible costs can be estimated. In establishing our reserves, the most probable estimate is used; otherwise, we accrue the minimum amount of the range.

During our Fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at the AMPAC Henderson Site, including the costs for capital equipment, operating and maintenance (“O&M”), and consultants. The project consisted of two primary phases: the initial construction of the remediation equipment phase and the O&M phase. During the fiscal year ended September 30, 2006, we increased our total cost estimate of probable costs for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time.

7.

COMMITMENTS AND CONTINGENCIES (continued)

Late in the fiscal year ended September 30, 2009 (“Fiscal 2009”), we gained additional information from groundwater modeling that indicates groundwater emanating from the AMPAC Henderson Site in certain areas in deeper zones (more than 150 feet below ground surface) is moving toward our existing remediation facility at a much slower pace than previously estimated. Utilization of our existing facilities alone, at this lower groundwater pace, could, according to this more recently created groundwater model, extend the life of our remediation project to well in excess of fifty years. As a result of this additional data, related model interpretations and consultations with NDEP, we re-evaluated our remediation operations at the end of Fiscal 2009 and during the fiscal year ended September 30, 2010 (“Fiscal 2010”) as new data was generated. This evaluation indicates that we should be able to significantly reduce the total project time, and ultimately the total cost of the project, by installing additional groundwater extraction wells in the deeper, more concentrated areas, thereby providing for a more aggressive remediation treatment. The additional wells and related remediation equipment will incorporate above ground treatment to supplement or possibly replace by consolidation our existing ISB process. With the additional extraction wells and equipment, we estimated that the total remaining project life for the existing and new, more aggressive deep zone systems could range from 10 to 29 years, beginning with Fiscal 2010. Within that range, we estimated that a range of 13 to 23 years is more likely. Groundwater speed, perchlorate concentrations, aquifer characteristics and forecasted groundwater extraction rates continue to be key variables underlying our estimate of the life of the project and these variables are updated on a regular basis. If additional information becomes available in the future that lead to a different interpretation of the model, thereby dictating a change in equipment and operations, our estimate of the resulting project life could change significantly.

In our Fiscal 2009 fourth quarter, we accrued approximately $9,600 representing our estimate of the cost to engineer, design, and install this additional equipment. We anticipate that these amounts will be spent through and the new equipment will be operational by 2012. We are in the pre-construction, design and engineering steps, and as a result, this estimate involves a number of significant assumptions. Due to uncertainties inherent in making estimates, our estimate may later require significant revision as new facts become available and circumstances change.

In addition to accruing approximately $9,600 for engineering, design, installation and cost of additional equipment, in our Fiscal 2009 fourth quarter, we increased our estimate of total remaining O&M costs by $4,100 due primarily to incremental O&M costs to operate and maintain the additional equipment once installed. Total O&M expenses are currently estimated at approximately $1,000 per year and estimated to increase to approximately $1,300 per year after the additional equipment becomes operational. To estimate O&M costs, we consider, among other factors, the project scope and historical expense rates to develop assumptions regarding labor, utilities, repairs, maintenance supplies and professional services costs. If additional information becomes available in the future that is different than information currently available to us and thereby leads us to different conclusions, our estimate of O&M expenses could change significantly.

In addition, certain remediation activities are conducted on public lands under operating permits. In general, these permits require us to return the land to its original condition at the end of the permit period. Estimated costs associated with removal of remediation equipment from the land are not material and are included in our range of estimated costs.

As of December 31, 2010, the aggregate range of anticipated environmental remediation costs was from approximately $19,600 to approximately $43,500 based on a possible total remaining life of the project through a range from the years 2019 to 2038. As of December 31, 2010, the accrued amount was $23,353, based on an estimated remaining life of the project through the year 2022, or the low end of the more likely range of the expected life of the project. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward

7.

COMMITMENTS AND CONTINGENCIES (continued)

in future periods as new facts or circumstances may indicate. A summary of our environmental reserve activity for the year ended December 31, 2010 is shown below:

Balance, September 30, 2010		$	23,870
Additions or adjustments			-
Expenditures			(517	)
Balance, December 31, 2010		$	23,353

AFC Environmental Matters. The primary operations of our Fine Chemicals segment are located on land leased from Aerojet-General Corporation (“Aerojet”). The leased land is part of a tract of land owned by Aerojet designated as a “Superfund site” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”). The tract of land had been used by Aerojet and affiliated companies to manufacture and test rockets and related equipment since the 1950s. Although the chemicals identified as contaminants on the leased land were not used by Aerojet Fine Chemicals LLC (predecessor in interest to Ampac Fine Chemicals LLC) as part of its operations, CERCLA, among other things, provides for joint and severable liability for environmental liabilities including, for example, environmental remediation expenses.

As part of the agreement by which we acquired our Fine Chemicals segment from GenCorp Inc. (“GenCorp”), an Environmental Indemnity Agreement was entered into whereby GenCorp agreed to indemnify us against any and all environmental costs and liabilities arising out of or resulting from any violation of environmental law prior to the effective date of the sale, or any release of hazardous substances by Aerojet Fine Chemicals LLC, Aerojet or GenCorp on the subject premises or Aerojet’s Sacramento site prior to the effective date of the sale.

On November 29, 2005, EPA Region IX provided us with a letter indicating that the EPA does not intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the Aerojet property for existing contamination, provided that the lessees do not contribute to or do not exacerbate existing contamination on or under the Aerojet Superfund site.

Other Matters. Although we are not currently party to any material pending legal proceedings, we are from time to time subject to claims and lawsuits related to our business operations. We accrue for loss contingencies when a loss is probable and the amount can be reasonably estimated. Legal fees, which can be material in any given period, are expensed as incurred. We believe that current claims or lawsuits against us, individually and in the aggregate, will not result in loss contingencies that will have a material adverse effect on our financial condition, cash flows or results of operations.

8.

SEGMENT INFORMATION

We report our business in four operating segments: Fine Chemicals, Specialty Chemicals, Aerospace Equipment and Other Businesses. These segments are based upon business units that offer distinct products and services, are operationally managed separately and produce products using different production methods. Segment operating income or loss includes all sales and expenses directly associated with each segment. Environmental remediation charges, corporate general and administrative costs, which consist primarily of executive, investor relations, accounting, human resources and information technology expenses, and interest are not allocated to segment operating results.

Fine Chemicals. Our Fine Chemicals segment includes the operating results of our wholly-owned subsidiaries Ampac Fine Chemicals LLC and AMPAC Fine Chemicals Texas, LLC (collectively, “AFC”). AFC is a custom manufacturer of active pharmaceutical ingredients and registered intermediates for commercial customers in the pharmaceutical industry. AFC operates in compliance with the U.S. Food and Drug Administration’s current Good Manufacturing Practices and the

8.

SEGMENT INFORMATION (continued)

requirements of certain other regulatory agencies such as the European Union’s European Medicines Agency and Japan’s Pharmaceuticals and Medical Devices Agency. AFC has distinctive competencies and specialized engineering capabilities in performing chiral separations, manufacturing chemical compounds that require high containment and performing energetic chemistries at commercial scale.

Specialty Chemicals. Our Specialty Chemicals segment manufactures and sells: (i) perchlorate chemicals, principally ammonium perchlorate, which is the predominant oxidizing agent for solid propellant rockets, booster motors and missiles used in space exploration, commercial satellite transportation and national defense programs, (ii) sodium azide, a chemical used in pharmaceutical manufacturing, and (iii) Halotronâ, a series of clean fire extinguishing agents used in fire extinguishing products ranging from portable fire extinguishers to total flooding systems.

Aerospace Equipment. Our Aerospace Equipment segment includes the operating results of our wholly-owned subsidiary Ampac-ISP Corp. and its wholly-owned subsidiaries (collectively, “AMPAC ISP”). AMPAC ISP manufactures monopropellant and bipropellant liquid propulsion systems and thrusters for satellites, launch vehicles, and interceptors. In addition, AMPAC ISP designs, develops and manufactures liquid propulsion thrusters, high performance valves, pressure regulators, cold-gas propulsion systems, and precision structures for space applications, especially in the European space market.

Other Businesses. Our Other Businesses segment contains our water treatment equipment division and real estate activities. Our water treatment equipment business markets, designs, and manufactures electrochemical On Site Hypochlorite Generation, or OSHG, systems. These systems are used in the disinfection of drinking water, control of noxious odors, and the treatment of seawater to prevent the growth of marine organisms in cooling systems. We supply our equipment to municipal, industrial and offshore customers. Our real estate activities are not material.

Our revenues are characterized by individually significant orders and relatively few customers. As a result, in any given reporting period, certain customers may account for more than ten percent of our consolidated revenues. The following table provides disclosure of the percentage of our consolidated revenues attributed to customers that exceed ten percent of the total in each of the given periods.

		Three Months Ended
		December 31,
		2010				2009
Fine chemicals customer			12	%
Fine chemicals customer			15	%
Fine chemicals customer							15	%
Specialty chemicals customer			13	%
Specialty chemicals customer							28	%

8.

SEGMENT INFORMATION (continued)

The following provides financial information about our segment operations:

		Three Months Ended
		December 31,
		2010				2009
Revenues:
Fine Chemicals		$	13,889			$	9,504
Specialty Chemicals			9,041				12,803
Aerospace Equipment			11,452				8,325
Other Businesses			802				3,432
Total Revenues		$	35,184			$	34,064
Segment Operating Income (Loss):
Fine Chemicals		$	(3,633	)		$	(740	)
Specialty Chemicals			3,557				5,831
Aerospace Equipment			678				(362	)
Other Businesses			(321	)			(17	)
Total Segment Operating Income			281				4,712
Corporate Expenses			(3,751	)			(4,573	)
Operating Income (Loss)		$	(3,470	)		$	139
Depreciation and Amortization:
Fine Chemicals		$	3,237			$	3,328
Specialty Chemicals			118				171
Aerospace Equipment			261				423
Other Businesses			4				4
Corporate			119				127
Total Depreciation and Amortization		$	3,739			$	4,053

9.

INCOME TAXES

We review our portfolio of uncertain tax positions and recorded liabilities based on the applicable recognition standards. In this regard, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. We classify uncertain tax positions as non-current income tax liabilities unless expected to be settled within one year.

As of both December 31, 2010 and September 30, 2010, our recorded liability for unrecognized tax benefits was $1,246, of which $386 would affect our effective tax rate if recognized. The remaining balance is related to deferred tax items which only impact the timing of tax payments. Due to the effects of filing tax carryback claims, we have no significant statutes of limitations that are anticipated to expire in the fiscal year ending September 30, 2011. As such, it is reasonably possible that none of the gross liability for unrecognized tax benefits will reverse during the fiscal year ending September 30, 2011.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2010 and September 30, 2010, we had accrued $602 and $584, respectively, for the payment of tax-related interest and penalties. For the three months ended December 31, 2010 and 2009, income tax benefit includes an expense of $18 and a benefit of $8, respectively, for interest and penalties.

We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions. With few exceptions, we are no longer subject to federal or state income tax examinations for years before 2002.

10.

DEFINED BENEFIT PLANS

Defined Benefit Plan Descriptions. We maintain three defined benefit pension plans which cover substantially all of our U.S. employees, excluding employees of our Aerospace Equipment segment: the Amended and Restated American Pacific Corporation Defined Benefit Pension Plan, the Ampac Fine Chemicals LLC Pension Plan for Salaried Employees, and the Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit Employees, each as amended to date. Collectively, these three plans are referred to as the “Pension Plans”. Pension Plans benefits are paid based on an average of earnings, retirement age, and length of service, among other factors. In May 2010, our board of directors approved amendments to our Pension Plans which effectively closed the Pension Plans to participation by any new employees. Retirement benefits for existing U.S. employees and retirees through June 30, 2010 are not affected by this change. Beginning July 1, 2010, new U.S. employees will participate solely in one of the Company’s 401(k) plans. In addition, we maintain the American Pacific Corporation Supplemental Executive Retirement Plan (the “SERP”) that includes three executive officers and two former executive officers. We use a measurement date of September 30 to account for our Pension Plans and SERP.

Defined Contribution Plan Descriptions. We maintain two 401(k) plans in which participating employees may make contributions. One covers substantially all U.S. employees except bargaining unit employees of our Fine Chemicals segment and the other covers those bargaining unit employees. We make matching contributions for Fine Chemicals segment employees and U.S. employees of our Aerospace Equipment segment. In addition, we make a profit sharing contribution for U.S. employees of our Aerospace Equipment segment who were employed by us prior to June 30, 2010. Beginning July 1, 2010, for all eligible new U.S. employees we will make matching contributions.

Net periodic pension cost consists of the following:

		Three Months Ended
		December 31,
		2010				2009
Pension Plans:
Service Cost		$	616			$	625
Interest Cost			878				798
Expected Return on Plan Assets			(722	)			(603	)
Recognized Actuarial Losses			420				263
Amortization of Prior Service Costs			15				19
Net Periodic Pension Cost		$	1,207			$	1,102
Supplemental Executive Retirement Plan:
Service Cost		$	81			$	110
Interest Cost			89				93
Expected Return on Plan Assets			-				-
Recognized Actuarial Losses			-				-
Amortization of Prior Service Costs			105				105
Net Periodic Pension Cost		$	275			$	308

For the three months ended December 31, 2010, we contributed $3,448 to the Pension Plans to fund benefit payments and anticipate making approximately $2,375 in additional contributions through September 30, 2011. For the three months ended December 31, 2010, we contributed $132 to the SERP to fund benefit payments and anticipate making approximately $395 in additional contributions through September 30, 2011.

11.

GUARANTOR SUBSIDIARIES

As discussed in Note 6, in February 2007, American Pacific Corporation, a Delaware corporation (“Parent”) issued and sold $110,000 aggregate principal amount of Senior Notes. In connection with the issuance of the Senior Notes, the Parent’s material U.S. subsidiaries (“Guarantor Subsidiaries”) jointly, fully, severally, and unconditionally guaranteed the Senior Notes. The Parent’s foreign subsidiaries (“Non-Guarantor Subsidiaries”) are not guarantors of the Senior Notes. Each of the Parent’s subsidiaries is 100% owned. The Parent has no independent assets or operations. The following presents condensed consolidating financial information separately for the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.

Condensed Consolidating Balance Sheet - December 31, 2010
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets:
Cash and Cash Equivalents		$	-			$	29,008			$	1,697			$	-			$	30,705
Accounts Receivable, Net			-				30,089				4,935				(2,221	)			32,803
Inventories			-				37,255				1,149				-				38,404
Prepaid Expenses and Other Assets			-				4,709				172				-				4,881
Income Taxes Receivable and Deferred Income Taxes			-				14,146				-				-				14,146
Total Current Assets			-				115,207				7,953				(2,221	)			120,939
Property, Plant and Equipment, Net			-				112,283				2,062				-				114,345
Intangible Assets, Net			-				276				790				-				1,066
Goodwill			-				-				2,856				-				2,856
Deferred Income Taxes			-				20,242				-				-				20,242
Other Assets			-				9,002				417				-				9,419
Intercompany Advances			91,545				5,046				-				(96,591	)			-
Investment in Subsidiaries, Net			73,455				4,600				-				(78,055	)			-
Total Assets		$	165,000			$	266,656			$	14,078			$	(176,867	)		$	268,867
Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities		$	-			$	28,785			$	3,761			$	(2,221	)		$	30,325
Environmental Remediation Reserves			-				10,164				-				-				10,164
Deferred Revenues and Customer Deposits			-				12,749				591				-				13,340
Current Portion of Long-Term Debt			-				22				48				-				70
Intercompany Advances			-				91,545				5,046				(96,591	)			-
Total Current Liabilities			-				143,265				9,446				(98,812	)			53,899
Long-Term Debt			105,000				52				32				-				105,084
Environmental Remediation Reserves			-				13,189				-				-				13,189
Pension Obligations and Other Long-Term Liabilities			-				36,695				-				-				36,695
Total Liabilities			105,000				193,201				9,478				(98,812	)			208,867
Total Shareholders’ Equity			60,000				73,455				4,600				(78,055	)			60,000
Total Liabilities and Shareholders’ Equity		$	165,000			$	266,656			$	14,078			$	(176,867	)		$	268,867

11.

GUARANTOR SUBSIDIARIES (continued)

Condensed Consolidating Balance Sheet - September 30, 2010
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets:
Cash and Cash Equivalents		$	-			$	22,991			$	994			$	-			$	23,985
Accounts Receivable, Net			-				48,194				6,054				(2,348	)			51,900
Inventories			-				34,968				1,158				-				36,126
Prepaid Expenses and Other Assets			-				1,249				293				-				1,542
Income Taxes Receivable and Deferred Income Taxes			-				13,474				-				-				13,474
Total Current Assets			-				120,876				8,499				(2,348	)			127,027
Property, Plant and Equipment, Net			-				111,946				1,927				-				113,873
Intangible Assets, Net			-				537				883				-				1,420
Goodwill			-				-				2,933				-				2,933
Deferred Income Taxes			-				20,222				32				-				20,254
Other Assets			-				9,945				291				-				10,236
Intercompany Advances			91,545				4,896				-				(96,441	)			-
Investment in Subsidiaries, Net			77,112				4,817				-				(81,929	)			-
Total Assets		$	168,657			$	273,239			$	14,565			$	(180,718	)		$	275,743
Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities		$	-			$	23,931			$	3,916			$	(2,348	)		$	25,499
Environmental Remediation Reserves			-				8,694				-				-				8,694
Deferred Revenues and Customer Deposits			-				17,927				842				-				18,769
Current Portion of Long-Term Debt			-				21				49				-				70
Intercompany Advances			-				91,545				4,896				(96,441	)			-
Total Current Liabilities			-				142,118				9,703				(98,789	)			53,032
Long-Term Debt			105,000				57				45				-				105,102
Environmental Remediation Reserves			-				15,176				-				-				15,176
Pension Obligations and Other Long-Term Liabilities			-				38,776				-				-				38,776
Total Liabilities			105,000				196,127				9,748				(98,789	)			212,086
Total Shareholders’ Equity			63,657				77,112				4,817				(81,929	)			63,657
Total Liabilities and Shareholders’ Equity		$	168,657			$	273,239			$	14,565			$	(180,718	)		$	275,743
Condensed Consolidating Statement of Operations - Three Months Ended December 31, 2010
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Revenues		$	-			$	32,902			$	2,360			$	(78	)		$	35,184
Cost of Revenues			-				27,209				1,437				(78	)			28,568
Gross Profit			-				5,693				923				-				6,616
Operating Expenses, Net			-				9,296				790				-				10,086
Operating Income (Loss)			-				(3,603	)			133				-				(3,470	)
Interest and Other Income			2,696				53				(186	)			(2,696	)			(133	)
Interest Expense			2,696				2,713				1				(2,696	)			2,714
Loss before Income Tax and
Equity Account for Subsidiaries			-				(6,263	)			(54	)			-				(6,317	)
Income Tax Benefit			-				(2,745	)			47				-				(2,698	)
Loss before
Equity Account for Subsidiaries			-				(3,518	)			(101	)			-				(3,619	)
Equity Account for Subsidiaries			(3,619	)			(101	)			-				3,720				-
Net Loss		$	(3,619	)		$	(3,619	)		$	(101	)		$	3,720			$	(3,619	)

11.

GUARANTOR SUBSIDIARIES (continued)

Condensed Consolidating Statement of Operations - Three Months Ended December 31, 2009
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Revenues		$	-			$	31,728			$	2,503			$	(167	)		$	34,064
Cost of Revenues			-				20,012				1,773				(167	)			21,618
Gross Profit			-				11,716				730				-				12,446
Operating Expenses			-				11,257				1,050				-				12,307
Operating Income (Loss)			-				459				(320	)			-				139
Interest and Other Income			2,669				40				(48	)			(2,669	)			(8	)
Interest Expense			2,669				2,689				2				(2,669	)			2,691
Loss before Income Tax and
Equity Account for Subsidiaries			-				(2,190	)			(370	)			-				(2,560	)
Income Tax Benefit			-				(1,077	)			(43	)			-				(1,120	)
Loss before
Equity Account for Subsidiaries			-				(1,113	)			(327	)			-				(1,440	)
Equity Account for Subsidiaries			(1,440	)			(327	)			-				1,767				-
Net Loss		$	(1,440	)		$	(1,440	)		$	(327	)		$	1,767			$	(1,440	)
Condensed Consolidating Statement of Cash Flows - Three Months Ended December 31, 2010
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net Cash Provided (Used) by Operating Activities		$	-			$	8,409			$	838			$	-			$	9,247
Cash Flows from Investing Activities:
Capital expenditures			-				(2,238	)			(255	)			-				(2,493	)
Net Cash Used in Investing Activities			-				(2,238	)			(255	)			-				(2,493	)
Cash Flows from Financing Activities:
Payments of long-term debt			-				(4	)			(12	)			-				(16	)
Intercompany advances, net			-				(150	)			150				-				-
Net Cash Provided (Used) by Financing Activities			-				(154	)			138				-				(16	)
Effect of Changes in Currency Exchange Rates			-				-				(18	)							(18	)
Net Change in Cash and Cash Equivalents			-				6,017				703				-				6,720
Cash and Cash Equivalents, Beginning of Period			-				22,991				994				-				23,985
Cash and Cash Equivalents, End of Period		$	-			$	29,008			$	1,697			$	-			$	30,705
Condensed Consolidating Statement of Cash Flows - Three Months Ended December 31, 2009
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net Cash Provided (Used) by Operating Activities		$	-			$	18,205			$	(98	)		$	-			$	18,107
Cash Flows from Investing Activities:
Capital expenditures			-				(957	)			(142	)			-				(1,099	)
Net Cash Used in Investing Activities			-				(957	)			(142	)			-				(1,099	)
Cash Flows from Financing Activities:
Payments of long-term debt			-				(47	)			(12	)			-				(59	)
Intercompany advances, net			-				(344	)			344				-				-
Net Cash Provided (Used) by Financing Activities			-				(391	)			332				-				(59	)
Effect of Changes in Currency Exchange Rates			-				-				(11	)							(11	)
Net Change in Cash and Cash Equivalents			-				16,857				81				-				16,938
Cash and Cash Equivalents, Beginning of Period			-				20,046				1,635				-				21,681
Cash and Cash Equivalents, End of Period		$	-			$	36,903			$	1,716			$	-			$	38,619

12.

GAIN CONTINGENCIES — OTHER OPERATING GAINS

We recognize gain contingencies in our consolidated statement of operations when all contingencies have been resolved, which generally coincides with the receipt of cash, if applicable. During the three months ended December 31, 2010, our Fine Chemicals segment reported other operating gains that resulted from the resolution of gain contingencies. The total reported gain of $1,337 is comprised of the following two matters.

We made a series of filings with the County of Sacramento, California, to appeal the assessed values in prior years of our real and personal property located at our Fine Chemicals segment’s Rancho Cordova, California facility. During the quarter ended December 31, 2010, we received $1,079 for cash property tax refunds resulting from certain of our appeals and the related favorable reassessment of historical property values. As of December 31, 2010, we have additional appeals outstanding, which may result in additional gains depending on their outcome.

Our Fine Chemicals segment is undertaking several mandatory capital projects. Certain of the capital activities are complete and others are anticipated to be completed during the year ending September 30, 2011. In connection with these projects, our Fine Chemicals segment held, and continues to hold, negotiations with the former owner of the facilities. During the three months ended December 31, 2010, we received from the former owner cash consideration in the amount of $258 for a limited release of liability of the former owner with respect to one of the completed projects.

13.

SUBSEQUENT EVENT