##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One) þ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period ended January 29, 2005, or o Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period fromto. Commission file number 333-38223 ARGO-TECH CORPORATION (Exact name of registrant as specified in its
charter)
 Delaware
    
    31-1521125(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)23555 Euclid AvenueCleveland, Ohio
    
    44117(Address of principal executive offices)
    
    (Zip code)(216) 692-6000(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. o YES þ NO Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act). o YES þ NO All of the outstanding capital stock of the registrant is held by AT Holdings
Corporation. As of
March 1, 2005, 1 share of the registrants common stock,
$.01 par value per share, was
outstanding.




---



##### Table of Contents



INDEX Page No.PART I - FINANCIAL INFORMATIONItem 1  Condensed Financial StatementsConsolidated Balance Sheets as of January 29, 2005 and October 30, 2004
    
    
    3Consolidated Statements of Net Income for the 13 week period ended
January 29, 2005 and the 14 week period ended January 31, 2004
    
    
    4Consolidated Statements of Cash Flows for the 13 week period ended
January 29, 2005 and the 14 week period ended January 31, 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6 - 10Item 2 - Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    10 - 16Item 3 - Quantitative and Qualitative Disclosure about Market Risk
    
    
    16Item 4  Controls and Procedures
    
    
    16PART II - OTHER INFORMATIONItem 6  Exhibits
    
    
    16Signature
    
    
    18Exhibit 31.1 Section 302 Certification of CEOExhibit 31.2 Section 302 Certification of CFOExhibit 32 Section 906 Certification
 2




---



##### Table of Contents



PART I - FINANCIAL INFORMATION 
 ITEM 1.
ARGO-TECH CORPORATION AND SUBSIDIARIES 
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 CONSOLIDATED BALANCE SHEETSJANUARY 29, 2005 AND OCTOBER 30, 2004 (In thousands, except share data) 2005
    
    
    2004ASSETS
    
    (Unaudited)CURRENT ASSETS:Cash and cash equivalents
    
    $
    5,195
    
    
    $
    15,857Receivables, net
    
    
    29,888
    
    
    
    29,013Income tax receivable
    
    
    1,203
    
    
    
    1,203Inventories, net
    
    
    32,555
    
    
    
    28,557Deferred income taxes and prepaid expenses
    
    
    7,069
    
    
    
    6,245Total current assets
    
    
    75,910
    
    
    
    80,875PROPERTY AND EQUIPMENT, net of
accumulated depreciation
    
    
    23,083
    
    
    
    23,213GOODWILL
    
    
    110,059
    
    
    
    110,059INTANGIBLE ASSETS, net of accumulated amortization
    
    
    30,648
    
    
    
    31,502DEFERRED FINANCING AND OTHER ASSETS
    
    
    8,291
    
    
    
    8,613Total Assets
    
    $
    247,991
    
    
    $
    254,262LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIENCY)CURRENT LIABILITIES:Current portion of long-term debt
    
    $
    750
    
    
    $
    750Accounts payable
    
    
    8,735
    
    
    
    9,396Accrued liabilities
    
    
    20,833
    
    
    
    28,766Total current liabilities
    
    
    30,318
    
    
    
    38,912LONG-TERM DEBT, net of current maturities
    
    
    263,875
    
    
    
    264,063OTHER NONCURRENT LIABILITIES
    
    
    21,281
    
    
    
    21,306Total Liabilities
    
    
    315,474
    
    
    
    324,281REDEEMABLE ESOP STOCK
    
    
    39,962
    
    
    
    40,957SHAREHOLDERS EQUITY/(DEFICIENCY):Common Stock, $.01 par value, authorized 3,000 shares;
1 share issued and outstanding
    
    
    
    
    
    
    Paid-in capital
    
    
    
    
    
    
    Accumulated comprehensive loss
    
    
    (3,255
    )
    
    
    (3,315
    )Accumulated deficit
    
    
    (104,190
    )
    
    
    (107,661
    )Total shareholders equity/(deficiency)
    
    
    (107,445
    )
    
    
    (110,976
    )Total Liabilities and Shareholders Equity/(Deficiency)
    
    $
    247,991
    
    
    $
    254,262
 The accompanying notes to consolidated financial statements are an integral
part of these statements. 3




---



##### Table of Contents



ARGO-TECH CORPORATION AND SUBSIDIARIES(A Wholly-Owned Subsidiary of AT Holdings Corporation) 
 CONSOLIDATED STATEMENTS OF NET INCOMEFOR THE 13 WEEK PERIOD ENDED JANUARY 29, 2005 AND 14 WEEK PERIOD ENDED JANUARY
31, 2004 (In thousands)
UNAUDITED 2005
    
    
    2004Net revenues
    
    $
    47,394
    
    
    $
    44,437Cost of revenues
    
    
    26,808
    
    
    
    26,833Gross profit
    
    
    20,586
    
    
    
    17,604Selling, general and administrative
    
    
    6,826
    
    
    
    6,649Research and development
    
    
    2,726
    
    
    
    2,383Amortization of intangible assets
    
    
    854
    
    
    
    854Operating expenses
    
    
    10,406
    
    
    
    9,886Income from operations
    
    
    10,180
    
    
    
    7,718Interest expense
    
    
    6,277
    
    
    
    5,423Other, net
    
    
    24
    
    
    
    (4
    )Income before income taxes
    
    
    3,879
    
    
    
    2,299Income tax provision
    
    
    1,060
    
    
    
    675Net income
    
    $
    2,819
    
    
    $
    1,624
 The accompanying notes to the consolidated financial statements are an integral part of these statements. 4




---



##### Table of Contents



ARGO-TECH CORPORATION AND SUBSIDIARIES(A Wholly-Owned Subsidiary of AT Holdings Corporation) 
 CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE 13 WEEK PERIOD ENDED JANUARY 29, 2005 AND THE 14 WEEK PERIOD ENDED
JANUARY 31, 2004 (In thousands)UNAUDITED 2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    2,819
    
    
    $
    1,624Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    871
    
    
    
    973Amortization of intangible assets and deferred financing costs
    
    
    1,143
    
    
    
    1,473Accretion of bond discount
    
    
    
    
    
    
    81Compensation expense recognized in connection with
employee stock ownership plan (ESOP)
    
    
    1,260
    
    
    
    262Compensation expense recognized in connection with
ESOP excess benefit plan
    
    
    75Deferred income taxes
    
    
    (54
    )
    
    
    (229
    )Changes in operating assets and liabilities:Receivables
    
    
    (875
    )
    
    
    3,940Inventories
    
    
    (3,998
    )
    
    
    48Prepaid expenses
    
    
    (1,216
    )
    
    
    (1,202
    )Accounts payable
    
    
    (630
    )
    
    
    (2,783
    )Accrued and other liabilities
    
    
    (7,512
    )
    
    
    3,032Other, net
    
    
    62
    
    
    
    81Net cash provided by (used in) operating activities
    
    
    (8,055
    )
    
    
    7,300CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (741
    )
    
    
    (404
    )Net cash used in investing activities
    
    
    (741
    )
    
    
    (404
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of long-term debt
    
    
    (187
    )
    
    
    (3,000
    )Purchase of AT Holdings stock from former ESOP participants
    
    
    (995
    )
    
    
    (149
    )Dividend
    
    
    (684
    )
    
    
    Net cash used in financing activities
    
    
    (1,866
    )
    
    
    (3,149
    )CASH AND CASH EQUIVALENTS:Net increase (decrease) for the period
    
    
    (10,662
    )
    
    
    3,747Balance, Beginning of period
    
    
    15,857
    
    
    
    14,057Balance, End of period
    
    $
    5,195
    
    
    $
    17,804
 The accompanying notes to consolidated financial statements are an integral part of these statements. 5




---



##### Table of Contents



ARGO-TECH CORPORATION AND SUBSIDIARIES(A Wholly-Owned Subsidiary of AT Holdings Corporation) 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEK PERIOD ENDED JANUARY 29, 2005 AND THE 14 WEEK PERIOD ENDED
JANUARY 31, 2004 (Unaudited) 
 1. BASIS OF PRESENTATION The principal operations of Argo-Tech Corporation (a wholly-owned subsidiary of AT Holdings
Corporation) and its subsidiaries include the design, manufacture and distribution of aviation
products, primarily aircraft fuel pumps. In addition, Argo-Tech leases a portion of its
Cleveland, Ohio manufacturing facility to other parties. Argo-Techs fiscal year ends on the
last Saturday in October. Argo-Tech is required to fulfill the obligation of AT Holdings
Corporation to purchase AT Holdings common stock in accordance with the provisions of the
Argo-Tech Corporation Employee Stock Ownership Plan. As a result, that obligation has been
reflected in its financial statements. Argo-Tech Corporation is a parent holding company and all of its domestic subsidiaries guarantee
Argo-Techs senior notes issued in June 2004. Argo-Tech also has two wholly-owned,
non-guarantor foreign subsidiaries which have inconsequential assets, liabilities and equity.
Argo-Tech has no outside assets, liabilities or operations apart from its wholly-owned
subsidiaries. The senior notes are fully, unconditionally, jointly and severally guaranteed by
the guarantor subsidiaries, and therefore, separate financial statements of the guarantor
subsidiaries will not be presented. Management has determined that the information presented by
such separate financial statements is not material to investors. 2. UNAUDITED FINANCIAL INFORMATION The financial information included herein is unaudited; however, the information reflects all
adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of Argo-Techs financial position, results of
operations and cash flows for the interim periods presented. These financial statements and
notes should be read in conjunction with the financial statements and related notes included in
Argo-Techs Annual Report on Form 10-K for the year ended October 30, 2004. The results of
operations for the 13 week period ended January 29, 2005 are not necessarily indicative of the
results to be expected for the full year. 3. INVENTORIES Inventories are stated at standard cost which approximates the costs which would be determined
using the first-in, first-out (FIFO) method. The recorded value of inventories is not in excess
of market value. Inventories consist of the following (in thousands): January 29,
    
    
    October 30,2005
    
    
    2004Finished goods
    
    $
    2,641
    
    
    $
    2,686Work-in-process and purchased parts
    
    
    20,563
    
    
    
    17,867Raw materials and supplies
    
    
    13,251
    
    
    
    11,872Total
    
    
    36,455
    
    
    
    32,425Reserve for excess and obsolete inventory
    
    
    (3,900
    )
    
    
    (3,868
    )Inventories - net
    
    $
    32,555
    
    
    $
    28,557
 6




---



##### Table of Contents



4. INTANGIBLE ASSETS The following is a summary of intangible assets, other than goodwill (in thousands): January 29, 2005
    
    
    October 30, 2004Gross
    
    
    Accumulated
    
    
    Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationIntangible assets:Contracts
    
    $
    17,100
    
    
    $
    12,543
    
    
    $
    17,100
    
    
    $
    12,115Spare parts annuity
    
    
    38,200
    
    
    
    12,316
    
    
    
    38,200
    
    
    
    11,896Patents
    
    
    387
    
    
    
    180
    
    
    
    387
    
    
    
    174Total
    
    $
    55,687
    
    
    $
    25,039
    
    
    $
    55,687
    
    
    $
    24,185
 Amortization expense recorded on the intangible assets for the 13 week period ended January 29,
2005 and the 14 week period ended January 31, 2004 was $0.9 million. The estimated amortization
expense for each of fiscal years 2005 and 2006 is $3.4 million, for fiscal year 2007 is $3.3
million and for each of fiscal years 2008 and 2009 is $1.7 million. The intangible asset Spare
parts annuity is the result of customer relationships that have been developed by supplying
spare parts to our aftermarket customers. The weighted-average amortization period for
contracts is 10 years, 26 years for spare parts annuity and 15 years for patents. 5. PRODUCT WARRANTY Argo-Tech accrues for warranty obligations for products sold based on management estimates of
the amount that may be required to settle such potential obligations. These estimates are
prepared with support from our sales, engineering, quality and legal functions. This accrual,
which is reviewed in detail on a regular basis, is based on several factors: past experience,
current claims, production changes and various other considerations. The following table
presents a reconciliation of changes in the product warranty liability for the 13 week period
ended January 29, 2005 and the 14 week period ended January 31, 2004 (in thousands): 2005
    
    
    2004Beginning balance
    
    $
    2,084
    
    
    $
    2,130Accruals for pre-existing warranties
(including changes in estimate)
    
    
    215
    
    
    
    301Warranty claims settled
    
    
    (179
    )
    
    
    (167
    )Ending balance
    
    $
    2,120
    
    
    $
    2,264
 6. EMPLOYEE BENEFIT PLANS The Company has two noncontributory defined benefit pension plans for qualifying hourly and
salary employees. The first plan covers salaried employees and provides pension benefits that
are based on the employees compensation and years of service. The future accrual of benefits
under this plan was terminated in connection with the formation of the Employee Stock Ownership
Plan (ESOP). The second plan covers hourly employees and provides benefits of stated amounts
for each year of service. The Companys funding policy is to contribute actuarially determined
amounts allowable under Internal Revenue Service regulations. 7




---



##### Table of Contents



A summary of the components of net periodic benefit cost for the pension plans is as follows
(in thousands): 13 week
    
    
    14 weekperiod ended
    
    
    period endedJanuary 29, 2005
    
    
    January 31, 2004Service cost
    
    $
    89
    
    
    $
    70Interest cost
    
    
    343
    
    
    
    331Expected return on plan assets
    
    
    (465
    )
    
    
    (439
    )Net amortization and deferral
    
    
    111
    
    
    
    87Net periodic pension cost
    
    $
    78
    
    
    $
    49
 Argo-Tech expects to contribute $352,000 to the hourly pension plan in 2005. As of January 29,
2005 no contributions have been made. The Company also provides certain postretirement health care benefits to qualifying hourly
retirees and their dependents. This benefit is not funded. A summary of the components of net periodic benefit cost for the postretirement benefit is as
follows (in thousands): 13 week
    
    
    14 weekperiod ended
    
    
    period endedJanuary 29, 2005
    
    
    January 31, 2004Service cost
    
    $
    50
    
    
    $
    49Interest cost
    
    
    223
    
    
    
    242Net amortization and deferral
    
    
    43
    
    
    
    66Net periodic postretirement benefit
cost
    
    $
    316
    
    
    $
    357
 7. CONTINGENCIES Environmental
Matters - The soil and groundwater at Argo-Techs Euclid, Ohio facility and Costa
Mesa, California facility contain elevated levels of certain contaminants which are currently in
the process of being removed and/or remediated. Because Argo-Tech has certain indemnification rights from
former owners of the facilities for liabilities arising from these or other environmental
matters, in the opinion of Argo-Techs management, the ultimate outcome is not expected to
materially affect its financial condition, results of operations or liquidity. Other Matters
- Argo-Tech is subject to various legal actions and other contingencies arising in
the ordinary course of business. In the opinion of Argo-Techs management, after reviewing the
information which is currently available with respect to such matters and consulting with Argo-Techs legal
counsel, any liability which may ultimately be incurred with respect to these matters is not
expected to materially affect Argo-Techs financial condition, results of operations or
liquidity. 8




---



##### Table of Contents



8. SEGMENT INFORMATION Argo-Tech operates in two business segments: Aerospace and Industrial. The Aerospace segment
includes the design, manufacture, distribution, repair and overhaul of aviation products,
consisting of aircraft fuel pumps, fuel flow related products found on a planes airframe, and
aerial refueling pumps and related equipment. The Industrial segment includes the design,
manufacture and distribution of ground fueling valves and related components, specialty
industrial hose, cryogenic pumps and nozzles for transferring liquefied natural gas and
operation of a business park in Cleveland, Ohio where we maintain our headquarters and one of
our production facilities. Argo-Tech evaluates the performance of its segments based primarily on operating profit before
amortization of deferred financing fees and other identified intangibles, interest expense,
interest income, other miscellaneous fees and income taxes. The following table presents revenues and other financial information by business segment (in
thousands): 13 Week Period Ended January 29, 2005 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    36,434
    
    
    $
    10,960
    
    
    $
    
    
    
    $
    47,394Operating profit (loss)
    
    
    9,984
    
    
    
    1,116
    
    
    
    (66
    )
    
    
    11,034Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    854Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,180Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,277Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,879Capital expenditures
    
    
    433
    
    
    
    308
    
    
    
    
    
    
    
    741Depreciation
    
    
    491
    
    
    
    289
    
    
    
    91
    
    
    
    871Compensation expense recognized
in connection with employee
stock ownership plan
    
    
    1,166
    
    
    
    94
    
    
    
    
    
    
    
    1,260
 14 Week Period Ended January 31, 2004 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    30,866
    
    
    $
    13,571
    
    
    $
    
    
    
    $
    44,437Operating profit (loss)
    
    
    8,181
    
    
    
    475
    
    
    
    (84
    )
    
    
    8,572Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    854Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,718Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,423Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,299Capital expenditures
    
    
    358
    
    
    
    46
    
    
    
    
    
    
    
    404Depreciation
    
    
    564
    
    
    
    309
    
    
    
    100
    
    
    
    973Compensation expense recognized
in connection with employee
stock ownership plan
    
    
    231
    
    
    
    31
    
    
    
    
    
    
    
    262
 9




---



##### Table of Contents



9. OTHER COMPREHENSIVE INCOME The following table presents other comprehensive income, which includes foreign currency
translation adjustments (in thousands): 13 week
    
    
    14 weekperiod ended
    
    
    period endedJanuary 29, 2005
    
    
    January 31, 2004Net income
    
    $
    2,819
    
    
    $
    1,624Other comprehensive income:Foreign currency translation adjustment
    
    
    60
    
    
    
    81Other comprehensive income before tax
    
    
    60
    
    
    
    81Income tax related to other
comprehensive income
    
    
    
    
    
    
    Other comprehensive income, net of tax
    
    
    60
    
    
    
    81Comprehensive income
    
    $
    2,879
    
    
    $
    1,705
 10. NEW ACCOUNTING STANDARDS In November 2004, the FASB issued SFAS No. 151, Inventory Costs, which is an amendment of
Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing. This statement
clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges. The provisions of this
statement become effective for the Companys fiscal year beginning October 30, 2005.
Management has not determined the impact, if any, that this statement will have on Argo-Techs
consolidated financial statements. In
December 2004, the FASB issued SFAS No. 123(R), Share Based Payment, which requires all
share-based payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. The Company will adopt the
provisions of this statement in the fiscal quarter beginning July 31, 2005 using the modified
prospective method. Management believes the adoption of this statement will not have a
material effect on Argo-Techs consolidated financial position or results of operations. 11. RECENT EVENT On
March 1, 2005, the Company granted 45,600 Stock Appreciation Rights (SARs) to certain
full-time employees of Argo-Tech and its subsidiaries. Our directors and executive officers do
not participate in the plan. The total number of SARs which may be granted pursuant to the
amended 2004 Stock Appreciation Rights Plan, which was approved by the Board of Directors on
December 7, 2004, cannot exceed 50,000, except to the extent of certain authorized adjustments.
The SARs vest 33-1/3% on the grant date and on each of the next two anniversary dates of the
initial date (the date the value of the SAR is determined by the Board). Once vested and upon
the earliest of: termination of employment for reasons other than cause, a change of control or
ten years from the initial date, each SAR entitles the holder to a cash payment equal to the
increase, if any, in the value of one share of AT Holdings Corporation common stock from the
initial date to the date of payment. 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview Argo-Tech is a global designer, manufacturer and servicer of high performance fuel flow devices
and systems. We operate in two business segments, Aerospace and Industrial. The Aerospace
segment 10




---



##### Table of Contents



consists of aircraft engine fuel pumps and other engine products, commercial and
military products and systems found on a planes airframe, and aerial refueling pumps and
related equipment. The Industrial segment includes ground fueling nozzles, hoses and other
ground fueling components, an automated fuel management system, cryogenic pumps and nozzles and
the operation of a business park in Cleveland, Ohio. The following is managements discussion and analysis of certain significant factors which have
affected Argo-Techs financial position and operating results during the periods presented in
the accompanying condensed consolidated financial statements. Argo-Techs fiscal year ends on
the last Saturday of October and is identified according to the calendar year in which it ends. Export Sales Substantially all of our export sales are denominated in U. S. dollars. Export sales for the
13 week period ended January 29, 2005 were $21.5 million. Sales to Europe were $12.0 million,
sales to Pacific Rim countries were $7.1 million and sales to all other regions, individually
less than 10%, were $2.4 million for the 13 week period ended January 29, 2005. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. Management bases its estimates on historical experience and
on various other assumptions that are believed to be reasonable under the circumstances, the
results of which enable the fair presentation of our financial position and results of
operations. Actual results may differ from these estimates under different assumptions or
conditions. Management believes the following critical accounting policies reflect its more
significant estimates and assumptions used in the preparation of its consolidated financial
statements. Revenue Recognition.Revenues are generally recognized when goods are shipped or services
provided, at which time title and risk of loss passes to the customer. Substantially all sales
are made pursuant to firm, fixed-price purchase orders received from customers. We have
executed long-term supply agreements with certain of our original equipment manufacture, or
OEM, customers. These agreements require Argo-Tech to supply all the amounts ordered by the
customers during the term of the agreements (generally three to five years) at specified
prices. Under certain of these agreements, we expect to incur losses. Provisions for
estimating losses on these contracts are made in the period in which such losses are identified
based on cost and pricing information and estimated future shipment quantities provided by the
customer. The cumulative effect of revisions to estimated losses on contracts is recorded in
the accounting period in which the amounts become known and can be reasonably estimated. Such
revisions could occur at any time there are changes to estimated future revenues or costs.
Revenue from certain fixed price engineering contracts for which costs can be reliably
estimated are recognized based on milestone billings. Variations in actual labor performance,
changes to estimated profitability and final contract settlements may result in revisions to
the cost estimates. Revisions in cost estimates as contracts progress have the effect of
increasing or decreasing profits in the period of revision. We record estimated reductions to
revenue for volume-based incentives based on expected customer activity for the applicable
period. Revisions for volume-based incentives are recorded in the accounting period in which
such estimates can be reasonably determined. Valuation of Accounts Receivable and Allowance for Doubtful Accounts.We evaluate the
collectibility of our trade receivables based on a combination of factors. We regularly
analyze our customer accounts, and when we become aware of a specific customers inability to
meet its financial obligation to us, such as in the case of bankruptcy filings, we immediately
record a bad debt expense and reduce the related receivable to the amount we reasonably believe
is collectible. We estimate the allowance for doubtful accounts based on the aging of the
accounts receivable, customer creditworthiness and historical 11




---



##### Table of Contents



experience. Our estimate of the allowance amounts includes amounts for specifically identified losses and a general amount for
estimated losses. If circumstances change or economic conditions deteriorate, our estimates of
the recoverability of receivables could be further adjusted. Valuation of Inventories.Our inventory purchases and commitments are made in order to build
inventory to meet future shipment schedules based on forecasted demand for our products.
Inventories are stated at the lower of cost or market, with cost being determined on the
first-in, first-out, or FIFO, method. Periodically, we perform a detailed assessment of
inventory, which includes a review of, among other factors, historical sales activity, future
demand requirements, product life cycle and development plans and quality issues. Based on
this analysis, we record provisions for potentially obsolete or slow-moving inventory to
reflect inventory at net realizable value. These provisions could vary significantly, either
favorably or unfavorably, from actual requirements based upon future economic conditions,
customer inventory levels or competitive factors that were not foreseen, or did not exist, when
the valuation allowances were established. Valuation of Goodwill and Intangible Assets.Goodwill and identified intangible assets are
recorded at fair value on the date of acquisition. Intangible assets other than goodwill are
recognized if the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed or exchanged,
regardless of our intent to do so. Intangible assets, such as goodwill, that have an
indefinite useful life are not amortized. All other intangible assets are amortized over their
estimated useful lives. We review goodwill and purchased intangible assets for impairment
annually, or whenever events or changes in circumstances indicate the carrying value of an
asset may not be recoverable. Our asset impairment review assesses the fair value of the
assets based on the future cash flows the assets are expected to generate. This approach uses
our estimates of future market growth, forecasted revenue and costs and appropriate discount
rates. When impairment is identified, the carrying amount of the asset is reduced to its
estimated fair value. Pensions and post-retirement plan assumptions.We have two noncontributory defined benefit
pension plans for qualifying hourly and salary employees and a postretirement health care
benefit plan for qualifying hourly retirees and their dependents. We account for our defined
benefit plans in accordance with Statement of Financial Accounting Standards (SFAS) No. 87,
No. 106 and No. 132(R), which requires amounts recognized in the financial statements to be
determined on an actuarial basis. We are required to make assumptions regarding such variables
as the expected long-term rate of return on assets and the discount rate, which are used to
determine service cost and interest cost to arrive at pension income or expense for the year.
We are also required to make assumptions for the long-term health care cost trend rates for our
post-retirement benefit plan. The estimated cost and benefits of the noncontributory defined
benefit pension plans and the postretirement health care plan are determined by an independent
actuary using various actuarial assumptions, including, but not limited to, assumptions on
demographic factors such as retirement, mortality and turnover. We have analyzed the rate of
return on assets used and determined that this rate is reasonable based on the plans
historical performance relative to the overall markets. The discount rate assumption is
consistent with prior years and is based on changes in the prevailing market long-term interest
rates at the measurement date. If any of our assumptions were to change, our benefit plan
expenses would also change. An increase/decrease in the discount rate, assuming no other
changes in the estimates, reduces/increases the amount of the accumulated benefit obligation
and the related required expense. Fluctuations of Operating Results; Limitation of Quarterly Comparisons Argo-Techs results of operations are subject to fluctuations from quarter to quarter due to
changes in demand for our products, changes in product mix and other factors. Demand for our
products can vary from quarter to quarter due to changes in demand for, and timing of
deliveries of, OEM, aftermarket and military products and services. In particular, the timing
of Argo-Techs aftermarket sales tends not to occur on a predictable schedule and, furthermore,
the sales tend to occur in large quantities that can significantly impact quarterly
comparisons. Accordingly, year-to-year and quarter-to-quarter 12




---



##### Table of Contents



comparisons of quarterly results may not be meaningful, and quarterly results during the year are not necessarily indicative of
the results that may be expected for any future period or for the entire year. Results of Operations for the 13 Week Period Ended January 29, 2005 Compared With the 14 Week
Period Ended January 31, 2004 Net revenues for the 13 week period ended January 29, 2005 increased $3.0 million, or 6.8%, to
$47.4 million from $44.4 million for the 14 week period ended January 31, 2004. This increase
was primarily due to an increase in aerospace revenues of $5.5 million offset by a decrease of
$2.5 million in industrial revenues. The increase in aerospace revenues was attributable to an
increase of $6.1 million of commercial aerospace revenues and a decrease of $0.6 million of
military revenues. Commercial OEM revenues increased $1.0 million, or 21.7%, to $5.6 million
and commercial aftermarket revenues increased $5.1 million, or 39.5%, to $18.0 million in the
13 week period ended January 29, 2005. Commercial OEM revenues increased primarily as a result
of an increase in pump requirements from our customers. Commercial aftermarket revenues were
higher primarily due to an increase in repair and overhaul activities along with an increase in
the demand for spare parts. Military revenues decreased primarily due to a reduction in
revenues related to OEM airframe development programs, partially offset by an increase in sales
of OEM airframe components, as more of these products moved from development and into
production. The $2.5 million decrease in industrial revenues was primarily attributable to a
decrease of $2.7 million in cryogenic pump revenues related to a large non-recurring order that
was shipped in the 14 week period ended January 31, 2004, offset by a slight increase in
commercial ground fueling revenues. Aerospace gross profit for the 13 week period ended January 29, 2005 increased $2.7 million, or
19.4%, to $16.6 million from $13.9 million in the 14 week period ended January 31, 2004. Gross
margin increased to 45.6% for the 13 week period ended January 29, 2005 from 45.0% in the 14
week period ended January 31, 2004. The increase in gross profit and gross margin is primarily
attributable to the increase in sales of higher margin commercial aerospace aftermarket
products, offset by an increase in non-cash compensation expense associated with the ESOP.
Industrial gross profit for the 13 week period ended January 29, 2005 increased $0.3 million,
or 7.9%, to $4.1 million from $3.8 million in the 14 week period ended January 31, 2004. Gross
margin increased to 37.3% in the 13 week period ended January 29, 2005 from 28.0% in the 14
week period ended January 31, 2004. The increase in gross profit and gross margin was
primarily attributable to improved margins on cryogenic pump products and a decrease in utility
costs associated with the operation of our business park, offset by a less favorable sales mix
of ground fueling products. Operating expenses for the 13 week period ended January 29, 2005 increased $0.5 million, or
5.1%, to $10.4 million from $9.9 million in the 14 week period ended January 31, 2004. This
increase is primarily attributable to an increase of $0.2 million in selling, general and
administrative expenses and a $0.3 million increase in research and development expenses. The
increase in selling, general and administrative expense is primarily related to an increase in
non-cash compensation expense associated with the ESOP. The increase in research and
development expenses is primarily due to a decrease in customer-paid development expenses.
Operating expenses as a percentage of revenues decreased to 21.9% for the 13 week period ended
January 29, 2005 as compared to 22.3% for the 14 week period ended January 31, 2004. Income from operations for the 13 week period ended January 29, 2005 increased $2.5 million, or
32.5%, to $10.2 million from $7.7 million in the 14 week period ended January 31, 2004. As a
percentage of revenues, income from operations for the 13 week period ended January 29, 2005
increased to 21.5% from 17.3% for the 14 week period ended January 31, 2004. These increases
were primarily due to the increased sales of higher margin commercial aerospace aftermarket
revenues, a decrease in manufacturing costs for our cryogenic pump products and a decrease in
utility costs associated with the operation of our business park,
offset by an increase in noncash compensation expense associated with
the ESOP and an increase in research and development expenses. 13




---



##### Table of Contents



Interest expense for the 13 week period ended January 29, 2005 increased $0.9 million, or
16.7%, to $6.3 million from $5.4 million in the 14 week period ended January 31, 2004 primarily
due to the increase in interest expense on the $250.0 million of 9-1/4% senior notes issued in
June 2004, which was partially offset by lower outstanding borrowings under our credit
facility. The income tax provision was $1.1 million for the 13 week period ended January 29, 2005 as
compared to $0.7 million for the 14 week period ended January 31, 2004. This increase is
primarily due to the increase in pre-tax income. Net income for the 13 week period ended January 29, 2005 increased $1.2 million to $2.8 million
from $1.6 million for the 14 week period ended January 31, 2004, primarily due to the revenue
and expense factors discussed above. Liquidity and Capital Resources Argo-Tech is a holding company that receives all of its operating income from its subsidiaries.
As a result, Argo-Techs primary source of liquidity for conducting business activities and
servicing its indebtedness has been cash flows from operating activities. Cash and cash equivalents for the 13 week period ended January 29, 2005 decreased $10.7 million
to $5.2 million. This was primarily due to a reduction in accrued and other liabilities for
the payment of interest on the $250.0 million 9-1/4% senior notes, an increase in inventory and
prepaid expenses, the purchase of AT Holdings stock from former ESOP participants, a dividend
to AT Holdings for the development of a proprietary asset tracking technology and a scheduled
repayment of our term loan, offset by an increase in operating income. Capital expenditures for the 13 week period ended January 29, 2005 totaled $0.7 million
compared to $0.4 million for the 14 week period ended January 31, 2004. Argo-Tech expects to
incur capital expenditures of approximately $3.5 million for the remainder of fiscal year 2005
relating to the continued maintenance of facilities, equipment and systems to support current
operating activities. Long-term debt at January 29, 2005 consisted of $14.6 million principal amount of our term loan
and $250.0 million of senior notes. Scheduled payments of $0.2 million were made on the term
loan in the 13 week period ended January 29, 2005. Our amended and restated senior credit
facility provides for a $30.0 million five-year revolving credit facility and a $15.0 million
five-year term loan facility. At January 29, 2005, Argo-Tech has available, after $6.7 million
in letters of credit, a $23.3 million revolving credit facility. As of January 29, 2005, there
were no outstanding borrowings on the revolving credit facility. The credit facility contains
no restrictions on the ability of Argo-Techs subsidiaries to make distributions to Argo-Tech. Our expected future contractual cash obligations and other commercial commitments for the next
several fiscal years, as of January 29, 2005, are as follows (in millions): 2010 and2005 (1)
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    TotalTerm loan facility
    
    $
    0.5
    
    
    $
    0.7
    
    
    $
    0.7
    
    
    $
    6.7
    
    
    $
    6.0
    
    
    $
    
    
    
    $
    14.69-1/4% senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250.0
    
    
    
    250.0Operating leases
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    1.1Other long-term
obligations (2)
    
    
    11.9
    
    
    
    23.7
    
    
    
    24.4
    
    
    
    23.5
    
    
    
    23.2
    
    
    
    46.2
    
    
    
    152.9Total contractual cash
obligations
    
    $
    12.9
    
    
    $
    24.7
    
    
    $
    25.3
    
    
    $
    30.3
    
    
    $
    29.2
    
    
    $
    296.2
    
    
    $
    418.6
 14




---



##### Table of Contents



(1)  Contractual obligations for the remainder of fiscal 2005. (2)  Represents interest payments on the senior notes and estimated funding for retirement and
other post-employment benefits. Interest on the term loan facility is excluded as it is not
fixed and determinable. We believe that cash flow from operations will provide adequate funds for our working capital
needs, planned capital expenditures and near term debt service obligations. Our ability to
fund our operations, make planned capital expenditures, and to make scheduled payments on our
indebtedness depends on our future operating performance and cash flow. We may need to
refinance all or a portion of our indebtedness on or before maturity. There can be no
assurance that we will be able to refinance any of our indebtedness on commercially reasonable
terms or at all. These items are subject to prevailing conditions and to financial, business,
and other factors, some of which are beyond our control. Certain Factors That May Affect Future Results From time to time, information provided by Argo-Tech, statements by its employees or
information included in its filings with the Securities and Exchange Commission (including
those portions of the Managements Discussion and Analysis that refer to the future) may
contain forward-looking statements that are not historical facts. Those statements are
forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements, and Argo-Techs future performance, operating results,
financial position and liquidity, are subject to a variety of factors that could materially
affect results. Some, but not necessarily all, of these factors include:  
    changes and/or cyclicality in the aerospace industry;
    governmental regulation and oversight in the aerospace industry;
    levels of competition in the aerospace industry;
    the impact of terrorism and war on airline travel and the airline industry;
    our ability to meet future capital requirements;
    loss of a significant customer;
    risks associated with fixed-price contracts;
    costs associated with product liability and warranty claims;
    risks associated with our international operations;
    changes in environmental or other applicable governmental regulations;
    reduction in military and/or defense spending and risks associated with
government contracts;
    changes in our relationship with our employees;
    availability of essential materials used in our products;
    risks associated with protection of our intellectual property rights; 15




---



##### Table of Contents




    the other factors described in Argo-Techs annual report on Form 10-K for the
year ended October 30, 2004; and
    other unforeseen circumstances. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK In the ordinary course of operations, Argo-Techs major market risk exposure is to changing
interest rates, primarily with respect to its long-term debt obligations. At January 29, 2005,
Argo-Tech had fixed rate debt totaling $250.0 million at 9.25% and variable rate debt under its
existing credit facility of $14.6 million calculated, at Argo-Techs choice, using an alternate
base rate (ABR) or LIBOR, plus a supplemental percentage
determined by the ratio of debt to adjusted
EBITDA. The variable rate is not to exceed ABR plus 1.25% or LIBOR plus 2.75%. Argo-Tech
currently has no derivative contracts and does not enter into derivative contracts for trading
or speculative purposes. A 10% fluctuation in interest rates would not materially affect
Argo-Techs financial condition, results of operations or cash flows. 
 ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. The management of Argo-Tech,
including its Chief Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of Argo-Techs disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of January 29, 2005.
Based on this evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that Argo-Techs disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed by Argo-Tech in the reports
that it files or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified by the Securities and Exchange
Commissions rules and forms. (b) Changes in internal controls. There were no changes in Argo-Techs internal control
over financial reporting or in other factors during the quarter ended January 29, 2005
that have materially affected, or are reasonably likely to materially affect, Argo-Techs
internal control over financial reporting. (c) Section 404 of the Sarbanes-Oxley Act requires management to report on, and its independent
auditors to attest to, Argo-Techs internal control over financial reporting in its annual
report, beginning with the annual report for Argo-Techs fiscal year ending October 28, 2006.
Argo-Tech is actively continuing its ongoing internal process of documenting, testing and
evaluating the effectiveness of its internal control over financial reporting utilizing outside
assistance. 
 PART II - OTHER INFORMATION 
 Item 6 - Exhibits  (a)
    First Amendment, dated as of January 19, 2005, to the Third Amended and
Restated Credit Agreement, dated as of June 23, 2004, by and among Argo-Tech
Corporation, AT Holdings Corporation, National City Bank, as administrative agent and
an issuing bank, JPMorgan Chase Bank, as an issuing bank with respect to existing
letters of credit issued thereunder and the other 16




---



##### Table of Contents



lenders signatory thereto (incorporated by reference to Exhibit 10.1 of Argo-Techs current report on Form 8-K
filed on January 21, 2005).(b)
    Exhibit 31.1  Certification by Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(c)
    Exhibit 31.2  Certification by Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(d)
    Exhibit 32  Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 17




---



##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 14, 2005
    
    ARGO-TECH CORPORATIONBy: /s/
    
    Frances S. St. ClairFrances S. St. ClairExecutive Vice President and ChiefFinancial Officer(Duly Authorized Officer)By: /s/
    
    Paul A. SkladPaul A. SkladController(Principal Accounting Officer)
 18