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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 28, 2006, 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 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. YES þ NO o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer or non-accelerated filer.
 Large accelerated filero Accelerated filero Non-accelerated filer þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). YES o NO þ
 All of the outstanding capital stock of the registrant is held by AT Holdings
Corporation.
 As of March 1, 2006, 1 share of the registrants common stock, $.01 par value, was
outstanding.




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##### 



INDEX
  
 Page No.PART I  FINANCIAL INFORMATIONItem 1  Financial StatementsConsolidated Balance Sheets as of January 28, 2006 and October 29, 2005
    
    
    3Consolidated Statements of Operations for the 13 week periods ended
January 28, 2006 and January 29, 2005 (Predecessor)
    
    
    4Consolidated Statements of Cash Flows for the 13 week periods ended
January 28, 2006 and January 29, 2005 (Predecessor)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6 - 10Item 2
 Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    10 - 14Item 3
 Quantitative and Qualitative Disclosure about Market Risk
    
    
    15Item 4  Controls and Procedures
    
    
    15PART II  OTHER INFORMATIONItem 6  Exhibits
    
    
    15Signature
    
    
    16Certifications
    
    
    17-19EX-31.1 302 CEO CertificationEX-31.2 302 CFO CertificationEX-32 906 CEO & CFO Certifications
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1.
 ARGO-TECH CORPORATION AND SUBSIDIARIES 
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 CONSOLIDATED BALANCE SHEETS  January 28, 2006 and October 29, 2005  (In thousands, except share data)
 2006
    
    
    2005(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,262
    
    
    $
    13,889Receivables, net
    
    
    41,521
    
    
    
    40,319Income tax receivable
    
    
    1,735
    
    
    
    3,630Inventories, net
    
    
    47,230
    
    
    
    70,965Prepaid expenses
    
    
    2,425
    
    
    
    1,688Deferred income taxes
    
    
    4,170
    
    
    
    Total current assets
    
    
    99,343
    
    
    
    130,491PROPERTY AND EQUIPMENT, net of accumulated depreciation
    
    
    41,198
    
    
    
    41,970GOODWILL
    
    
    200,152
    
    
    
    200,152INTANGIBLE ASSETS, net of accumulated amortization
    
    
    211,483
    
    
    
    214,440OTHER ASSETS
    
    
    1,381
    
    
    
    1,453Total Assets
    
    $
    553,557
    
    
    $
    588,506LIABILITIES
AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term debt
    
    $
    750
    
    
    $
    750Accounts payable
    
    
    7,926
    
    
    
    8,736Accrued liabilities
    
    
    22,042
    
    
    
    47,681Total current liabilities
    
    
    30,718
    
    
    
    57,167LONG-TERM DEBT, net of current maturities
    
    
    287,677
    
    
    
    278,312DEFERRED INCOME TAXES
    
    
    73,614
    
    
    
    75,120OTHER NONCURRENT LIABILITIES
    
    
    17,499
    
    
    
    17,111Total Liabilities
    
    
    409,508
    
    
    
    427,710SHAREHOLDERS EQUITY:Common Stock, $.01 par value, authorized 3,000 shares;
1 share issued and outstanding
    
    
    
    
    
    
    Paid-in capital
    
    
    158,916
    
    
    
    160,796Accumulated other comprehensive loss
    
    
    (7
    )
    
    
    Accumulated equity / (deficit)
    
    
    (14,860
    )
    
    
    Total shareholders equity
    
    
    144,049
    
    
    
    160,796Total Liabilities and Shareholders Equity
    
    $
    553,557
    
    
    $
    588,506
  3




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ARGO-TECH CORPORATION AND SUBSIDIARIES  (A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  For the 13 Week Periods Ending January 28, 2006 and January 29, 2005
 (In thousands)
    
    
    
    
    
    PredecessorUnaudited
    
    2006
    
    
    2005Net revenues
    
    $
    52,209
    
    
    $
    47,394Cost of revenues (Including inventory
purchase accounting
charges of $26,483 for the 13 week period ended
January 28, 2006)
    
    
    58,180
    
    
    
    26,808Gross profit (loss)
    
    
    (5,971
    )
    
    
    20,586Selling, general and administrative
    
    
    7,443
    
    
    
    6,826Research and development
    
    
    2,904
    
    
    
    2,726Amortization of intangible assets
    
    
    2,957
    
    
    
    854Operating expenses
    
    
    13,304
    
    
    
    10,406Income/(loss) from operations
    
    
    (19,275
    )
    
    
    10,180Interest expense
    
    
    5,920
    
    
    
    6,277Other, net
    
    
    14
    
    
    
    24Income/(loss) before income taxes
    
    
    (25,209
    )
    
    
    3,879Income tax (benefit)/provision
    
    
    (10,349
    )
    
    
    1,060Net income/(loss)
    
    $
    (14,860
    )
    
    $
    2,819
  4




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ARGO-TECH CORPORATION AND SUBSIDIARIES  (A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  For the 13 Week Periods Ending January 28, 2006 and January 29,2005
 (In thousands)
    
    
    
    
    
    PredecessorUNAUDITED
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income/(loss)
    
    $
    (14,860
    )
    
    $
    2,819Adjustments to reconcile net income/(loss) to net cash used in
operating activities:Depreciation
    
    
    1,093
    
    
    
    871Amortization of intangible assets and deferred financing costs
    
    
    3,034
    
    
    
    1,143Amortization of senior note fair value step-up
    
    
    (447
    )
    
    
    Compensation expense recognized in connection with
employee stock ownership plan (ESOP)
    
    
    
    
    
    
    1,260Compensation expense recognized in connection with ESOP excess
benefit plan
    
    
    
    
    
    
    75Amortization of inventory fair value step-up
    
    
    26,483
    
    
    
    Deferred income taxes
    
    
    (12,539
    )
    
    
    (54
    )Changes in operating assets and liabilities:Receivables
    
    
    693
    
    
    
    (875
    )Inventories
    
    
    (2,748
    )
    
    
    (3,998
    )Prepaid expenses
    
    
    (739
    )
    
    
    (1,216
    )Accounts payable
    
    
    (770
    )
    
    
    (630
    )Accrued and other liabilities
    
    
    (18,389
    )
    
    
    (7,512
    )Other, net
    
    
    (7
    )
    
    
    62Net cash used in operating activities
    
    
    (19,196
    )
    
    
    (8,055
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (321
    )
    
    
    (741
    )Net cash used in investing activities
    
    
    (321
    )
    
    
    (741
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowing of long-term debt
    
    
    12,000
    
    
    
    Repayment of long-term debt
    
    
    (2,188
    )
    
    
    (187
    )Payment of financing related fees
    
    
    (42
    )
    
    
    Intercompany activity with Parent
    
    
    (1,851
    )
    
    
    Purchase of AT Holdings stock from former ESOP participants
    
    
    
    
    
    
    (995
    )Dividend to AT Holdings
    
    
    (29
    )
    
    
    (684
    )Net cash provided by (used in) financing activities
    
    
    7,890
    
    
    
    (1,866
    )CASH AND CASH EQUIVALENTS:Net decrease for the period
    
    
    (11,627
    )
    
    
    (10,662
    )Balance, beginning of period
    
    
    13,889
    
    
    
    15,857Balance, end of period
    
    $
    2,262
    
    
    $
    5,195
  5




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ARGO-TECH CORPORATION AND SUBSIDIARIES  (A Wholly-Owned Subsidiary of AT Holdings Corporation)





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  FOR THE 13 WEEK PERIODS ENDED JANUARY 28, 2006 AND JANUARY 29, 2005 (Predecessor)  (Unaudited)


1. BASIS OF PRESENTATION








2. UNAUDITED FINANCIAL INFORMATION




3. INVENTORIES




6



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January 28,
    
    
    October 29,2006
    
    
    2005Finished goods
    
    $
    2,563
    
    
    $
    5,401Work-in-process and purchased parts
    
    
    47,907
    
    
    
    68,895Raw materials and supplies
    
    
    865
    
    
    
    706Total
    
    
    51,335
    
    
    
    75,002Reserve for excess and obsolete inventory
    
    
    (4,105
    )
    
    
    (4,037
    )Inventories  net
    
    $
    47,230
    
    
    $
    70,965
 4. INTANGIBLE ASSETS
  January 28, 2006
    
    
    October 29, 2005Gross
    
    
    Accumulated
    
    
    Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationIntangible assets:Contracts
    
    $
    20,870
    
    
    $
    522
    
    
    $
    20,870
    
    
    $
    Customer
relationships
    
    
    193,090
    
    
    
    2,415
    
    
    
    193,090
    
    
    
    Patents
    
    
    480
    
    
    
    20
    
    
    
    480
    
    
    
    Total
    
    $
    214,440
    
    
    $
    2,957
    
    
    $
    214,440
    
    
    $
    
  5. PRODUCT WARRANTY
  Predecessor2006
    
    
    2005Beginning balance
    
    $
    2,073
    
    
    $
    2,084Accruals for pre-existing warranties
(including changes in estimate)
    
    
    266
    
    
    
    215Warranty claims settled
    
    
    (118
    )
    
    
    (179
    )Ending balance
    
    $
    2,221
    
    
    $
    2,120
 6. EMPLOYEE BENEFIT PLANS
  7




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13 week periods endedJanuary 28, 2006
    
    
    January 29, 2005(Predecessor)Service cost
    
    $
    92
    
    
    $
    89Interest cost
    
    
    368
    
    
    
    343Expected return on plan assets
    
    
    (492
    )
    
    
    (465
    )Net amortization and deferral
    
    
    
    
    
    
    111Net periodic pension cost
    
    $
    (32
    )
    
    $
    78
    13 week periods endedJanuary 28, 2006
    
    
    January 29, 2005(Predecessor)Service cost
    
    $
    73
    
    
    $
    50Interest cost
    
    
    263
    
    
    
    223Net amortization and deferral
    
    
    
    
    
    
    43Net periodic postretirement benefit
cost
    
    $
    336
    
    
    $
    316
 7. CONTINGENCIES
   8. SEGMENT INFORMATION
  8




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13 Week Period Ended January 28, 2006
 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    39,296
    
    
    $
    12,913
    
    
    $
    
    
    
    $
    52,209Operating profit (loss)
    
    
    10,638
    
    
    
    (209
    )
    
    
    (264
    )
    
    
    10,165Amortization of fair value
inventory step-up
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,483Amortization of intangible
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,957Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,275
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,920Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (25,209
    )Capital expenditures
    
    
    234
    
    
    
    87
    
    
    
    
    
    
    
    321Depreciation
    
    
    508
    
    
    
    335
    
    
    
    250
    
    
    
    1,093
 13 Week Period Ended January 29, 2005 (Predecessor)
 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
 9




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9. OTHER COMPREHENSIVE INCOME/(LOSS)
  13 week periods endedJanuary 28, 2006
    
    
    January 29, 2005(Predecessor)Net income/(loss)
    
    $
    (14,860
    )
    
    $
    2,819Other comprehensive income/(loss):Foreign currency translation adjustment
    
    
    (7
    )
    
    
    60Other comprehensive income/(loss)
before tax
    
    
    (7
    )
    
    
    60Income tax related to other
comprehensive income/(loss)
    
    
    
    
    
    
    Other comprehensive income/(loss), net
of tax
    
    
    (7
    )
    
    
    60Comprehensive income/(loss)
    
    $
    (14,867
    )
    
    $
    2,879
 10. NEW ACCOUNTING STANDARDS
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  10




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Export Sales
  Critical Accounting Policies
  Fluctuations of Operating Results; Limitation of Quarterly Comparisons
  Results of Operations for the 13 Week Period Ended January 28, 2006 Compared With the 13 Week
Period Ended January 29, 2005
  11




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12




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Liquidity and Capital Resources
      2011 and2006 (1)
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalTerm loan facility
    
    $
    0.6
    
    
    $
    0.8
    
    
    $
    3.6
    
    
    $
    14.0
    
    
    $
    
    
    
    $
    
    
    
    $
    19.09-1/4% senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250.0
    
    
    
    250.0Operating leases
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.6Other long-term
obligations (2)
    
    
    14.1
    
    
    
    26.1
    
    
    
    26.2
    
    
    
    25.6
    
    
    
    25.0
    
    
    
    37.4
    
    
    
    154.4Total contractual cash
obligations
    
    $
    14.9
    
    
    $
    27.1
    
    
    $
    29.9
    
    
    $
    39.7
    
    
    $
    25.0
    
    
    $
    287.4
    
    
    $
    424.0
 
 (1)
    
     Contractual obligations for the remainder of fiscal 2006.(2)
    
     Represents interest payments on the senior notes and the term loans, estimated funding
for retirement and other post-employment benefits and other long-term commitments. 13




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Certain Factors That May Affect Future Results
  
    
    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;
    
    the other factors described in Argo-Techs annual report on Form 10-K for the
year ended October 29, 2005; and
    
    other unforeseen circumstances.
 14




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ITEM
3.
 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4.
 CONTROLS AND PROCEDURES
    
 PART II  OTHER INFORMATION
 
  (a)
    
    Exhibit 31.1  Certification by Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(b)
    
    Exhibit 31.2  Certification by Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(c)
    
    Exhibit 32  Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 15




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SIGNATURE
  Date: March 14, 2006
    
    ARGO-TECH CORPORATION
 By:
    
    /s/
    
    John S. GloverJohn S. Glover
Vice President and Chief
Financial Officer
(Duly Authorized Officer)By:
    
    /s/
    
    Paul A. SkladPaul A. SkladController(Principal Accounting Officer)
 16