##### 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 July 30, 2005, 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. þ YES o 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
 Indicate by check mark whether the registrant is a shell company (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 September 1, 2005, 1 share of the registrants common stock, $.01 par value,
was outstanding.




---



INDEX
 Page No.PART I  FINANCIAL INFORMATIONItem 1  Financial StatementsConsolidated Balance Sheets as of July 30, 2005 and October 30, 2004
    
    
    3Consolidated Statements of Net Income (Loss) for the 39 week period
and 13 week period ended July 30, 2005 and the 40 week period and
13 week period ended July 31, 2004
    
    
    4Consolidated Statements of Cash Flows for the 39 week period ended
July 30, 2005 and the 40 week period ended July 31, 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6 - 11Item 2
 Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    12 - 18Item 3
 Quantitative and Qualitative Disclosure about Market Risk
    
    
    18Item 4  Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 5  Other information
    
    
    19Item 6  Exhibits
    
    
    19 - 20Signature
    
    
    21Certifications
    
    
    22 - 24EX-10.1 Amendment to Employment Agreement-LipscombEX-10.2 Amendment to Employment Agreement-KeenEX-10.3 Collat. Assign. Split Dollar Ins. Agree-LipscombEX-10.4 Collat. Assign. Split Dollar Ins. Agree-KeenEX-10.5 Collat. Assign. Split Dollar Ins. Agree-St.ClairEX-10.6 Nonqual. Deferred Comp. Agree.-St. ClairEX-31.1 CertEX-31.2 CertEX-32 Cert
  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
JULY 30, 2005 AND OCTOBER 30, 2004
(In thousands, except share data)
 2005
    
    
    2004(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    3,679
    
    
    $
    15,857Receivables, net
    
    
    35,107
    
    
    
    29,013Income tax receivable
    
    
    973
    
    
    
    1,203Inventories, net
    
    
    35,738
    
    
    
    28,557Deferred income taxes and prepaid expenses
    
    
    7,784
    
    
    
    6,245Total current assets
    
    
    83,281
    
    
    
    80,875PROPERTY AND EQUIPMENT, net of
accumulated depreciation
    
    
    23,685
    
    
    
    23,213GOODWILL
    
    
    110,059
    
    
    
    110,059INTANGIBLE ASSETS, net of accumulated amortization
    
    
    28,942
    
    
    
    31,502DEFERRED FINANCING AND OTHER ASSETS
    
    
    7,744
    
    
    
    8,613Total Assets
    
    $
    253,711
    
    
    $
    254,262LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIENCY)CURRENT LIABILITIES:Current portion of long-term debt
    
    $
    750
    
    
    $
    750Accounts payable
    
    
    8,768
    
    
    
    9,396Accrued liabilities
    
    
    26,223
    
    
    
    28,766Total current liabilities
    
    
    35,741
    
    
    
    38,912LONG-TERM DEBT, net of current maturities
    
    
    263,500
    
    
    
    264,063OTHER NONCURRENT LIABILITIES
    
    
    20,866
    
    
    
    21,306Total liabilities
    
    
    320,107
    
    
    
    324,281REDEEMABLE ESOP STOCK
    
    
    37,163
    
    
    
    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
    
    
    (3,354
    )
    
    
    (3,315
    )Accumulated deficit
    
    
    (100,205
    )
    
    
    (107,661
    )Total shareholders equity/(deficiency)
    
    
    (103,559
    )
    
    
    (110,976
    )Total Liabilities and Shareholders Equity/(Deficiency)
    
    $
    253,711
    
    
    $
    254,262
  3




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##### Table of Contents



ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 CONSOLIDATED STATEMENTS OF NET INCOME/(LOSS)
 
 39 week
    
    
    40 weekperiod ended
    
    
    period ended
    
    
    13 week periods endedJuly 30, 2005
    
    
    July 31, 2004
    
    
    July 30, 2005
    
    
    July 31, 2004Net revenues
    
    $
    153,395
    
    
    $
    137,388
    
    
    $
    53,794
    
    
    $
    45,552Cost of revenues
    
    
    88,379
    
    
    
    78,990
    
    
    
    31,741
    
    
    
    25,432Gross profit
    
    
    65,016
    
    
    
    58,398
    
    
    
    22,053
    
    
    
    20,120Selling, general and administrative
    
    
    25,436
    
    
    
    21,441
    
    
    
    8,637
    
    
    
    7,461Research and development
    
    
    9,786
    
    
    
    8,682
    
    
    
    3,253
    
    
    
    2,967Amortization of intangible assets
    
    
    2,560
    
    
    
    2,560
    
    
    
    853
    
    
    
    853Operating expenses
    
    
    37,782
    
    
    
    32,683
    
    
    
    12,743
    
    
    
    11,281Income from operations
    
    
    27,234
    
    
    
    25,715
    
    
    
    9,310
    
    
    
    8,839Interest expense
    
    
    18,908
    
    
    
    15,995
    
    
    
    6,338
    
    
    
    5,490Debt extinguishment expense
    
    
    
    
    
    
    12,961
    
    
    
    
    
    
    
    12,961Other, net
    
    
    (1
    )
    
    
    (10
    )
    
    
    24
    
    
    
    2Income/(loss) before income taxes
    
    
    8,327
    
    
    
    (3,231
    )
    
    
    2,948
    
    
    
    (9,614
    )Income tax provision/(benefit)
    
    
    2,283
    
    
    
    (369
    )
    
    
    816
    
    
    
    (2,439
    )Net income/(loss)
    
    $
    6,044
    
    
    $
    (2,862
    )
    
    $
    2,132
    
    
    $
    (7,175
    )
  4




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##### Table of Contents



ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 39 WEEK PERIOD ENDED JULY 30, 2005 AND THE 40 WEEK PERIOD ENDED JULY 31, 2004
 (In thousands)
UNAUDITED
 2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income/(loss)
    
    $
    6,044
    
    
    $
    (2,862
    )Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities:Depreciation
    
    
    2,673
    
    
    
    2,849Amortization of intangible assets and deferred financing costs
    
    
    3,427
    
    
    
    4,248Accretion of bond discount
    
    
    
    
    
    
    219Debt extinguishment expense
    
    
    
    
    
    
    12,961Compensation
expense recognized in connection with employee stock ownership plan (ESOP)
    
    
    3,780
    
    
    
    1,890Compensation expense recognized in connection with
ESOP excess benefit plan
    
    
    225
    
    
    
    Deferred income taxes
    
    
    (2,410
    )
    
    
    (1,520
    )Changes in operating assets and liabilities:Receivables
    
    
    (5,864
    )
    
    
    371Inventories
    
    
    (7,181
    )
    
    
    (2,924
    )Prepaid expenses
    
    
    (763
    )
    
    
    (412
    )Accounts payable
    
    
    (628
    )
    
    
    (616
    )Accrued and other liabilities
    
    
    (1,349
    )
    
    
    3,561Other, net
    
    
    (46
    )
    
    
    21Net cash provided by/(used in) operating activities
    
    
    (2,092
    )
    
    
    17,786CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (3,145
    )
    
    
    (1,035
    )Net cash used in investing activities
    
    
    (3,145
    )
    
    
    (1,035
    )CASH FLOWS FROM FINANCING ACTIVITIES:Purchase of senior subordinated notes
    
    
    
    
    
    
    (200,571
    )Sale of senior notes
    
    
    
    
    
    
    250,000Borrowing of long term debt
    
    
    
    
    
    
    15,000Repayment of long-term debt
    
    
    (562
    )
    
    
    (25,850
    )Payment of financing related fees
    
    
    
    
    
    
    (7,500
    )Purchase of AT Holdings stock from former ESOP participants
    
    
    (3,797
    )
    
    
    (566
    )Dividend to AT Holdings
    
    
    (2,582
    )
    
    
    (57,734
    )Net cash used in financing activities
    
    
    (6,941
    )
    
    
    (27,221
    )CASH AND CASH EQUIVALENTS:Net decrease for the period
    
    
    (12,178
    )
    
    
    (10,470
    )Balance, Beginning of period
    
    
    15,857
    
    
    
    14,057Balance, End of period
    
    $
    3,679
    
    
    $
    3,587
  5




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##### Table of Contents



ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 39 WEEK PERIOD ENDED JULY 30, 2005 AND THE 40 WEEK PERIOD ENDED
JULY 31, 2004 (Unaudited)
 1.
    
    BASIS OF PRESENTATIONThe 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. Certain reclassifications have been made in the prior
years financial statements to conform to the current year presentation.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 INFORMATIONThe 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 and 39 week periods ended July 30, 2005 are not necessarily indicative of
the results to be expected for the full year.3.
    
    INVENTORIESInventories 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):
 July 30,
    
    
    October 30,2005
    
    
    2004Finished goods
    
    $
    2,700
    
    
    $
    2,686Work-in-process and purchased parts
    
    
    23,448
    
    
    
    17,867Raw materials and supplies
    
    
    13,670
    
    
    
    11,872Total
    
    
    39,818
    
    
    
    32,425Reserve for excess and obsolete inventory
    
    
    (4,080
    )
    
    
    (3,868
    )Inventories  net
    
    $
    35,738
    
    
    $
    28,557
 6




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##### Table of Contents



4.
    
    INTANGIBLE ASSETSThe following is a summary of intangible assets, other than goodwill (in thousands):
 July 30, 2005
    
    
    October 30, 2004Gross
    
    
    Accumulated
    
    
    Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationIntangible assets:Contracts
    
    $
    17,100
    
    
    $
    13,397
    
    
    $
    17,100
    
    
    $
    12,115Spare parts annuity
    
    
    38,200
    
    
    
    13,156
    
    
    
    38,200
    
    
    
    11,896Patents
    
    
    387
    
    
    
    192
    
    
    
    387
    
    
    
    174Total
    
    $
    55,687
    
    
    $
    26,745
    
    
    $
    55,687
    
    
    $
    24,185
  5.
    
    PRODUCT WARRANTYArgo-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 39 week period
ended July 30, 2005 and the 40 week period ended July 31, 2004 (in thousands):
 2005
    
    
    2004Beginning balance
    
    $
    2,084
    
    
    $
    2,130Accruals for pre-existing warranties
(including changes in estimate)
    
    
    703
    
    
    
    982Warranty claims settled
    
    
    (640
    )
    
    
    (592
    )Ending balance
    
    $
    2,147
    
    
    $
    2,520
 6.
    
    EMPLOYEE BENEFIT PLANSArgo-Tech has two noncontributory defined benefit pension plans, one for qualifying hourly
employees and a second for qualifying salaried employees. The salaried employee plan 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 hourly employee plan provides benefits of stated
amounts for each year of service. Argo-Techs funding policy is to contribute actuarially
determined amounts allowable under Internal Revenue Service regulations.
 7




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A summary of the components of net periodic benefit cost for the pension plans is as follows
(in thousands):
 39 week
    
    
    40 week
    
    
    13 week
    
    
    13 weekperiod ended
    
    
    period ended
    
    
    period ended
    
    
    period endedJuly 30, 2005
    
    
    July 31, 2004
    
    
    July 30, 2005
    
    
    July 31, 2004Service cost
    
    $
    277
    
    
    $
    209
    
    
    $
    94
    
    
    $
    70Interest cost
    
    
    1,034
    
    
    
    993
    
    
    
    349
    
    
    
    331Expected return on plan
assets
    
    
    (1,399
    )
    
    
    (1,317
    )
    
    
    (469
    )
    
    
    (439
    )Net amortization and
deferral
    
    
    312
    
    
    
    261
    
    
    
    97
    
    
    
    87Curtailment charge
    
    
    369
    
    
    
    
    
    
    
    
    
    
    
    Termination benefits
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    Net periodic pension cost
    
    $
    651
    
    
    $
    146
    
    
    $
    71
    
    
    $
    49
   39 week
    
    
    40 week
    
    
    13 week
    
    
    13 weekperiod ended
    
    
    period ended
    
    
    period ended
    
    
    period endedJuly 30, 2005
    
    
    July 31, 2004
    
    
    July 30, 2005
    
    
    July 31, 2004Service cost
    
    $
    181
    
    
    $
    136
    
    
    $
    60
    
    
    $
    43Interest cost
    
    
    662
    
    
    
    668
    
    
    
    221
    
    
    
    213Net amortization and deferral
    
    
    105
    
    
    
    111
    
    
    
    35
    
    
    
    23Net periodic postretirement
benefit cost
    
    $
    948
    
    
    $
    915
    
    
    $
    316
    
    
    $
    279
 7.
    
    CONTINGENCIESEnvironmental 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




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##### Table of Contents



8.
    
    SEGMENT INFORMATION
    13 Week Period Ended July 30, 2005
 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    38,125
    
    
    $
    15,669
    
    
    $
    
    
    
    $
    53,794Operating profit (loss)
    
    
    9,345
    
    
    
    1,406
    
    
    
    (588
    )
    
    
    10,163Amortization of intangible
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    853Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,310Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,338Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,948Capital expenditures
    
    
    890
    
    
    
    484
    
    
    
    
    
    
    
    1,374Depreciation
    
    
    493
    
    
    
    327
    
    
    
    91
    
    
    
    911Compensation expense recognized
in connection with employee
stock ownership plan
    
    
    1,166
    
    
    
    94
    
    
    
    
    
    
    
    1,260
 13 Week Period Ended July 31, 2004
 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    34,394
    
    
    $
    11,158
    
    
    $
    
    
    
    $
    45,552Operating profit (loss)
    
    
    9,248
    
    
    
    517
    
    
    
    (73
    )
    
    
    9,692Amortization of intangible
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    853Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,839Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,490Debt extinguishment expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,961Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (9,614
    )Capital expenditures
    
    
    183
    
    
    
    166
    
    
    
    
    
    
    
    349Depreciation
    
    
    521
    
    
    
    304
    
    
    
    100
    
    
    
    925Compensation expense recognized
in connection with employee
stock ownership plan
    
    
    553
    
    
    
    77
    
    
    
    
    
    
    
    630
 9




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##### Table of Contents



39 Week Period Ended July 30, 2005
 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    112,748
    
    
    $
    40,647
    
    
    $
    
    
    
    $
    153,395Operating profit (loss)
    
    
    28,444
    
    
    
    3,993
    
    
    
    (2,643
    )
    
    
    29,794Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,560Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,234Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,908Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,327Capital expenditures
    
    
    1,999
    
    
    
    1,146
    
    
    
    
    
    
    
    3,145Depreciation
    
    
    1,486
    
    
    
    913
    
    
    
    274
    
    
    
    2,673Compensation expense recognized
in connection with employee
stock ownership plan
    
    
    3,497
    
    
    
    283
    
    
    
    
    
    
    
    3,780
 40 Week Period Ended July 31, 2004
 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    100,591
    
    
    $
    36,797
    
    
    $
    
    
    
    $
    137,388Operating profit (loss)
    
    
    27,136
    
    
    
    1,373
    
    
    
    (234
    )
    
    
    28,275Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,560Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,715Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,995Debt extinguishment expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,961Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,231
    )Capital expenditures
    
    
    681
    
    
    
    354
    
    
    
    
    
    
    
    1,035Depreciation
    
    
    1,629
    
    
    
    920
    
    
    
    300
    
    
    
    2,849Compensation expense recognized
in connection with employee
stock ownership plan
    
    
    1,663
    
    
    
    227
    
    
    
    
    
    
    
    1,890
 9.
    
    OTHER COMPREHENSIVE INCOMEThe following table presents other comprehensive income, which includes foreign currency
translation adjustments (in thousands):
 39 week
    
    
    40 week
    
    
    13 week
    
    
    13 weekperiod ended
    
    
    period ended
    
    
    period ended
    
    
    period endedJuly 30, 2005
    
    
    July 31, 2004
    
    
    July 30, 2005
    
    
    July 31, 2004Net income (loss)
    
    $
    6,044
    
    
    $
    (2,862
    )
    
    $
    2,132
    
    
    $
    (7,175
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    (39
    )
    
    
    14
    
    
    
    (78
    )
    
    
    (62
    )Other comprehensive income (loss)
before tax
    
    
    (39
    )
    
    
    14
    
    
    
    (78
    )
    
    
    (62
    )Income tax related to other
comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income (loss), net
of tax
    
    
    (39
    )
    
    
    14
    
    
    
    (78
    )
    
    
    (62
    )Comprehensive income (loss)
    
    $
    6,005
    
    
    $
    (2,848
    )
    
    $
    2,054
    
    
    $
    (7,237
    )
 10




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##### Table of Contents



10.
    
    NEW ACCOUNTING STANDARDSIn November 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (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 Argo-Tech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. Argo-Tech will adopt the
provisions of this statement for the Companys fiscal year beginning October 30, 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 EVENTSOn March 1, 2005, Argo-Tech granted 45,200 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. The granting of these SARs resulted in a non-cash
compensation expense of $0.5 million and $2.0 in the 13 week and 39 week periods ended July 30,
2005, respectively.Argo-Tech made available to certain qualifying hourly employees a special early retirement
window that ended on April 1, 2005, under which 7 employees elected to retire early and receive
an additional benefit under the hourly employee pension plan. The additional benefit resulted
in a non-cash compensation expense of $0.4 million in the 39 week period ended July 30, 2005.12.
    
    SUBSEQUENT EVENTOn September 13, 2005, the Company and AT Holdings Corporation, the parent corporation of
the Company (AT Holdings), entered into an agreement (the Merger Agreement) with V.G.A.T.
Investors, LLC (VGAT) pursuant to which a wholly-owned subsidiary of VGAT would merge (the
Merger) with and into AT Holdings. The members of V.G.A.T. include Greenbriar Equity Group, LLC
and Vestar Capital Partners IV, L.P. Michael S. Lipscomb, the Companys Chairman, President and
Chief Executive Officer, will continue with the Company, along with other members of the Companys
current management.Under the terms of the Merger Agreement, existing AT Holdings stockholders will be entitled to
receive a cash payment in exchange for their AT Holdings common stock. Under the Merger Agreement,
VGAT has agreed to purchase AT Holdings for $173,000,000, subject to certain adjustments. The
exact amount per share in cash that each AT Holdings stockholder, option holder and warrant holder
will be entitled to receive in the Merger will not be determinable until just prior to closing of
the Merger, because the amount of certain adjustments will not be known until such time.This quarterly report on Form 10-Q relates only to Argo-Tech Corporation and its direct and
indirect subsidiaries prior to consummation of the Merger. The Merger is expected to close in the
fourth quarter 2005 and is subject to satisfaction or waiver of, among other conditions, approval
by the stockholders of AT Holdings, waiver by the holders of at least 90% of the Companys
outstanding 9.25% Senior Notes of their right under the related indenture to require the Company to
repurchase such notes in connection with the Merger, and the receipt of other related financing, as
well as regulatory approvals and other customary closing conditions. As a result, there can be no
assurances that the Merger will be completed or as to the timing thereof.
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##### Table of Contents



ITEM 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
   Export Sales
  Critical Accounting Policies
  Revenue Recognition.
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##### Table of Contents



Valuation of Accounts Receivable and Allowance for Doubtful Accounts.
 Valuation of Inventories.
 Valuation of Goodwill and Intangible Assets.
 Pensions and post-retirement plan assumptions.
 13




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##### Table of Contents



Fluctuations of Operating Results; Limitation of Quarterly Comparisons
  Results of Operations for the 13 Week Period Ended July 30, 2005 Compared With the 13 Week
Period Ended July 31, 2004
     14




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##### Table of Contents



Results of Operations for the 39 Week Period Ended July 30, 2005 Compared With the 40 Week
Period Ended July 31, 2004
   15




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16




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##### Table of Contents



Liquidity and Capital Resources
      2010 and2005 (1)
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    TotalTerm loan facility
    
    $
    0.2
    
    
    $
    0.7
    
    
    $
    0.7
    
    
    $
    6.7
    
    
    $
    6.0
    
    
    $
    
    
    
    $
    14.39-1/4% senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250.0
    
    
    
    250.0Operating leases
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.8Other long-term
obligations (2)
    
    
    0.3
    
    
    
    24.5
    
    
    
    24.5
    
    
    
    24.4
    
    
    
    23.7
    
    
    
    46.2
    
    
    
    143.6Total contractual cash
obligations
    
    $
    0.7
    
    
    $
    25.5
    
    
    $
    25.4
    
    
    $
    31.2
    
    
    $
    29.7
    
    
    $
    296.2
    
    
    $
    408.7
 
 (1)
    
     Contractual obligations for the remainder of fiscal 2005.(2)
    
     Represents interest payments on the senior notes, estimated funding for retirement and
other post-employment benefits and other long-term commitments. Interest on the term loan
facility is excluded as it is not fixed and determinable.  17




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##### Table of Contents



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, war and rising oil and gas prices 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;
    
    completion of the Merger (as defined in Item 5 of
Part II to this report) or the timing thereof;
    
    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
  18




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##### Table of Contents



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.
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##### Table of Contents



(d)
    
    Exhibit 10.1  Amendment, dated May 1, 2005, to Employment Agreement dated
October 15, 1986 between Argo-Tech and Michael S. Lipscomb.(e)
    
    Exhibit 10.2  Amendment, dated May 1, 2005, to Employment Agreement dated
February 13, 1989 between Argo-Tech and Paul R. Keen.(f)
    
    Exhibit 10.3  Collateral Assignment Split Dollar
Insurance Agreement, dated January 1, 1996, between Argo-Tech
and Michael S. Lipscomb.(g)
    
    Exhibit 10.4  Collateral Assignment Split Dollar
Insurance Agreement, dated January 1, 1996, between Argo-Tech
and Paul R. Keen.(h)
    
    Exhibit 10.5  Collateral Assignment Split Dollar
Insurance Agreement, dated January 1, 1996, between Argo-Tech
and Frances S. St. Clair.(i)
    
    Exhibit 10.6  Nonqualified Deferred Compensation Agreement, dated
December 28, 1995, between Argo-Tech
and Frances S. St. Clair.
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##### Table of Contents



SIGNATURE
  Date: September 13, 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)
 21