##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One) x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For
the quarterly period ended July 31, 2004, 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. x 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 x NO All of the outstanding capital stock of the registrant is held by
AT Holdings Corporation. As of September 1, 2004, 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  Condensed Financial StatementsConsolidated Balance Sheets as of July 31, 2004 and October 25, 2003
    
    
    3Consolidated Statements of Net Income (Loss) for the 40 week period and 13 week period ended July 31, 2004 and the 39 week period and 13 week period ended July 26, 2003
    
    
    4Consolidated Statements of Cash Flows for the 40 week period ended July 31, 2004 and the 39 week period ended July 26, 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6 - 11Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11 - 18Item 3 - Quantitative and Qualitative Disclosure about Market Risk
    
    
    18Item 4  Controls and Procedures
    
    
    18PART
II - OTHER INFORMATIONItem 6  Exhibits
    
    
    19Signature
    
    
    20Certifications
    
    
    21-23EX-4.1 INDENTUREEX-10.1 THIRD AMENDED AND RESTATED CREDIT AGREEMENTEX-31.1 CERTIFICATIONEX-31.2 CERTIFICATIONEX-32 CERTIFICATION
 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 SHEETSJULY 31, 2004 AND OCTOBER 25, 2003(In thousands, except share data) 2004
    
    2003(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    3,587
    
    
    $
    14,057Receivables, net
    
    
    28,183
    
    
    
    28,335Income tax receivable
    
    
    3,281
    
    
    
    3,500Inventories
    
    
    28,625
    
    
    
    25,701Deferred income taxes and prepaid expenses
    
    
    5,831
    
    
    
    5,352Total current assets
    
    
    69,507
    
    
    
    76,945PROPERTY AND EQUIPMENT, net of
accumulated depreciation
    
    
    22,142
    
    
    
    23,956GOODWILL
    
    
    110,059
    
    
    
    110,059INTANGIBLE ASSETS, net of accumulated amortization
    
    
    32,355
    
    
    
    34,916DEFERRED FINANCING AND OTHER ASSETS
    
    
    9,688
    
    
    
    9,921Total Assets
    
    $
    243,751
    
    
    $
    255,797LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIENCY)CURRENT LIABILITIES:Current portion of long-term debt
    
    $
    750
    
    
    $
    12,000Accounts payable
    
    
    6,638
    
    
    
    7,254Accrued liabilities
    
    
    25,313
    
    
    
    22,757Total current liabilities
    
    
    32,701
    
    
    
    42,011LONG-TERM DEBT, net of current maturities
    
    
    264,250
    
    
    
    207,349OTHER NONCURRENT LIABILITIES
    
    
    21,373
    
    
    
    21,753Total Liabilities
    
    
    318,324
    
    
    
    271,113REDEEMABLE ESOP STOCK
    
    
    14,887
    
    
    
    15,452Unearned ESOP stock
    
    
    (210
    )
    
    
    (840
    )14,677
    
    
    
    14,612SHAREHOLDERS EQUITY/(DEFICIENCY):Common Stock, $.01 par value, authorized 3,000 shares;
1 share issued and outstanding
    
    
    
    
    
    
    Paid-in capital
    
    
    
    
    
    
    Accumulated comprehensive loss
    
    
    (2,129
    )
    
    
    (2,143
    )Accumulated deficit
    
    
    (87,121
    )
    
    
    (27,785
    )Total shareholders equity/(deficiency)
    
    
    (89,250
    )
    
    
    (29,928
    )Total Liabilities and Shareholders Equity/(Deficiency)
    
    $
    243,751
    
    
    $
    255,797
 The accompanying notes to consolidated financial statements are an integral part of these statements. 3




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ARGO-TECH CORPORATION AND SUBSIDIARIES(A Wholly-Owned Subsidiary of AT Holdings Corporation) 
 CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) (In thousands)
UNAUDITED 40 weekperiod ended
    
    39 weekperiod ended
    
    13 week period endedJuly 31, 2004
    
    July 26, 2003
    
    July 31, 2004
    
    July 26, 2003Net revenues
    
    $
    137,388
    
    
    $
    115,373
    
    
    $
    45,552
    
    
    $
    39,417Cost of revenues
    
    
    78,990
    
    
    
    67,884
    
    
    
    25,432
    
    
    
    22,743Gross profit
    
    
    58,398
    
    
    
    47,489
    
    
    
    20,120
    
    
    
    16,674Selling, general and administrative
    
    
    21,441
    
    
    
    19,308
    
    
    
    7,461
    
    
    
    6,152Research and development
    
    
    8,682
    
    
    
    6,784
    
    
    
    2,967
    
    
    
    2,009Amortization of intangible assets
    
    
    2,560
    
    
    
    2,560
    
    
    
    853
    
    
    
    853Operating expenses
    
    
    32,683
    
    
    
    28,652
    
    
    
    11,281
    
    
    
    9,014Income from operations
    
    
    25,715
    
    
    
    18,837
    
    
    
    8,839
    
    
    
    7,660Interest expense
    
    
    15,995
    
    
    
    16,005
    
    
    
    5,490
    
    
    
    5,385Debt extinguishment expense
    
    
    12,961
    
    
    
    
    
    
    
    12,961
    
    
    
    Other, net
    
    
    (10
    )
    
    
    (26
    )
    
    
    2
    
    
    
    50Income / (loss) before income taxes
    
    
    (3,231
    )
    
    
    2,858
    
    
    
    (9,614
    )
    
    
    2,225Income tax (benefit) / provision
    
    
    (369
    )
    
    
    790
    
    
    
    (2,439
    )
    
    
    649Net income / (loss)
    
    $
    (2,862
    )
    
    $
    2,068
    
    
    $
    (7,175
    )
    
    $
    1,576
 The accompanying notes to the consolidated financial statements are an integral part of these statements. 4




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ARGO-TECH CORPORATION AND SUBSIDIARIES(A Wholly-Owned Subsidiary of AT Holdings Corporation) 
 CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE 40 WEEK PERIOD ENDED JULY 31, 2004 AND THE 39 WEEK PERIOD ENDED JULY 26, 2003 (In thousands)UNAUDITED 2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (2,862
    )
    
    $
    2,068Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation
    
    
    2,849
    
    
    
    3,125Amortization of intangible assets and deferred financing costs
    
    
    4,248
    
    
    
    4,358Accretion of bond discount
    
    
    219
    
    
    
    225Debt extinguishment expense
    
    
    12,961
    
    
    
    Compensation expense recognized in connection with
employee stock ownership plan
    
    
    1,890
    
    
    
    1,008Deferred income taxes
    
    
    (1,520
    )
    
    
    (1,331
    )Changes in operating assets and liabilities:Receivables
    
    
    371
    
    
    
    (2,134
    )Inventories
    
    
    (2,924
    )
    
    
    (1,752
    )Prepaid expenses
    
    
    (412
    )
    
    
    (316
    )Accounts payable
    
    
    (616
    )
    
    
    (1,439
    )Accrued and other liabilities
    
    
    3,561
    
    
    
    4,989Other, net
    
    
    21
    
    
    
    28Net cash provided by operating activities
    
    
    17,786
    
    
    
    8,829CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (1,035
    )
    
    
    (1,287
    )Net cash used in investing activities
    
    
    (1,035
    )
    
    
    (1,287
    )CASH FLOWS FROM FINANCING ACTIVITIES:Purchase of senior subordinated notes
    
    
    (200,571
    )
    
    
    Sale of senior notes
    
    
    250,000
    
    
    
    Borrowing of long term debt
    
    
    15,000
    
    
    
    Repayment of long-term debt
    
    
    (25,850
    )
    
    
    (14,000
    )Payment of financing related fees
    
    
    (7,500
    )
    
    
    (1,224
    )Purchase of AT Holdings stock from former ESOP participants
    
    
    (566
    )
    
    
    (235
    )Dividend to AT Holdings
    
    
    (57,734
    )
    
    
    Other, net
    
    
    
    
    
    
    60Net cash used in financing activities
    
    
    (27,221
    )
    
    
    (15,399
    )CASH AND CASH EQUIVALENTS:Net decrease for the period
    
    
    (10,470
    )
    
    
    (7,857
    )Balance, Beginning of period
    
    
    14,057
    
    
    
    17,769Balance, End of period
    
    $
    3,587
    
    
    $
    9,912
 The accompanying notes to consolidated financial statements are an integral part of these statements. 5




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ARGO-TECH CORPORATION AND SUBSIDIARIES(A Wholly-Owned Subsidiary of AT Holdings Corporation) 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE 40 WEEK PERIOD ENDED JULY 31, 2004 AND THE 39 WEEK PERIOD ENDED
JULY 26, 2003 (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. Certain reclassifications have been made in the prior years
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 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 25, 2003. The results of operations for the 13 and 40 week periods
ended July 31, 2004 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): July 31,
    
    October 25,2004
    
    2003Finished goods
    
    $
    2,669
    
    
    $
    1,481Work-in-process and purchased parts
    
    
    18,685
    
    
    
    16,938Raw materials and supplies
    
    
    12,372
    
    
    
    12,385Total
    
    
    33,726
    
    
    
    30,804Reserve for excess and obsolete inventory
    
    
    (5,101
    )
    
    
    (5,103
    )Inventories - net
    
    $
    28,625
    
    
    $
    25,701
 6




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4. INTANGIBLE ASSETS The following is a summary of intangible assets, other than goodwill (in
thousands): July 31, 2004
    
    October 25, 2003Gross
    
    Accumulated
    
    Gross
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationIntangible assets:Contracts
    
    $
    17,100
    
    
    $
    11,687
    
    
    $
    17,100
    
    
    $
    10,404Spare parts annuity
    
    
    38,200
    
    
    
    11,477
    
    
    
    38,200
    
    
    
    10,217Patents
    
    
    387
    
    
    
    168
    
    
    
    387
    
    
    
    150Total
    
    $
    55,687
    
    
    $
    23,332
    
    
    $
    55,687
    
    
    $
    20,771
 Amortization expense recorded on the intangible assets for the 13 week
periods ended July 31, 2004 and July 26, 2003 was $0.9 million and for the 40
week period ended July 31, 2004 and the 39 week period ended July 26, 2003
was $2.6 million. The estimated amortization expense for each of the three
succeeding fiscal years 2004 through 2006 is $3.4 million, fiscal year 2007
is $3.2 million and fiscal year 2008 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 40 week period ended July 31, 2004 and
the 39 week period ended July 26, 2003 (in thousands): 2004
    
    2003Beginning balance
    
    $
    2,130
    
    
    $
    2,064Accruals for warranties issued
    
    
    
    
    
    
    89Accruals for pre-existing warranties
(including changes in estimate)
    
    
    982
    
    
    
    789Warranty claims settled
    
    
    (592
    )
    
    
    (520
    )Ending balance
    
    $
    2,520
    
    
    $
    2,422
 6. EMPLOYEE BENEFIT PLANS The Company has two noncontributory defined benefit pension plans for
qualifying hourly and salary employees. A plan covering salaried employees
provides pension benefits that are based on the employees compensation and
years of service. The future accrual of benefits was terminated in
connection with the formation of the Employee Stock Ownership Plan (ESOP).
A plan covering hourly employees 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




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##### Table of Contents



A summary of the components of net periodic benefit cost for the pension
plans is as follows (in thousands): 40 week
    
    39 week
    
    13 week
    
    13 weekperiod ended
    
    period ended
    
    period ended
    
    period endedJuly 31, 2004
    
    July 26, 2003
    
    July 31, 2004
    
    July 26, 2003Service cost
    
    $
    209
    
    
    $
    208
    
    
    $
    70
    
    
    $
    69Interest cost
    
    
    993
    
    
    
    974
    
    
    
    331
    
    
    
    325Expected return on plan
assets
    
    
    (1,317
    )
    
    
    (1,119
    )
    
    
    (439
    )
    
    
    (373
    )Net amortization and
deferral
    
    
    261
    
    
    
    288
    
    
    
    87
    
    
    
    96Net periodic pension cost
    
    $
    146
    
    
    $
    351
    
    
    $
    49
    
    
    $
    117
 Argo-Tech contributed $185,000 to the hourly pension plan in 2004. No
further contributions are scheduled to be 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): 40 week
    
    39 week
    
    13 week
    
    13 weekperiod ended
    
    period ended
    
    period ended
    
    period endedJuly 31, 2004
    
    July 26, 2003
    
    July 31, 2004
    
    July 26, 2003Service cost
    
    $
    136
    
    
    $
    140
    
    
    $
    43
    
    
    $
    47Interest cost
    
    
    668
    
    
    
    603
    
    
    
    213
    
    
    
    201Net amortization and deferral
    
    
    111
    
    
    
    17
    
    
    
    23
    
    
    
    5Net periodic postretirement
benefit cost
    
    $
    915
    
    
    $
    760
    
    
    $
    279
    
    
    $
    253
 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




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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 industrial pumps, 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 July 31, 2004 Aerospace
    
    Industrial
    
    Corporate
    
    ConsolidatedNet revenues
    
    $
    34,038
    
    
    $
    11,514
    
    
    $
    
    
    
    $
    45,552Operating profit (loss)
    
    
    9,327
    
    
    
    438
    
    
    
    (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
 13 Week Period Ended July 26, 2003 Aerospace
    
    Industrial
    
    Corporate
    
    ConsolidatedNet revenues
    
    $
    28,766
    
    
    $
    10,651
    
    
    $
    
    
    
    $
    39,417Operating profit (loss)
    
    
    7,304
    
    
    
    1,300
    
    
    
    (91
    )
    
    
    8,513Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    853Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,660Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,385Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,225Capital expenditures
    
    
    347
    
    
    
    92
    
    
    
    
    
    
    
    439Depreciation
    
    
    601
    
    
    
    315
    
    
    
    104
    
    
    
    1,020Compensation expense recognized
in connection with employee
stock ownership plan
    
    
    (233
    )
    
    
    (19
    )
    
    
    
    
    
    
    (252
    )
 9




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40 Week Period Ended July 31, 2004 Aerospace
    
    Industrial
    
    Corporate
    
    ConsolidatedNet revenues
    
    $
    99,980
    
    
    $
    37,408
    
    
    $
    
    
    
    $
    137,388Operating profit (loss)
    
    
    27,440
    
    
    
    1,069
    
    
    
    (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
 39 Week Period Ended July 26, 2003 Aerospace
    
    Industrial
    
    Corporate
    
    ConsolidatedNet revenues
    
    $
    87,762
    
    
    $
    27,611
    
    
    $
    
    
    
    $
    115,373Operating profit (loss)
    
    
    20,609
    
    
    
    1,073
    
    
    
    (285
    )
    
    
    21,397Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,560Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,837Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,005Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,858Capital expenditures
    
    
    936
    
    
    
    351
    
    
    
    
    
    
    
    1,287Depreciation
    
    
    1,863
    
    
    
    953
    
    
    
    309
    
    
    
    3,125Compensation expense recognized
in connection with employee
stock ownership plan
    
    
    887
    
    
    
    121
    
    
    
    
    
    
    
    1,008
 9. OTHER COMPREHENSIVE INCOME The following table presents other comprehensive income, which includes
foreign currency translation adjustments (in thousands): 40 week
    
    39 week
    
    13 week
    
    13 weekperiod ended
    
    period ended
    
    period ended
    
    period endedJuly 31, 2004
    
    July 26, 2003
    
    July 31, 2004
    
    July 26, 2003Net income (loss)
    
    $
    (2,862
    )
    
    $
    2,068
    
    
    $
    (7,175
    )
    
    $
    1,576Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    14
    
    
    
    26
    
    
    
    (62
    )
    
    
    9Other comprehensive income (loss)
before tax
    
    
    14
    
    
    
    26
    
    
    
    (62
    )
    
    
    9Income tax related to other
comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income (loss), net
of tax
    
    
    14
    
    
    
    26
    
    
    
    (62
    )
    
    
    9Comprehensive income (loss)
    
    $
    (2,848
    )
    
    $
    2,094
    
    
    $
    (7,237
    )
    
    $
    1,585
 10




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10. NEW ACCOUNTING PRONOUNCEMENTS In December 2003, the Financial Accounting Standards Board (FASB) issued a
revised FASB Interpretation No. (FIN) 46, Consolidation of Variable
Interest Entities. FIN 46 requires existing, unconsolidated variable
interest entities to be consolidated by their primary beneficiaries if the
entities do not effectively disperse risks among the parties involved.
Argo-Tech is not associated with variable interest entities; therefore, the
adoption of this statement did not have any effect on Argo-Techs
consolidated financial position or results of operations. In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act was enacted, which introduced a Medicare prescription drug
benefit and a federal subsidy to sponsors of retiree health-care plans that
provide a benefit at least actuarially equivalent to the Medicare benefit.
In accordance with FASB Staff Position (FSP) Statement of Financial
Accounting Standards (SFAS) No. 106-2, Argo-Tech has elected to defer
recognition of the effects of the new Medicare Act. The accumulated
postretirement benefit obligation and net periodic postretirement benefit
cost do not reflect the provisions of the Act. Specific authoritative
guidance on accounting for the federal subsidy is pending and may require
changes to previously reported information. In December 2003, the FASB issued a revision to SFAS No. 132, Employers
Disclosures about Pensions and Other Postretirement Benefits, which expands
the disclosure requirements regarding plan assets and benefit obligations
for Argo-Techs two noncontributory defined benefit pension plans and its
postretirement benefit plan. Argo-Tech adopted the provisions of this
statement effective with the period beginning February 1, 2004 (see Note 6). 11. RECENT EVENTS In June 2004, Argo-Tech Corporation issued $250.0 million of 9-1/4% senior
notes due 2011 and amended and restated its senior credit facility. The
proceeds from the offering of the notes, together with cash on hand and
borrowings under our amended and restated senior credit facility, were used
to refinance our previous indebtedness and the capital structure of AT
Holdings Corporation, our parent company, by: purchasing through a tender
offer and redemption our outstanding $195.0 million 8-5/8% senior
subordinated notes due 2007, together with a premium of $5.6 million and
accrued and unpaid interest of $4.0 million; dividending $57.6 million to AT
Holdings Corporation to redeem all of AT Holdings outstanding Series A
Cumulative Exchangeable Redeemable Preferred Stock at 100% of the $30.0
million liquidation preference, together with accrued and unpaid dividends
of $27.6 million; and restating $19.8 million of term loans outstanding
under our existing senior credit facility. $7.5 million of the proceeds
were used to pay transaction fees and expenses. 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. A new collective bargaining agreement with the UAW, representing all hourly
employees at the Cleveland facility, was ratified in July 2004. The new
agreement will expire on March 31, 2008. 
 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 consists of
aircraft engine fuel pumps and other engine products, commercial and
military products and 11




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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 40 week period ended July 31, 2004 were $53.1 million.
Sales to Europe were $34.1 million and sales to all other regions,
individually less than 10%, were $19.0 million for the 40 week period ended
July 31, 2004. 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 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 experience. Our
estimate of the allowance amounts includes amounts for specifically
identified losses 12




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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. 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 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 July 31, 2004 Compared
With the 13 Week Period Ended July 26, 2003 Net revenues for the 13 week period ended July 31, 2004 increased $6.1
million, or 15.5%, to $45.5 million from $39.4 million for the 13 week
period ended July 26, 2003. This increase was primarily due to an increase
in aerospace revenues of $5.3 million and an increase of $0.8 million in
industrial revenues. The increase in aerospace revenues was attributable to
an increase of $4.7 million of commercial aerospace revenues and $0.6
million of military revenues. Commercial OEM revenues increased $0.6
million, or 12.2%, to $5.5 million and commercial aftermarket revenues
increased $4.1 million, or 31.5%, to $17.1 million in the 13 week period
ended July 31, 2004. 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 increased primarily due to revenue related to increased
sales on a variety of main engine OEM pumps and aftermarket components as
well as an increase in revenues related to airframe components on various
OEM
development programs partially offset by a decrease in OEM and aftermarket
revenues related to airframe components. The $0.8 million increase in
industrial revenues was primarily attributable to an increase of 13




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$2.0 million in ground fueling and industrial gas turbine revenues offset by a
decrease of $1.2 million in cryogenic pump revenues. Aerospace gross profit for the 13 week period ended July 31, 2004 increased
$3.4 million, or 26.8%, to $16.1 million from $12.7 million in the 13 week
period ended July 26, 2003. Gross margin increased to 47.4% for the 13 week
period ended July 31, 2004 from 44.1% in the 13 week period ended July 26,
2003. The increase in gross profit and gross margin is primarily
attributable to the increase in higher margin commercial aerospace
aftermarket revenues along with an increase in operating efficiencies at
both our Cleveland and Costa Mesa facilities. Industrial gross profit for
the 13 week periods ended July 31, 2004 and July 26, 2003 was $4.0 million.
An increase in ground fueling gross profit, attributable to increased
revenues, was offset by a decrease in cryogenic gross profit, attributable
to a decrease in cryogenic revenue and an increase in manufacturing costs.
Gross margin decreased to 34.8% in the 13 week period ended July 31, 2004
from 37.7% in the 13 week period ended July 26, 2003. The decrease in gross
margin was primarily attributable to a decrease in revenue and an increase
in manufacturing costs for our cryogenic pump products. Operating expenses for the 13 week period ended July 31, 2004 increased $2.3
million, or 25.6%, to $11.3 million from $9.0 million in the 13 week period
ended July 26, 2003. This increase is primarily attributable to an increase
of $1.3 million in selling, general and administrative expenses related to
increased incentive compensation and marketing costs, including commissions
and royalties, and $1.0 million in research and development expenses. 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 increased to 24.8% for the 13 week period ended July 31, 2004 as
compared to 22.8% for the 13 week period ended July 26, 2003. Income from operations for the 13 week period ended July 31, 2004 increased
$1.1 million, or 14.3%, to $8.8 million from $7.7 million in the 13 week
period ended July 26, 2003. As a percentage of revenues, income from
operations for the 13 week period ended July 31, 2004 decreased to 19.3%
from 19.5% for the 13 week period ended July 26, 2003. The increase in
income from operations was primarily due to increased sales of higher margin
commercial aerospace aftermarket revenues and the increase in ground fueling
revenues, partially offset by a decrease in cryogenic pump revenues, an
increase in cryogenic pump manufacturing costs and higher operating
expenses. Interest expense for the 13 week period ended July 31, 2004 increased $0.1
million, or 1.9%, to $5.5 million from $5.4 million in the 13 week period
ended July 26, 2003 primarily due to the increase in interest expense on the
$250.0 million of 9-1/4% senior notes issued in June 2004. Debt extinguishment expense of $12.9 million was incurred in the 13 week
period ended July 31, 2004. This expense is for the write-off of $6.1
million of deferred financing fees associated with the refinancing of our
8-5/8% senior subordinated notes and the amendment and restatement of our
credit agreement, $5.5 million for the tender, consent and redemption fees
associated with the refinancing of the 8-5/8% senior subordinated notes and
recognition of the remaining accretion of $1.3 million on a portion of the
8-5/8% senior subordinated notes that were issued at a discount. The income tax benefit was $2.4 million for the 13 week period ended July
31, 2004 as compared to a provision of $0.6 million for the 13 week period
ended July 26, 2003. This decrease is primarily due to the decrease in
pre-tax income related to debt extinguishment expenses. Net income for the 13 week period ended July 31, 2004 decreased $8.8 million
to a loss of $7.2 million from income of $1.6 million for the 13 week period
ended July 26, 2003, primarily due to the revenue and expense factors
discussed above. 14




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Results of Operations for the 40 Week Period Ended July 31, 2004 Compared
With the 39 Week Period Ended July 26, 2003 Net revenues for the 40 week period ended July 31, 2004 increased $22.0
million, or 19.1%, to $137.4 million from $115.4 million for the 39 week
period ended July 26, 2003. This increase was primarily due to an increase
in aerospace revenues of $12.2 million and a $9.8 million increase in
industrial revenues. The increase in aerospace revenues was attributable to
an increase of $6.3 million of commercial aerospace revenues and an increase
of $5.9 million in military revenues. Commercial OEM revenues increased
$1.7 million, or 11.5%, to $16.5 million and commercial aftermarket revenues
increased $4.6 million, or 11.1%, to $46.0 million in the 40 week period
ended July 31, 2004. Commercial OEM revenues increased primarily as a
result of an increase in pump requirements from our customers. Commercial
aftermarket revenues increased primarily due to increases in repair and
overhaul services and demand for spare parts. Military revenues increased
primarily due to revenue related to increased sales on a variety of OEM and
aftermarket main engine fuel pumps and components as well as an increase in
revenues related to airframe components on various OEM and OEM development
programs, partially offset by a decrease in aftermarket revenues related to
airframe components. Industrial revenues increased $9.8 million, primarily
attributable to an increase of $8.7 million in ground fueling revenues, of
which $7.0 million was attributable to military sales, and $1.3 million in
cryogenic pump revenues, offset by a slight decrease in business park
revenues. Aerospace gross profit for the 40 week period ended July 31, 2004 increased
$8.1 million, or 21.0%, to $46.7 million from $38.6 million in the 39 week
period ended July 26, 2003. Gross margin increased to 46.7% for the 40 week
period ended July 31, 2004 from 44.0% in the 39 week period ended July 26,
2003. The increase in gross profit and gross margin is primarily
attributable to an increase in higher margin commercial aerospace
aftermarket revenues, an increase in military revenues and an increase in
operating efficiencies at both our Cleveland and Costa Mesa facilities.
Industrial gross profit for the 40 week period ended July 31, 2004 increased
$2.8 million, or 30.8%, to $11.9 million from $9.1 million in the 39 week
period ended July 26, 2003, primarily as a result of an increase in ground
fueling gross profit, attributable to increased revenues, offset by a
decrease in cryogenic gross profit, attributable to an increase in
manufacturing costs. Gross margin decreased to 31.8% in the 40 week period
ended July 31, 2004 from 33.0% in the 39 week period ended July 26, 2003,
primarily attributable to an increase in manufacturing costs for our
cryogenic pump products. Operating expenses for the 40 week period ended July 31, 2004 increased $4.0
million, or 13.9%, to $32.7 million from $28.7 million in the 39 week period
ended July 26, 2003. This increase is primarily due to an increase in
selling, general and administrative expenses of $2.1 million and research
and development expenses of $1.9 million. The increase in selling, general
and administrative expenses of $2.1 million was related to increased
incentive compensation and marketing costs, including commissions and
royalties. 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 23.8% for the 40 week period ended
July 31, 2004 as compared to 24.9% for the 39 week period ended July 26,
2003. Income from operations for the 40 week period ended July 31, 2004 increased
$6.9 million, or 36.7%, to $25.7 million from $18.8 million in the 39 week
period ended July 26, 2003. As a percentage of revenues, income from
operations for the 40 week period ended July 31, 2004 increased to 18.7%
from 16.3% for the 39 week period ended July 26, 2003. These increases were
primarily due to increased sales of higher margin commercial aerospace
aftermarket revenues, an increase in military revenues and an increase in
ground fueling revenues, partially offset by an increase in cryogenic pump
manufacturing costs and higher operating expenses. Interest expense was $16.0 million for both the 40 week period ended July
31, 2004 and the 39 week period ended July 26, 2003. An increase in
interest expense due to a higher outstanding borrowing and
interest rate on our $250.0 million 9-1/4% senior notes issued in June 2004
was offset by lower outstanding borrowing and interest rates on our credit
facility. 15




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Debt extinguishment expense of $12.9 million was incurred in the 40 week
period ended July 31, 2004. This expense is for the write-off of $6.1
million of deferred financing fees associated with the refinancing of our
8-5/8% senior subordinated notes and the amendment and restatement of our
credit agreement, $5.5 million for the tender, consent and redemption fees
associated with the refinancing of the 8-5/8% senior subordinated notes and
recognition of the remaining accretion of $1.3 million on a portion of the
8-5/8% senior subordinated notes that were issued at a discount. The income tax benefit was $0.3 million for the 40 week period ended July
31, 2004 as compared to a provision of $0.8 million for the 39 week period
ended July 26, 2003. This decrease in income tax is primarily due to a
decrease in pre-tax income and a lower estimated effective tax rate in the
current year due to the debt extinguishment expenses. Net income for the 40 week period ended July 31, 2004 decreased $5.0 million
to a loss of $2.9 million from income of $2.1 million for the 39 week period
ended July 26, 2003, 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 40 week period ended July 31, 2004
decreased $10.5 million to $3.6 million. The decrease was primarily due to
transactions related to issuing $250.0 million of 9-1/4% senior notes due
2011, amending and restating our senior credit facility and capital
expenditures, partially offset by an increase in net income from operating
activities. The proceeds from the offering of the notes, together with cash
on hand and borrowings of $15.0 million under our amended and restated
senior credit facility, were used to: purchase through a tender offer and a
redemption all of our outstanding $195.0 million 8-5/8% senior subordinated
notes due 2007; dividend to AT Holdings Corporation $57.6 million for the
redemption of all of AT Holdings outstanding Series A Cumulative
Exchangeable Redeemable Preferred Stock at 100% of its $30.0 million
liquidation preference, together with accrued and unpaid dividends of $27.6
million; repay $19.8 million of term loans outstanding under our existing
senior credit facility; and pay transaction fees and expenses of $7.5
million. Prior to amending and restating our senior credit facility, $6.0
million of scheduled payments had been made. Capital expenditures for the 40 week period ended July 31, 2004 totaled $1.0
million compared to $1.3 million for the 39 week period ended July 26, 2003.
Argo-Tech expects to incur capital expenditures of approximately $1.9
million for the remainder of fiscal year 2004 relating to the continued
maintenance of facilities, equipment and systems to support current
operating activities. As a result of the refinancing transactions described above (see Recent
Events), long-term debt at July 31, 2004 consisted of $15.0 million
principal amount of term loans and $250.0 million principal amount of senior
notes. Scheduled payments of $6.0 million were made on the term loans in
the 40 week period ended July 31, 2004. 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 July 31,
2004, Argo-Tech has available, after $5.8 million in letters of credit, a
$24.2 million revolving credit facility. As of July 31, 2004, 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 July 31, 2004, are as
follows (in millions): 16




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##### Table of Contents



2009 and2004 (1)
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    TotalTerm loan facility
    
    $
    0.2
    
    
    $
    0.7
    
    
    $
    0.7
    
    
    $
    0.7
    
    
    $
    6.7
    
    
    $
    6.0
    
    
    $
    15.09-1/4% senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250.0
    
    
    
    250.0Operating leases
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.4
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    1.8Other long-term
obligations (2)
    
    
    
    
    
    
    21.6
    
    
    
    23.1
    
    
    
    23.1
    
    
    
    23.1
    
    
    
    69.5
    
    
    
    160.4Total contractual cash
obligations
    
    $
    0.7
    
    
    $
    23.0
    
    
    $
    24.2
    
    
    $
    23.9
    
    
    $
    29.9
    
    
    $
    325.5
    
    
    $
    427.2
 (1)  Contractual obligations for fiscal 2004 subsequent to July 31, 2004. (2)  Represents interest payments on the senior notes. Interest on the
term loan facility is excluded as it is not fixed and determinable. Funding
for retirement and other post-employment benefits for future years is also
excluded as it is not 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; 17




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
    
    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 25, 2003; 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 July 31, 2004, Argo-Tech had fixed rate debt totaling
$250.0 million at 9.25% and variable rate debt under its existing credit
facility of $15.0 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 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 July 31, 2004. 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 July 31, 2004 that have materially affected, or are
reasonably likely to materially affect, Argo-Techs internal control
over financial reporting. 18




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PART II - OTHER INFORMATION 
 Item 6 - Exhibits  (a)
    
    Exhibit 4.1  Indenture, dated June 23, 2004, by and among
Argo-Tech Corporation, the subsidiary guarantors party thereto and
Harris Trust and Savings Bank, as trustee, relating to the 9-1/4%
Senior Notes due 2011 (the form of which is included in such
Indenture).(b)
    
    Exhibit 10.1 -  Amended and Restated Credit Facility, dated
June 23, 2004, by and among Argo-Tech Corporation, the Guarantors
party thereto, the Lenders party thereto and National City Bank, as
administrative agent.(c)
    
    Exhibit 31.1  Certification by Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(d)
    
    Exhibit 31.2  Certification by Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(e)
    
    Exhibit 32  Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. 19




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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: September 10, 2004
    
    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)
 20