TABLE OF CONTENTS




|                                                   |  |  |  |  |  |  |  | 
|-------------------------------------------------- |  |  |  |  |  |  |  | 
|FORM 10-Q                                         
|INDEX                                             
|PART I - FINANCIAL INFORMATION                    
|PART II - OTHER INFORMATION                       
|SIGNATURE                                         
|EXHIBIT 10.1--AMEND TO 1991 PERFORM STOCK OPT PLAN
|EXHIBIT 10.2--AMEND TO 1998 EQ PERFORM STOCK OPTN 
|EXHIBIT 10.3--AMEND TO 1991 MGMT INCENT STOCK OPT 



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##### 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 28, 2001, or

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
incorporation or organization) |  | (I.R.S. employer
identification no.)

|                                         |  |           
|---------------------------------------- |  | ----------
|23555 Euclid Avenue
Cleveland, 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  NO



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | All of the outstanding capital stock of the registrant is held by
AT Holdings Corporation.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | As of September 1, 2001, 1 share of the registrants common stock,
$.01 par value, was outstanding.





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##### Table of Contents






INDEX

|                                                                                               |                                                                                                                  |  |          |        | 
|---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- |  | -------- | ------ | 
|                                                                                               |                                                                                                                  |  | Page No.
|                                                                                               |                                                                                                                  |  |         
|PART I  FINANCIAL INFORMATION                                                                
|                                                                                              
|Item 1  Condensed Financial Statements                                                       
|                                                                                              
|                                                                                               | Consolidated Balance Sheets as of July 28, 2001 and October 28, 2000                                             |  |          | 3      | 
|                                                                                              
|                                                                                               | Consolidated Statements of Net Income (Loss) for the 39 weeks and 13 weeks
ended July 28, 2001 and July 29, 2000 |  |          | 4      | 
|                                                                                              
|                                                                                               | Consolidated Statements of Cash Flows for the 39 weeks ended July 28, 2001
and July 29, 2000                     |  |          | 5      | 
|                                                                                              
|                                                                                               | Notes to Consolidated Financial Statements                                                                       |  |          | 6 - 10 | 
|                                                                                              
|Item 2 - Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                                                                                                  |  | 10 - 13  |       
|                                                                                              
|Item 3 - Quantitative and Qualitative Disclosure about Market Risk                             |                                                                                                                  |  | 13       |       
|                                                                                              
|PART II  OTHER INFORMATION                                                                   
|                                                                                              
|Item 6 - Exhibits and Reports on Form 8-K                                                      |                                                                                                                  |  | 13       |       
|                                                                                              
|Signature                                                                                      |                                                                                                                  |  | 14       |       
|                                                                                              
|Exhibit Index                                                                                  |                                                                                                                  |  | 15       |       

2



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##### Table of Contents






PART I  FINANCIAL INFORMATION
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

CONSOLIDATED BALANCE SHEETS
JULY 28, 2001 AND OCTOBER 28, 2000
(In thousands, except share data)

|                                                        |                     |                                                                                       |                                         |        |             |         |         |        |         |         |  
|------------------------------------------------------- | ------------------- | ------------------------------------------------------------------------------------- | --------------------------------------- | ------ | ----------- | ------- | ------- | ------ | ------- | ------- | -
|                                                        |                     |                                                                                       |                                         |        | 2001        |         | 2000   
|                                                        |                     |                                                                                       |                                         |        |             |         |        
|                                                        |                     |                                                                                       |                                         |        | (Unaudited)
|ASSETS                                                 
|                                                       
|                                                       
|                                                       
|                                                       
|CURRENT ASSETS:                                        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Cash and cash equivalents                                                             |                                         | $      | 11,683      |         |         | $      | 5,174   |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Receivables, net                                                                      |                                         |        | 27,140      |         |         |        | 27,008  |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Inventories                                                                           |                                         |        | 32,315      |         |         |        | 30,115  |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Deferred income taxes and prepaid expenses                                            |                                         |        | 5,683       |         |         |        | 5,613   |        
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|                                                        |                     |                                                                                       | Total current assets                    |        |             | 76,821  |         |        |         | 67,910  |  
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|PROPERTY AND EQUIPMENT, net of
accumulated depreciation |                     |                                                                                       | 29,771                                  |        |             |         | 32,701  |       
|                                                       
|                                                       
|                                                       
|                                                       
|GOODWILL, net of accumulated amortization               |                     |                                                                                       | 109,803                                 |        |             |         | 112,422 |       
|                                                       
|                                                       
|                                                       
|                                                       
|INTANGIBLE ASSETS, net of accumulated amortization      |                     |                                                                                       | 45,152                                  |        |             |         | 48,173  |       
|                                                       
|                                                       
|                                                       
|                                                       
|DEFERRED FINANCING AND OTHER ASSETS                     |                     |                                                                                       | 14,844                                  |        |             |         | 16,128  |       
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|Total Assets                                            |                     | $                                                                                     | 276,391                                 |        |             | $       | 277,334 |       
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|LIABILITIES                                            
|                                                       
|                                                       
|                                                       
|                                                       
|CURRENT LIABILITIES:                                   
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Current portion of long-term debt                                                     |                                         | $      | 18,612      |         |         | $      | 11,634  |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Accounts payable                                                                      |                                         |        | 4,280       |         |         |        | 4,990   |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Accrued liabilities                                                                   |                                         |        | 21,034      |         |         |        | 18,009  |        
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|                                                        |                     |                                                                                       | Total current liabilities               |        |             | 43,926  |         |        |         | 34,633  |  
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|LONG-TERM DEBT, net of current maturities               |                     |                                                                                       | 239,356                                 |        |             |         | 253,128 |       
|                                                       
|                                                       
|                                                       
|                                                       
|OTHER NONCURRENT LIABILITIES                            |                     |                                                                                       | 25,419                                  |        |             |         | 27,432  |       
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|                                                        |                     |                                                                                       | Total Liabilities                       |        |             | 308,701 |         |        |         | 315,193 |  
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|REDEEMABLE ESOP STOCK                                   |                     |                                                                                       | 25,280                                  |        |             |         | 26,863  |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Unearned ESOP stock |                                                                                       |                                         | (4,620 | )           |         |         | (5,880 | )      
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|                                                        |                     |                                                                                       | 20,660                                  |        |             |         | 20,983  |       
|                                                       
|                                                       
|                                                       
|                                                       
|SHAREHOLDERS EQUITY/(DEFICIENCY):                     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Common Stock, $.01 par value, authorized 3,000 shares;
1 share issued and outstanding |                                         |        |            |         |         |        |        |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Paid-in capital                                                                       |                                         |        |            |         |         |        |        |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                     | Accumulated deficit                                                                   |                                         |        | (52,970     | )       |         |        | (58,842 | )      
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|                                                        |                     |                                                                                       | Total shareholders equity/(deficiency) |        |             | (52,970 | )       |        |         | (58,842 | )
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       
|Total Liabilities and Shareholders Equity/(Deficiency) |                     | $                                                                                     | 276,391                                 |        |             | $       | 277,334 |       
|                                                        |                     |                                                                                       |                                         |        |             |         |         |       

The accompanying notes to consolidated financial statements are an integral part of this statement.

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

|                                    |                    |   |                |        |                |   |               |        |               |   |        |        |  |   |        |        | 
|----------------------------------- | ------------------ | - | -------------- | ------ | -------------- | - | ------------- | ------ | ------------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                    |                    |   | 39 Weeks Ended |        | 13 Weeks Ended
|                                    |                    |   |                |        |               
|                                    |                    |   | July 28, 2001  |        | July 29, 2000  |   | July 28, 2001 |        | July 29, 2000
|                                    |                    |   |                |        |                |   |               |        |              
|Net revenues                        |                    | $ | 124,086        |        |                | $ | 113,615       |        |               | $ | 44,074 |        |  | $ | 37,977 |       
|                                   
|                                   
|                                   
|                                   
|Cost of revenues                    |                    |   | 67,852         |        |                |   | 66,544        |        |               |   | 23,276 |        |  |   | 20,719 |       
|                                    |                    |   |                |        |                |   |               |        |               |   |        |        |  |   |        |       
|                                    | Gross profit       |   |                | 56,234 |                |   |               | 47,071 |               |   |        | 20,798 |  |   |        | 17,258 | 
|                                    |                    |   |                |        |                |   |               |        |               |   |        |        |  |   |        |       
|Selling, general and administrative |                    |   | 17,423         |        |                |   | 16,657        |        |               |   | 6,220  |        |  |   | 4,935  |       
|                                   
|                                   
|                                   
|                                   
|Research and development            |                    |   | 7,633          |        |                |   | 7,394         |        |               |   | 2,530  |        |  |   | 2,287  |       
|                                   
|                                   
|                                   
|                                   
|Amortization of intangible assets   |                    |   | 5,636          |        |                |   | 5,636         |        |               |   | 1,879  |        |  |   | 1,877  |       
|                                    |                    |   |                |        |                |   |               |        |               |   |        |        |  |   |        |       
|                                    | Operating expenses |   |                | 30,692 |                |   |               | 29,687 |               |   |        | 10,629 |  |   |        | 9,099  | 
|                                    |                    |   |                |        |                |   |               |        |               |   |        |        |  |   |        |       
|Income from operations              |                    |   | 25,542         |        |                |   | 17,384        |        |               |   | 10,169 |        |  |   | 8,159  |       
|                                   
|                                   
|                                   
|                                   
|Interest expense                    |                    |   | 18,643         |        |                |   | 19,246        |        |               |   | 6,002  |        |  |   | 6,563  |       
|                                   
|                                   
|                                   
|                                   
|Other, net                          |                    |   | (104           | )      |                |   | (239          | )      |               |   | 120    |        |  |   | (36    | )     
|                                    |                    |   |                |        |                |   |               |        |               |   |        |        |  |   |        |       
|Income / (loss) before income taxes |                    |   | 7,003          |        |                |   | (1,623        | )      |               |   | 4,047  |        |  |   | 1,632  |       
|                                    |                    |   |                |        |                |   |               |        |               |   |        |        |  |   |        |       
|Income tax provision (benefit)      |                    |   | 2,565          |        |                |   | (677          | )      |               |   | 1,260  |        |  |   | 734    |       
|                                    |                    |   |                |        |                |   |               |        |               |   |        |        |  |   |        |       
|Net income / (loss)                 |                    | $ | 4,438          |        |                | $ | (946          | )      |               | $ | 2,787  |        |  | $ | 898    |       
|                                    |                    |   |                |        |                |   |               |        |               |   |        |        |  |   |        |       

The accompanying notes to consolidated financial statements are an integral part of this statement.

4



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

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 39 WEEKS ENDED JULY 28, 2001 AND JULY 29, 2000

(In thousands)
UNAUDITED

|                                         |                                                                                          |                               |        |        |        |      |       |         |        |  
|---------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------- | ------ | ------ | ------ | ---- | ----- | ------- | ------ | -
|                                         |                                                                                          |                               |        | 2001   |        | 2000
|                                         |                                                                                          |                               |        |        |        |     
|CASH FLOWS FROM OPERATING ACTIVITIES:   
|                                        
|                                        
|                                        
|                                        
|                                         | Net income / (loss)                                                                      |                               | $      | 4,438  |        |      | $     | (946    | )     
|                                        
|                                        
|                                        
|                                        
|                                         | Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
|                                        
|                                        
|                                        
|                                        
|                                         | Depreciation                                                                             |                               |        | 4,175  |        |      |       | 4,504   |       
|                                        
|                                        
|                                        
|                                        
|                                         | Amortization of intangible assets and deferred financing costs                           |                               |        | 7,240  |        |      |       | 7,217   |       
|                                        
|                                        
|                                        
|                                        
|                                         | Accretion of bond discount                                                               |                               |        | 188    |        |      |       | 171     |       
|                                        
|                                        
|                                        
|                                        
|                                         | Compensation expense recognized in connection with
employee stock ownership plan         |                               |        | 2,520  |        |      |       | 1,798   |       
|                                        
|                                        
|                                        
|                                        
|                                         | Compensation expense recognized in connection with
stock options                         |                               |        | 526    |        |      |       |        |       
|                                        
|                                        
|                                        
|                                        
|                                         | Amortization of inventory step-up                                                        |                               |        |       |        |      |       | 155     |       
|                                        
|                                        
|                                        
|                                        
|                                         | Deferred income taxes                                                                    |                               |        | (1,392 | )      |      |       | (2,025  | )     
|                                        
|                                        
|                                        
|                                        
|                                         | Changes in operating assets and liabilities:                                            
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                          | Receivables                   |        |        | (132   | )    |       |         | 8,152  |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                          | Inventories                   |        |        | (2,200 | )    |       |         | (1,295 | )
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                          | Prepaid expenses              |        |        | (184   | )    |       |         | (522   | )
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                          | Accounts payable              |        |        | (710   | )    |       |         | (2,850 | )
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                          | Accrued and other liabilities |        |        | 2,624  |      |       |         | 2,201  |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                          | Other, net                    |        |        | (716   | )    |       |         | (122   | )
|                                         |                                                                                          |                               |        |        |        |      |       |        
|                                         | Net cash provided by operating activities                                                |                               |        | 16,377 |        |      |       | 16,438  |       
|                                         |                                                                                          |                               |        |        |        |      |       |        
|CASH FLOWS FROM INVESTING ACTIVITIES:   
|                                        
|                                        
|                                        
|                                        
|                                         | Capital expenditures                                                                     |                               |        | (1,245 | )      |      |       | (1,520  | )     
|                                         |                                                                                          |                               |        |        |        |      |       |        
|                                         | Net cash used in investing activities                                                    |                               |        | (1,245 | )      |      |       | (1,520  | )     
|                                         |                                                                                          |                               |        |        |        |      |       |        
|CASH FLOWS FROM FINANCING ACTIVITIES:   
|                                        
|                                        
|                                        
|                                        
|                                         | Additional borrowing of long-term debt                                                   |                               |        |       |        |      |       | 6,000   |       
|                                        
|                                        
|                                        
|                                        
|                                         | Repayment of long-term debt                                                              |                               |        | (6,981 | )      |      |       | (15,011 | )     
|                                        
|                                        
|                                        
|                                        
|                                         | Repayment of note payable  Durodyne acquisition                                         |                               |        |       |        |      |       | (557    | )     
|                                        
|                                        
|                                        
|                                        
|                                         | Payment of financing related fees                                                        |                               |        |       |        |      |       | (256    | )     
|                                        
|                                        
|                                        
|                                        
|                                         | Purchase of treasury stock                                                               |                               |        | (1,602 | )      |      |       | (2,579  | )     
|                                        
|                                        
|                                        
|                                        
|                                         | Dividend                                                                                 |                               |        | (40    | )      |      |       | (2,791  | )     
|                                         |                                                                                          |                               |        |        |        |      |       |        
|                                         | Net cash used in financing activities                                                    |                               |        | (8,623 | )      |      |       | (15,194 | )     
|                                         |                                                                                          |                               |        |        |        |      |       |        
|CASH AND CASH EQUIVALENTS:              
|                                        
|                                        
|                                        
|                                        
|Net increase / (decrease) for the period |                                                                                          |                               | 6,509  |        |        |      | (276  | )      
|                                        
|                                        
|                                        
|                                        
|Balance, Beginning of period             |                                                                                          |                               | 5,174  |        |        |      | 3,873 |        
|                                         |                                                                                          |                               |        |        |        |      |       |        
|Balance, End of period                   |                                                                                          | $                             | 11,683 |        |        | $    | 3,597 |        
|                                         |                                                                                          |                               |        |        |        |      |       |        

The accompanying notes to consolidated financial statements are an integral part of this statement.

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 WEEKS ENDED JULY 28, 2001 AND JULY 29, 2000
(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, throughout the world. In addition, Argo-Tech leases a portion of its
manufacturing facility to other parties. Argo-Techs fiscal year ends on the
last Saturday in October. Argo-Tech is obligated to fulfill certain
obligations of AT Holdings Corporation. As a result, those obligations have
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 with four wholly-owned
operating guarantor subsidiaries. Argo-Tech has no outside assets,
liabilities or operations apart from its wholly-owned subsidiaries. The
Senior Subordinated 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 of the guarantor subsidiaries is not material to investors. All
of Argo-Techs subsidiaries are guarantors except one wholly-owned subsidiary
that has inconsequential assets, liabilities and equity. Its only operations
are the result of intercompany activity, which is immediately dividended back
to Argo-Tech.
|  
|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 and results of operations and
cash flows for the interim periods presented. The results of operations for
the 39 weeks and 13 weeks ended July 28, 2001 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 28, |        | October 28,
|                                          |       |   | 2001     |        | 2000       
|                                          |       |   |          |        |            
|Finished goods                            |       | $ | 1,934    |        |             | $ | 2,259  |       
|                                         
|                                         
|                                         
|                                         
|Work-in-process and purchased parts       |       |   | 20,436   |        |             |   | 19,106 |       
|                                         
|                                         
|                                         
|                                         
|Raw materials and supplies                |       |   | 13,179   |        |             |   | 11,866 |       
|                                          |       |   |          |        |             |   |        |       
|                                          | Total |   |          | 35,549 |             |   |        | 33,231 | 
|                                         
|                                         
|                                         
|                                         
|Reserve for excess and obsolete inventory |       |   | (3,234   | )      |             |   | (3,116 | )     
|                                          |       |   |          |        |             |   |        |       
|Inventories  net                         |       | $ | 32,315   |        |             | $ | 30,115 |       
|                                          |       |   |          |        |             |   |        |       

6



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|4. |  | CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Environmental Matters  The soil and groundwater at Argo-Techs Euclid, Ohio
facility and the 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. 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 additional matters is not expected to
materially affect Argo-Techs financial condition, results of operations or
liquidity.                                                                                                                                                               
|  
|5. |  | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Argo-Tech operates in two business segments: Aerospace and Industrial.
Aerospace includes the design, manufacture and distribution of aviation
products throughout the world consisting of aircraft fuel pumps, fuel flow
related products found on a planes airframe and aerial refueling systems.
The Industrial segment includes the design, manufacture and distribution of
industrial pumps, ground fueling system valves and related components,
industrial marine cryogenic pumps for transferring liquefied natural gas and
operation of a business park 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 goodwill, 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 Ending July 28, 2001

|                                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   |        | 
|-------------------------------------------------------------------------------- |  | --------- | ------ | ---------- |  | --------- | ----- | ------------ |  | - | ---- | - |  | - | ------ | 
|                                                                                 |  | Aerospace |        | Industrial |  | Corporate |       | Consolidated
|                                                                                 |  |           |        |            |  |           |       |             
|Net revenues                                                                     |  | $         | 35,012 |            |  | $         | 9,062 |              |  | $ |     |   |  | $ | 44,074 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Operating profit (loss)                                                          |  |           | 11,797 |            |  |           | 891   |              |  |   | (640 | ) |  |   | 12,048 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Amortization of intangible assets                                                |  |           |        |            |  |           |       |              |  |   |      |   |  |   | 1,879  | 
|                                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   |        | 
|Income from operations                                                           |  |           |        |            |  |           |       |              |  |   |      |   |  |   | 10,169 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Interest expense                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   | 6,002  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other, net                                                                       |  |           |        |            |  |           |       |              |  |   |      |   |  |   | 120    | 
|                                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   |        | 
|Income before income taxes                                                       |  |           |        |            |  |           |       |              |  |   |      |   |  | $ | 4,047  | 
|                                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   |        | 
|Capital expenditures                                                             |  |           | 276    |            |  |           | 142   |              |  |   |      |   |  |   | 418    | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Depreciation                                                                     |  |           | 770    |            |  |           | 374   |              |  |   | 237  |   |  |   | 1,381  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Compensation expense recognized
in connection with employee
stock ownership plan |  |           | 759    |            |  |           | 81    |              |  |   |      |   |  |   | 840    | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Compensation expense recognized
in connection with stock options                 |  |           |        |            |  |           |       |              |  |   | 526  |   |  |   | 526    | 

7



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13 Week Period Ending July 29, 2000

|                                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   |        |  
|-------------------------------------------------------------------------------- |  | --------- | ------ | ---------- |  | --------- | ----- | ------------ |  | - | ---- | - |  | - | ------ | -
|                                                                                 |  | Aerospace |        | Industrial |  | Corporate |       | Consolidated
|                                                                                 |  |           |        |            |  |           |       |             
|Net revenues                                                                     |  | $         | 30,625 |            |  | $         | 7,352 |              |  | $ |     |   |  | $ | 37,977 |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Operating profit (loss)                                                          |  |           | 9,731  |            |  |           | 702   |              |  |   | (397 | ) |  |   | 10,036 |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Amortization of intangible assets                                                |  |           |        |            |  |           |       |              |  |   |      |   |  |   | 1,877  |  
|                                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   |        |  
|Income from operations                                                           |  |           |        |            |  |           |       |              |  |   |      |   |  |   | 8,159  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Interest expense                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   | 6,563  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other, net                                                                       |  |           |        |            |  |           |       |              |  |   |      |   |  |   | (36    | )
|                                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   |        |  
|Income before income taxes                                                       |  |           |        |            |  |           |       |              |  |   |      |   |  | $ | 1,632  |  
|                                                                                 |  |           |        |            |  |           |       |              |  |   |      |   |  |   |        |  
|Capital expenditures                                                             |  |           | 270    |            |  |           | 100   |              |  |   |      |   |  |   | 370    |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Depreciation                                                                     |  |           | 794    |            |  |           | 400   |              |  |   | 242  |   |  |   | 1,436  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Compensation expense recognized
in connection with employee
stock ownership plan |  |           | 231    |            |  |           | 33    |              |  |   |      |   |  |   | 264    |  

39 Week Period Ending July 28, 2001

|                                                                                 |  |           |         |            |  |           |        |              |  |   |        |   |  |   |         |  
|-------------------------------------------------------------------------------- |  | --------- | ------- | ---------- |  | --------- | ------ | ------------ |  | - | ------ | - |  | - | ------- | -
|                                                                                 |  | Aerospace |         | Industrial |  | Corporate |        | Consolidated
|                                                                                 |  |           |         |            |  |           |        |             
|Net revenues                                                                     |  | $         | 101,483 |            |  | $         | 22,603 |              |  | $ |       |   |  | $ | 124,086 |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Operating profit (loss)                                                          |  |           | 32,508  |            |  |           | (181   | )            |  |   | (1,149 | ) |  |   | 31,178  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Amortization of intangible assets                                                |  |           |         |            |  |           |        |              |  |   |        |   |  |   | 5,636   |  
|                                                                                 |  |           |         |            |  |           |        |              |  |   |        |   |  |   |         |  
|Income from operations                                                           |  |           |         |            |  |           |        |              |  |   |        |   |  |   | 25,542  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Interest expense                                                                 |  |           |         |            |  |           |        |              |  |   |        |   |  |   | 18,643  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other, net                                                                       |  |           |         |            |  |           |        |              |  |   |        |   |  |   | (104    | )
|                                                                                 |  |           |         |            |  |           |        |              |  |   |        |   |  |   |         |  
|Income before income taxes                                                       |  |           |         |            |  |           |        |              |  |   |        |   |  | $ | 7,003   |  
|                                                                                 |  |           |         |            |  |           |        |              |  |   |        |   |  |   |         |  
|Capital expenditures                                                             |  |           | 911     |            |  |           | 334    |              |  |   |        |   |  |   | 1,245   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Depreciation                                                                     |  |           | 2,345   |            |  |           | 1,118  |              |  |   | 712    |   |  |   | 4,175   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Compensation expense recognized
in connection with employee
stock ownership plan |  |           | 2,241   |            |  |           | 279    |              |  |   |        |   |  |   | 2,520   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Compensation expense recognized
in connection with stock options                 |  |           |         |            |  |           |        |              |  |   | 526    |   |  |   | 526     |  

39 Week Period Ending July 29, 2000

|                                                                                 |  |           |        |            |  |           |        |              |  |   |        |   |  |   |         |  
|-------------------------------------------------------------------------------- |  | --------- | ------ | ---------- |  | --------- | ------ | ------------ |  | - | ------ | - |  | - | ------- | -
|                                                                                 |  | Aerospace |        | Industrial |  | Corporate |        | Consolidated
|                                                                                 |  |           |        |            |  |           |        |             
|Net revenues                                                                     |  | $         | 91,704 |            |  | $         | 21,911 |              |  | $ |       |   |  | $ | 113,615 |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Operating profit (loss)                                                          |  |           | 23,657 |            |  |           | 563    |              |  |   | (1,200 | ) |  |   | 23,020  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Amortization of intangible assets                                                |  |           |        |            |  |           |        |              |  |   |        |   |  |   | 5,636   |  
|                                                                                 |  |           |        |            |  |           |        |              |  |   |        |   |  |   |         |  
|Income from operations                                                           |  |           |        |            |  |           |        |              |  |   |        |   |  |   | 17,384  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Interest expense                                                                 |  |           |        |            |  |           |        |              |  |   |        |   |  |   | 19,246  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other, net                                                                       |  |           |        |            |  |           |        |              |  |   |        |   |  |   | (239    | )
|                                                                                 |  |           |        |            |  |           |        |              |  |   |        |   |  |   |         |  
|Loss before income taxes                                                         |  |           |        |            |  |           |        |              |  |   |        |   |  | $ | (1,623  | )
|                                                                                 |  |           |        |            |  |           |        |              |  |   |        |   |  |   |         |  
|Capital expenditures                                                             |  |           | 1,283  |            |  |           | 237    |              |  |   |        |   |  |   | 1,520   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Depreciation                                                                     |  |           | 2,480  |            |  |           | 1,210  |              |  |   | 814    |   |  |   | 4,504   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Amortization of inventory step-up                                                |  |           |        |            |  |           |        |              |  |   | 155    |   |  |   | 155     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Compensation expense recognized
in connection with employee
stock ownership plan |  |           | 1,587  |            |  |           | 211    |              |  |   |        |   |  |   | 1,798   |  

8



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|6. |  | OTHER COMPREHENSIVE INCOME (LOSS)                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Other comprehensive income (loss) includes foreign currency translation
adjustments and changes in the fair value of the interest rate swaps (in
thousands).

|                                                                |                                                    |   |                |      |                |   |          |     |          |   |       |     |   |   |     |    | 
|--------------------------------------------------------------- | -------------------------------------------------- | - | -------------- | ---- | -------------- | - | -------- | --- | -------- | - | ----- | --- | - | - | --- | -- | 
|                                                                |                                                    |   | 39 weeks ended |      | 13 weeks ended
|                                                                |                                                    |   |                |      |               
|                                                                |                                                    |   | July 28,       |      | July 29,       |   | July 28, |     | July 29,
|                                                                |                                                    |   | 2001           |      | 2000           |   | 2001     |     | 2000    
|                                                                |                                                    |   |                |      |                |   |          |     |         
|Net income (loss)                                               |                                                    | $ | 4,438          |      |                | $ | (946     | )   |          | $ | 2,787 |     |   | $ | 898 |   
|                                                               
|                                                               
|                                                               
|                                                               
|Other comprehensive income (loss):                             
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Foreign currency translation adjustment            |   |                | 141  |                |   |          | 133 |          |   |       | 3   |   |   |     | 44 | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cumulative effect of accounting change             |   |                | 284  |               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Change in fair market value of interest
rate swaps |   |                | (441 | )              |   |          |     |          |   |       | (22 | )
|                                                                |                                                    |   |                |      |                |   |          |     |          |   |       |     |   |   |     |   
|Other comprehensive income (loss)
before tax                    |                                                    |   | (16            | )    |                |   | 133      |     |          |   | (19   | )   |   |   | 44  |   
|                                                               
|                                                               
|                                                               
|                                                               
|Income tax benefit related to other
comprehensive income (loss) |                                                    |   | 63             |      |                |   |          |     |          |   | 9     |    
|                                                                |                                                    |   |                |      |                |   |          |     |          |   |       |     |   |   |     |   
|Other comprehensive income (loss)
net of tax                    |                                                    |   | 47             |      |                |   | 133      |     |          |   | (10   | )   |   |   | 44  |   
|                                                                |                                                    |   |                |      |                |   |          |     |          |   |       |     |   |   |     |   
|Comprehensive income (loss)                                     |                                                    | $ | 4,485          |      |                | $ | (813     | )   |          | $ | 2,777 |     |   | $ | 942 |   
|                                                                |                                                    |   |                |      |                |   |          |     |          |   |       |     |   |   |     |   



|7. |  | ACCOUNTING CHANGE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. This pronouncement requires
that all derivative financial instruments, such as interest rate swap
contracts and foreign exchange contracts, be recognized in the financial
statements and measured at fair value regardless of the purpose or intent
for holding them. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or shareholders
equity (as a component of comprehensive income), depending on whether the
derivative is being used to hedge changes in fair value or cash flows.
Argo-Tech adopted this standard effective October 29, 2000 and has
determined that its derivative instruments meet the criteria for cash flow
hedge accounting. In order to reduce variable interest rate exposure on
borrowings under its existing credit facility and to hedge cash flows,
Argo-Tech has two interest rate swap agreements on a portion of the variable
rate debt which each fix the rate on the notional amounts of $10.0 million
at 5.60%. The fair value of Argo-Techs derivative instruments was a $284
thousand asset at October 29, 2000, which was recorded as a cumulative
effect of accounting change, and a $157 thousand liability at July 28, 2001.
The adjustments to record the cumulative effect of accounting change and
the net change in the fair value during the period ended July 28, 2001, was
recorded, net of income taxes, in other comprehensive income.
|  
|8. |  | NEW ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | In July 2001, the FASB issued SFAS No. 141, Business Combinations. This
pronouncement establishes new standards for accounting and reporting
requirements for business combinations and will require that the purchase
method of accounting be used for all business combinations initiated after
June 30, 2001. Management does not believe that SFAS No. 141 will have a
material impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

9



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| |  | In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement applies to intangibles and goodwill acquired after
June 30, 2001, as well as goodwill and intangibles previously acquired.
Under this statement, goodwill and other intangibles determined to have an
infinite life will no longer be amortized; however, these assets will be
reviewed for impairment on a periodic basis. The Company expects to early
adopt this statement for the first quarter of the fiscal year beginning
October 28, 2001. Management is currently evaluating the impact that this
statement will have on the Companys financial statements.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Argo-Tech Corporation is a leading designer, manufacturer and servicer of
high performance fuel flow devices for the aerospace industry providing a broad
range of products and services to substantially all commercial and domestic
military engine and airframe manufacturers, to airlines worldwide and to the
U.S. and certain foreign militaries. Argo-Tech is the worlds leading supplier
of main engine fuel pumps to the commercial aircraft industry and a leading
supplier of airframe products and aerial refueling systems. Argo-Tech is also
a leading manufacturer of components for ground fueling systems and is a
manufacturer of industrial marine cryogenic pumps.

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.

Results of Operations for the 13 Week Period Ended July 28, 2001 Compared With
the 13 Week Period Ended July 29, 2000

Net revenues for the 13 week period ended July 28, 2001 increased $6.1
million, or 16.1%, to $44.1 million from $38.0 million for the 13 week period
ended July 29, 2000. This increase was primarily due to an increase in
aerospace revenues of $4.4 million and a $1.7 million increase in industrial
revenues. The increase in aerospace revenues was attributable to an increase of
$2.8 million of commercial aerospace revenues and $1.6 million of military
revenues. Commercial OEM revenues decreased $0.2 million, or 2.7%, to $7.3
million and commercial aftermarket revenues increased $3.0 million, or 16.2%,
to $21.5 million in the 13 week period ended July 28, 2001. Commercial OEM
revenues declined as a result of lower overall engine requirements from our
customers, while commercial aftermarket revenues were higher primarily due to
an increase in spare parts and overhaul services for the JT8 and JT9 engine
programs. Military revenues increased primarily due to increased revenue
related to F-16 and F-22 airframe components. The increase in industrial
revenues was primarily attributable to industrial gas turbine and ground
fueling revenues.

Gross profit for the 13 week period ended July 28, 2001 increased $3.6
million, or 20.9%, to $20.8 million from $17.2 million in the 13 week period
ended July 29, 2000. Gross margin increased to 47.2% for the 13 week period
ended July 28, 2001 from 45.3% in the 13 week period ended July 29, 2000. The
increase in gross profit and gross margin is primarily due to the favorable
sales mix of aerospace and industrial revenues.

Operating expenses for the 13 week period ended July 28, 2001 increased
$1.5 million, or 16.5%, to $10.6 million from $9.1 million in the 13 week
period ended July 29, 2000. This increase is primarily attributable to an
increase in research and development expense and selling, general and
administrative expense, which included a non-cash charge to compensation
expense of $0.5 million resulting from an extension of the termination date for
certain stock option plans. Operating expenses as a percent of revenues

10



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increased slightly to 24.0% for the 13 week period ended July 28, 2001 as
compared to 23.9% for the 13 week period ended July 29, 2000.

Income from operations for the 13 week period ended July 28, 2001
increased $2.1 million, or 25.9%, to $10.2 million from $8.1 million in the 13
week period ended July 29, 2000. As a percent of revenues, income from
operations for the 13 week period ended July 28, 2001 increased to 23.1% from
21.3% for the 13 week period ended July 29, 2000. These increases were
primarily due to the increased sales of higher margin aerospace products.

Interest expense was $6.0 million for the 13 week period ended July 28,
2001 as compared to $6.5 million for the 13 week period ended July 29, 2000 due
to a lower level of term loans and lower interest rates on the term loans.

The income tax provision for the 13 week period ended July 28, 2001
increased $0.6 million to $1.3 million from $0.7 million in the 13 week period
ended July 29, 2000. This increase is due to a pre-tax income of $4.1 million
for the 13 week period ended July 28, 2001 as compared to $1.6 million for the
13 week period ended July 29, 2000.

Net income for the 13 week period ended July 28, 2001 increased $1.9
million to $2.8 million from $0.9 million for the 13 week period ended July 29,
2000 primarily due to the revenue and expense factors discussed above.

Results of Operations for the 39 Week Period Ended July 28, 2001 Compared With
the 39 Week Period Ended July 29, 2000

Net revenues for the 39 week period ended July 28, 2001 increased $10.5
million, or 9.2%, to $124.1 million from $113.6 million for the 39 week period
ended July 29, 2000. This increase was primarily due to an increase in
aerospace revenues of $9.8 million and a $0.7 million increase in industrial
revenues. The increase in aerospace revenues was attributable to an increase of
$11.2 million of commercial aerospace revenues offset by a decrease of $1.4
million in military revenues. Commercial OEM revenues decreased $1.0 million,
or 4.3%, to $22.1 million and commercial aftermarket revenues increased $12.2
million, or 23.9%, to $63.2 million in the 39 week period ended July 28, 2001.
Commercial OEM revenues decreased as a result of lower overall engine
requirements from our customers, while commercial aftermarket revenues were
higher primarily due to a slight increase in demand by airlines for spare pumps
used for initial provisioning purposes and an increase in spare part and repair
and overhaul services. The increase in spare parts sales was primarily
attributable to higher demand on the JT8 and JT9 engine programs both
domestically and from our international distributor. Military revenues
decreased primarily due to a lower rate of activity on KC-135 aerial refueling
components and the F-18E/F 480 gallon fuel tank offset by increased revenue
related to F-16 and F-22 airframe components. The increase in industrial
revenues was attributable to an increase in industrial gas turbine revenues
offset by lower industrial marine revenues.

Gross profit for the 39 week period ended July 28, 2001 increased $9.1
million, or 19.3%, to $56.2 million from $47.1 million in the 39 week period
ended July 29, 2000. Gross margin increased to 45.3% for the 39 week period
ended July 28, 2001 from 41.5% in the 39 week period ended July 29, 2000. The
increase in gross profit and gross margin is primarily due to the favorable
sales mix of aerospace and industrial revenues.

Operating expenses for the 39 week period ended July 28, 2001 increased
$1.0 million, or 3.4%, to $30.7 million from $29.7 million in the 39 week
period ended July 29, 2000. This increase is attributable to increased general
and administrative expenses primarily related to the $0.5 million non-cash
charge to compensation expense resulting from an extension of the termination
date of certain stock option plans and an increase in research and development
expense. Operating expenses as a percent of revenues declined to 24.7% for the
39 week period ended July 28, 2001 as compared to 26.1% for the 39 week period
ended July 29, 2000.

11



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##### Table of Contents



Income from operations for the 39 week period ended July 28, 2001
increased $8.1 million, or 46.6%, to $25.5 million from $17.4 million in the 39
week period ended July 29, 2000. As a percent of revenues, income from
operations for the 39 week period ended July 28, 2001 increased to 20.5% from
15.3% for the 39 week period ended July 29, 2000. These increases were due to
increased sales of higher margin aerospace products offset by a slight increase
in operating expenses.

Interest expense was $18.6 million for the 39 week period ended July 28,
2001 as compared to $19.2 million for the 39 week period ended July 29, 2000
due to lower outstanding borrowings and slightly lower interest rates on the
term loans.

The income tax provision for the 39 week period ended July 28, 2001
increased $3.3 million to an expense of $2.6 million from a benefit of $0.7
million in the 39 week period ended July 29, 2000. This increase is due to a
pre-tax income of $7.0 million for the 39 week period ended July 28, 2001 as
compared to a pre-tax loss of $1.6 million for the 39 week period ended July
29, 2000.

Net income for the 39 week period ended July 28, 2001 increased $5.3
million, to $4.4 million compared to a loss of $0.9 million for the 39 week
period ended July 29, 2000 primarily due to the revenue and expense factors
discussed above.

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 its products, changes in product mix
and other factors. Demand for its 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.

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 39 week period ended July 28, 2001
increased $6.5 million to $11.7 million. This was primarily due to an increase
in operating income and accrued and other liabilities offset by the scheduled
repayment of term loans, the purchase of stock from former ESOP participants,
an increase in inventory and a decrease in accounts payable.

Capital expenditures for the 39 weeks ended July 28, 2001 totaled $1.2
million compared to $1.5 million for the 39 weeks ended July 29, 2000.
Argo-Tech expects to incur capital expenditures of approximately $2.1 million
for the remainder of fiscal year 2001, related to the continued maintenance of
facilities, equipment and systems to support current operating activities.

Long-term debt at July 28, 2001 consisted of $65.1 million principal
amount of term loans and $192.9 million principal amount of Senior Subordinated
Notes. Scheduled payments of $7.0 million were made on the term loans during
the 39 week period ended July 28, 2001. Argo-Tech has available, after $1.0
million in letters of credit, a $19.0 million revolving credit facility. As of
July 28, 2001, there were no outstanding

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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.

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: Argo-Techs dependence on the aerospace industry; government
regulation and oversight; defense spending; competition; product and
environmental liabilities; and risks associated with its workforce, suppliers,
and future acquisitions.

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. Argo-Techs exposure to changes in
interest rates relates primarily to its long-term debt obligations. At July
28, 2001, Argo-Tech had fixed rate debt totaling $195 million, including $2.5
million of accretion, at 8.625% and variable rate debt under its existing
credit facility of $65.1 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
1.50% or LIBOR plus 2.50%. In order to reduce variable interest rate exposure
on borrowings under its existing credit facility, Argo-Tech has two interest
rate swap agreements on a portion of the variable rate debt which fix the rate
on the notional amounts of $10.0 million at 5.60%. Argo-Tech 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.




PART II  OTHER INFORMATION

Item 6  Exhibits and Reports on Form 8-K

(a) Exhibits  See Exhibit Index on page 15.

Reports on Form 8-K  None

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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, 2001 |  |  | ARGO-TECH CORPORATION
|     
|      |  |                    |  |  | By: /s/               |  |  | Frances S. St. Clair                                                                     
|      |  |                    |  |  |                       |  |  |                                                                                          
|      |  |                    |  |  |                       |  |  | Frances S. St. Clair
Vice President and Chief Financial Officer
(Duly Authorized Officer)
|     
|      |  |                    |  |  | By: /s/               |  |  | Paul A. Sklad                                                                            
|      |  |                    |  |  |                       |  |  |                                                                                          
|      |  |                    |  |  |                       |  |  | Paul A. Sklad
Controller
(Principal Accounting Officer)                                  

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EXHIBIT INDEX

|        |  |                                                                               |  |  |  | 
|------- |  | ----------------------------------------------------------------------------- |  |  |  | 
|Exhibit
|Number  |  | Description of Document                                                      
|        |  |                                                                              
|10.1*   |  | Amendment to 1991 Performance Stock Option Plan dated June 12, 2001.         
|       
|10.2*   |  | Amendment to 1998 Equity Replacement Stock Option Plan dated June 12, 2001.  
|       
|10.3*   |  | Amendment to 1991 Management Incentive Stock Option Plan dated June 12,
2001.



---

|* |  | Filed herewith.
|- |  | ---------------

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