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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
 For the quarterly period ended July 29, 2006, or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
 For the transition period from  to.
 Commission file number 333-38223
 ARGO-TECH CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    31-1521125
(I.R.S. employer
identification no.)23555 Euclid Avenue 
Cleveland, Ohio
(Address of principal executive offices)
    
    44117
(Zip code)(216) 692-6000
(Registrants telephone number, including area code)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES þ NO o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer or non-accelerated filer.
 Large accelerated
filer
o Accelerated filer o Non-accelerated filer þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). YES o NO þ
 All of the outstanding capital stock of the registrant is held by AT Holdings
Corporation.
 As of September 1, 2006, 1 share of the registrants common stock, $.01 par value,
was outstanding.




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##### 



INDEX
  
 Page No.PART I  FINANCIAL INFORMATIONItem 1  Financial StatementsConsolidated Balance Sheets as of July 29, 2006 and October 29, 2005
    
    
    3Consolidated Statements of Operations for the 39 week period and 13 week period ended July 29, 2006 and July 30, 2005 (Predecessor)
    
    
    4Consolidated Statements of Cash Flows for the 39 week period ended July 29, 2006 and July 30, 2005 (Predecessor)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-12Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-18Item 3 - Quantitative and Qualitative Disclosure about Market Risk
    
    
    19Item 4  Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3. Defaults upon Senior Securities
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6  Exhibits
    
    
    20Signature
    
    
    21Certifications
    
    
    22-24EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1.
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 CONSOLIDATED BALANCE SHEETS
July 29, 2006 and October 29, 2005
(In thousands, except share data)
 2006
    
    
    2005(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,528
    
    
    $
    13,889Receivables, net
    
    
    47,321
    
    
    
    40,319Income tax receivable
    
    
    
    
    
    
    3,630Inventories, net
    
    
    37,162
    
    
    
    70,965Prepaid expenses
    
    
    1,986
    
    
    
    1,688Deferred income taxes
    
    
    10,958
    
    
    
    Total current assets
    
    
    98,955
    
    
    
    130,491PROPERTY AND EQUIPMENT, net of accumulated depreciation
    
    
    40,462
    
    
    
    41,970GOODWILL
    
    
    200,152
    
    
    
    200,152INTANGIBLE ASSETS, net of accumulated amortization
    
    
    205,572
    
    
    
    214,440OTHER ASSETS
    
    
    1,232
    
    
    
    1,453Total Assets
    
    $
    546,373
    
    
    $
    588,506LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term debt
    
    $
    750
    
    
    $
    750Accounts payable
    
    
    10,037
    
    
    
    8,736Accrued liabilities
    
    
    28,219
    
    
    
    47,681Total current liabilities
    
    
    39,006
    
    
    
    57,167LONG-TERM DEBT, net of current maturities
    
    
    276,407
    
    
    
    278,312DEFERRED INCOME TAXES
    
    
    71,460
    
    
    
    75,120OTHER NONCURRENT LIABILITIES
    
    
    17,109
    
    
    
    17,111Total liabilities
    
    
    403,982
    
    
    
    427,710SHAREHOLDERS EQUITY:Common Stock, $.01 par value, authorized 3,000 shares;
1 share issued and outstanding
    
    
    
    
    
    
    Paid-in capital
    
    
    157,636
    
    
    
    160,796Accumulated other comprehensive loss
    
    
    (6
    )
    
    
    Accumulated equity / (deficit)
    
    
    (15,239
    )
    
    
    Total shareholders equity
    
    
    142,391
    
    
    
    160,796Total Liabilities and Shareholders Equity
    
    $
    546,373
    
    
    $
    588,506
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ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands)UNAUDITED39 Weeks Ended
    
    
    13 Weeks EndedJuly 29, 2006
    
    
    July 30, 2005
    
    
    July 29, 2006
    
    
    July 30, 2005Predecessor
    
    
    
    
    
    
    PredecessorNet revenues
    
    $
    170,061
    
    
    $
    153,395
    
    
    $
    58,140
    
    
    $
    53,794Cost of revenues (Including inventory purchase
accounting charges of $39,521 and $1,906 for
the 39 week and 13 week period ended
July 29, 2006)
    
    
    139,217
    
    
    
    88,379
    
    
    
    35,414
    
    
    
    31,741Gross profit
    
    
    30,844
    
    
    
    65,016
    
    
    
    22,726
    
    
    
    22,053Selling, general and administrative
    
    
    24,628
    
    
    
    25,436
    
    
    
    8,792
    
    
    
    8,637Research and development
    
    
    8,728
    
    
    
    9,786
    
    
    
    2,617
    
    
    
    3,253Amortization of intangible assets
    
    
    8,868
    
    
    
    2,560
    
    
    
    2,955
    
    
    
    853Operating expenses
    
    
    42,224
    
    
    
    37,782
    
    
    
    14,364
    
    
    
    12,743(Loss) / income from operations
    
    
    (11,380
    )
    
    
    27,234
    
    
    
    8,362
    
    
    
    9,310Interest expense
    
    
    17,831
    
    
    
    18,908
    
    
    
    5,957
    
    
    
    6,338Other, net
    
    
    (8
    )
    
    
    (1
    )
    
    
    12
    
    
    
    24(Loss) / income before income taxes
    
    
    (29,203
    )
    
    
    8,327
    
    
    
    2,393
    
    
    
    2,948Income tax (benefit) / provision
    
    
    (13,964
    )
    
    
    2,283
    
    
    
    (1,355
    )
    
    
    816Net (loss) / income
    
    $
    (15,239
    )
    
    $
    6,044
    
    
    $
    3,748
    
    
    $
    2,132
  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 Week Periods Ending July 29, 2006 and July 30, 2005
 (In thousands)
    
    
    
    
    
    PredecessorUNAUDITED
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss)/income
    
    $
    (15,239
    )
    
    $
    6,044Adjustments to reconcile net (loss)/income to net cash used in
operating activities:Depreciation
    
    
    3,261
    
    
    
    2,673Amortization of intangible assets and deferred financing costs
    
    
    9,105
    
    
    
    3,427Amortization of senior note fair value step-up
    
    
    (1,343
    )
    
    
    Compensation expense recognized in connection with
employee stock ownership plan (ESOP)
    
    
    
    
    
    
    3,780Compensation expense recognized in connection with ESOP excess
benefit plan
    
    
    
    
    
    
    225Amortization of inventory fair value step-up
    
    
    39,521
    
    
    
    Deferred income taxes
    
    
    (21,483
    )
    
    
    (2,410
    )Changes in operating assets and liabilities:Receivables
    
    
    (3,372
    )
    
    
    (5,864
    )Inventories
    
    
    (5,718
    )
    
    
    (7,181
    )Prepaid expenses
    
    
    (305
    )
    
    
    (763
    )Accounts payable
    
    
    1,341
    
    
    
    (628
    )Accrued and other liabilities
    
    
    (12,600
    )
    
    
    (1,349
    )Other, net
    
    
    (5
    )
    
    
    (46
    )Net cash used in operating activities
    
    
    (6,837
    )
    
    
    (2,092
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (1,753
    )
    
    
    (3,145
    )Net cash used in investing activities
    
    
    (1,753
    )
    
    
    (3,145
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings on revolving debt
    
    
    18,000
    
    
    
    Repayment of revolving debt
    
    
    (18,000
    )
    
    
    Repayment of long-term debt
    
    
    (563
    )
    
    
    (562
    )Payment of financing related fees
    
    
    (48
    )
    
    
    Intercompany activity with Parent
    
    
    (2,061
    )
    
    
    Purchase of AT Holdings stock from former ESOP participants
    
    
    
    
    
    
    (3,797
    )Dividend to AT Holdings
    
    
    (1,099
    )
    
    
    (2,582
    )Net cash used in financing activities
    
    
    (3,771
    )
    
    
    (6,941
    )CASH AND CASH EQUIVALENTS:Net decrease for the period
    
    
    (12,361
    )
    
    
    (12,178
    )Balance, beginning of period
    
    
    13,889
    
    
    
    15,857Balance, end of period
    
    $
    1,528
    
    
    $
    3,679
 The accompanying notes to consolidated financial statements are an integral
part of these statements.
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ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 39 WEEK PERIODS ENDED JULY 29, 2006 AND JULY 30, 2005 (Predecessor) 
(Unaudited)
 1.
    
    BASIS OF PRESENTATIONThe principal operations of Argo-Tech Corporation (a wholly-owned subsidiary of AT Holdings
Corporation (Holdings)) and its subsidiaries (Argo-Tech or the Company) include the
design, manufacture and distribution of aviation products, primarily aircraft fuel pumps. In
addition, Argo-Tech leases a portion of its Cleveland, Ohio manufacturing facility to other
parties. Argo-Techs fiscal year ends on the last Saturday in October.On October 28, 2005, Holdings consummated a merger with Vaughn Merger Sub, Inc. (Vaughn) in
which Vaughn merged with and into Holdings (the Merger), with Holdings surviving as a
wholly-owned subsidiary of V.G.A.T Investors, LLC. The Merger was accounted for as a purchase
and preliminary fair value adjustments to the Companys assets and liabilities were recorded as
of the date of the Merger. The Company is in the process of obtaining third-party valuations of
certain tangible and intangible assets; thus, the allocation of the purchase price to the
Companys assets and liabilities is subject to adjustment.Argo-Tech Corporation is a parent holding company and all of its domestic subsidiaries guarantee
Argo-Techs senior notes issued in June 2004. Argo-Tech also has two wholly-owned,
non-guarantor foreign subsidiaries which have inconsequential assets, liabilities and equity.
Argo-Tech has no outside assets, liabilities or operations apart from its wholly-owned
subsidiaries. The senior notes are fully, unconditionally, jointly and severally guaranteed by
the guarantor subsidiaries, and therefore, separate financial statements of the guarantor
subsidiaries will not be presented. Management has determined that the information presented by
such separate financial statements is not material to investors.2.
    
    UNAUDITED FINANCIAL INFORMATIONThe financial information included herein is unaudited; however, the information reflects all
adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of Argo-Techs financial position, results of
operations and cash flows for the interim periods presented. These financial statements and
notes should be read in conjunction with the financial statements and related notes included in
Argo-Techs Annual Report on Form 10-K for the year ended October 29, 2005. The results of
operations for the 13 and 39 week periods ended July 29, 2006 are not necessarily indicative of
the results to be expected for the full year.3.
    
    DISCONTINUED OPERATIONSDuring the third quarter of 2006, the Company discontinued its PMA (parts manufacturing
authority) product line that previously was included in its Aerospace segment. This product
line, known as Aviation Component Solutions (ACS), designed and sold FAA approved second source
replacement parts for commercial aircraft. ACS met the criteria to be accounted for as a
discontinued operation under SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, however, ACSs results of operations for the 13 and 39 week periods in
fiscal 2006 and 2005 are not material to the Companys consolidated financial position, results
of operations or cash flows and, therefore, have not been presented as discontinued operations
in the financial statements.
 6




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4.
    
    INVENTORIESInventories are stated at standard cost which approximates the costs which would be determined
using the first-in, first-out (FIFO) method. The recorded value of inventories is not in excess
of market value. The balance at July 29, 2006 and October 29, 2005 includes $0.8 million and
$40.3 million, respectively, of purchase price accounting adjustments recorded in conjunction
with the Merger. Inventories consist of the following (in thousands):
 July 29,
    
    
    October 29,2006
    
    
    2005Finished goods
    
    $
    2,708
    
    
    $
    5,401Work-in-process and purchased parts
    
    
    37,725
    
    
    
    68,895Raw materials and supplies
    
    
    1,010
    
    
    
    706Total
    
    
    41,443
    
    
    
    75,002Reserve for excess and obsolete inventory
    
    
    (4,281
    )
    
    
    (4,037
    )Inventory, net
    
    $
    37,162
    
    
    $
    70,965
 5.
    
    INTANGIBLE ASSETSThe following is a summary of intangible assets, other than goodwill (in thousands):
 July 29, 2006
    
    
    October 29, 2005Gross
    
    
    Accumulated
    
    
    Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationIntangible Assets:Contracts
    
    $
    20,870
    
    
    $
    1,565
    
    
    $
    20,870
    
    
    $
    Customer relationships
    
    
    193,090
    
    
    
    7,241
    
    
    
    193,090
    
    
    
    Patents
    
    
    480
    
    
    
    62
    
    
    
    480
    
    
    
    Total
    
    $
    214,440
    
    
    $
    8,868
    
    
    $
    214,440
    
    
    $
    
 Amortization expense recorded on the intangible assets for the 13 week periods ended July 29,
2006 and July 30, 2005 (Predecessor) was $3.0 million and $0.9 million, respectively, and for
the 39 week periods ended July 29, 2006 and July 30, 2005 (Predecessor) was $8.9 million and
$2.6 million, respectively. The estimated amortization expense for each of fiscal years 2006
through 2010 is $11.8 million. The weighted-average amortization period for contracts is 10
years, customer relationships is 20 years, and patents is 9 years.
 7




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6.
    
    PRODUCT WARRANTYArgo-Tech accrues for warranty obligations for products sold based on management estimates of
the amount that may be required to settle such potential obligations. These estimates are
prepared with support from our sales, engineering, quality and legal functions. This accrual,
which is reviewed in detail on a regular basis, is based on several factors: past experience,
current claims, production changes and various other considerations. The following table
presents a reconciliation of changes in the product warranty liability for the 39 week periods
ended July 29, 2006 and July 30, 2005 (in thousands):
 PredecessorJuly 29,
    
    
    July 30,2006
    
    
    2005Beginning balance
    
    $
    2,073
    
    
    $
    2,084Accruals for warranties issued
    
    
    211
    
    
    
    Accruals for pre-existing warranties
(including changes in estimate)
    
    
    839
    
    
    
    703Warranty claims settled
    
    
    (868
    )
    
    
    (640
    )Ending balance
    
    $
    2,255
    
    
    $
    2,147
 7.
    
    EMPLOYEE BENEFIT PLANSThe Company has two noncontributory defined benefit pension plans, one for qualifying hourly
employees and a second for qualifying salaried employees. The salaried employee plan provides
pension benefits that are based on the employees compensation and years of service. The future
accrual of benefits under this plan was terminated in connection with the formation of the
Employee Stock Ownership Plan (ESOP). The hourly employee plan provides benefits of stated
amounts for each year of service. The Companys funding policy is to contribute actuarially
determined amounts allowable under Internal Revenue Service regulations.
  39 week periods ended
    
    
    13 week periods endedJuly 29,
    
    
    July 30,
    
    
    July 29,
    
    
    July 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Predecessor)
    
    
    
    
    
    
    (Predecessor)Service cost
    
    $
    288
    
    
    $
    277
    
    
    $
    96
    
    
    $
    94Interest cost
    
    
    1,100
    
    
    
    1,034
    
    
    
    367
    
    
    
    349Expected return on plan assets
    
    
    (1,473
    )
    
    
    (1,399
    )
    
    
    (491
    )
    
    
    (469
    )Net amortization and deferral
    
    
    
    
    
    
    312
    
    
    
    
    
    
    
    97Curtailment charge
    
    
    
    
    
    
    369
    
    
    
    
    
    
    
    Termination benefits
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    Net periodic pension cost (benefit)
    
    $
    (85
    )
    
    $
    651
    
    
    $
    (28
    )
    
    $
    71
  8




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39 week periods ended
    
    
    13 week periods endedJuly 29,
    
    
    July 30,
    
    
    July 29,
    
    
    July 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Predecessor)
    
    
    
    
    
    
    (Predecessor)Service cost
    
    $
    392
    
    
    $
    181
    
    
    $
    139
    
    
    $
    60Interest cost
    
    
    867
    
    
    
    662
    
    
    
    299
    
    
    
    221Net amortization and deferral
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    35Net periodic postretirement benefit cost
    
    $
    1,259
    
    
    $
    948
    
    
    $
    438
    
    
    $
    316
 8.
    
    CONTINGENCIESEnvironmental Matters  The soil and groundwater at Argo-Techs Euclid, Ohio facility and Costa
Mesa, California facility contain elevated levels of certain contaminants that are currently in
the process of being removed and/or remediated. Because Argo-Tech has certain indemnification
rights from former owners of the facilities for liabilities arising from these or other
environmental matters, in the opinion of Argo-Techs management, the ultimate outcome is not
expected to materially affect its financial condition, results of operations or liquidity.Other Matters  Argo-Tech is subject to various legal actions and other contingencies arising in
the ordinary course of business. In the opinion of Argo-Techs management, after reviewing the
information
that is currently available with respect to such matters and consulting with Argo-Techs legal
counsel, any liability which may ultimately be incurred with respect to these matters is not
expected to materially affect Argo-Techs financial condition, results of operations or
liquidity.
 9.
    
    SEGMENT INFORMATIONArgo-Tech operates in two business segments: Aerospace and Industrial. The Aerospace segment
includes the design, manufacture, distribution, and maintenance, repair and overhaul (MRO)
of aviation products, consisting of aircraft fuel pumps, fuel flow related products found
on a planes airframe, and aerial refueling pumps and related equipment. The Industrial
segment includes the design, manufacture and distribution of ground fueling valves and
related components, specialty industrial hose, cryogenic pumps and nozzles for transferring
liquefied natural gas and operation of a business park in Cleveland, Ohio where we maintain
our headquarters and one of our production facilities. Corporate primarily includes
expenses not specifically identified or charged to the operating business segments for
measurement of operating performance. These expenses include, but are not limited to,
certain depreciation, early retirement expenses, stock option compensation and stock
appreciation rights expense.Argo-Tech evaluates the performance of its segments based primarily on operating profit before
amortization of inventory fair value step-up, amortization of deferred financing fees and
other identified intangibles, interest expense, interest income, other miscellaneous fees
and income taxes.
 9




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13 Week Period Ended July 29, 2006
 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    44,197
    
    
    $
    13,943
    
    
    $
    
    
    
    $
    58,140Operating profit (loss)
    
    
    12,461
    
    
    
    1,027
    
    
    
    (265
    )
    
    
    13,223Amortization of fair value inventory step-up
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,906Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,955Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,362Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,957Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,393Capital expenditures
    
    $
    484
    
    
    $
    450
    
    
    $
    
    
    
    $
    934Depreciation
    
    $
    492
    
    
    $
    308
    
    
    $
    275
    
    
    $
    1,075
 13 Week Period Ended July 30, 2005 (Predecessor)
 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    38,125
    
    
    $
    15,669
    
    
    $
    
    
    
    $
    53,794Operating profit (loss)
    
    
    9,345
    
    
    
    1,406
    
    
    
    (588
    )
    
    
    10,163Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    853Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,310Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,338Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,948Capital expenditures
    
    $
    890
    
    
    $
    484
    
    
    $
    
    
    
    $
    1,374Depreciation
    
    $
    493
    
    
    $
    327
    
    
    $
    91
    
    
    $
    911Compensation expense recognized in
connection with employee stock
ownership plan
    
    $
    1,166
    
    
    $
    94
    
    
    $
    
    
    
    $
    1,260
 39 Week Period Ended July 29, 2006
 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    127,409
    
    
    $
    42,652
    
    
    $
    
    
    
    $
    170,061Operating profit (loss)
    
    
    35,768
    
    
    
    2,055
    
    
    
    (814
    )
    
    
    37,009Amortization of fair value inventory step-up
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,521Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,868Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,380
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,831Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (29,203
    )Capital expenditures
    
    $
    1,030
    
    
    $
    723
    
    
    $
    
    
    
    $
    1,753Depreciation
    
    $
    1,511
    
    
    $
    963
    
    
    $
    787
    
    
    $
    3,261
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39 Week Period Ended July 30, 2005 (Predecessor)
 Aerospace
    
    
    Industrial
    
    
    Corporate
    
    
    ConsolidatedNet revenues
    
    $
    112,748
    
    
    $
    40,647
    
    
    $
    
    
    
    $
    153,395Operating profit (loss)
    
    
    28,444
    
    
    
    3,993
    
    
    
    (2,643
    )
    
    
    29,794Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,560Income from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,234Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,908Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,327Capital expenditures
    
    $
    1,999
    
    
    $
    1,146
    
    
    $
    
    
    
    $
    3,145Depreciation
    
    $
    1,486
    
    
    $
    913
    
    
    $
    274
    
    
    $
    2,673Compensation expense recognized in
connection with employee stock
ownership plan
    
    $
    3,497
    
    
    $
    283
    
    
    $
    
    
    
    $
    3,780
 10.
    
    OTHER COMPREHENSIVE (LOSS) INCOMEThe following table presents other comprehensive (loss) income, which includes foreign currency
translation adjustments (in thousands):
 39 week periods ended
    
    
    13 week periods endedJuly 29,
    
    
    July 30,
    
    
    July 29,
    
    
    July 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Predecessor)
    
    
    
    
    
    
    (Predecessor)Net (loss) income
    
    $
    (15,239
    )
    
    $
    6,044
    
    
    $
    3,748
    
    
    $
    2,132Other comprehensive (loss) income:Foreign currency translation
adjustment
    
    
    (6
    )
    
    
    (39
    )
    
    
    10
    
    
    
    (78
    )Other comprehensive (loss)
income before tax
    
    
    (6
    )
    
    
    (39
    )
    
    
    10
    
    
    
    (78
    )Income tax benefit related to other
comprehensive (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive (loss) income,
net of tax
    
    
    (6
    )
    
    
    (39
    )
    
    
    10
    
    
    
    (78
    )Comprehensive (loss) income
    
    $
    (15,245
    )
    
    $
    6,005
    
    
    $
    3,758
    
    
    $
    2,054
 11.
    
    NEW ACCOUNTING PRONOUNCEMENTSIn December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 123(R), Share Based Payment, which requires all
share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their fair values. The Company will adopt the provisions
of this statement for the Companys fiscal year beginning October 29, 2006 using the modified
prospective method. Management has not determined the effect the adoption of this statement
will have on Argo-Techs consolidated financial position or results of operations.In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset
Retirementsan interpretation of SFAS No. 143 (FIN 47). FIN 47 clarifies that uncertainty
about
 11




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the timing and (or) method of settlement of a conditional asset retirement obligation
should be factored into the measurement of the liability when sufficient information exists to
make a reasonable estimate of the fair value of the obligation. The provisions of this
interpretation are effective for the Companys fiscal year ending October 28, 2006. Management
has not determined the impact, if any, that this interpretation will have on Argo-Techs
consolidated financial position or results of operations.In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
 an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for
uncertain income tax positions accounted for in accordance with SFAS No. 109. The
interpretation stipulates recognition and measurement criteria in addition to classification
and interim period accounting and significantly expanded disclosure provisions for uncertain
tax positions that are expected to be taken in a companys tax return. FIN 48 is effective for
fiscal years beginning after December 15, 2006. Management has not yet determined the impact of
the adoption of FIN 48 on its consolidated financial position or results of operations.
 12




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##### Table of Contents



ITEM 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
   Export Sales
  Critical Accounting Policies
  Fluctuations of Operating Results; Limitation of Quarterly Comparisons
  13




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Results of Operations for the 13 Week Period Ended July 29, 2006 Compared With the 13 Week
Period Ended July 30, 2005
 Revenues
  Gross Profit
  Operating Expenses
  14




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##### Table of Contents



Income from Operations
  Interest Expense
  Income Taxes
  Net Income
  Results of Operations for the 39 Week Period Ended July 29, 2006 Compared With the 39 Week
Period Ended July 30, 2005
 Revenues
  Gross Profit
  15




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Operating Expenses
  Income (Loss) from Operations
  Interest Expense
  Income Taxes
  16




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Net Income (Loss)
  Liquidity and Capital Resources
      2011 and2006 (1)
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalTerm loan facility
    
    $
    0.2
    
    
    $
    0.7
    
    
    $
    3.6
    
    
    $
    14.0
    
    
    $
    
    
    
    $
    
    
    
    $
    18.59-1/4% senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250.0
    
    
    
    250.0Operating leases
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.5Other long-term
obligations (2)
    
    
    0.6
    
    
    
    26.3
    
    
    
    26.3
    
    
    
    25.7
    
    
    
    25.0
    
    
    
    37.4
    
    
    
    141.3Total contractual
cash obligations
    
    $
    0.9
    
    
    $
    27.2
    
    
    $
    30.0
    
    
    $
    39.8
    
    
    $
    25.0
    
    
    $
    287.4
    
    
    $
    410.3
 
 (1)
    
     Contractual obligations for the remainder of fiscal 2006.(2)
    
     Represents interest payments on the senior notes and the term loans, estimated funding
for retirement and other post-employment benefits and other long-term commitments. 17




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Certain Factors That May Affect Future Results
  
    
    changes and/or cyclicality in the aerospace industry;
    
    governmental regulation and oversight in the aerospace industry;
    
    levels of competition in the aerospace industry;
    
    the impact of terrorism and war on airline travel and the airline industry;
    
    our ability to meet future capital requirements;
    
    loss of a significant customer;
    
    risks associated with fixed-price contracts;
    
    costs associated with product liability and warranty claims;
    
    risks associated with our international operations;
    
    changes in environmental or other applicable governmental regulations;
    
    reduction in military and/or defense spending and risks associated with
government contracts;
    
    changes in our relationship with our employees;
    
    availability of essential materials used in our products;
    
    risks associated with protection of our intellectual property rights;
    
    the other factors described in Argo-Techs annual report on Form 10-K for the
year ended October 29, 2005; and
    
    other unforeseen circumstances.
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ITEM 3.
 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4.
 CONTROLS AND PROCEDURES
    19




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PART II  OTHER INFORMATION
 
   
   
   
   
   
   
  (a)
    
    Exhibit 31.1  Certification by Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(b)
    
    Exhibit 31.2  Certification by Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(c)
    
    Exhibit 32  Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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##### Table of Contents



SIGNATURE
  Date: September 12, 2006
    
    
    
    ARGO-TECH CORPORATIONBy:
    
    /s/
    
    John S. GloverJohn S. GloverVice President and Chief Financial Officer(Duly Authorized Officer)By:
    
    /s/
    
    Paul A. SkladPaul A. SkladController(Principal Accounting Officer)
 21