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UNITED STATES

FORM 10-K

Commission file no. 333-38223

ARGO-TECH CORPORATION

23555 Euclid Avenue, Cleveland, Ohio 44117

(216) 692-6000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Form 10-K.     Yes þ     No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes o     No þ

      No established published trading market exists for the registrant’s common stock, par value $0.01 per share. As of January 15, 2005, 1 share of the registrant’s common stock was outstanding, and is held by AT Holdings Corporation.

DOCUMENTS INCORPORATED BY REFERENCE

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INDEX TO ANNUAL REPORT

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ARGO-TECH CORPORATION

PART I

      Argo-Tech Corporation, a Delaware corporation (“we”, “us” or “Argo-Tech”), was formed in 1986 to acquire the Power Accessories Division of TRW. Today, we are a global designer, manufacturer and servicer of high performance fuel flow devices and systems. We operate in two business segments, Aerospace and Industrial. The Aerospace segment consists of aircraft engine fuel pumps and other engine products, commercial and military products and systems found on a plane’s airframe, and aerial refueling pumps and related equipment. The Industrial segment includes ground fueling nozzles, hoses and other ground fueling components, an automated fuel management system, cryogenic pumps and nozzles and the operation of a business park in Cleveland, Ohio. Financial information by business segment can be found in Note 13 to the audited consolidated financial statements included elsewhere in this report.

      Our principal executive offices are located at 23555 Euclid Avenue, Cleveland, Ohio 44117, and our telephone number is (216) 692-6000. We also maintain a website at www.argo-tech.com. However, information on our website is not a part of this report.

Aerospace segment

      We are the world’s leading supplier of main engine fuel pumps to the commercial aircraft industry and a leading supplier of main engine fuel pumps to the military. We are also a leading supplier of commercial and military airframe products and systems, which are used to transfer fuel to an engine and control fuel between tanks. In addition, we are a leading global supplier of military aerial refueling pumps and related equipment.

      During the long life cycle of aircraft containing our products, we earn significant aftermarket revenue from repair and overhaul sales. On average, a commercial aircraft will experience five to six main engine fuel pump overhauls over its 30-year life span.

Industrial segment

      We are the leading supplier of ground fueling components and automated fuel management systems, which are used at airports throughout the world. In addition, we design and supply in-tank pumps and nozzles for liquid natural gas (“LNG”), liquid propane gas and other cryogenic fluids, as well as specialty military and industrial hose for aerospace, chemical transfer and marine applications. We also supply products to the industrial gas turbine industry.

      We operate an aerospace certified materials laboratory and a business park in Cleveland, Ohio, where we maintain our headquarters and primary production facilities.

Products

     Aerospace

      Main engine fuel pumps. Main engine fuel pumps are precision mechanical pumps, mounted to the aircraft’s engines, that maintain the flow of fuel to the engine at a precise rate and pressure. These pumps consist of an aluminum body which is cast by certified subcontractors. We then machine the casting, manufacture a variety of other components, assemble the final product and perform rigorous testing at our Cleveland facility.

      Our main engine fuel pumps are used across the full spectrum of commercial engine designs. We are the sole source supplier of main engine fuel pumps for all CFM56 series engines, the most popular series of large commercial aircraft engines used today and for the Boeing 777 aircraft. Our products also include large regional and business jet applications, including the main engine fuel pumps used on all regional jets manufactured by Bombardier and Embraer having seating capacity for at least 70 passengers. These jets include the high-end Bombardier Global Express, the Gulfstream Aerospace Corp. V aircraft and the Boeing 717. We supply main

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      Airframe products. Fuel pumps and other airframe fuel transfer control systems in the airframe are necessary to transfer fuel to the engine systems and to maintain aircraft balance by shifting fuel between tanks. We design and manufacture complete fuel systems and fuel subsystems such as refuel/ defuel, engine feed and fuel level control. We also design and manufacture a wide variety of fuel components consisting of boost and transfer fuel pumps, fuel flow proportioners and airframe valves, adapters, nozzles and caps. These systems and components are used for fueling, storing, transferring and engine feed functions during ground and flight operations. Argo-Tech is the fuel system supplier for the Eclipse 500, a new generation of business jet manufactured by Eclipse Aviation Corporation, as well as for the Adam A700, the Javelin and the Northrop-Grumman X47 Joint Unmanned Combat Aircraft System.

      Aerial refueling systems. Aerial refueling systems permit military aerial tankers to refuel fighter, bomber and other military aircraft while in flight. We are a major supplier of components for aerial refueling systems, which are produced only for military applications. Aerial refueling components we manufacture, including pumps, hose and couplers, are installed in the refueling systems of 100% of U.S. designed military aircraft equipped with aerial refueling capability.

      Aftermarket sales. Aftermarket sales comprise the largest component of our aerospace business, and consist primarily of spare parts sales and overhaul, retrofit, repair and technical support to commercial and military customers worldwide.

      Ground fueling products. Ground fueling systems are used to transfer fuel from underground fuel tanks and ground fueling trucks to the fuel receptacle of the aircraft. We manufacture various ground fueling hydrants, couplers and nozzles for commercial and military airports around the world, as well as specialty industrial hose. We also manufacture digital pressure control valves. These valves incorporate a microprocessor to enhance fuel flow control and allow for accurate measurement of pressure at the delivery receptacle thereby optimizing the fuel flow and pressure.

      We also sell fuel management systems, including the Argo-Tech-developed AVR2000 Aviation Refueling Management System, which is used at nearly 200 sites worldwide. It is the leading hardware and software system for customized fuel utilization management, data collection and billing in the industry.

      Cryogenic products. We design and supply high performance submerged motor pumps for cryogenic gases and fluids. We have also introduced LNG nozzles and receptacles for use on alternative fuel vehicles. We believe these products position us favorably in this emerging market.

      Industrial gas turbine products. As a result of our established record of performance with our Aerospace engine products, we have gained entry into the Industrial & Marine Gas Turbine, or “IMGT,” market. Our current IMGT products include designed to specification lubrication and scavenge pumps, liquid fuel delivery pumps and precision liquid fuel flow dividers. We offer complete aftermarket support for these products, including technical support, supply of spare parts, product repair and overhaul and on-site service.

Customers

      Original Equipment Manufacturer (referred to as “OEM” in this report) customers for our aerospace products include the world’s major aircraft engine manufacturers: General Electric, Honeywell, Pratt & Whitney (including Pratt & Whitney Canada), Rolls-Royce (including Rolls-Royce Allison and Rolls-Royce Deutschland), SNECMA and Williams International Corp. Customers for our airframe pumps and valves include Airbus, Boeing, Cessna, Gulfstream, Lockheed Martin, Northrop Grumman, Raytheon and various U.S. government

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      Most commercial ground fueling products are sold to customers through independent distributors, while military ground fueling products are usually sold directly to the government. Customers in the domestic markets include a variety of airlines, airports and various fixed base operators. In international markets, our ground fueling products are purchased by several oil companies, including ExxonMobil, Royal Dutch Shell and several state-run oil companies and airport authorities.

      Our cryogenic pump customer base includes shipping vessels operated by domestic and foreign carriers, liquefied gas ship loading terminal owners, liquefied gas receiving terminals, petrochemical plants, Samsung and other large architectural and engineering companies worldwide, electric power generation companies and alternate fuel vehicle fleet operators.

      Our industrial gas turbine products are utilized in three market sectors: power generation, mechanical drive and marine. Major customers for these products include Rolls Royce Energy Systems, Rolls Royce Power Engineering, Siemens Westinghouse and Statoil.

Sales and marketing

      OEM customers in both the Aerospace and Industrial segments select suppliers primarily on the basis of custom design capabilities, product quality and performance, prompt delivery, price and aftermarket support. We believe that we meet these requirements in a timely, responsive manner which has resulted in an extensive installed base of components and substantial aftermarket revenues.

      We market and sell our OEM and aftermarket products through a combination of direct marketing, internal sales personnel, independent manufacturing representatives and U.S. and international distributors. We supply main engine fuel pump spare parts directly to domestic airlines and third-party overhaul shops, while foreign customers that purchase main engine fuel pump products receive their spare parts through Upsilon International Corporation, which operates a distribution facility in Torrance, California.

      For the fiscal years ended October 30, 2004, October 25, 2003 and October 26, 2002, customer revenues from the United States were $107.1 million, $94.0 million and $86.7 million, respectively, and foreign customer revenues were $80.2 million, $66.7 million and $68.6 million, respectively.

Suppliers and raw materials

      We use a certified supplier program that demands a commitment to 100% quality and on-time deliveries. Supplier performance is measured by our comprehensive supplier rating system. Currently, our supplier base includes approximately 800 companies.

      Our largest supplier expenditure relates to outsourcing of component machining. We have derived significant savings by taking advantage of advances in machining technologies and by coordinating engineering with our suppliers. Agreements are in place with our key long term suppliers that provide most of the outside supplier component machining.

      Aluminum castings used in the manufacture of main engine fuel pumps are the highest volume raw material supplied to us. Key long term certified suppliers provide the majority of these castings. We also buy quantities of steel bar stock to produce gears and shafts from multiple producers. However, CPM-10V, a powdered metal

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Manufacturing, repair and overhaul

      Argo-Tech has a total of five manufacturing, repair and overhaul facilities:

	•	a 150-acre business park in Cleveland, Ohio;
	•	a 9.2-acre facility in Costa Mesa, California;
	•	an 85,000 square-foot facility in Tucson, Arizona;
	•	a 6,000 square-foot facility in Inglewood, California; and
	•	a 3,500 square-foot facility in Henley-on-Thames, England.

      In the Aerospace segment, main engine fuel pumps and some models of our airframe fuel pumps are manufactured, repaired and overhauled at our Cleveland facility. The remaining Aerospace segment products are manufactured, repaired and overhauled in our Costa Mesa facility. The Inglewood facility is exclusively an overhaul and repair shop for our main engine fuel pump products.

      In the Industrial segment, all products are manufactured in the Costa Mesa facility with three exceptions: (i) industrial hose products which are manufactured in our Tucson facility; (ii) the AVR 2000 airport fuel management system, which is produced at our Henley-on-Thames facility; and (iii) industrial and marine gas turbine products, which are manufactured at our Cleveland facility. Repair and overhaul of Industrial segment products is conducted in our Cleveland and Costa Mesa facilities.

      Most of the products at our Cleveland facility are manufactured internally. This facility houses our senior management and the majority of our Aerospace engineering and design staff, sales team and production and main distribution facilities. This facility is organized around manufacturing “cells” that produce bearings, gears, housings and shafts for assembly. By creating cells, the necessary people, machinery, materials and methods are focused on distinct products and processes. Each manufacturing cell includes members from each of the Manufacturing, Quality, Production Control, Statistical Process Control and Manufacturing Engineering disciplines. Our design engineering staff is also organized into cells which correspond to and complement the manufacturing cells. The manufacturing and engineering cells work together to achieve the timely design and production of our products.

      In contrast to our substantial reliance on internal manufacturing of products in our Cleveland facility, we outsource most of the machining and pre-assembly production of products in our Costa Mesa facility to external providers. However, we do maintain internal equipment capacity at our Costa Mesa facility, which enables us to produce small quantity, quick turn components to reduce setup/breakdown times on smaller jobs and for the manufacturing control of key parts. We have lowered the cost of products manufactured in Costa Mesa by outsourcing capital intensive tasks such as casting and machining, while completing final assembly and testing on the premises.

      All of the industrial hose products manufactured at our Tucson facility are processed internally. The software relating to the AVR 2000 airport fuel management system is written internally at our Henley-on-Thames facility, while the hardware relating to the system is sourced from two third parties.

      In addition to our manufacturing facilities, we maintain sophisticated testing facilities at our Cleveland and Costa Mesa locations. These testing facilities allow for simulation of typical conditions and stresses that will be experienced by our products during use. Our products are also thoroughly tested for design compliance, performance and durability. To facilitate quality control and product development, we maintain a sophisticated chemistry and metallurgy laboratory at our Cleveland facility.

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      We have obtained and preserved our quality management system certifications. ISO-9001:2000 and AS 9100 Revision A certifications are recognized by most of our customers, as well as by the Federal Aviation Administration and U.S. government supply organizations.

Intellectual property

      We rely on intellectual property, including a number of trade secrets, trademarks and patented and unpatented technology, to operate our business. We will continue to dedicate technical resources toward the further development of proprietary products and processes to maintain our competitive position in the markets we serve. Although we consider our intellectual property rights to be valuable, we do not believe that the loss of any such rights would have a material adverse effect on us.

Government regulations

      The commercial aerospace industry is highly regulated by the Federal Aviation Administration in the United States, the Joint Aviation Authorities in Europe and the Civil Aviation Authority in England, while the military aerospace industry is governed by military quality (MIL or ISO-9000) specifications. We are required to be certified by one or more of these entities and, in some cases, by individual OEMs, in order to engineer and service parts and components used in specific aircraft models. We must also satisfy the requirements of our customers, including OEMs and airlines, that are subject to Federal Aviation Administration regulations, and provide these customers with products that comply with the government regulations applicable to commercial flight operations. In addition, the Federal Aviation Administration requires that various maintenance routines be performed on aircraft components. We currently satisfy or exceed these maintenance standards in our repair and overhaul activities. We maintain repair stations approved by the Federal Aviation Administration at our Cleveland, Costa Mesa and Inglewood facilities.

      Our aviation and metals operations are also subject to a variety of worker and community safety laws. The Occupational Safety and Health Act of 1970, known as “OSHA,” mandates general requirements for safe workplaces for all employees. In addition, OSHA provides special procedures and measures for the handling of certain hazardous and toxic substances. We believe that our operations are in material compliance with OSHA’s health and safety requirements.

Competition

      Competition among aerospace component manufacturers is based on engineered solutions, product quality, customer support, pricing and on-time delivery. Competitors in the Aerospace segment are primarily divisions of large corporations. Virtually all of Argo-Tech’s competitors have significantly greater financial resources than does Argo-Tech. Our primary competitors in the aerospace segment include Cobham, Goodrich, Hamilton Sundstrand, Intertechnique and Parker-Hannifin.

      In the Industrial segment, competition varies by product, but is typically based on engineered solutions, price, product quality and on-time delivery. Our primary competitors in the industrial segment include Ebara, Nikkiso and Meggitt.

Backlog

      We believe that unfilled orders are not necessarily an indicator of future shipment levels of our products. As customers demand shorter lead times and flexibility in delivery schedules, they have also revised their purchasing practices. As a result, notification of firm orders may occur only within 30 to 60 days of delivery. In addition, due to the government funding process, backlog can vary on a period-to-period basis depending on the stage of completion of the contracts represented by such backlog. Therefore, we believe that the backlog of unfilled orders at fiscal year end cannot be relied upon as a valid indication of our sales or profitability in a subsequent year.

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Development expense trends

      In connection with new aerospace product development programs, we incur significant research and development expenditures to design, test and qualify main engine fuel pumps and accessories for engine and airframe OEMs. Research and development expenditures are expensed as incurred, and such expenses are expected to continue at historical levels. Research and development expenses were $11.9 million, $9.5 million and $11.7 million for the fiscal years ended October 30, 2004, October 25, 2003 and October 26, 2002, respectively.

Employees

      As of October 30, 2004, we had 690 full-time employees of which 409 are salaried and 281 are hourly. The 173 hourly employees located at our Cleveland facility are represented by the UAW under a collective bargaining agreement that will expire on March 31, 2008.

Environmental matters

      Our operations are subject to a number of national, state and local environmental laws in the United States and other countries, and to regulation by government agencies, including the U.S. Environmental Protection Agency. Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transportation and disposal of pollutants and hazardous substances. These authorities may require response actions to hazardous substances which may be or have been released to the environment, and require us to obtain and maintain permits in connection with our operations. This extensive regulatory framework imposes significant compliance burdens and risks.

      Although we seek to maintain our operations and facilities in compliance with applicable environmental laws, there can be no assurance that we have no violations, or that changes in such laws, regulations or interpretations of such laws or in the nature of our operations will not require us to make significant additional expenditures to ensure compliance in the future. We have not made or incurred in fiscal year 2004, and do not believe that we will have to make or incur in fiscal year 2005, material capital expenditures for our operations to comply with environmental laws or regulations of which we are aware or material costs for environmental remediation.

      Our Cleveland facility is currently the subject of environmental remediation activities. The cost of these activities is the responsibility of TRW, now a subsidiary of Northrop Grumman, under the terms of the purchase agreement by which we acquired TRW’s Power Accessories Division in 1986. Remediation has been underway since 1989 and is expected to continue for the foreseeable future. TRW has funded all necessary remediation costs and we expect that TRW will continue to do so in the future. We estimate that TRW has spent in excess of $15 million for environmental remediation at our Cleveland facility.

      The 1986 TRW purchase agreement also requires TRW, for a period of 20 years from the date of the agreement, to indemnify us for:

	•	costs associated with third party environmental claims relating to environmental conditions arising from activities conducted by TRW during its operation of its Power Accessories Division that have not been conducted by us after our purchase of the assets of the division in 1986; and
	•	a portion of the costs associated with third party environmental claims arising from activities conducted by TRW and us, the portion of the costs to be paid by each party being determined based on the length of time each party conducted the activity giving rise to the claim.

      We have received no third party environmental claims relating to the Cleveland facility.

      In March 1986, a two thousand gallon underground storage tank was removed from our Costa Mesa facility. Petroleum hydrocarbon soil contamination was discovered during the removal of the tank, prompting the Orange County Health Care Agency to require a site assessment. Subsequent site investigations revealed that groundwater underlying the site is impacted by trichloroethene and perchloroethylene. In 1990, the Regional Water Quality Control Board issued a Cleanup and Abatement Order to J.C. Carter Company, Inc., or “Carter”(which we

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      We own and operate a 150-acre business park in Cleveland, Ohio, which includes 1.8 million square feet of engineering, manufacturing and office space. We occupy approximately 475,000 square feet for our main engine fuel pump, airframe fuel pump and industrial gas turbine businesses and lease almost one million square feet of the facility to third parties. We believe that this facility’s machinery, plants and offices are in satisfactory operating condition. We also believe that it has sufficient capacity to meet our foreseeable future needs without significant additional capital expenditures. The Cleveland facility is utilized by both of our segments, Aerospace and Industrial.

      We also own a 9.2-acre facility in Costa Mesa, California, which encompasses 165,000 covered square feet. We manufacture certain of our Aerospace segment’s airframe and aerial refueling products and accessories, as well as our Industrial segment’s ground fueling and cryogenic products equipment at this facility. We believe that our Costa Mesa facility has sufficient capacity to permit further growth in those product lines without significant additional capital expenditures.

      Our leased facility in Tucson, Arizona encompasses 85,000 square feet and includes available space for expansion. We manufacture specialty industrial hose for our Aerospace and Industrial segments, including hoses for chemical transfer, marine applications, ground fueling and aerial refueling at this facility. We believe the Tucson facility has sufficient capital and capacity to permit further growth in those product lines without significant additional capital expenditures.

      Our Inglewood, California leased facility occupies approximately 6,000 square feet. Its primary purpose is to repair and overhaul main engine fuel pumps owned by airline customers. Inglewood’s assets include test stands for testing fuel pumps after overhaul and a small machine shop for simple rework of pump components. The Inglewood facility is utilized by our Aerospace segment.

      A leased facility at Henley-on-Thames, England occupies approximately 3,500 square feet. Its primary activities are the design, development and support of aviation refueling management systems for our Industrial segment.

      We are not presently involved in any material legal proceedings. However, during the ordinary course of business, we are, from time to time, threatened with, or may become a party to, legal actions and other proceedings.

      No matter was submitted to a vote of our sole stockholder, AT Holdings Corporation, during the fourth quarter of fiscal year 2004.

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PART II

      We are a wholly owned subsidiary of AT Holdings Corporation, which we refer to as “AT Holdings.” Neither AT Holdings nor Argo-Tech have any equity securities that trade in an established public trading market or otherwise.

      We paid cash dividends totaling $57.6 million to AT Holdings in fiscal year 2004. Our ability to pay any dividends to AT Holdings in the future is limited by the terms of the indenture pursuant to which our 9 1/4% Senior Notes due 2011 were issued and our existing credit facility. The indenture and credit facility contain certain optional and mandatory redemption features and other financial covenants, including restrictions on our ability to incur additional indebtedness, pay dividends or make other restricted payments to AT Holdings. However, the indenture permits certain payments to AT Holdings for, among other things, corporate administrative expenses not to exceed $500,000 per fiscal year and specified tax obligations.

      We have no equity compensation plans under which our securities are authorized for issuance.

Selected Consolidated Financial Data

      The following table sets forth Argo-Tech’s selected historical consolidated financial data for the fiscal years 2000 through 2004, which have been derived from Argo-Tech’s audited consolidated financial statements for those periods. Argo-Tech’s fiscal year ends on the last Saturday in October and is identified according to the calendar year in which it ends. For example, the fiscal year ended October 30, 2004 is referred to as “fiscal 2004.” The 2004 fiscal year consisted of a 53-week period. All of the other fiscal years presented consisted of 52-week periods. The information presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this report.

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(1)	Redeemable ESOP Stock has been excluded from stockholder’s equity/(deficiency) due to the ability of holders of the ESOP Stock to “put,” subject to certain restrictions, the shares of ESOP Stock to Argo-Tech at the most recent valuation of our independent consulting firm.
(2)	Includes a dividend of $57.6 million to AT Holdings made in the third quarter of fiscal 2004 from the proceeds of the $250.0 million of senior notes.
(3)	“EBITDA” is net income plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA further adjusted to exclude ESOP compensation expense, amortization of purchase accounting, non-cash compensation costs, write-off of inventory acquisition step-up, debt extinguishment expenses and a fixed asset write-off. EBITDA and Adjusted EBITDA do not represent, and should not be considered as alternatives to, net income or cash flows provided by operating activities, as determined by Generally Accepted Accounting Principles (“GAAP”), and our calculations thereof may not be comparable to that reported by other companies. EBITDA and Adjusted EBITDA are included in this report because they are a basis upon which we assess our liquidity position and because certain covenants in our borrowing arrangements are tied to similar measures. We also believe that it is widely accepted that EBITDA and Adjusted EBITDA provide useful information regarding a company’s ability to service and/or incur indebtedness. This belief is based on our negotiations with our lenders who have indicated that the amount of indebtedness we will be permitted to incur will be based, in part, on our EBITDA and our Adjusted EBITDA. EBITDA and Adjusted EBITDA do not take into account our working capital requirements, debt service requirements, tax payments, capital expenditures and other commitments and, accordingly, are not necessarily indicative of amounts that may be available for discretionary use. We believe that inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors.

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      The following table reconciles Adjusted EBITDA to EBITDA and net income:

      The following table reconciles Adjusted EBITDA to net cash flow from operating activities:

(4)	Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net revenues.
(5)	For purposes of determining the ratio of earnings available to cover fixed charges, earnings consist of income before taxes plus fixed charges. Fixed charges consist of interest on indebtedness including amortization of

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	deferred financing fees and fixed loan guarantee fees. No ratio is presented for the fiscal year ended October 30, 2004 as the earnings for that period were $3,960,000 less than the fixed charges.

      The following discussion should be read in conjunction with our financial statements and the notes to those statements and other financial information included elsewhere in this report. This report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those indicated in the forward-looking statements. See “— Risk factors” below for more information regarding forward-looking statements.

Overview

      We are a global designer, manufacturer and servicer of high performance fuel flow devices and systems. We operate in two business segments, Aerospace and Industrial. The Aerospace segment consists of aircraft engine fuel pumps and other engine products, commercial and military products and systems found on a plane’s airframe, and aerial refueling pumps and related equipment. The Industrial segment includes ground fueling nozzles, hoses and other ground fueling components, an automated fuel management system, cryogenic pumps and nozzles and the operation of a business park in Cleveland, Ohio. Financial information by business segment can be found in Note 13 to the audited consolidated financial statements included elsewhere in this report.

      In fiscal 2004, the Aerospace segment generated approximately 74% of our net revenues and the Industrial segment generated approximately 26% of our net revenues. Approximately 63% of the aerospace revenues were derived from sales to commercial OEMs and commercial aftermarket customers, while military revenues represented approximately 37% of our aerospace revenues. Approximately 58% of the industrial revenues were derived from sales to commercial customers, while military customers represented approximately 42% of our industrial revenues.

      In fiscal 2004, sales to commercial OEMs represented approximately 26% of our commercial aerospace revenues. As is customary in the commercial aerospace industry, we incur substantial costs, for which we are generally not reimbursed, to design, test and qualify original equipment for OEMs. Once qualified, OEM products generally are sold at or below cost of production in anticipation of receiving orders for commercial spare parts and overhaul activities at significantly higher margins. Most of our OEM sales are on a sole source basis; therefore, in most cases, we are the only OEM certified provider of these parts in the aftermarket. Over the approximately 30 year life cycle of an aircraft program, commercial spare parts and overhaul activities for products we manufacture often generate six or more times the aggregate net revenues of the OEM program. We have over 50 years of experience in most of our product lines which allows us to benefit from a large and growing installed base.

      In contrast to the practice in the commercial aerospace industry, we are generally reimbursed for the design, test and qualification costs of equipment used on military aircraft. Military original equipment shipments generally are sold at cost plus a reasonable profit. Due to lower aircraft utilization, military aftermarket sales are less significant than commercial aftermarket sales. Aftermarket margins for military products are at a level higher than original equipment shipments.

      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 audited 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.

ESOP

      We established our Employee Stock Ownership Plan (ESOP) in 1994 by purchasing 420,000 shares of common stock of our parent company, AT Holdings, with the proceeds of a $16.8 million ten-year loan funded through a credit facility that was refinanced on July 18, 1997. The term of the loan ended on April 28, 2004, at which time the remaining amount of the loan was repaid in full, releasing the final 21,000 shares of stock which

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Refinancing

      On June 23, 2004, we completed a refinancing of substantially all of our outstanding indebtedness, including the capital structure of our parent, AT Holdings, by:

	•	purchasing through a tender offer our outstanding $195.0 million aggregate principal amount of senior subordinated notes due 2007, together with a premium of approximately $5.5 million and accrued and unpaid interest of approximately $4.0 million, and redeeming any of these notes that were not tendered;
	•	redeeming all of AT Holdings’ outstanding Series A Cumulative Exchangeable Redeemable Preferred Stock (referred to in this report as the “Holdings Preferred Stock”) at 100% of the $30.0 million liquidation preference, together with accrued and unpaid dividends of $27.6 million; and
	•	restating $19.8 million of term loans outstanding under our then-existing senior credit facility, together with accrued and unpaid interest of $0.1 million.

      The above transactions and the payment of associated fees and expenses are collectively referred to in this report as the “Refinancing.”

Recent developments

      Following the September 11, 2001 terrorist attacks, the commercial aerospace industry experienced a significant downturn in both the OEM and aftermarket sectors. The major commercial airlines reduced their flying capacity by retiring older aircraft, parking underutilized aircraft and canceling or delaying the delivery of new aircraft. Additionally, many airlines deferred maintenance which reduced the need for aftermarket services. During 2004, commercial OEM and aftermarket revenues increased 11.4% and 15.3%, respectively. It is anticipated that commercial OEM and aftermarket revenues will increase modestly in 2005. Military revenues increased 13.4% in 2004 due to demand for aftermarket products and services as a result of military activity in the Middle East and due to increased production on several OEM programs. We anticipate military revenues will remain steady in 2005. We anticipate increased Industrial revenues in 2005 primarily due to increased demand for our ground fueling and cryogenic products.

      Our fiscal year 2005 revenues and cash flows are forecasted to be higher than fiscal year 2004 due to continued improvement in the commercial aerospace industry and improved performance in our cryogenic products business, partially offset by increased development expenses related to new programs. Management believes that we will be able to maintain our liquidity and remain in compliance with our debt covenants.

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      Our parent, AT Holdings, owns an asset tracking technology that is currently in development. Argo-Tech provides the funding for the development of this technology through dividends to AT Holdings. During fiscal year 2004, we dividended $0.9 million to AT Holdings for development expenses. We estimate that the dividend to fund this technology in fiscal year 2005 will be approximately $3.0 million. This dividend is within the restrictions contained in both our indenture and credit facility governing our ability to pay dividends or make other restricted payments to our parent.

      This section includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. There can be no assurances that our current outlook will prove to be correct.

Critical accounting policies

      Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which enable the fair presentation of our financial position and results of operations. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of its consolidated financial statements.

      Revenue Recognition. Revenues are generally recognized when goods are shipped or services provided, at which time title and risk of loss passes to the customer. Substantially all sales are made pursuant to firm, fixed-price purchase orders received from customers. We have executed long-term supply agreements with certain of our OEM customers. These agreements require Argo-Tech to supply all the amounts ordered by the customers during the term of the agreements (generally three to five years) at specified prices. Under certain of these agreements, we expect to incur losses. Provisions for estimating losses on these contracts are made in the period in which such losses are identified based on cost and pricing information and estimated future shipment quantities provided by the customer. The cumulative effect of revisions to estimated losses on contracts is recorded in the accounting period in which the amounts become known and can be reasonably estimated. Such revisions could occur at any time there are changes to estimated future revenues or costs. Revenue from certain fixed price engineering contracts for which costs can be reliably estimated are recognized based on milestone billings. Variations in actual labor performance, changes to estimated profitability and final contract settlements may result in revisions to the cost estimates. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the period of revision. We record estimated reductions to revenue for volume-based incentives based on expected customer activity for the applicable period. Revisions for volume-based incentives are recorded in the accounting period in which such estimates can be reasonably determined.

      Valuation of Accounts Receivable and Allowance for Doubtful Accounts. We evaluate the collectibility of our trade receivables based on a combination of factors. We regularly analyze our customer accounts, and when we become aware of a specific customer’s inability to meet its financial obligation to us, such as in the case of bankruptcy filings, we immediately record a bad debt expense and reduce the related receivable to the amount we reasonably believe is collectible. We estimate the allowance for doubtful accounts based on the aging of the accounts receivable, customer creditworthiness and historical experience. Our estimate of the allowance amounts includes amounts for specifically identified losses and a general amount for estimated losses. If circumstances change or economic conditions deteriorate, our estimates of the recoverability of receivables could be further adjusted.

      Valuation of Inventories. Our inventory purchases and commitments are made in order to build inventory to meet future shipment schedules based on forecasted demand for our products. Inventories are stated at the lower of cost or market, with cost being determined on the first-in, first-out, or FIFO, method. Periodically, we perform a detailed assessment of inventory, which includes a review of, among other factors, historical sales activity, future demand requirements, product life cycle and development plans and quality issues. Based on this

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      Valuation of Goodwill and Intangible Assets. Goodwill and identified intangible assets are recorded at fair value on the date of acquisition. Intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed or exchanged, regardless of our intent to do so. Intangible assets, such as goodwill, that have an indefinite useful life are not amortized. All other intangible assets are amortized over their estimated useful lives. We review goodwill and purchased intangible assets for impairment annually, or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Our asset impairment review assesses the fair value of the assets based on the future cash flows the assets are expected to generate. This approach uses our estimates of future market growth, forecasted revenue and costs and appropriate discount rates. When impairment is identified, the carrying amount of the asset is reduced to its estimated fair value.

      Pensions and post-retirement plan assumptions. We have two noncontributory defined benefit pension plans for qualifying hourly and salary employees and a postretirement health care benefit plan for qualifying hourly retirees and their dependents. We account for our defined benefit plans in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 87, No. 106 and No. 132, which requires amounts recognized in the financial statements to be determined on an actuarial basis. We are required to make assumptions regarding such variables as the expected long-term rate of return on assets and the discount rate, which are used to determine service cost and interest cost to arrive at pension income or expense for the year. We are also required to make assumptions for the long-term health care cost trend rates for our post-retirement benefit plan. The estimated cost and benefits of the noncontributory defined benefit pension plans and the postretirement health care plan are determined by an independent actuary using various actuarial assumptions, including, but not limited to, assumptions on demographic factors such as retirement, mortality and turnover. We have analyzed the rate of return on assets used and determined that this rate is reasonable based on the plans’ historical performance relative to the overall markets. The discount rate assumption is consistent with prior years and is based on changes in the prevailing market long-term interest rates at the measurement date. If any of our assumptions were to change, our benefit plan expenses would also change. An increase/decrease in the discount rate, assuming no other changes in the estimates, reduces/increases the amount of the accumulated benefit obligation and the related required expense. A detailed discussion of Argo-Tech’s pensions and post-retirement plans can be found in Note 10 to the audited consolidated financial statements included elsewhere in this report.

Results of operations

      The following table presents, for the periods indicated, selected items in our consolidated statements of income as a percentage of net revenues.

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Export sales

      Substantially all of our export sales are denominated in U.S. dollars. Export sales for fiscal years 2004, 2003, and 2002 were $80.2 million, $66.7 million and $68.6 million, respectively. Sales to Europe for fiscal years 2004, 2003 and 2002 were $32.8 million, $30.4 million and $28.0 million, respectively. Export sales to all other regions, individually less than 10%, were $47.4 million, $36.3 million and $40.6 million for fiscal years 2004, 2003 and 2002, respectively.

Fiscal 2004 compared with fiscal 2003

      Net revenues for fiscal 2004 increased $26.6 million, or 16.6%, to $187.3 million from $160.7 million for fiscal 2003. This change was due to an increase in aerospace revenues of $16.9 million and a $9.7 million increase in industrial revenues. The increase in aerospace revenues was attributable to an increase of $10.9 million in commercial revenues and an increase of $6.0 million in military revenues. Commercial OEM revenues increased $2.3 million, or 11.4% to $22.5 million and commercial aftermarket revenues increased $8.6 million, or 15.3% to $64.9 million. Commercial OEM revenues increased primarily as a result of an increase in pump requirements from our customers. Commercial aftermarket revenues increased primarily due to increases in repair and overhaul services and demand for spare parts. Military revenues increased primarily due to revenue related to increased sales on a variety of OEM and aftermarket main engine fuel pumps and components as well as an increase in revenues related to airframe components on various OEM and OEM development programs, partially offset by a decrease in aftermarket revenues related to airframe components. Industrial revenues increased $9.7 million, primarily attributable to an increase of $8.0 million in ground fueling revenues, of which $6.2 million was attributable to military sales, and $1.9 million in cryogenic pump revenues, offset by a slight decrease in business park revenues. Approximately 42.8% of fiscal 2004 net revenues were attributable to export sales to foreign customers compared to 41.5% in fiscal 2003. Substantially all such sales were denominated in U.S. dollars.

      Aerospace gross profit for fiscal 2004 increased $9.8 million, or 18.3%, to $63.3 million from $53.5 million for fiscal 2003. Gross margin increased to 45.8% for fiscal 2004 from 44.2% for fiscal 2003. The increase in gross profit and gross margin is primarily attributable to an increase in higher margin commercial aerospace aftermarket revenues, an increase in military revenues and an increase in operating efficiencies at both our Cleveland and Costa Mesa facilities, partially offset by an increase in non-cash costs associated with ESOP compensation. Industrial gross profit for fiscal 2004 increased $2.2 million or 16.9% to $15.2 million from $13.0 million in fiscal 2003. The increase in gross profit was attributable to an increase in ground fueling revenues partially offset by a decrease in cryogenic gross profit, attributable to an increase in manufacturing costs. Gross margin decreased to 30.9% in fiscal 2004 from 33.0% in fiscal 2003 primarily attributable to an increase in manufacturing costs for our cryogenic pump products partially offset by a favorable sales mix of ground fueling products.

      Operating expenses for fiscal 2004 increased $7.1 million, or 18.0%, to $46.5 million from $39.4 million in fiscal 2003. The increase is primarily due to an increase in selling, general and administrative expenses of $4.7 million and research and development expenses of $2.4 million. The increase in selling, general and administrative expenses of $4.7 million was related to increased non-cash costs associated with ESOP compensation, increased incentive compensation and increased marketing costs, including commissions and royalties. The increase in research and development expenses is primarily due to a decrease in customer paid development expenses. Operating expenses as a percentage of revenues increased to 24.8% for fiscal 2004 from 24.5% in fiscal 2003.

      Income from operations for fiscal 2004 increased $4.8 million, or 17.9%, to $31.6 million from $26.8 million in fiscal 2003. As a percent of revenues, income from operations for fiscal 2004 increased to 16.9% from 16.7% in fiscal 2003. These increases were primarily due to increased sales of higher margin commercial aerospace aftermarket revenues, an increase in military revenues and an increase in ground fueling revenues, partially offset by an increase in cryogenic pump manufacturing costs and higher operating expenses.

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      Interest expense for fiscal 2004 increased $1.5 million, or 7.1%, to $22.7 million from $21.2 million in fiscal 2003 due to a higher outstanding borrowing and interest rate on our $250.0 million 9 1/4% senior notes issued in June 2004 which was partially offset by lower outstanding borrowing and interest rates on our credit facility.

      Debt extinguishment expense of $12.9 million was incurred in fiscal 2004. The expense is for the write-off of $6.1 million of deferred financing fees associated with the refinancing of our 8 5/8% senior subordinated notes and the amendment and restatement of our credit agreement, $5.5 million for the tender, consent and redemption fees associated with the refinancing of the 8 5/8% senior subordinated notes and recognition of the remaining accretion of $1.3 million on a portion of the 8 5/8% senior subordinated notes that were issued at a discount.

      The income tax benefit was $3.5 million for fiscal 2004 as compared to a provision of $1.6 million in fiscal 2003. This decrease in income tax is primarily due to a decrease in pre-tax income and a lower estimated effective tax rate in the current year due to the debt extinguishment expenses. A reconciliation of the income tax provision can be found in Note 11 to the audited consolidated financial statements included elsewhere in this report.

      Net income for fiscal 2004 decreased $5.0 million to a loss of $0.5 million from income of $4.5 million in fiscal 2003, primarily due to the revenue and expense factors discussed above.

Fiscal 2003 compared with fiscal 2002

      Net revenues for fiscal 2003 increased $5.4 million, or 3.5%, to $160.7 million from $155.3 million for fiscal 2002. This change was due to an increase in aerospace revenues of $0.3 million and a $5.1 million increase in industrial revenues. The increase in aerospace revenues was attributable to an increase of $9.8 million in military revenues offset by a decrease of $9.5 million in commercial revenues. Commercial OEM revenues decreased $0.6 million, or 2.9%, to $20.2 million and commercial aftermarket revenues decreased $8.9 million, or 13.7%, to $56.3 million. Commercial OEM revenues declined as a result of lower overall engine requirements from our customers in response to decreasing aircraft build rates. Commercial aftermarket revenues were lower primarily due to a decrease in the demand for spare part sales and repair and overhaul activities. The lower demand for aftermarket sales and activities is a result of the reduced flying by commercial airlines, the availability of spare parts taken from parked aircraft and deferral of maintenance. Military revenues increased primarily due to revenue related to increased sales on a variety of OEM and aftermarket aerial refueling components, main engine fuel pump and airframe components, as well as an increase in revenues related to airframe components on various OEM development programs. Industrial revenues increased $5.1 million, primarily due to an increase in ground fueling and cryogenic pump revenues offset by a decrease in industrial gas turbine revenues. Approximately 41.5% of fiscal 2003 net revenues were attributable to export sales to foreign customers compared to 44.2% in fiscal 2002. Substantially all such sales were denominated in U.S. dollars.

      Aerospace gross profit for fiscal 2003 decreased $1.4 million, or 2.6%, to $53.5 million from $54.9 million for fiscal 2002. Gross margin decreased to 44.2% for fiscal 2003 from 45.4% for fiscal 2002. The decrease in gross profit and gross margin is primarily attributable to a decrease in higher margin commercial aerospace aftermarket revenues and an increase in non-cash ESOP compensation expense partially offset by an increase in military revenues and a change in classification and allocation of $2.1 million of certain costs to selling, general and administrative expenses. Industrial gross profit for fiscal 2003 increased $0.6 million, or 4.8%, to $13.0 million from $12.4 million in fiscal 2002. The increase in gross profit was attributable to an increase in ground fueling revenues partially offset by an increase in utility costs associated with the operation of our business park and a decrease in industrial gas turbine revenues. Gross margin, which decreased to 33.0% in fiscal 2003 from 36.1% in fiscal 2002, was lower primarily due to the increase in utility costs, an unfavorable sales mix of ground fueling products and an increase in cryogenic pump manufacturing costs.

      Operating expenses for fiscal 2003 increased $0.6 million, or 1.5%, to $39.4 million from $38.8 million in fiscal 2002. Selling, general and administrative expenses increased $3.0 million due to a $2.1 million change in classification and allocation of certain costs from cost of sales, an increase in marketing costs, bid and proposal costs, legal costs, severance costs associated with a reduction in the salaried workforce and an increase in non-cash ESOP compensation expense offset by the non-recurrence of a non-cash expense of $0.6 million related to a salaried employee early retirement program in fiscal 2002. Research and development expenses decreased $2.2 million due to an increase in customer paid development expenses, which are included in cost of revenues,

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      Income from operations for fiscal 2003 decreased $1.0 million, or 3.6%, to $26.8 million from $27.8 million in fiscal 2002. As a percent of revenues, income from operations for fiscal 2003 decreased to 16.7% from 17.9% in fiscal 2002. These decreases were primarily due to the decrease in higher margin commercial aerospace aftermarket revenues partially offset by an increase in military and industrial revenues, an increase in utility costs associated with the operation of our business park and an increase in selling, general and administrative expenses offset by a decrease in research and development expenses discussed above.

      Interest expense for fiscal 2003 decreased $0.2 million, or 0.9%, to $21.2 million from $21.4 million for fiscal 2002 due to lower outstanding borrowings which were partially offset by an increase in interest rates on the term loans under our credit facility and increased amortization of deferred financing fees resulting from the amendment of that credit facility in January 2003.

      The income tax provision for fiscal 2003 increased $1.0 million to $1.6 million from $0.6 million in fiscal 2002. A reconciliation of the income tax provision can be found in Note 11 to the audited consolidated financial statements included elsewhere in this report.

      Net income for fiscal 2003 decreased $1.4 million to $4.5 million from $5.9 million for fiscal 2002 primarily due to the revenue and expense factors discussed above.

Liquidity and capital resources

      We are a holding company that receives all of our operating income from our subsidiaries. As a result, our primary source of liquidity for conducting business activities and servicing our indebtedness has been cash flows from our subsidiaries’ operating activities.

      Argo-Tech has a $15.0 million five-year Term Loan Facility and has available a five-year $30.0 million Revolving Credit Facility. The unused balance of the Revolving Credit Facility ($24.2 million at October 30, 2004 after reduction of $5.8 million for letters of credit) is subject to a .50% commitment fee. The Credit Facility and Term Loan mature on June 23, 2009. The Credit Facility is collateralized by substantially all of the tangible assets of Argo-Tech (including the capital stock of AT Holdings). The Credit Facility contains a number of covenants that, among other things, limit Argo-Tech’s ability to incur additional indebtedness, pay dividends, prepay subordinated indebtedness, dispose of certain assets, create liens, make capital expenditures, make certain investments or acquisitions and otherwise restrict corporate activities. The Credit Facility contains no restrictions on the ability of Argo-Tech’s subsidiaries to make distributions to Argo-Tech. The Credit Facility also requires Argo-Tech to comply with certain financial ratios and tests, under which Argo-Tech is required to achieve certain financial and operating results. Argo-Tech was in compliance with the covenants at October 30, 2004. Interest was 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 adjusted EBITDA. The interest rate for fiscal year 2004 ranged from 1.00% to 2.50% plus ABR or 2.50% to 3.50% plus LIBOR.

      At October 25, 2003, Argo-Tech had a $115.0 million principal amount of Term Loans ($25.9 million remaining balance) and a seven-year $20.0 million Revolving Credit Facility. The Credit Facility and Term Loans were to mature on October 28, 2005. On June 23, 2004, Argo-Tech amended and restated the Credit Facility and Term Loans into a $15.0 million five-year Term Loan Facility and a five-year $30.0 million Revolving Credit Facility.

      At October 30, 2004, Argo-Tech had outstanding $250.0 million 9 1/4% Senior Notes due 2011. Interest on the Notes is payable semiannually on June 1 and December 1 of each year. The Senior Notes will mature on June 1, 2011. The Senior Notes are unsecured and rank equally with all our existing and future senior debt and rank senior to all our existing and future subordinated debt. The Senior Notes will be effectively subordinated to all our existing and future secured debt to the extent of the value of the assets securing such debt. The Senior Notes are subject to certain limitations and restrictions which Argo-Tech has not exceeded at October 30, 2004.

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      At October 25, 2003, Argo-Tech had outstanding $195.0 million 8 5/8% Senior Subordinated Notes due 2007 (the “Notes”). The accreted value of the Notes was $193.5 million. Interest on the Notes is payable semiannually on April 1 and October 1 of each year. In June 2004, Argo-Tech purchased, through a tender offer and redemption, its outstanding $195.0 million 8 5/8% Notes due 2007, together with a premium of $5.5 million and accrued and unpaid interest of $4.0 million.

      As a result of the Refinancing, long-term debt at October 30, 2004 consisted of $14.8 million principal amount of term loans and $250.0 million principal amount of senior notes. Scheduled payments of $6.2 million were made on the term loans in fiscal 2004. At October 30, 2004, there were no outstanding borrowings on the revolving credit facility, and we had available, after $5.8 million in letters of credit, $24.2 million under our revolving credit facility. In January 2005, we amended our Credit Facility to increase the available letters of credit from $7.5 million to $12.0 million and to allow additional banks within the lending group to issue letters of credit.

      Cash and cash equivalents for fiscal year 2004 increased $1.8 million to $15.9 million. The increase was primarily due to cash provided by operating activities, partially offset by our issuance of $250.0 million of 9 1/4% senior notes due 2011, amendment and restatement of our senior credit facility and related transactions and capital expenditures. The proceeds from the offering of the senior notes, together with cash on hand and borrowings of $15.0 million under our amended and restated senior credit facility, were used to: purchase, through a tender offer and a redemption, all of our outstanding $195.0 million 8 5/8% senior subordinated notes due 2007; dividend to AT Holdings $57.6 million for the redemption of all of AT Holdings’ outstanding Series A Cumulative Exchangeable Redeemable Preferred Stock at 100% of its $30.0 million liquidation preference, together with accrued and unpaid dividends of $27.6 million; repay $19.8 million of term loans outstanding under our existing senior credit facility; and pay transaction fees and expenses of approximately $7.5 million. Prior to the amendment and restatement of our senior credit facility, $6.0 million of scheduled payments had been made.

      Cash Flows from Operating Activities. Cash provided by operating activities for fiscal 2004 increased $17.5 million, to $33.2 million, from $15.7 million in fiscal 2003 primarily as a result of an increase in income from operations and a net favorable change in operating assets and liabilities. Cash provided by operating activities for fiscal 2003 decreased $15.0 million to $15.7 million primarily as a result of an increase in receivables and inventory. Cash provided by operating activities for fiscal 2002 increased $12.6 million to $30.7 million primarily as a result of a decrease in receivables and inventory.

      Cash Used In Investing Activities. Net cash used in investing activities was $3.1 million, $1.9 million and $1.8 million for fiscal years 2004, 2003 and 2002, respectively, for expenditures for the purchase of property, plant and equipment. These expenditures reflect a normal amount of capital investments necessary to maintain our efficiency and manufacturing capabilities.

      Cash Flows from Financing Activities. Cash used in financing activities for fiscal 2004 was $28.4 million, primarily as a result of the issuance of $250.0 million of senior notes, offset by our Refinancing transactions. These transactions included (i) the purchase of $195 million of our 8 5/8% senior subordinated notes, (ii) a dividend to AT Holdings, our parent company, for the redemption of all of AT Holdings’ outstanding Series A Cumulative Exchangeable Redeemable Preferred Stock, (iii) scheduled repayments and the restatement of our credit facility and (iv) payment of transaction fees and expenses. Cash used in financing activities for fiscal 2003 was $17.4 million, which was primarily used to make scheduled repayments of long-term debt and payment of financing related fees associated with amending our credit agreement. Cash used in financing activities for fiscal 2002 was $19.2 million, which was primarily used to make scheduled repayments of long-term debt and for AT Holdings’ repurchase of common stock from various former employees.

      Capital Expenditures. Our capital expenditures for fiscal years 2004, 2003 and 2002 totaled $3.1 million, $1.9 million and $1.8 million, respectively, which were related in each year to maintaining existing facilities and equipment and systems to support current operating activities. For fiscal 2005, we estimate that capital expenditures will total $4.2 million. The majority of these projects will be for continued maintenance of facilities and equipment in support of our current operating activities. Capital expenditures are financed with cash generated from operations. We currently have no material commitments for capital expenditures.

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      Our expected future contractual cash obligations and other commercial commitments for the next several fiscal years, as of October 30, 2004, are as follows (in millions):

(1)	Represents interest payments on the senior notes and estimated funding for retirement and other post-employment benefits. Interest on the term loan facility is excluded as it is not fixed and determinable.

      We believe that cash flows from operations will provide adequate funds for our working capital needs, planned capital expenditures, ESOP repurchase obligations and near term debt service requirements. Our ability to fund our operations, make planned capital expenditures, repurchase ESOP shares and make scheduled payments on our indebtedness depends on our future operating performance and cash flows. We may need to refinance all or a portion of our indebtedness on or before maturity. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. These items are subject to prevailing conditions and to financial, business, and other factors, some of which are beyond our control.

New accounting standards

      In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revised FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities.” FIN 46 requires existing, unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among the parties involved. Argo-Tech is not associated with variable interest entities; therefore, the adoption of this statement did not have any effect on Argo-Tech’s consolidated financial position or results of operations.

      In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act was enacted, which introduced a Medicare prescription drug benefit and a federal subsidy to sponsors of retiree health-care plans that provide a benefit at least actuarially equivalent to the Medicare benefit. In accordance with FASB Staff Position (“FSP”) Statement of Financial Accounting Standards (“SFAS”) No. 106-2, Argo-Tech adopted the provisions of this statement effective with the period beginning August 1, 2004. The accumulated postretirement benefit obligation and net periodic postretirement benefit cost reflect the provisions of the Act. The adoption of this statement did not have a material effect on Argo-Tech’s consolidated financial position or results of operations.

      In December 2003, the FASB issued a revision to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which expands the disclosure requirements regarding plan assets and benefit obligations for Argo-Tech’s two noncontributory defined benefit pension plans and its postretirement benefit plan. Argo-Tech adopted the provisions of this statement effective with the period beginning February 1, 2004 (see Note 10 in the audited consolidated financial statements included elsewhere in this report).

      In November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” which is an amendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, “Inventory Pricing.” This statement clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges. The provisions of this statement become effective for Argo-Tech’s fiscal year beginning October 30, 2005. Management has not determined the impact, if any, that this statement will have on Argo-Tech’s consolidated financial statements.

      In December 2004, the FASB issued SFAS No. 123(R), “Share Based Payment,” which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial

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Risk Factors

      From time to time, information we provide, statements by our employees or information included in our 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 our future performance, operating results, financial position and liquidity, are subject to a variety of factors that could materially affect results, including those described below. Any forward-looking statements made in this report or otherwise, speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

      You should carefully consider each of the risks and uncertainties we describe below and all of the other information in this report. The risks and uncertainties we describe below are not the only ones we face. Additional risks and uncertainties of which we are currently unaware or that we currently believe to be immaterial may also adversely affect our business.

Risks associated with our business and operations

      The majority of our fiscal 2004 gross profit and operating income was derived from sales of products to engine and aircraft manufacturers, airlines and other customers in the aerospace industry. Any downturn in the airline industry could decrease demand for our products and negatively impact our financial condition. The commercial aerospace industry is cyclical and has historically been subject to fluctuations due to general economic conditions. On September 11, 2001, terrorists attacked the United States with four hijacked U.S. commercial aircraft. In the aftermath of the terrorist attacks, passenger traffic on commercial flights was significantly lower than prior to the attacks. Most commercial airlines reduced their operating schedules, lowered fares and implemented cost reduction initiatives. These factors, combined with the impact of the war in Iraq, the outbreak of the Severe Acute Respiratory Syndrome (SARS) virus in 2003, as well as increases in fuel costs and a weak U.S. economy, have resulted in large and continuing financial losses in the airline industry. Major carriers around the world have filed for bankruptcy and others are considering bankruptcy protection. Financial losses and reduced schedules in the airline industry have resulted, and will continue to result, in reduced orders and delivery delays of new commercial aircraft, parking and retirement of older aircraft (eliminating those aircraft from maintenance needs and making spare parts from those aircraft available) and delays in airlines’ purchases of aftermarket parts and service as maintenance is deferred. Any recovery in the aerospace industry will be dependent on continuing improvement in the U.S. economy and the occurrence of any event similar to those described above could delay these recoveries. We refer you to our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the impact that these factors have had on our results of operations.

      The aerospace industry is highly regulated in the United States and in other countries. We must be certified or accepted by the Federal Aviation Administration, the United States Department of Defense and similar agencies in foreign countries and by individual OEMs in order to sell and service parts and components used in specific aircraft models. If material certifications, authorizations or approvals are revoked or suspended, our

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      The aerospace industry is a highly competitive global industry which has experienced significant consolidation in recent years. This consolidation has caused, and its continuation will amplify, the pricing pressures discussed in the risk factor below regarding the concentration of customers for our products. We may not achieve the cost savings and operational improvements expected from our business strategy or if those savings and improvements are not sufficient to allow us to compete favorably in the future with other larger, consolidated competitors. Competition among aerospace component manufacturers is based on engineered solutions, product quality, customer support, pricing and on-time delivery. In the industrial segment, competition varies by product, but is typically based on engineered solutions, price, product quality and on-time delivery. We may not be able to compete with our competitors, which are typically divisions of large corporations that have significantly greater financial resources than we do. In addition, some suppliers have obtained, and continue to obtain, Parts Manufacturing Authority or “PMA,” from the Federal Aviation Administration to manufacture and sell various Argo-Tech components in the aerospace aftermarket, which has increased the level of competition in this significant portion of our business. While we have attempted to respond to this competition, a significant increase in PMA certifications for our products would further increase this competitive effect.

      In securing new business, we are typically required to expend significant amounts of capital for engineering, research and development, tooling and other costs. Generally, we seek to recoup these costs through pricing and aftermarket revenues over time, but we may be unsuccessful due to competitive pressures and other market constraints, or due to the terms of our contracts. Although we believe that we will be able to fund these expenditures through cash flow from operations and borrowings under our amended senior credit facility, we cannot assure you that we will have adequate funds to make all the necessary capital and research and development expenditures or that the amount of future expenditures will not be materially in excess of our anticipated expenditures. If we are unable to make necessary capital and research and development expenditures or to continue our research and development activities, our business and our competitive position will suffer.

      In addition, there are a limited number of commercial main engine fuel pump platforms launched each year. Because these programs result in long-term supply contracts and generate significant aftermarket revenues during the long lifetime of the program, it is very important to our business and future profitability that we are named the main engine fuel pump supplier on some of these programs. If the programs we are selected on are not successful, or if actual orders are less than our estimates, our business and competitive position could suffer.

      Because of the importance of a few large customers and the high degree of concentration of OEMs in the aerospace industry, our business is exposed to a high degree of risk related to customer concentration. In fiscal 2004, our ten largest customers accounted for approximately 51.2% of our net revenues. A loss of significant business from any of these customers would be harmful to our cash flows, thereby making it more difficult for us to make payments on the notes.

      Due to the relatively small number of customers in the aerospace industry, customers, particularly OEM customers, are often able to influence prices and other terms of sale for certain of our products. There is substantial and continuing pressure from OEMs in the aerospace industry to reduce costs, including costs

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      We have entered into multi-year, fixed-price contracts with some of our OEM customers, where we have agreed to supply our products for a fixed price and, accordingly, realize all the benefit or detriment resulting from any decreases or increases in the costs of making these products. Sometimes we accept a fixed-price contract for a product that we have not yet produced, which increases the risks of delays or costs in excess of our estimates. The costs that we incur in fulfilling these contracts may vary substantially from our original estimates.

      Most of our contracts do not permit us to recover for increases in input prices, taxes or labor costs, although some contracts provide for renegotiation to address certain material adverse changes. Any increase in those costs could increase the cost of operating our business.

      Approximately 38% of our sales in fiscal 2004 were related to U.S. designed military products. In addition, foreign military sales are affected by U.S. government regulations, regulations by the purchasing foreign government and political uncertainties in the U.S. and abroad. The U.S. defense budget has fluctuated in recent years. Although we have experienced increased military sales as a result of military actions in Afghanistan and Iraq, there can be no assurance that the U.S. defense budget will not decline or that sales of defense-related items to foreign governments will continue at present levels. A significant disruption or decline in U.S. military expenditures in the future would materially decrease our military sales. In addition, we are subject to risks particular to contracts with the U.S. government. These risks include the ability of the U.S. government to unilaterally:

	•	suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;
	•	terminate existing contracts, with or without cause, at any time;
	•	reduce the value of existing contracts;
	•	audit our contract-related costs and fees, including allocated indirect costs; and
	•	control or potentially prohibit the export of our products, technology or other data.

      Any unexpected termination of a significant government contract would reduce our sales and profitability.

      Approximately 42.8% of our fiscal 2004 net revenue was derived from shipments to destinations outside of the United States and Canada. Sales outside of the United States and Canada are subject to other various risks, including:

	•	governmental embargoes or foreign trade restrictions on antidumping duties;
	•	changes in U.S. and foreign governmental regulations;
	•	tariffs;
	•	other trade barriers;

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	•	the potential for nationalization of enterprises;
	•	economic downturns;
	•	inflation;
	•	environmental laws and regulations;
	•	political, economic and social instability; and
	•	difficulties in receivable collections and dependence on foreign personnel and foreign unions.

      We are significantly leveraged. As of October 30, 2004, our total indebtedness was $264.8 million. Our substantial degree of leverage could have important consequences for you, including the following:

	•	it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes;
	•	a substantial portion of our cash flows from operations will be dedicated to payments on our indebtedness and will not be available for other purposes, including our operations, capital expenditures and future business opportunities;
	•	the debt service requirements of our other indebtedness could make it more difficult for us to satisfy our financial obligations, including those related to the notes;
	•	certain of our borrowings, including borrowings under our credit facility, are, and are expected to continue to be, at variable rates of interest, exposing us to the risk of increased interest rates;
	•	it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt; and
	•	it may increase our vulnerability to a downturn in general economic conditions or in our business, and may make us unable to carry out capital spending and research and development activities that are important to our growth.

      Our success depends upon the efforts, abilities, experience and expertise of the executive officers of our senior management team. Our senior executives have extensive experience in our industry and with our business products and customers. There is competition for these kinds of personnel in the aerospace industry. The failure to retain and/or recruit additional or substitute senior executives and/or other key employees could have a material adverse effect on us.

      Because we maintain a relatively small inventory of finished goods, and because the aerospace industry operates on relatively long production lead times, an interruption of our work force due to strikes, work stoppages, shortages of appropriately skilled production and professional workers or other interruption materially could impact our operations.

      Our operations are highly dependent on an educated and trained workforce. All of our hourly employees at our Cleveland facility are represented by the United Auto Workers, or UAW, union under a collective bargaining agreement that will expire on March 31, 2008.

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      Many OEMs and their suppliers also have unionized work forces. Work stoppages or slowdowns experienced by OEMs or their suppliers could result in slowdowns or closures of assembly plants where our products are included in assembled aircraft. Any interruption experienced by OEMs or their suppliers could result in cancellations, reductions or delays in orders by our customers, which could reduce demand for our products and reduce our sales.

      We rely on one supplier for CPM-10V, a powdered metal used in the manufacture of certain pump components. If we were unable to obtain adequate supplies of CPM-10V at commercially reasonable prices, our operations could be interrupted. Increased costs associated with supplied materials or components could increase our costs of production and could reduce our profitability if we are unable to make corresponding increases in the prices of our products. We maintain a relatively small inventory of raw materials and component parts, and our business would suffer if supply is reduced or terminated by our suppliers. Although we believe that alternative suppliers, or alternate materials or components, could be identified, the lengthy and expensive Federal Aviation Administration and OEM certification process associated with aerospace products could prevent efficient replacement of a material or supplier.

      We believe that our success to date has been, and future results of operations will be, dependent in large part upon our ability to manufacture and deliver products promptly upon receipt of orders and to provide prompt and efficient service to our customers. As a result, any disruption of our day-to-day operations could have a material adverse effect on our business, customer relations and profitability. Our Cleveland, Ohio and Costa Mesa, California facilities are the primary production, research and marketing facilities for our products, and the Cleveland facility also serves as our corporate headquarters. A fire, flood, earthquake or other disaster or condition that damaged or destroyed either of those facilities could disable these functions which are critical to our business.

      Our business operations and facilities are subject to a number of federal, state, local and foreign laws and regulations that govern the discharge of pollutants and hazardous substances into the air and water as well as the handling, storage and disposal of such materials and other environmental matters. Compliance with such laws is a significant obligation for us at each of our facilities. We would be subject to serious consequences, including fines and other sanctions, and limitations on our operations due to changes to, or revocations of, the environmental permits applicable to our facilities if we fail to comply. Environmental laws and regulations where we operate have become increasingly strict, and may become more strict in the future. This could result in increased compliance costs and increased risk of fines and sanctions for violations.

      Under certain environmental laws, liability associated with investigation or remediation of hazardous substances can arise at a broad range of properties, including properties currently or formerly operated by an entity, as well as properties to which an entity sent hazardous substances or wastes for treatment, storage, or disposal. Costs and other obligations can arise from claims for toxic torts, natural resource and other damages, as well as the investigation and clean up of contamination at such properties. Under certain environmental laws, such liability may be imposed jointly and severally, so a party may be responsible for more than its proportionate share and may even be responsible for the entire liability at issue. The extent of any such liability can be difficult to predict.

      Our operations at some of our properties involve hazardous materials. Our Cleveland and Costa Mesa facilities are currently the subject of environmental remediation regarding contamination resulting from the operations of our predecessors. Those predecessors have indemnified us for substantially all remediation costs at each site. We cannot assure you, however, that those parties will continue to satisfy their indemnification obligations or that we would not be ultimately responsible at either or both of these sites for potentially

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      Our operations expose us to potential liabilities for personal injury or death as a result of the failure of an aircraft component that has been designed, manufactured or serviced by us, or the irregularity or failure of metal products we have processed or distributed. In an effort to improve operating margins, some customers have delayed the replacement of parts beyond our recommended lifetime, which may undermine aircraft safety and increase our risk of liability.

      We believe that our liability insurance is adequate to protect us from future product liability claims. However, we cannot assure you that we will not experience any material product liability losses in the future, that we will not incur significant costs to defend such claims, that our insurance coverage will be adequate if claims were to arise or that we would be able to maintain insurance coverage in the future at an acceptable cost. A successful claim brought against us in excess of our available insurance coverage may have a material adverse effect on our business.

      In the ordinary course of our business, contractual disputes over warranties can arise. In most cases, financial responsibility for warranty costs is contractually retained by our customer so long as the customers’ specifications are met, but we may nonetheless be subjected to requests for cost sharing or pricing adjustments as a part of our commercial relationship with the customer.

      Certain holders of common stock and warrants to purchase common stock of AT Holdings have “put” rights, or rights to require us or AT Holdings to repurchase their securities. Depending on the number of puts and the determined value of AT Holdings common stock at the time of the put, such obligations could from time to time have a material adverse effect on our cash flow and capital resources. There can be no assurance that we will have sufficient cash in the future to meet these obligations.

      Under the terms governing our Employee Stock Ownership Plan (“ESOP”), participants in the ESOP may put to us, subject to certain restrictions, shares of AT Holdings common stock received from the ESOP at their current value, as determined annually by an independent financial consulting firm (the “ESOP valuation”). Participants may put shares to us after their termination of employment and in specified instances after attaining age 55 with 10 or more years of participation in the ESOP (the “diversification option”). If we do not satisfy the repurchase obligation in cash, we are required to pay the balance of the repurchase price in the form of a promissory note that would be repayable in equal installments over 5 years. In fiscal 2002, 2003 and 2004, we were required to repurchase an aggregate of approximately $0.5 million, $0.3 million and $0.6 million, respectively, of redeemable ESOP stock, which we purchased using available cash. Beginning in 2004, the diversification option became available to eligible ESOP participants, and as a result, our repurchase obligations may increase. In addition, the valuation of AT Holdings common stock by the independent financial consulting firm generally corresponds to our financial performance. If our performance continues to improve and the value of AT Holdings common stock increases, the cost of our repurchase obligations will also increase. In fiscal 2005, we estimate our repurchase obligations could be between $3.5 million and $4.5 million. See “Item 11. Executive Compensation — Compensation pursuant to employee benefit plans — Employee Stock Ownership Plan.”

      Certain management and director stockholders of AT Holdings, including the executives named in the executive compensation table included elsewhere in this report and other AT Holdings stockholders, are party to the AT Holdings Stockholders’ Agreement dated December 17, 1998. Pursuant to the stockholders’ agreement and subject to certain limitations, such management and director stockholders have the right, upon termination of their employment or directorship, as the case may be, to put to AT Holdings all but not part of their shares of AT Holdings common stock for a purchase price equal to the greater of (i) the most recent ESOP valuation (as determined by an independent financial consulting firm) or (ii) the sale price of AT Holdings common stock in

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      J.P. Morgan Partners (SBIC), LLC holds immediately exercisable warrants to purchase 46,025 shares, or 7.0% of AT Holdings common stock. At any time on or after December 31, 2005, J.P. Morgan Partners (SBIC), LLC can require AT Holdings to redeem any or all of the warrants, in which case AT Holdings must make a cash payment for the value of each warrant redeemed. At October 30, 2004, the value of these warrants was approximately $5.3 million based on the most recent ESOP valuation of AT Holdings common stock by the independent financial consulting firm. The purchase price of the warrants could be higher, as J.P. Morgan Partners (SBIC), LLC is not required to accept the price determined in connection with the ESOP valuation by the independent financial consulting firm.

      One of our business strategies is to pursue targeted complementary product line or business acquisition opportunities. We intend to evaluate potential acquisitions and engage in discussions with acquisition candidates. We cannot assure you that suitable acquisition candidates will be identified and acquired in the future or that we will be able to accomplish our strategic objectives as a result of any acquisition. Our ability to finance acquisitions may be constrained by our high degree of leverage. Our amended credit facility and the terms of our senior notes issued in June 2004 may significantly limit our ability to make acquisitions and incur indebtedness in connection with the acquisitions. We cannot assure you that our acquisition strategies will be successfully received by customers or achieve their intended benefits. We will encounter various risks in acquiring other product lines or businesses, including the possible inability to integrate an acquired product line or business into our operations, diversion of management’s attention and unanticipated problems or liabilities, some or all of which could adversely affect us.

      Our success depends, in part, upon our ability to protect our proprietary technology and other intellectual property. We rely upon a combination of trade secrets, confidentiality policies, nondisclosure and other contractual arrangements and patent, copyright and trademark laws to protect our intellectual property rights. The steps we take in this regard may not be adequate to prevent or deter reverse engineering or infringement or other violation of our intellectual property, and we may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights. In addition, the laws of some countries may not protect and enforce our intellectual property rights to the same extent as the laws of the United States.

      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 October 30, 2004, Argo-Tech had fixed rate debt of $250.0 million at 9.25% and variable rate debt under our credit facility of $14.8 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 adjusted EBITDA. The variable rate is not to exceed ABR plus 2.50% or LIBOR plus 3.50%. 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.

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      The response to this item is submitted in a separate section of this report following the signature page.

      There were no changes in, or disagreements with, accountants on accounting and financial disclosure.

      (a) Disclosure controls and procedures.

      The term “disclosure controls and procedures” is defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934 (“Exchange Act”). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Argo-Tech’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of Argo-Tech’s disclosure controls and procedures as of a date within 90 days before the filing of this annual report (the “Evaluation Date”), and have concluded that, as of the Evaluation Date, such controls and procedures were effective at ensuring that required information will be disclosed in Argo-Tech’s reports filed under the Exchange Act.

      (b) Changes in internal controls.

      There were no significant changes in Argo-Tech’s internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.

      (c) Sarbanes-Oxley Act — Section 404 compliance.

      Section 404 of the Sarbanes-Oxley Act requires management to report on, and its independent auditors to attest to, Argo-Tech’s internal control over financial reporting beginning with the fiscal year ending October 29, 2005. Argo-Tech is actively continuing its ongoing internal process of documenting, testing and evaluating the effectiveness of its internal control over financial reporting utilizing outside assistance.

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PART III

      The following table sets forth certain information concerning our directors and executive officers. Directors serve until their successors are elected at each annual meeting. Officers hold office until their successors are elected and qualified.

      Michael S. Lipscomb has been Chairman, President & Chief Executive Officer since 1994. Mr. Lipscomb joined TRW’s corporate staff in February 1981 and was made Director of Operations for the Power Accessories Division in 1985. Mr. Lipscomb was named Vice President of Operations when Argo-Tech was formed in 1986, becoming President in 1990 and Chairman and Chief Executive Officer in 1994. Mr. Lipscomb has also served as a director of Argo-Tech and AT Holdings since 1990.

      Paul R. Keen is Executive Vice President, General Counsel and Secretary. Mr. Keen was named Vice President and General Counsel in 1987, became Secretary in December 1990 and was promoted to Executive Vice President in December 2003. Prior to 1987, he spent the majority of his career with TRW as Senior Counsel, Securities and Finance and as primary legal counsel to two operating groups. Mr. Keen joined the Board of Directors of Argo-Tech in April 1999. Mr. Keen served as a member of the Board of Directors of AT Holdings from September 2003 to September 2004.

      Frances S. St. Clair is Executive Vice President and Chief Financial Officer. Ms. St. Clair joined Argo-Tech in 1991 as Controller and was promoted to Vice President and Controller in November 1991. Ms. St. Clair was promoted to Chief Financial Officer in November 1992 and to Executive Vice President in December 2003. Ms. St. Clair received her C.P.A. certification in 1984. Ms. St. Clair joined the Board of Directors of Argo-Tech in April 1999. Ms. St. Clair served as a director of AT Holdings from September 2001 to September 2003 and rejoined in the Board in September 2004.

      Since 1999, Argo-Tech has not compensated its directors. AT Holdings pays its directors a quarterly fee of $3,000 plus $4,000 and reasonable out-of-pocket expenses for each board meeting attended. Fees paid to Mr. Lipscomb, Mr. Keen and Ms. St. Clair for service on the board of AT Holdings are included in the “Annual compensation” table below.

      Argo-Tech does not maintain committees of its board of directors. The board of directors of AT Holdings maintains an audit committee and a compensation committee.

      We have adopted a code of ethics for our senior financial officers that include the Chief Executive Officer, the Chief Financial Officer, and other members of Argo-Tech’s financial leadership team. A copy of the code of ethics is available without charge, by request to: General Counsel, Argo-Tech Corporation, 23555 Euclid Avenue, Cleveland OH 44117. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a provision of our code of ethics through filing a current report on Form 8-K for such events.

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      The following table sets forth, for the fiscal years 2004, 2003 and 2002, certain information about the compensation paid to or accrued by us for the Chief Executive Officer and each of our other executive officers (the “Named Executives”).

(1)	Other annual compensation did not exceed the lesser of $50,000 or 10% of salary plus bonus of any of the Named Executives in 2002, 2003 or 2004.
(2)	The amounts listed consist of the value of life insurance provided by us for the benefit of the Named Executives in excess of the value of life insurance provided by us for the benefit of all other salaried employees. For Mr. Lipscomb, the amounts listed also include $32,000 for fiscal year 2004, $27,000 for fiscal year 2003 and $22,000 for fiscal year 2002, paid as AT Holdings directors’ fees. For Mr. Keen, the amounts listed also include $25,000 for fiscal year 2004 and $7,000 for fiscal year 2003 paid as AT Holdings directors’ fees. For Ms. St. Clair, the amounts listed also include $7,000, $20,000 and $22,000 for fiscal years 2004, 2003 and 2002, respectively, paid as AT Holdings directors’ fees.

Management retention agreements

      Stay pay and severance agreements. We have entered into a stay pay and severance agreement with each of the Named Executives. Our Board of Directors believes that these agreements benefit us by securing the continued services of key management personnel and by enabling management to perform their duties and responsibilities without the distracting uncertainty generally associated with a change in control.

      The agreements provide that, if a change in control (as defined in the agreements) occurs and the executive remains employed by us on a full-time basis through the effective date of the change in control, the executive will receive a single lump sum “stay payment” equal to 25% of the sum of the highest annual base salary and the highest bonus amount received by the executive in the preceding five years.

      The agreements also provide that if an executive’s full-time employment is terminated without cause (as defined in the agreements), either before or after a change in control has occurred, or upon a voluntary termination of employment by an executive upon the reduction of his or her base salary by 5% or more, if the reduction is not a result of a company policy to reduce the salaries of a substantial number of officers or employees, or if the executive ceases to be employed in a position involving substantially the same level of responsibility or duties as performed by the executive on the date the agreement was executed (a “Qualifying Voluntary Termination”), the executive will receive a basic severance payment. The payment will consist of a single lump sum equal to the sum of the highest annual base salary and the highest bonus amount received by the executive in the preceding five years.

      Additional payments will be made to the executive in the event that a change in control has occurred and the executive’s employment is terminated without cause within the six-month period following the effective date of such change in control, or upon a Qualifying Voluntary Termination within that period. The executive will receive additional severance payments equal to the amount he or she would have received had employment continued, at the same intervals and at the same rate of base salary the executive was receiving during the month preceding termination, until the six-month anniversary of the effective date of the change in control. These additional

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      Each executive is entitled to several other benefits contained in the agreements, including:

	•	life, health, medical/hospital, dental, and vision insurance benefits for a period of 12 months in the event that an executive’s full-time employment is terminated without cause or upon a Qualifying Voluntary Termination, either before or after a change in control has occurred; and
	•	gross-up payments to cover any excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) upon any payment made to the executive under the agreements, subject to certain limitations.

      We have agreed to be solely responsible for any and all attorneys’ fees and related expenses incurred by the executive in the event that we fail to comply with our obligations under the agreements.

      Trust agreement. In connection with an additional stay pay agreement with Mr. Lipscomb, we entered into a trust agreement, which established an irrevocable grantor trust for the benefit of Mr. Lipscomb as the beneficiary. The stay pay agreement provides for payment of $315,600 on January 1, 2007, or earlier, upon Mr. Lipscomb’s voluntary or involuntary termination of full-time employment with us, with or without cause (as defined in the stay pay agreement).

      The assets to be held by the trust include the original deposit of principal and any other contributions made by us, at our option. These trust assets are to be disposed of by the trustee when certain conditions in Mr. Lipscomb’s stay pay agreement occur or when the trustee is directed by two officers of Argo-Tech, other than Mr. Lipscomb, to dispose of the assets.

      If the amount disbursed by the trustee exceeds the amount to which Mr. Lipscomb or his qualifying successor is entitled under the stay pay agreement, Mr. Lipscomb or his qualifying successor is entitled to retain such excess. The trust assets and any income earned on those assets remain at all times subject to the claims of our general creditors under state and federal law.

      The stay pay agreement also provides for the payment of attorneys’ fees if enforcement of the stay pay agreement becomes necessary, and contains certain restrictions on certain types of competitive activity by Mr. Lipscomb. The benefits provided by the trust and the stay pay agreement and the trust agreement are in addition to the benefits provided under Mr. Lipscomb’s Stay Pay and severance agreement described above and Mr. Lipscomb’s employment agreement described below.

      Employment agreements. We have also entered into employment agreements with Mr. Lipscomb and Mr. Keen, which also provide for the payments of severance benefits upon termination of employment without cause (as defined in the employment agreements). In the event of such a termination, Mr. Lipscomb will receive all salary and bonuses for a period of twelve months from the date of termination, in an amount equal to all salary and bonuses received during the twelve month period immediately preceding termination and a continuation of benefits during such period. Mr. Keen will receive, in the event of such a termination, a single lump sum payment equal to twenty-four months of his base salary, in an amount calculated from the base salary in effect for the full month immediately preceding the date of termination. Mr. Keen will receive life, health, medical/hospital, dental and vision insurance benefits for a period of twelve months following termination. Mr. Keen’s agreement also provides for the payment of attorneys’ fees if enforcement of the agreement becomes necessary, and contains restrictions on certain competitive activities by Mr. Keen.

      The benefits provided by these additional agreements are provided in addition to the benefits and payments provided under the severance stay pay and severance agreements and Mr. Lipscomb’s trust agreement.

Compensation pursuant to employee benefit plans

      Our Salaried Pension Plan was established effective November 1, 1986. Prior to July 1, 1994, our regular, permanent salaried employees were eligible to participate in this plan. Participation in the plan was closed to any

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      The normal monthly retirement benefit under the Salaried Pension Plan is 1.25% of a participant’s final average monthly compensation multiplied by the participant’s years of benefit service. Compensation earned after June 30, 1994, and service performed after June 30, 1994, are not taken into account in determining a participant’s benefit under the Salaried Pension Plan. Final average monthly compensation means the average monthly compensation (computed before withholdings, deductions for taxes or other purposes and salary reduction amounts under the Salaried Savings Plan (as defined and discussed below)) paid or payable to the participant for the five calendar years which produce the highest such average, determined as if the participant’s employment terminated on June 30, 1994 (or, if earlier, the date the participant’s employment actually terminated or the participant ceased to be within the class of employees eligible to participate in the Salaried Pension Plan). If a participant ceased to be within the class of employees eligible to participate or a participant’s employment terminated (or is deemed to have terminated) prior to July 1 of a calendar year, that calendar year is not taken into account for purposes of determining final average monthly compensation. A participant’s vested benefit cannot be less than the participant’s vested benefit under the Salaried Pension Plan, if any, as of October 31, 1989.

      The Code limits the maximum annual retirement benefit payable under the Salaried Pension Plan and the maximum amount of annual compensation that can be taken into account in calculating benefits under the Salaried Pension Plan.

      At retirement, based on benefits accrued as of June 30, 1994, the monthly retirement benefits payable to each of the individuals named in the “Annual compensation” table above are:

      The benefits shown above are in the form of a single life annuity commencing as of the first day of the month after the participant attains age 65. Benefits may commence at any time after age 55 if the participant had at least five years of service when the participant’s employment terminated. Actuarial reductions would apply for early commencement and for payment in the form of a joint and survivor annuity.

      The normal form of payment under the Salaried Pension Plan is a single life annuity. However, participants may elect payment of retirement benefits under several joint and survivor forms of payment, subject to the requirement that a married participant receive benefits in the form of a joint and survivor annuity with the spouse as contingent annuitant unless the spouse consents to the participant’s election of another form of payment, another contingent annuitant or both, as applicable.

      Our Employee Savings Plan for salaried employees (the “Salaried Savings Plan”) has been in place since 1987. Regular, permanent salaried employees who have completed at least 3 months of service are eligible to participate in the plan. All assets of the plan are held in trust. Participants may elect to have “tax-deferred” (401(k) compensation reduction) contributions made to the plan of up to 40% of their eligible compensation. Participants may also elect to have after-tax contributions made to the Plan of up to 20% of their eligible compensation. In addition, participants over the age of 50 are allowed to make catch-up contributions (up to $2,000 in 2003 and $3,000 in 2004). Employer matching contributions to the plan ceased on July 1, 1994. For periods before July 1, 1994, the Salaried Savings Plan provided for employer matching contributions as follows: Basic matching contributions of 25% of each participant’s tax-deferred contributions not in excess of 3% of compensation and discretionary additional matching contributions of a percentage (within the range of 0% and 125% established for each fiscal year (the “plan year”)) of each participant’s tax-deferred contributions not in

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      The Code limits the maximum annual contributions that can be made to the Salaried Savings Plan and the maximum amount of annual compensation that can be taken into account in calculating contributions to the Salaried Savings Plan. Contributions for a plan year on behalf of certain highly compensated individuals may also be limited to comply with the Code’s nondiscrimination requirements.

      Benefits are generally payable after a participant’s employment terminates. A participant who is an employee may, however, apply for an in-service distribution of all or a portion of the participant’s vested account balance after attainment of age 59 1/2 or in the event of a hardship (as defined in the Salaried Savings Plan). A participant may apply for an in-service distribution of after-tax contributions at any age and for any reason. A participant who is a “party in interest” may apply for a loan of up to 50% of the participant’s vested account balance (subject to a $50,000 maximum) under the Salaried Savings Plan.

      The ESOP was established in 1994 with the participation of Argo-Tech’s salaried employees at its Cleveland facility. GreatBanc Trust Company serves as the plan’s trustee, and holds all of its assets in trust.

      On May 17, 1994, the trustee purchased 420,000 shares of common stock of AT Holdings with the proceeds of a $16.8 million loan from us to the ESOP. The term of the loan ended on April 28, 2004 and the loan was repaid in full. The interest rate for the loan was fixed for the ten-year term at 7.16% per year. The purchase price for the AT Holdings common stock was $40 per share.

      The shares of AT Holdings common stock purchased by the ESOP with the proceeds of the loan are held in a suspense account and released to eligible participants on a pro rata basis as loan principal payments are made. Shares released from the plan for each plan year are allocated to each eligible participant’s account based on the ratio of each such participant’s eligible compensation to the total eligible compensation of all eligible participants. Forfeitures of the accounts of non-vested participants are reallocated among eligible participants in the same manner as shares of AT Holdings common stock released from the suspense account.

      For each of the plan years ended October 31, 2002 and October 31, 2003, 42,000 shares of AT Holdings common stock were released from the suspense account. In the plan year ending October 31, 2004, 21,000 shares of AT Holdings common stock were released. The loan was repaid in full in April 2004, and as a result, no shares of AT Holdings common stock remain in the suspense account for release in future plan years.

      We may, for any plan year, make additional discretionary contributions for the benefit of plan participants. These contributions may be made in cash, shares of qualifying employer securities or other property. Whether the ESOP will acquire additional shares of AT Holdings common stock or other qualifying employer securities in the future depends upon future business conditions. Such purchases, if made, would be funded through additional borrowings by the plan or additional contributions from us. The timing, amount and manner of future contributions to the plan will be affected by various factors, including prevailing regulatory policies, the requirements of applicable laws and regulations and market conditions. We contributed 21,000 shares of AT Holdings common stock to the plan in October 2004 and will contribute 42,000 shares in October 2005. All of these 63,000 shares have been repurchased by Argo-Tech from plan participants who exercised their put option rights under the plan. These rights are described below.

      Participants may elect to receive the shares of qualifying employer securities credited to their accounts after their termination of employment. After attaining age 55 with 10 or more years of participation in the ESOP, participants may also elect to receive a maximum of 50% of their vested shares over a six year period. Participants vest in their plan accounts 20% per year of service, and service prior to the effective date of the plan counts for this purpose. A participant can require us to purchase qualifying employer securities received from the

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      Voting rights on and decisions whether to tender or exchange shares of qualifying employer securities held in the ESOP are “passed through” to participants. Each participant is entitled to direct the plan’s trustee as to the voting of (1) shares of qualifying employer securities credited to the participant’s account and (2) a proportionate part of the unallocated shares of qualifying employer securities held in the suspense account and shares of qualifying employer securities allocated to participants’ accounts as to which no direction is received by the plan’s trustee. In the event of a tender or exchange offer for qualifying employer securities held in the plan, each participant is entitled to direct the plan’s Trustee whether to tender or exchange shares of qualifying employer securities held in the plan in a manner similar to the voting directions described above.

      Because the employer’s contributions to the ESOP are not fixed, benefits payable under the plan cannot be estimated.

      For the plan year ended October 31, 2004, the number of shares of AT Holdings common stock allocated under the ESOP to the accounts of the Named Executives were:

      GAAP requires that any third party borrowing by the ESOP be reflected as a liability on our statement of financial condition. Since the plan borrowed from us, the obligation is not treated as an asset of ours, but will be deducted from shares of stock held by the ESOP. If the plan purchases newly issued shares of AT Holdings common stock, total stockholders’ equity would neither increase nor decrease.

      The Internal Revenue Service has issued a determination letter that the plan is qualified under Section 401(a) of the Code and is an employee stock ownership plan under Section 4975(e)(7) thereof. Contributions to the plan and allocations to the accounts of eligible participants thereunder are subject to applicable limitations imposed under the Code. The plan is subject to the requirements of the Employee Retirement Income Security Act of 1974, as amended, known as “ERISA,” and the regulations thereunder.

      We maintain the ESOP Excess Benefit Plan, an unfunded plan that at all times will be deemed invested in AT Holdings common stock. This plan is for employees participating in the ESOP in respect of reduction to allocations to their accounts because of limitations under the Code applicable to tax-qualified plans. Benefits under this plan vest in the same manner as benefits under the ESOP and distributions from the plan will, subject to certain restrictions, be made in whole or fractional shares of AT Holdings common stock at the same time or times as benefits under the ESOP are distributable, or in the case of benefits with respect to qualifying employer securities subject to the put option under the ESOP, at the time the plan participant exercises (or is deemed to have exercised) a hypothetical “put option” under the plan.

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      We maintain a bookkeeping account for amounts credited to the accounts of plan participants. For the plan year ended October 31, 2004, the amounts credited to the accounts of the Named Executives were:

Aggregate Option/SAR Exercises in Last Fiscal Year