<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 30,
1999, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_________________ TO ________________ .
COMMISSION FILE NUMBER 333-38223
ARGO-TECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 31-1521125
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
23555 EUCLID AVENUE
CLEVELAND, OHIO 44117
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(216) 692-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. X YES NO
--- ---
ALL OF THE OUTSTANDING CAPITAL STOCK OF THE REGISTRANT IS HELD BY AT
HOLDINGS CORPORATION.
AS OF FEBRUARY 26, 1999, 1 SHARE OF THE REGISTRANT'S COMMON STOCK, $.01
PAR VALUE, WAS OUTSTANDING.
<PAGE> 2
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<S> <C>
Consolidated Balance Sheets as of January 30, 1999 and October 31, 1998 3
Consolidated Statements of Operations for the 13 weeks ended January 30, 1999
and the 14 weeks ended January 31, 1998 4
Consolidated Statements of Cash Flows for the 13 weeks ended January 30, 1999
and the 14 weeks ended January 31, 1998 5
Notes to Consolidated Financial Statements 6 - 8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations 8 - 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED BALANCE SHEETS
JANUARY 30, 1999 AND OCTOBER 31, 1998
(In thousands, except share data)
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,401 $ 11,578
Receivables, net 23,957 23,866
Inventories 32,369 29,528
Deferred income taxes and prepaid expenses 6,123 5,353
--------- ---------
Total current assets 67,850 70,325
--------- ---------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation 35,655 35,982
GOODWILL, net of accumulated amortization 116,897 117,761
INTANGIBLE ASSETS 55,216 56,223
DEFERRED FINANCING FEES AND OTHER ASSETS 17,275 7,904
--------- ---------
Total Assets $ 292,893 $ 288,195
========= =========
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,100 $ 5,946
Accounts payable 5,667 7,671
Accrued liabilities 22,311 19,791
--------- ---------
Total current liabilities 35,078 33,408
--------- ---------
LONG-TERM DEBT, net of current maturities 271,361 221,440
OTHER NONCURRENT LIABILITIES 30,822 30,685
--------- ---------
Total Liabilities 337,261 285,533
--------- ---------
REDEEMABLE COMMON STOCK 6,713
REDEEMABLE ESOP STOCK 51,430 41,475
Unearned ESOP stock (8,820) (9,240)
--------- ---------
42,610 32,235
SHAREHOLDERS' EQUITY/(DEFICIENCY):
Common Stock, $.01 par value, authorized 3,000 shares;
1 share issued and outstanding
Paid-in capital
Accumulated deficit (86,978) (36,286)
--------- ---------
Total shareholders' equity/(deficiency) (86,978) (36,286)
--------- ---------
Total Liabilities and Shareholders' Equity/(Deficiency) $ 292,893 $ 288,195
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
<PAGE> 4
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 13 WEEKS ENDED JANUARY 30, 1999 AND 14 WEEKS ENDED JANUARY 31, 1998
(In thousands)
UNAUDITED
1999 1998
-------- --------
Net revenues $ 40,143 $ 44,462
Cost of revenues 21,993 27,482
-------- --------
Gross profit 18,150 16,980
-------- --------
Selling, general and administrative 8,796 5,399
Research and development 2,261 1,740
Amortization of intangible assets 1,869 1,932
-------- --------
Operating expenses 12,926 9,071
-------- --------
Income from operations 5,224 7,909
Interest expense 5,670 6,084
Other, net (222) (254)
-------- --------
Income / (loss) before income taxes (224) 2,079
-------- --------
Income tax provision 977 643
-------- --------
Net income / (loss) ($ 1,201) $ 1,436
======== ========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
<PAGE> 5
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 13 WEEKS ENDED JANUARY 30, 1999 AND 14 WEEKS ENDED JANUARY 31, 1998
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income / (loss) $(1,201) $ 1,436
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,685 1,710
Amortization of goodwill and deferred financing costs 2,241 2,198
Accretion of bonds 20
Compensation expense recognized in connection with
employee stock ownership plan 1,895 1,306
Compensation expense recognized in connection with
stock appreciation rights and stock options 2,771 19
Amortization of inventory step-up 4,488
Deferred income taxes (256) (257)
Changes in operating assets and liabilities:
Receivables (91) 686
Inventories (2,841) (1,534)
Prepaid expenses (636) 107
Accounts payable (2,004) (1,847)
Accrued and other liabilities 3,638 2,924
-------- --------
Net cash provided by operating activities 5,221 11,236
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,358) (313)
-------- --------
Net cash used in investing activities (1,358) (313)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Senior Subordinated Notes 52,250
Repayment of long-term debt (1,195) (2,748)
Payment of financing related fees (9,741) (186)
Dividend (51,354)
-------- --------
Net cash used in financing activities (10,040) (2,934)
-------- --------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the period (6,177) 7,989
Balance, Beginning of period 11,578 9,361
-------- --------
Balance, End of period $ 5,401 $ 17,350
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
<PAGE> 6
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED JANUARY 30, 1999 AND 14 WEEKS ENDED JANUARY 31, 1998
- ---------------------------------------------------------------------------
(Unaudited)
1. BASIS OF PRESENTATION
The principal operations of Argo-Tech Corporation (A Wholly-Owned Subsidiary
of AT Holdings Corporation) and its Subsidiaries include the design,
manufacture and distribution of aviation products, primarily aircraft fuel
pumps, throughout the world. In addition, Argo-Tech leases a portion of its
manufacturing facility to other parties. Argo-Tech's fiscal year ends on the
last Saturday in October. Argo-Tech is obligated to fulfill certain
obligations of AT Holdings Corporation. As a result, those obligations have
been reflected in its financial statements. Certain reclassifications have
been made in the prior years' financial statements to conform to the current
year presentation.
Argo-Tech Corporation is a parent, holding company with four wholly-owned
operating guarantor subsidiaries, Argo-Tech Corporation (HBP), Argo-Tech
Corporation (OEM), Argo-Tech Corporation (Aftermarket) and J.C. Carter
Company, Inc. Argo-Tech has no outside assets, liabilities or operations
apart from its wholly-owned subsidiaries. The Senior Subordinated Notes are
fully, unconditionally, jointly and severally guaranteed by the guarantor
subsidiaries, and therefore, separate financial statements of the guarantor
subsidiaries will not be presented. Management has determined that the
information presented by such separate financial statements of the guarantor
subsidiaries is not material to investors. All of Argo-Tech's subsidiaries
are guarantors except two wholly-owned subsidiaries that have
inconsequential assets, liabilities and equity. Their only operations are
the result of intercompany activity which is immediately dividended back to
Argo-Tech.
2. UNAUDITED FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of Argo-Tech's financial position and results of operations and
cash flows for the interim periods presented. The results of operations for
the 13 weeks ended January 30, 1999 are not necessarily indicative of the
results to be expected for the full year.
3. INVENTORIES
Inventories are stated at standard cost which approximates the costs which
would be determined using the first-in, first-out (FIFO) method. The
recorded value of inventories is not in excess of market value. Inventories
consist of the following (in thousands):
<TABLE>
<CAPTION>
January 30, October 31,
1999 1998
-------- --------
<S> <C> <C>
Finished goods $ 2,165 $ 2,289
Work-in-process and purchased parts 22,119 18,668
Raw materials and supplies 11,586 12,037
-------- --------
Total 35,870 32,994
Reserve for excess and obsolete inventory (3,501) (3,466)
-------- --------
Inventories - net $ 32,369 $ 29,528
======== ========
</TABLE>
<PAGE> 7
Inventory is recorded net of progress payments received of approximately
$0.6 and $1.4 million at January 30, 1999 and October 31, 1998,
respectively.
4. CONTINGENCIES
Environmental Matters - The soil and groundwater at Argo-Tech's Euclid, Ohio
facility and the Costa Mesa, California facility contain elevated levels of
certain contaminants which are currently in the process of being removed
and/or remediated. Because Argo-Tech has certain indemnification rights from
former owners of the facilities for liabilities arising from these or other
environmental matters, in the opinion of Argo-Tech's management, the
ultimate outcome is not expected to materially affect its financial
condition, results of operations or liquidity.
Other Matters - Argo-Tech is subject to various legal actions and other
contingencies. In the opinion of Argo-Tech's management, after reviewing the
information which is currently available with respect to such matters and
consulting with Argo-Tech's legal counsel, any liability which may
ultimately be incurred with respect to these additional matters is not
expected to materially affect Argo-Tech's financial condition, results of
operations or liquidity.
5. RECENT RECAPITALIZATION
On December 17, 1998, AT Holdings entered into an agreement to repurchase
639,510 shares of stock from AT Holdings, LLC, the company's largest
shareholder for $79.4 million plus transaction expenses. The transaction,
which was consummated on January 4, 1999, was funded by the proceeds of
Argo-Tech's issuance of $55.0 million in principal amount of 8 5/8% Senior
Subordinated Notes, issued at a 5% discount, due 2007 in a private offering
on December 17, 1998, $50.0 million of which was dividended to AT Holdings;
the proceeds of the issuance by AT Holdings of 30,000 shares of its
preferred stock to Chase Venture Capital Associates, L.P.; and cash. As a
result of this recapitalization, Argo-Tech's Employee Stock Ownership Plan
became AT Holdings' majority stockholder. In addition, AT Holdings amended
its Certificate of Incorporation to provide for the issuance of the
preferred stock and Argo-Tech amended its existing credit agreement and
indenture to permit the issuance of the Notes, payment of the dividend and
amendment of the Supplemental Employee Retirement Plan and the 1997 Stock
Appreciation Rights Plan. The Stock Appreciation Rights Plan provided for
grants of up to 34,450 stock appreciation rights, 17,225 of which were
granted in fiscal years 1997 and 1998. The remaining 17,225 stock
appreciation rights were granted in November, 1998. In connection with the
stock repurchase, all stock appreciation rights became fully vested in
accordance with their terms and were converted into fully vested stock
options. In addition, all granted options under the 1991 Performance Stock
Option Plan and 1991 Management Incentive Stock Option Plan, to the extent
not vested, became fully vested in accordance with their terms on January 4,
1999. The vesting of the stock appreciation rights and stock options
resulted in a charge to pre-tax earnings of $2.8 million. In connection with
the recapitalization, management's right to require Argo-Tech to repurchase
shares of redeemable common stock was eliminated.
6. SUBSEQUENT EVENT
In October 1996, J.C. Carter Company was named as a respondent in a petition
filed in federal district court in Santa Ana, California by Alsthom, a
French shipbuilding concern, to enforce an international arbitration award
rendered in Paris, France, in favor of Alsthom and against an entity
identified as J.C. Carter Company. Argo-Tech believes that J.C. Carter is
not the J.C. Carter Company referenced in the arbitration award. On February
23, 1999, the federal district court granted Alsthom a Motion for Summary
Judgment against Argo-Tech's J.C. Carter subsidiary to enforce the
international arbitration award, for approximately $11.4 million plus
interest with respect to a product liability case involving industrial
marine pump products. The district court has ordered, however, that
judgment shall not be entered at this
<PAGE> 8
time because of the claims against the remaining parties to the action.
Argo-Tech intends to seek reconsideration of the district court's decision,
and when and if an adverse judgment is entered against it, to appeal the
judgment and to vigorously pursue its claims for declaratory relief and
equitable indemnification against the prior owners of assets relating to
the arbitration. In the opinion of Argo-Tech's management, after reviewing
the information which is currently available with respect to this matter
and consulting with its legal counsel, any liability which may ultimately
be incurred with respect to this matter is not expected to materially
affect Argo-Tech's financial condition, results of operations or
liquidity.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Argo-Tech Corporation is a leading designer, manufacturer and servicer
of high performance fuel flow devices for the aerospace industry providing a
broad range of products and services to substantially all commercial and
domestic military engine and airframe manufacturers, to airlines worldwide and
to the U.S. and certain foreign militaries. Argo-Tech is the world's leading
supplier of main engine fuel pumps to the commercial aircraft industry and a
leading supplier of airframe products and aerial refueling systems. Argo-Tech is
also a leading manufacturer of components for ground fueling systems.
The following is management's discussion and analysis of certain
significant factors which have affected Argo-Tech's financial position and
operating results during the periods presented in the accompanying condensed
consolidated financial statements. Argo-Tech's fiscal year ends on the last
Saturday of October and is identified according to the calendar year in which it
ends.
RESULTS OF OPERATIONS FOR THE 13 WEEK PERIOD ENDED JANUARY 30, 1999 COMPARED
WITH THE 14 WEEK PERIOD ENDED JANUARY 31, 1998
Net revenues for the 13 week period ended January 30, 1999 decreased
$4.4 million, or 9.9%, to $40.1 million from $44.5 million for the 14 week
period ended January 31, 1998. This decrease was primarily due to a reduction in
aerospace revenues of $4.6 million offset by a slight increase of $0.3 million
in industrial and other revenues. The reduction in aerospace revenues was
attributable to a decrease of $3.5 million of commercial revenues and $1.1
million in military revenues. The commercial OEM revenues decreased $0.4
million, or 4.8%, to $8.8 million and commercial aftermarket revenues decreased
$3.1 million, or 13.7% to $19.4 million in the 13 week period ended January 30,
1999. The decrease in commercial OEM revenues was due to one less week in the
period as compared to last year. Commercial aftermarket revenues were lower
primarily due to a reduction of overhaul and repair services of $2.3 million and
a reduction in the demand for spare parts of $0.8 million. In addition to the
fact that there was one less week in the period as compared to last year,
aftermarket revenues tend to occur unevenly, the timing of which significantly
impacts quarterly comparisons. The 14 week period ended January 31, 1998
reflected large volumes shipped to a distributor resulting in a comparatively
high level of aftermarket sales as a percentage of total sales. Military
revenues decreased $1.1 million primarily due to decreased F-15 foreign military
sales. Industrial revenues included increased ground fueling revenues of $0.6
million and increased rental revenues at Heritage Business Park of $0.1 million,
offset by a reduction in demand for industrial marine products of $0.4 million.
Gross profit for the 13 week period ended January 30, 1999 increased
$1.2 million, or 7.1%, to $18.2 million from $17.0 million in the 14 week period
ended January 31, 1998 due to the non-recurrence of $4.5 million of amortization
related to the step-up of inventory to fair market value at J.C. Carter that
occurred in the first quarter of 1998 offset by lower aerospace revenues and
higher non-cash Employee Stock Ownership compensation expense. Gross margin for
the 13 week period ended January 30, 1999 increased to 45.4% from 38.2% for the
14 week period ended January 31, 1998 due to the non-recurrence of the
amortization related to the step-up of Carter inventory to fair value, partially
offset by a lower margin sales mix of aerospace products.
<PAGE> 9
Excluding the $4.5 million charge for amortization related to the step-up of
inventory to fair value in connection with the acquisition, gross margin for the
14 week period ended January 31, 1998 was 48.3%.
Operating expenses for the 13 week period ended January 30, 1999
increased $3.8 million, or 41.8%, to $12.9 million from $9.1 million in the 14
week period ended January 31, 1998. This increase is primarily attributable to
non-cash compensation expense of $2.8 million associated with the vesting of
stock options and stock appreciation rights in connection with the stock
repurchase, an increase of $0.5 million of research and development activity,
and an increase of $0.5 million in miscellaneous corporate expenses. Operating
expenses as a percent of revenues increased to 32.2% for the 13 week period
ended January 30, 1999 from 20.4% for the comparable period in 1998. Excluding
the $2.8 million of non-cash compensation expense, operating expenses as a
percent of revenues would have been 25.2% for the 13 week period ended January
30, 1999.
Income from operations for the 13 week period ended January 30, 1999
decreased $2.7 million, or 34.2%, to $5.2 million from $7.9 million in the 14
week period ended January 31, 1998. This decrease was due to lower aerospace
revenues, non-cash compensation expense related to the vesting of the stock
options and stock appreciation rights in connection with the stock repurchase
and higher operating expenses, partially offset by the non-recurrence of $4.5
million of amortization related to the step-up of inventory in 1998. As a
percent of revenues, income from operations for the 13 week period ended January
30, 1999 decreased to 13.0% from 17.8% for the 14 week period ended January 31,
1998.
Interest expense for the 13 week period ended January 30, 1999
decreased $0.5 million, or 8.2%, to $5.6 million from $6.1 million for the 14
week period ended January 31, 1998 primarily due to a lower level of term loans
partially offset by the issuance of the $55.0 million Senior Subordinated Notes
in connection with the stock repurchase on January 4, 1999.
The income tax provision for the 13 week period ended January 30, 1999
increased $0.4 million, or 66.7%, to $1.0 million from $0.6 million in the 14
week period ended January 31, 1998. This increase is due to the effect of the
non-deductible amortization of intangible assets and compensation expense
associated with the vesting of stock options and stock appreciation rights in
proportion to lower pre-tax income.
Net income for the 13 week period ended January 30, 1999 decreased $2.6
million, or 185.7%, to a loss of $1.2 million from income of $1.4 million for
the 14 week period ended January 31, 1998 primarily due to the revenue and
expense factors discussed above.
FLUCTUATIONS OF OPERATING RESULTS; LIMITATION OF QUARTERLY COMPARISONS
Argo-Tech's results of operations are subject to fluctuations from
quarter to quarter due to changes in demand for its products, changes in product
mix and other factors. Demand for its products can vary from quarter to quarter
due to changes in demand for, and timing of deliveries of, OEM, aftermarket and
military products and services. In particular, the timing of Argo-Tech's
aftermarket sales tends not to occur on a predictable schedule and, furthermore,
the sales tend to occur in large quantities which can significantly impact
quarterly comparisons.
For example, in the first fiscal quarter of 1998, Argo-Tech's sales
were higher due to large volumes shipped to a distributor. In addition, the
sales for this period consisted of a higher percentage of aftermarket sales.
This combination of high-volume, high margin sales led to comparatively
favorable results in the first quarter, despite the amortization charges
relating to the acquisition. Accordingly, year-to-year and quarter-to-quarter
comparisons of quarterly results may not be meaningful, and quarterly results
during the year are not necessarily indicative of the results that may be
expected for any future period or for the entire year.
In addition, on September 26, 1997, Argo-Tech acquired all of the
outstanding shares of J.C. Carter Company, Inc. for $107.6 million, including
acquisition costs. Carter's inventory was increased by $12.2 million to record
inventories at their fair value as of the date of acquisition in accordance with
Accounting
<PAGE> 10
Principles Board Opinion No. 16 - "Business Combinations." Based on Carter's
inventory turnover rate, $4.5 million, $4.5 million and $1.7 million of this
amount is included in cost of revenues for the first, second and third quarters
of 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Argo-Tech is a holding company that receives all of its operating
income from its subsidiaries. As a result, Argo-Tech's primary source of
liquidity for conducting business activities and servicing its indebtedness has
been cash flows from operating activities.
Cash for the period ended January 30, 1999 decreased $6.2 million,
primarily due to the payment of fees associated with the stock repurchase, an
increase in inventory and a decrease in accounts payable offset by a favorable
change in accrued and other liabilities.
Capital expenditures for the 13 weeks ended January 30, 1999 totaled
$1.4 million compared to $0.3 million for the 14 weeks ended January 31, 1998.
Argo-Tech expects to incur capital expenditures of approximately $4.9 million
for the remainder of fiscal year 1999, related to the continued maintenance of
facilities, equipment and systems to support current operating activities.
Long-term debt at January 30, 1999 consisted of $86.0 million principal
amount of term loans and $192.3 million principal amount of Senior Subordinated
Notes. In December 1998, Argo-Tech issued $55.0 million in principal amount of
8-5/8% Senior Subordinated Notes, issued at a 5% discount, due 2007 in a private
offering. The proceeds of the notes were used to pay a dividend of $50.0 million
to AT Holdings. On January 4, 1999, this dividend was used, together with the
proceeds of AT Holdings' sale of its preferred stock and cash on hand, to
finance AT Holdings' repurchase of 639,510 shares of its common stock held by
its majority stockholder, AT Holdings, LLC, and to pay fees and expenses
incurred in connection with those transactions. Scheduled payments of $1.2
million were made on the term loans. Argo-Tech has available, after $0.3 million
of letters of credit, a $19.7 million revolving credit facility. As of January
30, 1999, there were no borrowings on the revolving credit facility. The amended
credit facility contains no restrictions on the ability of Argo-Tech's
subsidiaries to make distributions to Argo-Tech.
YEAR 2000
Argo-Tech has initiated activities to identify actions necessary to
become Year 2000 compliant. Where necessary, Argo-Tech has begun to implement
these actions to provide uninterrupted, normal operations of critical business
systems, including non-information technology systems with embedded technology,
before, during and after the Year 2000. Argo-Tech is primarily using internal
resources to make the required modifications and upgrades. Argo-Tech plans to
complete the implementation of all significant applications by mid 1999.
Argo-Tech believes this schedule will allow the Company adequate time to assess
and correct any significant issues that may materialize or to develop an
appropriate contingency plan, if necessary. Substantially all of the upgrades
necessary to achieve Year 2000 compliance are being done in conjunction with
normal upgrades and conversions of Argo-Tech's systems and are being funded by
cash generated from operations and expensed as incurred. These costs are not
expected to have a material adverse effect on Argo-Tech's results of operations
or profitability. In addition, Argo-Tech is actively working with its customers
and suppliers to assess their compliance efforts, as well as Argo-Tech's
potential exposure to the failure of such suppliers and customers to become Year
2000 compliant. While Argo-Tech believes that such exposure is minimal, there
can be no assurance that the systems of suppliers and customers will be timely
converted, or that the failure of such companies to complete the conversion
process will not have a material adverse effect on Argo-Tech.
<PAGE> 11
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by Argo-Tech, statements by its
employees or information included in its filings with the Securities and
Exchange Commission (including those portions of the Management's Discussion and
Analysis that refer to the future) may contain forward-looking statements that
are not historical facts. Those statements are "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, and the Company's future performance, operating
results, financial position and liquidity, are subject to a variety of factors
that could materially affect results. Some, but not necessarily all, of these
factors include: Argo-Tech's dependence on the aerospace industry; government
regulation and oversight; defense spending; competition; product and
environmental liabilities; and risks associated with the its workforce,
suppliers, and future acquisitions.
<PAGE> 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In October 1996, J.C. Carter Company was named as a respondent in a
petition filed in federal district court in Santa Ana, California by
Alsthom, a French shipbuilding concern, to enforce an international
arbitration award rendered in Paris, France, in favor of Alsthom and
against an entity identified as J.C. Carter Company. Argo-Tech believes
that J.C. Carter is not the J.C. Carter Company referenced in the
arbitration award. On February 23, 1999, the federal district court
granted Alsthom a Motion for Summary Judgment against Argo-Tech's J.C.
Carter subsidiary to enforce the international arbitration award, for
approximately $11.4 million plus interest with respect to a product
liability case involving industrial marine pump products. The district
court has ordered, however, that judgment shall not be entered at this
time because of the claims against the remaining parties to the action.
Argo-Tech intends to seek reconsideration of the district court's
decision, and when and if an adverse judgment is entered against it, to
appeal the judgment and to vigorously pursue its claims for declaratory
relief and equitable indemnification against the prior owners of assets
relating to the arbitration. In the opinion of Argo-Tech's management,
after reviewing the information which is currently available with
respect to this matter and consulting with its legal counsel, any
liability which may ultimately be incurred with respect to this matter
is not expected to materially affect Argo-Tech's financial condition,
results of operations or liquidity.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - Schedule 27 - Financial Data Schedule
(b) Reports - Argo-Tech Corporation filed one report on Form 8-K on
January 14, 1999. This report was filed pursuant to Item 1 of Form
8-K and disclosed a change in control of Argo-Tech's parent, AT
Holdings Corporation. Argo-Tech's Employee Stock Ownership Plan
became AT Holdings' majority stockholder on January 4, 1999 as a
result of AT Holdings' repurchase of 639,510 shares of its common
stock from its then majority stockholder, AT Holdings, LLC.
<PAGE> 13
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 15, 1999 ARGO-TECH CORPORATION
By: /s/ Yoichi Fujiki
------------------------------
Yoichi Fujiki
Vice President and Treasurer
(Duly Authorized Officer)
By: /s/ Paul A. Sklad
------------------------------
Paul A. Sklad
Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 5,401
<SECURITIES> 0
<RECEIVABLES> 24,217
<ALLOWANCES> 260
<INVENTORY> 32,369
<CURRENT-ASSETS> 67,850
<PP&E> 83,626
<DEPRECIATION> 47,971
<TOTAL-ASSETS> 292,893
<CURRENT-LIABILITIES> 35,078
<BONDS> 278,461
0
0
<COMMON> 0
<OTHER-SE> (86,978)
<TOTAL-LIABILITY-AND-EQUITY> 292,893
<SALES> 38,730
<TOTAL-REVENUES> 40,143
<CGS> 21,205
<TOTAL-COSTS> 21,993
<OTHER-EXPENSES> (222)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,670
<INCOME-PRETAX> (224)
<INCOME-TAX> 977
<INCOME-CONTINUING> (1,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,201)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
