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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 April 29, 2000, 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
Delaware (State or other jurisdiction of incorporation or organization) |
31-1521125 (I.R.S. employer identification no.) |
|
23555 Euclid Avenue Cleveland, Ohio (Address of principal executive offices) |
44117 (Zip code) |
|
(216) 692-6000 (Registrants 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.
All of the outstanding capital stock of the registrant is held by AT Holdings Corporation.
As of June 1, 2000, 1 share of the registrants common stock, $.01 par value, was outstanding.
1
INDEX
Page No. | |||||||
PART I - | FINANCIAL INFORMATION | ||||||
Item 1 - | Financial Statements | ||||||
Consolidated Balance Sheets as of April 29, 2000 and October 30, 1999 | 3 | ||||||
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) for the 26 weeks and 13 weeks ended April 29, 2000 and May 1, 1999 | 4 | ||||||
Consolidated Statements of Cash Flows for the 26 weeks ended April 29, 2000 and May 1, 1999 | 5 | ||||||
Notes to Consolidated Financial Statements | 6 9 | ||||||
Item 2 - | Managements Discussion and Analysis of Financial Condition and Results of Operations | 9 12 | |||||
Item 3 - | Quantitative and Qualitative Disclosure about Market Risk | 13 | |||||
PART II - | OTHER INFORMATION | ||||||
Item 6 - | Exhibits and Reports on Form 8-K | 13 | |||||
Signature | 14 |
2
PART I FINANCIAL INFORMATION
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
CONSOLIDATED BALANCE SHEETS
APRIL 29, 2000 AND OCTOBER 30, 1999
(In thousands, except share data)
2000 | 1999 | ||||||||||
ASSETS | (Unaudited) | ||||||||||
CURRENT ASSETS: | |||||||||||
Cash and cash equivalents | $ | 2,492 | $ | 3,873 | |||||||
Receivables, net | 23,837 | 30,169 | |||||||||
Inventories | 35,272 | 34,043 | |||||||||
Deferred income taxes and prepaid expenses | 6,144 | 5,322 | |||||||||
Total current assets | 67,745 | 73,407 | |||||||||
PROPERTY AND EQUIPMENT, net of accumulated depreciation | 33,735 | 35,653 | |||||||||
GOODWILL, net of accumulated amortization | 114,180 | 115,942 | |||||||||
INTANGIBLE ASSETS, net of accumulated amortization | 50,188 | 52,202 | |||||||||
DEFERRED FINANCING AND OTHER ASSETS | 16,295 | 17,541 | |||||||||
Total Assets | $ | 282,143 | $ | 294,745 | |||||||
LIABILITIES | |||||||||||
CURRENT LIABILITIES: | |||||||||||
Current portion of long-term debt | $ | 15,873 | $ | 12,454 | |||||||
Accounts payable | 3,731 | 6,647 | |||||||||
Accrued liabilities | 16,541 | 18,928 | |||||||||
Total current liabilities | 36,145 | 38,029 | |||||||||
LONG-TERM DEBT, net of current maturities | 259,989 | 264,533 | |||||||||
OTHER NONCURRENT LIABILITIES | 26,892 | 27,926 | |||||||||
Total Liabilities | 323,026 | 330,488 | |||||||||
REDEEMABLE ESOP STOCK | 32,148 | 50,772 | |||||||||
Unearned ESOP stock | (6,720 | ) | (7,560 | ) | |||||||
25,428 | 43,212 | ||||||||||
SHAREHOLDERS EQUITY/(DEFICIENCY): | |||||||||||
Common Stock, $.01 par value, authorized 3,000 shares; 1 share issued and outstanding | | | |||||||||
Paid-in capital | | | |||||||||
Accumulated deficit | (66,311 | ) | (78,955 | ) | |||||||
Total shareholders equity/(deficiency) | (66,311 | ) | (78,955 | ) | |||||||
Total Liabilities and Shareholders Equity/(Deficiency) | $ | 282,143 | $ | 294,745 | |||||||
The accompanying notes to consolidated financial statements are an integral part of this statement.
3
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(In thousands)
UNAUDITED
26 Weeks Ended | 13 Weeks Ended | ||||||||||||||||||||
April 29, 2000 | May 1, 1999 | April 29, 2000 | May 1, 1999 | ||||||||||||||||||
Net revenues | $ | 75,638 | $ | 84,200 | $ | 39,808 | $ | 44,057 | |||||||||||||
Cost of revenues | 45,825 | 45,351 | 23,661 | 23,358 | |||||||||||||||||
Gross profit | 29,813 | 38,849 | 16,147 | 20,699 | |||||||||||||||||
Selling, general and administrative | 11,722 | 14,581 | 5,657 | 5,785 | |||||||||||||||||
Research and development | 5,107 | 4,455 | 2,603 | 2,194 | |||||||||||||||||
Amortization of intangible assets | 3,759 | 3,740 | 1,880 | 1,871 | |||||||||||||||||
Operating expenses | 20,588 | 22,776 | 10,140 | 9,850 | |||||||||||||||||
Income from operations | 9,225 | 16,073 | 6,007 | 10,849 | |||||||||||||||||
Interest expense | 12,618 | 11,966 | 6,142 | 6,296 | |||||||||||||||||
Other, net | (138 | ) | (181 | ) | (79 | ) | 41 | ||||||||||||||
Income / (loss) before income taxes | (3,255 | ) | 4,288 | (56 | ) | 4,512 | |||||||||||||||
Income tax provision (benefit) | (1,411 | ) | 2,566 | (291 | ) | 1,589 | |||||||||||||||
Net income / (loss) | $ | (1,844 | ) | $ | 1,722 | $ | 235 | $ | 2,923 | ||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||||
Foreign currency translation adjustment, net of income tax of $(36) and $(8) | 53 | | 12 | | |||||||||||||||||
Comprehensive income / (loss) | $ | (1,791 | ) | $ | 1,722 | $ | 247 | $ | 2,923 | ||||||||||||
The accompanying notes to consolidated financial statements are an integral part of this statement.
4
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 26 WEEKS ENDED APRIL 29, 2000 AND MAY 1, 1999
(In thousands)
UNAUDITED
2000 | 1999 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
Net income / (loss) | $ | (1,844 | ) | $ | 1,722 | |||||
Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | ||||||||||
Depreciation | 3,068 | 3,304 | ||||||||
Amortization of intangible assets and deferred financing costs | 4,804 | 4,684 | ||||||||
Accretion of bond discount | 112 | 78 | ||||||||
Compensation expense recognized in connection with employee stock ownership plan | 1,534 | 2,947 | ||||||||
Compensation expense recognized in connection with stock appreciation rights and stock options | | 2,771 | ||||||||
Amortization of inventory step-up | 155 | | ||||||||
Deferred income taxes | (1,722 | ) | (1,566 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||
Receivables | 6,332 | (376 | ) | |||||||
Inventories | (1,384 | ) | (4,869 | ) | ||||||
Prepaid expenses | (532 | ) | (405 | ) | ||||||
Accounts payable | (2,916 | ) | (2,361 | ) | ||||||
Accrued and other liabilities | (2,237 | ) | 1,306 | |||||||
Other, net | 46 | | ||||||||
Net cash provided by operating activities | 5,416 | 7,235 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
Capital expenditures | (1,150 | ) | (3,052 | ) | ||||||
Net cash used in investing activities | (1,150 | ) | (3,052 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Sale of senior subordinated notes | | 52,250 | ||||||||
Additional borrowing of long-term debt | 6,000 | | ||||||||
Repayment of long-term debt | (6,679 | ) | (2,390 | ) | ||||||
Repayment of note payable Durodyne acquisition | (557 | ) | | |||||||
Payment of financing related fees | | (10,044 | ) | |||||||
Purchase of treasury stock | (2,570 | ) | | |||||||
Dividend | (1,841 | ) | (51,948 | ) | ||||||
Net cash used in financing activities | (5,647 | ) | (12,132 | ) | ||||||
CASH AND CASH EQUIVALENTS: | ||||||||||
Net increase (decrease) for the period | (1,381 | ) | (7,949 | ) | ||||||
Balance, Beginning of period | 3,873 | 11,578 | ||||||||
Balance, End of period | $ | 2,492 | $ | 3,629 | ||||||
The accompanying notes to consolidated financial statements are an integral part of this statement.
5
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 26 WEEKS ENDED APRIL 29, 2000 AND MAY 1, 1999
(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-Techs 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-Techs subsidiaries are guarantors except one wholly-owned subsidiary that has inconsequential assets, liabilities and equity. Its only operations are the result of intercompany activity, which is immediately dividended back to Argo-Tech.
2. UNAUDITED FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of Argo-Techs financial position and results of operations and cash flows for the interim periods presented. The results of operations for the 26 weeks and 13 weeks ended April 29, 2000 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):
April 29, | October 30, | ||||||||
2000 | 1999 | ||||||||
Finished goods | $ | 2,182 | $ | 2,151 | |||||
Work-in-process and purchased parts | 23,220 | 20,404 | |||||||
Raw materials and supplies | 12,749 | 14,252 | |||||||
Total | 38,151 | 36,807 | |||||||
Reserve for excess and obsolete inventory | (2,879 | ) | (2,764 | ) | |||||
Inventories net | $ | 35,272 | $ | 34,043 | |||||
6
4. CONTINGENCIES
Environmental Matters The soil and groundwater at Argo-Techs 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-Techs 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-Techs management, after reviewing the information which is currently available with respect to such matters and consulting with Argo-Techs legal counsel, any liability which may ultimately be incurred with respect to these additional matters is not expected to materially affect Argo-Techs financial condition, results of operations or liquidity.
5. SEGMENT INFORMATION
The Company operates in two business segments: Argo-Tech and J.C. Carter. Argo-Tech includes the design, manufacture and distribution of aviation products, primarily aircraft fuel pumps, throughout the world. J.C. Carter is a wholly-owned subsidiary of Argo-Tech Corporation which designs, manufactures and distributes fuel flow related products found on a planes airframe, aerial refueling systems, ground fueling system valves and related components and industrial marine cryogenic pumps for transferring liquefied natural gas.
The Company evaluates the performance of its segments based primarily on operating profit before amortization of goodwill, deferred financing fees and other identified intangibles, interest expense, interest income, other miscellaneous fees and income taxes.
The following table presents revenues and other financial information by business segment (in thousands):
13 Week Period Ending April 29, 2000
Argo-Tech | J.C. Carter | Corporate | Consolidated | |||||||||||||
Customer revenues | $ | 27,672 | $ | 12,136 | $ | | $ | 39,808 | ||||||||
Intersegment revenues | 42 | | | 42 | ||||||||||||
Eliminations | (42 | ) | ||||||||||||||
Operating profit (loss) | 6,804 | 1,196 | (113 | ) | 7,887 | |||||||||||
Amortization of goodwill and intangible assets | 1,880 | |||||||||||||||
Income from operations | 6,007 | |||||||||||||||
Interest expense | 6,142 | |||||||||||||||
Interest income and other | (79 | ) | ||||||||||||||
Loss before tax | $ | (56 | ) | |||||||||||||
Capital expenditures | 535 | 107 | 642 | |||||||||||||
Depreciation | 1,074 | 392 | 62 | 1,528 | ||||||||||||
Amortization of inventory step-up | 39 | 39 | ||||||||||||||
Compensation expense recognized in connection with employee stock ownership plan | 525 | 525 |
7
13 Week Period Ending May 1, 1999
Argo-Tech | J.C. Carter | Corporate | Consolidated | ||||||||||||||||||
Customer revenues | $ | 31,865 | $ | 12,192 | $ | | $ | 44,057 | |||||||||||||
Intersegment revenues | 1 | | | 1 | |||||||||||||||||
Eliminations | (1 | ) | |||||||||||||||||||
Operating profit (loss) | 11,178 | 1,686 | (144 | ) | 12,720 | ||||||||||||||||
Amortization of goodwill and intangible assets | 1,871 | ||||||||||||||||||||
Income from operations | 10,849 | ||||||||||||||||||||
Interest expense | 6,296 | ||||||||||||||||||||
Interest income and other | 41 | ||||||||||||||||||||
Income before tax | $ | 4,512 | |||||||||||||||||||
Capital expenditures | 1,438 | 256 | 1,694 | ||||||||||||||||||
Depreciation | 958 | 595 | 66 | 1,619 | |||||||||||||||||
Compensation expense recognized in connection with employee stock ownership plan | 1,052 | 1,052 |
26 Week Period Ending April 29, 2000
Argo-Tech | J.C. Carter | Corporate | Consolidated | |||||||||||||||||
Customer revenues | $ | 49,922 | $ | 25,716 | $ | | $ | 75,638 | ||||||||||||
Intersegment revenues | 45 | | | 45 | ||||||||||||||||
Eliminations | (45 | ) | ||||||||||||||||||
Operating profit (loss) | 11,084 | 2,183 | (283 | ) | 12,984 | |||||||||||||||
Amortization of goodwil and intangible assets | 3,759 | |||||||||||||||||||
Income from operations | 9,225 | |||||||||||||||||||
Interest expense | 12,618 | |||||||||||||||||||
Interest income and other | (138 | ) | ||||||||||||||||||
Loss before tax | $ | (3,255 | ) | |||||||||||||||||
Capital expenditures | 1,013 | 137 | 1,150 | |||||||||||||||||
Depreciation | 2,146 | 798 | 124 | 3,068 | ||||||||||||||||
Amortization of inventory step-up | 155 | 155 | ||||||||||||||||||
Compensation expense recognized in connection with employee stock ownership plan | 1,534 | 1,534 |
8
26 Week Period Ending May 1, 1999
Argo-Tech | J.C. Carter | Corporate | Consolidated | ||||||||||||||
Customer revenues | $ | 60,292 | $ | 23,908 | $ | | $ | 84,200 | |||||||||
Intersegment revenues | 8 | | | 8 | |||||||||||||
Eliminations | (8 | ) | |||||||||||||||
Operating profit (loss) | 19,389 | 3,209 | (2,785 | ) | 19,813 | ||||||||||||
Amortization of goodwill and intangible assets | 3,740 | ||||||||||||||||
Income from operations | 16,073 | ||||||||||||||||
Interest expense | 11,966 | ||||||||||||||||
Interest income and other | (181 | ) | |||||||||||||||
Income before tax | $ | 4,288 | |||||||||||||||
Capital expenditures | 2,713 | 339 | 3,052 | ||||||||||||||
Depreciation | 1,893 | 1,279 | 132 | 3,304 | |||||||||||||
Compensation expense recognized in connection with employee stock ownership plan | 2,947 | 2,947 | |||||||||||||||
Compensation expense recognized in connection with stock appreciation rights and stock options | 2,771 | 2,771 |
6. SUBSEQUENT EVENT
On June 9, 2000, certain financial ratios and tests for the remainder of the credit facility were amended, primarily to adjust for the additional interest expense and debt associated with the $55.0 million in principal amount of 8-5/8% senior subordinated notes that were issued on December 17, 1999. In addition, the supplemental percentage of interest applied to an Alternate Base Rate or LIBOR, as chosen by the Company, was increased .25% when the leverage ratio, as defined by the ratio of total debt to EBITDA, exceeds a multiple of 5.0 times and .50% when the leverage ratio exceeds a multiple of 5.5 times.
ITEM 2.
MANAGEMENTS 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 worlds 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 managements discussion and analysis of certain significant factors which have affected Argo-Techs financial position and operating results during the periods presented in the accompanying condensed consolidated financial statements. Argo-Techs fiscal year ends on the last Saturday of October and is identified according to the calendar year in which it ends.
9
Results of Operations for the 13 Week Period Ended April 29, 2000 Compared With
the 13 Week Period Ended May 1, 1999
Net revenues for the 13 week period ended April 29, 2000 decreased $4.3 million, or 9.8%, to $39.8 million from $44.1 million for the 13 week period ended May 1,1999. This decrease was primarily due to a decrease in aerospace revenues of $5.3 million offset by a $1.0 million increase in industrial and other revenues. The decrease in aerospace revenues was attributable to a decrease of $3.9 million of commercial aerospace revenues and $1.4 million in military revenues. Commercial OEM revenues decreased $0.9 million, or 8.8%, to $9.3 million and commercial aftermarket revenues decreased $3.0 million, or 14.4%, to $17.8 million in the 13 week period ended April 29, 2000. Commercial OEM revenues declined as a result of lower aircraft build rates, while commercial aftermarket revenues were lower primarily due to a decrease in the demand from an international distributor and a reduction in repair and overhaul services. Military revenues decreased primarily due to lower sales on the F-15 and AE2100 programs, together with lower spare part requirements. Industrial revenues included an increase in ground fueling revenues of $0.7 million, or 20.6%, to $4.1 million and cryogenic products of $0.3 million, or 50.0%, to $0.9 million. Heritage Business Park revenues of $1.3 million were unchanged from the prior comparable period.
Gross profit for the 13 week period ended April 29, 2000 decreased $4.6 million, or 22.2%, to $16.1 million from $20.7 million in the 13 week period ended May 1, 1999. Gross margin decreased to 40.5% for the 13 week period ended April 29, 2000 from 46.9% in the 13 week period ended May 1, 1999. The decrease in gross profit and gross margin is primarily due to the decrease in aerospace revenues, which resulted in a lower margin sales mix of aerospace products.
Operating expenses for the 13 week period ended April 29, 2000 increased $0.2 million, or 2.0%, to $10.1 million from $9.9 million in the 13 week period ended May 1, 1999. This increase is primarily attributable to an increase in research and development expense offset by a slight decrease in selling, general and administrative expense. Operating expenses as a percent of revenues were 25.4% for the 13 week period ended April 29, 2000 as compared to 22.4% for the 13 week period ended May 1, 1999.
Income from operations for the 13 week period ended April 29, 2000 decreased $4.8 million, or 44.4%, to $6.0 million from $10.8 million in the 13 week period ended May 1, 1999. As a percent of revenues, income from operations for the 13 week period ended April 29, 2000 decreased to 15.1% from 24.5% for the 13 week period ended May 1, 1999. These decreases were due to the unfavorable sales mix of lower aerospace product revenues and increased operating expenses.
Interest expense for the 13 week period ended April 29, 2000 decreased $0.2 million, or 3.2%, to $6.1 million from $6.3 million for the 13 week period ended May 1, 1999 due to a lower level of term loans partially offset by higher interest rates on the term loans.
The income tax provision for the 13 week period ended April 29, 2000 decreased $1.9 million to a benefit of $0.3 million from an expense of $1.6 million in the 13 week period ended May 1, 1999. This decrease is due to a pre-tax loss of $0.1 million for the 13 week period ended April 29, 2000 as compared to a pre-tax income of $4.5 million and the effect of lower tax rates on Argo-Techs foreign sales corporations earnings
Net income for the 13 week period ended April 29, 2000 decreased $2.7 million, or 93.1%, to $0.2 million from $2.9 million for the 13 week period ended May 1, 1999 primarily due to the revenue and expense factors discussed above.
10
Results of Operations for the 26 Week Period Ended April 29, 2000 Compared With
the 26 Week Period Ended May 1, 1999
Net revenues for the 26 week period ended April 29, 2000 decreased $8.6 million, or 10.2%, to $75.6 million from $84.2 million for the 26 week period ended May 1,1999. This decrease was primarily due to a decrease in aerospace revenues of $11.1 million offset by a $2.5 million increase in industrial and other revenues. The decrease in aerospace revenues was attributable to a decrease of $10.4 million of commercial aerospace revenues and $0.7 million in military revenues. Commercial OEM revenues decreased $2.7 million, or 14.2%, to $16.3 million and commercial aftermarket revenues decreased $7.7 million, or 19.2%, to $32.5 million in the 26 week period ended April 29, 2000. Commercial OEM revenues declined as a result of lower aircraft build rates, while commercial aftermarket revenues were lower primarily due to a decrease in the demand from an international distributor. The distributor reduced its demand to adjust inventories that had accumulated as a result of lower orders for JT8 and JT9 spare parts during the last half of fiscal year 1999 and in response to lower demand by airlines for spare pumps used for initial provisioning purposes. Military revenues decreased slightly due to a decrease in F-15 foreign military sales offset by an increase in sales of KC-135 aerial refueling components. Industrial revenues included an increase in ground fueling revenues of $2.5 million, or 37.9%, to $9.1 million. Cryogenic products of $1.7 million and Heritage Business Park revenues of $2.5 million were unchanged from the prior comparable period.
Gross profit for the 26 week period ended April 29, 2000 decreased $9.0 million, or 23.2%, to $29.8 million from $38.8 million in the 26 week period ended May 1, 1999. Gross margin decreased to 39.4% for the 26 week period ended April 29, 2000 from 46.1% in the 26 week period ended May 1, 1999. The decrease in gross profit and gross margin is primarily due to the decrease in aerospace revenues, which resulted in a lower margin sales mix of aerospace products.
Operating expenses for the 26 week period ended April 29, 2000 decreased $2.2 million, or 9.6%, to $20.6 million from $22.8 million in the 26 week period ended May 1, 1999. This decrease is primarily attributable to the non-recurrence of the $2.8 million non-cash compensation expense associated with the vesting of stock options and stock appreciation rights in connection with the repurchase of common stock from AT Holdings largest shareholder on January 4, 1999 offset by a $0.6 million increase in research and development expense. Operating expenses as a percent of revenues were 27.2% for the 26 week period ended April 29, 2000 as compared to 27.1% for the 26 week period ended May 1, 1999.
Income from operations for the 26 week period ended April 29, 2000 decreased $6.8 million, or 42.5%, to $9.2 million from $16.0 million in the 26 week period ended May 1, 1999. As a percent of revenues, income from operations for the 26 week period ended April 29, 2000 decreased to 12.2% from 19.0% for the 26 week period ended May 1, 1999. These decreases were due to lower aerospace revenues and an unfavorable sales mix of aerospace products offset by the decrease in operating expenses due to the non-recurrence of the $2.8 million non-cash compensation expense associated with the vesting of stock options and stock appreciation rights in connection with the repurchase of common stock from AT Holdings largest shareholder and an increase in research and development expense.
Interest expense for the 26 week period ended April 29, 2000 increased $0.6 million, or 5.0%, to $12.6 million from $12.0 million for the 26 week period ended May 1, 1999 primarily due to the issuance of the $55.0 million Senior Subordinated Notes in connection with the repurchase of common stock of AT Holdings from its largest shareholder on January 4, 1999 and higher interest rates on term loans, partially offset by a lower level of term loans.
The income tax provision for the 26 week period ended April 29, 2000 decreased $4.0 million to a benefit of $1.4 million from an expense of $2.6 million in the 26 week period ended May 1, 1999. This decrease is due to a pre-tax loss of $3.3 million for the 26 week period ended April 29, 2000 as compared to a pre-tax income of $4.3 million and the effect of the non-deductible compensation expense on the vesting of stock options and stock appreciation rights for the 13 week period ended January 30, 1999.
11
Net income for the 26 week period ended April 29, 2000 decreased $3.5 million, to a loss of $1.8 million compared to income of $1.7 million for the 26 week period ended May 1, 1999 primarily due to the revenue and expense factors discussed above.
Fluctuations of Operating Results; Limitation of Quarterly Comparisons
Argo-Techs 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-Techs aftermarket sales tends not to occur on a predictable schedule and, furthermore, the sales tend to occur in large quantities that can significantly impact quarterly comparisons. Accordingly, year-to-year and quarter-to-quarter comparisons of quarterly results may not be meaningful, and quarterly results during the year are not necessarily indicative of the results that may be expected for any future period or for the entire year.
Liquidity and Capital Resources
Argo-Tech is a holding company that receives all of its operating income from its subsidiaries. As a result, Argo-Techs primary source of liquidity for conducting business activities and servicing its indebtedness has been cash flows from operating activities.
Cash for the period ended April 29, 2000 decreased $1.4 million to $2.5 million. This was primarily due to the scheduled repayment of term loans, the purchase of stock from former employees and ESOP participants, an increase in inventory and a decrease in accounts payable and accrued and other liabilities offset by operating income, a decrease in accounts receivable and an additional borrowing of long-term debt.
Capital expenditures for the 26 weeks ended April 29, 2000 totaled $1.2 million compared to $3.1 million for the 26 weeks ended May 1, 1999. Argo-Tech expects to incur capital expenditures of approximately $2.8 million for the remainder of fiscal year 2000, related to the continued maintenance of facilities, equipment and systems to support current operating activities.
Long-term debt at April 29, 2000 consisted of $76.8 million principal amount of term loans and $192.5 million principal amount of Senior Subordinated Notes. A scheduled payment of $4.6 million was made on the term loans and $2.0 million was paid on the revolving credit facility. Argo-Tech has available, after $1.0 million of letters of credit, a $13.0 million revolving credit facility. As of April 29, 2000, there were $6.0 million of outstanding borrowings on the revolving credit facility. The credit facility contains no restrictions on the ability of Argo-Techs subsidiaries to make distributions to Argo-Tech.
Certain Factors That May Affect Future Results
From time to time, information provided by Argo-Tech, statements by its employees or information included in its filings with the Securities and Exchange Commission (including those portions of the Managements 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 Companys 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-Techs dependence on the aerospace industry; government regulation and oversight; defense spending; competition; product and environmental liabilities; and risks associated with its workforce, suppliers, and future acquisitions.
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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the ordinary course of operations, Argo-Techs major market risk exposure is to changing interest rates. Argo-Techs exposure to changes in interest rates relates primarily to its long-term debt obligations. At April 29, 2000, Argo-Tech has fixed rate debt totaling $195 million, including $2.5 million of accretion, at 8.625% and variable rate debt under its existing credit facility of $76.8 million calculated at Argo-Techs choice using an alternate base rate (ABR) or LIBOR, plus a supplemental percentage determined by the ratio of debt to EBITDA. The variable rate is not to exceed ABR plus 1.50% or LIBOR plus 2.50%. In order to reduce variable interest rate exposure on borrowings under its existing credit facility, Argo-Tech has three interest rate swap agreements on a portion of the variable rate debt which fix the rate on the notional amounts of $10.0 million at 6.08%, 6.10% and 6.805%, respectively. In order to reduce fixed interest rate exposure on borrowings under its fixed rate debt, Argo-Tech entered into a reverse rate swap agreement on March 17, 2000 on the notional amount of $100.0 million at 6.38%. Argo-Tech does not enter into derivative contracts for trading or speculative purposes. A 10% fluctuation in interest rates would not materially affect Argo-Techs financial condition, results of operations or cash flows.
PART II OTHER INFORMATION
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Schedule 27 Financial Data Schedule
Reports on Form 8-K None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 9, 2000 | ARGO-TECH CORPORATION | |
By: /s/ Frances S. St. Clair | ||
Frances S. St. Clair | ||
Vice President and Chief Financial Officer |
||
(Duly Authorized Officer) | ||
By: /s/ Paul A. Sklad | ||
Paul A. Sklad | ||
Controller | ||
(Principal Accounting Officer) |
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