ARGO TECH GROUP INC, 10-K405, 1999-01-29

ARGO TECH GROUP INC
10-K405, 1999-01-29
AIRCRAFT ENGINES & ENGINE PARTS

Previous: INTERACTIVE MAGIC INC /NC/, 8-K, 1999-01-29

Next: BARON CAPITAL PROPERTIES LP, S-4/A, 1999-01-29

<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended October 31, 1998 Commission File No. 333-38223

ARGO-TECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

23555 Euclid Avenue, Cleveland, Ohio
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

31-1521125
(I.R.S. EMPLOYER
IDENTIFICATION NO.)

44117
(ZIP CODE)

Registrant's Telephone Number, Including Area Code: (216) 692-6000

Securities Registered Pursuant to Section 12(b) of The Act: None

Securities Registered Pursuant to Section 12(g) of The Act: None

Indicate by checkmark whether the registrant: (1) has filed all reports 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
requirement for the past 90 days. Yes [X] No [ ]

Indicate by checkmark 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. [X]

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

As of January 25, 1999, one share of the Registrant's Common Stock, $.01
par value per share, was outstanding.

Documents incorporated by reference: None
<PAGE> 2

PART I

ITEM 1. BUSINESS.

We are a leading designer, manufacturer and servicer of high performance
fuel flow devices for the aerospace industry. We provide 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. We are the world's leading supplier of main engine
fuel pumps to the commercial aircraft industry and are a leading supplier of
airframe products and aerial refueling systems. Since 1991, until the
acquisition of J.C. Carter Company, Inc., we were primarily a manufacturer of
main engine fuel pumps. In September 1997, we expanded our product lines through
the acquisition of the outstanding capital of Carter, a California corporation.
Carter's product lines include airframe pumps and accessories, military aerial
refueling systems and other fuel system components such as valves and ground
fueling components, as well as the production and service of liquid natural gas
pumps. We also operate a materials laboratory and a business park in Cleveland,
Ohio, where we maintain our headquarters and primary production facilities.

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. Airframe fuel pumps and airframe accessories are used to
transfer fuel to the engine systems and to shift and control fuel between tanks
in order to maintain aircraft balance. Aerial refueling systems permit military
aerial tankers to refuel fighter, bomber and other military aircraft while in
flight. Ground fueling systems transfer fuel from fueling trucks and underground
tanks to the underwing fuel receptacle of the aircraft.

PRODUCTS

Aerospace OEM

Main Engine Fuel Pumps. All Argo-Tech main engine fuel pumps are designed
at our Cleveland facility. These pumps consist of an aluminum body which is cast
by certified subcontractors. We then machine the casting, add a variety of gears
and other components, and perform rigorous testing at our Cleveland facility.

We are the sole source supplier of main engine fuel pumps for all CFM56
series engines, one of the most popular series of large commercial aircraft
engines used today. The CFM56 series engines power the Airbus A-319, A-320,
A-321 and A-340 and the Boeing 737 aircraft. We are also the sole source
supplier of main engine fuel pumps for all engines used on the Boeing 777
aircraft.

In 1992, we expanded our market to include large regional and business jet
applications by securing the BR710 engine program, which is used on the high-end
Bombardier Canadair Aerospace Global Express and the Gulfstream Aerospace Corp.
V aircraft. In 1996, we added to our growing base of regional and business jet
applications by winning the GE CF34-8C engine program, which is used on the
Canadair RJ700 aircraft.

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 manufacture
boost and transfer fuel pumps and fuel transfer control components, including
fuel flow proportioners, fuel system gate assemblies, and a variety of airframe
valves, adapters, nozzles and caps. These components are used to manage storage,
fueling, transfer and engine feed functions during ground and flight operations.
The acquisition of Carter in September 1997 significantly increased our presence
in the airframe fuel transfer control systems market.

Aerial Refueling Systems. 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 and couplers, are, or are
scheduled to be, installed in the refueling systems of 100% of U.S. designed
military aircraft equipped with such capability.

New Products. We have successfully developed new market opportunities,
which include lube oil and scavenge pumps as well as fuel flow dividers. Lube
oil and scavenge pumps supply lubrication to aerospace and industrial gas
turbine engine components. Fuel flow dividers divide fuel flow into precisely
metered portions for

1
<PAGE> 3

more efficient combustion and lower emissions. We secured a contract with
Rolls-Royce to supply components on an industrial power generation platform
which is currently in production. Due to aggressive marketing and an established
record of performance with our engine customers, we have also gained entry into
the land-based gas turbine business, securing development and production
contracts with GE, Pratt and Whitney, Rolls-Royce and Westinghouse Electric
Corp.

In 1993, we were awarded the development contract for the McDonnell Douglas
480 gallon external fuel tank used on the Navy's F-18 E/F aircraft, and in
December 1997, we were awarded the initial production contract.

Ground Fueling Products

We manufacture various ground fueling hydrants, couplers and nozzles for
commercial and military airports around the world. Ground fueling systems are
used to transfer fuel from underground fuel tanks and ground fueling trucks to
the underwing fuel receptacle of the aircraft. In addition to nozzles, couplers
and hydrants, we also sell pressure control valves and systems. We have also
developed the AVR2000 Fuel Delivery Meter, a hardware and software system for
customized fuel utilization management, data collection and billing.

New Products. We recently developed digital pressure control valves. These
valves incorporate a microprocessor to enhance fuel flow control and allow for
accurate measurement of pressure into fuel tanks. In addition, we have
identified three new potential product applications for our ground fueling
technology: railroad fuel transfers, fueling of off-road construction and mining
equipment and liquified natural gas nozzles and receptacles for use on
alternative fuel vehicles.

Industrial

We have been widely recognized as a leading designer and supplier of high
performance submerged motor pumps for liquefied gas. In 1987, we sold the OEM
business for industrial liquid natural gas pumps installed outside North
America. As a result, new pump delivery is extremely limited. However, we
continue to provide spare parts, testing, and upgrade and repair services.

AFTERMARKET SALES

Aftermarket sales comprise the largest component of our business.
Aftermarket sales consist of spare parts sales and overhaul, retrofit, repair
and technical support services to commercial and military customers worldwide.
Currently, approximately 38% of our spare parts sales are attributable to
overhaul and repair services that we perform, with the remaining sales resulting
from spare part purchases by third-party shops and airlines. We overhaul and
repair approximately 30% of the Argo-Tech products we manufacture. We also
perform overhaul services for products manufactured by third parties.

CUSTOMERS

Aerospace

OEM customers for our aerospace products include the world's major aircraft
engine manufacturers: Allison Engine, BMW/Rolls-Royce (BRR), GE, Pratt and
Whitney (including Pratt and Whitney Canada), Rolls-Royce, SNECMA/GE (CFMI) and
Williams International Corp. Customers for our airframe pumps and valves include
Airbus, Boeing, Cessna, Gulfstream, Lear Corp., Lockheed Martin, Raytheon and
various U.S. government agencies. Orders for military components come through
customers such as Lockheed Martin, Boeing and Pratt and Whitney. Our aftermarket
customers include all major aircraft and engine repair facilities and all major
airlines worldwide. Currently, the total number of airline and third party
customers for our spare parts and overhaul services exceeds 200.

Upsilon International Corporation, in its capacity as distributor of
certain of our products to foreign customers, accounted for approximately 17% of
our net revenues for the fiscal year ended October 31, 1998. No other customer
accounted for more than 10% of our sales during this period.

2
<PAGE> 4

Ground Fueling

Most ground fueling products are sold to customers through independent
distributors. 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 several
state-run oil companies and airport authorities. In fiscal 1998, approximately
50% of our ground fueling sales were to customers outside the U.S.

Industrial

The industrial customer base includes shipping vessels operated by domestic
and foreign carriers, liquefied gas ship loading terminal owners, liquefied gas
receiving terminals, petrochemical plants and large architectural and
engineering companies worldwide.

SALES AND MARKETING

Engine and airframe OEMs select suppliers of aerospace components primarily
on the basis of custom design capabilities, product quality and performance,
prompt delivery, price and aftermarket service. 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 sales. We also staff an
on-site design engineer with three of our customers to represent our products
and to work closely with the customer to develop new components.

We market and sell our aerospace and ground fueling products and services
through a combination of direct marketing, sales personnel, independent
manufacturing representatives and U.S. and international distributors. We supply
spare parts directly to domestic airlines and third-party overhaul shops.
Foreign customers that purchase Argo-Tech products receive their spare parts
through Upsilon International, which operates a distribution facility in
Torrance, California. Foreign customers receive spare parts for Carter aerospace
products directly from our Costa Mesa facility.

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 600 companies.

Our largest expenditure for Carter products 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. Three long term suppliers provide most of the component machining for
Carter products.

Aluminum castings are the highest volume raw material supplied to us for
the manufacture of Argo-Tech products. Five certified suppliers provide these
castings under long-term arrangements. We also buy quantities of steel bar stock
to produce gears and shafts from multiple producers. However, CPM-10V, a
powdered metal essential for the manufacture of certain of our main engine fuel
pumps, is a proprietary product available only from Crucible Specialty Metals.
We do not have a contractual arrangement with Crucible Specialty Metals, but we
purchase CPM-10V pursuant to standard purchase orders. Another material has been
identified as an alternative to CPM-10V, but that material has not yet been
certified by our customers.

MANUFACTURING

We manufacture a major portion of our Argo-Tech products at our Cleveland
facility. 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 four manufacturing
"cells" that operate bearing, gear, housing and shaft productions. By creating
cells, the necessary people, machinery, materials and methods are organized into
four distinct business teams. Within each manufacturing cell are 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

3
<PAGE> 5

correspond to and complement the manufacturing cells. The manufacturing and
engineering cells work together to meet our integrated operating plan and to
ensure timely production of our products.

In contrast to our substantial reliance on internal manufacturing of
Argo-Tech products, we outsource most of the machining and pre-assembly
production of Carter products 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 and to reduce setup/breakdown
times on smaller jobs. We have lowered the cost of Carter products by
outsourcing capital intensive tasks such as casting and machining, while
completing final assembly and testing on the premises.

In addition to our manufacturing facilities, we maintain sophisticated
testing facilities at our Cleveland, Ohio, Inglewood, California and Costa Mesa,
California locations. These testing facilities allow for simulation of typical
conditions and stresses that will be endured 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. The
equipment at this laboratory includes a scanning electron microscope.

We have obtained and preserved our ISO certifications, which are becoming a
prerequisite for selling to customers located in Europe. ISO-9001 certifications
are recognized by most of our customers, as well as by the FAA and U.S.
government supply organizations, as the most widely accepted replacement for the
Military Standards formerly used in the aerospace industry.

ENVIRONMENTAL MATTERS

Our operations are subject to federal, state and local environmental laws
and to regulation by government agencies, including the EPA. 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 govern 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 believe that our operations and facilities are currently in
compliance in all material respects with applicable environmental laws, there
can be no assurance that future changes in such laws, regulations or
interpretations of such laws or the nature of our operations will not require us
to make significant additional expenditures to ensure compliance in the future.
Currently, we do not believe that we will have to make material capital
expenditures for environmental remediation for the 1999 fiscal year.

Our Cleveland facility is currently the subject of environmental
remediation activities. The cost of these activities is the responsibility of
TRW 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. We have not paid for any
material portion of the cost of the remediation and do not expect to do so in
the 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 $10 million for environmental remediation at our Cleveland facility.

The TRW purchase agreement also requires TRW, for a period of 20 years, 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.

To date, there have been no third party environmental claims relating to us
or to the Cleveland facility.

4
<PAGE> 6

In March 1986, a two thousand gallon spent 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 Carter relating to the investigation and
remediation of groundwater contamination. To date, the full extent of the
groundwater contamination has not been ascertained. By virtue of our acquisition
of Carter, we have assumed responsibility for satisfying the cleanup order.
However, we have obtained indemnification from Carter's selling stockholders
for, among other things, all costs and expenses related to satisfaction of the
order. However, there can be no assurance that such indemnification obligations
with respect to the cleanup order will be satisfied. See "Risk
Factors--Potential Exposure to Environmental Liabilities."

PATENTS AND TRADEMARKS

We have a number of patents and trademarks and pending patent applications
related to our products. While in the aggregate our patents and trademarks are
of material importance to our business, we believe no single patent or trademark
or group of patents or trademarks is of material importance to our business as a
whole.

GOVERNMENT REGULATIONS

The commercial aerospace industry is highly regulated by both the FAA in
the United States and by the Joint Aviation Authorities in Europe, while the
military aerospace industry is governed by military quality (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 FAA regulations, and provide these customers with products and
services that comply with the government regulations applicable to commercial
flight operations. In addition, the FAA requires that various maintenance
routines be performed on aircraft components. We currently satisfy or exceed
these maintenance standards in our repair and overhaul services. Several of our
operating divisions include FAA-approved repair stations.

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
("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 product
quality, reliability and on-time delivery. Our primary main engine fuel pump
competitors are Sundstrand Corporation, Chandler-Evans Fuel Systems and Lucas
Aerospace. Sundstrand Corporation is our closest competitor in the main engine
fuel pump market.

Competitors in our other product lines range in size from divisions of
large corporations to small privately held entities, with only one or two
components in their entire product line. Our primary airframe pump competitors
are GEC Marconi Aerospace, Hydroaire and Intertechnique, S.A.; our primary
airframe valve competitors are Parker-Hannifin Corporation, ITT Aerospace
Controls and Whittaker Controls, Inc.; our primary ground fueling competitor is
Whittaker; and our primary aerial refueling competitor is Parker-Hannifin.

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 thirty
to sixty 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
5
<PAGE> 7

unfilled orders at fiscal year end cannot be relied upon as a valid indication
of our sales or profitability in a subsequent year.

EMPLOYEES

As of October 31, 1998, we had 773 full-time employees; of which, 467 are
salaried and 306 are hourly. Over 36% of the salaried employees have college
degrees, with over 10% holding advanced degrees. The 229 hourly employees
located at our Cleveland facility are represented by the UAW under a collective
bargaining agreement expiring on March 31, 2000 and have an average of over 18
years of experience in the industry.

ITEM 2. PROPERTIES.

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
business and lease over 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.

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

Our Inglewood, California leased facility occupies approximately 10,000
square feet and includes available space for expansion. 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.

ITEM 3. LEGAL PROCEEDINGS.

While we are not presently involved in any material legal proceedings,
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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of our security holders.

6
<PAGE> 8

PART II

ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

We are a wholly owned subsidiary of AT Holdings Corporation. We have no
equity securities that trade.

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF ARGO-TECH CORPORATION

The following table sets forth selected historical financial and other data
of Argo-Tech for the fiscal years 1994 through 1998, which have been derived
from our audited consolidated financial statements for those years. Our 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 31,
1998 is referred to as "fiscal 1998." The fiscal year ended October 31, 1998
consisted of 53 weeks and all other fiscal years presented consisted of 52
weeks. The information presented below should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
elsewhere herein.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------
OCTOBER 31, OCTOBER 25, OCTOBER 26, OCTOBER 28, OCTOBER 29,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................ $174,143 $117,086 $ 96,437 $ 86,671 $ 79,709
-------- -------- -------- -------- --------
Gross profit................ 66,940 46,132 38,555 32,449 25,433
Operating expenses.......... 38,881 19,482 19,277 17,390 14,789
-------- -------- -------- -------- --------
Income from operations...... 28,059 26,650 19,278 15,059 10,644
Interest expense............ 21,030 12,827 10,138 11,924 10,117
Other, net.................. (268) (404) (112) (588) 75
Income tax provision........ 3,400 4,841 3,608 1,553 279
Extraordinary loss(a)....... -- 1,529 -- -- --
-------- -------- -------- -------- --------
Net income.................. $ 3,897 $ 7,857 $ 5,644 $ 2,170 $ 173
======== ======== ======== ======== ========
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets................ $288,195 $300,960 $167,106 $167,057 $183,826
Working capital............. 36,917 42,647 25,531 23,098 34,506
Long-term debt (including
current maturities)....... 227,386 248,862 107,607 118,607 137,607
Redeemable preferred
stock..................... -- -- 25,908 25,908 25,908
Redeemable common stock..... 6,713 4,813 4,067 3,311 2,862
Redeemable ESOP stock,
net....................... 32,235 18,906 11,974 5,767 680
Shareholder's
equity/(deficiency)(b).... (36,286) (27,941) (28,219) (25,617) (20,390)
OTHER DATA:
Gross margin................ 38.4% 39.4% 40.0% 37.4% 31.9%
Adjusted EBITDA(c).......... $ 56,940 $ 38,591 $ 29,069 $ 23,901 $ 20,210
Adjusted EBITDA margin(d)... 32.7% 33.0% 30.1% 27.6% 25.4%
Net cash flows provided by
operating activities...... $ 29,771 $ 17,597 $ 15,942 $ 17,846 $ 17,531
Net cash flows used in
investing activities...... (5,610) (110,252) (3,355) (2,918) (1,475)
</TABLE>

7
<PAGE> 9

- ---------------

(a) The extraordinary loss, net of federal income tax benefits of $1,019,
relates to the write-off of unamortized debt issuance costs of a credit
facility that was refinanced on July 18, 1997.

(b) In connection with our Employee Stock Ownership Plan (the "ESOP"), the
current value of the outstanding shares of common stock of AT Holdings
Corporation is determined annually by an independent appraiser. The current
value per share as so determined times the total shares outstanding amounted
to $135,757,000, $97,090,000, $79,650,000, $64,842,000 and $53,683,000 as of
October 31, 1998, October 25, 1997, October 26, 1996, October 28, 1995 and
October 29, 1994, respectively.

- ---------------

Our Adjusted EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. We have included
information concerning Adjusted EBITDA because we understand that it is used
by certain investors as one measure of a borrower's historical ability to
service its debt. Adjusted EBITDA, as presented, may not be comparable to
similarly titled measures reported by other companies, since not all
companies necessarily calculate Adjusted EBITDA in an identical manner, and
therefore is not necessarily an accurate means of comparison between
companies.

(d) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net
revenues.

(e) Cash interest expense represents interest expense less amortization of
deferred financing fees of $990,000, $887,000, $1,191,000, $1,405,000, and
$1,451,000 in the fiscal years ended October 31, 1998, October 25, 1997,
October 26, 1996, October 28, 1995, and October 29, 1994, respectively.

(f) For purposes of determining the ratio of earnings available to cover fixed
charges, earnings consist of income before taxes and the extraordinary loss
plus fixed charges. Fixed charges consist of interest on indebtedness
including amortization of deferred financing fees and fixed loan guarantee
fees.

8
<PAGE> 10

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

In fiscal 1998, the aerospace business generated approximately 88% of our
net revenues. The balance of our net revenues were generated from sales of
ground fueling equipment, certain industrial products and revenues from the
operation of Heritage Business Park. Approximately 80% of the aerospace revenues
were derived from sales to commercial OEMs and commercial aftermarket customers,
while military revenues represented approximately 20% of our aerospace revenues.

In fiscal 1998, sales to commercial OEMs represented approximately 34% 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 services at
significantly higher margins. Over the approximately 25 year life cycle of an
aircraft program, commercial spare parts and overhaul services for products we
manufacture often generate six or more times the aggregate net revenues of the
OEM program.

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.

GENERAL

The following should be read together with "Selected Historical Financial
and Other Data of Argo-Tech Corporation" and our Financial Statements and the
related notes included elsewhere in this report. Our fiscal year ends on the
last Saturday of October and is identified according to the calendar year in
which it ends. For example, the fiscal year ended October 31, 1998 is referred
to as "fiscal 1998." The fiscal year ended October 31, 1998 consisted of 53
weeks and all other fiscal years presented consisted of 52 weeks.

Our historical financial results are affected by a variety of factors which
impact the aerospace industry, in general, or Argo-Tech, in particular.
Significant factors are:

- the cyclicality of the commercial aerospace industry,

- the funding of new aerospace product development programs,

- the formation of our Employee Stock Ownership Plan (the "ESOP") in
1994, and

- our ownership of Heritage Business Park.

During the period 1993 to 1995, the aerospace industry experienced a
significant downturn in its business cycle. During this period, we initiated a
workforce reduction of approximately 30%, including early retirement programs.
In addition, we undertook process improvement programs, which are ongoing, such
as our certified operator and certified supplier programs. We refer to these
programs, together with the workforce reduction as "cost reductions." As the
aerospace industry has moved into its recovery phase, the increase in volume
coupled with the cost reductions has allowed us to increase our absorption of
fixed manufacturing costs. We refer to this increased absorption of fixed costs
as "operating leverage".

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. Prior to
1990, these engine and airframe OEMs reimbursed us for a majority of these
research and development expenditures. Since 1990, commercial OEMs have
significantly reduced, and in many cases eliminated, the reimbursement of these
development programs. This has resulted in an increase in the level of

9
<PAGE> 11

research and development expenditures we fund. Research and development
expenditures are expensed as incurred, and such expenses are expected to
continue at historical levels.

ESOP

We established our ESOP in 1994 by purchasing 420,000 shares of common
stock of our parent company, AT Holdings Corporation, with the proceeds of a
$16.8 million ten-year loan funded through a credit facility which was
refinanced on July 18, 1997. The ESOP, which includes approximately 300 of our
salaried employees, represents an ownership interest in AT Holdings of
approximately 30%. GAAP requires that non-cash ESOP compensation expense and a
corresponding increase in stockholders' equity be recorded annually as shares
held by the ESOP are allocated to participants and the loan made to the ESOP is
repaid. GAAP also requires that this non-cash ESOP compensation expense be added
back to net income in the determination of cash flow from operations. The
aggregate amount of such non-cash ESOP compensation expense was $3.9 million,
$2.9 million and $2.3 million for the fiscal years ended 1998, 1997 and 1996,
respectively. We believe that our ESOP has been successful in motivating and
compensating our salaried employees on a cost-efficient basis.

BUSINESS PARK

We own and operate Heritage Business Park, a 150 acre, 1.8 million square
foot business park in Cleveland, Ohio. In 1990, we underwent a corporate
restructuring and disposed of substantially all of our operations except for our
aircraft accessories business and Heritage Business Park. We entered into
certain lease and service agreements with the operations located in Heritage
Business Park that were disposed of in the restructuring. These service
agreements covered support functions, including computerized information
services, equipment maintenance, and certain office administrative services. The
service agreements ensured that these businesses would have the necessary
support functions to operate during a four to seven year transition period until
they became self sufficient. The planned elimination of services to these
tenants has resulted in a continual reduction of service-related revenues during
the transition period. In addition to providing space and services to operations
formerly owned by us, we also lease space in Heritage Business Park to other
manufacturers. We are working to increase our rental and other income from the
business park.

ACQUISITION

On September 26, 1997 we acquired all of the outstanding shares of Carter,
a manufacturer of aircraft fluid control component parts, industrial marine
cryogenic pumps, and ground fueling components for $107.6 million, including
acquisition costs. The acquisition was funded by the issuance of $140 million in
principal amount of our 8 5/8% senior subordinated notes. The results of
Carter's operations have been combined with our results of operations since the
date of the acquisition. The purchase price of $107.6 million exceeded the net
assets of Carter at the date of acquisition by $99.7 million. Of that excess,
$60.6 million was assigned to identified intangible assets and the remainder of
$39.1 million was considered goodwill that is being amortized on a straight-line
basis over 40 years. The acquisition was accounted for using the purchase method
of accounting, and accordingly, an allocation of the purchase price has been
made using estimated fair market values of the assets acquired and liabilities
assumed as of the acquisition date.

EXPORT SALES

Substantially all of our export sales are all denominated in U.S. dollars.
Export sales for fiscal years 1998, 1997 and 1996 were $82.2 million, $59.5
million, and $44.1 million, respectively. Sales to Europe were $29.8 million,
$18.8 million and $13.2 million. Export sales to all other regions, individually
less than 10%, were $52.4 million, $40.7 million and $30.9 million for fiscal
years 1998, 1997 and 1996, respectively.

YEAR 2000

We have initiated activities to identify actions necessary to become Year
2000 compliant. Where necessary, we have 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
10
<PAGE> 12

Year 2000. We are primarily using internal resources to make the required
modifications and upgrades. We plan to complete the implementation of all
significant applications by mid 1999. We believe this schedule will allow us
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 our systems and are being
funded by cash generated from operations and expensed as incurred. Such costs
are not expected to have a material adverse effect on us. In addition, we are
actively working with our customers and suppliers to assess their compliance
efforts, as well as our potential exposure to the failure of such suppliers and
customers to become Year 2000 compliant. While we believe 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 us.

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.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
OCTOBER 31, 1998 OCTOBER 25, 1997(A) OCTOBER 26, 1996
---------------- ------------------- ----------------
<S> <C> <C> <C>
Net revenues.................. 100.0% 100.0% 100.0%
Gross profit.................. 38.4% 39.4% 40.0%
Operating expenses............ 22.3% 16.6% 20.0%
Income from operations........ 16.1% 22.8% 20.0%
Interest expense.............. 12.1% 11.0% 10.5%
Other, net.................... (0.2)% (0.3)% (0.1)%
Income before income taxes.... 4.2% 12.1% 9.6%
Income tax provision.......... 2.0% 4.1% 3.7%
Income before extraordinary
items....................... 2.2% 8.0% 5.9%
Extraordinary loss............ -- 1.3% --
Net income.................... 2.2% 6.7% 5.9%
</TABLE>

- ---------------

(a) Includes the results of Carter from September 26, 1997, the date of
acquisition, to October 25, 1997.

FISCAL 1998 COMPARED WITH FISCAL 1997

Net revenues for fiscal 1998 increased $57.0 million, or 48.7%, to $174.1
million from $117.1 million for fiscal 1997. This increase is due to an increase
of $42.3 million for aerospace products, including an increase of $30.7 million
of Carter aerospace products for a full year, and an increase of $9.2 million
and $5.6 million related to Carter ground fueling and industrial marine
products, respectively, for a full year, offset by a $0.1 million reduction in
Heritage Business Park revenues. Commercial aftermarket revenues increased
16.3%, or $11.3 million, to $80.6 million and commercial OEM revenues increased
40.7%, or $12.2 million, to $42.2 million. These increases are due to the
inclusion of a full year of Carter revenue of $6.7 million for commercial
aftermarket and $6.4 million for commercial OEM, and the continued increase in
both airline traffic and airline capital spending. Total military revenues
increased $18.8 million to $29.8 million primarily due to the addition of $17.6
million of Carter military sales for a full year. The decline in Heritage
Business Park revenues from the prior fiscal year was due to a reduction of $0.2
million in maintenance and other services offered to tenants offset by an
increase of $0.1 million due to a net increase in square footage rental.
Approximately 47.2% of fiscal 1998 net revenues were attributable to export
sales to foreign customers compared to 50.8% in fiscal 1997. Substantially all
such sales were denominated in U.S. dollars.

Gross profit for fiscal 1998 increased $20.8 million, or 45.1%, to $66.9
million from $46.1 million for fiscal 1997. Gross margin decreased to 38.4% for
fiscal 1998 from 39.4% in fiscal 1997 due to amortization related to

11
<PAGE> 13

the step-up of Carter inventory to fair market value, partially offset by
favorable Carter sales mix and improved operating performance in our Cleveland
facility. Excluding the $10.7 million and $1.5 million charge for fiscal years
1998 and 1997, respectively, for amortization related to the step-up of Carter
inventory to fair market value, gross margin would have been 44.6% and 40.6%,
respectively.

Operating expenses for fiscal 1998 increased $19.4 million, or 99.5% to
$38.9 million from $19.5 million in fiscal 1997. The increase was primarily
attributable to the inclusion of a full year of Carter operating expenses and
amortization of intangible assets, $1.5 million for acquisition, initial public
offering and other corporate expenses and $0.4 million for the implementation of
a stock appreciation rights plan. Operating expenses as a percent of revenues
increased to 22.3% for fiscal 1998 from 16.6% in fiscal 1997. Excluding the $5.1
million of Carter amortization of intangible assets, operating expenses as a
percent of revenues would have been 19.4%.

Income from operations for fiscal 1998 increased $1.4 million, or 5.2%, to
$28.1 million from $26.7 million for fiscal 1997 and decreased as a percentage
of net revenue to 16.1% in fiscal 1998 from 22.8% in fiscal 1997. The increase
in income from operations was due to increased Argo-Tech aerospace sales and
improved operating efficiency in our Cleveland facility and the inclusion of a
full year of Carter operating results offset by the amortization related to the
step-up of Carter inventory to fair market value and amortization of Carter
intangible assets. Excluding the $10.7 million and $1.5 million charge for
fiscal years 1998 and 1997, respectively, for amortization related to the
step-up of Carter inventory to fair market value, income from operations would
have been 22.3% and 24.1%, respectively.

Interest expense for fiscal 1998 increased $8.2 million, or 64.1%, to $21.0
million from $12.8 million for fiscal 1997 primarily due to the issuance of our
8 5/8% senior subordinated notes in connection with the acquisition of Carter in
September, 1997 and the repurchase of all of our outstanding preferred stock in
March, 1997.

The income tax provision for fiscal 1998 decreased $1.4 million, or 29.2%,
to $3.4 million from $4.8 million in fiscal 1997 due primarily to a decrease of
$6.9 million in pre-tax income, to $7.3 million for fiscal 1998 from $14.2
million for fiscal 1997. The effective tax rate for fiscal 1998 was 46.6%
compared to 34.0% for fiscal 1997. This increase is due to the effect of the
non-deductible amortization of intangible assets in proportion to lower pre-tax
income in fiscal 1998 as compared to fiscal 1997 offset by a reduction in
taxable income subject to state and local taxes.

Income before extraordinary loss decreased $5.5 million, or 58.5%, to $3.9
million in fiscal 1998 from $9.4 million in fiscal 1997 primarily due to the
amortization related to the step-up of Carter inventory to fair market value and
other revenue and expense factors discussed above. Excluding the $10.7 million
charge for amortization related to the step-up of Carter inventory to fair
market value in connection with the acquisition, income before extraordinary
loss would have been $10.3 million.

Net income for fiscal 1998 decreased $3.9 million, or 50.0%, to $3.9
million from $7.8 million for fiscal 1997 primarily due to the amortization
related to the step-up of Carter inventory to fair market value and the other
revenue and expense factors discussed above partially offset by the non
recurrence of a $1.5 million after tax extraordinary loss related to the early
extinguishment of debt under our previous bank credit agreement. Excluding the
$10.7 million charge for amortization related to the step-up of inventory to
fair market value in connection with the acquisition, net income would have been
$10.3 million.

FISCAL 1997 COMPARED WITH FISCAL 1996

Net revenues for fiscal 1997 increased $20.7 million, or 21.5%, to $117.1
million from $96.4 million for fiscal 1996 due to an increase of $22.0 million
for aerospace products, including $2.6 million of Carter aerospace products, and
an increase of $1.3 million related to Carter ground fueling and industrial
marine products offset by a $2.6 million decrease in revenues related to
Heritage Business Park. Commercial aftermarket revenues increased 29.8%, or
$15.9 million, to $69.3 million and commercial OEM revenues increased 13.6%, or
$3.6 million, to $30.0 million due to a continued increase in both airline
traffic and airline capital spending. Total military revenues increased $2.5
million to $11.0 million due to an increase of $1.5 million in military OEM
revenues and the addition of $1.5 million of Carter military sales offset by a
reduction of $0.5 million of aftermarket revenues. The decline in Heritage
Business Park revenues from the prior fiscal year was due to a

12
<PAGE> 14

planned reduction in the maintenance and other services offered to tenants and a
reduction in the rental rate and square footage requirements of a major tenant's
lease. Approximately 50.8% of our fiscal 1997 net revenues were attributable to
export sales to foreign customers compared to 45.7% in fiscal 1996.
Substantially all such sales were made in U.S. dollars.

Gross profit for fiscal 1997 increased $7.5 million, or 19.4%, to $46.1
million from $38.6 million for fiscal 1996. Gross margin decreased to 39.4% for
fiscal 1997 from 40.0% in fiscal 1996 due to the amortization related to the
step-up of Carter inventory to fair market value.

Operating expenses for fiscal 1997 were $19.5 million, a slight increase
from $19.3 million for fiscal 1996. Selling, General and Administrative expenses
increased $0.9 million primarily attributable to the addition of expenses
related to Carter and general corporate expenses. Research and development
decreased by $0.7 million primarily due to an increase in customer
reimbursements received on commercial aerospace development programs. Operating
expenses decreased as a percentage of net revenues to 16.6% in fiscal 1997 from
20.0% in fiscal 1996. The decrease was primarily the result of our improved
operating leverage.

Income from operations for fiscal 1997 increased $7.5 million, or 39.1%, to
$26.7 million from $19.2 million for fiscal 1996 and increased as a percentage
of net revenues to 22.8% in fiscal 1997 from 20.0% in fiscal 1996. This increase
was due to higher net revenues and our improved operating leverage.

Interest expense for fiscal 1997 increased $2.7 million, or 26.7%, to $12.8
million from $10.1 million for fiscal 1996 due to the increase in the average
amount of indebtedness outstanding related to the redemption of preferred stock
and payment of accrued dividends in March 1997 and the acquisition of Carter.

The income tax provision for fiscal 1997 of $4.8 million represents an
effective tax rate of 34.0% compared to 39.0% for fiscal 1996. The decrease in
the effective tax rate is primarily due to the impact of lower tax rates on our
foreign sales corporation earnings and reduction in taxable income subject to
state and local taxes.

The extraordinary loss for fiscal 1997 of $1.5 million represents the
write-off of unamortized debt issuance costs, net of federal income tax
benefits, related to a bank credit facility that was refinanced on July 18,
1997. See Note 10 to Consolidated Financial Statements.

Net income for fiscal 1997 increased $2.2 million, or 39.3%, to $7.8
million, from $5.6 million for fiscal 1996 primarily due to the factors
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

We are a holding company and receive 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.

In March 1997, we repurchased all of the preferred stock reflected on our
financial statements, totaling $25.9 million, along with accrued dividends of
$19.3 million, in exchange for $41.1 million of subordinated notes and cash of
$4.1 million. Interest on those subordinated notes was payable quarterly at
11.25% and they were to have matured on December 31, 2007. We also had $5.0
million of notes payable, which were to mature on December 31, 2007. These notes
payable paid interest quarterly at the prime rate and were subordinate to our
senior debt. The subordinated notes and the notes payable, together with the
accrued interest of approximately $0.6 million, were repaid with the proceeds of
our September 1997 offering of $140.0 million principal amount of 8 5/8% senior
subordinated notes due 2007 (the "1997 Senior Subordinated Notes").

In July 1997, we refinanced our credit facility. The refinanced credit
facility consists of a seven-year $100.0 million term loan, a seven-year $20.0
million revolving credit facility and a seven-year $15.0 million delayed draw
acquisition loan. In connection with this July refinancing, we recorded an
extraordinary charge before tax of $2.5 million, consisting primarily of the
write-off of unamortized financing costs.

In September 1997, we amended our refinanced credit facility to allow for
the acquisition of Carter and the issuance of the 1997 Senior Subordinated
Notes. As of October 31, 1998, we have $87.2 million principal amount of term
loans outstanding under this amended credit facility. We also have available,
after $0.3 million of letters

13
<PAGE> 15

of credit, $19.7 million of the seven-year $20.0 million revolving credit
facility. The unused balance of the revolving credit facility is subject to a
.375% commitment fee. Our credit facility contains a number of covenants that,
among other things, limit our ability to incur additional indebtedness, pay
dividends, prepay subordinate indebtedness, dispose of certain assets, create
liens, make capital expenditures, make certain investments or acquisitions and
otherwise restrict corporate activities. It also requires us to comply with
certain financial ratios and tests, under which we will be required to achieve
certain financial and operating results. We were in compliance with all
financial ratios and tests at October 31, 1998. The credit facility contains no
restrictions on the ability of our subsidiaries to make distributions to us.
Interest is calculated, at our choice, using an Alternate Base Rate ("ABR") or
LIBOR, plus a supplemental percentage determined by the ratio of total debt to
EBITDA. The interest rate for fiscal year 1998 ranged from 0.25% to 1.00% plus
ABR or 1.25% to 2.00% plus LIBOR.

In September 1997, concurrently with the acquisition of Carter, we issued
$140.0 million aggregate principal amount of the 1997 Senior Subordinated Notes.
Proceeds from this offering, together with a portion of the borrowings under our
credit facility were used to finance the acquisition of Carter, repay in full
$46.1 million in notes payable and subordinated notes, and to pay related fees
and expenses. The 1997 Senior Subordinated Notes bear interest at a rate of
8 5/8% per annum, payable semi-annually on each April 1 and October 1. Interest
payments commenced on April 1, 1998. The 1997 Senior Subordinated Notes have
been jointly, severally, fully and unconditionally guaranteed by all of our
wholly owned subsidiaries, with the exception of two inconsequential direct, and
two inconsequential indirect, wholly owned subsidiaries. The indenture under
which the 1997 Senior Subordinated Notes were issued contains certain optional
and mandatory redemption features and other customary financial covenants and
restrictions.

We entered into three interest rate swap agreements with a financial
institution which fixed the interest rate on the notional amounts of $20.0
million at 5.80% and $20.0 million at 5.715% through October 1997, and $30.0
million at 6.66% through October 2000. The amounts of the swap agreements for
fiscal years 1998, 1997 and 1996 were $30.0 million, $30.0 million and $70.0
million, respectively. When we refinanced our credit facility in July 1997, we
also unwound $40.0 million of the swap agreements which were to terminate in
October 1997. The remaining $30.0 million swap was transferred to another
financial institution in notional amounts of $10.0 million which fixed the rates
at 6.775%, 6.775%, and 6.805% through October 2000. On October 1, 1998 we
terminated a $10.0 million swap that had a fixed rate of 6.775% and was to
terminate on October 27, 2000. We replaced this swap with a $10.0 million swap
that has a fixed rate of 6.08% and will terminate on October 31, 2003. The
gains/losses were recognized as interest expense and amounted to a $0.4 million
loss in fiscal year 1998, a $0.3 million loss in fiscal year 1997 and a $0.4
loss in fiscal year 1996. We have no other derivative financial instruments.

Cash Flows from Operating Activities. Cash provided by operating activities
for fiscal 1998 increased $12.2 million to $29.8 million primarily as a result
of improved operating results which included a full year of Carter, a decrease
in accounts receivable and an increase in accounts payable and accrued and other
liabilities offset by an increase in inventory, net of the amortization of
inventory step-up to fair value. Cash provided by operating activities for
fiscal 1997 increased $1.7 million to $17.6 million primarily as a result of
improved operating results offset by an increase in receivables and a decrease
in accounts payable. Cash provided by operations for fiscal 1996 decreased $1.9
million to $15.9 million primarily as a result of a small increase in inventory,
partially offset by an increase in operating results.

Cash Flows from Investing Activities. Net cash used in investing activities
for fiscal 1998 was $5.6 million for the purchase of property, plant and
equipment. Net cash used in investing activities for fiscal year 1997 was $110.3
million which included the acquisition of Carter for $107.6 million, and capital
expenditures of $2.7 million. Expenditures for property, plant and equipment
were $5.6 million, $2.7 million and $3.4 million for fiscal years 1998, 1997 and
1996, respectively. 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 1998 was $21.9 million which was primarily used to make scheduled
repayments as well as voluntary and mandatory pre-payments of long-term debt.
Cash provided by financing for fiscal 1997 was $88.5 million, consisting of net
borrowings of

14
<PAGE> 16

$141.0 million offset by the redemption of preferred stock and payment of
accrued interest totaling $45.2 million and payment of $7.3 million in deferred
financing fees related to our credit facility and the offering of the 1997
Senior Subordinated Notes. Cash used in financing for fiscal year 1996 was $11.0
million to make scheduled repayments as well as voluntary pre-payments of
long-term debt.

Capital Expenditures. Our capital expenditures for fiscal 1998 totalled
$5.6 million, which included over 200 projects. Most of these projects related
to maintaining existing facilities and equipment. For fiscal 1999, we estimate
that capital expenditures will total $6.2 million, including $1.5 million for
Carter. These expenditures will support approximately 200 projects. 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.

We believe that cash flow from operations will provide adequate funds for
our working capital needs, planned capital expenditures and debt service
obligations. Our ability to fund our operations, make planned capital
expenditures, and to make scheduled payments on our indebtedness depends on our
future operating performance and cash flow. These items are subject to
prevailing conditions and to financial, business, and other factors, some of
which are beyond our control.

ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. We will adopt this standard
during fiscal 1999. We do not believe that this adoption will have a material
effect on us.

In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments such as a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. We will adopt
this standard during fiscal 1999. We do not believe that this adoption will have
a material effect on us.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement does not
change the recognition or measurement of pension or postretirement benefit
plans, but standardizes disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures. We
will adopt this standard during fiscal 1999. We do not believe that this
adoption will have a material effect on us.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS 133 is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. We
have not yet completed our evaluation of this statement, but we do not
anticipate a material impact on our consolidated financial statements from the
adoption of this accounting standard.

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:

15
<PAGE> 17

THE AEROSPACE INDUSTRY IS A HIGHLY REGULATED, HIGHLY COMPETITIVE INDUSTRY.

The following risk factors describe the risks associated with the aerospace
industry generally:

- The aerospace industry is cyclical

Substantially all of our gross profit and operating income is derived from
sales of products to the aerospace industry. The commercial OEM segment of the
aerospace industry has historically been subject to fluctuations due to general
economic conditions. A reduction in airline travel will generally result in
reduced orders for new commercial aircraft, reduced utilization of commercial
aircraft and a corresponding decrease in our sales of new components, related
income and cash flow. The commercial airline industry was adversely affected by
a severe downturn during the three year period ended December 31, 1993. This
downturn resulted in record losses for the commercial airline industry and a
decrease in production of commercial engine and airframe assemblies, which
caused a corresponding decline in the aerospace industry from 1993 to 1995.
Accordingly, our commercial OEM business experienced a similar decline. In
addition, our aftermarket sales were negatively affected as airlines delayed
purchases of spare parts, preferring to use existing spare parts inventory. We
believe that airlines currently maintain little or no spare parts inventory,
which should cause future aftermarket sales to remain relatively stable even in
an OEM downturn. However, we cannot assure you that airlines will not increase
their spare parts inventory in the future. Any such increase in inventories,
combined with an economic downturn, could have a material adverse effect on our
business and profitability. In addition, the recent economic downturn in Asia,
while not currently having a material effect on our business or operations,
could, in the future, significantly impact our customers and the aerospace
industry generally. We cannot assure you that such an impact would not have a
material adverse effect on our business.

- The aerospace industry is subject to government regulation and oversight

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 U.S. 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 were revoked or suspended, our operations would be
adversely affected. In the future, new and more demanding government regulations
may be adopted or industry oversight may be increased, which may have an adverse
effect on our profitability.

- The aerospace industry is highly competitive

The aerospace industry is a highly competitive global industry which has
experienced significant consolidation in recent years. Our competitors include
several companies that have significantly greater financial resources than we
do.

- There are a limited number of customers for certain products

Due to the relatively small number of customers in the aerospace industry,
customers are often able to influence prices and other terms of sale for certain
of our products. This influence can have a material adverse effect on our
profitability, as would the loss of one or more these significant customers.

- Government Contracts are subject to reductions in defense spending

Approximately 17.1% of our sales in fiscal 1998 were related to products
used in U.S. designed military aircraft. In general, the U.S. defense budget has
been declining in recent years, which has resulted in reduced demand for new
aircraft and spare parts. 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. There can be no assurance
that the U.S. defense budget will not continue to decline or that sales of
defense related items to foreign governments will continue at present levels. In
addition, the terms of defense contracts with the U.S. government generally
permit the government to terminate contracts, with or without cause, at any
time. Any unexpected termination of a significant government contract could have
an adverse effect on our business and profitability.

16
<PAGE> 18

RISKS ASSOCIATED WITH OUR OPERATIONS.

- We depend on the skill and experience of our senior executives

Our success depends upon the efforts, abilities, experience and expertise
of our executive officers, including the Chairman, Chief Executive Officer,
Michael S. Lipscomb, as well as the other members of our senior management team.
The loss of services of those individuals and or other key employees could have
a material adverse effect on our company.

- Our operations depend on maintaining a skilled workforce

Our operations are highly dependent on an educated and trained workforce.
All of our hourly employees at the Cleveland facility are represented by the
United Auto Workers union. Because we maintain a relatively small inventory of
finished goods, and because the aerospace industry operates on relatively long
production lead times, any interruption of the work force due to strikes, work
stoppages, shortages of appropriately skilled production and professional
workers or other interruption could have a material adverse effect on our
business and results of operations.

- We depend on suppliers for essential materials used in our products

Our profitability is affected by the price and continuity of supply of raw
materials and component parts. Like all other aerospace fuel pump manufacturers,
we rely on one supplier for CPM-10V, a powdered metal used in the manufacture of
certain pump components. If that supply ceased to exist, our ability to operate
would be adversely affected. We could also be adversely affected by factors
affecting our suppliers, or by increased costs associated with supplied
materials or components 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 could be adversely affected by a reduction of
supply from vendors. Although we believe that alternative suppliers, or
alternate materials or components, could be identified, the lengthy and
expensive FAA and OEM certification process associated with aerospace products
could prevent efficient replacement of a material or supplier and could have a
material adverse effect on our business and profitability.

- We depend on our Cleveland facility

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. The Cleveland facility is the primary
production, research and marketing facility for Argo-Tech products and also
serves as our corporate headquarters. A fire, flood, earthquake or other
disaster or condition affecting this facility could disable these functions
which are critical to our business. Any such damage to, or other condition
interfering with the operation of, this facility would have a material adverse
effect on our business, financial position and results of operations.

- We have potential exposure to environmental liabilities

Our business operations and facilities are subject to a number of federal,
state and local laws and regulations, which govern the discharge of pollutants
and hazardous substances into the air and water as well as the handling, storage
and disposal of such materials. Under certain environmental laws, as a current
or previous owner or operator of real property, we could be held liable for the
costs of removal or remediation of hazardous substances found on the property.
Environmental laws typically impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous
substances.

Our Cleveland and Costa Mesa, California 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 costs of remediation at each site. There can be no assurance,
however, that those parties will continue to satisfy their indemnification
obligations or that we would not be ultimately responsible as owner and/or
operator of either or both of these sites for potentially significant
remediation costs. Moreover, there can be no assurance that future changes in
environmental laws or the nature of our operations will not require us to make
significant additional expenditures to ensure future environmental compliance.

17
<PAGE> 19

- Potential risk of product liability claims

While we have never been a defendant in a product liability case involving
our aerospace or ground fueling products, 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 of metal products we have processed or distributed. We believe
that our liability insurance is adequate to protect us from future product
liability claims. However, we cannot assure you that if claims were to arise,
our insurance coverage will be adequate.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ARGO-TECH.

Directors and Executive Officers. 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. Prakash A. Melwani resigned
his position as a director of Argo-Tech in November 1998.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael S. Lipscomb................... 52 Chairman, President & CEO, Director
David L. Chrencik..................... 48 Vice President, Operations
Yoichi Fujiki......................... 49 Vice President and Treasurer, Director
Paul R. Keen.......................... 49 Vice President, General Counsel & Secretary
Badrik Melikian....................... 45 Chief Operating Officer, Carter
Frances S. St. Clair.................. 43 Vice President and CFO
Remi de Chastenet..................... 27 Director
Thomas F. Dougherty................... 55 Director
Prakash A. Melwani.................... 39 Director
Robert Y. Nagata...................... 53 Director
Karl F. Storrie....................... 61 Director
</TABLE>

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 in 1994. Mr. Lipscomb has also
served as a director of Argo-Tech and AT Holdings Corporation since 1990.

DAVID L. CHRENCIK has been Vice President, Operations since December 1990.
Since joining Argo-Tech (TRW) in 1977, Mr. Chrencik has held various
manufacturing engineering and operations management positions.

YOICHI FUJIKI has been Vice President and Treasurer since joining Argo-Tech
in 1991. Prior to joining Argo-Tech, he was Senior Vice President and Chief
Credit Officer of American Pacific State Bank in Los Angeles. Mr. Fujiki has
also served as a director of Argo-Tech since 1991.

PAUL R. KEEN has been Vice President, General Counsel and Secretary since
1990. Mr. Keen was named Vice President and General Counsel in 1987, and became
Secretary in December 1990. Prior to 1987, he spent

18
<PAGE> 20

the majority of his career with TRW as Senior Counsel, Securities and Finance
and as primary legal counsel to two operating groups.

BADRIK MELIKIAN has been Chief Operating Officer of Carter since January
1994. Mr. Melikian joined Carter in 1987 and held management positions in
Carter's Ground Fueling Group before becoming the General Manager of the
Industrial Marine division when it was formed in 1990.

FRANCES S. ST. CLAIR has been Vice President and Chief Financial Officer
since 1992. Ms. St. Clair joined the Company in 1991 as Controller and was
promoted to Vice President and Controller in November 1991. Ms. St. Clair
received her C.P.A. certification in 1984.

REMI DE CHASTENET became a director of Argo-Tech and AT Holdings
Corporation in 1997. Mr. de Chastenet currently serves as an Aftermarket Sales
Manager at Argo-Tech. Mr. de Chastenet previously worked at Vestar Capital
Partners as a Financial Analyst.

THOMAS F. DOUGHERTY has served as a director of Argo-Tech and AT Holdings
Corporation since 1995. Mr. Dougherty is President of the Columbiana Boiler
Company, a chemical and materials fabricator, Chairman of Anderson Columbiana
Trading Corporation, a wholesaler of storage and transportation tanks for gas
and liquids, and President of Dougherty Development Corp., a venture capital
investment company. Mr. Dougherty is also a principal in Dougherty Capital
Partners, a private equity investment fund.

PRAKASH A. MELWANI served as a director of Argo-Tech from 1990-1998. Mr.
Melwani is a founding partner of Vestar, which organized the Vestar Investment
Partnership to acquire Argo-Tech in 1990. Mr. Melwani is also a director of
Alvey Systems, Inc., a materials handling system manufacturer.

ROBERT Y. NAGATA has served as a director of AT Holdings Corporation since
1990, and became a director of Argo-Tech in 1997. Mr. Nagata currently serves as
of counsel in the Los Angeles law firm of Lamb & Baute LLP. From 1991-1998, Mr.
Nagata was a partner in the law firm of Musick, Peeler & Garrett, also located
in Los Angeles.

KARL F. STORRIE has served as a director of Argo-Tech since 1990. Mr.
Storrie is President, CEO and a director of Dura Automotive Systems, Inc., an
automotive component manufacturer.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth, for the fiscal years 1998, 1997 and 1996,
certain information about the compensation paid to the Chief Executive Officer
and each of our other four most highly compensated executive officers (the
"Named Executives").

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1)(2)
--------------------------- ----------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Michael S. Lipscomb...................... 1998 $300,000 $220,080 $43,488
Chairman, President and CEO 1997 $300,000 $168,228 $44,481
1996 $263,680 $120,075 $39,334
David Chrencik........................... 1998 $153,000 $ 70,329 $ 5,434
Vice President, Operations 1997 $140,856 $ 57,348 $ 4,959
1996 $126,022 $ 57,037 $ 4,457
Yoichi Fujiki............................ 1998 $152,000 $ 67,941 $24,766
Vice President and Treasurer 1997 $137,640 $ 59,647 $27,264
1996 $131,072 $ 49,654 $22,754
Paul R. Keen............................. 1998 $167,496 $ 76,040 $ 6,746
Vice President, General Counsel 1997 $155,352 $ 66,691 $ 6,242
and Secretary 1996 $146,552 $ 66,737 $ 5,574
Frances S. St. Clair..................... 1998 $153,000 $ 70,329 $ 4,115
Vice President and CFO 1997 $140,856 $ 57,348 $ 3,784
1996 $126,022 $ 57,037 $ 3,436
</TABLE>

19
<PAGE> 21

- ---------------

(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 1996, 1997 or 1998.

(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 each of
Mr. Lipscomb and Mr. Fujiki, the amounts listed also include $19,000,
$22,000 and $18,000 for fiscal years 1998, 1997 and 1996, respectively, paid
as directors' fees.

MANAGEMENT RETENTION AGREEMENTS

Stay Pay and Severance Agreements. We have entered into Stay Pay and
Severance Agreements with each of the Named Executives. Our Board of Directors
believes that these severance 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 severance 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 severance 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 voluntarily
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
severance agreement was executed (a "Qualifying Voluntary Termination"), the
executive will receive a basic severance payment consisting 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 severance payments, if
paid, would be in addition to the basic severance payment and the stay payment
described above.

Each executive is entitled to several other benefits contained in the
severance 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 upon any payment made to the executive under the severance
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 severance 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.
This 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 agreement).

20
<PAGE> 22

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 is insufficient to fully fund the
$315,600 payment specified under Mr. Lipscomb's stay pay agreement, we will be
required to pay the balance. However, 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.

This agreement also provides for the payment of attorneys' expenses if
enforcement of the contract becomes necessary, and contains certain restrictions
on certain types of competitive activity by Mr. Lipscomb. The benefits provided
by the trust and this stay pay agreement and the Trust Agreement are in addition
to the benefits provided under the severance agreements described above and Mr.
Lipscomb's employment contract which is described below.

Employment Agreements. We have entered into employment contracts with Mr.
Lipscomb and Mr. Keen. These contracts provide for the payment of severance
benefits upon termination of employment without cause (as defined in the
contracts). 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. Mr. Keen will receive, in the event of
such a termination, a single lump sum payment equal to 24 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. Both Mr. Lipscomb and Mr.
Keen will receive life, health, medical/hospital, dental and vision insurance
benefits for a period of twelve months. Mr. Keen's contract also provides for
the payment of attorneys' expenses if enforcement of the contract becomes
necessary, and contains restrictions on certain competitive activities by Mr.
Keen. The benefits provided by these additional contracts are provided in
addition to the benefits provided under the severance agreements, and Mr.
Lipscomb's trust agreement.

COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS OF THE COMPANY

RETIREMENT PLAN

Salaried Pension Plan. 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 person who was not a participant on June 30, 1994, and all
benefit accruals ceased as of the close of business on June 30, 1994. The
benefits of participants in the Salaried Pension Plan who were employees on June
30, 1994, became vested (to the extent otherwise non-vested) as of the close of
business on June 30, 1994. Employee contributions were neither required nor
permitted. All Salaried Pension Plan assets are presently invested in an annuity
contract with Aetna Life Insurance Company as the funding agent.

The monthly normal 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 Argo-Tech Employee Savings Plan) 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

21
<PAGE> 23

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.

Under the Internal Revenue Code of 1986, as amended (the "Code"), 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 are limited.

At retirement, based on benefits accrued as of June 30, 1994, the monthly
retirement benefits payable to each of the individuals named in the Summary
Compensation Table are:

<TABLE>
<CAPTION>
MONTHLY
NAME BENEFIT
---- ---------
<S> <C>
Michael S. Lipscomb......................................... $1,799.32
David L. Chrencik........................................... $ 949.57
Yoichi Fujiki............................................... $ 488.15
Paul R. Keen................................................ $1,188.83
Frances S. St. Clair........................................ $ 411.56
</TABLE>

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.

SALARIED SAVINGS PLAN

Our Salaried Savings Plan has been in place since 1987. Our 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 13% of their eligible
compensation. Participants may also elect to have after-tax contributions made
to the Plan of up to 10% of their eligible compensation. With respect to periods
prior to 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 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 excess of 3% of compensation.
Employer matching contributions to the plan ceased on July 1, 1994. A
participant's benefit under the plan is the balance of the participant's
accounts attributable to after-tax contributions and the vested balance of the
participant's accounts attributable to employer matching contributions.
Tax-deferred contributions and after-tax contributions are always 100% vested.
Participants (including former employees) whose accounts attributable to
employer matching contributions had not been forfeited prior to November 1,
1994, became, to the extent otherwise non-vested, 100% vested. Benefits are
payable in the form of a single lump sum payment.

Under the Code, 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 are
limited. Contributions for a plan year on behalf of certain highly compensated
individuals may also be limited to comply with nondiscrimination requirements
under the Code.

Benefits are generally payable after a participant is separated from
service. 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

22
<PAGE> 24

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 under the Salaried Savings Plan.

EMPLOYEE STOCK OWNERSHIP PLAN

With the participation of our salaried employees, we established the
Employee Stock Ownership Plan (the "ESOP") in 1994. Key Trust Company of Ohio,
N.A., serves as ESOP trustee, and holds in trust all of the ESOP's assets.

On May 17, 1994, the ESOP trustee purchased 420,000 shares of common stock
of AT Holdings Corporation with the proceeds of a $16.8 million loan from us to
the ESOP. The term of the loan, unless it is prepaid or accelerated, ends on
April 28, 2004. The interest rate for the loan is fixed for the ten year term at
7.16% per year. The purchase price for the Holdings common stock was $40 per
share.

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

For each of the Plan Years ended October 31, 1996, October 31, 1997 and
October 31, 1998, 42,000 shares of Holdings' common stock were released from the
suspense account. Based on the loan payment schedule, the number of shares of
Holdings' common stock released from the suspense account each future Plan Year
during the loan period would be:

<TABLE>
<CAPTION>
NUMBER OF
PLAN YEAR ENDING SHARES RELEASED
---------------- ---------------
<S> <C>
October 31, 1999............................................ 42,000
October 31, 2000............................................ 42,000
October 31, 2001............................................ 42,000
October 31, 2002............................................ 42,000
October 31, 2003............................................ 42,000
October 31, 2004............................................ 21,000
</TABLE>

If we make additional contributions to the ESOP, the ESOP would use the
contribution to "prepay" the loan, and shares would be released from the
suspense account more rapidly than shown above. If, however, for any reason we
do not make contributions to the ESOP to pay the principal on the loan as
described above, the shares would not be released from the suspense account as
rapidly as shown above.

We may, for any Plan Year, make additional discretionary contributions for
the benefit of ESOP participants. Our contributions may be made in cash, shares
of qualifying employer securities, or other property.

Whether the ESOP will acquire additional shares of 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 ESOP or additional contributions from us. The timing, amount
and manner of future contributions to the ESOP will be affected by various
factors, including prevailing regulatory policies, the requirements of
applicable laws and regulations, and market conditions.

ESOP participants may elect to receive the shares of qualifying employer
securities credited to their accounts after their termination of employment, and
in certain instances, after attaining age 55 with 10 or more years of
participation in the ESOP. ESOP participants vest in their ESOP accounts 20% per
year of service, and

23
<PAGE> 25

service prior to the effective date of the ESOP counts for this purpose. An ESOP
participant can require us to purchase qualifying employer securities received
from the ESOP at the value the stock then has, as determined for ESOP purposes
(a "put option"). Shares of qualifying employer securities distributed from the
ESOP are subject to a "right of first refusal" in favor of us or the ESOP at the
value the stock then has, as determined for ESOP purposes. The put option and
right of first refusal will no longer apply if the qualifying employer
securities become tradeable on an established securities market.

Voting rights on and decisions whether to tender or exchange shares of
qualifying employer securities held in the ESOP are "passed through" to ESOP
participants. Each participant is entitled to direct the ESOP 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 ESOP suspense account and shares of
qualifying employer securities allocated to participants' ESOP accounts as to
which no direction is received by the ESOP trustee. In the event of a tender or
exchange offer for qualifying employer securities held in the ESOP, each
participant is entitled to direct the ESOP Trustee whether to tender or exchange
shares of qualifying employer securities held in the ESOP in a manner similar to
the voting directions described above.

Because the employers' contributions to the ESOP are not fixed, benefits
payable under the ESOP cannot be estimated.

For the Plan Year ended October 31, 1998, the number of shares of Holdings'
common stock allocated under the ESOP to the accounts of the individuals named
in the Summary Compensation Table were:

<TABLE>
<CAPTION>
SHARES ALLOCATED
------------------------------
YEAR ENDED CUMULATIVE TO
NAME OCT. 31, 1998 OCT. 31, 1998
---- ------------- -------------
<S> <C> <C>
Michael S. Lipscomb................................. 387.4595 1,852.4062
David L. Chrencik................................... 387.4595 1,812.8276
Yoichi Fujiki....................................... 387.4595 1,834.6145
Paul R. Keen........................................ 387.4595 1,852.4062
Frances S. St. Clair................................ 387.4595 1,803.4418
</TABLE>

Generally Accepted Accounting Principles require that any third party
borrowing by the ESOP be reflected as a liability on our statement of financial
condition. Since the ESOP is borrowing from us, the obligation is not treated as
an asset of ours, but will be deducted from ESOP Stock outstanding. If the ESOP
purchases newly issued shares of Holdings' common stock, total stockholders'
equity would neither increase nor decrease, but per share stockholders' equity
and per share net earnings would decrease as the newly issued shares of stock
are allocated to the ESOP participants.

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

ESOP EXCESS BENEFIT PLAN

We maintain the ESOP Excess Benefit Plan, an unfunded plan to provide for
cash payments to employees participating in the ESOP in respect of reduction to
allocations to their ESOP 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 are payable at the same time or times as
benefits under the ESOP are distributable from the ESOP, 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. All benefits
under the plan are payable solely from our general assets.

24
<PAGE> 26

We maintain a bookkeeping account for amounts credited to the accounts of
plan participants. For the Plan Year ended October 31, 1998, the amounts
credited to the accounts of the individuals named in the Summary Compensation
Table were:

<TABLE>
<CAPTION>
EQUIVALENT SHARES ALLOCATED
------------------------------
YEAR ENDED CUMULATIVE TO
NAME OCT. 31, 1998 OCT. 31, 1998
---- ------------- -------------
<S> <C> <C>
Michael S. Lipscomb................................. 824.1365 2,829.7155
David L. Chrencik................................... 132.8148 287.0898
Yoichi Fujiki....................................... 124.9220 304.1730
Paul R. Keen........................................ 179.8903 568.7443
Frances S. St. Clair................................ 132.8148 287.0898
</TABLE>

We amended this plan in December 1998. See "Recent Benefits Restructuring."

INCENTIVE STOCK OPTION PLANS

1991 Performance Stock Option Plan. The 1991 Performance Stock Option Plan
provides for option agreements on the purchase of Class D non-voting Holdings'
common stock, at a price of $10.00 per share, unless and until such stock is
offered for sale to the public, in which case the price will be not less than
fair market value. The options, which were granted by the Compensation Committee
of Holdings upon the recommendation of our compensation committee, expire on
November 9, 2001. The options may be exercised only in quarters over four
successive years, but shall become exercisable in full in the event that the
shares become registered or traded on a national exchange or in the event of a
change in control. All of the options under this plan became fully vested in
January 1999. See "Recent Benefit Restructuring."

AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISABLE VALUE OF UNEXERCISED
OPTIONS/SAR'S IN-THE-MONEY
AT FY-END OPTIONS AT FY-END($)
------------- --------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------------- ------------- --------------------
<S> <C> <C> <C> <C>
Michael S. Lipscomb..... 0 0 9,172/ 498 $826,489/ $44,875
0 0 1,244/ 2,241 74,777/ 134,707
Paul R. Keen............ 0 0 2,792/ 198 251,587/ 17,842
0 0 509/ 925 30,596/ 55,602
Yoichi Fujiki........... 0 0 1,192/ 198 107,411/ 17,842
0 0 509/ 925 30,596/ 55,602
David L. Chrencik....... 0 0 2,792/ 198 251,587/ 17,842
0 0 509/ 925 30,596/ 55,602
Frances S. St. Clair.... 0 0 2,792/ 198 251,587/ 17,842
0 0 509/ 925 30,596/ 55,602
</TABLE>

1991 Management Incentive Stock Option Plan. The 1991 Management Incentive
Stock Option Plan provides for option agreements on the purchase of Class A
voting Holdings' common stock, at a price not less than $10.00 per share unless
and until the stock is offered for sale to the public, in which case the price
will be not less than fair market value. The options, which were granted by the
Compensation Committee of Holdings upon the recommendation of our Compensation
Committee, expire on November 9, 2001. The options may be exercised only in
quarters over four successive years, but shall become exercisable in full in the
event that the

25
<PAGE> 27

shares become registered or traded on a national exchange, or in the event of a
change in control. All of the options under this plan became fully vested in
January 1999. See "Recent Benefit Restructuring."

STOCK APPRECIATION RIGHTS PLAN

The 1997 Stock Appreciation Rights Plan provides for grants of up to 34,450
stock appreciation rights ("SARs"). Each SAR entitles the holder to receive, in
cash, an amount equal to the increase, if any, in the $40.00 value of one share
of Holdings common stock as specified by the Compensation Committee of our Board
of Directors to the date of exercise. The SARs expire on January 2, 2005 and may
be exercised only in quarters over four successive years, but shall become
exercisable in full in the event that the shares become registered or traded on
a national exchange or in the event of a change in control. We amended this plan
in December 1998. See "Recent Benefits Restructuring."

SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE MARKET PRICE OPTION TERMS($)
GRANTED IN FISCAL PRICE ON DATE OF EXPIRATION ------------------------------
NAME (#) YEAR ($/SH) GRANT DATE 0%($) 5%($) 10%($)
---- ---------- ----------- -------- ------------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael S. Lipscomb..... 1,995 19.3% $40.00 $100.11 01/02/05 119,919 190,064 279,918
Paul R. Keen............ 834 8.1% $40.00 $100.11 01/02/05 50,132 79,455 117,019
Yoichi Fujiki........... 834 8.1% $40.00 $100.11 01/02/05 50,132 79,455 117,019
David L. Chrencik....... 834 8.1% $40.00 $100.11 01/02/05 50,132 79,455 117,019
Frances S. St. Clair.... 834 8.1% $40.00 $100.11 01/02/05 50,132 79,455 117,019
</TABLE>

EXECUTIVE LIFE INSURANCE PLAN

Our executive life insurance plan permits certain officers and key
employees to obtain life insurance benefits in addition to those generally
provided to salaried employees. The level of coverage provided to such officers
and key employees consists of basic term and whole life insurance coverage equal
to 3 times the individual's salary.

BONUS PLAN

We have in effect a plan pursuant to which officers and other key
management employees may receive cash bonuses paid upon (1) the achievement of
specified cash flow goals in the preceding fiscal year and (2) individual
performance. The amounts of such bonus awards are approved by our Compensation
Committee.

COMPENSATION OF DIRECTORS

We pay each Director a quarterly fee of $2,500. Each director also receives
$3,000 plus reasonable out-of-pocket expenses for each board meeting attended.
Members of the Audit and the Compensation Committees receive $3,000 for
attendance at a committee meeting that is not held on the same day as a meeting
of the Board of Directors. Fees paid to Mr. Lipscomb and Mr. Fujiki are included
in the Summary Compensation table. See "Executive Compensation."

The members of our Audit Committee are Thomas F. Dougherty, Remi de
Chastenet and Karl F. Storrie. The members of our Compensation Committee are
Karl F. Storrie and Robert Y. Nagata. Prior to his resignation in December 1998,
Mr. Prakash Melwani was a member of our Compensation Committee. The members of
the Compensation Committee of AT Holdings Corporation are Michael S. Lipscomb
and Robert Y. Nagata.

RECENT BENEFITS RESTRUCTURING

On January 4, 1999, Holdings repurchased 639,510 shares of its common stock
that were held by its majority stockholder, AT Holdings, LLC. Holdings also
issued 30,000 shares of its preferred stock on December 17, 1998. In connection
with these transactions, we amended our ESOP Excess Benefit Plan and the

26
<PAGE> 28

Stock Appreciation Rights Plan. The amendment to the ESOP Excess Benefit Plan
allowed for the transfer of approximately 4,500 shares of Holdings common stock
in place of cash payments to members of management who have been credited with
ESOP excess benefits as of October 31, 1998. The SAR plan provided for grants of
up to 34,450 SARs, 17,225 of which were granted in fiscal years 1997 and 1998.
The remaining SARs were granted in the first quarter of fiscal 1999. Pursuant to
the amendment of the SAR plan, all SARs became fully vested and were then
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 upon completion of
Holdings' repurchase of AT Holdings, LLC's common shares.

27
<PAGE> 29

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

PRINCIPAL STOCKHOLDERS

We are a wholly owned subsidiary of AT Holdings Corporation, which owns 1
share, or 100% of our outstanding common stock, par value of $.01 per share. The
single common share held by Holdings is the only share of our capital stock that
is outstanding. The following table sets forth the ownership of the Holdings'
common stock as of October 31, 1998 by (1) each person known to us to be the
beneficial owner of more than 5% of any class of Holdings' common stock, (2)
each of our directors and (3) all of our directors and executive officers as a
group. On October 31, 1998, the number of shares of Holdings' common stock
outstanding was 1,364,293 shares.

Shares of Holdings' Class A and Class B Stock are voting shares and are
identical in all respects. Shares of Holdings' Class C Stock are non-voting
shares which are convertible into shares of Holdings' Class B Stock. Shares of
Holdings' Class D Stock are non-voting, and 33,750 shares are currently unissued
and reserved for issuance pursuant to the 1991 Performance Stock Option Plan.
Seven hundred of the Holdings' Class D Stock options have been exercised.

On December 17, 1998, the four classes of Holdings' common stock were
consolidated into one class of common stock with a par value of $.001 per share.
All shares of Holdings common stock are now voting shares.

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES OF SHARES OF
CLASS A CLASS B CLASS C CLASS D PERCENT OF CLASS
NAME OF COMMON COMMON COMMON COMMON -----------------------
BENEFICIAL OWNER STOCK STOCK STOCK STOCK A B C D
---------------- --------- --------- --------- --------- ---- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AT Holdings, LLC.............. 20,000 614,000(2) 27,560 -- 3.1 89.1 100 --
1890 Highway 50 East
Suite 4
Carson City, NV 89701
Key Trust Company of Ohio,
N.A.(1)..................... 414,292 -- -- -- 64.0 -- -- --
127 Public Square
Cleveland, OH 44114
Sunhorizon International,
Inc......................... 129,402 -- -- -- 20.0 -- -- --
13221 Ranchwood Road
Tustin, CA 92680
YC International Inc.......... -- 75,000(2) -- -- -- 10.9 -- --
725 South Figueroa Street
Suite 3870
Los Angeles, CA 90117
Chrencik, David............... 5,512 -- -- -- ** -- -- --
de Chastenet, Remi*........... -- -- -- -- -- -- -- --
Dougherty, Thomas*............ 1,654 -- -- -- ** -- -- --
Fujiki, Yoichi*............... 2,000 -- -- -- ** -- -- --
Keen, Paul.................... 12,027 -- -- -- 1.9 -- -- --
Lipscomb, Michael*............ 20,670 -- -- -- 3.2 -- -- --
Melwani, Prakash*(4).......... -- -- -- -- -- -- -- --
Nagata, Robert*............... -- -- -- -- -- -- -- --
St. Clair, Frances............ 5,812 -- -- -- ** -- -- --
Storrie, Karl*................ 1,654(3) -- -- -- ** -- -- --
Directors and Officers as a
Group....................... 60,324 -- -- 700 9.3 -- -- 100
(15 persons)
</TABLE>

- ---------------

* Director of Argo-Tech

** Less than 1%

(1) Key Trust holds shares of Holdings' common stock in trust for the benefit of
the ESOP.

(2) AT Holdings, LLC has the option to purchase all of YC International Inc.'s
shares of Class B common stock. AT Holdings, LLC disclaims all beneficial
ownership of such shares.

(3) Includes options to purchase 450 shares of Class A common stock that are
immediately exercisable.

(4) Mr. Melwani resigned his position as a director of the company in November
1998.

28
<PAGE> 30

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

UPSILON INTERNATIONAL CORPORATION DISTRIBUTION AGREEMENT

Upsilon International, a company owned by YC International Inc., which is
under the control of Mr. Yamada, Holdings' majority stockholder through his
control of YC International and AT Holdings, LLC, was appointed as the exclusive
distributor of Argo-Tech products in 1990 with respect to the Japanese market
and in 1994 for the entire international market under a long-term distribution
agreement. We believe that this distribution agreement was entered into on terms
and conditions customary for the industry in all respects with the exception of
the basic contract term of 50 years and termination provisions which are more
favorable to Upsilon International than industry norm. The distribution
agreement provides for a 15% discount from Argo-Tech catalog prices on all
purchases of Argo-Tech products by Upsilon International. For fiscal 1998, sales
by Upsilon International accounted for approximately 17% of our net revenues.

VESTAR CONSULTING AGREEMENT

We have retained Vestar Capital Partners to provide us with financial and
corporate consulting services. Prakash A. Melwani, who was a director of
Argo-Tech from 1990 through December 1998, is a Managing Director of Vestar. In
exchange for such consulting services, we have agreed to pay Vestar an annual
consulting fee of approximately $124,000, payable semi-annually in advance, plus
Vestar's reasonable out-of-pocket costs and expenses. We believe that these
terms of the consulting agreement are no less favorable to us than would have
been available pursuant to arms' length negotiations with unaffiliated parties.
The consulting agreement will continue until December 31, 2000 and thereafter
shall be renewed automatically for additional one-year terms unless we or Vestar
gives written notice of termination.

OFFICER LOANS

Five of the Named Executives and one Director have entered into presently
outstanding loan agreements with Holdings. The largest amount of indebtedness
outstanding since the beginning of fiscal 1998 for each such Named Executive
was: $266,852 (Mr. Lipscomb), $238,280 (Mr. Keen), $147,542 (Mr. Melikian),
$86,803 (Mr. Chrencik) and $62,593 (Ms. St. Clair). The largest amount of
indebtedness outstanding since the beginning of fiscal 1998 for Thomas
Dougherty, a Director of Argo-Tech, was $78,953. Each loan is due October 28,
2000 and accrues interest at 6.75% annually. These loans, secured by a pledge of
Holdings' common stock, were extended for the purchase of Holdings' common
stock, or for the personal use of the Named Executive or Director. Each of the
Named Executives and the Director having an outstanding loan has entered into a
pledge agreement and promissory note with Holdings in connection with such
loans. We believe that the terms of these loans are no less favorable to
Holdings than would have been available pursuant to arms' length negotiations
with unaffiliated parties.

THE NOTE REPAYMENT

In March 1997, Holdings purchased all of its redeemable preferred stock
from the two preferred stockholders, AT Holdings, LLC and Vestar/Argo-Tech
Investment Limited Partnership. AT Holdings, LLC's preferred stock was
purchased, including accrued dividends, in exchange for subordinated notes in
the aggregate principal amount of $41.1 million and cash of $2.1 million. Vestar
Investment Partnership's preferred stock was purchased, including accrued
dividends, in exchange for cash of $2.0 million. We also had notes payable in
the aggregate principal amount of $5.0 million. These notes payable were issued
to the Yamada Trust, a trust organized under an irrevocable trust agreement, and
were subordinate to our senior debt. On September 26, 1997, these notes payable
and the $41.1 million of subordinated notes were repaid with the proceeds of our
offering of 8 5/8% senior subordinated notes.

29
<PAGE> 31

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) FINANCIAL STATEMENTS

The following consolidated financial statements of the Company are included
in a separate section of this report following the signature page:

Consolidated Balance Sheets -- October 25, 1997 and October 31, 1998

Consolidated Statements of Net Income -- Years ended October 26, 1996,
October 25, 1997 and October 31, 1998

Consolidated Statements of Cash Flows -- Years ended October 26, 1996,
October 25, 1997 and October 31, 1998

Consolidated Statements of Shareholders' Equity /(Deficiency) -- Years
ended October 26, 1996, October 25, 1997 and October 31, 1998

Notes to Consolidated Financial Statements -- October 31, 1998

Report of Independent Auditors

(a)(2) FINANCIAL STATEMENT SCHEDULES

No schedule or schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are required,
or such schedules are not applicable, and therefore, have been omitted.

(A)(3) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333- 38223).
3.2 By-Laws of the Company (incorporated herein by reference to
Exhibit 3.2 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.1 Indenture dated September 26, 1997, between the Company, the
Subsidiary Guarantors signatory thereto and Harris Trust and
Savings Bank, as Trustee, relating to the 8 5/8% Senior
Subordinated Notes due 2007 (the form of which is included
in such Indenture) (incorporated herein by reference to
Exhibit 4.1 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.2 Form of Global Exchange Note (included in Exhibit 4.1)
(incorporated herein by reference to Exhibit 4.2 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333- 38223).
4.3 Exchange and Registration Rights Agreement dated September
26, 1997, between the Company, the Subsidiary Guarantors and
Chase Securities Inc. (incorporated herein by reference to
Exhibit 4.3 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
10.1* Form of Stay Pay and Severance Agreement dated June 6, 1996,
by and among the Company and certain Executive Officers of
the Company (Michael S. Lipscomb, Yoichi Fujiki, Frances S.
St. Clair, Paul R. Keen and David Chrencik) (incorporated
herein by reference to Exhibit 10.1 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.2* Employment Agreement dated February 13, 1989 between the
Company and Paul R. Keen (incorporated herein by reference
to Exhibit 10.2 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.3* Employment Agreement dated October 15, 1986 between the
Company and Michael S. Lipscomb (incorporated herein by
reference to Exhibit 10.3 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.4* Argo-Tech Corporation Trust Agreement dated October 28, 1994
between the Company and Society National Bank, as Trustee,
relating to the Employment Agreement dated October 15, 1986
between the Company and Michael S. Lipscomb (incorporated
herein by reference to Exhibit 10.4 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
</TABLE>

30
<PAGE> 32

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.5* Argo-Tech Corporation Salaried Pension Plan, dated November
1, 1995 (incorporated herein by reference to Exhibit 10.5 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.6* First Amendment to Argo-Tech Corporation Salaried Pension
Plan (incorporated herein by reference to Exhibit 10.6 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.7* Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.7 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.8* First Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated October 26, 1994
(incorporated herein by reference to Exhibit 10.8 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.9* Second Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated May 9, 1996
(incorporated herein by reference to Exhibit 10.9 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.10* Third Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated July 18, 1997
(incorporated herein by reference to Exhibit 10.10 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.11* Argo-Tech Corporation Employee Stock Ownership Plan Excess
Benefit Plan, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.11 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.12 AT Holdings Corporation 1994 Stockholders' Agreement, dated
May 17, 1994 (incorporated herein by reference to Exhibit
10.12 of the Company's Registration Statement on form S-1,
filed October 17, 1997, SEC File No. 333-38223).
10.13 First Amendment to AT Holdings Corporation 1994
Stockholders' Agreement, dated May 1, 1997 (incorporated
herein by reference to Exhibit 10.13 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.14 Second Amendment to AT Holdings Corporation 1994
Stockholders' Agreement, dated July 18, 1997 (incorporated
herein by reference to Exhibit 10.14 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.15 AT Holdings Corporation Supplemental Stockholders Agreement,
dated May 17, 1994 (incorporated herein by reference to
Exhibit 10.15 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.16 First Amendment to AT Holdings Corporation Supplemental
Stockholders Agreement, dated July 18, 1997 (incorporated
herein by reference to Exhibit 10.16 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.17 Amendment, Termination and Release under Vestar/AT Holdings
Corporation Stockholders' Agreement, dated May 17, 1994
(incorporated herein by reference to Exhibit 10.17 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.18 Consulting Agreement between the Company and Vestar Capital
Partners dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.18 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.19* Form of Management Incentive Compensation Plan for key
employees of the Company (incorporated herein by reference
to Exhibit 10.19 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.20* 1991 Management Incentive Stock Option Plan, as amended,
dated May 16, 1994 (incorporated herein by reference to
Exhibit 10.20 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.21* Form of Stock Option Agreement in connection with the
Management Incentive Stock Option Plan, as amended, between
the Company and all members of the Company's Executive Staff
(incorporated herein by reference to Exhibit 10.21 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.22* 1991 Performance Stock Option Plan, as amended, dated May
16, 1997 (incorporated herein by reference to Exhibit 10.22
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
</TABLE>

31
<PAGE> 33

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.23* Form of Stock Option Agreement in connection with the 1991
Performance Stock Option Plan, as amended, between the
Company and certain key employees (incorporated herein by
reference to Exhibit 10.23 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.24 Credit Facility, dated July 18, 1997, as amended and
restated as of September 26, 1997, between the Company and
Chase Manhattan Bank (incorporated herein by reference to
Exhibit 10.24 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.25 Distributorship Agreement, dated December 24, 1990, between
the Company, Yamada Corporation and Vestar Capital Partners,
Inc. (incorporated herein by reference to Exhibit 10.25 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.26 Japan Distributorship Agreement, dated December 24, 1990,
between the Company, Aerotech World Trade Corporation,
Yamada Corporation, Yamada International Corporation and
Vestar Capital Partners, Inc. (incorporated herein by
reference to Exhibit 10.26 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.27 Stock Purchase Agreement, dated August 1, 1997, between the
Company, J.C. Carter Company, Inc., Robert L. Veloz,
Individually and as Trustee, Marlene J. Veloz, Individually
and as Trustee, Edith T. Derbyshire, Individually and as
Trustee, Harry S. Derbyshire, Individually and as Trustee,
Michael Veloz, Katherine Canfield and Maureen Partch, as
Trustee (incorporated herein by reference to Exhibit 10.27
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.28* Prism Prototype Retirement Plan & Trust & 401(k) Profit
Sharing Plan Adoption Agreement, dated November 1, 1994
(incorporated herein by reference to Exhibit 10.28 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333- 38223).
10.29* Prism Prototype Retirement Plan and Trust (incorporated
herein by reference to Exhibit 10.29 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.30 Agreement of Purchase and Sale between Agnem Holdings, Inc.
and TRW Inc. dated as of August 5, 1986 (incorporated herein
by reference to Exhibit 10.30 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.31* 1997 Stock Appreciation Rights Plan.
12 Statement regarding computation of ratios.
21 List of Subsidiaries (incorporated herein by reference to
Exhibit 21 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>

- ---------------

* Reflects management contract or other compensatory arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this Report.

(b) We did not file any reports on Form 8-K during the fourth quarter of 1997.

(d) No financial statement schedules are required to be filed herein, therefore,
none are listed under Item 14(a)(2).

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT

No annual report or proxy statement covering our last fiscal year has been
or will be circulated to security holders.

32
<PAGE> 34

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 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.

ARGO-TECH CORPORATION

By: /s/ FRANCES S. ST. CLAIR
--------------------------------------
Frances S. St. Clair
Vice President and Chief Financial
Officer
Date: January 29, 1999

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

* Chairman, President and Chief January 29, 1999
- ------------------------------------ Executive Officer and Director
Michael S. Lipscomb (Principal Executive Officer)

/s/ FRANCES S. ST. CLAIR Vice President and Chief Financial January 29, 1999
- ------------------------------------ Officer (Principal Financial
Frances S. St. Clair Officer)

* Controller (Principal Accounting January 29, 1999
- ------------------------------------ Officer)
Paul A. Sklad

* Director January 29, 1999
- ------------------------------------
Remi de Chastenet

* Director January 29, 1999
- ------------------------------------
Thomas F. Dougherty

* Director January 29, 1999
- ------------------------------------
Yoichi Fujiki

* Director January 29, 1999
- ------------------------------------
Robert Y. Nagata

* Director January 29, 1999
- ------------------------------------
Karl F. Storrie
</TABLE>

- ---------------

* The undersigned, by signing her name hereto, does sign and execute this Annual
Report on Form 10-K pursuant to the Powers of Attorney executed by the
above-named officers and Directors of the Company and filed with the
Securities and Exchange Commission on behalf of such officers and Directors.

By: /s/ FRANCES S. ST. CLAIR
--------------------------------------
FRANCES S. ST. CLAIR,
ATTORNEY-IN-FACT

33
<PAGE> 35

ARGO-TECH CORPORATION AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K:
FISCAL YEAR ENDED OCTOBER 31, 1998

ITEM 8 AND ITEM 14(a)(1)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE> 36

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets
at October 31, 1998 and October 25, 1997.................. F-2
Consolidated Statements of Net Income
for the Fiscal Years Ended
October 31, 1998, October 25, 1997 and October 26, 1996... F-3
Consolidated Statements of Shareholders'
Equity/(Deficiency) for the Fiscal Years Ended
October 31, 1998, October 25, 1997 and October 26, 1996... F-4
Consolidated Statements of Cash Flows
for the Fiscal Years Ended
October 31, 1998, October 25, 1997 and October 26, 1996... F-5
Notes to Consolidated Financial Statements.................. F-6 - F-17
</TABLE>
<PAGE> 37

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors
of Argo-Tech Corporation and Subsidiaries
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

We have audited the accompanying consolidated balance sheets of Argo-Tech
Corporation and Subsidiaries (A Wholly-Owned Subsidiary of AT Holdings
Corporation) (the "Company") as of October 31, 1998 and October 25, 1997 and the
related consolidated statements of net income, shareholders'
equity/(deficiency), and cash flows for each of the three years in the period
ended October 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of October 31, 1998
and October 25, 1997, and the results of their net income and their cash flows
for each of the three years in the period ended October 31, 1998 in conformity
with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

December 18, 1998
Cleveland, Ohio

F-1
<PAGE> 38

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND OCTOBER 25, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 11,578 $ 9,361
Receivables, net.......................................... 23,866 24,383
Inventories............................................... 29,528 38,354
Deferred income taxes and prepaid expenses................ 5,353 1,636
-------- --------
Total current assets.............................. 70,325 73,734
-------- --------
PROPERTY AND EQUIPMENT, net of accumulated depreciation..... 35,982 37,181
GOODWILL, net of accumulated amortization................... 117,761 121,191
INTANGIBLE ASSETS........................................... 56,223 60,245
OTHER ASSETS................................................ 7,904 8,609
-------- --------
Total Assets...................................... $288,195 $300,960
======== ========
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 5,946 $ 6,904
Accounts payable.......................................... 7,671 6,369
Accrued liabilities....................................... 19,791 17,814
-------- --------
Total current liabilities......................... 33,408 31,087
-------- --------
LONG-TERM DEBT, net of current maturities................... 221,440 241,958
OTHER NONCURRENT LIABILITIES................................ 30,685 32,137
-------- --------
Total Liabilities................................. 285,533 305,182
-------- --------
REDEEMABLE COMMON STOCK..................................... 6,713 4,813
REDEEMABLE ESOP STOCK....................................... 41,475 29,826
Unearned ESOP stock....................................... (9,240) (10,920)
-------- --------
32,235 18,906
SHAREHOLDERS' EQUITY/(DEFICIENCY):
Common Stock, $.01 par value, authorized 3,000 shares; 1
share issued and outstanding........................... -- --
Paid-in capital........................................... -- --
Accumulated deficit....................................... (36,286) (27,941)
-------- --------
Total shareholders' equity/(deficiency)........... (36,286) (27,941)
-------- --------
Total Liabilities and Shareholders' Equity/(Deficiency)..... $288,195 $300,960
======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-2
<PAGE> 39

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

CONSOLIDATED STATEMENTS OF NET INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, OCTOBER 25, 1997 AND OCTOBER 26,
1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenues............................................... $174,143 $117,086 $ 96,437
Cost of revenues........................................... 107,203 70,954 57,882
-------- -------- --------
Gross profit.......................................... 66,940 46,132 38,555
-------- -------- --------
Selling, general and administrative........................ 24,521 10,948 10,006
Research and development................................... 6,880 5,682 6,429
Amortization of intangible assets.......................... 7,480 2,852 2,842
-------- -------- --------
Operating expenses.................................... 38,881 19,482 19,277
-------- -------- --------
Income from operations..................................... 28,059 26,650 19,278
Interest expense........................................... 21,030 12,827 10,138
Other, net................................................. (268) (404) (112)
-------- -------- --------
Income before income taxes and extraordinary loss.......... 7,297 14,227 9,252
Income tax provision....................................... 3,400 4,841 3,608
-------- -------- --------
Income before extraordinary loss........................... 3,897 9,386 5,644
Extraordinary loss, net of income tax benefit of $1,019.... -- 1,529 --
-------- -------- --------
Net income................................................. $ 3,897 $ 7,857 $ 5,644
======== ======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
<PAGE> 40

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIENCY)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, OCTOBER 25, 1997 AND OCTOBER 26,
1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 28, 1995........................ $-- $-- $(25,617) $(25,617)
Net income....................................... 5,644 5,644
Dividends accrued on preferred stock............. (3,848) (3,848)
Accretion of redeemable common stock............. (756) (756)
Accretion of redeemable ESOP stock............... (3,878) (3,878)
Other, net....................................... 236 236
--- --- -------- --------
BALANCE, OCTOBER 26, 1996........................ -- -- (28,219) (28,219)
Net income....................................... 7,857 7,857
Dividends accrued on preferred stock............. (1,527) (1,527)
Accretion of redeemable common stock............. (746) (746)
Accretion of redeemable ESOP stock............... (4,012) (4,012)
Additional minimum pension liability............. (792) (792)
Other, net....................................... (502) (502)
--- --- -------- --------
BALANCE, OCTOBER 25, 1997........................ -- -- (27,941) (27,941)
Net income....................................... 3,897 3,897
Accretion of redeemable common stock............. (1,900) (1,900)
Accretion of redeemable ESOP stock............... (9,418) (9,418)
Additional minimum pension liability............. (882) (882)
Other, net....................................... (42) (42)
--- --- -------- --------
BALANCE, OCTOBER 31, 1998........................ $-- $-- $(36,286) $(36,286)
=== === ======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
<PAGE> 41

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, OCTOBER 25, 1997 AND OCTOBER 26,
1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 3,897 $ 7,857 $ 5,644
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 6,809 4,665 4,620
Amortization of goodwill and deferred financing
costs.......................................... 8,470 3,747 4,033
Compensation expense recognized in connection with
employee stock ownership plan.................. 3,911 2,920 2,329
Deferred rental income............................ (288)
Amortization of inventory step-up................. 10,681 1,496
Deferred income taxes............................. (6,074) (413) 825
Extraordinary loss on early extinguishment of
debt........................................... 1,529
Changes in operating assets and liabilities:
Receivables.................................... 517 (4,001) 434
Inventories.................................... (1,855) 517 (168)
Prepaid expenses............................... 78 115 958
Accounts payable............................... 1,302 (1,073) 291
Accrued and other liabilities.................. 1,666 (377) (2,972)
Other, net........................................ 369 615 236
--------- --------- ---------
Net cash provided by operating activities.............. 29,771 17,597 15,942
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of J.C. Carter............................. (107,562)
Capital expenditures................................... (5,610) (2,690) (3,355)
--------- --------- ---------
Net cash used in investing activities.................. (5,610) (110,252) (3,355)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowing of long-term debt................. 156,100
Repayment of long-term debt............................ (21,476) (155,090) (11,000)
Redemption of redeemable preferred stock............... (25,908)
Payment of redeemable preferred dividends.............. (19,298)
Sale of Senior Subordinated Notes...................... 140,000
Payment of financing related fees...................... (468) (7,344)
--------- --------- ---------
Net cash provided by (used in) financing activities.... (21,944) 88,460 (11,000)
--------- --------- ---------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the period................. 2,217 (4,195) 1,587
Balance, Beginning of period........................... 9,361 13,556 11,969
--------- --------- ---------
Balance, End of period................................. $ 11,578 $ 9,361 $ 13,556
========= ========= =========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
<PAGE> 42

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, OCTOBER 25, 1997 AND OCTOBER 26,
1996
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION

Argo-Tech Corporation and Subsidiaries' (the "Company") (A Wholly-Owned
Subsidiary of AT Holdings Corporation) principal operations include the design,
manufacture and distribution of aviation products, primarily aircraft fuel
pumps, throughout the world. In addition, the Company leases a portion of its
manufacturing facility to other parties. The Company's fiscal year ends on the
last Saturday in October. The fiscal year ended October 31, 1998 consisted of 53
weeks and the fiscal years ended October 25, 1997 and October 26, 1996 each
consisted of 52 weeks. The Company is obligated to fulfill certain obligations
of AT Holdings Corporation. As a result, those obligations have been reflected
in the Company's financial statements. Certain reclassifications have been made
in the prior years' financial statements to conform to the current year
presentation.

Effective August 3, 1997, the Company established itself as a parent,
holding company with 3 wholly-owned operating guarantor subsidiaries, Argo-Tech
Corporation (HBP), Argo-Tech Corporation (OEM) and Argo-Tech Corporation
(Aftermarket). On September 26, 1997, the Company acquired a fourth wholly-owned
operating guarantor subsidiary, J.C. Carter Company, Inc. ("Carter") (Note 3).
The Company has no outside assets, liabilities or operations apart from its
wholly-owned subsidiaries. The Senior Subordinated Notes (Note 10) are fully,
unconditionally, jointly and severally guaranteed by the guarantor subsidiaries,
and therefore, separate financial statements of the guarantor subsidiaries will
not be presented. The Company also has two wholly-owned, non-guarantor
subsidiaries that have inconsequential assets, liabilities and equity, and their
only operations are the result of intercompany activity which is immediately
dividended back to the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company. All material intercompany accounts and
transactions between these entities have been eliminated.

CASH EQUIVALENTS -- Cash equivalents represent short-term investments with
an original maturity of three months or less.

RECEIVABLES -- The Company does not generally require collateral or other
security to guarantee trade receivables.

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.

PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost and are
depreciated using the straight-line or an accelerated method over their
estimated useful lives as follows:

<TABLE>
<S> <C>
Buildings and improvements.................................. 7 to 30 years
Equipment................................................... 3 to 10 years
</TABLE>

GOODWILL -- Goodwill is amortized on a straight-line basis over forty
years. Accumulated amortization at October 31, 1998 and October 25, 1997 was
$20,902,000 and $17,450,000, respectively. The Company assesses the
recoverability of goodwill by determining whether the amortization over the
remaining life can be recovered through projected undiscounted future
operations.

DEFERRED FINANCING COSTS -- The costs of obtaining financing are amortized
over the terms of the financing. The amortized cost is included in interest
expense in the consolidated statements of net income. Accumulated amortization
at October 31, 1998 and October 25, 1997 was $1,129,000, and $138,000
respectively.

F-6
<PAGE> 43

REDEEMABLE STOCK -- Redeemable ESOP Stock and all shares of Redeemable
Common Stock have been excluded from Shareholders' Equity/(Deficiency) due to
the ability of the holders to "put", subject to certain restrictions, the shares
to the Company and the accretion of the Redeemable ESOP and Common Stock has
been charged to Accumulated Deficit.

REVENUES AND COST RECOGNITION -- Revenues are generally recognized when
goods are shipped or services provided.

The Company's product development activities are conducted principally
under cost-sharing arrangements that are funded by the Company. The need for and
timing of expenditures under these arrangements is generally determined by the
Company. The estimated unreimbursable costs under the activities are expensed as
incurred.

Costs and estimated earnings in excess of billings on uncompleted contracts
represents costs incurred plus estimated profit, less amounts billed to
customers. Incurred costs include production costs and related overhead. General
and administrative expenses and research and development expenses are considered
period costs and, accordingly, are charged to operations on a current basis.
Certain customers have title to, or security interest in, certain inventories by
reason of progress payments.

EXTRAORDINARY LOSS -- In connection with the early extinguishment of debt
under the Company's previous bank credit agreement, the Company recognized an
extraordinary loss in fiscal 1997 of $1.5 million, net of income tax benefit of
$1.0 million, resulting from the write-off of unamortized debt issuance costs.

INCOME TAXES -- Income taxes are accounted for under the asset and
liability approach, which can result in recording tax provisions or benefits in
periods different than the periods in which such taxes are paid or benefits
realized. Expected tax benefits from temporary differences that will result in
deductible amounts in future years and from carryforwards, if it is more likely
than not that such tax benefits will be realized, are recognized currently.

USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

3. ACQUISITION OF J. C. CARTER, INC.

On September 26, 1997 the Company acquired all of the outstanding shares of
Carter, a manufacturer of aircraft fluid control component parts, industrial
marine cryogenic pumps, and ground fueling components for $107.6 million,
including acquisition costs. The acquisition was funded by the issuance of
8 5/8% Senior Subordinated Notes (Note 10). The results of Carter's operations
have been combined with those of the Company since the date of acquisition. The
purchase price of $107.6 million exceeded the net assets of Carter at the date
of acquisition by $99.7 million. Of that excess, $60.6 million was assigned to
identified intangible assets as follows:

<TABLE>
<CAPTION>
FAIR ESTIMATED
MARKET VALUE ECONOMIC LIFE
------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Workforce........................................... $ 4,900 8 Years
Contracts........................................... 17,100 10 Years
Spare Parts Annuity................................. 38,200 10-28 Years
Patents............................................. 380 14-17 Years
-------
Total..................................... $60,580
=======
</TABLE>

Accumulated amortization of intangible assets at October 31, 1998 and
October 25, 1997 was $4,357,000 and $335,000, respectively.

F-7
<PAGE> 44

The remaining excess of $39.1 million was considered goodwill that is being
amortized on a straight-line basis over 40 years.

The acquisition was accounted for using the purchase method of accounting,
and accordingly, an allocation of the purchase price has been made using
estimated fair market values of the assets acquired and liabilities assumed as
of the acquisition date.

The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Carter as if the
acquisition had occurred October 29, 1995.

<TABLE>
<CAPTION>
1997(a) 1996(b)
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues................................................ $160,117 $138,003
Net income.............................................. $ 7,091 $ 274
</TABLE>

- ---------------

(a) Twelve months ended October 25, 1997 for Carter.

(b) Twelve months ended September 30, 1996 for Carter.

These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional depreciation
expense as a result of a step-up in the basis of fixed assets, additional
amortization expense as a result of goodwill and other intangible assets, an
increase in the interest expense on the acquisition debt, and an adjustment on
certain shareholder expenses which were terminated concurrent with the
acquisition. In management's opinion, the unaudited pro forma combined results
of operations are not indicative of the actual results that would have occurred
had the acquisition been consummated at the beginning of fiscal year 1996 or of
future operations of the combined companies under the ownership and management
of the Company.

4. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

The major components of the following balance sheet captions were (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Accrued liabilities:
Salaries and accrued compensation.................... $ 9,179 $ 8,609
Accrued interest..................................... 1,046 979
Accrued warranty..................................... 2,631 2,778
Other................................................ 6,935 5,448
------- -------
Total........................................ $19,791 $17,814
======= =======
Other noncurrent liabilities:
Deferred income taxes................................ $20,955 $23,300
Other................................................ 9,730 8,837
------- -------
Total........................................ $30,685 $32,137
======= =======
</TABLE>

F-8
<PAGE> 45

5. RECEIVABLES

Receivables consist of the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Amounts billed -- net of allowance for uncollectible
amounts of $260 and $142............................. $22,773 $23,047
Amounts unbilled (principally commercial customers):
Net reimbursable costs incurred on uncompleted
contracts......................................... 14,367 13,775
Billings to date..................................... (13,274) (12,439)
------- -------
Total unbilled -- net........................ 1,093 1,336
------- -------
Net receivables........................................ $23,866 $24,383
======= =======
</TABLE>

6. INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Finished goods......................................... $ 2,289 $ 1,874
Work-in-process and purchased parts.................... 18,668 19,918
Raw materials and supplies............................. 12,037 20,160
------- -------
Total........................................ 32,994 41,952
Reserve for excess and obsolete inventory.............. (3,466) (3,598)
------- -------
Inventories -- net..................................... $29,528 $38,354
======= =======
</TABLE>

Inventory is recorded net of progress payments received of approximately
$1.4 and $2.7 million at October 31, 1998 and October 25, 1997, respectively.

The Carter inventory amounts at September 26, 1997 were increased by $12.2
million to record inventories at their fair value as of the date of acquisition
in accordance with Accounting Principles Board Opinion No. 16 -- "Business
Combinations." Based on Carter's inventory turnover rate, $10.7 and $1.5 million
of this amount is included in cost of revenues for the fiscal years ended
October 31, 1998 and October 25, 1997, respectively.

7. PROPERTY AND EQUIPMENT

OWNED PROPERTY -- Property and equipment owned by the Company consists of
the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Land and land improvements............................. $ 7,628 $ 7,628
Buildings and building equipment....................... 32,168 31,941
Machinery and equipment................................ 32,724 31,927
Office and automotive equipment........................ 6,063 5,714
Construction-in-progress............................... 3,685 1,094
-------- --------
Total........................................ 82,268 78,304
Accumulated depreciation............................... (46,286) (41,123)
-------- --------
Total -- net................................. $ 35,982 $ 37,181
======== ========
</TABLE>

F-9
<PAGE> 46

PROPERTY LEASED TO OTHERS -- The Company leases certain portions of its
facility in Euclid, Ohio. The leases have been accounted for as operating leases
whereby revenue is recognized as earned over the lease terms. The cost of
property leased to others is included in property and equipment and is being
depreciated over its estimated useful life. It is not practical to determine the
cost of the property that is being leased to others or the related amount of
accumulated depreciation. In addition, the Company has separate service
contracts with its tenants under which the Company provides maintenance,
telecommunications and various other services. A large portion of the Company's
cost related to the receipts based on usage is variable in nature.

Total rental revenue under the property leases and service contracts was as
follows for the fiscal years ended 1998, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Minimum contractual amounts under property
leases........................................... $4,010 $3,960 $6,056
Service contracts revenue based on usage........... 759 949 1,484
------ ------ ------
Total.................................... $4,769 $4,909 $7,540
====== ====== ======
</TABLE>

Future minimum rentals under the noncancelable property leases and service
contracts at October 31, 1998 are (in thousands): $3,064 in 1999, $1,811 in
2000, $1,731 in 2001, $1,675 in 2002, and $799 in 2003.

8. EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK OWNERSHIP PLAN -- The Company has an Employee Stock
Ownership Plan (ESOP) to provide retirement benefits to qualifying, salaried
employees. The ESOP grants to participants in the plan certain ownership rights
in, but not possession of, the common stock of the Company held by the Trustee
of the Plan. Shares of common stock are allocated annually to participants in
the ESOP pursuant to a prescribed formula. The value of the shares committed to
be released by the Trustee under the Plan's provisions for allocation to
participants was recognized as an expense of $3,911,000, $2,920,000 and
$2,329,000 for the fiscal years ended 1998, 1997 and 1996, respectively. The
cost of the shares acquired for the ESOP that are not committed to be released
to participants is shown as a contra-account, "Unearned ESOP shares".

Summary information regarding ESOP activity consists of the following:

<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Allocated shares.......................................... 147,000 105,000
Shares released for allocation............................ 42,000 42,000
Unearned ESOP shares...................................... 231,000 273,000
----------- -----------
Total ESOP shares......................................... 420,000 420,000
Repurchased shares received as distributions.............. (5,708) (4,480)
----------- -----------
Total available ESOP shares............................... 414,292 415,520
=========== ===========
Fair market value of unearned ESOP shares................. $23,125,410 $19,595,940
=========== ===========
</TABLE>

All of the shares acquired for the ESOP (both allocated and unearned
shares) are owned and held in trust by the ESOP.

The Company's stock is not listed or traded on an active stock market and
market prices are, therefore, not available. Annually, an independent financial
consulting firm determines the fair market value based upon the Company's
performance and financial condition.

The Company provides an "internal market" for shareholders through its
purchase of their common shares. Participants in the Company's ESOP have the
right to require the Company, within a specified period, to repurchase shares
received as distributions under the ESOP at their fair market value.

F-10
<PAGE> 47

PENSION AND SAVINGS PLANS -- The Company has two noncontributory defined
benefit pension plans for qualifying hourly and salary employees. A plan
covering salaried employees provides pension benefits that are based on the
employees' compensation and years of service. The future accrual of benefits was
terminated in connection with the formation of the ESOP. A plan covering hourly
employees provides benefits of stated amounts for each year of service. The
Company's funding policy is to contribute actuarially determined amounts
allowable under Internal Revenue Service regulations. The Company also sponsors
three employee savings plans which cover substantially all of the Company's
employees. The plan covering Carter employees provides for a match of
participating employees' contributions. The Company's contribution, recognized
as expense was approximately $481,000 and $50,000 in fiscal years 1998 and 1997,
respectively.

A summary of the components of net periodic pension cost for the pension
plans for the fiscal years ended 1998, 1997 and 1996 is as follows (in
thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period........... $ 219 $ 201 $ 218
Interest cost on projected benefit obligation............... 1,042 971 805
Actual return on plan assets................................ (1,867) (2,524) (1,488)
Net amortization and deferral............................... 585 1,429 483
------- ------- -------
Net periodic pension cost (benefit)......................... $ (21) $ 77 $ 18
======= ======= =======
</TABLE>

The following table sets forth the funded status of the plans and amounts
recognized in the Company's balance sheets for its pension plans (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31, 1998 OCTOBER 25, 1997
-------------------------- --------------------------
(ACCUMULATED (ASSETS (ACCUMULATED (ASSETS
BENEFITS EXCEED BENEFITS EXCEED
EXCEED ACCUMULATED EXCEED ACCUMULATED
ASSETS) BENEFITS) ASSETS) BENEFITS)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation................ $(7,080) $(8,653) $(5,585) $(8,295)
======= ======= ======= =======
Accumulated benefit obligation........... $(7,208) $(8,653) $(5,596) $(8,295)
======= ======= ======= =======
Projected benefit obligation............. $(7,208) $(8,653) $(5,596) $(8,295)
Plan assets at fair value.................. 5,886 11,243 3,429 10,177
------- ------- ------- -------
Projected benefit obligation (in excess of)
or less than plan assets................. (1,322) 2,590 (2,167) 1,882
Unrecognized prior service cost............ 360 405
Unrecognized net (gain) or loss from past
experience different from that assumed... 1,674 (3,187) 614 (3,023)
Adjustment required to recognize minimum
liability................................ (2,034) (1,019)
------- ------- ------- -------
Accrued pension cost recognized in the
consolidated balance sheets.............. $(1,322) $ (597) $(2,167) $(1,141)
======= ======= ======= =======
</TABLE>

The assumptions used to determine net periodic pension cost as well as the
funded status are:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.0% 7.5% 8.0%
Long-term rate of return on plan assets..................... 9.0% 9.0% 9.0%
</TABLE>

The plans' assets consist primarily of insurance company pooled separate
accounts.

F-11
<PAGE> 48

OTHER POSTRETIREMENT BENEFITS -- The Company provides certain
postretirement health care benefits to qualifying hourly retirees and their
dependents. Effective November 1, 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This statement requires that costs
of these postretirement benefits be accrued during an employee's active working
career.

The Company implemented SFAS No. 106 on the immediate recognition basis by
recording a postretirement benefit obligation of $5,809,000, and, according to
Statement provisions related to business combinations occurring after December
21, 1990, a resulting increase in Goodwill and Deferred Income Taxes of
$3,485,000 and $2,324,000, respectively was recorded.

The net postretirement benefit cost for the fiscal years ended 1998, 1997
and 1996 includes the following components (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $177 $149 $158
Interest cost on accumulated postretirement benefit
obligation................................................ 674 592 460
Net amortization and deferral............................... 91 33 --
---- ---- ----
Net postretirement benefit cost............................. $942 $774 $618
==== ==== ====
</TABLE>

Benefit costs were generally estimated assuming retiree health care costs
would initially increase at an 11% annual rate, decreasing gradually to a 5%
annual growth rate after 12 years and remain at a 5% annual growth rate
thereafter. A 1% increase in this annual trend rate would have increased the
accumulated postretirement benefit obligation at October 31, 1998 by $1,660,000
with a corresponding effect on the 1998 postretirement benefit expense of
$164,000. The discount rate used to estimate the accumulated postretirement
benefit obligation was 7.0%, 7.5% and 8.0% for fiscal years 1998, 1997 and 1996,
respectively.

The following table sets forth the unfunded obligation and amounts
recognized in the Company's balance sheets for its postretirement benefit
obligation (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents................................... $(5,488) $(3,843)
Fully eligible active plan participants................... (1,578) (1,756)
Other active participants................................. (3,627) (3,135)
------- -------
(10,693) (8,734)
Unrecognized net loss from past experience different from
that assumed.............................................. 2,913 1,823
------- -------
Accrued postretirement benefit cost in the consolidated
balance sheets............................................ $(7,780) $(6,911)
======= =======
</TABLE>

9. INCOME TAXES

The income tax provision consists of the following for the fiscal years
ended 1998, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Current tax provision:
Federal................................................ $8,931 $4,118 $2,153
State and local........................................ 543 117 630
------ ------ ------
Total.......................................... 9,474 4,235 2,783
Deferred tax provision (benefit)......................... (6,074) (413) 825
------ ------ ------
Income tax provision..................................... $3,400 $3,822 $3,608
====== ====== ======
</TABLE>

F-12
<PAGE> 49

The difference between the recorded income tax provision and the amounts
computed using the statutory U.S. Federal income tax rate are as follows (in
thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Income tax provision at statutory rate................... $2,554 $3,988 $3,146
State tax provision -- net of federal benefits........... 353 100 416
Other -- net............................................. 493 (266) 46
------ ------ ------
Income tax provision..................................... $3,400 $3,822 $3,608
====== ====== ======
</TABLE>

During the fiscal years ended 1998, 1997 and 1996 the Company paid (net of
refunds received) approximately $8.3, $4.6 and $2.6 million in income taxes,
respectively.

The components of the Company's net deferred tax asset (liability) are as
follows (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Current:
Deductible temporary differences.......................... $ 4,837 $ 5,368
Inventories............................................... (69) (4,329)
-------- --------
Total............................................. $ 4,768 $ 1,039
======== ========
Long-term:
Salary/Hourly retiree medical............................. $ 2,867 $ 2,677
Deductible temporary differences.......................... 729 714
Property and equipment.................................... (1,373) (2,593)
Intangible assets......................................... (23,178) (24,098)
-------- --------
Total............................................. $(20,955) $(23,300)
======== ========
</TABLE>

The temporary difference described above principally represent differences
between the tax bases of assets (principally inventory, property and equipment,
and intangible assets) or liabilities (principally related to employee benefits
and loss reserves) and their reported amounts in the consolidated financial
statements that will result in taxable or deductible amounts in future years
when the reported amounts of the assets or liabilities are recovered or settled,
respectively.

10. DEBT

SUMMARY -- The Company's long-term debt consists of the following (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Term loans............................................ $ 87,212 $108,625
Senior Subordinated Notes............................. 140,000 140,000
Other................................................. 174 237
-------- --------
Total borrowings............................ 227,386 248,862
Current maturities.................................... (5,946) (6,904)
-------- --------
Long-term portion..................................... $221,440 $241,958
======== ========
</TABLE>

CREDIT FACILITY AND TERM LOANS -- In July 1997, the Company refinanced its
Old Credit Facility with the New Credit Facility, consisting of a seven-year
$100.0 million term loan, a seven-year $20.0 million revolving credit facility
and a seven-year $15.0 million Delayed Draw Acquisition Loan. In connection with
the July refinancing, the Company recorded an extraordinary charge of $2.5
million, consisting primarily of the write-off of unamortized financing costs
related to its Old Credit Facility.

F-13
<PAGE> 50

On September 26, 1997, the Company amended the New Credit Facility to allow
for, among other things, the acquisition of Carter and the issuance of the
Senior Subordinated Notes. Under the Amended Credit Facility, the Company has
$110.0 million principal amount of Term Loans, of which $87.2 million is
outstanding at October 31, 1998, and also has available a seven-year $20.0
million Revolving Credit Facility. The unused balance of the Revolving Credit
Facility ($19.7 million at October 31, 1998) is subject to a .375% commitment
fee. The credit facility is collateralized by substantially all of the tangible
assets of the Company (including the capital stock of Argo-Tech) as well as the
unearned shares of the Company's common stock held by the ESOP. The Amended
Credit Facility contains a number of covenants that, among other things, limit
the Company'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 Amended Credit Facility also requires the Company to
comply with certain financial ratios and tests, under which the Company will be
required to achieve certain financial and operating results. The Company was in
compliance with the covenants at October 31, 1998. Interest was calculated, at
the Company's choice, using an alternate base rate (ABR) or LIBOR, plus a
supplemental percentage determined by the ratio of debt to EBITDA. The interest
rate for fiscal year 1998 ranged from 0.25% to 1.00% plus ABR or 1.25% to 2.00%
plus LIBOR.

The Company had entered into three interest rate swap agreements with a
financial institution which fixed the interest rate on the notional amounts of
$20.0 million at 5.80% and $20.0 million at 5.715% through October 1997, and
$30.0 million at 6.66% through October 2000. In July 1997, the Company
refinanced its Old Credit Facility and unwound $40.0 million of the swap
agreements which were to terminate in October 1997. The remaining $30.0 million
swap was transferred to another financial institution in notional amounts of
$10.0 million which fixed the rates at 6.775%, 6.775% and 6.805% through October
2000. On October 1, 1998 the Company terminated a $10.0 million swap that had a
fixed rate of 6.775% and was to terminate on October 27, 2000 and replaced it
with a $10.0 million swap that has a fixed rate of 6.08% and will now terminate
on October 31, 2003. The gains/losses on the swap agreements were recognized as
interest expense and amounted to a $0.4 million loss in fiscal year 1998, a $0.3
million loss in fiscal year 1997 and a $0.4 million loss in fiscal year 1996.
The Company has no other derivative financial instruments.

SENIOR SUBORDINATED NOTES -- The 8 5/8% Senior Subordinated Notes due 2007
(the "Notes") were issued by the Company on September 26, 1997. Proceeds from
the offering, together with a portion of the borrowings under the Amended Credit
Facility, were used (i) to finance the acquisition of Carter; (ii) to repay in
full $46.1 million in existing notes and; (iii) to pay fees and expenses
incurred in connection with the acquisition.

Interest on the Notes will be payable semiannually on April 1 and October 1
of each year, commencing on April 1, 1998. The Notes will mature on October 1,
2007. Except as described below, the Company may not redeem the Notes prior to
October 1, 2002. On or after such date, the Company may redeem the Notes, in
whole or in part, at the redemption prices at the time, together with accrued
and unpaid interest, if any, to the date of redemption. In addition, at any time
on or prior to October 1, 2000, the Company may, subject to certain
requirements, redeem up to 33 1/3% of the original aggregate principal amount of
the Notes with net cash proceeds of one or more public equity offerings by the
Company, at a redemption price equal to 108.625% of the principal amount to be
redeemed, together with accrued and unpaid interest, if any, to the date of
redemption, provided that at least 66 2/3% of the original aggregate principal
amount of the Notes remains outstanding immediately after each such redemption.

The Notes are unsecured and are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company.

F-14
<PAGE> 51

ANNUAL MATURITIES AND INTEREST PAYMENTS -- The maturities of the Company's
long-term debt during each of the next five fiscal years are as follows (in
thousands):

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
<S> <C>
1999........................................................ $ 5,946
2000........................................................ 9,346
2001........................................................ 11,631
2002........................................................ 18,612
2003........................................................ 20,932
Thereafter.................................................. 160,919
--------
Total............................................. $227,386
========
</TABLE>

The total interest paid during the fiscal years ended 1998, 1997 and 1996
was $20.1 million, $12.5 million and $9.2 million, respectively.

11. REDEEMABLE COMMON STOCK

Redeemable common stock represents a right (a "put") that management
shareholders have to require the Company to repurchase shares of common stock at
the greater of their fair market value or $40 per share, subject to certain
limitations through April 30, 2004. There were 67,059 of these shares
outstanding at October 31, 1998 and October 25, 1997.

12. RELATED PARTY TRANSACTIONS

Management fees and out-of-pocket expenses were charged to operations in
accordance with the provisions of a management agreement between the Company and
a related party. Fees payable to the parent company of the majority shareholder
of AT Holdings Corporation ("AT Holdings") for the guarantee of the Company's
subordinated loan, which was repaid in 1997, were charged to operations. The
total related party fees charged to operations during the fiscal years ended
1997 and 1996 approximated .6% and .8% of net revenues, respectively. There were
no related party fees incurred in fiscal year 1998. In addition, during the
fiscal years ended 1998, 1997 and 1996 sales of $30.9 million, $25.9 million and
$21.1 million, respectively, were made to a related party.

13. MAJOR CUSTOMERS AND EXPORT SALES

During the fiscal years ended 1998, 1997 and 1996, the Company had revenues
in excess of 10% from the following customers (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Customer A...................................... $29,870 $25,896 $21,167
Customer B...................................... -- 14,562 16,177
Customer C...................................... -- 12,740 --
</TABLE>

During the fiscal years ended 1998, 1997 and 1996, export sales to foreign
customers were comprised of the following (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Europe.......................................... $29,812 $18,786 $13,158
All others (individually less than 10%)......... 52,402 40,707 30,911
------- ------- -------
Total................................. $82,214 $59,493 $44,069
======= ======= =======
</TABLE>

F-15
<PAGE> 52

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has various financial instruments, including cash and
short-term investments, interest rate swaps and long-term debt. The Company has
determined the estimated fair value of these financial instruments by soliciting
available market information and utilizing appropriate valuation methodologies
which require judgment. The Company believes that the carrying values of the
short term investments and long term debt approximates their fair value. The
fair value of interest rate swaps (used for hedging purposes) is the estimated
amount that the company would pay to terminate the swap agreements at October
31, 1998, taking into account current interest rates and the current
creditworthiness of the company and the respective financial institution. The
amount the company would pay to settle the three interest rate swap agreements
at October 31, 1998 would be approximately $1.4 million dollars. The company's
balance sheet does not reflect these amounts.

15. CONTINGENCIES

ENVIRONMENTAL MATTERS -- The soil and groundwater at the Company'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 the Company has certain indemnification rights from former
owners of the facilities for liabilities arising from these or other
environmental matters, in the opinion of the Company's management, the ultimate
outcome is not expected to materially affect the Company's financial condition,
results of operations or liquidity.

OTHER MATTERS -- The Company is subject to various legal actions and other
contingencies. In the opinion of the Company's management, after reviewing the
information which is currently available with respect to such matters and
consulting with the Company's legal counsel, any liability which may ultimately
be incurred with respect to these additional matters is not expected to
materially affect the Company's financial condition, results of operations or
liquidity.

16. NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. The Company will adopt this
standard during fiscal 1999. Such adoption is not expected to have a material
effect on the Company.

In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments such as a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. The Company will
adopt this standard during fiscal 1999. Such adoption is not expected to have a
material effect on the Company.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement does not
change the recognition or measurement of pension or postretirement benefit
plans, but standardizes disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures. The
Company will adopt this standard during fiscal 1999. Such adoption is not
expected to have a material effect on the Company.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS 133 is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. The
Company has not completed its evaluation of this statement, but does not
anticipate a material impact on the consolidated financial statements from the
adoption of this accounting standard.

F-16
<PAGE> 53

17. SUBSEQUENT EVENT

On December 17, 1998, AT Holdings entered into an agreement to repurchase
639,510 shares of stock ("Stock Repurchase") from AT Holdings LLC, the company's
largest shareholder, for $79.4 million plus transaction expenses. The
transaction was funded by the proceeds of a $30.0 million cumulative redeemable
exchangeable preferred stock issue by AT Holdings, Argo-Tech Corporation's
issuance of $55.0 million of 8.625% Senior Subordinated Notes issued at a 5%
discount, $50.0 million of which was dividended to AT Holdings, and cash. In
addition, AT Holdings amended its Certificate of Incorporation to provide for
the issuance of the preferred stock and the Company 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 ("SAR Plan"). The SAR Plan provided for grants of
up to 34,450 stock appreciation rights ("SAR's"), 17,225 of which were granted
in fiscal years 1997 and 1998. The remaining 17,225 SAR's were granted in
November 1998. In connection with the Stock Repurchase, all SAR's became fully
vested resulting in a charge to pre-tax earnings of $2.5 million in the first
quarter of fiscal year 1999 and were then converted into fully vested stock
options.

F-17
<PAGE> 54

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
3.2 By-Laws of the Company (incorporated herein by reference to
Exhibit 3.2 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.1 Indenture dated September 26, 1997, between the Company, the
Subsidiary Guarantors signatory thereto and Harris Trust and
Savings Bank, as Trustee, relating to the 8 5/8% Senior
Subordinated Notes due 2007 (the form of which is included
in such Indenture) (incorporated herein by reference to
Exhibit 4.1 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223). .
4.2 Form of Global Exchange Note (included in Exhibit 4.1)
(incorporated herein by reference to Exhibit 4.2 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
4.3 Exchange and Registration Rights Agreement dated September
26, 1997, between the Company, the Subsidiary Guarantors and
Chase Securities Inc. (incorporated herein by reference to
Exhibit 4.3 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
*10.1 Form of Stay Pay and Severance Agreement dated June 6, 1996,
by and among the Company and certain Executive Officers of
the Company (Michael S. Lipscomb, Yoichi Fujiki, Frances S.
St. Clair, Paul R. Keen and David Chrencik) (incorporated
herein by reference to Exhibit 10.1 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
*10.2 Employment Agreement dated February 13, 1989 between the
Company and Paul R. Keen (incorporated herein by reference
to Exhibit 10.2 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
*10.3 Employment Agreement dated October 15, 1986 between the
Company and Michael S. Lipscomb (incorporated herein by
reference to Exhibit 10.3 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
*10.4 Argo-Tech Corporation Trust Agreement dated October 28, 1994
between the Company and Society National Bank, as Trustee,
relating to the Employment Agreement dated October 15, 1986
between the Company and Michael S. Lipscomb (incorporated
herein by reference to Exhibit 10.4 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
*10.5 Argo-Tech Corporation Salaried Pension Plan, dated November
1, 1995 (incorporated herein by reference to Exhibit 10.5 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333- 38223).
*10.6 First Amendment to Argo-Tech Corporation Salaried Pension
Plan (incorporated herein by reference to Exhibit 10.6 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
*10.7 Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.7 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
*10.8 First Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated October 26, 1994
(incorporated herein by reference to Exhibit 10.8 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
*10.9 Second Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated May 9, 1996
(incorporated herein by reference to Exhibit 10.9 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
</TABLE>

X-1
<PAGE> 55
EXHIBIT INDEX -- CONTINUED

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
*10.10 Third Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated July 18, 1997
(incorporated herein by reference to Exhibit 10.10 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
*10.11 Argo-Tech Corporation Employee Stock Ownership Plan Excess
Benefit Plan, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.11 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.12 AT Holdings Corporation 1994 Stockholders' Agreement, dated
May 17, 1994 (incorporated herein by reference to Exhibit
10.12 of the Company's Registration Statement on form S-1,
filed October 17, 1997, SEC File No. 333-38223).
10.13 First Amendment to AT Holdings Corporation 1994
Stockholders' Agreement, dated May 1, 1997 (incorporated
herein by reference to Exhibit 10.13 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.14 Second Amendment to AT Holdings Corporation 1994
Stockholders' Agreement, dated July 18, 1997 (incorporated
herein by reference to Exhibit 10.14 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.15 AT Holdings Corporation Supplemental Stockholders Agreement,
dated May 17, 1994 (incorporated herein by reference to
Exhibit 10.15 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.16 First Amendment to AT Holdings Corporation Supplemental
Stockholders Agreement, dated July 18, 1997 (incorporated
herein by reference to Exhibit 10.16 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.17 Amendment, Termination and Release under Vestar/AT Holdings
Corporation Stockholders' Agreement, dated May 17, 1994
(incorporated herein by reference to Exhibit 10.17 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.18 Consulting Agreement between the Company and Vestar Capital
Partners dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.18 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
*10.19 Form of Management Incentive Compensation Plan for key
employees of the Company (incorporated herein by reference
to Exhibit 10.19 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
*10.20 1991 Management Incentive Stock Option Plan, as amended,
dated May
16, 1994 (incorporated herein by reference to Exhibit 10.20
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
*10.21 Form of Stock Option Agreement in connection with the
Management Incentive Stock Option Plan, as amended, between
the Company and all members of the Company's Executive Staff
(incorporated herein by reference to Exhibit 10.21 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
*10.22 1991 Performance Stock Option Plan, as amended, dated May
16, 1997 (incorporated herein by reference to Exhibit 10.22
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
*10.23 Form of Stock Option Agreement in connection with the 1991
Performance Stock Option Plan, as amended, between the
Company and certain key employees (incorporated herein by
reference to Exhibit 10.23 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
</TABLE>

X-2
<PAGE> 56
EXHIBIT INDEX -- CONTINUED

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.24 Credit Facility, dated July 18, 1997, as amended and
restated on September 26, 1997, between the Company and
Chase Manhattan Bank (incorporated herein by reference to
Exhibit 10.24 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.25 Distributorship Agreement, dated December 24, 1990, between
the Company, Yamada Corporation and Vestar Capital Partners,
Inc. (incorporated herein by reference to Exhibit 10.25 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.26 Japan Distributorship Agreement, dated December 24, 1990,
between the Company, Aerotech World Trade Corporation,
Yamada Corporation, Yamada International Corporation and
Vestar Capital Partners, Inc. (incorporated herein by
reference to Exhibit 10.26 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.27 Stock Purchase Agreement, dated August 1, 1997, between the
Company, J.C. Carter Company, Inc., Robert L. Veloz,
Individually and as Trustee, Marlene J. Veloz, Individually
and as Trustee, Edith T. Derbyshire, Individually and as
Trustee, Harry S. Derbyshire, Individually and as Trustee,
Michael Veloz, Katherine Canfield and Maureen Partch, as
Trustee (incorporated herein by reference to Exhibit 10.27
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
*10.28 Prism Prototype Retirement Plan & Trust & 401(k) Profit
Sharing Plan Adoption Agreement, dated November 1, 1994
(incorporated herein by reference to Exhibit 10.28 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
*10.29 Prism Prototype Retirement Plan and Trust (incorporated
herein by reference to Exhibit 10.29 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.30 Agreement of Purchase and Sale between Agnem Holdings, Inc.
and TRW Inc. dated as of August 5, 1986 (incorporated herein
by reference to Exhibit 10.30 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
*10.31 1997 Stock Appreciation Rights Plan.
12 Statement regarding computation of ratios.
21 List of Subsidiaries (incorporated herein by reference to
Exhibit 21 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
24 Power of Attorney.
27 Financial Data Schedule
</TABLE>

- ---------------

* Reflects management contract or other compensatory arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this Report.

X-3

<PAGE> 1
Exhibit 10.31

ARGO-TECH CORPORATION

1997 STOCK APPRECIATION RIGHTS PLAN
-----------------------------------

1. Pursuant to authority delegated by the full Board of Directors of
Argo-Tech Corporation ("Argo-Tech"), the Compensation and Benefits Committee
(the "Committee") of the Directors of Argo-Tech shall, upon such terms and
conditions consistent herewith as they may determine, authorize the granting to
full-time employees of Argo-Tech and its subsidiaries (employees receiving such
grants being called the "Grantees") of "Stock Appreciation Rights." A "Stock
Appreciation Right" is the right to receive pursuant hereto and in accordance
with a stock appreciation rights agreement in the form prescribed by the
Committee from time to time (the "SAR Agreement"), an amount, in cash (less
appropriate withholdings), equal to the increase, if any, in the value,
determined in accordance with Section 7 below, of one share of AT Holdings
Corporation ("Holdings") Class A Common Stock from a date (the "Initial Date")
specified by the Committee and set forth in each SAR Agreement (which Initial
Date shall not be earlier than May 17, 1994) to the date of exercise of the
Stock Appreciation Right pursuant to the SAR Agreement.

2. The total number of Stock Appreciation Rights which may be granted
pursuant to this 1997 Stock Appreciation Rights Plan shall not exceed
Thirty-Four Thousand, Four Hundred Fifty (34,450) except to the extent of
adjustments authorized pursuant to Section 7.

3. The number of Stock Appreciation Rights to be granted to a Grantee
pursuant to an SAR Agreement may be fixed by the Committee in its sole
discretion. Successive grants of

<PAGE> 2

Stock Appreciation Rights may be made to the same person whether or not the
Stock Appreciation Rights first granted to such person remain unexercised.

4. No Stock Appreciation Right shall be transferable by a Grantee other
than by will or the laws of descent and distribution. Stock Appreciation Rights
shall be exercisable during the Grantee's lifetime only by the Grantee.

5. No Stock Appreciation Right shall be exercised after January 2,
2005.

6. Although Argo-Tech may, in its discretion, make such provision as it
deems advisable for funding the ultimate payment of Stock Appreciation Rights
granted hereunder, no assets of Argo-Tech or its subsidiaries shall be required
to be segregated for that purpose or held in trust for the benefit of Grantees,
it being the intention of this Plan that all Stock Appreciation Rights shall
constitute at all times general unsecured contractual obligations of Argo-Tech.

7. (a) For the purposes of this 1997 Stock Appreciation Rights Plan the
value of each share of AT Holdings Corporation Class A Common Stock (the
"Shares") shall be determined as follows:

(i) if there exists no public market for the Shares or any other
securities of Holdings or Argo-Tech that may have been
substituted for the Shares pursuant to Section 7 (b) herein,
the value per share shall be the fair market value of such
Shares as most recently determined pursuant to the Argo-Tech
Corporation Employee Stock Ownership Plan and Trust; for
this purpose, at May 17, 1994, such value was $40.00 per
share; or

(ii) if there exists a public market for the Shares, their fair
market value shall be the closing price per share of AT
Holdings Corporation Class A Common Stock on the New York
Stock Exchange, as reported on the Composite Tape (or other

-2-
<PAGE> 3

national securities exchange if Holdings Class A Common
Stock is not then traded on the New York Stock Exchange),
for the day of valuation (or if there is no trading of the
Class A Common Stock on that date, then the last preceding
date on which there was trading), or if the AT Holdings
Corporation Class A Common Stock is not then listed on a
national exchange, then the average of the per share closing
bid and asked prices in the over-the-counter market as
reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or, if not so reported
by NASDAQ, as reported by the National Quotation Bureau,
Inc. or any successor organization.

(b) The Argo-Tech Board of Directors shall make or provide for such
adjustments in the number of Stock Appreciation Rights granted under this 1997
Stock Appreciation Rights Plan, or in the securities of Holdings on which such
rights shall be based, as such Board of Directors, in its sole discretion,
exercised in good faith, may determine is equitably required to prevent dilution
or enlargement of the rights of Grantees that would otherwise result from (i)
any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of AT Holdings Corporation, (ii) any
merger, consolidation, separation, reorganization, partial or complete
liquidation or issuance of rights or warrants to purchase stock of AT Holdings
Corporation, or (iii) any other corporate transaction or event having an effect
similar to any of the foregoing. The Argo-Tech Board of Directors may also make
or provide for such adjustments in the number of Stock Appreciation Rights
specified in Paragraph 2 of this Plan as such Board in its sole discretion,
exercised in good faith, may determine is appropriate to reflect any transaction
or event described in this Paragraph.

-3-
<PAGE> 4

8. The number of Stock Appreciation Rights, the Initial Date from which
the relevant increase in value is to be determined, and other terms and
conditions of the Stock Appreciation Rights granted pursuant hereto shall be set
forth in an SAR Agreement. The form of each SAR Agreement shall be prescribed by
the Committee and any SAR Agreement evidencing an outstanding Stock Appreciation
Right may, with the concurrence of the affected Grantee be amended, provided
that the terms and conditions of each such SAR Agreement and amendment are not
inconsistent with this 1997 Stock Appreciation Rights Plan.

9. Pursuant to authority granted by the Argo-Tech Board of Directors,
the Committee shall administer this 1997 Stock Appreciation Rights Plan. Each
interpretation or construction by the Committee or the Board of any provision of
this Plan or an SAR Agreement shall be final and conclusive. No member of the
Board or the Committee shall have any liability for any such interpretation,
construction or determination made in good faith.

-4-

<PAGE> 5

ARGO-TECH CORPORATION

STOCK APPRECIATION RIGHTS AGREEMENT
-----------------------------------

THIS STOCK APPRECIATION RIGHTS AGREEMENT evidences that
_________________________ ("Grantee") who is _________________________ of
Argo-Tech Corporation ("Argo-Tech"), has been granted as of the ______ day of
____________________, _________________________ (_______) "Stock Appreciation
Rights" pursuant to the Argo-Tech 1997 Stock Appreciation Rights Plan (the
"Plan"). As used herein and in the Plan a "Stock Appreciation Right" is the
right to receive, pursuant hereto and in accordance with the Plan, an amount, in
cash (less appropriate withholdings), equal to the increase, if any, in the
value, determined in accordance with the Plan, of one share of AT Holdings
Corporation ("Holdings") Class A Common Stock from a date (the "Initial Date")
specified by the Compensation and Benefits Committee (the "Committee") of the
Argo-Tech Board of Directors (the "Board") to the date of exercise of the Stock
Appreciation Right in accordance with this Agreement (the "Exercise Date"). This
Stock Appreciation Rights Agreement and the terms and conditions on which the
Stock Appreciation Rights granted hereunder have been granted, as hereinafter
set forth, have been approved in resolutions adopted by the Board.

1. For the purpose of this Agreement, the Initial Date specified by the
Committee is May 17, 1994; the value of one share of AT Holdings Corporation
Class A Common Stock on such Initial Date, determined in accordance with the
Plan, was Forty Dollars ($40.00)

2. The Stock Appreciation Rights granted hereunder (until termination
as hereinafter provided) shall be exercisable, except as provided otherwise in
Paragraphs 3 and 4 hereof, only to the extent of one-fourth of the number of
Stock Appreciation Rights covered hereby after the

<PAGE> 6

Grantee shall have been in the continuous employ of Argo-Tech or one of its
subsidiaries for one full year after the date first set forth hereinabove and to
the extent of an additional one-fourth of such Stock Appreciation Rights after
each of the next three successive years thereafter during which the Grantee
shall have been in the continuous employ of Argo-Tech or one of its
subsidiaries. For the purposes of this paragraph, leaves of absence approved by
the Board of Directors of Argo-Tech for illness, military or governmental
service, or other cause, shall be considered as employment. To the extent
exercisable, the Stock Appreciation Rights granted hereby may be exercised in
whole or in part from time-to-time.

3. If Holdings Class A Common Stock (i) shall become registered under
the Securities Exchange Act of 1934 or (ii) shall become otherwise eligible for
trading on the New York Stock Exchange or other national exchange, or shall be
quoted in the over-the-counter market on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or through the National Quotation
Bureau, Inc. or any successor organization, then the Stock Appreciation Rights
granted hereby shall become immediately exercisable in full. Upon the signing of
any agreement for the merger or consolidation of Holdings with another
corporation or for the sale of all or substantially all of the assets of
Holdings or Argo-Tech to another corporation or upon adoption of any resolution
of reorganization or dissolution of Holdings by the stockholders, or upon the
occurrence of any other event or series of events, in the opinion of the Board,
will or is likely to, if consummated, result in a change in control of Holdings
or Argo-Tech, the Stock Appreciation Rights granted hereby shall become
immediately exercisable in full. In the event that any such merger,
consolidation, sale, reorganization, liquidation or other event or series of
events shall be abandoned, the Stock Appreciation Rights granted hereby shall be
exercisable thereafter only as provided otherwise in Paragraph 2, unless the
Board shall determine and notify the Grantee to the

-2-
<PAGE> 7

contrary. Any exercise of the Stock Appreciation Rights granted hereby that may
have occurred prior to such determination shall be valid and effective in all
respects.

In the event: (i) Grantee ceases to be an employee of Argo-Tech or an
Argo-Tech subsidiary by reason of an "Event I Termination" (as such term is
defined in that certain Vestar/AT Holdings Corporation Stockholders' Agreement
dated December 24, 1990 (the "Original Stockholders' Agreement"); (ii)
"Tag-Along Rights" become effective pursuant to Section 9.06 of that certain AT
Holdings Stockholders' Agreement dated May 17, 1994, as amended (the "Current
Stockholders Agreement"); or (iii) "Drag-Along" rights are exercised pursuant to
Section 9.07 of the Current Stockholders' Agreement, the Stock Appreciation
Rights granted hereby shall become immediately exercisable in full.

4. The Stock Appreciation Rights granted hereby shall terminate on the
earliest of the following dates:

(A) Thirty (30) days after the date on which the Grantee
ceases to be an employee of Argo-Tech or an Argo-Tech subsidiary by
reason of an "Event II Termination" or an "Event III Termination" (as
such terms are defined in subsection 6.02(a) of the Original
Stockholders' Agreement);

(B) Ninety (90) days after the date on which the Grantee
ceases to be an employee of Argo-Tech or an Argo-Tech subsidiary by
reason of an "Event I Termination" (as such term is defined in
subsection 6.02(a) of the Original Stockholders' Agreement); or

Nothing contained in this Option shall limit whatever right Argo-Tech or an
Argo-Tech subsidiary might otherwise have to terminate the employment of a
Grantee.

-3-
<PAGE> 8

5. The Grantee may exercise the Stock Appreciation Rights granted
hereby in whole or in part to the extent such Stock Appreciation Rights are
exercisable by delivering to Argo-Tech a notice in writing indicating such
Grantee's intent to exercise the Stock Appreciation Rights, stating the number
of such Stock Appreciation Rights being exercised. The Exercise Date shall be
the date of Argo-Tech's receipt of such notice. Within thirty (30) days after
the Exercise Date, Argo-Tech shall pay Grantee an amount, in cash (less all
appropriate withholdings) equal to the increase, if any, in the value,
determined in accordance with the Plan, of one share of Holdings Class A Common
Stock from the Initial Date to the Exercise Date multiplied by the number of
Stock Appreciation Rights being exercised.

6. The Stock Appreciation Rights granted hereunder are not transferable
by the Grantee otherwise than by will or the laws of descent and distribution,
and are exercisable, during the lifetime of the Grantee, only by the Grantee, or
the legal representative of the Grantee.

7. The Stock Appreciation Rights granted hereby shall not be
exercisable if such exercise would involve a violation of any applicable federal
or state securities law.

8. The Board shall make or provide for such adjustments in the number
of Stock Appreciation Rights granted hereunder as the Board, in its sole
discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of the Grantee hereunder that
otherwise would result from (a) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of Holdings,
(b) any merger, consolidation, separation, reorganization, partial or complete
liquidation or issuance of rights or warrants to purchase stock of Holdings, or
(c) any other corporate transaction or event having an effect similar to any of
the foregoing.
-4-
<PAGE> 9

9. The term "Subsidiary" as used in this Stock Appreciation Rights
Agreement means any corporation (other than AT Holdings Corporation) in an
unbroken chain of corporations beginning with AT Holdings Corporation if each of
the corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain. For
purposes of this Stock Appreciation Rights Agreement, the continuous employ of
the Grantee with Argo-Tech shall not be deemed interrupted, and the Grantee
shall not be deemed to have ceased to be an employee of Argo-Tech, by reason of
the transfer of his employment among Argo-Tech and its Subsidiaries.

10. The Grantee shall not be entitled, on the basis of this Agreement
or the Stock Appreciation Rights granted hereby, to any rights as a shareholder
of Holdings or Argo-Tech, including, without limitation, ownership, the right to
vote or to receive dividends.

11. This Stock Appreciation Rights Agreement may be amended by a
writing executed on behalf of each of Argo-Tech and the Grantee.

EXECUTED at __________________, _____ this _______ day of __________,
_____.

ARGO-TECH CORPORATION

By:__________________________________

Title:

-5-

<PAGE> 1

Exhibit 12
----------

ARGO-TECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

Fiscal Year Ended

October 29 October 28, October 26, October 25, October 31,
1994 1995 1996 1997 1998
--------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Historical:
Income from operations $ 10,644 $ 15,059 $ 19,278 $ 26,650 $ 28,059
Other, net 75 (588) (112) (404) (268)
--------- --------- --------- --------- ---------
Earnings as Adjusted $ 10,569 $ 15,647 $ 19,390 $ 27,054 $ 28,327
========= ========= ========= ========= =========
Fixed charges:
Interest expense $ 10,117 $ 11,924 $ 10,138 $ 12,827 $ 21,030
========= ========= ========= ========= =========

Ratio of Earnings to Fixed 1.0x 1.3x 1.9x 2.1x 1.3x
Charges
</TABLE>

<PAGE> 1
Exhibit 24

DIRECTORS AND OFFICERS OF
ARGO-TECH CORPORATION

POWER OF ATTORNEY

The undersigned directors and officers of Argo-Tech
Corporation, a Delaware corporation, hereby constitute and appoint Paul R. Keen,
Frances S. St. Clair and Yoichi Fujiki, and each of them, with full power of
substitution and resubstitution, as attorneys-in-fact or attorney-in-fact for
each of the undersigned, and in the name, place and stead of each of the
undersigned, to execute on behalf of each of the undersigned an Annual Report on
Form 10-K for the fiscal year ended October 31, 1998 pursuant to Section 13 of
the Securities and Exchange Act of 1934 and to execute any and all amendments to
such report and to file the same, with all exhibits thereto and other documents
required to be filed in connection therewith, granting to each such attorney
full power to act with or without the others, and to have full power and
authority to do and perform, in the name and on behalf of each of the
undersigned, every act whatsoever necessary, advisable or appropriate to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.

This Power of Attorney may be executed in multiple
counterparts, each of which shall be deemed an original with respect to the
person executing it.

EXECUTED as of January 28, 1999.

/s/ Michael S. Lipscomb /s/ Remi de Chastenet
- ---------------------------------- -------------------------------------
Michael S. Lipscomb, Chairman, Remi de Chastenet, Director
President, Chief Executive Officer
and Director
(Principal Executive Officer)

/s/ Frances S. St. Clair /s/ Thomas F. Dougherty
- ---------------------------------- -------------------------------------
Frances S. St. Clair, Vice President Thomas F. Dougherty
and Chief Financial Officer
(Principal Financial Officer)

/s/ Paul A. Sklad /s/ Yoichi Fujiki
- ---------------------------------- -------------------------------------
Paul A. Sklad, Controller Yoichi Fujiki, Vice President,
(Principal Accounting Officer) Treasurer and Director

/s/ Robert Y. Nagata /s/ Karl F. Storrie
- ---------------------------------- -------------------------------------
Robert Y. Nagata, Director Karl F. Storrie, Director

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> OCT-26-1997
<PERIOD-END> OCT-31-1998
<CASH> 11,578
<SECURITIES> 0
<RECEIVABLES> 24,126
<ALLOWANCES> 260
<INVENTORY> 29,528
<CURRENT-ASSETS> 70,325
<PP&E> 82,268
<DEPRECIATION> 46,286
<TOTAL-ASSETS> 288,195
<CURRENT-LIABILITIES> 33,408
<BONDS> 227,386
0
0
<COMMON> 0
<OTHER-SE> (36,286)
<TOTAL-LIABILITY-AND-EQUITY> 288,195
<SALES> 168,595
<TOTAL-REVENUES> 174,143
<CGS> 103,086
<TOTAL-COSTS> 138,768
<OTHER-EXPENSES> (268)
<LOSS-PROVISION> (260)
<INTEREST-EXPENSE> 21,030
<INCOME-PRETAX> 7,297
<INCOME-TAX> 3,400
<INCOME-CONTINUING> 3,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,897
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>