Argo-Tech Corp. 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
		For the fiscal year ended October 28, 2006
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
		For the transition period from to .

Commission file number: 333-38223

ARGO-TECH CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		31-1521125
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
23555 Euclid Avenue, Cleveland, Ohio		44117
(Address of Principal Executive Offices)		(Zip Code)

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 check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act Yes þ No o

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

No established published trading market exists for the registrant’s common stock, par value $0.01 per share. As of January 26, 2007, 1 share of the registrant’s common stock was outstanding and held by AT Holdings Corporation.

DOCUMENTS INCORPORATED BY REFERENCE
None

ARGO-TECH CORPORATION

PART I


Item 1.	*Business.*

Argo-Tech Corporation, a Delaware corporation (“we,” “us” or “Argo-Tech”), was formed in 1986 to acquire the Power Accessories Division of TRW Inc. (“TRW”). Today, we are a global designer, manufacturer and servicer of high performance fuel flow devices and systems. We operate in two business segments, Aerospace and Industrial. The Aerospace segment consists of aircraft engine fuel pumps and other engine products, commercial and military products and systems found on a plane’s airframe, and aerial refueling pumps and related equipment. The Industrial segment includes ground fueling nozzles, hoses and other ground fueling components, an automated fuel management system, cryogenic pumps and nozzles and the operation of a business park in Cleveland, Ohio. Financial information by business segment can be found in Note 14 to the audited consolidated financial statements included elsewhere in this report.

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

Recent Developments

On December 24, 2006, V.G.A.T. Investors, LLC (“VGAT”) entered into a definitive agreement (the “Acquisition Agreement”) to sell all of the issued and outstanding common stock of AT Holdings Corporation (“Holdings”), the parent corporation of Argo-Tech, to Eaton Corporation. The members of VGAT include, among others, Vestar Capital Partners IV, L.P., Greenbriar Equity Group, LLC (collectively the “Sponsors”) and several members of Argo-Tech’s senior management.

Under the terms of the Acquisition Agreement, VGAT will receive consideration of $695.0 million, consisting of cash and the assumption of debt, in exchange for the shares of Holdings, subject to adjustment in accordance with the terms of the Acquisition Agreement. Prior to consummation of the sale, Argo-Tech is expected to be reorganized to exclude its cryogenics and other non-aerospace assets (the “Reorganization”). In order to effect the Reorganization, we intend to, among other things, seek a consent from the holders of our outstanding 91/4% Senior Notes to the Reorganization, together with a waiver of the holder’s right under the related indenture to require us to repurchase the notes in connection with the sale.

Management expects the sale to close in the first quarter of calendar 2007, but closing is subject to, among other things, required regulatory approvals and other closing conditions.

On September 13, 2005, we entered into a merger agreement (as amended, the “Merger Agreement”) with Holdings, VGAT, Vaughn Merger Sub Inc., and GreatBanc Trust Company, as trustee of the Argo-Tech Corporation Employee Stock Ownership Plan (the “ESOP”). On October 28, 2005, pursuant to the Merger Agreement, Vaughn Merger Sub, Inc. merged with and into Holdings (the “Merger”), with Holdings surviving as a wholly owned subsidiary of VGAT.

Aerospace segment

We are the world’s leading supplier of main engine fuel pumps to the commercial aircraft industry and a leading supplier of main engine fuel pumps to the military. Main engine fuel pumps are precision mechanical pumps that maintain the flow of fuel to the engine at a precise rate and pressure. The main engine fuel pumps are installed in over 60% of large commercial aircraft in service today. We are also a leading supplier of commercial and military airframe products and systems, which are used to transfer fuel to an engine and control fuel between tanks. In addition, we are a leading global supplier of military aerial refueling pumps and related equipment.

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

Industrial segment

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

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

Products

Aerospace

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

Our main engine fuel pumps are used across the full spectrum of commercial engine designs. We are the sole source supplier of main engine fuel pumps for all CFM56 series engines, the most popular series of large commercial aircraft engines used today. The CFM56 series engines power the Boeing 737 and certain of the Airbus A-318, A-319, A-320, A-321 and A-340 aircraft. We are also the sole source supplier of main engine fuel pumps for all engines used on the Boeing 777 aircraft, including the new longer range Boeing 777, and on all regional jets manufactured by Bombardier and Embraer having seating capacity for at least 70 passengers. In addition, we are the sole source supplier of the main engine fuel pump for the General Electric GEnx engines to be used on the Boeing 787, Airbus A-350 and Boeing 747-8 aircraft.

Our products include large regional and business jet applications, including the main engine fuel pumps used on the BR700 series engine, which is used on the high-end Bombardier Global Express, the Gulfstream Aerospace Corporation V aircraft and the Boeing 717. We supply main engine fuel pumps for the GE CF34-8 engine, which is used on the Bombardier CRJ700 and CRJ900 regional and business aircraft and the Embraer ERJ-170, a 70 passenger regional jet. We also supply main engine fuel pumps for the GE CF34-10 engine, which is used on the Embraer ERJ-190, the EuroProp International TP400 engine, which is used on the European A400M military troop transport aircraft, the SNECMA/NPO Saturn SM146 engine, which is used on a Russian regional jet and the new ARJ 21 regional jet to be manufactured by AVIC I Commercial Aircraft Co. Ltd. in China.

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

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

Industrial

Ground Fueling Products. Ground fueling systems are used to transfer fuel from underground fuel tanks and ground fueling trucks to the fuel receptacle of the aircraft. We manufacture various ground fueling hydrants, couplers and nozzles for commercial and military airports around the world, as well as specialty hose. We also

manufacture digital pressure control valves. These valves incorporate a microprocessor to enhance fuel flow control and allow for accurate measurement of pressure at the delivery receptacle thereby optimizing the fuel flow and pressure. We also service fuel management systems, including the Argo-Tech-developed AvR2000 Aviation Refueling Management System, which is used at nearly 200 sites worldwide.

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

Aftermarket sales

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

Customers

Aerospace

Original Equipment Manufacturer (“OEM”) customers for our aerospace products include the world’s major aircraft engine manufacturers: General Electric, Honeywell, Pratt & Whitney (including Pratt & Whitney Canada), Rolls-Royce (including Rolls-Royce Allison and Rolls-Royce Deutschland), Hispano-Suiza and Williams International Corp. Customers for Argo-Tech’s airframe pumps, valves, and systems include Airbus, Boeing, Cessna, Eclipse, Gulfstream, Lockheed Martin, Northrop Grumman, Raytheon and various U.S. government agencies. Orders for military components can be directly received from government entities and through customers such as Boeing, General Electric, Lockheed Martin and Pratt & Whitney. Our aftermarket customers include all major aircraft and engine repair facilities and all major airlines. Currently, the total number of airline and third-party customers for our spare parts, overhaul and repair exceeds 200.

Industrial

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

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

Upsilon International Corporation and two other related entities, as distributors of certain of our products to foreign customers, accounted for approximately 10% of our net revenues for fiscal 2006. No other customer accounted for more than 10% of our net revenues during this period.

Sales and Marketing

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

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

For fiscal 2006, 2005 and 2004, customer revenues from the United States were $126.2 million, $117.2 million and $107.1 million, respectively, and foreign customer revenues were $104.7 million, $95.4 million and $80.2 million, respectively.

Suppliers and Raw Materials

Supplier performance is measured by our comprehensive supplier rating system. Currently, our supplier base includes approximately 800 companies.

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

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

We have four manufacturing, repair and overhaul facilities:


	•	a 150 acre business park in Cleveland, Ohio;

	•	a 9.2 acre facility in Costa Mesa, California;

	•	an 85,000 square foot facility in Tucson, Arizona; and

	•	a 6,000 square foot facility in Inglewood, California.

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

In the Industrial segment, all products are manufactured in the Costa Mesa facility with the exception of hose products, which are manufactured in our Tucson facility. Repair and overhaul of Industrial segment products is conducted in our Cleveland and Costa Mesa facilities.

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

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

casting and machining, while completing final assembly and testing on the premises. Most of the hose products sold by our Tucson facility are manufactured internally.

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

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

Intellectual Property

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

Government Regulations

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

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

Competition

Competition among aerospace component manufacturers is based on engineered solutions, product quality, customer support, pricing and on-time delivery. Competitors in the Aerospace segment are primarily divisions of large corporations. Virtually all of our competitors have significantly greater financial resources than we do. Our primary competitors in the Aerospace segment include Goodrich, Hamilton Sundstrand, Intertechnique and Parker-Hannifin. In the Industrial segment, competition varies by product, but is typically based on engineered solutions, price, product quality and on-time delivery. Our primary competitors in the Industrial segment include Ebara, Nikkiso and Meggitt.

Backlog

We believe that unfilled orders are not necessarily an indicator of future shipment levels of our products. As customers demand shorter lead times and flexibility in delivery schedules, they have also revised their purchasing practices. As a result, notification of firm orders may occur only within 30 to 60 days of delivery. In addition, due to

the government funding process, backlog can vary on a period-to-period basis depending on the stage of completion of the contracts represented by such backlog. Therefore, we believe that the backlog of unfilled orders at fiscal year end cannot be relied upon as a valid indication of our sales or profitability in a subsequent year.

Development Expense Trends

In connection with new aerospace product development programs, we incur significant research and development expenditures to design, test and qualify main engine fuel pumps and accessories for engine and airframe OEMs. Research and development expenditures are expensed as incurred, and such expenses are expected to continue at historical levels. Research and development expense was $10.6 million, $12.8 million and $11.9 million for fiscal 2006, 2005 and 2004, respectively.

Employees

As of December 31, 2006, we had 736 full-time employees, of which 422 are salaried and 314 are hourly. The 192 hourly employees located at our Cleveland facility are represented by the UAW under a collective bargaining agreement that will expire on March 31, 2008.

Environmental Matters

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

Although we seek to maintain our operations and facilities in compliance with applicable environmental laws, there can be no assurance that we have no violations, or that changes in such laws, regulations or interpretations of such laws or in the nature of our operations will not require us to make significant additional expenditures to ensure compliance in the future. Currently, we do not believe that we will have to make material capital expenditures for our operations to comply with environmental laws or regulations of which we are aware, or to incur material costs for environmental remediation during the 2007 fiscal year.

Our Cleveland facility is currently the subject of environmental remediation activities. The cost of these activities is the responsibility of TRW, now a subsidiary of Northrop Grumman, under the terms of the purchase agreement by which we acquired TRW’s Power Accessories Division in 1986. Remediation has been underway since 1989 and is expected to continue for the foreseeable future. TRW has funded all necessary remediation costs, and while there can be no assurance, we expect that TRW will continue to do so in the future. We estimate that TRW has spent in excess of $15 million for environmental remediation at our Cleveland facility. Although the TRW remediation has been reasonably comprehensive and covers, among other things, groundwater at the facility, there may be areas of unknown contamination at our Cleveland facility that are not being addressed by TRW.

The TRW purchase agreement also requires TRW 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

	•	until October 19, 2006, a portion of the costs associated with third party environmental claims arising from activities conducted by both 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. After that date, we are responsible for all such costs.

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

In March 1986, a two thousand gallon underground storage tank was removed from our Costa Mesa facility. Petroleum hydrocarbon soil contamination was discovered during the removal of the tank, prompting the Orange County Health Care Agency to require a site assessment. Subsequent site investigations revealed that groundwater underlying the site is impacted by trichloroethene and perchloroethylene. In 1990, the Regional Water Quality Control Board issued a Cleanup and Abatement Order to J.C. Carter Company, Inc. (which we acquired in 1997 and now operate as a wholly-owned subsidiary named Argo-Tech Corporation Costa Mesa) relating to the investigation and remediation of groundwater contamination. By virtue of our acquisition of Carter, Carter’s responsibility for satisfying the cleanup order could affect us. However, we have obtained indemnification from Carter’s selling stockholders for, among other things, all costs and expenses related to satisfaction of the order. As a result, since our acquisition of Carter, we have not paid any material portion of these costs and expenses. This indemnification does not expire. However, there can be no assurance that the indemnification obligations with respect to the cleanup order will continue to be satisfied by the selling stockholders. See “Item 1A. Risk Factors — We have potential exposure resulting from environmental matters.”


Item 1A.	*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 may contain forward-looking statements that are not historical facts. Those statements are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, and our future performance, operating results, financial position and liquidity, are subject to a variety of factors that could materially affect results, including those described below. Any forward-looking statements made in this report or otherwise speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

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

Our sales and earnings are dependent on conditions in the airline industry, and a significant or prolonged downturn in the airline industry or a future terrorist attack would decrease the airline industry’s demand for our products and reduce our sales.

Financial losses and reduced schedules in the U.S. airline industry have resulted, and will continue to result, in reduced orders and delivery delays of new commercial aircraft, parking and retirement of older aircraft (eliminating those aircraft from maintenance needs and making spare parts from those aircraft available) and delays in airlines’ purchases of aftermarket parts and service as maintenance is deferred. The weakness in the U.S. airline industry may continue with several carriers filing for bankruptcy protection, as well as, the possibility of continued consolidation of carriers within the U.S. airline industry, may result over a period of years in contraction in the number of aircraft in the U.S. fleet and less demand for our products. This will depress Argo-Tech’s Aerospace segment sales of aftermarket components and reduce our income and cash flow until such time as conditions in the commercial aerospace industry improve.

The recovery of the global aviation industry and any recovery in the U.S. aerospace industry continues to depend on continuing improvement in the U.S. and global economies. Additionally, the occurrence of future terrorist attacks, the impact of the war in Iraq, continuing and further increases in fuel costs and further outbreaks of infectious diseases such as the Severe Acute Respiratory Syndrome (SARS) virus in 2003 could delay these recoveries. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the adverse impact that these factors have had on our results of operations.

The aerospace industry is subject to significant government regulation and oversight and failure to comply with these regulations could increase the cost of operating our business.

The aerospace industry is highly regulated in the United States and in other countries. We must be certified or accepted by the Federal Aviation Administration, the United States Department of Defense and similar agencies in foreign countries and by individual OEMs in order to sell and service parts and components used in specific aircraft models. If material certifications, authorizations or approvals are revoked or suspended, our operations will be adversely affected. In the future, new and more demanding government regulations may be adopted or industry oversight may be increased. We may have to incur significant additional costs to achieve compliance with new regulations or to reacquire a revoked or suspended approval, which could reduce our profitability.

We compete with a number of established companies, virtually all of which have significantly greater financial, technological and marketing resources than we do. We may not be able to compete effectively with these companies, which could adversely affect our business and financial condition.

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

If we are unable to meet future capital requirements or to continue our research and development activities, or recoup some of our capital and research and development expenditures, our competitive position may suffer.

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

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

There are a limited number of customers for certain products, and the loss of a significant customer would reduce demand for our products and reduce our sales and cash flows.

Because of the importance of a few large customers and the high degree of concentration of OEMs in the aerospace industry, our business is exposed to a high degree of risk related to customer concentration. In fiscal 2006, our ten largest customers accounted for approximately 54.9% of our net revenues. A loss of significant business from, or adverse performance by, any of these customers would be harmful to our cash flows.

Due to the relatively small number of customers in the aerospace industry, customers, particularly OEM customers, are often able to influence prices and other terms of sale for certain of our products. There is substantial and continuing pressure from OEMs in the aerospace industry to reduce costs, including costs associated with outside suppliers like us. We attempt to resist downward pricing pressure, while trying to preserve our business relationships with these customers, but we are not always successful. At the same time, it is difficult for us to offset these downward pricing pressures through alternative, less costly sources of raw materials as discussed below under “— Our business and profitability is affected by the price and continuity of supply of certain necessary raw materials and component parts.” We cannot assure you that we will not be materially and adversely affected by these substantial and continuing pricing pressures.

We have fixed-price contracts with some of our customers, and we bear the risk of costs in excess of our estimates.

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

Most of our contracts do not permit us to recover for increases in raw material, energy or other input prices, taxes, labor costs or other inflationary effects, although some contracts provide for renegotiation to address certain material adverse changes. Any increase in those costs is likely to have an adverse effect on our results of operations.

A significant portion of our sales is, and is expected to continue to be, from government contracts that are subject to reductions in defense spending, government regulation and risks particular to government contracts. The termination of any of our government contracts would reduce demand for our products and reduce our sales.

Approximately 31% of our sales in fiscal 2006 were related to U.S. designed military products. In addition, foreign military sales are affected by U.S. government regulations, regulations by the purchasing foreign government and political uncertainties in the U.S. and abroad. The U.S. defense budget has fluctuated in recent years. Although we have experienced increased military sales as a result of military actions in Iraq and Afghanistan, there can be no assurance that the U.S. defense budget will not decline or that sales of defense-related items to foreign governments will continue at present levels. A significant disruption or decline in U.S. military expenditures in the future would materially decrease our military sales. In addition, we are subject to risks particular to contracts with the U.S. government. These risks include the ability of the U.S. government to unilaterally:


	•	suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

	•	terminate existing contracts, with or without cause, at any time;

	•	reduce the value of existing contracts;

	•	audit our contract-related costs and fees, including allocated indirect costs; and

	•	control or potentially prohibit the export of our products, technology or other data.

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

A large and growing portion of our revenue is derived from international sources, which exposes us to additional uncertainty.

Approximately 45.3% of our fiscal 2006 net revenue was derived from shipments to destinations outside of the United States and Canada. Sales outside of the United States and Canada are subject to other various risks, including:


	•	governmental embargoes or foreign trade restrictions on anti-dumping duties;

	•	changes in U.S. and foreign governmental regulations;

	•	tariffs;

	•	other trade barriers;

	•	the potential for nationalization of enterprises;

	•	economic downturns;

	•	inflation;

	•	environmental laws and regulations;

	•	political, economic and social instability; and

	•	difficulties in receivable collections and dependence on foreign personnel and foreign unions.

Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry.

We are substantially leveraged. As of October 28, 2006, the principal and interest owing on our indebtedness was $268.3 million, excluding the fair market value adjustment of our 91/4% senior notes required by purchase accounting under generally accepted accounting principles in connection with the Merger. Our substantial degree of leverage could have important consequences, including the following:


	•	it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes;

	•	a substantial portion of our cash flows from operations will be dedicated to payments on our indebtedness and will not be available for other purposes, including our operations, capital expenditures and future business opportunities;

	•	the debt service requirements of our indebtedness could make it more difficult for us to satisfy our financial obligations, including those related to the notes;

	•	certain of our borrowings, including borrowings under the credit facility, are, and are expected to continue to be, at variable rates of interest, exposing us to the risk of increased interest rates;

	•	it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt; and

	•	it may increase our vulnerability to a downturn in general economic conditions or in our business, and may make us unable to carry out capital spending and research and development activities that are important to our growth.

Two majority holders control our parent company.

The Sponsors, through their majority ownership of VGAT, have the indirect power to elect our directors, to appoint members of management and to approve all actions requiring the approval of the holders of our common stock, including adopting amendments to our certificate of incorporation and approving mergers, acquisitions or sales of all or substantially all of our assets. In addition, significant decisions affecting our capital structure,

including decisions to issue additional capital stock, implement stock repurchase programs and declare dividends, will require the approval of the Sponsors.

The interests of the Sponsors could conflict with the interests of our debtholders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of the Sponsors as our ultimate controlling stockholders might conflict with debtholders’ interests. The Sponsors also may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to our debtholders. For example, the Sponsors could cause us to make acquisitions that increase the amount of indebtedness that is secured or senior to our existing debt or sell revenue generating assets, which may potentially impair our ability to make payments under the existing debt. Furthermore, the Sponsors may in the future own businesses that directly or indirectly compete with ours. They may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

We depend on the skill and experience of our senior management.

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

Our operations depend on maintaining a skilled work force and any interruption in the work force at our facilities or those of OEMs and their suppliers could have a material adverse effect on our results of operations and financial condition.

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

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

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

Our business and profitability is affected by the price and continuity of supply of certain necessary raw materials and component parts.

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

We depend on our Cleveland, Ohio and Costa Mesa, California facilities.

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

We have potential exposure resulting from environmental matters.

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

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

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

We have a potential risk of product liability and warranty claims.

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

We believe that our liability insurance is adequate to protect us from future product liability claims. However, we cannot assure you that we will not experience any material product liability losses in the future, that we will not incur significant costs to defend such claims or that our insurance coverage will be adequate if claims were to arise. A successful claim brought against us in excess of our available insurance coverage may have a material adverse effect on our business. In addition, our liability coverage may become more restrictive and/or increasingly costly, and there can be no assurance that we will be able to maintain insurance coverage in the future at an acceptable cost or at all.

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

We have only a limited ability to protect our intellectual property rights, which are important to our success.

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

The proposed acquisition of Argo-Tech by Eaton Corporation is subject to certain closing conditions that, if not satisfied or waived, will result in the transaction not being completed.

The proposed acquisition of Argo-Tech by Eaton Corporation is subject to customary conditions to closing, including the receipt of required regulatory approvals. Many of the conditions to the closing of the transaction are outside of our control. If any condition to the closing of the transaction is not satisfied or, if permissible, waived, the transaction will not be completed.

Whether or not the transaction is completed, we will be obligated to pay certain professional fees and related expenses in connection with the transaction. In addition, we have expended, and will continue to expend, significant management resources in an effort to complete the transaction. If the transaction is not completed, we will have incurred significant costs, including the diversion of management resources, for which it will have received little or no benefit.

Whether or not the transaction with Eaton Corporation is completed, the announcement and pendency of the transaction could cause disruptions in our business, which could have an adverse effect on our business and financial results.

Whether or not the transaction with Eaton Corporation is completed, the announcement and pendency of the transaction could cause disruptions in our business. Specifically:


	•	current and prospective employees may experience uncertainty about their future roles with Argo-Tech, which might adversely affect our ability to retain key managers and other employees or hire new employees; and

	•	the attention of management may be directed toward the completion of the transaction, rather than toward the execution of existing business plans.


Item 1B.	*Unresolved Staff Comments.*

Not applicable.


Item 2.	*Properties.*

We currently 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 and airframe fuel pump businesses and lease approximately 800,000 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 we have 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 Aerospace airframe and aerial refueling products and accessories, and Industrial ground fueling and cryogenic products equipment at this facility. This property is not included in the pending definitive agreement to sell Argo-Tech’s Aerospace business (See Item 1. Business — Recent Developments). Effective the date of the sale, we expect to lease approximately 103,000 square feet of the facility under a two-year lease agreement.

Our leased facility in Tucson, Arizona encompasses approximately 85,000 square feet and includes available space for expansion. We manufacture specialty industrial hose for aerospace, chemical transfer and marine applications at this facility. We believe this facility has sufficient capacity to permit further growth in those product lines without significant additional capital expenditures.

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


Item 3.	*Legal Proceedings.*

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


Item 4.	*Submission of Matters to a Vote of Security Holders.*

No matter was submitted to a vote of Holdings, our sole stockholder, during the fourth quarter of fiscal year 2006.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.*

We are a wholly owned subsidiary of Holdings. Neither Holdings nor Argo-Tech has any equity securities that trade in an established public trading market or otherwise.

We paid cash dividends totaling $4.2 million and $3.1 million to Holdings in fiscal years 2006 and 2005, respectively. Our ability to pay dividends to Holdings in the future is limited by the terms of the indenture pursuant to which our 91/4% senior notes were issued and the credit facility. The indenture and credit facility contain certain optional and mandatory redemption features and other financial covenants, including restrictions on our ability to incur additional indebtedness, pay dividends or make other restricted payments to Holdings. However, the indenture permits certain payments to Holdings for, among other things, corporate administrative expenses not to exceed $500,000 per fiscal year and specified tax obligations.

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


Item 6.	*Selected Financial Data.*

The following table sets forth Argo-Tech’s selected historical consolidated financial data for the fiscal years 2002 through 2006, which have been derived from Argo-Tech’s audited consolidated financial statements for those periods. Argo-Tech’s fiscal year ends on the last Saturday in October and is identified according to the calendar year in which it ends. For example, the fiscal year ended October 28, 2006 is referred to as “fiscal 2006.” The 2004 fiscal year consisted of a 53-week period. All of the other fiscal years presented consisted of 52-week periods.

The Merger closed on October 28, 2005. Operating results and cash flow information presented herein for years prior to the Merger are considered “Predecessor” financial information. Balance sheet information as of October 30, 2004, October 25, 2003, and October 26, 2002 is also considered “Predecessor” financial information. The balance sheet information as of October 29, 2005 reflects a new basis of accounting incorporating the fair value adjustments made in recording the Merger while prior periods are presented using the historical cost basis of the

Company. The information presented below should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this report.


	Fiscal Year Ended
				Predecessor			Predecessor			Predecessor			Predecessor
	October 28,			October 29,			October 30,			October 25,			October 26,
	2006			2005			2004			2003			2002
	(Dollars in thousands)

Operating results
Net revenues	$	230,862		$	212,595		$	187,328		$	160,726		$	155,303

Gross profit(1)		50,453			87,740			78,125			66,191			66,634
Selling, general and administrative		33,928			35,514			31,166			26,417			23,359
Research and development		10,623			12,814			11,934			9,525			11,722
Amortization of intangibles		13,422			3,414			3,414			3,414			3,721
Merger expense		—			24,473			—			—			—

(Loss) income from operations		(7,520	)		11,525			31,611			26,835			27,832
Interest expense		23,652			25,601			22,705			21,257			21,434
Debt extinguishment expense		—			—			12,961			—			—
Other, net		(75	)		(109	)		(95	)		(529	)		(97	)
Income tax provision (benefit)		(14,261	)		(7,768	)		(3,499	)		1,579			569

Net (loss) income	$	(16,836	)	$	(6,199	)	$	(461	)	$	4,528		$	5,926

Balance sheet data (at end of period):
Cash and cash equivalents	$	23,580		$	13,889		$	15,857		$	14,057		$	17,769
Total assets		581,174			588,506			254,262			255,797			260,333
Working capital		60,786			73,324			41,963			34,934			33,352
Total debt		268,312			269,062			264,813			219,349			235,045
Debt fair market value adjustment(2)		8,209			10,000			—			—			—
Redeemable ESOP stock, net(3)		—			—			40,957			14,612			8,835
Stockholder’s equity/(deficiency)(4)		139,752			160,796			(110,976	)		(29,928	)		(31,633	)
Other data:
Adjusted EBITDA(5)	$	56,228		$	51,567		$	44,893		$	36,867		$	38,447
Adjusted EBITDA margin(6)		24.4	%		24.3	%		24.0	%		22.9	%		24.8	%
Net cash flows provided by operating activities	$	19,264		$	193		$	33,230		$	15,673		$	30,724
Net cash flows used in investing activities		(4,567	)		(4,376	)		(3,056	)		(1,939	)		(1,785	)
Net cash flows provided by (used in) financing activities		(5,006	)		2,215			(28,374	)		(17,446	)		(19,227	)
Depreciation and amortization of intangibles and deferred financing fees		23,682			8,224			9,175			10,053			10,387
Capital expenditures		4,567			4,376			3,056			1,939			1,785
Ratio of earnings to fixed charges(7)		—			—			—			1.3	x		1.3	x


(1)		Gross profit for fiscal 2006 includes $40.3 million of amortization of the step-up of inventory to fair market value.

(2)		Represents the estimated amount to adjust the $250,000,000 of the 91/4% Senior Notes to fair market value as of the closing date of the Merger, which will be amortized over the remaining life of the 91/4% Senior Notes. The unamortized amount of the fair market value adjustment has been added to the principal amount of the 91/4% Senior Notes for presentation in our financial statements.

(3)		Redeemable ESOP Stock has been excluded from stockholder’s equity/(deficiency) due to the ability of holders of the ESOP Stock to “put,” subject to certain restrictions, the shares of ESOP Stock to Argo-Tech at the most recent valuation of our independent consulting firm. As a result of the Merger this requirement no longer exists.


(4)		Includes a dividend of $57.6 million to Holdings made in the third quarter of fiscal 2004 from the proceeds of our 91/4% senior notes.

(5)		“EBITDA” is net income plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA further adjusted to exclude ESOP compensation expense, amortization of purchase accounting, non-cash compensation/benefit cost, debt extinguishment expense, non-cash compensation expense related to granting of SARs on March 1, 2005, and non-recurring Merger expense. EBITDA and Adjusted EBITDA do not represent, and should not be considered as alternatives to, net income or cash flows provided by operating activities, as determined by Generally Accepted Accounting Principles (“GAAP”), and our calculations thereof may not be comparable to that reported by other companies. EBITDA and Adjusted EBITDA are included in this report because they are a basis upon which we assess our liquidity position and because certain covenants in our borrowing arrangements are tied to similar measures. We also believe that it is widely accepted that EBITDA and Adjusted EBITDA provide useful information regarding a company’s ability to service and/or incur indebtedness. This belief is based on our negotiations with our lenders who have indicated that the amount of indebtedness we will be permitted to incur will be based, in part, on our EBITDA and our Adjusted EBITDA. EBITDA and Adjusted EBITDA do not take into account our working capital requirements, debt service requirements, tax payments, capital expenditures and other commitments and, accordingly, are not necessarily indicative of amounts that may be available for discretionary use. We believe that inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors.


	Fiscal Year Ended
				Predecessor			Predecessor			Predecessor		Predecessor
	October 28,			October 29,			October 30,			October 25,		October 26,
	2006			2005			2004			2003		2002
	(Dollars in thousands)

Net income (loss)	$	(16,836	)	$	(6,199	)	$	(461	)	$	4,528	$	5,926
Add:
Depreciation and amortization		23,376			7,069			7,213			7,601		8,329
Interest expense(a)		23,652			25,601			22,705			21,257		21,434
Income tax provision (benefit)		(14,261	)		(7,768	)		(3,499	)		1,579		569

EBITDA		15,931			18,703			25,958			34,965		36,258
Add:
ESOP compensation expense(b)		—			5,040			4,851			1,874		1,344
Amortization of purchase accounting(c)		40,297			—			—			28		259
Non-cash compensation/benefit cost(d)		—			3,351			1,123			—		586
Debt extinguishment expense(e)		—			—			12,961			—		—
Merger expense(f)		—			24,473			—			—		—

Adjusted EBITDA	$	56,228		$	51,567		$	44,893		$	36,867	$	38,447


(a)		Interest expense includes the amortization of deferred financing fees.

(b)		Represents the value of the shares committed to be released by the ESOP trustee under the ESOP’s provisions for allocation to participants and recognized as a non-cash compensation expense, excluding ESOP compensation expense of $3,413 recorded in connection with the Merger and included in Merger expense.

(c)		Represents the incremental depreciation in fiscal 2002 and 2003 relating to plant and equipment written up to its fair market value under purchase accounting applied to the acquisition of Argo-Tech Corporation Costa Mesa (formerly J.C. Carter Company, Inc.). Such amortization is included in cost of sales. In fiscal 2006 represents the amortization of the step-up of inventory to fair market value as a result of the Merger in fiscal 2005.


(d)		In fiscal year 2002, this represents the non-cash expense related to a salary early retirement program. In fiscal year 2004, this represents the non-cash compensation expense related to our ESOP Excess Benefit Plan. In fiscal year 2005, this represents $404 of non-cash compensation expense related to our ESOP Excess Benefit Plan, $2,521 of non-cash compensation expense related to the granting of SARs and $426 of non-cash expense related to the hourly employee early retirement program.

(e)		Represents the write-off of deferred financing fees associated with the refinancing of our 85/8% senior subordinated notes and the amendment and restatement of our credit agreement in June 2004, amounts paid for the tender, consent and redemption of our senior subordinated notes and the recognition of the remaining accretion on a portion of our senior subordinated notes that were issued at a discount.

(f)		Represents non-recurring expense associated with the Merger consisting of stock compensation cost, ESOP Excess Benefit Plan cost, and severance and stay payments.

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


				Predecessor			Predecessor			Predecessor			Predecessor
	October 28,			October 29,			October 30,			October 25,			October 26,
	2006			2005			2004			2003			2002
	(Dollars in thousands)

Adjusted EBITDA	$	56,228		$	51,567		$	44,893		$	36,867		$	38,447
Change in operating assets and liabilities		(9,618	)		(4,427	)		8,424			(590	)		14,973
Interest expense		(23,652	)		(25,601	)		(22,705	)		(21,257	)		(21,434	)
Merger expense		—			(24,473	)
All other adjustments		(3,694	)		3,127			2,618			653			(1,262	)

Net cash provided by operating activities	$	19,264		$	193		$	33,230		$	15,673		$	30,724


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

(7)		For purposes of determining the ratio of earnings available to cover fixed charges, earnings consist of income before taxes plus fixed charges. Fixed charges consist of interest on indebtedness including amortization of deferred financing fees and fixed loan guarantee fees. No ratio is presented for the fiscal years ended October 28, 2006, October 29, 2005 and October 30, 2004 as the earnings for those periods were $31,097,000, $13,967,000 and $3,960,000 less than the fixed charges, respectively


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations.*

The following discussion of financial condition and results of operations should be read together with “Selected Financial Data,” Argo-Tech’s consolidated financial statements and the notes to those statements and other financial information included elsewhere in this report. In this section references to “Argo-Tech,” “the Company,” “we,” “us”, or “our” are to Argo-Tech Corporation, together with its subsidiaries. References to “Holdings” are to AT Holdings Corporation, which holds all of the outstanding capital stock of Argo-Tech. Operating results or cash flow information presented for the fiscal periods ended October 29, 2005 and October 20, 2004 is considered “Predecessor” financial information. The balance sheet information as of October 28, 2006 and October 29, 2005 reflects a new basis of accounting incorporating the fair value adjustments made in recording the Merger while prior periods are presented using the historical cost basis of the Company. This report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those indicated in the forward-looking statements. See Risk Factors in Item 1A for more information regarding forward-looking statements.

Overview

We are a global designer, manufacturer and servicer of high performance fuel flow devices and systems. We operate in two business segments, Aerospace and Industrial. The Aerospace segment consists of aircraft engine fuel pumps and other engine products, commercial and military products and systems found on a plane’s airframe, and aerial refueling pumps and related equipment. The Industrial segment includes ground fueling nozzles, hoses and other ground fueling components, an automated fuel management system, cryogenic pumps and nozzles and the operation of a business park in Cleveland, Ohio. The Corporate segment primarily includes expenses not specifically identified or charged to the operating business segments for measurement of operating performance. These expenses include, but are not limited to, purchase accounting depreciation, early retirement expenses, and compensation related to SARs. Financial information by business segment can be found in Note 14 to the audited consolidated financial statements included elsewhere in this report.

In fiscal 2006, the Aerospace segment generated approximately 76% of our net revenues and the Industrial segment generated approximately 24% of our net revenues. Approximately 69% of the aerospace revenues were derived from sales to commercial OEMs and commercial aftermarket customers, while military revenues represented approximately 31% of our aerospace revenues. Approximately 68% of the industrial revenues were derived from sales to commercial customers, while military customers represented approximately 32% of our industrial revenues.

In fiscal 2006, sales to commercial OEMs represented approximately 31% 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 the cost of production in anticipation of receiving orders for commercial spare parts and overhaul activities at significantly higher margins. Most of our OEM sales are on a sole source basis; therefore, in most cases, we are the only OEM certified provider of these parts in the aftermarket. On average, a commercial aircraft will experience five to six main engine fuel pump overhauls over its 30-year life span. We have over 50 years of experience in most of our product lines which allows us to benefit from a large existing installed base.

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

The following is management’s discussion and analysis of certain significant factors which have affected Argo-Tech’s financial position and operating results during the periods presented in the accompanying consolidated financial statements. Management has included gross margin excluding the amortization of the step-up of inventory to fair market value, a non-GAAP financial measure, since it is a useful indicator of the Company’s performance as compared to the prior period. Argo-Tech’s fiscal year ends on the last Saturday of October and is identified according to the calendar year in which it ends

Recent Developments

Sales Agreements

On December 24, 2006, V.G.A.T. Investors, LLC (“VGAT”) entered into a definitive agreement (the “Acquisition Agreement”) to sell all of the issued and outstanding common stock of AT Holdings Corporation (“Holdings”), the parent corporation of Argo-Tech to Eaton Corporation. The members of VGAT include, among others, Vestar Capital Partners IV, L.P., Greenbriar Equity Group, LLC (collectively the “Sponsors”) and several members of Argo-Tech’s senior management.

Management expects the sale to close in the first quarter of calendar 2007, but closing is subject to, among other things, required regulatory approvals and other closing conditions.

Merger

On October 28, 2005, Holdings consummated a merger with Vaughn Merger Sub, Inc. (“Vaughn”) in which Vaughn merged with and into Holdings (the “Merger”), with Holdings surviving as a wholly owned subsidiary of VGAT.

The Merger was accounted for as a purchase and preliminary fair value adjustments to the Company’s assets and liabilities were recorded as of the date of the Merger. In the fourth quarter of fiscal 2006, the Company obtained third-party valuations of certain tangible and intangible assets and finalized the allocation of the purchase price to the Company’s assets and liabilities.

The following table summarizes the fair values assigned to the Company’s assets and liabilities in connection with the Merger (in thousands):


Assets
Current assets	$	130,794
Property, plant and equipment		48,008
Goodwill		110,178
Intangible assets		327,869
Other assets		2

Total assets		616,851

Liabilities
Current liabilities		56,313
Long-term debt		264,063
Other noncurrent liabilities		122,026

Total liabilities		442,402

Purchase price allocated to Company	$	174,449

The following table summarizes the unaudited, consolidated pro forma results of operations of the Company, as if the Merger had occurred at the beginning of each period presented (in thousands):


	Year Ended			Year Ended
	October 29,			October 30,
	2005			2004

Net sales	$	212,595		$	187,328
Loss from operations		(18,662	)		(23,391	)
Net loss		(23,034	)		(26,636	)

The pro forma results of operations include the effects of the: (i) inventory purchase accounting adjustments that were charged to cost of sales in the year following the transactions as the inventory on hand as of the date of the transactions is sold, (ii) additional amortization expense that was recognized from the identifiable intangible assets recorded in accounting for the transactions, (iii) additional depreciation expense resulting from the write-up of the carrying value of property, plant and equipment to fair value, (iv) amortization of the write-up of the Notes to fair market value over the remaining life of the loan, (v) additional interest expense related to the increase in the Term Loan and related amortization expense; and excludes expenses related to the Merger (discussed below). This pro forma information is not necessarily indicative of the results that actually would have been obtained if the transactions had occurred as of the beginning of the periods presented and is not intended to be a projection of future results.

The Company’s results of operations for the period ended October 29, 2005 include a one-time charge of $24.5 million ($15.2 million after tax) that was recorded as a result of the Merger and consists primarily of stock compensation costs, ESOP excess benefit plan and severance and stay payments in connection with the Merger.

ESOP

We established our Employee Stock Ownership Plan (the “ESOP”) on May 17, 1994. The ESOP, which included approximately 225 of our salaried employees, represented an ownership interest in Holdings of approximately 54% prior to the Merger. Generally Accepted Accounting Principles (“GAAP”) requires that non-cash ESOP compensation expense and a corresponding increase in shareholders’ 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 $8.5 million (of which $3.4 million is included in Merger expense), and $4.9 million for fiscal 2005 and fiscal 2004 respectively. Upon completion of the Merger, (i) the ESOP was amended to no longer be an employee stock ownership plan, (ii) the ESOP no longer held any Holdings common stock, and (iii) no additional shares of Holdings common stock will be contributed to it. Following completion of the Merger, we adopted an amendment to our 401(k) plan for salaried employees under which we will make cash contributions currently estimated to be approximately $1.3 million per year, in place of the obligation to repurchase shares of redeemable ESOP stock.

Stock Appreciation Rights (SARs)

On March 1, 2005, we granted 45,200 SARs to certain full-time employees of Argo-Tech and its subsidiaries. Our directors and executive officers did not participate in the plan. The total number of SARs which could be granted pursuant to the amended 2004 Stock Appreciation Rights Plan, which was approved by the Board of Directors on December 7, 2004, could not exceed 50,000, except to the extent of certain authorized adjustments. The SARs vested 331/3% on the grant date and on each of the next two anniversary dates of the initial date (the date the value of the SAR is determined by the Board). Once vested and upon the earliest of: termination of employment for reasons other than cause, a change of control, or ten years from the initial date, each SAR entitled the holder to a cash payment equal to the increase, if any, in the value of one share of Holdings common stock from the initial date to the date of payment. There is $2.5 million of SAR expense included in selling, general and administrative expenses for fiscal 2005. The Merger in fiscal 2005 constituted a change of control under the SARs, and the holders of the SARs received a portion of the merger consideration in exchange for the cancellation of their SARs. The cancellation of the SARs resulted in additional compensation expense of $4.6 million in fiscal year 2005, which is included in Merger expense.

Argo Tracker

Argo Tracker, another subsidiary of Holdings, owns an asset tracking technology that is currently in development. Argo-Tech provides the funding for the development of this technology through dividends to Holdings. Dividends to Holdings for these development expenses in fiscal 2006 and 2005 were $1.2 million and $3.1 million, respectively. These dividends were within the restrictions governing Argo-Tech’s ability to pay dividends or make other restricted payments to Holdings contained in both the indenture governing the 91/4% Senior Notes and the senior credit facility.

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

Critical Accounting Policies

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

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

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

Valuation of Inventories. Our inventory purchases and commitments are made in order to build inventory to meet future shipment schedules based on forecasted demand for our products. Inventories are stated at the lower of

cost or market, with cost being determined on the first-in, first-out, or FIFO, method. Periodically, we perform a detailed assessment of inventory, which includes a review of, among other factors, historical sales activity, future demand requirements, product life cycle and development plans and quality issues. Based on this analysis, we record provisions for potentially obsolete or slow-moving inventory to reflect inventory at net realizable value. These provisions could vary significantly, either favorably or unfavorably, from actual requirements based upon future economic conditions, customer inventory levels or competitive factors that were not foreseen, or did not exist, when the valuation allowances were established.

Valuation of Goodwill and Intangible Assets. The Merger has resulted in significant amounts of identifiable intangible assets and goodwill. Intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed or exchanged, regardless of our intent to do so. Intangible assets, such as tradenames and goodwill that have an indefinite useful life are not amortized. All other intangible assets are amortized over their estimated useful lives. We review goodwill and purchased intangible assets for impairment annually, or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Our asset impairment review is based on estimates of the fair value of the assets and cash flow projections. The determination of undiscounted cash flows is based on the Company’s long-range planning forecasts. This approach uses our estimates of future market growth, and forecasted revenue and costs. If different assumptions were used in these plans, the related undiscounted cash flows used in measuring impairment could be different and the recognition of an impairment loss might be required.

Pensions and Post-retirement Plan Assumptions. We have two noncontributory defined benefit pension plans for qualifying hourly and salary employees and a postretirement health care benefit plan for qualifying hourly retirees and their dependents. We account for our defined benefit plans in accordance with SFAS No. 87, No. 106 and No. 132(R), which requires amounts recognized in the financial statements to be determined on an actuarial basis. We are required to make assumptions regarding such variables as the expected long-term rate of return on assets and the discount rate, which are used to determine service cost and interest cost to arrive at pension income or expense for the year. We are also required to make assumptions for the long-term health care cost trend rates for our post-retirement health care benefit plan. The estimated cost and benefits of the noncontributory defined benefit pension plans and the postretirement health care plan are determined by an independent actuary using various actuarial assumptions, including, but not limited to, assumptions on demographic factors such as retirement, mortality and turnover. We have analyzed the rate of return on assets used and determined that this rate is reasonable based on the plans’ historical performance relative to the overall markets. The discount rate assumption is consistent with prior years and is based on changes in the prevailing market long-term interest rates at the measurement date. If any of our assumptions were to change, our benefit plan expenses would also change. An increase/decrease in the discount rate, assuming no other changes in the estimates, reduces/increases the amount of the accumulated benefit obligation and the related required expense. A detailed discussion of Argo-Tech’s pensions and post-retirement plans can be found in Note 11 to the audited consolidated financial statements included elsewhere in this report.

Purchase Accounting. The Merger (See “Recent Developments”) was accounted for as a purchase and preliminary fair value adjustments to the Company’s assets and liabilities were recorded as of the date of the Merger. In the fourth quarter of fiscal 2006 the Company obtained third-party valuations of certain tangible and intangible assets. The allocation of VGAT’s investment to the Company’s assets and liabilities was finalized during the fourth quarter based on this valuation.

Results of Operations

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


	Fiscal Year Ended
				Predecessor			Predecessor
	October 28,			October 29,			October 30,
	2006			2005			2004

Net revenues		100	%		100	%		100	%
Gross profit		21.8			41.2			41.7
Selling, general and administrative		14.7			16.7			16.6
Research and development		4.6			6.0			6.4
Amortization of intangible assets		5.8			1.6			1.8
Merger expense		—			11.5			—

(Loss) income from operations		(3.3	)		5.4			16.9
Interest expense		10.2			12.0			12.1
Debt extinguishment expense		—			—			6.9
Loss before income taxes		(13.4	)		(6.6	)		(2.1	)
Income tax benefit		(6.2	)		(3.7	)		(1.9	)

Net loss		(7.3	)		(2.9	)		(0.2	)

Fiscal 2006 Compared with Fiscal 2005

Net revenues for fiscal 2006 increased $18.3 million, or 8.6%, to $230.9 million from $212.6 million in fiscal 2005. This increase was due to an increase in aerospace revenues of $20.9 million partially offset by a $2.6 million decrease in industrial revenues. The increase in aerospace revenues was attributable to an increase of $18.8 million of commercial aerospace revenues and an increase of $2.1 million in military revenues. Commercial OEM revenues increased $10.2 million, or 37.5%, to $37.4 million and commercial aftermarket revenues increased $8.6 million, or 11.5%, to $83.9 million in fiscal 2006. Commercial OEM revenues increased primarily due to increased engine build rates resulting in increased pump requirements from our customers. Commercial aftermarket revenues increased primarily due to an increase in MRO services along with a slight increase in demand for spare parts. Military revenues increased primarily due to an increase in engine and airframe development program revenue and OEM and aftermarket main engine revenue, partially offset by a reduction in revenues related to airframe OEM and aftermarket revenue. Industrial revenues decreased $2.6 million, primarily attributable to a decrease in ground fueling and business park revenues, partially offset by an increase in cryogenic pump revenues.

Aerospace gross profit for fiscal 2006 decreased $23.3 million, or 33.2%, to $46.9 million from $70.2 million for fiscal 2005. Gross margin decreased to 26.9% for fiscal 2006 from 45.3% for fiscal 2005. The decrease in gross profit and gross margin is primarily attributable to the amortization related to the step-up of inventory to fair market value. Excluding the $32.3 million amortization related to the step-up of inventory to fair market value, the aerospace gross margin for fiscal 2006 would have been 45.2%. Gross profit was also impacted by the sales of higher margin commercial aerospace aftermarket products and a reduction of non-cash compensation expense associated with the ESOP benefit plan that was terminated in connection with the Merger, partially offset by an increase in compensation expense related to the company match for the 401(k) benefit plan. Industrial gross profit for fiscal 2006 decreased $8.6 million, or 48.3%, to $9.2 million from $17.8 million for fiscal 2005. Gross margin decreased to 16.8% for fiscal 2006 from 30.9% for fiscal 2005. The decrease in gross profit and gross margin was primarily attributable to the amortization related to the step-up of inventory to fair market value. Excluding the $8.0 million amortization related to the step-up of inventory to fair market value, the industrial gross margin for fiscal 2006 would have been 31.2%. Gross profit was also negatively impacted by an increase in utility costs associated with the operation of our business park and higher manufacturing costs in our ground fueling and cryogenic businesses, partially offset by an increase in sales of higher margin cryogenic pump products.

Selling, general and administrative expenses for fiscal 2006 decreased slightly by $1.6 million, or 4.5%, to 33.9 million from $35.5 million for fiscal 2005. The reduction in selling, general and administrative expenses is primarily as a result of the non-recurrence of non-cash compensation expenses associated with a stock appreciation rights plan, the ESOP benefit plan and an early retirement program for hourly employees, partially offset by an increase in overall compensation expense, including compensation expense related to the company match for the 401(k) benefit plan, marketing costs and an increase in consulting expenses.

Research and development expenses for fiscal 2006 decreased $2.2 million, or 17.1%, to $10.6 million from $12.8 million for fiscal 2005. The decrease in research and development expenses is due to an increase in customer paid development expenses. Research and development expenses as a percentage of net revenues decreased from 6.0% for fiscal 2005 to 4.6% for fiscal 2006 primarily due to the increase in net revenues discussed above.

Amortization of intangible assets for 2006 of $13.4 million increased $10.0 million compared to $3.4 million for fiscal 2005. The increase is the result of purchase accounting adjustments resulting from the Merger in fiscal 2005 of $327.8 million. Amortization of intangible assets as a percentage of net revenues increased from 1.6% for fiscal 2005 to 5.8% for fiscal 2006 due to the purchase accounting adjustment discussed above.

Income from operations for fiscal 2006 decreased $19.0 million to a loss of $7.5 million from income of $11.5 million for fiscal 2005. As a percentage of revenues, the loss from operations for fiscal 2006 decreased to 3.2% from income of 5.4% for fiscal 2005. The decrease in income is primarily attributable to the amortization related to the step-up of inventory to fair market value, an increase in utility costs associated with the operation of our business park and an increase in the non-cash amortization of additional intangible assets, partially offset by a net favorable change in compensation expense associated with our benefit plans and a decrease in research and development expenses.

Interest expense for fiscal 2006 decreased $1.9 million, or 7.6%, to $23.7 million from $25.6 million for fiscal 2005 primarily due to the non-cash purchase accounting amortization of the fair-value adjustment to the $250.0 million of 91/4% senior notes issued in 2004 as a result of the Merger and a reduction in the amortization of loan commitment fees, partially offset by an increase in the principal amount and interest rates on our term loans and interest on our revolver borrowing during the period.

The income tax benefit was $14.3 million for fiscal 2006 as compared to a benefit of $7.8 million for fiscal 2005. The increase in the income tax benefit is primarily due to an increase in pre-tax loss primarily due to purchase accounting expenses related to the Merger.

Argo-Tech incurred a net loss of $16.8 million for fiscal 2006 compared to a loss of $6.2 million for fiscal 2005 primarily as a result of the factors referred to above.

Fiscal 2005 Compared with Fiscal 2004

Net revenues for fiscal 2005 increased $25.3 million, or 13.5%, to $212.6 million from $187.3 million in fiscal 2004. This increase was primarily due to an increase in aerospace revenues of $15.7 million and a $9.6 million increase in industrial revenues. The increase in aerospace revenues was attributable to an increase of $14.1 million of commercial aerospace revenues and an increase of $1.6 million in military revenues. Commercial OEM revenues increased $3.7 million, or 15.8%, to $27.2 million and commercial aftermarket revenues increased $10.3 million, or 15.9%, to $75.3 million in fiscal 2005. Commercial OEM revenues increased primarily due to increased engine build rates resulting in increased pump requirements from our customers. Commercial aftermarket revenues increased primarily due to an increase in MRO services along with an increase in demand for spare parts. Military revenues increased primarily due to an increase in OEM and aftermarket main engine and airframe component revenues, partially offset by a reduction in revenues related to OEM airframe development programs as more of the airframe components moved from development into production. Industrial revenues increased $9.6 million, primarily attributable to an increase in cryogenic pump and ground fueling revenues, offset by a slight decrease in business park revenues.

Aerospace gross profit for fiscal 2005 increased $6.9 million, or 10.9%, to $70.2 million from $63.3 million for fiscal 2004. The increase in gross profit is primarily attributable to an increase in sales, partially offset by a slight increase in manufacturing costs and non-cash compensation expense associated with the ESOP. Aerospace gross

margin decreased to 45.3% for fiscal 2005 from 45.5% for fiscal 2004. The decrease in gross margin is primarily attributable to the dilutive effect of higher commercial OEM sales. Industrial gross profit for fiscal 2005 increased $2.7 million, or 17.8%, to $17.8 million from $15.2 million for fiscal 2004, primarily as a result of increased cryogenic pump and ground fueling revenues and a decrease in manufacturing costs for our cryogenic pump products. Gross margin decreased to 30.9% for fiscal 2005 from 31.4% for fiscal 2004, primarily attributable to the dilutive effect of increased cryogenic pump revenues as a percent of total industrial revenues.

Selling, general and administrative expenses for fiscal 2005 increased $4.3 million, or 13.8%, to $35.5 million from $31.2 million for fiscal 2004. The increase in selling, general and administrative expenses is primarily related to an increase in non-cash compensation expenses associated with our SAR plan, the ESOP and ESOP Excess Benefit Plan, increased marketing expenses, increased incentive compensation and non-cash expense for an hourly employee early retirement program. The SAR plan and hourly early retirement expenses were recorded in our Corporate business segment. Selling, general and administrative expenses as a percentage of net revenues increased to 16.7% for fiscal 2005 from 16.6% for fiscal 2004 primarily due to the increased expenses discussed above offset by the increase in net revenues.

Research and development expenses for fiscal 2005 increased $0.9 million, or 7.6%, to $12.8 million from $11.9 million for fiscal 2004. The increase in research and development expenses is due to a decrease in customer paid development expenses. Research and development expenses as a percentage of net revenues decreased from 6.4% for fiscal 2004 to 6.0% for fiscal 2005 primarily due to the increase in net revenues discussed above.

Amortization of intangible assets for 2005 of $3.4 million was unchanged compared to $3.4 million for fiscal 2004. Amortization of intangible assets as a percentage of net revenues decreased from 1.8% for fiscal 2004 to 1.6% for fiscal 2005 due to the increase in net revenues discussed above.

Merger expense of $24.5 million for fiscal 2005 represents a one-time charge that was recorded as a result of the Merger and consists primarily of stock compensation costs, ESOP Excess Benefit Plan costs, severance and stay payments.

Income from operations for fiscal 2005 decreased $20.1 million, or 63.6%, to $11.5 million from $31.6 million for fiscal 2004. As a percentage of revenues, income from operations for fiscal 2005 decreased to 5.4% from 16.9% for fiscal 2004. The decrease in income from operations was primarily due to one-time expenses related to the Merger and increased selling, general and administrative expenses, partially offset by increased Aerospace and Industrial revenues and the improved financial performance in our cryogenic pump products.

Interest expense for fiscal 2005 increased $2.9 million, or 12.8%, to $25.6 million from $22.7 million for fiscal 2004 primarily due to the increase in borrowing and interest rate related to the $250.0 million of 91/4% senior notes issued in June 2004, which was partially offset by lower outstanding borrowings under our credit facility and lower amortization of deferred financing fees.

Debt extinguishment expense of $13.0 million was incurred in fiscal 2004. The expense consists of the write-off of $6.1 million of deferred financing fees associated with the refinancing of our 85/8% senior subordinated notes and the amendment and restatement of our credit agreement, $5.5 million for the tender, consent and redemption fees associated with the refinancing of the 85/8% senior subordinated notes and recognition of the remaining accretion of $1.3 million on a portion of the 85/8% senior subordinated notes that were issued at a discount.

The income tax benefit was $7.8 million for fiscal 2005 as compared to a benefit of $3.5 million for fiscal 2004. The increase in the income tax benefit is primarily due to an increase in pre-tax loss primarily due to one-time expenses related to the Merger offset by the non-recurring debt extinguishment expense in fiscal 2004.

Argo-Tech incurred a net loss of $6.2 million for fiscal 2005 compared to a loss of $0.5 million for fiscal 2004 primarily as a result of the factors referred to above.

Export Sales

Substantially all of our export sales are denominated in U.S. dollars. Export sales for fiscal years 2006, 2005, and 2004 were $104.7 million, $95.4 million and $80.2 million, respectively. Sales to Europe for fiscal years 2006, 2005, and 2004 were $45.2 million, $42.2 million and $32.8 million, respectively. Sales to the Pacific Rim for fiscal

years 2006, 2005, and 2004 were $34.8 million, $35.5 million, and $26.0 million, respectively. Export sales to all other regions, individually less than 10%, were $24.7 million, $17.7 million, and $21.4 million for fiscal years 2006, 2005, and 2004, respectively.

Liquidity and Capital Resources

We are a holding company that receives all of its operating income from its 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.

The Company has a $17.2 million Term Loan Facility and has available a $40.0 million Revolving Credit Facility (“Credit Facility”). The unused balance of the Credit Facility ($29.2 million at October 28, 2006 after reduction of $10.8 million for letters of credit) is subject to a .50% commitment fee. The Credit Facility and Term Loan mature on June 23, 2009. The Credit Facility is collateralized by substantially all of the tangible assets of the Company (including the capital stock of Holdings). The 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. In addition, the Company has the right to request (but no lender is committed to provide) additional term loans and revolving commitments under such facilities, subject to the satisfaction of customary conditions, including being in compliance with the financial covenants in the credit agreement after giving effect, on a pro forma basis, to any such incremental borrowing. The Credit Facility contains no restrictions on the ability of the Company’s subsidiaries to make distributions to the Company. The Credit Facility also requires the Company to comply with certain financial ratios and tests, under which the Company is required to achieve certain financial and operating results. The Company was in compliance with the covenants at October 28, 2006. Interest was calculated, at the Company’s choice, using an alternate base rate (“ABR”) or the London Interbank Offered Rate (“LIBOR”), plus a supplemental percentage determined by the ratio of debt to adjusted EBITDA. The interest rate for fiscal year 2006 was 1.00% plus ABR or 2.50% plus LIBOR.

At October 28, 2006, the Company had outstanding $250.0 million 91/4% Senior Notes due 2011. Interest on the Notes is payable semiannually on June 1 and December 1 of each year. The Senior Notes will mature on June 1, 2011. In connection with the Merger, the 91/4% Senior Notes were written up $10.0 million, to $260.0 million, their fair market value. The Senior Notes are unsecured and rank equally with all our existing and future senior debt and rank senior to all our existing and future subordinated debt. The Senior Notes will be effectively subordinated to all our existing and future secured debt to the extent of the value of the assets securing such debt. The Senior Notes are subject to certain limitations and restrictions which the Company has not exceeded at October 28, 2006.

Long-term debt at October 29, 2005 consisted of $19.1 million principal amount of term loans and $250.0 million principal amount of senior notes. At October 29, 2005, there were no outstanding borrowings on the revolving credit facility, and we had available, after $8.4 million in letters of credit, $31.6 million under our revolving credit facility.

The following table presents, for the periods indicated, certain information for the cash flows of the Company (in thousands):


				Predecessor
	Fiscal Year			Fiscal Year			Fiscal Year
	Ended			Ended			Ended
	October 28,			October 29,			October 30,
	2006			2005			2004

Cash Flows Provided By (Used In)
Operating Activities	$	19,264		$	193		$	33,230
Investing Activities		(4,567	)		(4,376	)		(3,056	)
Financing Activities		(5,006	)		2,215			(28,374	)

Increase (decrease) in cash and cash equivalents	$	9,691		$	(1,968	)	$	1,800

Cash Flows from Operating Activities. For fiscal 2006, $19.3 million of cash was provided by operating activities compared with $0.2 million in fiscal 2005. The increase is the result of non-recurring cash outlays related to the merger in fiscal 2005. Cash provided by operating activities for fiscal 2005 decreased $33.0 million to $0.2 million. The decrease is primarily a result of cash outlays made in connection with the one-time expenses related to the Merger together with increases in working capital to support higher aerospace revenues and new cryogenic pump orders partially offset by an increase in accrued liabilities due to higher tax withholding related to the compensation expense for the Merger and higher accrued interest.

Cash Used In Investing Activities. Net cash used in investing activities was $4.6 million, $4.4 million and $3.1 million for fiscal years 2006, 2005 and 2004, respectively, for expenditures for the purchase of property, plant and equipment. These expenditures reflect a normal amount of capital investments necessary to maintain our efficiency and manufacturing capabilities.

Cash Flows from Financing Activities. Cash used for financing activities for fiscal 2006 was $5.0 million compared with cash provided in fiscal 2005 of $2.2 million. The cash used for financing activities in fiscal 2006 resulted primarily from $4.2 million in cash dividends to Holdings of which $1.2 million was used to fund development of Argo Tracker and a $0.8 million repayment of long-term debt. Cash provided by financing activities for fiscal 2005 was $2.2 million compared to cash used in financing activities of $28.4 million in fiscal 2004. The cash generated from financing activities in fiscal 2005 primarily resulted from $5.0 million of additional borrowing on our term loan and $6.4 million in a contribution from Holdings to pay expenses related to the Merger offset by $1.4 million of financing fees related to the Merger, $3.9 million of stock repurchased from former ESOP participants, a $3.1 million dividend to Holdings to fund the development of Argo Tracker and $0.7 million to repay long-term debt. Cash used in financing activities for fiscal 2004 was $28.4 million, primarily as a result of the issuance of $250.0 million of senior notes, offset by our Refinancing transactions. These transactions included (i) the purchase of $195 million of our 85/8% senior subordinated notes, (ii) a dividend to Holdings for the redemption of all of Holdings’ outstanding Series A Cumulative Exchangeable Redeemable Preferred Stock, (iii) scheduled repayments and the restatement of our credit facility and (iv) payment of transaction fees and expenses.

Capital Expenditures. Our capital expenditures for fiscal years 2006, 2005 and 2004 totaled $4.6 million, $4.4 million and $3.1 million, respectively, which were related in each year to maintaining existing facilities and equipment and systems to support current operating activities. We expect to incur capital expenditures of approximately $6.9 million in fiscal year 2007 relating to the continued maintenance of facilities, equipment and systems to support current operating activities. Capital expenditures are financed with cash generated from operations. We currently have no material commitments for capital expenditures.

We do not enter into derivative contracts for trading or speculative purposes. We have no derivative financial instruments.

Contractual Cash Obligations. The following is a summary of contractual and other long-term cash obligations as of October 28, 2006:


	Payment Due By Period
											2012 and
	2007		2008		2009		2010		2011		Thereafter		Total
	(Dollars in millions)

Term Loans	$	0.8	$	3.6	$	13.9	$	—	$	—	$	—	$	18.3
91/4% Senior Notes		—		—		—		—		250.0		—		250.0
Operating leases		0.7		0.7		0.4		—		—		—		1.8
Other long-term obligations*		26.4		26.5		25.9		25.2		25.6		14.5		144.1

Total contractual and other long-term cash obligations	$	27.9	$	30.8	$	40.2	$	25.2	$	275.6	$	14.5	$	414.2


*		Represents interest payments on the Term Loans (at an assumed average interest rate of 6.5%) and the 91/4% Senior Notes, estimated funding for retirement and other post-employment benefits and other long-term commitments.

Our primary future uses of cash from operating activities will consist of debt service and capital expenditures. We believe that cash flows 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 flows. We may need to refinance all or a portion of our indebtedness on or before maturity. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. These items are subject to prevailing conditions and to financial, business, and other factors, some of which are beyond our control. Any future acquisitions, joint ventures or other similar transactions will likely require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms, if at all.

Off-Balance Sheet Arrangements. The Company does not have any material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition.

New Accounting Standards

Recently Issued Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Share Based Payment,” which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company will adopt this statement for the fiscal year 2007 using the modified prospective method. Management has not determined the effect the adoption of this statement will have on its consolidated financial position or results of operations.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertain income tax positions accounted for in accordance with SFAS No. 109. The interpretation stipulates recognition and measurement criteria in addition to classification and interim period accounting and significantly expanded disclosure provisions for uncertain tax positions that are expected to be taken in a company’s tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt this statement for fiscal 2008. Management has not yet determined the impact of the adoption of FIN 48 on its consolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under most other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with earlier application encouraged. The provisions of SFAS No. 157 should be applied prospectively as of the beginning of the fiscal year in which the statement is initially applied, except for a limited form of retrospective application for certain financial instruments. The Company will adopt this statement for fiscal year 2009. Management has not determined the effect the adoption of this statement will have on its consolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132R.” SFAS No. 158 requires that the funded status of defined benefit postretirement plans be recognized in the statement of financial position and changes in the funded status be reflected in comprehensive income. The new standard also requires the benefit obligations be measured as of the same date of the consolidated financial statements and requires additional disclosures related to the effects of delayed recognition of gains or losses, prior service costs or credits, and transition assets or obligations on net periodic benefit cost. SFAS 158 is effective for financial statements issued for

fiscal years ending after December 15, 2006. The Company will adopt this statement in the fourth quarter of fiscal 2007 and is currently assessing the impact that this standard will have on its consolidated financial position or results of operations.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for fiscal years ending after November 15, 2006. The Company will adopt this statement for fiscal 2007. Management has not determined the effect the adoption of this statement will have on its consolidated financial position or results of operations.

Recently Adopted Accounting Pronouncements

Effective November 2005, the Company adopted SFAS No. 151, “Inventory Costs, an amendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, Inventory Pricing.” This statement requires that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges. SFAS No. 151 also requires the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The adoption of this statement did not have a material effect on its consolidated financial position or results of operations.

In October 2006, the Company adopted FASB Interpretation No. 47, “Accounting for Conditional Asset Retirements — an interpretation of SFAS No. 143” (“FIN 47”). FIN 47 clarifies that uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists to make a reasonable estimate of the fair value of the obligation. The provisions of this interpretation were effective for the Company’s fiscal year ended October 28, 2006 and did not have a material impact on its consolidated financial position or results of operations.


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk.*

In the ordinary course of operations, Argo-Tech’s major market risk exposure is to changing interest rates. Argo-Tech’s exposure to changes in interest rates relates primarily to its long term debt obligations. At October 28, 2006, Argo-Tech had fixed rate debt of $250.0 million at 91/4% and variable rate debt under our credit facility of $17.2 million, calculated at Argo-Tech’s choice using an ABR or LIBOR, plus a supplemental percentage determined by the ratio of debt to EBITDA. The variable rate is not to exceed ABR plus 1.25% or LIBOR plus 2.75%. Argo-Tech does not enter into derivative contracts for trading or speculative purposes. A 10% fluctuation in interest rates would not materially affect Argo-Tech’s financial condition, results of operations or cash flows.


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.


Item 9A.	*Controls and Procedures.*

(a) Disclosure Controls and Procedures.

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

(b) Change in Internal Controls.

There were no changes in Argo-Tech’s internal control over financial reporting during the fiscal quarter ended October 28, 2006 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act requires management of any company that is required to file periodic reports under Section 13(a) or 15(d) of the Securities Exchange Act to report on, and its independent auditors to attest to, such company’s internal control over financial reporting. Although Argo-Tech is a voluntary filer of periodic reports, to comply with covenants under the indenture governing its 91/4% senior notes, Argo-Tech anticipates complying with these reporting and attestation requirements beginning with the fiscal year ending October 24, 2008 (which is the first period for which it would be required to comply with such provisions if it was required to file such periodic reports) and is actively continuing its ongoing internal process of documenting, testing and evaluating the effectiveness of its internal control over financial reporting utilizing outside assistance.

PART III


Item 10.	*Directors and Executive Officers of the Registrant.*

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.


Name	Age		Position

Michael S. Lipscomb		60	Chairman, President, Chief Executive Officer and Director
Paul R. Keen		57	Executive Vice President, General Counsel and Secretary
John S. Glover		58	Vice President and Chief Financial Officer
John Daileader		42	Director
Reginald L. Jones, III		47	Director
Jeffrey W. Long		50	Director
Kathleen Moran		40	Director
Daniel S. O’Connell		52	Director

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

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

John S. Glover was promoted to Vice President and Chief Financial Officer in December 2005. Mr. Glover was Vice President Finance and Information Systems with Argo-Tech Corporation (Costa Mesa), a wholly owned subsidiary of Argo-Tech, since November 2000. He was also Acting General Manager of the Carter Cryogenic Products Division of Argo-Tech Corporation (Costa Mesa) from June 2004 to June 2005.

John Daileader has served as a Director of Argo Tech and Holdings since December 20, 2005. Mr. Daileader was named a Managing Director of Greenbriar Equity Group LLC, a private equity group, in December 2004. From February 2002 through December 2004, he was a Principal of Greenbriar. From 1998 through June 2001, he was a Principal with JPMorgan Partners. Mr. Daileader is also a director of Tinnerman Palnut Engineering Products, Inc. an engineered fastener manufacturer and GWP Holdings, Inc., a truck dealership group.

Reginald L. Jones, III has served as a Director of Argo Tech and Holdings since December 20, 2005. Mr. Jones is Managing Partner of Greenbriar Equity Group LLC, a position he has held since co-founding the firm in December 1999. He is also a Director of Active Aero Group, a full service air cargo and air charter company, and Electro-Motive Diesel, Inc., one of two U.S. original equipment manufacturers of diesel-electric locomotives.

Jeffrey W. Long has served as a Director of Argo Tech and Holdings since December 20, 2005. Mr. Long is Managing Director of Vestar Capital Partners, a private equity group, and joined Vestar Capital Partners in 2005. Prior to joining Vestar Capital Partners, Mr. Long served as a Consultant for McKinsey and Company for more than 12 years.

Kathleen Moran has served as a Director of Argo Tech and Holdings since December 20, 2005. Ms. Moran joined Greenbriar Equity Group LLC in 1999 as Chief Financial Officer, a position she still holds. In December 2004, she was appointed a Managing Director of Greenbriar.

Daniel S. O’Connell has served as a Director of Argo Tech and Holdings since December 20, 2005. Mr. O’Connell founded Vestar Capital Partners in April 1988 and has served as its Chief Executive Officer since that time. Prior to Vestar Capital Partners, Mr. O’Connell served as a Managing Director and Co-Head of the Management Buyout Group at The First Boston Corporation. Mr. O’Connell currently serves as a Director of Birds Eye Foods, Inc., Solo Cup Company St. John Knits International, Inc., The Mentor Network and Nybron Flooring International.

Board Committees

The board of directors of Holdings and Argo-Tech maintain an audit committee and a compensation committee. Neither the Board of Directors of Holdings nor Argo-Tech has determined whether any of its members qualify as an “audit committee financial expert” within the meaning of Item 401(h) (2) of Regulation S-K.

Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Senior Financial Officers

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


Item 11.	*Executive Compensation.*

Board Compensation

Since 1999, Argo-Tech has not compensated its directors. Prior to the Merger in fiscal 2005, Holdings paid its directors a quarterly fee of $3,000 plus $4,000 and reasonable out-of-pocket expenses for each board meeting attended. Fees paid to Mr. Lipscomb and Mr. Keen for service on the board of Holdings for fiscal 2005 and fiscal 2004, are included in the “Annual Compensation” table below. No fees were paid during fiscal 2006 and neither Argo-Tech nor Holdings intends to pay directors’ fees for the foreseeable future.

Employment Agreements

At the time of the Merger, Mr. Lipscomb and Mr. Keen entered into employment agreements with Argo-Tech which provide for, among other things:


	•	an initial term of three years with automatic renewals for one-year terms unless Argo-Tech or the executive gives written notice of election not to renew at least 90 days prior to the expiration of the applicable employment period;

	•	an annual base salary of $543,828 (Mr. Lipscomb) and $279,926 (Mr. Keen), which will be increased annually by no less than a percentage equal to the percentage increase, if any, in the Consumer Price Index in the prior twelve-month period;

	•	participation in (i) bonus arrangements, as determined by the Compensation Committee of the Argo-Tech Board of Directors, and (ii) employee benefit plans that are provided or made available by Argo-Tech to its senior executive officers;

	•	four weeks of paid vacation per calendar year, prorated in the case of a partial year;

	•	upon termination because of death or disability, the executive (or the executive’s estate) will receive an amount equal to (i) the executive’s salary through the date of termination plus (ii) a pro rata portion of the executive’s bonus for such year;

	•	upon termination by Argo-Tech without cause (as defined in the agreement) or by the executive for good reason (as defined in the agreement) and subject to the executive’s compliance with the non-competition, non-solicitation and ownership of intellectual property provisions of the agreements, the executive will receive an amount equal to his current annual salary and bonus for the preceding fiscal year payable over the one-year period following termination as well as continuing health care coverage until the earlier of (i) one year following his departure and (ii) the date he becomes eligible for comparable coverage under health plans of any successor employer;

	•	prohibitions against Mr. Lipscomb and Mr. Keen from competing with Argo-Tech or its subsidiaries or soliciting employees of Argo-Tech or its subsidiaries (both during employment and for a period of two years thereafter); and

	•	payments intended to make them whole for any excise tax liability they incur due to their receipt of certain payments treated as being contingent upon a change in control in connection with the Merger under Section 280G of the Code.

In 2005, Mr. Glover entered into a change in control agreement with Argo-Tech. Under that agreement, if, in connection with or within six months of a Change in Control (as defined in the agreement) of Argo-Tech, Mr. Glover is terminated other than for cause (as defined in the agreement), Disability (as defined in the agreement) or death or voluntarily terminates his employment for Good Reason (as defined in the agreement), he will be entitled to receive severance payments equal to (a) his then current base salary and annual bonus for the preceding fiscal year and (b) continuing health care coverage until the earlier of (i) one year following his departure and (ii) the date he becomes eligible for comparable coverage under health plans of any successor employer.

Incentive Compensation

Incentive Units

VGAT has three authorized classes of units of limited liability company interests, designated Class A Units, Class B Units and Class C Units. The Class B Units of VGAT (the “Class B Units”) and the Class C Units of VGAT (the “Class C Units” and, together with the Class B Units, the “Incentive Units” and, together with the Class A Units of VGAT and the Class B Units, the “Units”) are voting limited liability company interests and are available for issuance to employees, directors and service providers of and to Holdings and its subsidiaries for incentive purposes. In connection with the Merger, Mr. Lipscomb was granted 7,671 Class B Units of VGAT and 7,671 Class C Units of VGAT, and Mr. Keen was granted 1,705 Class B Units of VGAT and 1,705 Class C Units of VGAT and Mr. Glover was granted 1,704 Class B Units of VGAT and 1,704 Class C Units of VGAT.

The Incentive Units entitle the holders to distributions in excess of a floor amount, established based on the fair market value of the equity of Holdings (i) as of the closing of the Merger after giving effect to the Merger, for Incentive Units that are issued at the closing of the Merger, and (ii) as of the date of issuance, for Incentive Units that are issued after the Merger, in each case such that the Incentive Units will qualify as profits interests under the Code and the regulations promulgated thereunder.

Approximately 67% of each class of the authorized Incentive Units was issued to members of management as of the closing of the Merger in 2005. The remaining 33% is reserved for issuance to employees, directors and service providers of and to Holdings and its subsidiaries.

The Class B Units are subject to time-vesting requirements. Twenty percent of the Class B Units will vest effective as of the end of each fiscal year commencing at the end of fiscal 2006, so long as the holder of such Class B Units remains continuously employed by Holdings or any of its subsidiaries from the closing of the Merger until the end of each such fiscal year. Notwithstanding the foregoing, in the event that a holder’s employment with Holdings or any of its subsidiaries is terminated following October 31, 2006 other than by Holdings for cause or voluntarily by the holder, such holder’s Class B Units shall vest on a daily basis. Upon a sale of VGAT or AT Holdings, all Class B Units that have not previously vested or been forfeited will become fully vested. As of October 28, 2006, the Class B Units became 20% vested. The sale of Holdings to Eaton Corporation will result in all Class B Units becoming fully vested. The Class C Units are subject to performance-vesting requirements. For each fiscal year commencing with fiscal 2006, 20% of the Class C Units will be eligible to vest effective upon a sale of VGAT or AT Holdings, if the holder of such Class C Units remains continuously employed by Holdings or any of its subsidiaries from the closing of the Merger until the end of each such fiscal year (the “Time Criteria”). Upon a sale of VGAT or AT Holdings, all Class C Units for which the Time Criteria has been satisfied will vest if each of the Sponsors receives a cash-on-cash return on the aggregate capital invested in VGAT that is equal to the greater of (i) an annualized internal rate of return of at least 25% on its aggregate equity investment in VGAT and (ii) at least 2.5 times the amount of its aggregate equity investment in VGAT (the “Performance Criteria”).

Upon termination of employment with Holdings or any of its subsidiaries for any reason, all of a holder’s unvested Class B Units and Class C Units for which the Time Criteria has not been satisfied will be immediately forfeited. Any Class C Units held for which the Time Criteria has been satisfied will remain eligible for vesting upon a sale of VGAT or AT Holdings, if the Performance Criteria are satisfied. In addition, with respect to certain employees that have executed or will execute change of control agreements with VGAT, if such employee engages in a competitive activity during such employee’s employment with VGAT and its subsidiaries or at any time during the first year following termination of their employment, all Class B and Class C Units, whether vested or unvested, shall be immediately forfeited, and all other securities of VGAT or Holdings held by such person will be subject to repurchase within one year at cost. The sale of Holdings to Eaton Corporation, pursuant to the Acquisition Agreement, will result in all Class C Units becoming fully vested.

Benefit Plans

Salaried Pension Plan. Our Salaried Pension Plan was established on May 28, 1987, effective November 1, 1986. Prior to July 1, 1994, our regular, permanent salaried employees not covered by collective bargaining agreements were eligible to participate in this plan on their date of hire. 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 fully vested (to the extent otherwise non-vested) as of the close of business on June 30, 1994. Employee contributions were neither required nor permitted.

Under the Salaried Pension Plan, the normal retirement age is 65. The normal monthly retirement benefit is 1.25% of a participant’s final average monthly compensation multiplied by the participant’s years of benefit service. Compensation earned after June 30, 1994, and service performed after June 30, 1994, are not taken into account in determining a participant’s benefit under the Salaried Pension Plan. Final average monthly compensation means the average monthly compensation (computed before withholdings, deductions for taxes or other purposes and salary reduction amounts under the Salaried Savings Plan (as defined and discussed below)) paid or payable to the participant for the five calendar years which produce the highest such average, determined as if the participant’s

employment terminated on June 30, 1994 (or, if earlier, the date the participant’s employment actually terminated or the participant ceased to be within the class of employees eligible to participate in the Salaried Pension Plan). If a participant ceased to be within the class of employees eligible to participate or a participant’s employment terminated (or is deemed to have terminated) prior to July 1 of a calendar year, that calendar year is not taken into account for purposes of determining final average monthly compensation. A participant’s vested benefit cannot be less than the participant’s vested benefit (if any) calculated as of October 31, 1989 under the Salaried Pension Plan’s prior pension formula, which was integrated with Social Security.

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

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


	Monthly
Name	Benefit

Michael S. Lipscomb	$	1,799.32
Paul R. Keen		1,188.83

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 or, if the participant is married, the 50% joint and survivor 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 obtain spousal consent to elect another form of payment, another contingent annuitant or both, as applicable.

This plan was amended on October 28, 2004, effective for the 2003 calendar year. The amendment resulted from legislative changes related to the time and manner of distributions, the determination of the amount to be distributed each year, the requirements for annuity distributions commencing during the participant’s lifetime, and the requirements for minimum distributions where the participant dies before the date the distribution begins.

Salaried Savings Plan. Our Employee Savings Plan for salaried employees (the “Salaried Savings Plan”) has been in place since May 1, 1987. Regular, permanent salaried employees who have completed at least three months of service are eligible to participate in the plan. All assets of the plan are held in trust with National City Institutional Trust and Investment Services serving as Trustee. Participants may elect to have “tax-deferred” (401(k) compensation reduction) contributions made to the plan of up to 40% of their eligible compensation. Participants may also elect to have after-tax contributions made to the Salaried Savings Plan of up to 20% of their eligible compensation. In addition, participants over the age of 50 are allowed to make catch-up contributions (up to $4,000 in 2005 and $5,000 in 2006).

Following completion of the Merger, we adopted an amendment to the Salaried Savings Plan under which we make cash contributions equal to 3% of a participants eligible compensation and will provide an additional contribution of 50% of each participants’ tax-deferred contributions not in excess of 8% of compensation. A participant’s benefit under the plan is the balance of the participant’s accounts attributable to tax-deferred contributions, 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 nonvested, 100% vested. Distributions from the plan are made in the form of lump-sum cash payments, installment payments or partial payments.

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

Benefits are generally payable after a participant’s employment terminates. A participant who is an employee may, however, apply for an in-service distribution of all or a portion of the participant’s vested account balance after attainment of age 591/2 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 may apply for a loan of up to 50% of the participant’s vested account balance (subject to a $50,000 maximum) under the Salaried Savings Plan.

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 three times the individual’s salary.

Management Incentive 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 the Compensation Committee of Holdings.

Historical director and executive compensation

The following table sets forth, for fiscal 2006, 2005 and 2004, certain information about the compensation paid to or accrued by Holdings for the Chief Executive Officer and each of Argo-Tech’s other executive officers during those years (the “Named Executives”):


							All Other
	Annual Compensation						Compensation
Name and Principal Position	Fiscal Year		Salary		Bonus		(1)(2)(3)

Michael S. Lipscomb(4)		2006	$	543,816	$	353,480	$	14,456
Chairman, President and		2005		522,906		458,583		1,132,011	(5)
Chief Executive Officer		2004		484,170		346,181		38,426
Paul R. Keen(4)		2006		279,936		139,968		9,129
Executive Vice President,		2005		269,160		141,982		648,314	(6)
General Counsel and Secretary		2004		258,804		142,342		29,074
John S. Glover(7)		2006		193,336		90,002		37,178
Vice President and Chief Financial Officer


(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 fiscal 2004, 2005 or 2006 except as noted in footnotes 5, 6 and 8.

(2)		The amounts listed consist of the value of life insurance provided by us for the benefit of the Named Executives in excess of the value of life insurance provided by us for the benefit of all other salaried employees. For Mr. Lipscomb, the amounts listed also include $26,000 for fiscal 2005 and $32,000 for fiscal 2004 paid as Holdings directors’ fees. For Mr. Keen, the amounts listed also include $25,000 for fiscal 2004 paid as Holdings directors’ fees. For Mr. Glover, the amounts listed also include relocation expense of $16,000.

(3)		The amounts listed do not reflect payments received as stockholders and/or derivative holders of Holdings on account of the Merger .

(4)		Upon the completion of the Merger, Mr. Lipscomb and Mr. Keen entered into new employment agreements with Argo-Tech, which replaced all existing employment agreements.

(5)		This amount includes $869,094 Mr. Lipscomb received under his 1986 employment agreement and $217,274 he received under his stay pay and severance agreement because the Merger constituted a change in control under those agreements.

(6)		This amount includes $538,320 Mr. Keen received under his 1989 employment agreement and $102,876 he received under his stay pay and severance agreement because the Merger constituted a change in control under those agreements.

(7)		Mr. Glover was elected Vice President and Chief Financial Officer in December 2005.

Nonqualified Deferred Compensation Agreement. Argo-Tech also entered into nonqualified deferred compensation agreements with Mr. Lipscomb, Mr. Glover and Mr. Keen that also provide for the payment of severance benefits upon the termination of employment with Argo-Tech for any reason. The amount of such severance benefit is equal to Argo-Tech’s policy interest (as defined in the collateral assignment split dollar insurance agreement between Argo-Tech and the executive) in the life insurance policies owned by the executives for which Argo-Tech pays the premiums. In general, the policy interest represents the amount of insurance premiums paid by Argo-Tech on behalf of the executives. The severance benefit is payable within 30 days following the executive’s termination of employment.

Compensation Committee Interlocks and Insider Participation

Mr. Lipscomb was a member of the Board of Directors and executive officer of Argo-Tech during Argo-Tech’s fiscal year ended October 28, 2006.

None of Argo-Tech’s executive officers serves as a director or member of the compensation committee of another entity, one of whose executive officers serves as a member of the Board of Directors of Argo-Tech.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.*

Argo-Tech is a wholly-owned subsidiary of Holdings, which owns the only outstanding share of Argo-Tech’s common stock, par value $.01 per share. VGAT beneficially owns all of the outstanding common stock of Holdings. The following table sets forth the ownership of VGAT’s Class A Units, Class B Units and Class C Units, on a combined basis, as of January 25, 2007 by:


	•	each person known to Argo-Tech to be the beneficial owner of more than 5% of VGAT’s units;

	•	each director of Argo-Tech;

	•	each of the Named Executives; and

	•	all of the Argo-Tech directors and executive officers as a group.

On January 25, 2007, there were 594,466 Class A Units of VGAT, 18,580 Class B Units of VGAT and 18,580 Class C Units of VGAT outstanding. As of January 25, 2007, the Class B Units and Class C Units were entitled to vote on any matters presented to unitholders of VGAT based upon the 20 percent of vested units.


					Immediately
					Exercisable
					Options to
			Number of		Purchase				Percent of
Name of Beneficial Owner	Class		Units		Units(1)		Total		Total

Greenbriar Equity Group LLC		Class A		269,743		—		269,743		45.4	%
555 Theodore Fremd Avenue Rye, NY 10580
Vestar Capital Partners IV, L.P.		Class A		269,743		—		269,743		45.4	%
245 Park Avenue 41^st Floor New York, NY 10167
Michael S. Lipscomb†		Class A		37,221		—		37,221		6.3	%
		Class B		1,534				1,534		22.5	%
Paul R. Keen		Class A		4,039		5,000		9,039		1.5	%
		Class B		341				341		5.0	%
John S. Glover		Class A		—		2,600		2,600		*
		Class B		341				341		5.0	%
John Daileader(2)†		Class A		269,743		—		269,743		45.4	%
Reginald L. Jones, III(3)†		Class A		269,743		—		269,743		45.4	%
Jeffrey W. Long(4)†		Class A		269,743		—		269,743		45.4	%
Kathleen Moran(5)†		Class A		269,743		—		269,743		45.4	%
Daniel S. O’Connell(6)†		Class A		269,743		—		269,743		45.4	%
Directors and Executive		Class A		580,746		7,600		588,346		97.7	%
Officers as a Group		Class B		2,216				2,216		32.5	%


*		Less than 1%

†		Director of Argo-Tech

(1)		Includes options to purchase VGAT Class A Units exercisable within 60 days of January 26, 2007.

(2)		Mr. Daileader may be deemed to beneficially own the units beneficially owned by Greenbriar and its affiliated entities because of his relationship with Greenbriar and its affiliated entities and because Mr. Daileader was appointed to Argo-Tech’s Board of Directors at the request of Greenbriar. Mr. Daileader disclaims any beneficial ownership of the units owned by Greenbriar and its affiliates.

(3)		Mr. Jones may be deemed to beneficially own the units beneficially owned by Greenbriar and its affiliated entities because of his relationship with Greenbriar and its affiliated entities and because Mr. Jones was


		appointed to Argo-Tech’s Board of Directors at the request of Greenbriar. Mr. Jones disclaims any beneficial ownership of the units owned by Greenbriar and its affiliates.

(4)		Mr. Long may be deemed to beneficially own the units beneficially owned by Vestar and its affiliated entities because of his relationship with Vestar and its affiliated entities and because Mr. Long was appointed to Argo-Tech’s Board of Directors at the request of Vestar. Mr. Long disclaims any beneficial ownership of the units owned by Vestar and its affiliates.

(5)		Ms. Moran may be deemed to beneficially own the units beneficially owned by Greenbriar and its affiliated entities because of her relationship with Greenbriar and its affiliated entities and because Ms. Moran was appointed to Argo-Tech’s Board of Directors at the request of Greenbriar. Ms. Moran disclaims any beneficial ownership of the units owned by Greenbriar and its affiliates.

(6)		Mr. O’Connell may be deemed to beneficially own the units beneficially owned by Vestar and its affiliated entities because of his relationship with Vestar and its affiliated entities and because Mr. O’Connell was appointed to Argo-Tech’s Board of Directors at the request of Vestar. Mr. O’Connell disclaims any beneficial ownership of the units owned by Vestar and its affiliates.


Item 13.	*Certain Relationships and Related Transactions.*

Transactions with Officers

None

Securityholders Agreement

Immediately prior to the completion of the Merger, VGAT entered into a securityholders agreement with the Sponsors, the unaffiliated third parties investing in VGAT and certain members of management who made an equity investment in VGAT by rolling over some or all of their equity interests in Holdings. This agreement provides that VGAT’s management committee and the board of directors of Holdings will be comprised of our chief executive officer and an equal number of representatives designated by each of the Sponsors, with such Sponsor representatives constituting a majority of the entire committee or board, as applicable. The agreement also provides that each securityholder will vote its voting securities to elect to the management committee of VGAT and the board of directors of Holdings or comparable body of Holdings and each of its subsidiaries the persons designated by the Sponsors. Pursuant to the terms of this agreement, each of the parties agrees to vote their voting securities as directed by the Sponsors for the approval of certain corporate transactions submitted to a vote of securityholders. The voting provisions of this agreement terminate in connection with an initial public offering of VGAT or any of its subsidiaries, if required by the managing underwriter.

The securityholders agreement also provides that neither Sponsor may transfer its securities of VGAT without the approval of the other Sponsor and that the management unitholders are generally restricted from transferring their securities, subject to certain exceptions. Management holders, however, are granted the right to participate in any proposed transfer by either Sponsor.

In addition, the securityholders agreement contains provisions with respect to registration rights that provide each of the Sponsors the right to request registration of their securities on Form S-1 or any similar long-form registration statement or, if available, registrations on Form S-2 or S-3 or any similar short-form registration statement, each at VGAT’s expense. In the event that the Sponsors make such a demand request registration, all other parties to the securityholders agreement will be entitled to participate in such registration, subject to certain limitations. The agreement also provides securityholders with customary piggyback registration rights with respect to other registrations by VGAT.

Finally, at any time following the sixth anniversary of the completion of the Merger, each of the Sponsors shall have the right to cause VGAT to redeem their respective interests in it. If VGAT fails to redeem such interests, the Sponsors shall have the right to cause VGAT to consummate an initial public offering, a company sale or a refinancing to effectuate such redemption.

Professional Services Agreements

Upon the completion of the Merger, Holdings entered into separate professional services agreements with affiliates of each of the Sponsors. Pursuant to these agreements, each of the Sponsors will assist in strategic financial planning and certain advisory and consulting services, and will each receive an annual fee of approximately $375,000. It is anticipated that Argo-Tech will pay its share of the cost of these services. In addition, the Sponsors’ will be paid transaction fees, in reasonable and customary amounts, for investment banking services rendered in transactions that Holdings or its subsidiaries may enter into from time to time. Upon the consummation of the Transactions, each of the Sponsors was paid a onetime transaction fee of approximately $2.7 million in connection with the Sponsors’ arranging equity and debt financing for the Merger and related transactions, as well as paid the Sponsors’ out-of-pocket expenses. These agreements will terminate upon the consummation of an initial public offering by Holdings or one of its subsidiaries or upon such time the Sponsor that is party to the agreement holds less than 30% of the securities of VGAT that it held immediately after the completion of the Merger.

Interests of Certain Argo-Tech Directors and Officers in the Merger

Indemnification of Directors and Officers. Holdings purchased directors’ and officers’ liability insurance tail coverage covering each current or former director or officer of Holdings and its subsidiaries with respect to claims arising from facts or events that occurred prior to the Merger closing and for a period of six years thereafter.


Item 14.	*Principal Accountant Fees and Services.*

Audit Fees

During the fiscal years ended October 28, 2006 and October 29, 2005 Deloitte & Touche LLP billed the Company approximately $343,000 and $255,000, respectively, in fees for professional services rendered in connection with the audits of the Company’s annual consolidated financial statements and reviews of the consolidated financial statements included in its quarterly reports.

Audit-Related Fees

Audit-related fees billed to the Company by Deloitte & Touche LLP for the fiscal years ended October 28, 2006 and October 29, 2005 were approximately $277,000 and $232,000, respectively, for assurance and related service provided to management in connection with the audit of Argo-Tech’s employee benefit plans, reviews of documents filed with the SEC and assistance and consultation provided in relation to the Merger.

Tax Fees

Tax fees billed to the Company by Deloitte & Touche LLP for the fiscal years ended October 28, 2006 and October 29, 2005 were approximately $170,000 and $173,000, respectively, for assistance and consultation provided to the Company in connection with tax compliance matters, tax planning matters and consultation provided in relation to the Merger.

All Other Fees

Deloitte & Touche LLP billed the Company an aggregate of approximately $40,000 and $21,000 during the fiscal years ended October 28, 2006 and October 29, 2005, respectively, in fees for professional services, including CFO concepts training, and in connection with a research project related to unclaimed funds.

Audit Committee Pre-Approval Policy

The Audit Committee of Holdings has established a policy to delegate authority to the CEO to approve any audit or permissible non-audit services not in excess of $25,000. The Audit Committee pre-approves, on an individual basis, all audit and permissible non-audit services estimated to be in excess of $25,000 provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit

Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules.*

(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:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of October 28, 2006 and October 29, 2005

Consolidated Statements of Operations for the Fiscal Years ended October 28, 2006, October 29, 2005 (Predecessor) and October 30, 2004 (Predecessor)

Consolidated Statements of Shareholder’s Equity/(Deficiency) for the Fiscal Years ended October 28, 2006, October 29, 2005 (Predecessor) and October 30, 2004 (Predecessor)

Consolidated Statements of Cash Flows for the Fiscal Years ended October 28, 2006, October 29, 2005 (Predecessor) and October 30, 2004 (Predecessor)

Notes to Consolidated Financial Statements for the Fiscal Years ended October 28, 2006, October 29, 2005 (Predecessor) and October 30, 2004 (Predecessor)

(a)(2) Financial Statement Schedules

The following financial statement schedule is included in a separate section of this report following the signature page:

Valuation and Qualifying Accounts for the Fiscal Years ended October 28, 2006, October 29, 2005 (Predecessor) and October 30, 2004 (Predecessor)

(a)(3) Exhibits


Exhibit
Number			Description of Exhibit (and document from which incorporated by reference, if applicable)

	2	.1	Agreement and Plan of Merger, dated September 13, 2005, by and among AT Holdings Corporation, Argo-Tech, GreatBanc Trust Company, as Trustee for the Argo-Tech Corporation Employee Stock Ownership Plan, V.G.A.T. Investors, LLC and Vaughn Merger Sub, Inc. (incorporated herein by reference to Exhibit 2.1 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	2	.2	Amendment No. 1 to Agreement and Plan of Merger, dated as of October 26, 2005, by and among AT Holdings Corporation, Argo-Tech, Great Banc Trust Company, as Trustee for the Argo-Tech Corporation Employee Stock Ownership Plan, V.G.A.T. Investors, LLC and Vaughn Merger Sub, Inc. (incorporated herein by reference to Exhibit 2.2 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	3	.1	Restated Certificate of Incorporation of Argo-Tech, dated April 16, 1999 (incorporated herein by reference to Exhibit 3.1 of Argo-Tech’s registration statement on form S-4/ A filed April 23, 1999, SEC File No. 333-73179)
	3	.2	Restated By-Laws of Argo-Tech dated April 16, 1999 (incorporated herein by reference to Exhibit 3.2 of Argo-Tech’s registration statement on Form S-4/A filed April 23, 1999, SEC File No. 333-73179)
	4	.1	Indenture dated June 23, 2004, between Argo-Tech, the Subsidiary Guarantors signatory thereto and BNY Midwest Trust Company, as Trustee, relating to the 91/4% Senior Notes due 2010 (the form of which is included in such Indenture) (incorporated herein by reference to Exhibit 4.1 of Argo-Tech’s quarterly report on Form 10-Q for the quarter ended July 31, 2004, SEC File No. 333-38223)


Exhibit
Number			Description of Exhibit (and document from which incorporated by reference, if applicable)

	4	.2	First Supplemental Indenture, dated October 25, 2005, to the Indenture, dated June 23, 2004, between Argo-Tech, the Subsidiary Guarantors signatory thereto and BNY Midwest Trust Company, as Trustee, relating to the 91/4% Senior Notes due 2010 (incorporated herein by reference to Exhibit 4.2 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.1†	Form of Stay Pay and Severance Agreement dated June 6, 1996, between Argo-Tech and certain Executive Officers of Argo-Tech (Michael S. Lipscomb, Frances S. St. Clair, and Paul R. Keen) (incorporated herein by reference to Exhibit 10.1 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223) (superceded by Exhibits 10.6, 10.52 and 10.7, respectively)
	10	.2†	Employment Agreement dated October 15, 1986 between Argo-Tech and Michael S. Lipscomb (incorporated herein by reference to Exhibit 10.3 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223) (superceded by Exhibit 10.6)
	10	.3†	Employment Agreement dated February 13, 1989 between Argo-Tech and Paul R. Keen (incorporated herein by reference to Exhibit 10.2 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223 (superceded by Exhibit 10.7)
	10	.4†	Amendment, dated May 1, 2005, to Employment Agreement, dated October 15, 1986, between Argo-Tech and Michael S. Lipscomb (incorporated herein by reference to Exhibit 10.1 of Argo-Tech’s quarterly report on Form 10-Q for the quarter ended July 30, 2005, SEC File No. 333-38223) (superceded by Exhibit 10.6)
	10	.5†	Amendment, dated May 1, 2005, to Employment Agreement dated February 13, 1989 between Argo-Tech and Paul R. Keen (incorporated herein by reference to Exhibit 10.2 of Argo-Tech’s quarterly report on Form 10-Q for the quarter ended July 30, 2005, SEC File No. 333-38223) (superceded by Exhibit 10.7)
	10	.6†	Employment Agreement, dated October 28, 2005, between Argo-Tech and Michael S. Lipscomb (incorporated herein by reference to Exhibit 10.6 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.7†	Employment Agreement, dated October 28, 2005, between Argo-Tech and Paul R. Keen (incorporated herein by reference to Exhibit 10.7 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.8†	Argo-Tech Corporation Trust Agreement dated October 28, 1994 between Argo-Tech and Society National Bank, as Trustee, relating to the Employment Agreement dated October 15, 1986 between Argo-Tech and Michael S. Lipscomb (incorporated herein by reference to Exhibit 10.4 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.9†	Rabbi Trust Amendment, dated October 25, 2005, to the Argo-Tech Corporation Trust Agreement dated October 28, 1994 between Argo-Tech and National City Bank, N.A. (as successor to Society National Bank), as Trustee, relating to the Employment Agreement dated October 15, 1986 between Argo-Tech and Michael S. Lipscomb (incorporated herein by reference to Exhibit 10.9 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.10†	Argo-Tech Corporation Salaried Pension Plan, dated November 1, 1995 (incorporated herein by reference to Exhibit 10.5 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.11†	First Amendment to Argo-Tech Corporation Salaried Pension Plan (incorporated herein by reference to Exhibit 10.6 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.12†	Argo-Tech Corporation Employee Stock Ownership Plan and Trust Agreement, dated May 17, 1994 (incorporated herein by reference to Exhibit 10.7 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.13†	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 Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)


Exhibit
Number			Description of Exhibit (and document from which incorporated by reference, if applicable)

	10	.14†	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 Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.15†	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 Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.16†	Fourth Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan and Trust Agreement, dated as of September 15, 2005 (incorporated herein by reference to Exhibit 10.16 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.17†	Fifth Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan and Trust Agreement, dated as of October 25, 2005 (incorporated herein by reference to Exhibit 10.17 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.18†	Argo-Tech Corporation Employee Stock Ownership Plan Excess Benefit Plan, dated May 17, 1994 (incorporated herein by reference to Exhibit 10.11 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.19†	First Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan Excess Benefit Plan (incorporated herein by reference to Exhibit 10.34 of Argo-Tech’s registration statement on Form S-4 filed March 2, 1999, SEC File No. 333-73179)
	10	.20†	Second Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan Excess Benefit Plan (incorporated herein by reference to Exhibit 10.20 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.21†	AT Holdings Corporation Stockholders’ Agreement, dated December 17, 1998 (incorporated herein by reference to Exhibit 10.12 of Argo-Tech’s Annual Report on Form 10-K for the year ended October 30, 1999, SEC File No. 333-38223)
	10	.22†	AT Holdings Corporation 1998 Supplemental Stockholders’ Agreement, dated December 17, 1998 (incorporated herein by reference to Exhibit 10.13 of Argo-Tech’s Annual Report on Form 10-K for the year ended October 30, 1999, SEC File No. 333-38223)
	10	.23†	Form of Management Incentive Compensation Plan for key employees of Argo-Tech (incorporated herein by reference to Exhibit 10.19 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.24†	1991 Management Incentive Stock Option Plan, as amended, dated May 16, 1994 (incorporated herein by reference to Exhibit 10.20 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.25†	Amendment to the 1991 Management Incentive Stock Option Plan, as amended, dated June 12, 2001 (incorporated herein by reference to Exhibit 10.3 of Argo-Tech’s Quarterly Report on Form 10-Q for the quarter ended July 28, 2001, SEC File No. 333-38223)
	10	.26†	Form of Stock Option Agreement in connection with the Management Incentive Stock Option Plan, as amended, between Argo-Tech and each member of Argo-Tech’s Executive Staff (incorporated herein by reference to Exhibit 10.21 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.27†	1991 Performance Stock Option Plan, as amended, dated May 16, 1997 (incorporated herein by reference to Exhibit 10.22 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.28	Third Amended and Restated Credit Facility, dated June 23, 2004, by and among Argo-Tech Corporation, the Guarantors party thereto, the Lenders party thereto and National City Bank, as administrative agent (incorporated herein by reference to Exhibit 10.1 of Argo-Tech’s quarterly report on Form 10-Q for the quarter ended July 31, 2004, SEC File No. 333-38223) (superceded by Exhibit 10.30)


Exhibit
Number			Description of Exhibit (and document from which incorporated by reference, if applicable)

	10	.29	First Amendment, dated as of January 19, 2005, to Third Amended and Restated Credit Agreement, dated as of June 23, 2004, by and among Argo-Tech Corporation, AT Holdings Corporation, National City Bank, as administrative agent and an issuing bank, JPMorgan Chase Bank, as an issuing bank with respect to existing letters of credit issued thereunder and the other lenders signatory thereto. (incorporated herein by reference to Exhibit 10.1 of Argo-Tech’s current report on Form 8-K filed January 21, 2005, SEC File No. 333-38223) (superceded by Exhibit 10.30)
	10	.30	Fourth Amended and Restated Credit Agreement, dated September 13, 2005, by and among Argo-Tech Corporation, the Guarantors party thereto, the Lenders party thereto and National City Bank, as administrative agent (incorporated herein by reference to Exhibit 10.30 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.31	Distributorship Agreement, dated December 24, 1990, between Argo-Tech, Yamada Corporation and Vestar Capital Partners, Inc. (incorporated herein by reference to Exhibit 10.25 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.32	Japan Distributorship Agreement, dated December 24, 1990, between Argo-Tech, Aerotech World Trade Corporation, Yamada Corporation, Yamada International Corporation and Vestar Capital Partners, Inc. (incorporated herein by reference to Exhibit 10.26 of Argo-Tech’s Registration Statement on Form S-1, filed October 17, 1997, SEC File No. 333-38223)
	10	.33	Stock Purchase Agreement, dated August 1, 1997, between Argo-Tech, 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 Argo-Tech’s Registration Statement on Form S-1/A, filed November 26, 1997, SEC File No. 333-38223)
	10	.34	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 Argo-Tech’s Registration Statement on Form S-1/A, filed November 26, 1997, SEC File No. 333-38223)
	10	.35	Prism Prototype Retirement Plan and Trust (incorporated herein by reference to Exhibit 10.29 of Argo-Tech’s Registration Statement on Form S-1/A, filed November 26, 1997, SEC File No. 333-38223)
	10	.36	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 Argo-Tech’s Registration Statement on Form S-1/A, filed November 26, 1997, SEC File No. 333-38223)
	10	.37†	AT Holdings Corporation/Argo-Tech Corporation 1998 Equity Replacement Stock Option Plan (incorporated herein by reference to Exhibit 10.32 of Argo-Tech’s registration statement on Form S-4 filed March 2, 1999, SEC File No. 333-73179)
	10	.38†	Amendment to the AT Holdings Corporation/Argo-Tech Corporation 1998 Equity Replacement Stock Option Plan dated June 12, 2001 (incorporated herein by reference to Exhibit 10.2 of Argo-Tech’s Quarterly Report on Form 10-Q for the quarter ended July 28, 2001, SEC File No. 333-38223)
	10	.39†	Form of Stock Option Agreement in connection with the AT Holdings Corporation/Argo-Tech Corporation 1998 Equity Replacement Stock Option Plan (incorporated herein by reference to Exhibit 10.33 of Argo-Tech’s registration statement on Form S-4 filed March 2, 1999, SEC File No. 333-73179)
	10	.40†	Amendment, dated November 22, 2002, to Argo-Tech Corporation Trust Agreement, dated October 28, 1994 (incorporated herein by reference to Exhibit 10.36 of Argo-Tech’s annual report on Form 10-K for the year ended October 26, 2002, SEC File No. 333-38223)
	10	.41	Distribution Agreement, dated April 1, 2003, between Argo-Tech Corporation and Yamada Corporation (incorporated herein by reference to Exhibit 10.34 of Argo-Tech’s registration statement on Form S-4 filed September 23, 2004, SEC File No. 333-119227)
	10	.42	Form of Professional Services Agreement, dated October 28, 2005, between AT Holdings Corporation and Vestar Capital Partners/Greenbriar Equity Group LLC (incorporated herein by reference to Exhibit 10.42 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)


Exhibit
Number			Description of Exhibit (and document from which incorporated by reference, if applicable)

	10	.43†	Collateral Assignment Split Dollar Insurance Agreement, dated January 1, 1996, between Argo-Tech and Michael S. Lipscomb (incorporated herein by reference to Exhibit 10.3 of Argo-Tech’s quarterly report on Form 10-Q for the quarter ended July 30, 2005, SEC File No. 333-38223)
	10	.44†	Collateral Assignment Split Dollar Insurance Agreement, dated January 1, 1996, between Argo-Tech and Paul R. Keen (incorporated herein by reference to Exhibit 10.4 of Argo-Tech’s quarterly report on Form 10-Q for the quarter ended July 30, 2005, SEC File No. 333-38223)
	10	.45†	Collateral Assignment Split Dollar Insurance Agreement, dated January 1, 1996, between Argo-Tech and Frances S. St. Clair (incorporated herein by reference to Exhibit 10.5 of Argo-Tech’s quarterly report on Form 10-Q for the quarter ended July 30, 2005, SEC File No. 333-38223)
	10	.46	Nonqualified Deferred Compensation Agreement, dated December 28, 1995, between Argo-Tech and Frances S. St. Clair (incorporated herein by reference to Exhibit 10.6 of Argo-Tech’s quarterly report on Form 10-Q for the quarter ended July 30, 2005, SEC File No. 333-38223)
	10	.47†	Form of Incentive Unit Grant Agreement, dated October 28, 2005 (incorporated herein by reference to Exhibit 10.47 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.48†	Form of Amendment of Rollover Options and Waiver of Merger Consideration (incorporated herein by reference to Exhibit 10.48 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.49†	Change in Control Agreement, dated October 28, 2005, between Argo-Tech and John S. Glover (incorporated herein by reference to Exhibit 10.49 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	10	.50†	Non-Solicitation and Confidentiality Agreement, dated as of October 28, 2005, between AT Holdings Corporation and Frances S. St. Clair (incorporated herein by reference to Exhibit 10.50 of Argo-Tech’s annual report on Form 10-K for the fiscal year ended October 29, 2005, SEC File No. 333-38223)
	12	.1*	Statement Regarding Computation of Ratios
	21	.1	List of Subsidiaries (incorporated herein by reference to Exhibit 21.1 of Argo-Tech’s registration statement on Form S-4 filed September 23, 2004, SEC File No. 333-119227)
	31	.1*	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2*	Certification by Chief Financial Officers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


†		Denotes management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report.

*		Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Argo-Tech Corporation has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the day of January 2007.

ARGO-TECH CORPORATION


	By:	/s/ Paul R. Keen

Name: Paul R. Keen


	Title:	Executive Vice President, General Counsel and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been duly signed by the following persons on behalf of the registrant in the capacities and on the date indicated.


/s/ Michael S. Lipscomb Michael S. Lipscomb	Director, Chairman, President and Chief Executive Officer (Principal Executive Officer)	January 26, 2007

/s/ John S. Glover John S. Glover	Vice President and Chief Financial Officer (Principal Financial Officer)	January 26, 2007

/s/ Rita A. Koroluk Rita A. Koroluk	Corporate Controller (Principal Accounting Officer)	January 26, 2007

/s/ John Daileader John Daileader	Director	January 26, 2007

/s/ Reginald L. Jones, III Reginald L. Jones, III	Director	January 26, 2007

/s/ Jeffrey W. Long Jeffrey W. Long	Director	January 26, 2007

/s/ Kathleen Moran Kathleen Moran	Director	January 26, 2007

/s/ Daniel S. O’Connell Daniel S. O’Connell	Director	January 26, 2007

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholder 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 (the “Company”) (a wholly-owned subsidiary of AT Holdings Corporation) as of October 28, 2006 and October 29, 2005, and the related consolidated statements of operations, shareholder’s equity/(deficiency), and cash flows for the periods ended October 28, 2006, October 29, 2005 (Predecessor) and October 30, 2004 (Predecessor). Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Argo-Tech Corporation and subsidiaries as of October 28, 2006 and October 29, 2005, and the results of their operations and their cash flows for the periods ended October 28, 2006, October 29, 2005 (Predecessor) and October 30, 2004 (Predecessor) in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Cleveland, Ohio

January 26, 2007

F-2

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

CONSOLIDATED BALANCE SHEETS

October 28, 2006 and October 29, 2005


	2006			2005
	(In thousands, except share data)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	23,580		$	13,889
Receivables, net		44,504			40,319
Income tax receivable		—			3,630
Inventories, net		36,612			70,965
Prepaid expenses		1,653			1,688
Deferred income taxes		5,769			—

Total current assets		112,118			130,491

PROPERTY AND EQUIPMENT, net of accumulated depreciation		42,664			41,970
GOODWILL		110,178			200,152
INTANGIBLE ASSETS, net of accumulated amortization		315,048			214,440
OTHER ASSETS		1,166			1,453

Total Assets	$	581,174		$	588,506


LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	750		$	750
Accounts payable		11,391			8,736
Accrued liabilities		39,191			47,681

Total current liabilities		51,332			57,167

LONG-TERM DEBT, net of current maturities		275,771			278,312
DEFERRED INCOME TAXES		96,565			75,120
OTHER NONCURRENT LIABILITIES		17,754			17,111

Total liabilities		441,422			427,710

SHAREHOLDER’S EQUITY:
Common Stock, $.01 par value, authorized 3,000 shares; 1 share issued and outstanding		—			—
Paid-in capital		156,612			160,796
Accumulated other comprehensive loss		(24	)		—
Accumulated deficit		(16,836	)		—

Total shareholder’s equity		139,752			160,796

Total Liabilities and Shareholder’s Equity	$	581,174		$	588,506

The accompanying notes to consolidated financial statements are an integral part of these statements.

F-3

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Fiscal Years Ended October 28, 2006, October 29, 2005, and October 30, 2004


				Predecessor
	2006			2005			2004
	(In thousands)

Net revenues	$	230,862		$	212,595		$	187,328
Cost of revenues (including inventory purchase accounting charges of $40,297 in fiscal 2006)		180,409			124,855			109,203

Gross profit		50,453			87,740			78,125

Selling, general and administrative		33,928			35,514			31,166
Research and development		10,623			12,814			11,934
Amortization of intangible assets		13,422			3,414			3,414
Merger expense		—			24,473			—

Operating expenses		57,973			76,215			46,514

(Loss) income from operations		(7,520	)		11,525			31,611
Interest expense		23,652			25,601			22,705
Debt extinguishment expense		—			—			12,961
Other, net		(75	)		(109	)		(95	)

Loss before income taxes		(31,097	)		(13,967	)		(3,960	)
Income tax benefit		(14,261	)		(7,768	)		(3,499	)

Net loss	$	(16,836	)	$	(6,199	)	$	(461	)

The accompanying notes to consolidated financial statements are an integral part of these statements.

F-4

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY/(DEFICIENCY)

For the Fiscal Years Ending October 28, 2006, October 29, 2005 and October 30, 2004


						Accumulated
	Common		Paid-In			Comprehensive			Accumulated
	Stock		Capital			Income/(Loss)			Deficit			Total

BALANCE, OCTOBER 25, 2003 (Predecessor)	$	—	$	—		$	(2,143	)	$	(27,785	)	$	(29,928	)
Net loss										(461	)		(461	)
Additional minimum pension liability							(1,179	)					(1,179	)
Accretion of redeemable ESOP stock										(23,918	)		(23,918	)
Contributed redeemable ESOP stock										2,425			2,425
Dividend to AT Holdings										(59,046	)		(59,046	)
Change in ESOP excess benefit plan										1,123			1,123
Foreign currency translation adjustment							7						7
Other, net										1			1

BALANCE, OCTOBER 30, 2004 (Predecessor)	$	—	$	—		$	(3,315	)	$	(107,661	)	$	(110,976	)
Net loss										(6,199	)		(6,199	)
Additional minimum pension liability							(125	)					(125	)
Accretion of redeemable ESOP stock										(32,255	)		(32,255	)
Contributed redeemable ESOP stock										8,453			8,453
Tax benefit on exercise of non-qualified stock options				938									938
Dividend to AT Holdings										(7,019	)		(7,019	)
Change in ESOP excess benefit plan										404			404
Foreign currency translation adjustment							(68	)					(68	)
Other, net										(11	)		(11	)

BALANCE, OCTOBER 28, 2005 (Predecessor)	$	—	$	938		$	(3,508	)	$	(144,288	)	$	(146,858	)
Elimination of historical shareholder’s deficiency				(938	)		3,508			144,288			146,858
Investment from AT Holdings				160,796									160,796

BALANCE, OCTOBER 29, 2005	$	—	$	160,796		$	—		$	—		$	160,796

Net loss										(16,836	)		(16,836	)
Dividend to AT Holdings				(4,184	)								(4,184	)
Foreign currency translation adjustment							(24	)					(24	)

BALANCE, OCTOBER 28, 2006	$	—	$	156,612		$	(24	)	$	(16,836	)	$	139,752

The accompanying notes to consolidated financial statements are an integral part of these statements.

F-5

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Fiscal Years Ended October 28, 2006, October 29, 2005, and October 30, 2004


				Predecessor
	2006			2005			2004
	(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(16,836	)	$	(6,199	)	$	(461	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		9,954			3,655			3,799
Amortization of intangible assets and deferred financing costs		13,728			4,569			5,375
Amortization of inventory fair value step-up		40,297
Amortization of senior note fair value step-up		(1,791	)
Accretion of bond discount		—			—			219
Debt extinguishment expense		—			—			12,961
Non-cash stock option expense		—			841			—
Compensation expense recognized in connection with employee stock ownership plan (ESOP)		—			8,453			4,851
Compensation expense recognized in connection with ESOP excess benefit plan		—			—			1,123
Deferred pension cost		—			—			(912	)
Deferred income taxes		(20,673	)		(4,750	)		(2,150	)
Changes in operating assets and liabilities:
Receivables		(4,185	)		(11,306	)		1,619
Inventories		(6,263	)		(2,111	)		(2,856	)
Prepaid expenses		35			(430	)		(135	)
Accounts payable		2,703			(700	)		2,142
Income tax receivable		3,477			(2,426	)
Accrued liabilities		(1,908	)		10,672			7,640
Other, net		726			(75	)		15

Net cash provided by operating activities		19,264			193			33,230

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(4,567	)		(4,376	)		(3,056	)

Net cash used in investing activities		(4,567	)		(4,376	)		(3,056	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of senior notes		—			—			250,000
Purchase of senior subordinated notes		—			—			(200,571	)
Borrowing of long-term debt		18,000			5,000			15,000
Repayment of long-term debt		(18,750	)		(750	)		(26,038	)
Payment of financing related fees		(48	)		(1,390	)		(7,719	)
Transaction related cash received from AT Holdings		—			6,374			—
Purchase of AT Holdings stock from former ESOP participants		—			(3,886	)		(567	)
Dividend to AT Holdings		(4,184	)		(3,133	)		(58,479	)
Other, net		(24	)		—			—

Net cash (used in ) provided by financing activities		(5,006	)		2,215			(28,374	)

CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the period		9,691			(1,968	)		1,800
Balance, beginning of period		13,889			15,857			14,057

Balance, end of period	$	23,580		$	13,889		$	15,857

The accompanying notes to consolidated financial statements are an integral part of these statements.

F-6

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended October 28, 2006, October 29, 2005, and October 30, 2004


1.	BASIS OF PRESENTATION

The principal operations of Argo-Tech Corporation (a wholly-owned subsidiary of AT Holdings Corporation (“Holdings”)) and its subsidiaries (“Argo-Tech” or the “Company”) include the design, manufacture and distribution of aviation products, primarily aircraft fuel pumps. In addition, Argo-Tech leases a portion of its Cleveland, Ohio manufacturing facility to other parties. Argo-Tech’s fiscal year ends on the last Saturday in October. The fiscal year ended October 30, 2004 consisted of 53 weeks and the fiscal years ended October 28, 2006 and October 29, 2005 consisted of 52 weeks. Prior to the Merger in 2005 (Note 3), Argo-Tech was obligated to fulfill certain obligations of Holdings to purchase Holdings’ common stock in accordance with the provisions of the Argo-Tech Corporation Employee Stock Ownership Plan. As a result, that obligation has been reflected in its financial statements for fiscal years 2005 and 2004.

Argo-Tech Corporation is a parent holding company and all of its domestic subsidiaries guarantee Argo-Tech’s senior notes issued in June 2004. Argo-Tech also has two wholly-owned, non-guarantor foreign subsidiaries which have minor assets, liabilities and equity. Argo-Tech has no independent assets, liabilities or operations apart from its wholly-owned subsidiaries. The senior notes (Note 13) are fully, unconditionally, jointly and severally guaranteed by the guarantor subsidiaries, and therefore, separate financial statements of the guarantor subsidiaries will not be presented. Management has determined that the information presented by such separate financial statements is not material to investors.


2.	SUBSEQUENT EVENTS

On December 24, 2006, V.G.A.T. Investors, LLC (“VGAT”) entered into a definitive agreement (the “Acquisition Agreement”) to sell all of the issued and outstanding common stock of AT Holdings Corporation (“ Holdings”), the parent corporation of Argo-Tech to Eaton Corporation. The members of VGAT include, among others, Vestar Capital Partners IV, L.P., Greenbriar Equity Group, LLC (collectively the “Sponsors”) and several members of Argo-Tech’s senior management.

Management expects the sale to close in the first quarter of calendar 2007, but closing is subject to, among other things, required regulatory approvals and other closing conditions.


3.	MERGER

The Merger was accounted for as a purchase and preliminary fair value adjustments to the Company’s assets and liabilities were recorded as of the date of the Merger. In the fourth quarter 2006, the Company obtained third-party valuations of certain tangible and intangible assets and finalized the allocation of the purchase price to the Company’s assets and liabilities. As a result of finalizing the valuation, goodwill decreased by $90.0 million.

F-7

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the fair values assigned to the Company’s assets and liabilities in connection with the Merger (in thousands):


Assets
Current assets	$	130,794
Property, plant and equipment		48,008
Goodwill		110,178
Intangible assets		327,869
Other assets		2

Total assets		616,851


Liabilities
Current liabilities		56,313
Long-term debt		264,063
Other noncurrent liabilities		122,026

Total liabilities		442,402

Purchase price allocated to Company	$	174,449

The following table summarizes the unaudited, consolidated pro forma results of operations of the Company, as if the Merger had occurred at the beginning of each period presented (in thousands):


	Year Ended			Year Ended
	October 29,			October 30,
	2005			2004

Net sales	$	212,595		$	187,328
Loss from operations		(18,662	)		(23,391	)
Net loss		(23,034	)		(26,636	)


4.	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 the wholly-owned subsidiaries have been eliminated.

F-8

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As a result of the Merger (see Note 3), the accompanying consolidated financial statements include fair value adjustments to assets and liabilities, including inventory, goodwill, intangible assets, property, plant and equipment, accrued liabilities, deferred taxes and long-term debt. Accordingly, the accompanying consolidated financial statements for periods prior to the Merger are labeled as “Predecessor” financial statements.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Cash Equivalents — Cash equivalents represent short-term investments with an original maturity of three months or less. Cash and cash equivalents are carried at cost, which approximates fair value.

Receivables — The Company evaluates the collectibility of its trade receivables based on a combination of factors. The Company regularly analyzes its customer accounts, and when it becomes aware of a specific customer’s inability to meet its financial obligation , such as in the case of bankruptcy filings, the Company immediately records a bad debt expense and reduces the related receivable to the amount it reasonably believes is collectible. The Company estimates the allowance for doubtful accounts based on the aging of the accounts receivable, customer creditworthiness and historical experience. Its estimate of the allowance includes amounts for specifically identified losses and a general amount for estimated losses. If circumstances change or economic conditions deteriorate, the Company’s estimates of the recoverability of receivables could be further adjusted.

Inventories — The Company’s inventory purchases and commitments are made in order to build inventory to meet future shipment schedules based on forecasted demand for our products. Inventories are stated at the lower of cost or market, with cost being determined on the first-in, first-out, or FIFO, method. Periodically, the Company performs a detailed assessment of inventory, which includes a review of, among other factors, historical sales activity, future demand requirements, product life cycle and development plans and quality issues. Based on this analysis, the Company records provisions for potentially obsolete or slow-moving inventory to reflect inventory at net realizable value. These provisions could vary significantly, either favorably or unfavorably, from actual requirements based upon future economic conditions, customer inventory levels or competitive factors that were not foreseen, or did not exist, when the valuation allowances were established.

Long-Lived Assets — Property and equipment are stated at cost less accumulated depreciation. Costs related to normal maintenance and repairs are charged to expense as incurred. Upon the disposition of assets, their cost and related depreciation are removed from the respective accounts and the resulting gain or loss is included in current income.

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. The Company then evaluates recoverability of assets to be held and used by comparing the carrying amount of the asset to undiscounted expected future cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment amount is calculated using a fair-value-based test that compares the fair value of the asset to its carrying value. Fair values are typically calculated using discounted expected future cash flows, using a risk-adjusted discount rate. Assets held for sale, if any, are reported at the lower of the carrying amount or fair value less cost to sell.

The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred, if a reasonable estimate of fair value can be made. The related asset retirement costs are capitalized as a part of the carrying amount of the long-lived asset and amortized over the asset’s economic life. The Company has identified a conditional asset retirement obligation related to the possible future removal of asbestos containing materials present in certain Company owned production facilities. The presence of asbestos containing materials in the Company’s production facilities arises from the application of normal and customary building practices in the

F-9

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

past when the facilities were constructed. Under current regulations the Company is not required to remove the asbestos in its present condition except upon the demolition of the building. Inasmuch as there is no plan or intent to demolish the facilities, management considers the triggering of the requirement to remove the asbestos unlikely and is unable to reasonably estimate a potential settlement date or range of settlement dates. In accordance with Interpretation No. 47, (see Recently Adopted Accounting Pronouncements below) the Company has not recorded an asset retirement obligation for asbestos removal given the uncertainty surrounding the timing of potential future removal of the asbestos containing materials, if any.

Depreciation — For financial reporting purposes depreciation expense is computed using the straight-line or an accelerated method over the estimated useful lives of the assets. Depreciation expense was $10.0 million, $3.7 million, and $3.8 million in 2006, 2005, and 2004, respectively. Estimated useful lives are as follows:


Buildings and improvements			7 to 30 years
Equipment			3 to 10 years

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

Intangible assets are amortized on a straight-line basis over their estimated economic lives as follows:


Technology			3 to 25 Years
Customer relationships			20 to 25 Years
Non-compete agreements			8 Years

The Company’s intangible assets related to its tradenames have been determined to have indefinite useful lives and are therefore not amortized. The Company’s goodwill is allocated to its Aerospace segment.

Deferred Financing Costs — The costs of obtaining financing are included in Other Assets in the consolidated balance sheets and are amortized over the terms of the financing. The cost balance at October 28, 2006 and October 29, 2005 were $1,460,000 and $1,451,000, respectively. The amortized cost is included in interest expense in the consolidated statements of operations. Accumulated amortization at October 28, 2006 was $306,000.

Foreign Currency Translation — Assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the current rate of exchange, while revenues and expenses are translated at the average exchange rate during the year. Adjustments from translating foreign subsidiaries’ financial statements are excluded from the consolidated statements of operations and are reported as a component of shareholder’s equity/(deficiency).

Revenue Recognition — Revenues are recognized when goods are shipped or services provided, at which time title and risk of loss passes to the customer. Substantially all sales are made pursuant to firm, fixed-price purchase orders received from customers. We have executed long-term supply agreements with certain of our OEM customers. These agreements require Argo-Tech to supply all the amounts ordered by the customers during the term of the agreements (generally three to five years) at specified prices. Under certain of these agreements, we expect to incur losses. Provisions for estimating losses on these contracts are made in the period in which such losses are identified based on cost and pricing information and estimated future shipment quantities provided by the customer. The cumulative effect of revisions to estimated losses on contracts is recorded in the accounting period in

F-10

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

which the amounts become known and can be reasonably estimated. Such revisions could occur at any time there are changes to estimated future revenues or costs. Revenue from certain fixed price engineering contracts for which costs can be reliably estimated are recognized based on milestone billings.

Variations in actual labor performance, changes to estimated profitability and final contract settlements may result in revisions to the cost estimates. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the period of revision. We record estimated reductions to revenue for volume-based incentives based on expected customer activity for the applicable period. Revisions for volume-based incentives are recorded in the accounting period in which such estimates can be reasonably determined.

Stock-Based Compensation — The Company applies Accounting Principals Board (“APB”) Opinion 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans and incentive unit plans. Had compensation cost for the Company’s stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Statement of Financial Accounting Standard (“SFAS”) No. 123, the Company’s net loss for the fiscal years ended 2006, 2005 and 2004 would have been adjusted to the pro forma amount indicated below (in thousands):


				Predecessor
	Year Ended			Year Ended			Year Ended
	October 28,			October 29,			October 30,
	2006			2005			2004

Net loss — As reported	$	(16,836	)	$	(6,199	)	$	(461	)
Compensation cost based on the fair value method (after tax)		—			—			(76	)

Net loss — Pro forma	$	(16,836	)	$	(6,199	)	$	(537	)

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.

Recently Issued Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share Based Payment,” which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company will adopt this statement for the fiscal year 2007 using the modified prospective method. Management has not determined the effect the adoption of this statement will have on its consolidated financial position or results of operations.

F-11

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

that require or permit fair value measurements and does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with earlier application encouraged. The provisions of SFAS No. 157 should be applied prospectively as of the beginning of the fiscal year in which the Statement is initially applied, except for a limited form of retrospective application for certain financial instruments. The Company will adopt this statement for fiscal year 2009. Management has not determined the effect the adoption of this statement will have on its consolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132R.” SFAS No. 158 requires that the funded status of defined benefit postretirement plans be recognized in the statement of financial position and changes in the funded status be reflected in comprehensive income. The new standard also requires the benefit obligations be measured as of the same date of the consolidated financial statements and requires additional disclosures related to the effects of delayed recognition of gains or losses, prior service costs or credits, and transition assets or obligations on net periodic benefit cost. SFAS No. 158 is effective for financial statements issued for fiscal years ending after December 15, 2006. The Company will adopt this statement in the fourth quarter of fiscal 2007 and is currently assessing the impact that this standard will have on its consolidated financial position or results of operations.

Recently Adopted Accounting Pronouncements

F-12

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. OTHER BALANCE SHEET INFORMATION

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


	October 28,		October 29,
	2006		2005

Accrued liabilities:
Salaries and accrued compensation	$	10,954	$	11,961
Payroll taxes		257		7,638
Accrued interest		9,635		9,635
Accrued warranty		2,220		2,073
Deferred and other income taxes		5,378		7,052
Other		10,747		9,322

Total	$	39,191	$	47,681

Other noncurrent liabilities:
Accrued postretirement benefits	$	15,777	$	14,852
Other		1,977		2,259

Total	$	17,754	$	17,111


6.	RECEIVABLES

Receivables consist of the following (in thousands):


	October 28,			October 29,
	2006			2005

Amounts billed — net of allowance for uncollectible amounts of $660 and $459	$	43,378		$	39,193
Amounts unbilled (principally commercial customers):
Net reimbursable costs incurred on uncompleted contracts		6,323			1,776
Billings to date		(5,197	)		(650	)

Total unbilled — net		1,126			1,126

Net receivables	$	44,504		$	40,319


7.	INVENTORIES

Inventories consist of the following (in thousands):


	October 28,			October 29,
	2006			2005

Finished goods	$	3,027		$	5,401
Work-in-process and purchased parts		36,507			68,895
Raw materials and supplies		753			706

Total		40,287			75,002
Reserve for excess and obsolete inventory		(3,675	)		(4,037	)

Inventories — net	$	36,612		$	70,965

F-13

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. INTANGIBLE ASSETS

The following is a summary of intangible assets, other than goodwill (in thousands):


	October 28, 2006					October 29, 2005
	Gross		Accumulated			Gross		Accumulated
	Amount		Amortization			Amount		Amortization

Intangible Assets:
Tradenames	$	24,300	$	—		$	—	$	—
Technology		48,470		(3,039	)		21,050		—
Customer relationships		253,600		(10,120	)		193,390
Non-compete agreement		2,100		(263	)		—		—

Total	$	328,470	$	(13,422	)	$	214,440	$	—

Amortization expense recorded on the intangible assets for each of the fiscal years ended October 28, 2006, October 29, 2005 and October 30, 2004 was $13.4 million, $3.4 million and $3.4 million, respectively. The estimated amortization expense for fiscal years 2007 through 2011 is as follows:


2007	$	13,422
2008		13,422
2009		13,422
2010		13,168
2011		13,168

The weighted-average amortization period for technology-related intangible assets is 19 years, customer relationships — 25 years; and non-compete agreements — 8 years. The tradenames have been determined to have indefinite useful lives and are therefore not amortized.


9.	PROPERTY AND EQUIPMENT

Owned Property — Property and equipment owned by the Company consists of the following:


	October 28,			October 29,
	2006			2005
	(In thousands)

Land and land improvements	$	15,820		$	7,071
Buildings and building equipment		14,300			25,205
Machinery and equipment		17,620			7,214
Office and automotive equipment		2,389			1,187
Construction-in-progress		2,579			1,293

Total		52,708			41,970
Accumulated depreciation		(10,044	)		—

Total — net	$	42,664		$	41,970

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

F-14

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

accumulated depreciation. In addition, the Company has separate service contracts with its tenants under which the Company provides maintenance, telecommunications and various other services.

Total rental revenue under the property leases and service contracts is included in “Net revenues” and was as follows for the fiscal years ended 2006, 2005 and 2004 (in thousands):


			Predecessor
	2006		2005		2004

Minimum contractual amounts under property leases	$	2,718	$	3,811	$	4,126
Service contracts revenue based on usage		380		687		828

Total	$	3,098	$	4,498	$	4,954

Future minimum rentals under the noncancelable property leases and service contracts at October 28, 2006 are (in thousands): $1,686 in 2007, $671 in 2008, $116 in 2009, $84 in 2010, and $22 in 2011.


10.	PRODUCT WARRANTY

The Company accrues for warranty obligations for products sold based on management estimates of the amount that may be required to settle such potential obligations. These estimates are prepared with support from our sales, engineering, quality and legal functions. This accrual, which is reviewed in detail on a regular basis, is based on several factors: past experience, current claims, production changes and various other considerations.

The following table presents a reconciliation of changes in the product warranty liability (in thousands):


				Predecessor
	October 28,			October 29,
	2006			2005

Beginning balance	$	2,073		$	2,084
Accruals for warranties issued		358			20
Accruals for pre-existing warranties (including changes in estimate)		991			756
Warranty claims settled		(1,202	)		(787	)

Ending balance	$	2,220		$	2,073


11.	EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan — Prior to the merger in 2005, the Company had an Employee Stock Ownership Plan (ESOP) to provide retirement benefits to qualifying, salaried employees. The ESOP granted to participants in the plan certain ownership rights in, but not possession of, the common stock of Holdings held by the Trustee of the Plan. Shares of common stock were 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 $8,453,000 and $4,851,000 for the fiscal years ended 2005 and 2004, respectively. In September 2005, the Company contributed 42,000 shares of Holdings common stock to the plan. These shares were repurchased by Argo-Tech from plan participants who exercised their put option rights under the plan.

F-15

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summary information regarding ESOP activity as of October 29, 2005 consists of the following:


	October 29,
	2005

Allocated shares		441,000
Shares released for allocation(a)		42,000

Total ESOP shares		483,000
Repurchased shares received as distributions		(121,971	)
Repurchased shares in connection with the Merger		(361,029	)

Total available ESOP shares		—

Fair market value of unearned ESOP shares	$	—


(a)		— Includes contributed shares

All of the cash and shares acquired for the ESOP were owned and held in trust by the ESOP.

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 Argo-Tech Corporation employees provides for a match of participating employees’ contributions. The Company’s contribution, recognized as expense was approximately $2,360,000, $678,000, and $560,000 in fiscal years 2006, 2005 and 2004 respectively. Prior to fiscal 2006, only Argo-Tech Corporation Costa Mesa employees received a matching contribution. The Company uses an October 31st measurement date for its defined benefit pension plans.

A summary of the components of net periodic pension cost for the pension plans for the fiscal years ended 2006, 2005 and 2004 is as follows (in thousands):


				Predecessor
	2006			2005			2004

Service cost — benefits earned during the period	$	384		$	371		$	279
Interest cost on projected benefit obligation		1,467			1,383			1,324
Expected return on plan assets		(1,964	)		(1,868	)		(1,756	)
Net amortization and deferral		—			410			348

Net periodic pension (benefit) cost		(113	)		296			195

Curtailment loss		—			369			—
Special termination benefits		—			57			—

Net periodic pension (benefit) cost after settlements	$	(113	)	$	722		$	195

F-16

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the change in projected benefit obligation (in thousands):


	2006			2005

Benefit obligation at beginning of year	$	25,132		$	22,977
Service cost		384			371
Interest cost		1,467			1,383
Benefits paid		(1,034	)		(1,002	)
Actuarial gain		(125	)		(251	)
Change in plan provisions		—			542
Change due to assumptions		—			686
Curtailment loss		—			369
Special termination benefits		—			57

Benefit obligation at end of year	$	25,824		$	25,132

The following table sets forth the change in plan assets (in thousands):


	2006			2005

Fair value of plan assets at beginning of year	$	22,070		$	21,112
Actual return on plan assets		2,774			1,828
Employer contributions		1,030			132
Benefits paid		(1,034	)		(1,002	)

Fair value of plan assets at end of yer	$	24,840		$	22,070

The following table sets forth the funded status of the plans (in thousands):


	2006			2005

Funded status	$	(984	)	$	(3,062	)
Unrecognized net gain		(811	)		—

Net amount recognized	$	(1,795	)	$	(3,062	)

The following table shows the development of the accrued pension cost prior to reflection of additional minimum liability (in thousands):


	2006			2005

(Accrued) prepaid pension benefit (cost) at the beginning of year	$	(3,062	)	$	4,027
Net periodic pension benefit (cost)		113			(722	)
Employer contributions		1,030			132
Purchase accounting adjustment		—			(6,499	)
Other		124			—

Accrued pension cost at the end of year	$	(1,795	)	$	(3,062	)

The following table sets forth additional information of the plans (in thousands):


	October 28,		October 29,
	2006		2005

Accumulated benefit obligation at the end of the year	$	25,824	$	25,132
Increase in minimum liability included in other comprehensive income		—		209

F-17

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


				Predecessor
	2006			2005			2004

Discount rate		6.00	%		6.00	%		6.00	%
Expected long-term rate of return on plan assets		9.00	%		9.00	%		9.00	%

The following table sets forth the weighted-average asset allocations, by asset category:


			Assets at
	Target		October 28,		October 29,
Asset Category	Allocation		2006		2005

Equity securities		60% - 70%		64.3%		62.0%
Debt securities		30% - 40%		34.7%		36.7%
Cash		0% - 10%		1.0%		1.3%

Total				100.0%		100.0%

The expected long-term rate of return for the plans’ assets is based on the expected return of each of the above categories, weighted based on the median of the target allocation for each class. Based on respective market indices, equity securities are expected to return 8% to 10% over the long-term, while cash and fixed income is expected to return between 4% and 6%. The committee expects that the plans’ asset manager will provide a modest (1% to 2% per annum) premium to the respective market benchmark indices.

The plans’ investment policy is to provide a long-term investment return greater than the actuarial assumptions, maximize investment return commensurate with appropriate levels of risk and comply with the Employee Retirement Income Security Act of 1974 (ERISA) by investing the funds in a manner consistent with ERISA’s fiduciary standards.

The company expects to contribute $200,000 to the plans for the fiscal year ending October 31, 2007.

The following benefit payments, which reflect expected future service, are expected to be paid for the fiscal years ending (in thousands):


October 31, 2007	$	1,128
October 31, 2008		1,156
October 31, 2009		1,207
October 31, 2010		1,243
October 31, 2011		1,355
October 31, 2012 to October 31, 2016		8,711

Other Postretirement Benefits — The Company provides certain postretirement health care benefits to qualifying hourly retirees and their dependents. The Company uses an October 31 measurement date for its postretirement health care benefit.

F-18

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The net postretirement benefit cost for the fiscal years ended 2006, 2005 and 2004 includes the following components (in thousands):


			Predecessor
	2006		2005		2004

Service cost	$	523	$	241	$	179
Interest cost		1,156		883		881
Net amortization and deferral		—		139		135

Net postretirement benefit cost	$	1,679	$	1,263	$	1,195

The following table sets forth the change in projected benefit obligation (in thousands):


	2006			2005

Benefit obligation at beginning of year	$	15,352		$	14,476
Service cost		523			241
Interest cost		1,156			883
Benefits paid		(783	)		(552	)
Plan participant contributions		179			150
Actuarial loss		1,682			399
Change due to assumptions		2,553			(245	)

Benefit obligation at end of year	$	20,662		$	15,352

The following table sets forth the change in plan assets (in thousands):


	2006			2005

Fair value of plan assets at beginning of year	$	—		$	—
Employer contributions		604			402
Benefits paid		(783	)		(552	)
Plan participant contributions		179			150

Fair value of plan assets at end of year	$	—		$	—

The following table sets forth the funded status of the plans (in thousands):


	2006			2005

Benefit obligation	$	(20,662	)	$	(15,352	)
Unrecognized net loss		4,235			—

Accrued benefit cost	$	(16,427	)	$	(15,352	)

The following table shows the development of the accrued postretirement benefit cost (in thousands):


	2006			2005

Accrued postretirement benefit cost at the beginning of the year	$	(15,352	)	$	(11,797	)
Net periodic postretirement benefit cost		(1,679	)		(1,263	)
Employer contributions		604			402
Purchase accounting adjustment		—			(2,694	)

Accrued postretirement benefit cost at the end of the year	$	(16,427	)	$	(15,352	)

F-19

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The weighted-average assumption used to determine net periodic postretirement benefit cost and benefit obligations is:


				Predecessor
	2006			2005			2004

Discount rate		6.00	%		6.00	%		6.00	%

The assumed health care cost trend rates are as follows:


				Predecessor
	2006			2005			2004

Health care cost trend rate assumed for next year:
Pre 65		10.0	%		7.5	%		8.0	%
Post 65		12.0	%		7.5	%		8.0	%
Ultimate rate
Pre 65		4.5	%		5.0	%		5.0	%
Post 65		5.0	%		5.0	%		5.0	%
Year ultimate rate is valued		2013			2011			2011

The company expects the following contributions to be made to the plan for the fiscal year ending October 31, 2006 (in thousands):


Expected employer contributions	$	649
Expected plan participant contributions	$	216

The following benefit payments (employer portion only), which reflect expected future service, are expected to be paid for the fiscal years ending (in thousands):


October 31, 2007	$	649
October 31, 2008		738
October 31, 2009		821
October 31, 2010		904
October 31, 2011		1,062
October 31, 2012 to October 31, 2016		5,752

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in thousands):


	1% point		1% point
	Increase		Decrease

Effect on service and interest cost	$	282	$	(226	)
Effect on postretirement benefit obligation	$	3,542	$	(2,879	)

F-20

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. INCOME TAXES

The income tax provision/(benefit) consists of the following for the fiscal years ended 2006, 2005 and 2004 (in thousands):


				Predecessor
	2006			2005			2004

Current tax provision/(benefit):
Federal	$	5,926		$	(3,039	)	$	(1,273	)
State and local		486			21			(76	)

Total		6,412			(3,018	)		(1,349	)
Deferred tax benefit:
Federal		(19,621	)		(4,508	)		(2,040	)
State and local		(1,052	)		(242	)		(110	)

Total		(20,673	)		(4,750	)		(2,150	)

Income tax provision/(benefit)	$	(14,261	)	$	(7,768	)	$	(3,499	)

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


				Predecessor
	2006			2005			2004

Income tax provision at statutory rate	$	(10,884	)	$	(4,889	)	$	(1,346	)
State tax provision — net of federal benefits		(2,002	)		(468	)		80
Extraterritorial income		(1,500	)		(1,490	)		(1,403	)
R & D credit		(773	)		(748	)		(590	)
ESOP		—			—			539
Settlement of tax examination and reserve adjustment		—			(451	)		(720	)
Other — net		898			278			(59	)

Income tax provision (benefit)	$	(14,261	)	$	(7,768	)	$	(3,499	)

During the fiscal years ended 2005 and 2004 the Company paid (net of refunds received) approximately $1.0 million and $1.3 million in income taxes, respectively. The Company received a net refund of approximately $3.0 million in fiscal 2006.

F-21

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


	October 28,			October 29,
	2006			2005

Current:
Deferred revenue	$	1,239		$	426
Inventory		955			(13,784	)
Employee benefits		1,408			1,496
Warranty		848			798
Engineering reserves		799			273
Net operating loss carryforward		—			3,727
Other reserves		520			201

Total current		5,769			(6,863	)

Long-term:
Hourly retiree medical		5,129			5,534
Accrued pension benefit		396			689
Property and equipment		(7,007	)		(7,696	)
Intangible assets		(101,263	)		(79,332	)
Senior notes		2,955			3,600
R&D tax credit carryforward		2,332			1,721
Other — net		893			364

Total long-term		(96,565	)		(75,120	)

Net deferred tax liability	$	(90,796	)	$	(81,983	)

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.


13.	DEBT

Summary — The Company’s long-term debt consists of the following (in thousands):


	October 28,			October 29,
	2006			2005

Term loans	$	18,312		$	19,062
Revolving credit facility		—			—
Senior notes		258,209			260,000

Total borrowings		276,521			279,062
Current maturities		(750	)		(750	)

Long-term portion	$	275,771		$	278,312

Credit Facility and Term Loans — In connection with the Merger in 2005, the Company amended and restated its credit agreement and has a $19.1 million Term Loan Facility and has available a $40.0 million Revolving Credit

F-22

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Facility. The unused balance of the Revolving Credit Facility ($29.2 million at October 28, 2006 after reduction of $10.8 million for letters of credit) is subject to a .50% commitment fee. The Credit Facility and Term Loan mature on June 23, 2009. The Credit Facility is collateralized by substantially all of the tangible assets of the Company (including the capital stock of Holdings). The 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 Credit Facility contains no restrictions on the ability of the Company’s subsidiaries to make distributions to the Company. The Credit Facility also requires the Company to comply with certain financial ratios and tests, under which the Company is required to achieve certain financial and operating results. The Company was in compliance with the covenants at October 28, 2006 and October 29, 2005. 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 adjusted EBITDA. The interest rates for fiscal years 2006 and 2005 was 2.50% plus LIBOR.

Senior Notes — At October 28, 2006, the Company had outstanding $250.0 million 91/4% Senior Notes due 2011. Interest on the Notes is payable semiannually on June 1 and December 1 of each year. The Senior Notes will mature on June 1, 2011.

In connection with the Merger, the 91/4% Senior Notes were increased by $10.0 million, to $260.0 million, their fair market value and will be amortized over the remaining life of the notes. The unamortized balance as of October 28, 2006 is $8.2 million.

The Senior Notes are unsecured and rank equally with all our existing and future senior debt and rank senior to all our existing and future subordinated debt. The Senior Notes are effectively subordinated to all our existing and future secured debt to the extent of the value of the assets securing such debt. The Senior Notes are subject to certain limitations and restrictions which the Company has not exceeded at October 28, 2006.

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):


Fiscal Year	Amount

2007	$	750
2008		3,562
2009		14,000
2010		—
2011		250,000

Total	$	268,312

Total interest paid during the fiscal years ended 2006, 2005, and 2004 was $23.6 million, $24.4 million, and $20.7 million, respectively.


14.	SEGMENT INFORMATION

The Company operates in two business segments, Aerospace and Industrial. The Aerospace segment includes the design, manufacture, distribution, repair and overhaul of aviation products consisting of aircraft engine fuel pumps, fuel flow related products and systems found on a plane’s airframe, and aerial refueling pumps and related equipment. The Industrial segment includes the design, manufacture and distribution of industrial pumps, ground fueling valves and related components, industrial marine cryogenic pumps and nozzles for transferring liquefied natural gas and operation of a business park in Cleveland, Ohio where the Company maintains its headquarters and one of its production facilities.

F-23

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company evaluates the performance of its segments based primarily on operating profit before amortization of deferred financing fees and other identified intangibles, purchase accounting depreciation, interest expense, interest income, other miscellaneous fees and income taxes. Purchase accounting depreciation is recorded as a corporate expense and is not allocated to the reportable segments.

The following table presents revenues and other financial information by business segment (in thousands):


	2006
	Aerospace		Industrial		Corporate			Consolidated

Net revenues	$	175,788	$	55,074	$	—		$	230,862
Operating profit (loss)		49,713		2,963		(6,477	)		46,199
Amortization of fair value inventory step-up									40,297
Amortization of intangible assets									13,422

Loss from operations									(7,520	)
Interest expense									23,652
Other, net									(75	)

Loss before income taxes								$	(31,097	)

Capital expenditures		2,648		1,919		—			4,567
Depreciation		2,023		1,477		6,454			9,954


	2005 Predecessor
	Aerospace		Industrial		Corporate			Consolidated

Customer revenues	$	154,842	$	57,753	$	—		$	212,595
Operating profit (loss)		38,501		4,138		(3,227	)		39,412
Amortization of intangible assets									3,414
Merger expenses									24,473

Income from operations									11,525
Interest expense									25,601
Other, net									(109	)

Loss before tax								$	(13,967	)

Capital expenditures		2,661		1,715		—			4,376
Depreciation		2,043		1,245		367			3,655
Compensation expense recognized in connection with employee stock ownership plan		7,821		632		—			8,453

F-24

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2004 Predecessor

Aerospace Industrial Corporate Consolidated

Customer revenues
$ 138,177 $ 49,151 $ — $ 187,328

Operating profit (loss)
34,584 761 (320 ) 35,025

Amortization of intangible assets
3,414

Income from operations
31,611

Interest expense
22,705

Debt extinguishment expense
12,961

Other, net
(95 )

Loss before tax
$ (3,960 )

Capital expenditures
1,789 1,267 — 3,056

Depreciation
2,168 1,231 400 3,799

Compensation expense recognized in connection with employee stock ownership plan
4,270 581 — 4,851

Major Customers and Export Sales

During the fiscal years ended 2006, 2005 and 2004 the Company had revenues in excess of 10% from only one customer (in thousands):


			Predecessor
	2006		2005		2004

Upsilon International Corporation	$	22,881	$	23,478	$	20,326

During the fiscal years ended 2006, 2005, and 2004 export sales to foreign customers were comprised of the following (in thousands):


			Predecessor
	2006		2005		2004

Europe	$	45,154	$	42,238	$	32,823
Pacific Rim		34,804		35,430		26,003
All others (individually less than 10%)		24,701		17,702		21,379

Total	$	104,659	$	95,370	$	80,205


15.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has various financial instruments, including cash and short-term investments 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 Term Loans approximates their fair value. The value of the Senior Notes as of October 28, 2006 was $259,375,000. The Company does not enter into derivative contracts for trading or speculative purposes. A 10% fluctuation in interest rates would not materially affect Argo-Tech’s financial condition, result of operations or cash flow.

F-25

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


16.	STOCK BASED COMPENSATION

Prior to the merger, the Company had five stock-based compensation plans:

1991 Performance Stock Option Plan — The 1991 Performance Stock Option Plan provides for option grants for the purchase of Holdings’ common stock. The exercise price of each option is $10.00 per share. All of the options under this plan became fully vested in January 1999. Effective upon completion of the Merger, the Board of Directors of Argo-Tech terminated the option plan. All of the options outstanding under this plan were cancelled in exchange for the right to receive cash payments of equal value in the Merger.

1991 Management Incentive Stock Option Plan — The 1991 Management Incentive Stock Option Plan provides for option grants for the purchase of Holdings’ common stock. The exercise price of each option is $10.00 per share. All of the options under this plan became fully vested in January 1999. All of the options outstanding under this plan were cancelled in exchange for the right to receive cash payments of equal value in the Merger.

1998 Equity Replacement Stock Option Plan — The 1998 Equity Replacement Stock Option Plan was established to provide for option grants for the purchase of Holdings’ common stock. The exercise price of each option is $40.00 per share. All of the options under this plan were fully vested upon issuance. All of the options outstanding under this plan were cancelled in exchange for the right to receive cash payments of equal value in the Merger.

1998 Incentive Plan — The 1998 Incentive Plan was established to provide option grants for the purchase of Holdings’ common stock, at prices that may be more than, less than, or equal to the fair market value of the shares, as the Board or Compensation Committee of Holdings may determine at the time of grant. There have been three option grants under the 1998 Incentive Plan, the first in 1999 with an exercise price of $100.11, the second in 2001 with an exercise price of $69.18 and the third in 2002 with an exercise price of $49.79. The option agreement governing the options granted in 1999 provides that such options vest in 20% increments over five successive years. For any year in which the EBITDA of the company exceeds 105% of the target EBITDA, an additional 131/3% of the optioned shares will vest. Effective November 2, 2000 all holders of options granted in 1999 agreed to the cancellation of the portion of the 1999 options which were not vested at such date. Pursuant to the plan, such cancelled options are available for new grants. The option agreement governing the options granted under the plan in September 2001 and March 2002 provides for vesting as follows: 33.3% at the time of issuance and 33.3% on the anniversary date of the grant over the next two years. All options granted under the plan expire ten years from the date of grant. In the event that Holdings’ common stock becomes registered or traded on a national exchange or in the event of a change in control, all options will become exercisable in full. All of the options outstanding under this plan were cancelled in exchange for the right to receive cash payments of equal value in the Merger.

Stock Appreciation Rights (SARs)

On March 1, 2005, the Company granted 45,200 SARs to certain full-time employees of the Company and its subsidiaries. Its directors and executive officers did not participate in the plan. The total number of SARs which could be granted pursuant to the amended 2004 Stock Appreciation Rights Plan, which was approved by the Board of Directors on December 7, 2004, could not exceed 50,000, except to the extent of certain authorized adjustments. The SARs were to vest 331/3% on the grant date and on each of the next two anniversary dates of the initial date (the date the value of the SAR was determined by the Board). Once vested and upon the earliest of: termination of employment for reasons other than cause, a change of control or ten years from the initial date, each SAR entitled the holder to a base payment equal to the increase, if any, in the value of one share of Holdings common stock from the initial date to the date of payment. There is $2.5 million of SAR expense included in selling, general and administrative expenses for fiscal 2005. The Merger constituted a change of control under the SARs, and the holders of the SARs received a portion of the merger consideration in exchange for the cancellation of their SARs.

The cancellation of the SARs resulted in additional compensation expense of $4.6 million in fiscal year 2005, which was included in Merger expense.

F-26

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of each option and incentive unit grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 2001, 2002 and 2005 respectively: risk-free interest rates of 5.0%, 4.875% and 4.35% and expected lives of 10 years for each of the option plan grants and 7 years for the incentive units. Holdings does not pay a dividend.

A summary of the status of the Company’s stock option plans as of October 29, 2005 and October 30, 2004 and changes during the years ending on those dates is presented below:


	2005 Predecessor
				Weighted Average
	Shares			Exercise Price

Outstanding at beginning of year		127,923		$	49.91
Granted		37,160			201.25
Exercised		(37,721	)		44.39
Cancelled		(90,202	)		52.22
Outstanding at end of year		37,160			201.25
Options exercisable at year-end		—			—
Weighted average fair value of options granted during the year	$	75.96


	2004 Predecessor
				Weighted Average
	Shares			Exercise Price

Outstanding at beginning of year		133,713		$	50.20
Granted		—			—
Exercised		(4,000	)		49.79
Cancelled		(1,790	)		71.77
Outstanding at end of year		127,923			49.91
Options exercisable at year-end		127,923			49.91
Weighted average fair value of options granted during the year	$	—

In connection with the Merger 37,160 options were rolled-over. Option holders have the ability to convert these options into Class A Units. There was no activity related to these options during fiscal 2006. As of October 28, 2006, 37,160 options remain outstanding.

Incentive Units — In connection with the Merger, VGAT has three authorized classes of units of limited liability company interests, designated Class A Units, Class B Units and Class C Units. The Class B Units of VGAT (the “Class B Units”) and the Class C Units of VGAT (the “Class C Units” and, together with the Class B Units, the “Incentive Units” and, together with the Class A Units of VGAT and the Class B Units, the “Units”) are voting limited liability company interests and are available for issuance to employees, directors and service providers of and to Holdings and its subsidiaries for incentive purposes.

The incentive units issued on the date of the Merger entitle the holders to distributions in excess of a floor amount, which is $201.25 per unit, the fair market value of the equity of Holdings as of the date of the Merger. The Class B Units are subject to time-vesting requirements. Twenty percent of the Class B Units will vest effective as of the end of each fiscal year. If a holder’s employment is terminated following October 31, 2006 other than by Holdings for cause or voluntarily by the holder, such holder’s Class B Units subject to vesting in the year of termination will vest on a daily basis. Class C Units are subject to performance-vesting requirements. For each fiscal year beginning with fiscal 2006, 20% of the Class C Units will be eligible to vest effective upon the sale of VGAT and the attainment of certain performance criteria. The sale to Eaton Corporation, pursuant to the Acquisition

F-27

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Agreement, will result in all Class B and Class C Units becoming fully vested (see note 2 — Subsequent Events). The Class B Units are subject to time-vesting requirements. Twenty percent of the Class B Units vested at the end of fiscal 2006, for the holders of such Class B Units continuously employed by Holdings or any of its subsidiaries from the closing of the Merger in fiscal 2005 until the end of fiscal 2006.


17.	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.

Approximately 25% of the Company’s workforce is covered by a collective bargaining agreement that expires on March 31, 2008.


18.	OTHER COMPREHENSIVE INCOME/(LOSS)

Other comprehensive income/(loss) includes foreign currency translation adjustments and deferred pension income/(expense) (in thousands).


				Predecessor
	2006			2005			2004

Net loss	$	(16,836	)	$	(6,199	)	$	(461	)
Other comprehensive income (loss):
Foreign currency translation adjustment		(24	)		(68	)		7
Deferred pension expense		—			(208	)		(1,966	)

Other comprehensive loss before tax		(24	)		(276	)		(1,959	)
Income tax benefit related to other comprehensive income (loss)		—			83			787

Other comprehensive loss, net of tax		(24	)		(193	)		(1,172	)

Comprehensive loss	$	(16,860	)	$	(6,392	)	$	(1,633	)

F-28


	Page

FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-2
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 28, 2006 AND OCTOBER 29, 2005		F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED OCTOBER 28, 2006, OCTOBER 29, 2005 (PREDECESSOR), AND OCTOBER 30, 2004 (PREDECESSOR)		F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY/(DEFICIENCY) FOR THE FISCAL Years Ended OCTOBER 28, 2006, OCTOBER 29, 2005 (PREDECESSOR), AND OCTOBER 30, 2004 (PREDECESSOR)		F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED OCTOBER 28, 2006, OCTOBER 29, 2005 (PREDECESSOR), AND OCTOBER 30, 2004 (PREDECESSOR)		F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED OCTOBER 28, 2006, OCTOBER 29, 2005 (PREDECESSOR), AND OCTOBER 30, 2004 (PREDECESSOR)		F-7 — F-28
SUPPLEMENTARY DATA:
VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED OCTOBER 28, 2006, OCTOBER 29, 2005 (PREDECESSOR), AND OCTOBER 30, 2004 (PREDECESSOR)		F-29


			Page

PART I:
	Item 1.	Business		1
	Item 1A.	Risk Factors		7
	Item 1B.	Unresolved Staff Comments		13
	Item 2.	Properties		13
	Item 3.	Legal Proceedings		14
	Item 4.	Submission of Matters to a Vote of Security Holders		14

PART II:
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14
	Item 6.	Selected Financial Data		14
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		29
	Item 8.	Financial Statements and Supplementary Data		29
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		29
	Item 9A.	Controls and Procedures		29

PART III:
	Item 10.	Directors and Executive Officers of the Registrant		30
	Item 11.	Executive Compensation		31
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		37
	Item 13.	Certain Relationships and Related Transactions		38
	Item 14.	Principal Accountant Fees and Services		39

PART IV:
	Item 15.	Exhibits and Financial Statement Schedules		40
EX-12.1
EX-31.1
EX-31.2
EX-32


	Balance at		Charged to				Balance at
	Beginning		Costs and		Deduction from		End of
Description	of Period		Expenses		Reseve(1)		Period
	(Amounts in thousands)

Allowance for doubtful accounts:
Year ended October 28, 2006	$	459		609		408	$	660
Year ended October 29, 2005	$	310		547		398	$	459
Year ended October 30, 2004	$	266		416		372	$	310


(1)		The amounts in this column represent charge-offs net of recoveries.


	Fiscal Year Ended
	October 28,			October 29,			October 30,			October 25,			October 26,
	2006			2005			2004			2003			2002
				(Dollars in Thousands)
Historical:
Net income/(loss)	$	(16,836	)	$	(6,199	)	$	(461	)	$	4,528		$	5,926
Income tax provision/(benefit)		(14,261	)		(7,768	)		(3,499	)		1,579			569


Net income/(loss) before tax	$	(31,097	)	$	(13,967	)	$	(3,960	)	$	6,107		$	6,495


Fixed charges:
Interest expense	$	23,652		$	25,601		$	22,705		$	21,257		$	21,434

Earnings as adjusted	$	(7,445	)	$	11,634		$	18,745		$	27,364		$	27,929


Ratio of earnings to fixed charges (1)		—	x		—	x		—	x		1.3	x		1.3	x

1.		I have reviewed this annual report on Form 10-K of Argo-Tech Corporation;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	By:	/s/ Michael S. Lipscomb
		Michael S. Lipscomb
		Chairman, President and CEO

	(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.



	By:	/s/ Michael S. Lipscomb
		Michael S. Lipscomb
		Chief Executive Officer


	By:	/s/ John S. Glover
		John S. Glover
		Chief Financial Officer