##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 27, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from                to
 Commission file number 333-124944
 ALTRA INDUSTRIAL MOTION, INC.
  Delaware
    
    30-0283143(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)14 Hayward Street, Quincy, Massachusetts
    
    02171(Address of principal executive offices)
    
    (Zip code)
 (617) 328-3300
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



TABLE OF CONTENTS
 Page #PART IFINANCIAL INFORMATION
    
    
    2Item 1. Unaudited Condensed Consolidated Financial Statements
    
    
    2Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33PART IIOTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34SIGNATURES
    
    
    36Ex-31.1 Certification of CEOEx-31.2 Certification of CFOEx-32.1 Certification of CEOEx-32.2 Certification of CFO




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
(unaudited)
 September 27,2008
    
    
    December 31, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    49,821
    
    
    $
    33,906Trade
receivable, less allowance for doubtful accounts of $1,373 and $1,548 at
September 27, 2008 and December 31, 2007, respectively
    
    
    86,631
    
    
    
    73,248Inventories
    
    
    106,374
    
    
    
    101,835Deferred income taxes
    
    
    8,447
    
    
    
    8,286Receivable
from sale of Electronics Division (See Note 4)
    
    
    
    
    
    
    17,100Assets held for sale (See Note 7)
    
    
    4,676
    
    
    
    4,728Prepaid expenses and other current assets
    
    
    5,871
    
    
    
    5,578Total current assets
    
    
    261,820
    
    
    
    244,681Property, plant and equipment, net
    
    
    111,677
    
    
    
    113,043Intangible assets, net
    
    
    83,642
    
    
    
    88,943Goodwill
    
    
    112,932
    
    
    
    114,979Deferred income taxes
    
    
    151
    
    
    
    231Other non-current assets
    
    
    4,643
    
    
    
    6,747Total assets
    
    $
    574,865
    
    
    $
    568,624LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    42,893
    
    
    $
    41,668Accrued payroll
    
    
    19,035
    
    
    
    16,988Accruals and other current liabilities
    
    
    26,079
    
    
    
    22,001Taxes payable
    
    
    1,711
    
    
    
    1,196Deferred income taxes
    
    
    8,060
    
    
    
    8,060Current portion of long-term debt
    
    
    3,343
    
    
    
    2,667Total current liabilities
    
    
    101,121
    
    
    
    92,580Long-term debt  less current portion and net of
unaccreted discount and premium
    
    
    259,423
    
    
    
    291,399Deferred income taxes
    
    
    24,443
    
    
    
    24,490Pension liabilities
    
    
    9,219
    
    
    
    13,431Other post retirement benefits
    
    
    2,343
    
    
    
    3,170Long-term taxes payable
    
    
    4,726
    
    
    
    5,911Other long-term liabilities
    
    
    4,155
    
    
    
    4,308Commitments and contingencies (See Note 16)
    
    
    
    
    
    
    Shareholders equity:Common stock
(1,000 shares authorized, issued & outstanding, $0.001 par value)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    97,829
    
    
    
    97,829Due to Parent
    
    
    26,622
    
    
    
    13,208Retained earnings
    
    
    47,612
    
    
    
    20,375Accumulated other comprehensive income
    
    
    (2,628
    )
    
    
    1,923Total shareholders equity
    
    
    169,435
    
    
    
    133,335Total liabilities and shareholders equity
    
    $
    574,865
    
    
    $
    568,624
  2




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Condensed Consolidated Statements of Income
Amounts in thousands, except share amounts
(Unaudited)
 Quarter Ended
    
    
    Year to Date EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    159,448
    
    
    $
    147,278
    
    
    $
    490,523
    
    
    $
    433,512Cost of sales
    
    
    113,627
    
    
    
    105,597
    
    
    
    346,517
    
    
    
    310,666Gross profit
    
    
    45,821
    
    
    
    41,681
    
    
    
    144,006
    
    
    
    122,846Operating expenses:Selling, general and administrative expenses
    
    
    25,655
    
    
    
    22,981
    
    
    
    76,816
    
    
    
    67,335Research and development expenses
    
    
    1,663
    
    
    
    1,606
    
    
    
    5,160
    
    
    
    4,465OPEB curtailment gain
    
    
    (107
    )
    
    
    
    
    
    
    (276
    )
    
    
    Restructuring costs
    
    
    81
    
    
    
    189
    
    
    
    1,149
    
    
    
    1,18027,292
    
    
    
    24,776
    
    
    
    82,849
    
    
    
    72,980Income from operations
    
    
    18,529
    
    
    
    16,905
    
    
    
    61,157
    
    
    
    49,866Other non-operarting income and expense:Interest expense, net
    
    
    7,302
    
    
    
    11,406
    
    
    
    22,456
    
    
    
    31,280Other non-operating (income) expense, net
    
    
    (1,408
    )
    
    
    438
    
    
    
    (2,887
    )
    
    
    5225,894
    
    
    
    11,844
    
    
    
    19,569
    
    
    
    31,802Income from continuing operations before income taxes
    
    
    12,635
    
    
    
    5,061
    
    
    
    41,588
    
    
    
    18,064Provision for income taxes
    
    
    4,000
    
    
    
    1,637
    
    
    
    14,127
    
    
    
    6,485Net income from continuing operations
    
    
    8,635
    
    
    
    3,424
    
    
    
    27,461
    
    
    
    11,579Net income (loss) from discontinued operations, net
of income taxes of $43 and $583 for the year to date
period ended September 27, 2008 and September 29,
2007, respectively
    
    
    172
    
    
    
    886
    
    
    
    (224
    )
    
    
    1,352Net income
    
    $
    8,807
    
    
    $
    4,310
    
    
    $
    27,237
    
    
    $
    12,931Consolidated Statement of Comprehensive IncomePension liability adjustment
    
    $
    1,500
    
    
    $
    
    
    
    $
    1,500
    
    
    $
    Foreign currency translation adjustment
    
    
    (6,051
    )
    
    
    2,643
    
    
    
    (8,353
    )
    
    
    3,903Comprehensive income
    
    $
    4,256
    
    
    $
    6,953
    
    
    $
    20,384
    
    
    $
    16,834
  3




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
(Unaudited)
 Year to Date endedSeptember 27, 2008
    
    
    September 29, 2007Cash flows from operating activitiesNet income
    
    $
    27,237
    
    
    $
    12,931Adjustments to reconcile net income to net cash flows:Depreciation
    
    
    12,409
    
    
    
    12,378Amortization of intangible assets
    
    
    4,346
    
    
    
    3,999Amortization and write-offs of deferred loan costs
    
    
    1,863
    
    
    
    2,980Loss (gain) on foreign currency, net
    
    
    (1,597
    )
    
    
    409Accretion of debt discount and premium, net
    
    
    759
    
    
    
    594Amortization of inventory fair value adjustment
    
    
    
    
    
    
    651Loss on sale of Electronics Division
    
    
    224
    
    
    
    Loss on sale of fixed assets
    
    
    193
    
    
    
    112OPEB curtailment gain
    
    
    (276
    )
    
    
    Stock based compensation
    
    
    1,516
    
    
    
    1,092Changes in assets and liabilities:Trade receivables
    
    
    (14,905
    )
    
    
    (6,884
    )Inventories
    
    
    (5,871
    )
    
    
    (2,281
    )Accounts payable and accrued liabilities
    
    
    5,887
    
    
    
    (8,383
    )Other current assets and liabilities
    
    
    (383
    )
    
    
    4,147Other operating assets and liabilities
    
    
    234
    
    
    
    6Net cash provided by operating activities
    
    
    31,636
    
    
    
    21,751Cash flows from investing activitiesPurchase of fixed assets
    
    
    (12,234
    )
    
    
    (6,803
    )Proceeds from sale of Electronics Division
    
    
    17,310
    
    
    
    Acquisitions, net of $5,222 cash acquired
    
    
    
    
    
    
    (117,911
    )Net cash provided by (used in) investing activities
    
    
    5,076
    
    
    
    (124,714
    )Cash flows from financing activitiesProceeds from issuance of senior secured notes
    
    
    
    
    
    
    106,050Capital contribution from Parent
    
    
    
    
    
    
    49,015Payments on senior secured notes
    
    
    (27,500
    )
    
    
    Payment of debt issuance costs
    
    
    
    
    
    
    (3,692
    )Payments on senior notes
    
    
    (1,346
    )
    
    
    (58,428
    )Borrowings under revolving credit agreement
    
    
    
    
    
    
    8,315Payments on revolving credit agreement
    
    
    (1,723
    )
    
    
    (9,847
    )Net payments received from (made on behalf) of Parent
    
    
    11,898
    
    
    
    (1,475
    )Payment on mortgages
    
    
    (228
    )
    
    
    (178
    )Payment on capital leases
    
    
    (779
    )
    
    
    (534
    )Net cash (used in) provided by financing activities
    
    
    (19,678
    )
    
    
    89,226Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,119
    )
    
    
    1,244Net change in cash and cash equivalents
    
    
    15,915
    
    
    
    (12,493
    )Cash and cash equivalents at beginning of year
    
    
    33,906
    
    
    
    42,527Cash and cash equivalents at end of period
    
    $
    49,821
    
    
    $
    30,034Cash paid during the period for:Interest
    
    $
    21,840
    
    
    $
    24,076Income taxes
    
    $
    11,964
    
    
    $
    10,338Non-cash Financing:Acquisition of capital equipment under capital lease
    
    $
    
    
    
    $
    1,655Accrued offering costs
    
    $
    
    
    
    $
    145
 4




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 1. Organization and Nature of Operations
  2. Basis of Presentation
      3. Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an Amendment of FASB Statement No. 115
 Fair Value Measurements
 5




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
  Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements an amendment of Accounting Research Bulletin No. 51
 4. Discontinued Operations
  Accounting for the Impairment or Disposal of Long-Lived Assets
   5. Inventories
  6




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
  September 27,
    
    
    December 31,2008
    
    
    2007Raw Materials
    
    
    35,674
    
    
    $
    33,601Work in process
    
    
    22,932
    
    
    
    20,376Finished goods
    
    
    47,769
    
    
    
    47,858Inventories, net
    
    $
    106,374
    
    
    $
    101,835
   7




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 6. Goodwill and Intangible Assets
  Goodwill
 Balance December 31, 2007
    
    $
    114,979Adjustments to acquisition related tax contingencies
    
    
    (995
    )Impact of changes in foreign currency
    
    
    (1,052
    )Balance September 27, 2008
    
    $
    112,932
  September 27, 2008
    
    
    December 31, 2007Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationOther Intangible assetsIntangible assets not subject to amortization:Tradenames and trademarks
    
    $
    30,730
    
    
    $
    
    
    
    $
    30,730
    
    
    $
    Intangible assets subject to amortization:Customer relationships
    
    
    62,038
    
    
    
    13,952
    
    
    
    62,038
    
    
    
    10,139Product technology and patents
    
    
    5,232
    
    
    
    2,881
    
    
    
    5,232
    
    
    
    2,348Impact of changes in foreign currency
    
    
    2,475
    
    
    
    
    
    
    
    3,430
    
    
    
    Total intangible assets
    
    $
    100,475
    
    
    $
    16,833
    
    
    $
    101,430
    
    
    $
    12,487
   7. Assets Held for Sale
  8. Warranty Costs
  8




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 September 27, 2008
    
    
    September 29, 2007Balance at beginning of period
    
    $
    4,098
    
    
    $
    2,083Accrued warranty costs
    
    
    1,562
    
    
    
    1,428Balance assumed with TB Woods acquisition
    
    
    
    
    
    
    224Payments and adjustments
    
    
    (2,413
    )
    
    
    (336
    )Balance at end of period
    
    $
    3,247
    
    
    $
    3,399
 9. Income Taxes
  for Uncertainty in
Income Taxes  an interpretation of FASB 109
   10. Pension and Other Employee Benefits
 Defined Benefit (Pension) and Post-retirement Benefit Plans
     9




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
    Quarter EndedPension Benefits
    
    
    Other BenefitsSeptember 27, 2008
    
    

September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007Service cost
    
    $
    16
    
    
    $
    66
    
    
    $
    13
    
    
    $
    18Interest cost
    
    
    378
    
    
    
    327
    
    
    
    50
    
    
    
    49Expected return on plan assets
    
    
    (326
    )
    
    
    (266
    )
    
    
    
    
    
    
    Amortization of prior service cost (income)
    
    
    
    
    
    
    2
    
    
    
    (244
    )
    
    
    (243
    )OPEB curtailment gain
    
    
    
    
    
    
    
    
    
    
    (107
    )
    
    
    Amortization of net (gain)
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (53
    )Net periodic benefit cost (income)
    
    $
    68
    
    
    $
    129
    
    
    $
    (295
    )
    
    $
    (229
    )Year to Date EndedPension Benefits
    
    
    Other BenefitsSeptember 27, 2008
    
    
    September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007Service cost
    
    $
    48
    
    
    $
    198
    
    
    $
    43
    
    
    $
    54Interest cost
    
    
    1,135
    
    
    
    981
    
    
    
    154
    
    
    
    147Expected return on plan assets
    
    
    (979
    )
    
    
    (799
    )
    
    
    
    
    
    
    Amortization of prior service cost (income)
    
    
    
    
    
    
    5
    
    
    
    (731
    )
    
    
    (730
    )OPEB curtailment gain
    
    
    
    
    
    
    
    
    
    
    (276
    )
    
    
    Amortization of net (gain)
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (158
    )Net periodic benefit cost (income)
    
    $
    204
    
    
    $
    385
    
    
    $
    (829
    )
    
    $
    (687
    )
 10




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 11. Long-Term Debt
  September 27, 2008
    
    
    December 31, 2007Revolving credit agreement
    
    $
    
    
    
    $
    TB Woods revolving credit agreement
    
    
    6,000
    
    
    
    7,700Overdraft agreements
    
    
    
    
    
    
    9% Senior Secured Notes
    
    
    242,500
    
    
    
    270,00011.25% Senior Notes
    
    
    6,017
    
    
    
    7,790Variable rate demand revenue bonds
    
    
    5,300
    
    
    
    5,300Mortgages
    
    
    2,399
    
    
    
    2,639Capital leases
    
    
    2,603
    
    
    
    3,449Less: debt discount and premium, net of accretion
    
    
    (2,053
    )
    
    
    (2,812
    )Total long-term debt
    
    $
    262,766
    
    
    $
    294,066
 Revolving Credit Agreement
     TB Woods Revolving Credit Agreement
  Overdraft Agreements
  11




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 9% Senior Secured Notes
       11.25% Senior Notes
     Variable Rate Demand Revenue Bonds
  12




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
  Mortgage
  
 Capital Leases
  12. Stockholders Equity
  Stock-Based Compensation
  13. Related-Party Transactions
 Joy Global Sales
  14. Concentrations of Credit, Business Risks and Workforce
    13




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
  15. Geographic Information
  Net SalesQuarter Ended
    
    
    Year to Date Ended
    
    
    Property, Plant and EquipmentSeptember
    
    
    September
    
    
    September
    
    
    September
    
    
    September
    
    
    December27, 2008
    
    
    29, 2007
    
    
    27, 2008
    
    
    29, 2007
    
    
    27, 2008
    
    
    31, 2007North America (primarily U.S.)
    
    $
    110,793
    
    
    $
    106,599
    
    
    $
    347,190
    
    
    $
    313,297
    
    
    $
    81,423
    
    
    $
    81,283Europe
    
    
    40,028
    
    
    
    34,015
    
    
    
    121,289
    
    
    
    103,670
    
    
    
    27,459
    
    
    
    29,767Asia and other
    
    
    8,627
    
    
    
    6,664
    
    
    
    22,044
    
    
    
    16,545
    
    
    
    2,795
    
    
    
    1,993Total
    
    $
    159,448
    
    
    $
    147,278
    
    
    $
    490,523
    
    
    $
    433,512
    
    
    $
    111,677
    
    
    $
    113,043
    16. Commitments and Contingencies
 General Litigation
   17. Restructuring, Asset Impairment and Transition Expenses
  14




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
  TB WoodsAltra Plan
    
    Plan
    
    TotalExpensesOther cash expenses
    
    $
    
    
    
    $
    
    
    
    $
    Moving and relocation
    
    
    467
    
    
    
    84
    
    
    
    551Severance
    
    
    411
    
    
    
    
    
    
    
    411Total cash expenses
    
    
    878
    
    
    
    84
    
    
    
    962Non-cash asset impairment and loss on sale of fixed asset
    
    
    187
    
    
    
    
    
    
    
    187Total restructuring expenses
    
    $
    1,065
    
    
    $
    84
    
    
    $
    1,149
  TB WoodsAltra Plan
    
    Plan
    
    TotalBalance at December 31, 2007
    
    $
    449
    
    
    $
    1,029
    
    
    $
    1,478Restructuring expense incurred
    
    
    1,579
    
    
    
    84
    
    
    
    1,663Adjustments to previously accrued amounts
    
    
    (514
    )Cash payments
    
    
    (874
    )
    
    
    (1,113
    )
    
    
    (1,987
    )Non-cash loss on disposal of fixed assets
    
    
    (187
    )
    
    
    
    
    
    
    (187
    )Balance at September 27, 2008
    
    $
    453
    
    
    $
    
    
    
    
    453
   18. Guarantor Subsidiaries
  15




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
  Unaudited condensed consolidating balance sheet
September 27, 2008
 Issuer
    
    Guarantor
    
    Non Guarantor
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,613
    
    
    $
    (4,404
    )
    
    $
    24,612
    
    
    $
    
    
    
    $
    49,821Trade receivables, less allowance for doubtful accounts
    
    
    
    
    
    
    49,692
    
    
    
    36,939
    
    
    
    
    
    
    
    86,631Loans receivable from related parties
    
    
    
    
    
    
    95,545
    
    
    
    
    
    
    
    (95,545
    )
    
    
    Inventories
    
    
    
    
    
    
    73,393
    
    
    
    32,981
    
    
    
    
    
    
    
    106,374Deferred income taxes
    
    
    
    
    
    
    8,447
    
    
    
    
    
    
    
    
    
    
    
    8,447Assets held for sale
    
    
    
    
    
    
    3,515
    
    
    
    1,161
    
    
    
    
    
    
    
    4,676Prepaid expenses and other current assets
    
    
    1,046
    
    
    
    2,611
    
    
    
    2,214
    
    
    
    
    
    
    
    5,871Total current assets
    
    
    30,659
    
    
    
    228,799
    
    
    
    97,907
    
    
    
    (95,545
    )
    
    
    261,820Property, plant and equipment, net
    
    
    
    
    
    
    75,011
    
    
    
    36,666
    
    
    
    
    
    
    
    111,677Intangible assets, net
    
    
    
    
    
    
    63,377
    
    
    
    20,265
    
    
    
    
    
    
    
    83,642Goodwill
    
    
    
    
    
    
    88,336
    
    
    
    24,596
    
    
    
    
    
    
    
    112,932Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    151Investment in subs
    
    
    432,248
    
    
    
    
    
    
    
    
    
    
    
    (432,248
    )
    
    
    Other non-current assets
    
    
    4,201
    
    
    
    400
    
    
    
    42
    
    
    
    
    
    
    
    4,643Total assets
    
    $
    467,108
    
    
    $
    455,923
    
    
    $
    179,627
    
    
    $
    (527,793
    )
    
    $
    574,865LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    808
    
    
    $
    26,053
    
    
    $
    16,032
    
    
    $
    
    
    
    $
    42,893Accrued payroll
    
    
    2,114
    
    
    
    9,186
    
    
    
    7,735
    
    
    
    
    
    
    
    19,035Accruals and other current liabilities
    
    
    9,677
    
    
    
    10,180
    
    
    
    6,222
    
    
    
    
    
    
    
    26,079Taxes payable
    
    
    
    
    
    
    1,711
    
    
    
    
    
    
    
    
    
    
    
    1,711Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    8,060
    
    
    
    
    
    
    
    8,060Current portion of long-term debt
    
    
    
    
    
    
    2,851
    
    
    
    492
    
    
    
    
    
    
    
    3,343Loans payable from related parties
    
    
    38,610
    
    
    
    
    
    
    
    56,935
    
    
    
    (95,545
    )
    
    
    Total current liabilities
    
    
    51,209
    
    
    
    49,981
    
    
    
    95,476
    
    
    
    (95,545
    )
    
    
    101,121Long-term debt  less current portion
and net of unaccreted discount and premium
    
    
    246,464
    
    
    
    10,502
    
    
    
    2,457
    
    
    
    
    
    
    
    259,423Deferred income taxes
    
    
    
    
    
    
    22,724
    
    
    
    1,719
    
    
    
    
    
    
    
    24,443Pension liabilities
    
    
    
    
    
    
    6,005
    
    
    
    3,214
    
    
    
    
    
    
    
    9,219Other post retirement benefits
    
    
    
    
    
    
    2,343
    
    
    
    
    
    
    
    
    
    
    
    2,343Long-term taxes payables
    
    
    
    
    
    
    1,107
    
    
    
    3,619
    
    
    
    
    
    
    
    4,726Other long-term liabilities
    
    
    
    
    
    
    1,372
    
    
    
    2,783
    
    
    
    
    
    
    
    4,155Total stockholders equity
    
    
    169,435
    
    
    
    361,889
    
    
    
    70,359
    
    
    
    (432,248
    )
    
    
    169,435Total liabilities and shareholders equity
    
    $
    467,108
    
    
    $
    455,923
    
    
    $
    179,627
    
    
    $
    (527,793
    )
    
    $
    574,865
 16




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 Unaudited condensed consolidating balance sheet
December 31, 2007
 Issuer
    
    Guarantor
    
    Non Guarantor
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,571
    
    
    $
    (492
    )
    
    $
    29,827
    
    
    $
    
    
    
    $
    33,906Trade receivable, less allowance for doubtful accounts
    
    
    
    
    
    
    45,938
    
    
    
    27,310
    
    
    
    
    
    
    
    73,248Loan receivable from related parties
    
    
    
    
    
    
    78,992
    
    
    
    
    
    
    
    (78,992
    )
    
    
    Inventories
    
    
    
    
    
    
    69,720
    
    
    
    32,115
    
    
    
    
    
    
    
    101,835Deferred income taxes
    
    
    
    
    
    
    8,468
    
    
    
    (182
    )
    
    
    
    
    
    
    8,286Receivable from sale of Electronics Division
    
    
    17,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,100Assets held for sale
    
    
    
    
    
    
    3,567
    
    
    
    1,161
    
    
    
    
    
    
    
    4,728Prepaid expenses and other current assets
    
    
    1,165
    
    
    
    1,634
    
    
    
    2,779
    
    
    
    
    
    
    
    5,578Total current assets
    
    
    22,836
    
    
    
    207,827
    
    
    
    93,010
    
    
    
    (78,992
    )
    
    
    244,681Property, plant and equipment, net
    
    
    
    
    
    
    76,571
    
    
    
    36,472
    
    
    
    
    
    
    
    113,043Intangible assets, net
    
    
    
    
    
    
    66,432
    
    
    
    22,511
    
    
    
    
    
    
    
    88,943Goodwill
    
    
    
    
    
    
    89,323
    
    
    
    25,656
    
    
    
    
    
    
    
    114,979Deferred income taxes
    
    
    
    
    
    
    (66
    )
    
    
    297
    
    
    
    
    
    
    
    231Investments in subsidiaries
    
    
    391,493
    
    
    
    
    
    
    
    
    
    
    
    (391,493
    )
    
    
    Other non-current assets
    
    
    5,778
    
    
    
    469
    
    
    
    500
    
    
    
    
    
    
    
    6,747Total assets
    
    $
    420,107
    
    
    $
    440,556
    
    
    $
    178,446
    
    
    $
    (470,485
    )
    
    $
    568,624LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,241
    
    
    $
    23,378
    
    
    $
    16,049
    
    
    $
    
    
    
    $
    41,668Accrued payroll
    
    
    2,328
    
    
    
    7,231
    
    
    
    7,429
    
    
    
    
    
    
    
    16,988Accruals and other current liabilities
    
    
    4,010
    
    
    
    13,223
    
    
    
    4,768
    
    
    
    
    
    
    
    22,001Taxes payable
    
    
    
    
    
    
    1,196
    
    
    
    
    
    
    
    
    
    
    
    1,196Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    8,060
    
    
    
    
    
    
    
    8,060Current portion of long-term debt
    
    
    
    
    
    
    2,096
    
    
    
    571
    
    
    
    
    
    
    
    2,667Loans payable from related parties
    
    
    3,215
    
    
    
    
    
    
    
    75,777
    
    
    
    (78,992
    )
    
    
    Total current liabilities
    
    
    11,794
    
    
    
    47,124
    
    
    
    112,654
    
    
    
    (78,992
    )
    
    
    92,580Long-term debt  less current portion and
net of unaccreted discount and premium
    
    
    274,978
    
    
    
    13,436
    
    
    
    2,985
    
    
    
    
    
    
    
    291,399Deferred income taxes
    
    
    
    
    
    
    25,343
    
    
    
    (853
    )
    
    
    
    
    
    
    24,490Pension liabilities
    
    
    
    
    
    
    10,227
    
    
    
    3,204
    
    
    
    
    
    
    
    13,431Other post retirement benefits
    
    
    
    
    
    
    3,170
    
    
    
    
    
    
    
    
    
    
    
    3,170Long-term taxes payables
    
    
    
    
    
    
    4,221
    
    
    
    1,690
    
    
    
    
    
    
    
    5,911Other long-term liabilities
    
    
    
    
    
    
    1,139
    
    
    
    3,169
    
    
    
    
    
    
    
    4,308Total stockholders equity
    
    
    133,335
    
    
    
    335,896
    
    
    
    55,597
    
    
    
    (391,493
    )
    
    
    133,335Total liabilities and shareholders equity
    
    $
    420,107
    
    
    $
    440,556
    
    
    $
    178,446
    
    
    $
    (470,485
    )
    
    $
    568,624
 17




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 Unaudited Condensed Consolidating Statement of Income
 Year to Date Ended September 27, 2008Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    353,805
    
    
    $
    176,919
    
    
    $
    (40,201
    )
    
    $
    490,523Cost of sales
    
    
    
    
    
    
    262,405
    
    
    
    124,313
    
    
    
    (40,201
    )
    
    
    346,517Gross profit
    
    
    
    
    
    
    91,400
    
    
    
    52,606
    
    
    
    
    
    
    
    144,006Selling, general and administrative expenses
    
    
    
    
    
    
    48,034
    
    
    
    28,782
    
    
    
    
    
    
    
    76,816Research and development expenses
    
    
    
    
    
    
    3,050
    
    
    
    2,110
    
    
    
    
    
    
    
    5,160OPEB curtailment gain
    
    
    
    
    
    
    (276
    )
    
    
    
    
    
    
    
    
    
    
    (276
    )Restructuring costs
    
    
    
    
    
    
    555
    
    
    
    594
    
    
    
    
    
    
    
    1,149Income from operations
    
    
    
    
    
    
    40,037
    
    
    
    21,120
    
    
    
    
    
    
    
    61,157Interest expense, net
    
    
    21,033
    
    
    
    1,237
    
    
    
    186
    
    
    
    
    
    
    
    22,456Other non-operating income, net
    
    
    (517
    )
    
    
    (938
    )
    
    
    (1,432
    )
    
    
    
    
    
    
    (2,887
    )Equity in earnings of subsidiaries
    
    
    40,765
    
    
    
    
    
    
    
    
    
    
    
    (40,765
    )
    
    
    Income from continuing operations before income taxes
    
    
    20,249
    
    
    
    39,738
    
    
    
    22,366
    
    
    
    (40,765
    )
    
    
    41,588Provision (benefit) for income taxes
    
    
    (6,988
    )
    
    
    13,511
    
    
    
    7,604
    
    
    
    
    
    
    
    14,127Net income from continuing operations
    
    
    27,237
    
    
    
    26,227
    
    
    
    14,762
    
    
    
    (40,765
    )
    
    
    27,461Net loss from discontinued operations
    
    
    
    
    
    
    (224
    )
    
    
    
    
    
    
    
    
    
    
    (224
    )Net income
    
    $
    27,237
    
    
    $
    26,003
    
    
    $
    14,762
    
    
    $
    (40,765
    )
    
    $
    27,237
 Unaudited Condensed Consolidating Statement of Income
 Quarter Ended September 27, 2008Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    113,469
    
    
    $
    59,203
    
    
    $
    (13,224
    )
    
    $
    159,448Cost of sales
    
    
    
    
    
    
    84,460
    
    
    
    42,391
    
    
    
    (13,224
    )
    
    
    113,627Gross profit
    
    
    
    
    
    
    29,009
    
    
    
    16,812
    
    
    
    
    
    
    
    45,821Selling, general and administrative expenses
    
    
    
    
    
    
    16,268
    
    
    
    9,387
    
    
    
    
    
    
    
    25,655Research and development expenses
    
    
    
    
    
    
    955
    
    
    
    708
    
    
    
    
    
    
    
    1,663OPEB curtailment gain
    
    
    
    
    
    
    (107
    )
    
    
    
    
    
    
    
    
    
    
    (107
    )Restructuring costs
    
    
    
    
    
    
    (228
    )
    
    
    309
    
    
    
    
    
    
    
    81Income from operations
    
    
    
    
    
    
    12,121
    
    
    
    6,408
    
    
    
    
    
    
    
    18,529Interest expense, net
    
    
    7,015
    
    
    
    274
    
    
    
    13
    
    
    
    
    
    
    
    7,302Other non-operating (income) expense, net
    
    
    1,569
    
    
    
    (250
    )
    
    
    (2,727
    )
    
    
    
    
    
    
    (1,408
    )Equity in earnings of subsidiaries
    
    
    13,768
    
    
    
    
    
    
    
    
    
    
    
    (13,768
    )
    
    
    Income from continuing operations before income taxes
    
    
    5,184
    
    
    
    12,097
    
    
    
    9,122
    
    
    
    (13,768
    )
    
    
    12,635Provision (benefit) for income taxes
    
    
    (3,623
    )
    
    
    4,389
    
    
    
    3,234
    
    
    
    
    
    
    
    4,000Net income from continuing operations
    
    
    8,807
    
    
    
    7,708
    
    
    
    5,888
    
    
    
    (13,768
    )
    
    
    8,635Net income from discontinued operations
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    172Net income
    
    $
    8,807
    
    
    $
    7,880
    
    
    $
    5,888
    
    
    $
    (13,768
    )
    
    $
    8,807
 18




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 Unaudited
Condensed Consolidating Statements of Income of the Company
 Year to date period ended September 29, 2007Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    317,433
    
    
    $
    151,181
    
    
    $
    (35,102
    )
    
    $
    433,512Cost of sales
    
    
    
    
    
    
    235,241
    
    
    
    110,527
    
    
    
    (35,102
    )
    
    
    310,666Gross profit
    
    
    
    
    
    
    82,192
    
    
    
    40,654
    
    
    
    
    
    
    
    122,846Selling, general and administrative expenses
    
    
    
    
    
    
    41,726
    
    
    
    25,609
    
    
    
    
    
    
    
    67,335Research and development expenses
    
    
    
    
    
    
    2,615
    
    
    
    1,850
    
    
    
    
    
    
    
    4,465Restructuring costs
    
    
    
    
    
    
    775
    
    
    
    405
    
    
    
    
    
    
    
    1,180Income from operations
    
    
    
    
    
    
    37,076
    
    
    
    12,790
    
    
    
    
    
    
    
    49,866Interest expense, net
    
    
    27,127
    
    
    
    576
    
    
    
    3,577
    
    
    
    
    
    
    
    31,280Other non-operating (income) expense, net
    
    
    (362
    )
    
    
    270
    
    
    
    614
    
    
    
    
    
    
    
    522Equity in earnings of subsidiaries
    
    
    39,715
    
    
    
    
    
    
    
    
    
    
    
    (39,715
    )
    
    
    Income from continuing operations before income taxes
    
    
    12,950
    
    
    
    36,230
    
    
    
    8,599
    
    
    
    (39,715
    )
    
    
    18,064Provision (benefit) for income taxes
    
    
    
    
    
    
    4,050
    
    
    
    2,435
    
    
    
    
    
    
    
    6,485Income from continuing operations
    
    
    12,950
    
    
    
    32,180
    
    
    
    6,164
    
    
    
    (39,715
    )
    
    
    11,579Income from discontinued operations
    
    
    
    
    
    
    416
    
    
    
    936
    
    
    
    
    
    
    
    1,352Net income
    
    $
    12,950
    
    
    $
    32,596
    
    
    $
    7,100
    
    
    $
    (39,715
    )
    
    $
    12,931
 Unaudited Condensed Consolidating Statement of Income
 Quarter Ended September 29, 2007Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    108,171
    
    
    $
    54,157
    
    
    $
    (15,049
    )
    
    $
    147,279Cost of sales
    
    
    
    
    
    
    81,631
    
    
    
    39,016
    
    
    
    (15,049
    )
    
    
    105,598Gross profit
    
    
    
    
    
    
    26,540
    
    
    
    15,141
    
    
    
    
    
    
    
    41,681Selling, general and administrative expenses
    
    
    
    
    
    
    14,119
    
    
    
    8,862
    
    
    
    
    
    
    
    22,981Research and development expenses
    
    
    
    
    
    
    973
    
    
    
    633
    
    
    
    
    
    
    
    1,606Restructuring costs
    
    
    
    
    
    
    162
    
    
    
    27
    
    
    
    
    
    
    
    189Income from operations
    
    
    
    
    
    
    11,286
    
    
    
    5,619
    
    
    
    
    
    
    
    16,905Interest expense, net
    
    
    11,620
    
    
    
    160
    
    
    
    (374
    )
    
    
    
    
    
    
    11,406Other non-operating (income) expense, net
    
    
    (211
    )
    
    
    388
    
    
    
    261
    
    
    
    
    
    
    
    438Equity in earnings of subsidiaries
    
    
    15,719
    
    
    
    
    
    
    
    
    
    
    
    (15,719
    )
    
    
    Income from continuing operations before income taxes
    
    
    4,310
    
    
    
    10,738
    
    
    
    5,732
    
    
    
    (15,719
    )
    
    
    5,061Provision (benefit) for income taxes
    
    
    
    
    
    
    (11
    )
    
    
    1,648
    
    
    
    
    
    
    
    1,637Income from continuing operations
    
    
    4,310
    
    
    
    10,749
    
    
    
    4,084
    
    
    
    (15,719
    )
    
    
    3,424Income from discontinued operations
    
    
    
    
    
    
    206
    
    
    
    680
    
    
    
    
    
    
    
    886Net income
    
    $
    4,310
    
    
    $
    10,955
    
    
    $
    4,764
    
    
    $
    (15,719
    )
    
    $
    4,310
 19




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 Unaudited Condensed Consolidating Statement of Cash Flows
 Year to date period ended September 27, 2008Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet income
    
    $
    27,237
    
    
    $
    26,003
    
    
    $
    14,762
    
    
    $
    (40,765
    )
    
    $
    27,237Undistributed
equity in earnings of subsidiaries
    
    $
    (40,765
    )
    
    
    
    
    
    
    
    
    
    $
    40,765
    
    
    $
    Adjustments to reconcile net income to net cash flows:Depreciation
    
    
    
    
    
    
    8,123
    
    
    
    4,286
    
    
    
    
    
    
    
    12,409Amortization of intangible assets
    
    
    
    
    
    
    3,106
    
    
    
    1,240
    
    
    
    
    
    
    
    4,346Amortization and write-offs of deferred loan costs
    
    
    1,670
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    1,863(Gain) loss on foreign currency, net
    
    
    (516
    )
    
    
    
    
    
    
    (1,081
    )
    
    
    
    
    
    
    (1,597
    )Accretion of debt discount and premium, net
    
    
    759
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    759Loss on sale of fixed assets
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    193OPEB curtailment gain
    
    
    
    
    
    
    (276
    )
    
    
    
    
    
    
    
    
    
    
    (276
    )Loss on sale of Electronics Division
    
    
    
    
    
    
    224
    
    
    
    
    
    
    
    
    
    
    
    224Stock based compensation
    
    
    1,516
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,516Changes in assets and liabilities:Trade receivables
    
    
    
    
    
    
    (3,754
    )
    
    
    (11,151
    )
    
    
    
    
    
    
    (14,905
    )Inventories
    
    
    
    
    
    
    (3,673
    )
    
    
    (2,198
    )
    
    
    
    
    
    
    (5,871
    )Accounts payable and accrued liabilities
    
    
    4,022
    
    
    
    (3,073
    )
    
    
    4,938
    
    
    
    
    
    
    
    5,887Other current assets and liabilities
    
    
    119
    
    
    
    (977
    )
    
    
    475
    
    
    
    
    
    
    
    (383
    )Other operating assets and liabilities
    
    
    (303
    )
    
    
    319
    
    
    
    218
    
    
    
    
    
    
    
    234Net cash provided by (used in) operating activities
    
    
    (6,261
    )
    
    
    26,408
    
    
    
    11,489
    
    
    
    
    
    
    
    31,636Cash flows from investing activitiesPurchase of fixed assets
    
    
    
    
    
    
    (8,831
    )
    
    
    (3,403
    )
    
    
    
    
    
    
    (12,234
    )Proceeds from the sale of Electronics
    
    
    17,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,310Net cash provided by (used in) investing activities
    
    
    17,310
    
    
    
    (8,831
    )
    
    
    (3,403
    )
    
    
    
    
    
    
    5,076Cash flows from financing activitiesPayments on
Senior Secured Notes
    
    
    (27,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,500
    )Payments on
Senior Notes
    
    
    (1,346
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,346
    )Net payments received from Parent
    
    
    11,898
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,898Payments on
Revolving Credit Agreement
    
    
    
    
    
    
    (1,723
    )
    
    
    
    
    
    
    
    
    
    
    (1,723
    )Payments on mortgages
    
    
    
    
    
    
    
    
    
    
    (228
    )
    
    
    
    
    
    
    (228
    )Payment on capital leases
    
    
    
    
    
    
    (456
    )
    
    
    (323
    )
    
    
    
    
    
    
    (779
    )Change in affiliate debt
    
    
    30,941
    
    
    
    (19,310
    )
    
    
    (11,631
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    13,993
    
    
    
    (21,489
    )
    
    
    (12,182
    )
    
    
    
    
    
    
    (19,678
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (1,119
    )
    
    
    
    
    
    
    (1,119
    )Net change in cash and cash equivalents
    
    
    25,042
    
    
    
    (3,912
    )
    
    
    (5,215
    )
    
    
    
    
    
    
    15,915Cash and cash equivalents at beginning of year
    
    
    4,571
    
    
    
    (492
    )
    
    
    29,827
    
    
    
    
    
    
    
    33,906Cash and cash equivalents at end of period
    
    $
    29,613
    
    
    $
    (4,404
    )
    
    $
    24,612
    
    
    $
    
    
    
    $
    49,821
 20




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 Unaudited Condensed Consolidating Statement of Cash Flows
 Year to date period ended September 29, 2007Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet income
    
    $
    12,950
    
    
    $
    32,596
    
    
    $
    7,119
    
    
    $
    (23,996
    )
    
    $
    28,669Undistributed equity in earnings of subsidiaries
    
    $
    (39,715
    )
    
    $
    
    
    
    $
    
    
    
    $
    23,996
    
    
    
    (15,719
    )Adjustments to reconcile net income to net cash flows:Depreciation
    
    
    
    
    
    
    8,100
    
    
    
    4,278
    
    
    
    
    
    
    
    12,378Amortization of intangible assets
    
    
    
    
    
    
    2,830
    
    
    
    1,169
    
    
    
    
    
    
    
    3,999Amortization and write-offs of deferred loan costs
    
    
    2,980
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,980Loss on foreign currency, net
    
    
    (212
    )
    
    
    
    
    
    
    621
    
    
    
    
    
    
    
    409Accretion of debt discount and premium, net
    
    
    594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    594Amortization of inventory fair value adjustment
    
    
    
    
    
    
    
    
    
    
    651
    
    
    
    
    
    
    
    651Loss (gain) on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    112Stock based compensation
    
    
    1,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,092Changes in assets and liabilities:Trade receivables
    
    
    
    
    
    
    (3,335
    )
    
    
    (3,549
    )
    
    
    
    
    
    
    (6,884
    )Inventories
    
    
    
    
    
    
    (233
    )
    
    
    (2,048
    )
    
    
    
    
    
    
    (2,281
    )Accounts payable and accrued liabilities
    
    
    61
    
    
    
    (8,903
    )
    
    
    440
    
    
    
    
    
    
    
    (8,402
    )Other current assets and liabilities
    
    
    1,875
    
    
    
    1,595
    
    
    
    677
    
    
    
    
    
    
    
    4,147Other operating assets and liabilities
    
    
    299
    
    
    
    (360
    )
    
    
    67
    
    
    
    
    
    
    
    6Net cash provided by operating activities
    
    
    (20,076
    )
    
    
    32,290
    
    
    
    9,537
    
    
    
    
    
    
    
    21,751Cash flows from investing activitiesPurchase of fixed assets
    
    
    
    
    
    
    (4,876
    )
    
    
    (1,927
    )
    
    
    
    
    
    
    (6,803
    )Acquisitions, net of $5,222 cash acquired
    
    
    (117,911
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117,911
    )Net cash provided by investing activities
    
    
    (117,911
    )
    
    
    (4,876
    )
    
    
    (1,927
    )
    
    
    
    
    
    
    (124,714
    )Cash flows from financing activitiesProceeds
from issuance of Senior Secured Notes
    
    
    106,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,050Capital contribution from Parent Company
    
    
    49,015
    
    
    
    
    
    
    
    
    
    
    
    Payment of debt issuance costs
    
    
    (3,692
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,692
    )Payments on
Senior Notes
    
    
    (58,428
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,428
    )Borrowings
under Revolving Credit Agreement
    
    
    8,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,315Payments on
Revolving Credit Agreement
    
    
    (8,315
    )
    
    
    (1,532
    )
    
    
    
    
    
    
    
    
    
    
    (9,847
    )Payments made on behalf of Parent Company
    
    
    (1,475
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,475
    )Payments on mortgages
    
    
    
    
    
    
    
    
    
    
    (178
    )
    
    
    
    
    
    
    (178
    )Change in affiliate debt
    
    
    29,269
    
    
    
    (23,877
    )
    
    
    (5,392
    )
    
    
    
    
    
    
    Payment on capital leases
    
    
    
    
    
    
    (79
    )
    
    
    (455
    )
    
    
    
    
    
    
    (534
    )Net cash (used in) financing activities
    
    
    120,739
    
    
    
    (25,488
    )
    
    
    (6,025
    )
    
    
    
    
    
    
    89,226Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    1,244
    
    
    
    
    
    
    
    1,244Net change in cash and cash equivalents
    
    
    (17,248
    )
    
    
    1,926
    
    
    
    2,829
    
    
    
    
    
    
    
    (12,493
    )Cash and cash equivalents at beginning of year
    
    
    41,016
    
    
    
    (5,488
    )
    
    
    6,999
    
    
    
    
    
    
    
    42,527Cash and cash equivalents at end of period
    
    $
    23,768
    
    
    $
    (3,562
    )
    
    $
    9,828
    
    
    $
    
    
    
    $
    30,034
 21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following
discussion of the financial condition and results of operations of Altra
Industrial Motion, Inc. should be read together with the audited financial statements of Altra Industrial
Motion, Inc. and related notes included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2007. The following discussion includes forward-looking statements. For a
discussion of important factors that could cause actual results to differ materially from the
results referred to in the forward-looking statements, see Forward-Looking Statements. in the
Companys Annual Report on Form 10-K for the year ended December 31, 2007.
 General
   Critical Accounting Policies
  Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an Amendment of FASB Statement No. 115
 Fair Value Measurements
  22




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##### Table of Contents



Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements an amendment of Accounting Research Bulletin No. 51
 23




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##### Table of Contents



Results of Operations
 Quarter Ended
    
    
    Year to date endedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,(In thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    159,448
    
    
    $
    147,278
    
    
    $
    490,523
    
    
    $
    433,512Cost of sales
    
    
    113,627
    
    
    
    105,597
    
    
    
    346,517
    
    
    
    310,666Gross profit
    
    
    45,821
    
    
    
    41,681
    
    
    
    144,006
    
    
    
    122,846Gross profit percentage
    
    
    28.74
    %
    
    
    28.30
    %
    
    
    29.36
    %
    
    
    28.34
    %Selling, general and administrative expenses
    
    
    25,655
    
    
    
    22,981
    
    
    
    76,816
    
    
    
    67,335Research and development expenses
    
    
    1,663
    
    
    
    1,606
    
    
    
    5,160
    
    
    
    4,465OPEB Curtailment gain
    
    
    (107
    )
    
    
    
    
    
    
    (276
    )
    
    
    Restructuring costs
    
    
    81
    
    
    
    189
    
    
    
    1,149
    
    
    
    1,180Income from operations
    
    
    18,529
    
    
    
    16,905
    
    
    
    61,157
    
    
    
    49,866Interest expense, net
    
    
    7,302
    
    
    
    11,406
    
    
    
    22,456
    
    
    
    31,280Other non-operating (income) expense, net
    
    
    (1,408
    )
    
    
    438
    
    
    
    (2,887
    )
    
    
    522Income from continuing operations before income taxes
    
    
    12,635
    
    
    
    5,061
    
    
    
    41,588
    
    
    
    18,064Provision for income taxes
    
    
    4,000
    
    
    
    1,637
    
    
    
    14,127
    
    
    
    6,485Income (loss) from continuing operations
    
    
    8,635
    
    
    
    3,424
    
    
    
    27,461
    
    
    
    11,579Net income (loss) from discontinued operations, net
of income taxes of $43 and $583 for the year to date
period ended September 27, 2008 and September 29,
2007, respectively.
    
    
    172
    
    
    
    886
    
    
    
    (224
    )
    
    
    1,352Net income
    
    $
    8,807
    
    
    $
    4,310
    
    
    $
    27,237
    
    
    $
    12,931
 24




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##### Table of Contents



Quarter Ended September 27, 2008 Compared with Quarter Ended September 29, 2007
 (Amounts in thousands unless otherwise noted)
 Quarter EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Net sales
    
    $
    159,448
    
    
    $
    147,278
    
    
    $
    12,170
    
    
    
    8.3
    %
  Quarter EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Gross Profit
    
    $
    45,821
    
    
    $
    41,681
    
    
    $
    4,140
    
    
    
    9.9
    %Gross Profit as a percent of sales
    
    
    28.74
    %
    
    
    28.30
    %
  Quarter EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Selling, general and
administrative expense
(SG&A)
    
    $
    25,655
    
    
    $
    22,981
    
    
    $
    2,674
    
    
    
    11.6
    %SG&A as a percent of sales
    
    
    16.1
    %
    
    
    15.6
    %
   25




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##### Table of Contents



Quarter EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Research and development expenses (R&D)
    
    $
    1,663
    
    
    $
    1,606
    
    
    $
    57
    
    
    
    3.5
    %
  Quarter EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Restructuring expenses
    
    $
    81
    
    
    $
    189
    
    
    $
    (108
    )
    
    
    -57.1
    %
   Quarter EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Interest Expense, net
    
    $
    7,302
    
    
    $
    11,406
    
    
    $
    (4,104
    )
    
    
    -36.0
    %
 26




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##### Table of Contents



Quarter EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Other non-operating (income) expense, net
    
    $
    (1,408
    )
    
    $
    438
    
    
    $
    (1,846
    )
    
    
    -421
    %
  Quarter EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Provision for income taxes, continuing operations
    
    $
    4,000
    
    
    $
    1,637
    
    
    $
    2,363
    
    
    
    144.3
    %Provision for income taxes as a % of income
before taxes
    
    
    31.7
    %
    
    
    32.3
    %
  Discontinued Operations
   27




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##### Table of Contents



Year to Date Period Ended September 27, 2008 Compared with Year to Date Period Ended September 29, 2007
 (Amounts in thousands unless otherwise noted)
 Year to Date Period EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Net sales
    
    $
    490,523
    
    
    $
    433,512
    
    
    $
    57,011
    
    
    
    13.2
    %
  Year to Date Period EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Gross Profit
    
    $
    144,006
    
    
    $
    122,846
    
    
    $
    21,160
    
    
    
    17.2
    %Gross Profit as a percent of sales
    
    
    29.4
    %
    
    
    28.3
    %
   Year to Date Period EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Selling, general and
administrative expense
(SG&A)
    
    $
    76,816
    
    
    $
    67,335
    
    
    $
    9,481
    
    
    
    14.1
    %SG&A as a percent of sales
    
    
    15.7
    %
    
    
    15.5
    %
  28




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##### Table of Contents



Year to Date Period EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Research and development expenses (R&D)
    
    $
    5,160
    
    
    $
    4,465
    
    
    $
    695
    
    
    
    15.6
    %
  Year to Date Period EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Restructuring expenses
    
    $
    1,149
    
    
    $
    1,180
    
    
    $
    (31
    )
    
    
    -2.6
    %
   Year to Date Period EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Interest Expense, net
    
    $
    22,456
    
    
    $
    31,280
    
    
    $
    (8,824
    )
    
    
    -28.2
    %
 29




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##### Table of Contents



Year to Date Period EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Other non-operating (income) expense, net
    
    $
    (2,887
    )
    
    $
    522
    
    
    $
    (3,409
    )
    
    
    -653
    %
  Year to Date Period EndedSeptember 27, 2008
    
    September 29, 2007
    
    Change
    
    %Provision for income taxes, continuing operations
    
    $
    14,127
    
    
    $
    6,485
    
    
    $
    7,642
    
    
    
    117.8
    %Provision for income taxes as a % of income
before taxes
    
    
    34.0
    %
    
    
    36.0
    %
  Discontinued Operations
   30




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##### Table of Contents



Liquidity and Capital Resources
 Net Cash
 September 27, 2008
    

December 31, 2007(in thousands)Cash and cash equivalents
    
    $
    49,821
    
    
    $
    33,906
     31




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##### Table of Contents



Liquidity
 Amounts in millionsSeptember 27,
    
    
    
    
    
    
    December 31,2008
    
    
    
    
    
    
    2007Debt:Revolving credit agreement
    
    $
    
    
    
    
    
    
    
    $
    TB Woods revolving credit agreement
    
    
    6.0
    
    
    
    
    
    
    
    7.7Overdraft agreements
    
    
    
    
    
    
    
    
    
    
    9% Senior Secured Notes
    
    
    242.5
    
    
    
    
    
    
    
    270.011.25% Senior Notes
    
    
    6.0
    
    
    
    
    
    
    
    7.8Variable rate demand revenue bonds
    
    
    5.3
    
    
    
    
    
    
    
    5.3Mortgages
    
    
    2.4
    
    
    
    
    
    
    
    2.6Capital leases
    
    
    2.6
    
    
    
    
    
    
    
    3.4Total Debt
    
    $
    264.8
    
    
    
    
    
    
    $
    296.8Cash
    
    $
    49.8
    
    
    
    
    
    
    $
    45.8Net Debt
    
    $
    215.0
    
    
    
    55.8
    %
    
    $
    251.0
    
    
    
    63.2
    %Shareholders Equity
    
    $
    170.5
    
    
    
    44.2
    %
    
    $
    146.4
    
    
    
    36.8
    %Total Capitalization
    
    $
    385.5
    
    
    
    100
    %
    
    $
    397.4
    
    
    
    100
    %
       32




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##### Table of Contents



Our
leverage could adversely affect our financial health and make us vulnerable to adverse economic and
industry conditions
 Contractual Obligations
   1 4
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
    33




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##### Table of Contents



PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Continued extreme volatility and disruption in global financial markets could significantly impact
our customers, weaken the markets we serve and harm our operations and financial performance.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  34




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1(1)
    
    Certificate of Incorporation of
Altra Industrial Motion, Inc.3.2(1)
    
    Bylaws of Altra Industrial Motion,
Inc.31.1*
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1**
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2**
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.**
    
    Furnished herewith.(1)
    
    Incorporated by reference to Altra Industrial Motion,
Inc.s Registration Statement on Form S-4
filed with the Securities and Exchange Commission on May 16, 2005. 35




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##### Table of Contents



SIGNATURES
  ALTRA INDUSTRIAL MOTION, INC.November 6, 2008
    By:
    /s/ Michael L. HurtName: Michael L. HurtTitle Chairman and Chief Executive OfficerNovember 6, 2008
    By:
    /s/ Christian StorchName: Christian StorchTitle: Vice President and Chief Financial Officer 36