##### 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 26, 2009
 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
(State or other jurisdiction of incorporation or organization)
    
    30-0283143
(I.R.S. Employer Identification No.)300 Granite Street, Suite 201, Braintree, MA
(Address of principal executive offices)
    
    02184
(Zip code)
 (781) 917-0600
 þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



TABLE OF CONTENTS
 Page #PART IFINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    36PART IIOTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    38SIGNATURES
    
    
    39EX-31.1 Section 302 Certification of Chief Executive OfficerEX-31.2 Section 302 Certification of Chief Financial OfficerEX-32.1 Section 906 Certification of Chief Executive OfficerEX-32.2 Section 906 Certification of Chief Financial Officer




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##### Table of Contents



Item 1.
    
    Financial Statements
 ALTRA INDUSTRIAL MOTION, INC.
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
(unaudited)
 September 26, 2009
    
    
    December 31, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    71,939
    
    
    $
    52,072Trade receivable, less allowance for doubtful accounts of $1,413 and
$1,277 at September 26, 2009 and December 31, 2008, respectively
    
    
    58,605
    
    
    
    68,803Inventories
    
    
    72,255
    
    
    
    98,410Deferred income taxes
    
    
    8,032
    
    
    
    8,032Assets held for sale (See Note 7)
    
    
    
    
    
    
    4,676Prepaid expenses and other current assets
    
    
    8,860
    
    
    
    5,324Total current assets
    
    
    219,691
    
    
    
    237,317Property, plant and equipment, net
    
    
    107,769
    
    
    
    110,220Intangible assets, net
    
    
    76,447
    
    
    
    79,339Goodwill
    
    
    78,955
    
    
    
    77,497Deferred income taxes
    
    
    495
    
    
    
    495Other non-current assets, net
    
    
    6,319
    
    
    
    7,521Total assets
    
    $
    489,676
    
    
    $
    512,389LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    25,819
    
    
    $
    33,890Accrued payroll
    
    
    13,438
    
    
    
    16,775Accruals and other current liabilities
    
    
    25,533
    
    
    
    18,755Deferred income taxes
    
    
    6,906
    
    
    
    6,906Current portion of long-term debt
    
    
    995
    
    
    
    3,391Total current liabilities
    
    
    72,691
    
    
    
    79,717Long-term debt  less current portion and net of unaccreted discount
    
    
    231,633
    
    
    
    258,132Deferred income taxes
    
    
    23,318
    
    
    
    23,336Pension liabilities
    
    
    11,730
    
    
    
    11,854Other post retirement benefits
    
    
    63
    
    
    
    2,270Long-term taxes payable
    
    
    9,075
    
    
    
    7,976Other long-term liabilities
    
    
    2,080
    
    
    
    1,434Commitments and contingencies (See Note 13)
    
    
    
    
    
    
    Stockholders equity:Common Stock (1,000 shares authorized, issued & outstanding, $0.001 par value)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    97,829
    
    
    
    97,829Due to Parent
    
    
    29,076
    
    
    
    27,062Retained earnings
    
    
    27,169
    
    
    
    26,869Accumulated other comprehensive income
    
    
    (14,988
    )
    
    
    (24,090
    )Total stockholders equity
    
    
    139,086
    
    
    
    127,670Total liabilities and stockholders equity
    
    $
    489,676
    
    
    $
    512,389
   1




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Condensed Consolidated Statements of Income
Amounts in thousands
(Unaudited)
 Quarter Ended
    
    
    Year to Date EndedSeptember 26,
    
    
    September 27,
    
    
    September 26,
    
    
    September 27,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    104,766
    
    
    $
    159,448
    
    
    $
    341,183
    
    
    $
    490,523Cost of sales
    
    
    76,194
    
    
    
    113,627
    
    
    
    250,950
    
    
    
    346,517Gross profit
    
    
    28,572
    
    
    
    45,821
    
    
    
    90,233
    
    
    
    144,006Operating expenses:Selling, general and administrative expenses
    
    
    19,290
    
    
    
    25,655
    
    
    
    60,971
    
    
    
    76,816Research and development expenses
    
    
    1,508
    
    
    
    1,663
    
    
    
    4,569
    
    
    
    5,160Other post employment benefit plan settlement gain
    
    
    
    
    
    
    (107
    )
    
    
    (1,467
    )
    
    
    (276
    )Restructuring costs
    
    
    1,006
    
    
    
    81
    
    
    
    5,360
    
    
    
    1,149Loss on disposal of assets
    
    
    516
    
    
    
    
    
    
    
    516
    
    
    
    22,320
    
    
    
    27,292
    
    
    
    69,949
    
    
    
    82,849Income from operations
    
    
    6,252
    
    
    
    18,529
    
    
    
    20,284
    
    
    
    61,157Other non-operating income and expense:Interest expense, net
    
    
    6,290
    
    
    
    7,302
    
    
    
    18,879
    
    
    
    22,456Other non-operating (income) expense, net
    
    
    (371
    )
    
    
    (1,408
    )
    
    
    1,248
    
    
    
    (2,887
    )5,919
    
    
    
    5,894
    
    
    
    20,127
    
    
    
    19,569Income from continuing operations before
income taxes
    
    
    333
    
    
    
    12,635
    
    
    
    157
    
    
    
    41,588Provision (benefit) for income taxes
    
    
    (315
    )
    
    
    4,000
    
    
    
    (143
    )
    
    
    14,127Net income from continuing operations
    
    
    648
    
    
    
    8,635
    
    
    
    300
    
    
    
    27,461Net income (loss) from discontinued operations, net of
income taxes of $43 for the year to date period
ended September 27, 2008
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    (224
    )Net income
    
    $
    648
    
    
    $
    8,807
    
    
    $
    300
    
    
    $
    27,237Consolidated Statement of Comprehensive IncomePension Liability Adjustment
    
    $
    
    
    
    $
    1,500
    
    
    $
    
    
    
    $
    1,500Foreign currency translation adjustment
    
    
    847
    
    
    
    (6,051
    )
    
    
    9,102
    
    
    
    (8,353
    )Comprehensive income
    
    $
    1,495
    
    
    $
    4,256
    
    
    $
    9,402
    
    
    $
    20,384
   2




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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 26, 2009
    
    
    September 27, 2008Cash flows from operating activitiesNet income
    
    $
    300
    
    
    $
    27,237Adjustments to reconcile net income to net operating cash flows:Depreciation
    
    
    12,547
    
    
    
    12,409Amortization of intangible assets
    
    
    4,137
    
    
    
    4,346Amortization and write-offs of deferred financing costs
    
    
    1,560
    
    
    
    1,863Loss (gain) on foreign currency, net
    
    
    1,092
    
    
    
    (1,597
    )Accretion of debt discount, net
    
    
    621
    
    
    
    759Loss on sale of Electronics Division
    
    
    
    
    
    
    224Fixed asset impairment/disposal
    
    
    2,563
    
    
    
    193Other post employment benefit plan settlement gain
    
    
    (1,467
    )
    
    
    (276
    )Stock based compensation
    
    
    2,273
    
    
    
    1,516Changes in assets and liabilities:Trade receivables
    
    
    13,025
    
    
    
    (14,905
    )Inventories
    
    
    27,626
    
    
    
    (5,871
    )Accounts payable and accrued liabilities
    
    
    (11,929
    )
    
    
    5,887Other current assets and liabilities
    
    
    71
    
    
    
    (383
    )Other operating assets and liabilities
    
    
    (365
    )
    
    
    234Net cash provided by operating activities
    
    
    52,054
    
    
    
    31,636Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (5,105
    )
    
    
    (12,234
    )Proceeds from sale of Electronics Division
    
    
    
    
    
    
    17,310Net cash provided by (used in) investing activities
    
    
    (5,105
    )
    
    
    5,076Cash flows from financing activitiesPayments on Senior Notes
    
    
    (4,950
    )
    
    
    (1,346
    )Payments on Senior Secured Notes
    
    
    (22,200
    )
    
    
    (27,500
    )Payments on Revolving Credit Agreement
    
    
    (3,000
    )
    
    
    (1,723
    )Proceeds from additional borrowings under an existing mortgage
    
    
    1,467
    
    
    
    Net payments to Parent
    
    
    (259
    )
    
    
    11,898Payment on mortgages
    
    
    (524
    )
    
    
    (228
    )Payment on capital leases
    
    
    (614
    )
    
    
    (779
    )Net cash used in financing activities
    
    
    (30,080
    )
    
    
    (19,678
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    2,998
    
    
    
    (1,119
    )Net change in cash and cash equivalents
    
    
    19,867
    
    
    
    15,915Cash and cash equivalents at beginning of year
    
    
    52,072
    
    
    
    33,906Cash and cash equivalents at end of period
    
    $
    71,939
    
    
    $
    49,821Cash paid during the period for:Interest
    
    $
    12,419
    
    
    $
    21,840Income taxes
    
    $
    1,033
    
    
    $
    11,964
   3




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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. Fair Value of Financial Instruments
   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
 4. Discontinued Operations
    5. Inventories
  September 26,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    
    28,946
    
    
    $
    31,925Work in process
    
    
    14,891
    
    
    
    21,310Finished goods
    
    
    28,418
    
    
    
    45,175Inventories
    
    $
    72,255
    
    
    $
    98,410
    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
 6. Goodwill and Intangible Assets
  Balance December 31, 2008
    
    
    77,497Impact of changes in foreign currency
    
    
    1,458Balance September 26, 2009
    
    $
    78,955
  September 26, 2009
    
    
    December 31, 2008Accumulated
    
    
    
    
    
    
    AccumulatedOther intangible assets
    
    Cost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationIntangible assets not subject to amortization:Tradenames and trademarks
    
    $
    30,730
    
    
    $
    
    
    
    $
    30,730
    
    
    $
    Intangible assets subject to amortization:Customer relationships
    
    
    62,038
    
    
    
    18,494
    
    
    
    62,038
    
    
    
    15,065Product technology and patents
    
    
    5,435
    
    
    
    3,819
    
    
    
    5,435
    
    
    
    3,111Impact of changes in foreign currency
    
    
    557
    
    
    
    
    
    
    
    (688
    )
    
    
    Total intangible assets
    
    $
    98,760
    
    
    $
    22,313
    
    
    $
    97,515
    
    
    $
    18,176
   7. Assets Held for Sale
      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
 8. Income Taxes
    9. Pension and Other Employee Benefits
 Defined Benefit (Pension) and Post-retirement Benefit Plans
   Quarter EndedPension Benefits
    
    
    Other BenefitsSeptember 26,
    
    
    September 27,
    
    
    September 26,
    
    
    September 27,2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    5
    
    
    $
    16
    
    
    $
    32
    
    
    $
    13Interest cost
    
    
    267
    
    
    
    378
    
    
    
    69
    
    
    
    50Expected return on plan assets
    
    
    (300
    )
    
    
    (326
    )
    
    
    
    
    
    
    Amortization of prior service income
    
    
    
    
    
    
    
    
    
    
    (244
    )
    
    
    (244
    )Other post employment benefit plan settlement gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )Amortization of net gain
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    (7
    )Net periodic benefit cost (income)
    
    $
    (28
    )
    
    $
    68
    
    
    $
    (176
    )
    
    $
    (295
    )
  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
 Year to Date EndedPension Benefits
    
    
    Other BenefitsSeptember 26,
    
    
    September 27,
    
    
    September 26,
    
    
    September 27,2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    37
    
    
    $
    48
    
    
    $
    38
    
    
    $
    43Interest cost
    
    
    997
    
    
    
    1,135
    
    
    
    107
    
    
    
    154Expected return on plan assets
    
    
    (954
    )
    
    
    (979
    )
    
    
    
    
    
    
    Amortization of prior service income
    
    
    
    
    
    
    
    
    
    
    (732
    )
    
    
    (731
    )Other post employment benefit plan settlement gain
    
    
    
    
    
    
    
    
    
    
    (1,467
    )
    
    
    (276
    )Amortization of net gain
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    (19
    )Net periodic benefit cost (income)
    
    $
    80
    
    
    $
    204
    
    
    $
    (2,101
    )
    
    $
    (829
    )
 10. Debt
  September 26,
    
    
    December 31,2009
    
    
    2008Senior Revolving Credit Agreement
    
    $
    
    
    
    $
    TB Woods Credit Agreement
    
    
    3,000
    
    
    
    6,000Overdraft agreements
    
    
    
    
    
    
    9% Senior Secured Notes
    
    
    220,300
    
    
    
    242,50011.25% Senior Notes
    
    
    
    
    
    
    4,706Variable Rate Demand Revenue Bonds
    
    
    5,300
    
    
    
    5,300Mortgages
    
    
    3,285
    
    
    
    2,257Capital leases
    
    
    2,036
    
    
    
    2,672Less: debt discount, net
    
    
    (1,293
    )
    
    
    (1,912
    )Total long-term debt
    
    $
    232,628
    
    
    $
    261,523
 Senior Revolving Credit Agreement
    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
   TB Woods Revolving Credit Agreement
  Overdraft Agreements
  9% Senior Secured Notes
     11.25% Senior Notes
   Variable Rate Demand Revenue Bonds
   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
   Mortgage
   
 Capital Leases
  11. Stockholders Equity
  Stock-Based Compensation
    10




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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
 12. Concentrations of Credit, Segment Data and Workforce
       Net SalesQuarter Ended
    
    
    Year to Date EndedSeptember 26,
    
    
    September 27,
    
    
    September 26,
    
    
    September 27,2009
    
    
    2008
    
    
    2009
    
    
    2008North America (primarily U.S.)
    
    $
    74,592
    
    
    $
    110,793
    
    
    $
    247,921
    
    
    $
    347,190Europe
    
    
    23,536
    
    
    
    40,028
    
    
    
    75,046
    
    
    
    121,289Asia and other
    
    
    6,638
    
    
    
    8,627
    
    
    
    18,216
    
    
    
    22,044Total
    
    $
    104,766
    
    
    $
    159,448
    
    
    $
    341,183
    
    
    $
    490,523
   13. Commitments and Contingencies
 General Litigation
    11




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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
 14. Restructuring, Asset Impairment and Transition Expenses
   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
     12




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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, 2009Year to date
    
    
    Quarter to date2009 Altra Plan
    
    period ended
    
    
    period endedExpenses:Other cash expenses
    
    $
    154
    
    
    $
    107Severance
    
    
    3,158
    
    
    
    476Total cash expenses
    
    
    3,312
    
    
    
    583Non-cash asset impairment and other non-cash charges
    
    
    2,048
    
    
    
    423Total restructuring expenses
    
    $
    5,360
    
    
    $
    1,006
  All PlansBalance at December 31, 2008
    
    $
    1,321Cash restructuring expense incurred
    
    
    3,328Cash payments
    
    
    (3,785
    )Balance at September 26, 2009
    
    $
    864
 15. Guarantor Subsidiaries
   13




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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
September 26, 2009
 Issuer
    
    
    Guarantor
    
    
    Non Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    37,151
    
    
    $
    (1,537
    )
    
    $
    36,325
    
    
    $
    
    
    
    $
    71,939Trade receivables, less allowance for doubtful accounts
    
    
    
    
    
    
    36,552
    
    
    
    22,053
    
    
    
    
    
    
    
    58,605Loans receivable from related parties
    
    
    
    
    
    
    147,145
    
    
    
    
    
    
    
    (147,145
    )
    
    
    Inventories
    
    
    
    
    
    
    50,154
    
    
    
    22,101
    
    
    
    
    
    
    
    72,255Deferred income taxes
    
    
    
    
    
    
    8,032
    
    
    
    
    
    
    
    
    
    
    
    8,032Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prepaid expenses and other current assets
    
    
    915
    
    
    
    4,779
    
    
    
    3,166
    
    
    
    
    
    
    
    8,860Total current assets
    
    
    38,066
    
    
    
    245,125
    
    
    
    83,645
    
    
    
    (147,145
    )
    
    
    219,691Property, plant and equipment, net
    
    
    838
    
    
    
    74,777
    
    
    
    32,154
    
    
    
    
    
    
    
    107,769Intangible assets, net
    
    
    
    
    
    
    59,397
    
    
    
    17,050
    
    
    
    
    
    
    
    76,447Goodwill
    
    
    
    
    
    
    58,015
    
    
    
    20,940
    
    
    
    
    
    
    
    78,955Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    495
    
    
    
    
    
    
    
    495Investment in subs
    
    
    434,892
    
    
    
    
    
    
    
    
    
    
    
    (434,892
    )
    
    
    Other non-current assets
    
    
    2,635
    
    
    
    3,572
    
    
    
    112
    
    
    
    
    
    
    
    6,319Total assets
    
    $
    476,431
    
    
    $
    440,886
    
    
    $
    154,396
    
    
    $
    (582,037
    )
    
    $
    489,676LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,411
    
    
    $
    16,252
    
    
    $
    8,156
    
    
    $
    
    
    
    $
    25,819Accrued payroll
    
    
    1,445
    
    
    
    6,354
    
    
    
    5,639
    
    
    
    
    
    
    
    13,438Accruals and other current liabilities
    
    
    7,239
    
    
    
    9,043
    
    
    
    9,251
    
    
    
    
    
    
    
    25,533Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    6,906
    
    
    
    
    
    
    
    6,906Current portion of long-term debt
    
    
    
    
    
    
    641
    
    
    
    354
    
    
    
    
    
    
    
    995Loans payable to related parties
    
    
    107,737
    
    
    
    
    
    
    
    39,408
    
    
    
    (147,145
    )
    
    
    Total current liabilities
    
    
    117,832
    
    
    
    32,290
    
    
    
    69,714
    
    
    
    (147,145
    )
    
    
    72,691Long-term debt  less current portion and net of unacreted
discount and premium
    
    
    219,007
    
    
    
    9,446
    
    
    
    3,180
    
    
    
    
    
    
    
    231,633Deferred income taxes
    
    
    
    
    
    
    20,822
    
    
    
    2,496
    
    
    
    
    
    
    
    23,318Pension liabilities
    
    
    
    
    
    
    8,702
    
    
    
    3,028
    
    
    
    
    
    
    
    11,730Other post retirement benefits
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    63Long-term taxes payables
    
    
    
    
    
    
    9,075
    
    
    
    
    
    
    
    
    
    
    
    9,075Other long-term liabilities
    
    
    506
    
    
    
    282
    
    
    
    1,292
    
    
    
    
    
    
    
    2,080Total stockholders equity
    
    
    139,086
    
    
    
    360,206
    
    
    
    74,686
    
    
    
    (434,892
    )
    
    
    139,086Total liabilities and stockholders equity
    
    $
    476,431
    
    
    $
    440,886
    
    
    $
    154,396
    
    
    $
    (582,037
    )
    
    $
    489,676
  14




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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, 2008
 Issuer
    
    
    Guarantor
    
    
    Non Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,134
    
    
    $
    (2,702
    )
    
    $
    27,640
    
    
    $
    
    
    
    $
    52,072Trade receivable, less allowance for doubtful accounts
    
    
    
    
    
    
    41,051
    
    
    
    27,752
    
    
    
    
    
    
    
    68,803Loan receivable from related parties
    
    
    
    
    
    
    112,900
    
    
    
    
    
    
    
    (112,900
    )
    
    
    Inventories
    
    
    
    
    
    
    71,304
    
    
    
    27,106
    
    
    
    
    
    
    
    98,410Deferred income taxes
    
    
    
    
    
    
    7,923
    
    
    
    109
    
    
    
    
    
    
    
    8,032Assets held for sale
    
    
    
    
    
    
    3,515
    
    
    
    1,161
    
    
    
    
    
    
    
    4,676Prepaid expenses and other current assets
    
    
    1,793
    
    
    
    4,373
    
    
    
    (842
    )
    
    
    
    
    
    
    5,324Total current assets
    
    
    28,927
    
    
    
    238,364
    
    
    
    82,926
    
    
    
    (112,900
    )
    
    
    237,317Property, plant and equipment, net
    
    
    838
    
    
    
    76,586
    
    
    
    32,796
    
    
    
    
    
    
    
    110,220Intangible assets, net
    
    
    
    
    
    
    62,481
    
    
    
    16,858
    
    
    
    
    
    
    
    79,339Goodwill
    
    
    
    
    
    
    58,016
    
    
    
    19,481
    
    
    
    
    
    
    
    77,497Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    495
    
    
    
    
    
    
    
    495Investments in subsidiaries
    
    
    423,121
    
    
    
    
    
    
    
    
    
    
    
    (423,121
    )
    
    
    Other non-current assets
    
    
    3,857
    
    
    
    3,628
    
    
    
    36
    
    
    
    
    
    
    
    7,521Total assets
    
    $
    456,743
    
    
    $
    439,075
    
    
    $
    152,592
    
    
    $
    (536,021
    )
    
    $
    512,389LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,292
    
    
    $
    19,813
    
    
    $
    11,785
    
    
    $
    
    
    
    $
    33,890Accrued payroll
    
    
    2,731
    
    
    
    6,879
    
    
    
    7,165
    
    
    
    
    
    
    
    16,775Accruals and other current liabilities
    
    
    3,506
    
    
    
    8,972
    
    
    
    6,277
    
    
    
    
    
    
    
    18,755Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    6,906
    
    
    
    
    
    
    
    6,906Current portion of long-term debt
    
    
    
    
    
    
    2,925
    
    
    
    466
    
    
    
    
    
    
    
    3,391Loans payable to related parties
    
    
    75,251
    
    
    
    
    
    
    
    37,649
    
    
    
    (112,900
    )
    
    
    Total current liabilities
    
    
    83,780
    
    
    
    38,589
    
    
    
    70,248
    
    
    
    (112,900
    )
    
    
    79,717Long-term debt  less current portion and net of
unacreted discount and premium
    
    
    245,293
    
    
    
    10,640
    
    
    
    2,199
    
    
    
    
    
    
    
    258,132Deferred income taxes
    
    
    
    
    
    
    20,822
    
    
    
    2,514
    
    
    
    
    
    
    
    23,336Pension liabilities
    
    
    
    
    
    
    8,922
    
    
    
    2,932
    
    
    
    
    
    
    
    11,854Other post retirement benefits
    
    
    
    
    
    
    2,270
    
    
    
    
    
    
    
    
    
    
    
    2,270Long-term taxes payables
    
    
    
    
    
    
    7,976
    
    
    
    
    
    
    
    
    
    
    
    7,976Other long-term liabilities
    
    
    
    
    
    
    241
    
    
    
    1,193
    
    
    
    
    
    
    
    1,434Total stockholders equity
    
    
    127,670
    
    
    
    349,615
    
    
    
    73,506
    
    
    
    (423,121
    )
    
    
    127,670Total liabilities and stockholders equity
    
    $
    456,743
    
    
    $
    439,075
    
    
    $
    152,592
    
    
    $
    (536,021
    )
    
    $
    512,389
   15




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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 Period Ended September 26, 2009Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    252,335
    
    
    $
    110,847
    
    
    $
    (21,999
    )
    
    $
    341,183Cost of sales
    
    
    
    
    
    
    192,110
    
    
    
    80,839
    
    
    
    (21,999
    )
    
    
    250,950Gross profit
    
    
    
    
    
    
    60,225
    
    
    
    30,008
    
    
    
    
    
    
    
    90,233Selling, general and administrative expenses
    
    
    
    
    
    
    38,145
    
    
    
    22,826
    
    
    
    
    
    
    
    60,971Research and development expenses
    
    
    
    
    
    
    2,872
    
    
    
    1,697
    
    
    
    
    
    
    
    4,569Other post employment benefit plan settlement gain
    
    
    
    
    
    
    (1,467
    )
    
    
    
    
    
    
    
    
    
    
    (1,467
    )Restructuring costs
    
    
    
    
    
    
    3,122
    
    
    
    2,238
    
    
    
    
    
    
    
    5,360Loss on disposal of assets
    
    
    
    
    
    
    120
    
    
    
    396
    
    
    
    
    
    
    
    516Income from operations
    
    
    
    
    
    
    17,433
    
    
    
    2,851
    
    
    
    
    
    
    
    20,284Interest expense, net
    
    
    18,136
    
    
    
    670
    
    
    
    73
    
    
    
    
    
    
    
    18,879Other non-operating expense, net
    
    
    392
    
    
    
    184
    
    
    
    672
    
    
    
    
    
    
    
    1,248Equity in earnings of subsidiaries
    
    
    11,771
    
    
    
    
    
    
    
    
    
    
    
    (11,771
    )
    
    
    Income (loss) before income taxes
    
    
    (6,757
    )
    
    
    16,579
    
    
    
    2,106
    
    
    
    (11,771
    )
    
    
    157Provision (benefit) for income taxes
    
    
    (7,057
    )
    
    
    5,988
    
    
    
    926
    
    
    
    
    
    
    
    (143
    )Net income
    
    
    300
    
    
    
    10,591
    
    
    
    1,180
    
    
    
    (11,771
    )
    
    
    300
 Unaudited Condensed Consolidating Statement of Income
 Quarter Ended September 26, 2009Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    75,377
    
    
    $
    37,206
    
    
    $
    (7,817
    )
    
    $
    104,766Cost of sales
    
    
    
    
    
    
    56,971
    
    
    
    27,040
    
    
    
    (7,817
    )
    
    
    76,194Gross profit
    
    
    
    
    
    
    18,406
    
    
    
    10,166
    
    
    
    
    
    
    
    28,572Selling, general and administrative expenses
    
    
    
    
    
    
    11,885
    
    
    
    7,405
    
    
    
    
    
    
    
    19,290Research and development expenses
    
    
    
    
    
    
    909
    
    
    
    599
    
    
    
    
    
    
    
    1,508Restructuring costs
    
    
    
    
    
    
    983
    
    
    
    23
    
    
    
    
    
    
    
    1,006Loss on disposal of assets
    
    
    
    
    
    
    120
    
    
    
    396
    
    
    
    
    
    
    
    516Income from operations
    
    
    
    
    
    
    4,509
    
    
    
    1,743
    
    
    
    
    
    
    
    6,252Interest expense (income), net
    
    
    6,095
    
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    6,290Other non-operating expense, net
    
    
    106
    
    
    
    74
    
    
    
    (551
    )
    
    
    
    
    
    
    (371
    )Equity in earnings of subsidiaries
    
    
    4,117
    
    
    
    
    
    
    
    
    
    
    
    (4,117
    )
    
    
    Income (loss) before income taxes
    
    
    (2,084
    )
    
    
    4,240
    
    
    
    2,294
    
    
    
    (4,117
    )
    
    
    333Provision (benefit) for income taxes
    
    
    (2,732
    )
    
    
    1,422
    
    
    
    995
    
    
    
    
    
    
    
    (315
    )Net income
    
    
    648
    
    
    
    2,818
    
    
    
    1,299
    
    
    
    (4,117
    )
    
    
    648
  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 Statement of Income
 Year to Date Period 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
    
    
    
    
    
    
    
    5,160Other post employment benefit plan settlement 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) expense, 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
    
    
    
    
    
    
    
    14,127Income 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
    
    
    
    
    
    
    
    1,663Other post employment benefit plan settlement
    
    
    
    
    
    
    (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
  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 Cash Flows
 Year to Date Period Ended September 26, 2009Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet income
    
    $
    300
    
    
    $
    10,591
    
    
    $
    1,180
    
    
    $
    (11,771
    )
    
    $
    300Undistributed equity in earnings of subsidiaries
    
    $
    (11,771
    )
    
    $
    
    
    
    $
    
    
    
    $
    11,771
    
    
    
    Adjustments to reconcile net income to net cash flows:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation
    
    
    127
    
    
    
    8,938
    
    
    
    3,482
    
    
    
    
    
    
    
    12,547Amortization of intangible assets
    
    
    
    
    
    
    3,099
    
    
    
    1,038
    
    
    
    
    
    
    
    4,137Amortization and write-offs of deferred loan costs
    
    
    1,340
    
    
    
    220
    
    
    
    
    
    
    
    
    
    
    
    1,560Loss on foreign currency, net
    
    
    270
    
    
    
    
    
    
    
    822
    
    
    
    
    
    
    
    1,092Accretion of debt discount and premium, net
    
    
    621
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    621Fixed asset impairment
    
    
    
    
    
    
    1,703
    
    
    
    860
    
    
    
    
    
    
    
    2,563Other post employment benefit plan settlement gain
    
    
    
    
    
    
    (1,467
    )
    
    
    
    
    
    
    
    
    
    
    (1,467
    )Stock based compensation
    
    
    
    
    
    
    2,273
    
    
    
    
    
    
    
    
    
    
    
    2,273Changes in assets and liabilities:Trade receivables
    
    
    
    
    
    
    5,950
    
    
    
    7,075
    
    
    
    
    
    
    
    13,025Inventories
    
    
    
    
    
    
    21,150
    
    
    
    6,476
    
    
    
    
    
    
    
    27,626Accounts payable and accrued liabilities
    
    
    2,036
    
    
    
    (6,963
    )
    
    
    (7,002
    )
    
    
    
    
    
    
    (11,929
    )Other current assets and liabilities
    
    
    878
    
    
    
    (406
    )
    
    
    (401
    )
    
    
    
    
    
    
    71Other operating assets and liabilities
    
    
    (81
    )
    
    
    (123
    )
    
    
    (161
    )
    
    
    
    
    
    
    (365
    )Net cash (used in) provided by operating activities
    
    
    (6,280
    )
    
    
    44,965
    
    
    
    13,369
    
    
    
    
    
    
    
    52,054Cash flows from investing activitiesPurchase of fixed assets
    
    
    (127
    )
    
    
    (4,097
    )
    
    
    (881
    )
    
    
    
    
    
    
    (5,105
    )Net cash used in investing activities
    
    
    (127
    )
    
    
    (4,097
    )
    
    
    (881
    )
    
    
    
    
    
    
    (5,105
    )Cash flows from financing activitiesPayments on Senior Notes
    
    
    (4,950
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,950
    )Payments on Senior Secured Notes
    
    
    (22,200
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,200
    )Proceeds
from additional borrowings under and existing mortgage
    
    
    
    
    
    
    
    
    
    
    1,467
    
    
    
    
    
    
    
    1,467Payments on revolving credit agreement
    
    
    
    
    
    
    (3,000
    )
    
    
    
    
    
    
    
    
    
    
    (3,000
    )Net payments to Parent
    
    
    
    
    
    
    (259
    )
    
    
    
    
    
    
    
    
    
    
    (259
    )Payments on mortgages
    
    
    
    
    
    
    
    
    
    
    (524
    )
    
    
    
    
    
    
    (524
    )Change in affiliate debt
    
    
    43,574
    
    
    
    (35,966
    )
    
    
    (7,608
    )
    
    
    
    
    
    
    Payment on capital leases
    
    
    
    
    
    
    (478
    )
    
    
    (136
    )
    
    
    
    
    
    
    (614
    )Net cash (used in) provided by financing activities
    
    
    16,424
    
    
    
    (39,703
    )
    
    
    (6,801
    )
    
    
    
    
    
    
    (30,080
    )Effect of
exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    2,998
    
    
    
    
    
    
    
    2,998Net change in cash and cash equivalents
    
    
    10,017
    
    
    
    1,165
    
    
    
    8,685
    
    
    
    
    
    
    
    19,867Cash and cash equivalents at beginning of year
    
    
    27,134
    
    
    
    (2,702
    )
    
    
    27,640
    
    
    
    
    
    
    
    52,072Cash and cash equivalents at end of period
    
    $
    37,151
    
    
    $
    (1,537
    )
    
    $
    36,325
    
    
    $
    
    
    
    $
    71,939
  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 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
    
    
    
    
    
    
    
    
    
    
    
    1,863Loss on foreign currency, net
    
    
    (516
    )
    
    
    
    
    
    
    (1,081
    )
    
    
    
    
    
    
    (1,597
    )Accretion of debt discount and premium, net
    
    
    759
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    759Loss on sale of fixed assets
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    193Other post employment benefit plan settlement 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 (used in) provided by 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 (used in) provided by investing activities
    
    
    17,310
    
    
    
    (8,831
    )
    
    
    (3,403
    )
    
    
    
    
    
    
    5,076Cash flows from financing activitiesPayments on Senior Notes
    
    
    (1,346
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,346
    )Payments on Senior Secured Notes
    
    
    (27,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,500
    )Payments on revolving credit agreement
    
    
    
    
    
    
    (1,723
    )
    
    
    
    
    
    
    
    
    
    
    (1,723
    )Payments received from Parent Company
    
    
    11,898
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,898Payments on mortgages
    
    
    
    
    
    
    
    
    
    
    (228
    )
    
    
    
    
    
    
    (228
    )Change in affiliate debt
    
    
    30,941
    
    
    
    (19,310
    )
    
    
    (323
    )
    
    
    
    
    
    
    11,308Payment on capital leases
    
    
    
    
    
    
    (456
    )
    
    
    (11,631
    )
    
    
    
    
    
    
    (12,087
    )Net cash (used in) provided by 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
 17. Subsequent Events
   19




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  
    
    the Companys access to capital, credit ratings, indebtedness, and ability to
raise additional financings and operate under the terms of the Companys debt
obligations;
 
    
    the risks associated with our debt leverage;
 
    
    the effects of intense competition in the markets in which we operate;
 
    
    the Companys ability to successfully execute, manage and integrate key
acquisitions and mergers;
 
    
    the Companys ability to obtain or protect intellectual property rights;
 
    
    the Companys ability to retain existing customers and our ability to attract
new customers for growth of our business;
 
    
    the effects of the loss or bankruptcy of or default by any significant customer,
suppliers, or other entity relevant to the Companys operations;
 
    
    the Companys ability to successfully pursue the Companys development
activities and successfully integrate new operations and systems, including the
realization of revenues, economies of scale, cost savings, and productivity gains
associated with such operations;
 
    
    the Companys ability to complete cost reduction actions and risks associated
with such actions;
 
    
    the Companys ability to control costs;
 
    
    failure of the Companys operating equipment or information technology
infrastructure;
 
    
    the Companys ability to achieve its business plans, including with respect to
an uncertain economic environment;
 
    
    changes in employment, environmental, tax and other laws and changes in the
enforcement of laws;
    
    the accuracy of estimated forecasts of OEM customers and the impact of the
current global economic environment on our customers;
 
    
    fluctuations in the costs of raw materials used in our products;
 
    
    the Companys ability to attract and retain key executives and other personnel;
 
    
    work stoppages and other labor issues;
 
    
    changes in the Companys pension and retirement liabilities;
 
    
    the Companys risk of loss not covered by insurance;
 
    
    the outcome of litigation to which the Company is a party from time to time,
including product liability claims;
 
    
    changes in accounting rules and standards, audits, compliance with the
Sarbanes-Oxley Act, and regulatory investigations;
 
    
    changes in market conditions that would result in the impairment of goodwill or
other assets of the Company;
 
    
    changes in market conditions in which we operate that would influence the value
of the Companys stock;
 
    
    the effects of changes to critical accounting estimates; changes in volatility
of the Companys stock price and the risk of litigation following a decline in the
price of the Companys stock price;
 
    
    the cyclical nature of the markets in which we operate;
 
    
    the risks associated with the global recession and volatility and disruption in
the global financial markets;
  20




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##### Table of Contents




    
    political and economic conditions nationally, regionally, and in the markets in
which we operate;
 
    
    natural disasters, war, civil unrest, terrorism, fire, floods, tornadoes,
earthquakes, hurricanes, or other matters beyond the Companys control;
 
    
    the risks associated with international operations, including currency
risks; and
 
    
    other factors, risks, and uncertainties referenced in the Companys filings with
the Securities and Exchange Commission, including the Risk Factors set forth in
the Companys Annual Report on Form 10-K for the year ended December 31, 2008.
 YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS, ALL OF WHICH
SPEAK ONLY AS OF THE DATE OF THIS QUARTERLY REPORT. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO
OBLIGATION TO PUBLICLY UPDATE OR RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO
REFLECT ANY EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS QUARTERLY REPORT OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO US OR ANY PERSON ACTING ON THE COMPANYS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION AND IN OUR RISK
FACTORS SET FORTH IN PART I, ITEM 1A OF THE COMPANYS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2008, AND IN OTHER REPORTS FILED WITH THE SEC BY THE COMPANY.
 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, 2008. Except where the context otherwise
requires or indicates, Altra Industrial Motion, the
Company, AIM, we, us and
our refer to Altra Industrial Motion, Inc.
 General
  
  21




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22




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##### Table of Contents



Operating Segment
    
    Principal Brands
    
    Principal MarketsHeavy Duty Clutches & Brakes
    
    Wichita Clutch
Twiflex
Industrial Clutch
    
    Energy
Metals
MarineElectromagnetic Clutches & Brakes
    
    Warner Electric
Matrix International
Inertia Dynamics
Warner Linear
    
    Turf and Garden 
Forklift 
Elevator 
Material HandlingOverrunning Clutches & Bearings
    
    Formsprag
Stieber
Kilian
Marland Clutch
    
    Aerospace
Mining
Material Handling
TransportationEngineered Couplings
    
    TB Woods 
Ameridrives 
Bibby Transmission 
Huco Dynatork 
All Power Transmission
    
    Energy 
Metals 
Petro/Chem 
Medical 
Military and DefenseGearing & Belted Drives
    
    Boston Gear 
TB Woods  

Nuttall/Delroyd 

Centric Clutch
    
    Food Processing
Material Handling
Energy
Aggregate
  Business Outlook
     23




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##### Table of Contents



Critical Accounting Policies
 Form 10-K
 Goodwill, Intangibles and other long-lived assets
   Colfax acquisition  November 30, 2004
    
    12 reporting unitsHay Hall acquisition  February 10, 2006
    
    5 reporting units (including Huco)Warner Linear acquisition  May 18, 2006
    
    1 reporting unitTB Woods acquisition  April 5, 2007
    
    1 reporting unitAll Power Transmission  October 5, 2007
    
    1 reporting unit
   24




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##### Table of Contents



December 31, 2007 AssumptionsWarner
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    All
    
    
    BostonAssumption
    
    Huco
    
    
    Linear
    
    
    TB Woods
    
    
    Ameridrives
    
    
    Matrix
    
    
    Power
    
    
    GearRevenue growth (1st
year)
    
    13.6% increase
    
    
    51% increase
    
    
    10.4% increase
    
    
    (6.7%) decrease
    
    
    12.3% increase
    
    
    33.0% increase
    
    
    (1.1%) decreaseAverage revenue
growth (2nd  5th
year)
    
    5.8% increase
    
    
    5.8% increase
    
    
    5.8% increase
    
    
    5.8% increase
    
    
    5.8% increase
    
    
    5.8% increase
    
    
    5.8% increaseProfitability
growth rate EBITDA
as a percent of
sales (1st year)
    
    3.6% increase
    
    
    8.9% increase
    
    
    (0.7%) decrease
    
    
    6.6% increase
    
    
    1.7% increase
    
    
    2.4% increase
    
    
    (4.5)% decreaseAverage
profitability
growth rate per
year (EBITDA as a
percent of sales)
(2nd  5th year)
    
    0.8% increase
    
    
    0.6% increase
    
    
    0.6% increase
    
    
    0.8% increase
    
    
    0.5% increase
    
    
    0.4% increase
    
    
    0.7% increaseDiscount Rate
    
    12%
    
    
    
    12%
    
    
    
    12%
    
    
    
    12%
    
    
    
    12%
    
    
    
    12%
    
    
    
    12%
 December 31, 2008 AssumptionsWarner
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    All
    
    
    BostonAssumption
    
    Huco
    
    
    Linear
    
    
    TB Woods
    
    
    Ameridrives
    
    
    Matrix
    
    
    Power
    
    
    GearRevenue growth (1st
year)
    
    (26.2%) decrease
    
    
    (10.3%) decrease
    
    
    (18%) decrease
    
    
    2.0% increase
    
    
    (36.2%) decrease
    
    
    (5.6%) decrease
    
    
    (16.5)% decreaseAverage revenue
growth (2nd  5th
year)
    
    5.8% increase
    
    
    5.8% increase
    
    
    5.8% increase
    
    
    5.5% increase
    
    
    5.8% increase
    
    
    5.5% increase
    
    
    5.8% increaseProfitability
growth rate EBITDA
as a percent of
sales (1st year)
    
    (4%) decrease
    
    
    6% increase
    
    
    (1%) decrease
    
    
    7.5% increase
    
    
    (3.1%) decrease
    
    
    (5.7%) decrease
    
    
    (8.1%) decreaseAverage
profitability
growth rate per
year (EBITDA as a
percent of sales)
(2nd  5th year)
    
    1% increase
    
    
    0.5% increase
    
    
    1% increase
    
    
    .35% increase
    
    
    0.5% increase
    
    
    1.4% increase
    
    
    1% increaseDiscount Rate
    
    13%
    
    
    
    13%
    
    
    
    13%
    
    
    
    13%
    
    
    
    13%
    
    
    
    13%
    
    
    
    13%
      25




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##### Table of Contents



Profitability decrease
    
    Profitability decrease
    
    Profitability decrease5% (all other
    
    10% (all other
    
    15% (all otherassumptions remain
    
    assumptions remain
    
    assumptions remainconstant)
    
    constant)
    
    constant)Number of reporting
units that could be
required to perform
an interim
impairment analysis
    
    1
    
    4
    
    5Goodwill as of
December 31, 2008
at reporting units
that would be
required to perform
an interim
impairment analysis
    
    $23.5 million
    
    $28.3 million
    
    $40.9 millionIndefinite lived
intangible assets
as of December 31,
2008 that would be
required to perform
an interim
impairment analysis
    
    $8.0 million
    
    $10.5 million
    
    $14.3 million
 Discount rate increase 50 basis
    
    Discount rate increase 100 basispoints (all other assumptions
    
    points (all other assumptionsremain constant)
    
    remain constant)Number of reporting
units that could be
required to perform
an interim
impairment analysis
    
    1
    
    1Goodwill as of
December 31, 2008
at reporting units
that could be
required to perform
an interim
impairment analysis
    
    $23.5 million
    
    $23.5 millionIndefinite lived
intangible assets
as of December 31,
2008 that would be
required to perform
an interim
impairment analysis
    
    $8.0 million
    
    $8.0 million
  GoodwillEstimated
    
    
    Carrying
    
    
    
    
    
    
    balanceReporting Unit
    
    Fair Value
    
    
    Value
    
    
    Difference
    
    
    12/31/08Ameridrives
    
    
    17,823
    
    
    
    16,854
    
    
    
    969
    
    
    
    3,411TB Woods
    
    
    73,283
    
    
    
    72,971
    
    
    
    312
    
    
    
    23,530Matrix
    
    
    8,989
    
    
    
    8,223
    
    
    
    766
    
    
    
    765All Power
    
    
    16,298
    
    
    
    14,884
    
    
    
    1,414
    
    
    
    628Boston Gear
    
    
    67,516
    
    
    
    59,799
    
    
    
    7,718
    
    
    
    12,602
  26




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##### Table of Contents



Results of Operations
 Quarter Ended
    
    
    Year to date endedSeptember 26,
    
    
    September 27,
    
    
    September 26,
    
    
    September 27,(In thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    104,766
    
    
    $
    159,448
    
    
    $
    341,183
    
    
    $
    490,523Cost of sales
    
    
    76,194
    
    
    
    113,627
    
    
    
    250,950
    
    
    
    346,517Gross profit
    
    
    28,572
    
    
    
    45,821
    
    
    
    90,233
    
    
    
    144,006Gross profit percentage
    
    
    27.27
    %
    
    
    28.74
    %
    
    
    26.45
    %
    
    
    29.36
    %Selling, general and administrative expenses
    
    
    19,290
    
    
    
    25,655
    
    
    
    60,971
    
    
    
    76,816Research and development expenses
    
    
    1,508
    
    
    
    1,663
    
    
    
    4,569
    
    
    
    5,160Other post employment benefit plan settlement gain
    
    
    
    
    
    
    (107
    )
    
    
    (1,467
    )
    
    
    (276
    )Restructuring costs
    
    
    1,006
    
    
    
    81
    
    
    
    5,360
    
    
    
    1,149Loss on disposal of assets
    
    
    516
    
    
    
    
    
    
    
    516
    
    
    
    Income from operations
    
    
    6,252
    
    
    
    18,529
    
    
    
    20,284
    
    
    
    61,157Interest expense, net
    
    
    6,290
    
    
    
    7,302
    
    
    
    18,879
    
    
    
    22,456Other non-operating (income) expense, net
    
    
    (371
    )
    
    
    (1,408
    )
    
    
    1,248
    
    
    
    (2,887
    )Income from continuing operations before income taxes
    
    
    333
    
    
    
    12,635
    
    
    
    157
    
    
    
    41,588Provision (benefit) for income taxes
    
    
    (315
    )
    
    
    4,000
    
    
    
    (143
    )
    
    
    14,127Income from continuing operations
    
    
    648
    
    
    
    8,635
    
    
    
    300
    
    
    
    27,461Net loss from discontinued operations, net of income
taxes of $43 for the year to date period ended
September 27, 2008
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    (224
    )Net income
    
    $
    648
    
    
    $
    8,807
    
    
    $
    300
    
    
    $
    27,237
  27




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##### Table of Contents



Quarter Ended September 26, 2009 compared with Quarter Ended September 27, 2008
 (Amounts in thousands unless otherwise noted)
 Quarter EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Net sales
    
    $
    104,766
    
    
    $
    159,448
    
    
    $
    (54,682
    )
    
    
    -34.3
    %
  Quarter EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Gross Profit
    
    $
    28,572
    
    
    $
    45,821
    
    
    $
    (17,249
    )
    
    
    -37.6
    %Gross Profit as a percent of sales
    
    
    27.3
    %
    
    
    28.7
    %
  Quarter EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Selling, general and administrative expense (SG&A)
    
    $
    19,290
    
    
    $
    25,655
    
    
    $
    (6,365
    )
    
    
    -24.8
    %SG&A as a percent of sales
    
    
    18.4
    %
    
    
    16.1
    %
  28




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##### Table of Contents



Quarter EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Research and development expenses (R&D)
    
    $
    1,508
    
    
    $
    1,663
    
    
    $
    (155
    )
    
    
    -9.3
    %
  Quarter EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Restructuring expenses
    
    $
    1,006
    
    
    $
    81
    
    
    $
    925
    
    
    
    1142.0
    %
   Quarter EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Loss on disposal of assets
    
    $
    516
    
    
    $
    
    
    
    $
    516
    
    
    
    N/A
  Quarter EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Interest Expense, net
    
    $
    6,290
    
    
    $
    7,302
    
    
    $
    (1,012
    )
    
    
    -13.9
    %
  29




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##### Table of Contents



Quarter EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Other non-operating loss (income), net
    
    $
    (371
    )
    
    $
    (1,408
    )
    
    $
    1,037
    
    
    
    -74
    %
  Quarter EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Provision (benefit) for income taxes
    
    $
    (315
    )
    
    $
    4,000
    
    
    $
    (4,315
    )
    
    
    -107.9
    %Provision (benefit) for income taxes
as a % of income from continuing
operations before income taxes
    
    
    -94.6
    %
    
    
    31.7
    %
   30




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##### Table of Contents



Year to Date Period Ended September 26, 2009 compared with Year to Date Period Ended September 27,
2008
 (Amounts in thousands unless otherwise noted)
 Year to Date Period EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Net sales
    
    $
    341,183
    
    
    $
    490,523
    
    
    $
    (149,340
    )
    

    -30.4
%
  Year to Date Period EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Gross Profit
    
    $
    90,233
    
    
    $
    144,006
    
    
    $
    (53,773
    )
    
    
    -37.3
    %Gross Profit as a percent of sales
    
    
    26.4
    %
    
    
    29.4
    %
  Year to Date Period EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Selling, general and administrative expense (SG&A)
    
    $
    60,971
    
    
    $
    76,816
    
    
    $
    (15,845
    )
    
    
    -20.6
    %SG&A as a percent of sales
    
    
    17.9
    %
    
    
    15.7
    %
  Year to Date Period EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Research and development expenses (R&D)
    
    $
    4,569
    
    
    $
    5,160
    
    
    $
    (591
    )
    
    
    -11.5
    %
  31




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##### Table of Contents



Year to Date Period EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Restructuring expenses
    
    $
    5,360
    
    
    $
    1,149
    
    
    $
    4,211
    
    
    
    366.5
    %
   Year endedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Loss on disposal of assets
    
    $
    516
    
    
    $
    
    
    
    $
    516
    
    
    
    N/A
  Year to Date Period EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Interest Expense, net
    
    $
    18,879
    
    
    $
    22,456
    
    
    $
    (3,577
    )
    
    
    -15.9
    %
   32




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##### Table of Contents



Other post employment benefit plan settlement gain
  Year to Date Period EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Other non-operating income (loss), net
    
    $
    1,248
    
    
    $
    (2,887
    )
    
    $
    4,135
    
    
    
    -143
    %
  Year to Date Period EndedSeptember 26,
    
    
    September 27,2009
    
    
    2008
    
    
    Change
    
    
    %Provision (Benefit) for income taxes, continuing operations
    
    $
    (143
    )
    
    $
    14,127
    
    
    $
    (14,270
    )
    
    
    -101.0
    %Provision for income taxes as a % of income before taxes
    
    
    -91.1
    %
    
    
    34.0
    %
  Discontinued Operations
    33




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##### Table of Contents



Liquidity and Capital Resources
 Overview
   Net Cash
 September 26,
    
    
    December 31,2009
    
    
    2008(in thousands)Cash and cash equivalents
    
    $
    71,939
    
    
    $
    52,073
      34




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##### Table of Contents



Liquidity
 Amounts in millionsSeptember 26,
    
    
    
    
    
    
    December 31,2009
    
    
    
    
    
    
    2008Debt:Senior Revolving Credit Agreement
    
    $
    
    
    
    
    
    
    
    $
    TB Woods Credit Agreement
    
    
    3.0
    
    
    
    
    
    
    
    6.0Overdraft agreements
    
    
    
    
    
    
    
    
    
    
    9% Senior Secured Notes
    
    
    220.3
    
    
    
    
    
    
    
    242.511.25% Senior Notes
    
    
    
    
    
    
    
    
    
    
    4.7Variable Rate Demand Revenue Bonds
    
    
    5.3
    
    
    
    
    
    
    
    5.3Mortgages
    
    
    3.3
    
    
    
    
    
    
    
    2.3Capital leases
    
    
    2.0
    
    
    
    
    
    
    
    2.6Total Debt
    
    $
    233.9
    
    
    
    
    
    
    $
    263.4Cash
    
    $
    71.9
    
    
    
    
    
    
    $
    52.1Net Debt
    
    $
    162.0
    
    
    
    53.6
    %
    
    $
    211.3
    
    
    
    62.1
    %Shareholders Equity
    
    $
    140.3
    
    
    
    46.4
    %
    
    $
    128.9
    
    
    
    37.9
    %Total Capitalization
    
    $
    302.3
    
    
    
    100
    %
    
    $
    340.2
    
    
    
    100
    %
         35




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##### Table of Contents



Contractual Obligations
   
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4.
    
    Controls and Procedures
    36




---



##### Table of Contents



PART IIOTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
 Form 10-K
 Form 10-K
 
 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
   37




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##### Table of Contents



Item 6.
    
    Exhibits
  ExhibitNumber
    
    Description3.1
    (1)
    
    Certificate of Incorporation of the Registrant.3.2
    (1)
    
    Bylaws of the Registrant.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,
as amended, filed with the Securities and Exchange Commission on
May 16, 2005.  38




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##### Table of Contents



SIGNATURES
  ALTRA INDUSTRIAL MOTION, INC.November 10, 2009
    By:
    /s/ Carl R. ChristensonName:
    Carl R. ChristensonTitle:
    President and Chief Executive OfficerNovember 10, 2009
    By:
    /s/ Christian StorchName:
    Christian StorchTitle:
    Vice President and Chief Financial OfficerNovember 10, 2009
    By:
    /s/ Todd B. PatriaccaName:
    Todd B. PatriaccaTitle:
    Vice President of Finance, 
Corporate Controller and Assistant Treasurer  39




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    *
    
    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.  40