##### 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 June 28, 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



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
    
    
    24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    34PART IIOTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3. Defaults Upon Senior Securities
    
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35SIGNATURES
    
    
    37EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Condensed Consollidated Balance Sheets
Amounts in thousands, except share amounts
 June 28,2008
    
    
    December 31, 2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    43,231
    
    
    $
    33,906Trade receivables, less allowance for doubtful accounts of $1,258 and $1,548
    
    
    92,672
    
    
    
    73,248Inventories
    
    
    104,963
    
    
    
    101,835Deferred income taxes
    
    
    8,689
    
    
    
    8,286Receivable from sale of Electronics (See Note 4)
    
    
    
    
    
    
    17,100Assets held for sale (See Note 7)
    
    
    4,676
    
    
    
    4,728Prepaid expenses and other current assets
    
    
    7,735
    
    
    
    5,578Total current assets
    
    
    261,966
    
    
    
    244,681Property, plant and equipment, net
    
    
    113,745
    
    
    
    113,043Intangible assets, net
    
    
    86,479
    
    
    
    88,943Goodwill
    
    
    115,352
    
    
    
    114,979Deferred income taxes
    
    
    141
    
    
    
    231Other non-current assets
    
    
    5,052
    
    
    
    6,747Total assets
    
    $
    582,735
    
    
    $
    568,624LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    42,941
    
    
    $
    41,668Accrued payroll
    
    
    15,914
    
    
    
    16,988Accruals and other current liabilities
    
    
    21,954
    
    
    
    22,001Taxes payable
    
    
    1,087
    
    
    
    1,196Deferred income taxes
    
    
    8,060
    
    
    
    8,060Current portion of long-term debt
    
    
    3,419
    
    
    
    2,667Total current liabilities
    
    
    93,375
    
    
    
    92,580Long-term debt  less current portion and net of unaccreted discount and premium
    
    
    272,351
    
    
    
    291,399Deferred income taxes
    
    
    24,910
    
    
    
    24,490Pension liablities
    
    
    12,260
    
    
    
    13,431Other post retirement benefits
    
    
    2,634
    
    
    
    3,170Long-term taxes payable
    
    
    5,852
    
    
    
    5,911Other long-term liabilities
    
    
    4,366
    
    
    
    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
    
    
    26,129
    
    
    
    13,208Retained earnings
    
    
    38,804
    
    
    
    20,375Accumulated other comprehensive income
    
    
    4,225
    
    
    
    1,923Total shareholders equity
    
    
    166,987
    
    
    
    133,335Total liabilities and shareholders equity
    
    $
    582,735
    
    
    $
    568,624
  2




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Condensed Consolidated Statements of Income
Amounts in thousands
(Unaudited)
 Quarter Ended
    
    
    Year to Date EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    167,893
    
    
    $
    153,528
    
    
    $
    331,075
    
    
    $
    286,234Cost of sales
    
    
    117,506
    
    
    
    110,411
    
    
    
    232,890
    
    
    
    205,069Gross profit
    
    
    50,387
    
    
    
    43,117
    
    
    
    98,185
    
    
    
    81,165Operating expenses:Selling, general and administrative expenses
    
    
    26,448
    
    
    
    23,550
    
    
    
    51,161
    
    
    
    44,354Research and development expenses
    
    
    1,766
    
    
    
    1,565
    
    
    
    3,497
    
    
    
    2,859OPEB curtailment gain
    
    
    (169
    )
    
    
    
    
    
    
    (169
    )
    
    
    Restructuring costs
    
    
    335
    
    
    
    198
    
    
    
    1,068
    
    
    
    99128,380
    
    
    
    25,313
    
    
    
    55,557
    
    
    
    48,204Income from operations
    
    
    22,007
    
    
    
    17,804
    
    
    
    42,628
    
    
    
    32,961Other non-operarting income and expense:Interest expense, net
    
    
    7,713
    
    
    
    10,726
    
    
    
    15,154
    
    
    
    19,874Other non-operating (income) expense, net
    
    
    (853
    )
    
    
    131
    
    
    
    (1,479
    )
    
    
    846,860
    
    
    
    10,857
    
    
    
    13,675
    
    
    
    19,958Income from continuing operations before income taxes
    
    
    15,147
    
    
    
    6,947
    
    
    
    28,953
    
    
    
    13,003Provision for income taxes
    
    
    5,278
    
    
    
    2,583
    
    
    
    10,127
    
    
    
    4,848Net income from continuing operations
    
    
    9,869
    
    
    
    4,364
    
    
    
    18,826
    
    
    
    8,155Net income (loss) from discontinued operations, net of income taxes of $124 in 2008 and $220 in 2007
    
    
    
    
    
    
    466
    
    
    
    (397
    )
    
    
    466Net income
    
    $
    9,869
    
    
    $
    4,830
    
    
    $
    18,429
    
    
    $
    8,621Consolidated Statement of Comprehensive IncomeForeign currency translation adjustment
    
    
    (674
    )
    
    
    821
    
    
    
    2,302
    
    
    
    1,260Comprehensive income
    
    $
    9,195
    
    
    $
    5,651
    
    
    $
    20,731
    
    
    $
    9,881
  3




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
(Unaudited)
 Year to Date endedJune 28, 2008
    
    
    June 30, 2007Cash flows from operating activitiesNet income
    
    $
    18,429
    
    
    $
    8,640Adjustments to reconcile net income to net cash flows:Depreciation
    
    
    8,051
    
    
    
    8,064Amortization of intangible assets
    
    
    2,884
    
    
    
    2,468Amortization and write-offs of deferred loan costs
    
    
    1,344
    
    
    
    1,857Loss (gain) on foreign currency, net
    
    
    (671
    )
    
    
    210Accretion of debt discount and premium, net
    
    
    359
    
    
    
    415Amortization of inventory fair value adjustment
    
    
    
    
    
    
    651Loss on sale of fixed assets
    
    
    137
    
    
    
    112Loss on sale of Electronics division
    
    
    397OPEB curtailment gain
    
    
    (169
    )
    
    
    Stock based compensation
    
    
    1,022
    
    
    
    800Changes in assets and liabilities:Trade receivables
    
    
    (18,077
    )
    
    
    (14,040
    )Inventories
    
    
    (2,522
    )
    
    
    (638
    )Accounts payable and accrued liabilities
    
    
    (2,547
    )
    
    
    (14,833
    )Other current assets and liabilities
    
    
    (2,076
    )
    
    
    3,515Other operating assets and liabilities
    
    
    57
    
    
    
    100Net cash provided by (used in) operating activities
    
    
    6,618
    
    
    
    (2,679
    )Cash flows from investing activitiesPurchase of fixed assets
    
    
    (7,641
    )
    
    
    (4,249
    )Proceeds from sale of Electronics division
    
    
    17,210
    
    
    
    Acquisitions, net of $5,222 cash acquired
    
    
    
    
    
    
    (117,484
    )Net cash provided by (used in) investing activities
    
    
    9,569
    
    
    
    (121,733
    )Cash flows from financing activitiesProceeds from issuance of senior secured notes
    
    
    
    
    
    
    106,050Capital contribution from Parent Company
    
    
    
    
    
    
    49,015Payments on senior secured notes
    
    
    (15,000
    )
    
    
    Payment of debt issuance costs
    
    
    
    
    
    
    (3,405
    )Payments on senior notes
    
    
    (1,346
    )
    
    
    (33,998
    )Borrowings under revolving credit agreement
    
    
    
    
    
    
    8,315Payments on revolving credit agreement
    
    
    (1,723
    )
    
    
    (9,120
    )Net payments received from (made on behalf) of Parent
    
    
    11,899
    
    
    
    (1,009
    )Payment on mortgages
    
    
    (188
    )
    
    
    Payment on capital leases
    
    
    (574
    )
    
    
    (359
    )Net cash (used in) provided by financing activities
    
    
    (6,932
    )
    
    
    115,489Effect of exchange rate changes on cash and cash equivalents
    
    
    70
    
    
    
    769Net change in cash and cash equivalents
    
    
    9,325
    
    
    
    (8,154
    )Cash and cash equivalents at beginning of year
    
    
    33,906
    
    
    
    42,527Cash and cash equivalents at end of period
    
    $
    43,231
    
    
    $
    34,373Cash paid during the period for:Interest
    
    $
    14,210
    
    
    $
    18,284Income taxes
    
    
    10,300
    
    
    $
    9,738Non-cash Financing:Acquisition of capital equipment under capital lease
    
    $
    
    
    
    $
    1,655
  4




---



##### 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
    5




---



##### 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




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 June 28,
    
    
    December 31,2008
    
    
    2007Raw Materials
    
    
    36,104
    
    
    $
    33,601Work in process
    
    
    22,416
    
    
    
    20,376Finished goods
    
    
    46,443
    
    
    
    47,858Inventories, net
    
    $
    104,963
    
    
    $
    101,835
   7




---



##### 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
    
    
    (194
    )Impact of changes in foreign currency
    
    
    567Balance June 28, 2008
    
    $
    115,352
  June 28, 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
    
    
    
    12,756
    
    
    
    62,038
    
    
    
    10,139Product technology and patents
    
    
    5,232
    
    
    
    2,615
    
    
    
    5,232
    
    
    
    2,348Impact of changes in foreign currency
    
    
    3,850
    
    
    
    
    
    
    
    3,430
    
    
    
    Total intangible assets
    
    $
    101,850
    
    
    $
    15,371
    
    
    $
    101,430
    
    
    $
    12,487
   7. Assets Held for Sale
  8. Warranty Costs
  8




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 June 28, 2008
    
    
    June 30, 2007Balance at beginning of period
    
    $
    4,098
    
    
    $
    2,083Accrued warranty costs
    
    
    1,028
    
    
    
    758Balance assumed with TB Woods acquisition
    
    
    
    
    
    
    795Payments and adjustments
    
    
    (2,006
    )
    
    
    (1,261
    )Balance at end of period
    
    $
    3,120
    
    
    $
    2,375
 9. Income Taxes
     10. Pension and Other Employee Benefits
 Defined Benefit (Pension) and Post-retirement Benefit Plans
   9




---



##### 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 BenefitsJune 28, 2008
    
    
    June 30, 2007
    
    
    June 28, 2008
    
    
    June 30, 2007Service cost
    
    $
    16
    
    
    $
    67
    
    
    $
    15
    
    
    $
    18Interest cost
    
    
    378
    
    
    
    319
    
    
    
    52
    
    
    
    49Expected return on plan assets
    
    
    (326
    )
    
    
    (265
    )
    
    
    
    
    
    
    Amortization of prior service cost (income)
    
    
    
    
    
    
    2
    
    
    
    (243
    )
    
    
    (243
    )OPEB curtailment gain
    
    
    
    
    
    
    
    
    
    
    (169
    )
    
    
    Amortization of net (gain)
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (53
    )Net periodic benefit cost (income)
    
    $
    68
    
    
    $
    123
    
    
    $
    (351
    )
    
    $
    (229
    )
 Year to Date EndedPension Benefits
    
    
    Other BenefitsJune 28, 2008
    
    
    June 30, 2007
    
    
    June 28, 2008
    
    
    June 30, 2007Service cost
    
    $
    32
    
    
    $
    132
    
    
    $
    31
    
    
    $
    36Interest cost
    
    
    757
    
    
    
    654
    
    
    
    104
    
    
    
    98Expected return on plan assets
    
    
    (652
    )
    
    
    (533
    )
    
    
    
    
    
    
    Amortization of prior service cost (income)
    
    
    
    
    
    
    3
    
    
    
    (487
    )
    
    
    (487
    )OPEB curtailment gain
    
    
    
    
    
    
    
    
    
    
    (169
    )
    
    
    Amortization of net (gain)
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (105
    )Net periodic benefit cost (income)
    
    $
    137
    
    
    $
    256
    
    
    $
    (533
    )
    
    $
    (458
    )
 10




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 11. Long-Term Debt
  June 28, 2008
    
    
    December 31, 2007Revolving credit agreement
    
    $
    
    
    
    $
    TB Woods revolving credit agreement
    
    
    6,000
    
    
    
    7,700Overdraft agreements
    
    
    
    
    
    
    9% Senior Secured Notes
    
    
    255,000
    
    
    
    270,00011.25% Senior Notes
    
    
    6,434
    
    
    
    7,790Variable rate demand revenue bonds
    
    
    5,300
    
    
    
    5,300Mortgages
    
    
    2,623
    
    
    
    2,639Capital leases
    
    
    2,867
    
    
    
    3,449Less: debt discount and premium, net of accretion
    
    
    (2,454
    )
    
    
    (2,812
    )Total long-term debt
    
    $
    275,770
    
    
    $
    294,066
 Revolving Credit Agreement
     TB Woods Revolving Credit Agreement
  Overdraft Agreements
  11




---



##### Table of Contents



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
   Mortgage
  12




---



##### Table of Contents



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




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
  Net SalesQuarter Ended
    
    
    Year to Date ended
    
    
    Property, Plant and EquipmentJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,
    
    
    June 28,
    
    
    December2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    31, 2007North America (primarily U.S.)
    
    $
    117,694
    
    
    $
    113,518
    
    
    $
    236,397
    
    
    $
    206,697
    
    
    $
    81,768
    
    
    $
    81,283Europe
    
    
    43,022
    
    
    
    34,668
    
    
    
    81,262
    
    
    
    69,649
    
    
    
    2,632
    
    
    
    29,767Asia and other
    
    
    7,177
    
    
    
    5,342
    
    
    
    13,416
    
    
    
    9,888
    
    
    
    29,345
    
    
    
    1,993Total
    
    $
    167,893
    
    
    $
    153,528
    
    
    $
    331,075
    
    
    $
    286,234
    
    
    $
    113,745
    
    
    $
    113,043
    16. Commitments and Contingencies
 General Litigation
   17. Restructuring, Asset Impairment and Transition Expenses
  14




---



##### Table of Contents



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
    
    
    228
    
    
    
    68
    
    
    
    296Severance
    
    
    631
    
    
    
    
    
    
    
    631Total cash expenses
    
    
    859
    
    
    
    68
    
    
    
    927Non-cash asset impairment and loss on sale of fixed asset
    
    
    141
    
    
    
    
    
    
    
    141Total restructuring expenses
    
    $
    1,000
    
    
    $
    68
    
    
    $
    1,068
  TB WoodsAltra Plan
    
    Plan
    
    TotalBalance at December 31, 2007
    
    $
    449
    
    
    $
    1,029
    
    
    $
    1,478Restructuring expense incurred
    
    
    1,000
    
    
    
    68
    
    
    
    1,068Cash payments
    
    
    (457
    )
    
    
    (1,072
    )
    
    
    (1,529
    )Non-cash loss on disposal of fixed assets
    
    
    (141
    )
    
    
    
    
    
    
    (141
    )Balance at June 28, 2008
    
    $
    851
    
    
    $
    25
    
    
    
    876
  15




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
  16




---



##### 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
June 28, 2008
 Issuer
    
    Guarantor
    
    Non Guarantor
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,028
    
    
    $
    (6,063
    )
    
    $
    24,266
    
    
    $
    
    
    
    $
    43,231Trade receivables, less allowance for
doubtful accounts
    
    
    
    
    
    
    54,337
    
    
    
    38,335
    
    
    
    
    
    
    
    92,672Loans receivable from related parties
    
    
    
    
    
    
    86,420
    
    
    
    
    
    
    
    (86,420
    )
    
    
    Inventories
    
    
    
    
    
    
    68,642
    
    
    
    36,321
    
    
    
    
    
    
    
    104,963Deferred income taxes
    
    
    
    
    
    
    8,453
    
    
    
    236
    
    
    
    
    
    
    
    8,689Receivable from sale of Electronics Division
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assets held for sale
    
    
    
    
    
    
    3,515
    
    
    
    1,161
    
    
    
    
    
    
    
    4,676Prepaid expenses and other current assets
    
    
    1,126
    
    
    
    2,824
    
    
    
    3,785
    
    
    
    
    
    
    
    7,735Total current assets
    
    
    26,154
    
    
    
    218,128
    
    
    
    104,104
    
    
    
    (86,420
    )
    
    
    261,966Property, plant and equipment, net
    
    
    
    
    
    
    76,217
    
    
    
    37,528
    
    
    
    
    
    
    
    113,745Intangible assets, net
    
    
    
    
    
    
    64,406
    
    
    
    22,073
    
    
    
    
    
    
    
    86,479Goodwill
    
    
    
    
    
    
    89,137
    
    
    
    26,215
    
    
    
    
    
    
    
    115,352Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    141Investment in subs
    
    
    418,488
    
    
    
    
    
    
    
    
    
    
    
    (418,488
    )
    
    
    Other non-current assets
    
    
    4,611
    
    
    
    395
    
    
    
    46
    
    
    
    
    
    
    
    5,052Total assets
    
    $
    449,253
    
    
    $
    448,283
    
    
    $
    190,107
    
    
    $
    (504,908
    )
    
    $
    582,735LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    447
    
    
    $
    23,857
    
    
    $
    18,637
    
    
    $
    
    
    
    $
    42,941Accrued payroll
    
    
    1,877
    
    
    
    6,435
    
    
    
    7,602
    
    
    
    
    
    
    
    15,914Accruals and other current liabilities
    
    
    4,035
    
    
    
    10,967
    
    
    
    6,952
    
    
    
    
    
    
    
    21,954Taxes payable
    
    
    
    
    
    
    1,087
    
    
    
    
    
    
    
    
    
    
    
    1,087Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    8,060
    
    
    
    
    
    
    
    8,060Current portion of long-term debt
    
    
    
    
    
    
    2,857
    
    
    
    562
    
    
    
    
    
    
    
    3,419Loans payable from related parties
    
    
    16,926
    
    
    
    
    
    
    
    69,494
    
    
    
    (86,420
    )
    
    
    Total current liabilities
    
    
    23,285
    
    
    
    45,203
    
    
    
    111,307
    
    
    
    (86,420
    )
    
    
    93,375Long-term debt  less current portion and net of unacreted discount and premium
    
    
    258,981
    
    
    
    10,633
    
    
    
    2,737
    
    
    
    
    
    
    
    272,351Deferred income taxes
    
    
    
    
    
    
    22,724
    
    
    
    2,186
    
    
    
    
    
    
    
    24,910Pension liablities
    
    
    
    
    
    
    8,841
    
    
    
    3,419
    
    
    
    
    
    
    
    12,260Other post retirement benefits
    
    
    
    
    
    
    2,634
    
    
    
    
    
    
    
    
    
    
    
    2,634Long-term taxes payables
    
    
    
    
    
    
    2,932
    
    
    
    2,920
    
    
    
    
    
    
    
    5,852Other long-term liabilities
    
    
    
    
    
    
    1,298
    
    
    
    3,068
    
    
    
    
    
    
    
    4,366Total stockholders equity
    
    
    166,987
    
    
    
    354,018
    
    
    
    64,470
    
    
    
    (418,488
    )
    
    
    166,987Total liabilities and shareholders equity
    
    $
    449,253
    
    
    $
    448,283
    
    
    $
    190,107
    
    
    $
    (504,908
    )
    
    $
    582,735
 17




---



##### 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 unacreted discount and premium
    
    
    274,978
    
    
    
    13,436
    
    
    
    2,985
    
    
    
    
    
    
    
    291,399Deferred income taxes
    
    
    
    
    
    
    25,343
    
    
    
    (853
    )
    
    
    
    
    
    
    24,490Pension liablities
    
    
    
    
    
    
    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
 18




---



##### 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 June 28, 2008Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    240,336
    
    
    $
    117,716
    
    
    $
    (26,977
    )
    
    $
    331,075Cost of sales
    
    
    
    
    
    
    177,945
    
    
    
    81,922
    
    
    
    (26,977
    )
    
    
    232,890Gross profit
    
    
    
    
    
    
    62,391
    
    
    
    35,794
    
    
    
    
    
    
    
    98,185Selling, general and administrative expenses
    
    
    
    
    
    
    31,766
    
    
    
    19,395
    
    
    
    
    
    
    
    51,161Research and development expenses
    
    
    
    
    
    
    2,095
    
    
    
    1,402
    
    
    
    
    
    
    
    3,497OPEB curtailment gain
    
    
    
    
    
    
    (169
    )
    
    
    
    
    
    
    
    
    
    
    (169
    )Restructuring costs
    
    
    
    
    
    
    783
    
    
    
    285
    
    
    
    
    
    
    
    1,068Income from operations
    
    
    
    
    
    
    27,916
    
    
    
    14,712
    
    
    
    
    
    
    
    42,628Interest expense, net
    
    
    14,018
    
    
    
    963
    
    
    
    173
    
    
    
    
    
    
    
    15,154Other non-operating (income) expense, net
    
    
    (2,086
    )
    
    
    (688
    )
    
    
    1,295
    
    
    
    
    
    
    
    (1,479
    )Equity in earnings of subsidiaries
    
    
    26,995
    
    
    
    
    
    
    
    
    
    
    
    (26,995
    )
    
    
    Income from continuing operations before
income taxes
    
    
    15,063
    
    
    
    27,641
    
    
    
    13,244
    
    
    
    (26,995
    )
    
    
    28,953Provision (benefit) for income taxes
    
    
    (3,366
    )
    
    
    9,122
    
    
    
    4,371
    
    
    
    
    
    
    
    10,127Income from continuing operations
    
    
    18,429
    
    
    
    18,519
    
    
    
    8,873
    
    
    
    (26,995
    )
    
    
    18,826Net loss from discontinued operations
    
    
    
    
    
    
    (397
    )
    
    
    
    
    
    
    
    
    
    
    (397
    )Net income
    
    $
    18,429
    
    
    $
    18,122
    
    
    $
    8,873
    
    
    $
    (26,995
    )
    
    $
    18,429
 Unaudited Condensed Consolidating Statement of Income
 Quarter Ended June 28, 2008Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    120,005
    
    
    $
    61,596
    
    
    $
    (13,708
    )
    
    $
    167,893Cost of sales
    
    
    
    
    
    
    89,081
    
    
    
    42,133
    
    
    
    (13,708
    )
    
    
    117,506Gross profit
    
    
    
    
    
    
    30,924
    
    
    
    19,463
    
    
    
    
    
    
    
    50,387Selling, general and administrative expenses
    
    
    
    
    
    
    16,370
    
    
    
    10,078
    
    
    
    
    
    
    
    26,448Research and development expenses
    
    
    
    
    
    
    1,033
    
    
    
    733
    
    
    
    
    
    
    
    1,766OPEB curtailment gain
    
    
    
    
    
    
    (169
    )
    
    
    
    
    
    
    
    
    
    
    (169
    )Restructuring costs
    
    
    
    
    
    
    287
    
    
    
    48
    
    
    
    
    
    
    
    335Income from operations
    
    
    
    
    
    
    13,403
    
    
    
    8,604
    
    
    
    
    
    
    
    22,007Interest expense, net
    
    
    7,264
    
    
    
    354
    
    
    
    95
    
    
    
    
    
    
    
    7,713Other non-operating (income) expense, net
    
    
    (2,232
    )
    
    
    (533
    )
    
    
    1,912
    
    
    
    
    
    
    
    (853
    )Equity in earnings of subsidiaries
    
    
    13,934
    
    
    
    
    
    
    
    
    
    
    
    (13,934
    )
    
    
    Income from continuing operations before income taxes
    
    
    8,902
    
    
    
    13,582
    
    
    
    6,597
    
    
    
    (13,934
    )
    
    
    15,147Provision (benefit) for income taxes
    
    
    (967
    )
    
    
    4,201
    
    
    
    2,044
    
    
    
    
    
    
    
    5,278Income from continuing operations
    
    
    9,869
    
    
    
    9,381
    
    
    
    4,553
    
    
    
    (13,934
    )
    
    
    9,869Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    9,869
    
    
    $
    9,381
    
    
    $
    4,553
    
    
    $
    (13,934
    )
    
    $
    9,869
 19




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 Unaudited Condensed Conolidating Statements of Income of the Company
 Year to date period ended June 30, 2007Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    209,262
    
    
    $
    97,024
    
    
    $
    (20,053
    )
    
    $
    286,233Cost of sales
    
    
    
    
    
    
    153,610
    
    
    
    71,511
    
    
    
    (20,053
    )
    
    
    205,068Gross profit
    
    
    
    
    
    
    55,652
    
    
    
    25,513
    
    
    
    
    
    
    
    81,165Selling, general and administrative expenses
    
    
    
    
    
    
    27,607
    
    
    
    16,747
    
    
    
    
    
    
    
    44,354Research and development expenses
    
    
    
    
    
    
    1,642
    
    
    
    1,217
    
    
    
    
    
    
    
    2,859Restructuring costs
    
    
    
    
    
    
    613
    
    
    
    378
    
    
    
    
    
    
    
    991Income from operations
    
    
    
    
    
    
    25,790
    
    
    
    7,171
    
    
    
    
    
    
    
    32,961Interest expense, net
    
    
    15,507
    
    
    
    416
    
    
    
    3,951
    
    
    
    
    
    
    
    19,874Other non-operating (income) expense, net
    
    
    (151
    )
    
    
    (118
    )
    
    
    353
    
    
    
    
    
    
    
    84Equity in earnings of subsidiaries
    
    
    23,996
    
    
    
    
    
    
    
    
    
    
    
    (23,996
    )
    
    
    Income from continuing operations before
income taxes
    
    
    8,640
    
    
    
    25,492
    
    
    
    2,867
    
    
    
    (23,996
    )
    
    
    13,003Provision (benefit) for income taxes
    
    
    
    
    
    
    4,061
    
    
    
    787
    
    
    
    
    
    
    
    4,848Income from continuing operations
    
    
    8,640
    
    
    
    21,431
    
    
    
    2,080
    
    
    
    (23,996
    )
    
    
    8,155Income from discontinued operations
    
    
    
    
    
    
    210
    
    
    
    256
    
    
    
    
    
    
    
    466Net income
    
    $
    8,640
    
    
    $
    21,641
    
    
    $
    2,336
    
    
    $
    (23,996
    )
    
    $
    8,621
 Unaudited Condensed Consolidating Statement of Income
 Quarter Ended June 30, 2007Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    115,638
    
    
    $
    51,486
    
    
    $
    (13,596
    )
    
    $
    153,528Cost of sales
    
    
    
    
    
    
    85,605
    
    
    
    38,402
    
    
    
    (13,596
    )
    
    
    110,411Gross profit
    
    
    
    
    
    
    30,033
    
    
    
    13,084
    
    
    
    
    
    
    
    43,117Selling, general and administrative expenses
    
    
    
    
    
    
    14,951
    
    
    
    8,599
    
    
    
    
    
    
    
    23,550Research and development expenses
    
    
    
    
    
    
    948
    
    
    
    617
    
    
    
    
    
    
    
    1,565Restructuring costs
    
    
    
    
    
    
    36
    
    
    
    162
    
    
    
    
    
    
    
    198Income from operations
    
    
    
    
    
    
    14,098
    
    
    
    3,706
    
    
    
    
    
    
    
    17,804Interest expense, net
    
    
    8,332
    
    
    
    383
    
    
    
    2,011
    
    
    
    
    
    
    
    10,726Other non-operating (income) expense, net
    
    
    (115
    )
    
    
    (93
    )
    
    
    339
    
    
    
    
    
    
    
    131Equity in earnings of subsidiaries
    
    
    13,047
    
    
    
    
    
    
    
    
    
    
    
    (13,047
    )
    
    
    Income from continuing operations before
income taxes
    
    
    4,830
    
    
    
    13,808
    
    
    
    1,356
    
    
    
    (13,047
    )
    
    
    6,947Provision (benefit) for income taxes
    
    
    
    
    
    
    2,365
    
    
    
    218
    
    
    
    
    
    
    
    2,583Income from continuing operations
    
    
    4,830
    
    
    
    11,443
    
    
    
    1,138
    
    
    
    (13,047
    )
    
    
    4,364Income from discontinued operations
    
    
    
    
    
    
    210
    
    
    
    256
    
    
    
    
    
    
    
    466Net income
    
    $
    4,830
    
    
    $
    11,653
    
    
    $
    1,394
    
    
    $
    (13,047
    )
    
    $
    4,830
 20




---



##### 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 June 28, 2008Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet income
    
    $
    18,429
    
    
    $
    18,122
    
    
    $
    8,873
    
    
    $
    (26,995
    )
    
    $
    18,429Undistributed Equity in subs
    
    $
    (26,995
    )
    
    
    
    
    
    
    
    
    
    $
    26,995
    
    
    $
    Adjustments to reconcile net income to
net cash flows:Depreciation
    
    
    
    
    
    
    5,279
    
    
    
    2,772
    
    
    
    
    
    
    
    8,051Amortization of intangible assets
    
    
    
    
    
    
    2,046
    
    
    
    838
    
    
    
    
    
    
    
    2,884Amortization and write-offs of deferred
loan costs
    
    
    1,151
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    1,344(Gain) loss on foreign currency, net
    
    
    (71
    )
    
    
    
    
    
    
    (600
    )
    
    
    
    
    
    
    (671
    )Accretion of debt discount and premium,
net
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    359Loss on sale of fixed assets
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    137OPEB curtailment gain
    
    
    
    
    
    
    (169
    )
    
    
    
    
    
    
    
    
    
    
    (169
    )Loss on sale of Electronics Division
    
    
    
    
    
    
    397
    
    
    
    
    
    
    
    
    
    
    
    397Stock based compensation
    
    
    1,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,022Changes in assets and liabilities:Trade receivables
    
    
    
    
    
    
    (8,399
    )
    
    
    (9,678
    )
    
    
    
    
    
    
    (18,077
    )Inventories
    
    
    
    
    
    
    1,078
    
    
    
    (3,600
    )
    
    
    
    
    
    
    (2,522
    )Accounts payable and accrued liabilities
    
    
    (2,220
    )
    
    
    (5,738
    )
    
    
    5,411
    
    
    
    
    
    
    
    (2,547
    )Other current assets and liabilities
    
    
    139
    
    
    
    (1,299
    )
    
    
    (916
    )
    
    
    
    
    
    
    (2,076
    )Other operating assets and liabilities
    
    
    16
    
    
    
    (250
    )
    
    
    291
    
    
    
    
    
    
    
    57Net cash provided by (used in) operating
activities
    
    
    (8,170
    )
    
    
    11,397
    
    
    
    3,391
    
    
    
    
    
    
    
    6,618Cash flows from investing activitiesPurchase of fixed assets
    
    
    
    
    
    
    (5,860
    )
    
    
    (1,781
    )
    
    
    
    
    
    
    (7,641
    )Proceeds from the sale of Electronics
    
    
    17,000
    
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    17,210Net cash provided by (used in) investing
activities
    
    
    17,000
    
    
    
    (5,650
    )
    
    
    (1,781
    )
    
    
    
    
    
    
    9,569Cash flows from financing activitiesPayments on senior secured notes
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Payments on senior notes
    
    
    (1,346
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,346
    )Net payments received from Parent
    
    
    11,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,899Payments on revolving credit agreement
    
    
    
    
    
    
    (1,723
    )
    
    
    
    
    
    
    
    
    
    
    (1,723
    )Payments on mortgages
    
    
    
    
    
    
    
    
    
    
    (188
    )
    
    
    
    
    
    
    (188
    )Payment on capital leases
    
    
    
    
    
    
    (319
    )
    
    
    (255
    )
    
    
    
    
    
    
    (574
    )Change in affiliate debt
    
    
    16,074
    
    
    
    (9,276
    )
    
    
    (6,798
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    11,627
    
    
    
    (11,318
    )
    
    
    (7,241
    )
    
    
    
    
    
    
    (6,932
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    70Net change in cash and cash equivalents
    
    
    20,457
    
    
    
    (5,571
    )
    
    
    (5,561
    )
    
    
    
    
    
    
    9,325Cash and cash equivalents at beginning of
year
    
    
    4,571
    
    
    
    (492
    )
    
    
    29,827
    
    
    
    
    
    
    
    33,906Cash and cash equivalents at end of period
    
    $
    25,028
    
    
    $
    (6,063
    )
    
    $
    24,266
    
    
    $
    
    
    
    $
    43,231
 21




---



##### 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 June 30, 2007Issuer
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet income
    
    $
    8,640
    
    
    $
    21,641
    
    
    $
    2,355
    
    
    $
    (23, 996
    )
    
    $
    8,640Undistributed equity in earnings of
subsidiaries
    
    $
    (23,996
    )
    
    $
    
    
    
    $
    
    
    
    $
    23,996
    
    
    
    Adjustments to reconcile net income to
net cash flows:
    
    
    
    
    
    
    
    
    
    
    Depreciation
    
    
    
    
    
    
    5,212
    
    
    
    2,852
    
    
    
    
    
    
    
    8,064Amortization of intangible assets
    
    
    
    
    
    
    1,698
    
    
    
    770
    
    
    
    
    
    
    
    2,468Amortization and write-offs of deferred
loan costs
    
    
    1,857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,857Loss on foreign currency, net
    
    
    (151
    )
    
    
    
    
    
    
    361
    
    
    
    
    
    
    
    210Accretion of debt discount and premium, net
    
    
    415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    415Amortization of inventory fair value
adjustment
    
    
    
    
    
    
    
    
    
    
    651
    
    
    
    
    
    
    
    651Loss (gain) on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    112Stock based compensation
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800Changes in assets and liabilities:Trade receivables
    
    
    
    
    
    
    (7,704
    )
    
    
    (6,336
    )
    
    
    
    
    
    
    (14,040
    )Inventories
    
    
    
    
    
    
    695
    
    
    
    (1,333
    )
    
    
    
    
    
    
    (638
    )Accounts payable and accrued
liabilities
    
    
    (7,554
    )
    
    
    (6,288
    )
    
    
    (991
    )
    
    
    
    
    
    
    (14,833
    )Other current assets and liabilities
    
    
    3,232
    
    
    
    526
    
    
    
    (243
    )
    
    
    
    
    
    
    3,515Other operating assets and liabilities
    
    
    265
    
    
    
    (126
    )
    
    
    (39
    )
    
    
    
    
    
    
    100Net cash provided by operating activities
    
    
    (16,492
    )
    
    
    15,654
    
    
    
    (1,841
    )
    
    
    
    
    
    
    (2,679
    )Cash flows from investing activitiesPurchase of fixed assets
    
    
    
    
    
    
    (3,191
    )
    
    
    (1,058
    )
    
    
    
    
    
    
    (4,249
    )Acquisitions, net of $5,222 cash acquired
    
    
    (117,484
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117,484
    )Net cash provided by investing activities
    
    
    (117,484
    )
    
    
    (3,191
    )
    
    
    (1,058
    )
    
    
    
    
    
    
    (121,733
    )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
    
    
    (3,405
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,405
    )Payments on senior notes
    
    
    (33,998
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,998
    )Borrowings under revolving credit agreement
    
    
    8,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,315Payments on revolving credit agreement
    
    
    (8,315
    )
    
    
    (805
    )
    
    
    
    
    
    
    
    
    
    
    (9,120
    )Payments made on behalf of Parent Company
    
    
    (1,009
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,009
    )Change in affiliate debt
    
    
    10,331
    
    
    
    (9,984
    )
    
    
    (347
    )
    
    
    
    
    
    
    Payment on capital leases
    
    
    
    
    
    
    (79
    )
    
    
    (280
    )
    
    
    
    
    
    
    (359
    )Net cash (used in) financing activities
    
    
    126,984
    
    
    
    (10,868
    )
    
    
    (627
    )
    
    
    
    
    
    
    115,489Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    
    
    
    
    769
    
    
    
    
    
    
    
    769Net change in cash and cash equivalents
    
    
    (6,992
    )
    
    
    1,595
    
    
    
    (2,757
    )
    
    
    
    
    
    
    (8,154
    )Cash and cash equivalents at beginning of
year
    
    
    41,016
    
    
    
    (5,488
    )
    
    
    6,999
    
    
    
    
    
    
    
    42,527Cash and cash equivalents at end of period
    
    $
    34,024
    
    
    $
    (3,893
    )
    
    $
    4,242
    
    
    $
    
    
    
    $
    34,373
  22




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
   23




---



##### 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
    24




---



##### Table of Contents



Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements an amendment of Accounting Research Bulletin No. 51
 Non-GAAP Financial Measures
   
    
    cash expenditures, or future requirements, for capital expenditures or contractual commitments;
    
    changes in, or cash requirements for, working capital needs;
    
    the significant interest expense, or the cash requirements necessary to service interest or
principal payments on debts;
    
    tax distributions that would represent a reduction in cash available to us; and
    
    any cash requirements for assets being depreciated and amortized that may have to be replaced in
the future.
   25




---



##### Table of Contents



Results of Operations
 Quarter Ended
    
    
    Year to date endedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,(In thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    167,893
    
    
    $
    153,528
    
    
    $
    331,075
    
    
    $
    286,234Cost of sales
    
    
    117,506
    
    
    
    110,411
    
    
    
    232,890
    
    
    
    205,069Gross profit
    
    
    50,387
    
    
    
    43,117
    
    
    
    98,185
    
    
    
    81,165Gross profit percentage
    
    
    30.01
    %
    
    
    28.08
    %
    
    
    29.66
    %
    
    
    28.36
    %Selling, general and administrative expenses
    
    
    26,448
    
    
    
    23,550
    
    
    
    51,161
    
    
    
    44,354Research and development expenses
    
    
    1,766
    
    
    
    1,565
    
    
    
    3,497
    
    
    
    2,859OPEB Curtailment gain
    
    
    (169
    )
    
    
    
    
    
    
    (169
    )
    
    
    Restructuring costs
    
    
    335
    
    
    
    198
    
    
    
    1,068
    
    
    
    991Income from operations
    
    
    22,007
    
    
    
    17,804
    
    
    
    42,628
    
    
    
    32,961Interest expense, net
    
    
    7,713
    
    
    
    10,726
    
    
    
    15,154
    
    
    
    19,874Other non-operating (income) expense, net
    
    
    (853
    )
    
    
    131
    
    
    
    (1,479
    )
    
    
    84Income from continuing operations before income taxes
    
    
    15,147
    
    
    
    6,947
    
    
    
    28,953
    
    
    
    13,003Provision for income taxes
    
    
    5,278
    
    
    
    2,583
    
    
    
    10,127
    
    
    
    4,848Income (loss) from continuing operations
    
    
    9,869
    
    
    
    4,364
    
    
    
    18,826
    
    
    
    8,155Income from discontinued operations, net of income
taxes of $124 in 2008 and $220 in 2007
    
    
    
    
    
    
    466
    
    
    
    (397
    )
    
    
    466Net income
    
    $
    9,869
    
    
    $
    4,830
    
    
    $
    18,429
    
    
    $
    8,621
 Quarter Ended June 28, 2008 Compared with Quarter Ended June 30, 2007
 (Amounts in thousands unless otherwise noted)
 Quarter EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Net sales
    
    $
    167,893
    
    
    $
    153,528
    
    
    $
    14,365
    
    
    
    9.4
    %
  Quarter EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Gross Profit
    
    $
    50,387
    
    
    $
    43,117
    
    
    $
    7,270
    
    
    
    16.9
    %Gross Profit as a percent of sales
    
    
    30.01
    %
    
    
    28.08
    %
  26




---



##### Table of Contents



Quarter EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Selling, general and administrative expense (SG&A)
    
    $
    26,448
    
    
    $
    23,550
    
    
    $
    2,898
    
    
    
    12.3
    %SG&A as a percent of sales
    
    
    15.8
    %
    
    
    15.3
    %
   Quarter EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Research and development expenses (R&D)
    
    $
    1,766
    
    
    $
    1,565
    
    
    $
    201
    
    
    
    12.8
    %
  Quarter EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Restrctructuring expenses
    
    $
    335
    
    
    $
    198
    
    
    $
    137
    
    
    
    69.2
    %
  Quarter EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Interest Expense, net
    
    $
    7,713
    
    
    $
    10,726
    
    
    $
    (3,013
    )
    
    
    -28.1
    %
 27




---



##### Table of Contents



Quarter EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Other non-operating (income) expense, net
    
    $
    (853
    )
    
    $
    131
    
    
    $
    (984
    )
    
    
    -751
    %
  Quarter EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Earnings before
interest, taxes,
depreciation and
amortization
(EBITDA)
    
    $
    28,255
    
    
    $
    24,178
    
    
    $
    4,077
    
    
    
    16.9
    %
  Quarter EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Provision for income taxes, continuing operations
    
    $
    5,278
    
    
    $
    2,583
    
    
    $
    2,695
    
    
    
    104.3
    %Provision for income taxes as a % of income before taxes
    
    
    34.8
    %
    
    
    37.3
    %
  Discontinued Operations
   28




---



##### Table of Contents



Year to Date Period Ended June 28, 2008 Compared with Year to Date Period Ended June 30, 2007
 (Amounts in thousands unless otherwise noted)
 Year to Date Period EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Net sales
    
    $
    331,075
    
    
    $
    286,234
    
    
    $
    44,841
    
    
    
    15.7
    %
  Year to Date Period EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Gross Profit
    
    $
    98,185
    
    
    $
    81,165
    
    
    $
    17,020
    
    
    
    21.0
    %Gross Profit as a percent of sales
    
    
    29.7
    %
    
    
    28.4
    %
   Year to Date Period EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Selling, general and administrative expense (SG&A)
    
    $
    51,161
    
    
    $
    44,354
    
    
    $
    6,807
    
    
    
    15.3
    %SG&A as a percent of sales
    
    
    15.5
    %
    
    
    15.5
    %
   29




---



##### Table of Contents



Year to Date Period EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Research and development expenses (R&D)
    
    $
    3,497
    
    
    $
    2,859
    
    
    $
    638
    
    
    
    22.3
    %
  Year to Date Period EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Restrctructuring expenses
    
    $
    1,068
    
    
    $
    991
    
    
    $
    77
    
    
    
    7.8
    %
  Year to Date Period EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Interest Expense, net
    
    $
    15,154
    
    
    $
    19,874
    
    
    $
    (4,720
    )
    
    
    -23.7
    %
 30




---



##### Table of Contents



Year to Date Period EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Other non-operating (income) expense, net
    
    $
    (1,479
    )
    
    $
    84
    
    
    $
    (1,563
    )
    
    
    -1861
    %
  Year to Date Period EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Earnings before
interest, taxes,
depreciation and
amortization
(EBITDA)
    
    $
    54,645
    
    
    $
    43,875
    
    
    $
    10,770
    
    
    
    24.5
    %
  Year to Date Period EndedJune 28, 2008
    
    June 30, 2007
    
    Change
    
    %Provision for income taxes, continuing operations
    
    $
    10,127
    
    
    $
    4,848
    
    
    $
    5,279
    
    
    
    108.9
    %Provision for income taxes as a % of income before taxes
    
    
    35.0
    %
    
    
    37.4
    %
  Discontinued Operations
   31




---



##### Table of Contents



Liquidity and Capital Resources
 Net Cash
 June 28, 2008
    
    December 31, 2007(in thousands)Cash and cash equivalents
    
    $
    43,231
    
    
    $
    33,906
 Cash and cash equivalents decreased $2.6 million in the year to date period ended June 28, 2008 due
to the following:
    32




---



##### Table of Contents



Liquidity
 Amounts in millionsDecember 31,June 28, 2008
    
    
    
    
    
    
    2007Debt:Revolving credit agreement
    
    $
    
    
    
    
    
    
    
    $
    TB Woods revolving credit agreement
    
    
    6.0
    
    
    
    
    
    
    
    7.7Overdraft agreements
    
    
    
    
    
    
    
    
    
    
    9% Senior Secured Notes
    
    
    255.0
    
    
    
    
    
    
    
    270.011.25% Senior Notes
    
    
    6.4
    
    
    
    
    
    
    
    7.8Variable rate demand revenue bonds
    
    
    5.3
    
    
    
    
    
    
    
    5.3Mortgages
    
    
    2.6
    
    
    
    
    
    
    
    2.6Capital leases
    
    
    2.9
    
    
    
    
    
    
    
    3.4Total Debt
    
    $
    278.2
    
    
    
    
    
    
    $
    296.8Cash
    
    $
    43.2
    
    
    
    
    
    
    $
    33.9Net Debt
    
    $
    235.0
    
    
    
    58.5
    %
    
    $
    262.9
    
    
    
    66.4
    %Shareholders Equity
    
    $
    167.0
    
    
    
    41.5
    %
    
    $
    133.3
    
    
    
    33.6
    %Total Capitalization
    
    $
    402.0
    
    
    
    100
    %
    
    $
    396.2
    
    
    
    100
    %
       33




---



##### Table of Contents



Changes in general economic conditions or the cyclical nature of our markets could harm
our operations and financial performance .
 Our
substantial level of indebtedness could adversely affect our financial condition, harm our ability
to react to changes to our business and prevent us from fulfilling our obligations on the notes
 Contractual Obligations
   1 4
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
    34




---



##### Table of Contents



PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 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
  35




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1(1)
    
    Second Amended and Restated Certificate of Incorporation of the Registrant.3.2(1)
    
    Amended and Restated 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 Holdings, Inc.s Registration Statement on Form S-1, as
amended, filed with the Securities and Exchange Commission on December 4, 2006. 36




---



##### Table of Contents



SIGNATURES
  ALTRA INDUSTRIAL MOTION, INC.August 8, 2008
    By:
    /s/ Michael L. HurtName: Michael L. HurtTitle: Chairman and Chief Executive OfficerAugust 8, 2008
    By:
    /s/ Christian StorchName: Christian StorchTitle: Vice President and Chief Financial Officer 37