##### 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 March 29, 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




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##### 



TABLE OF CONTENTS
  
 Page #PART IFINANCIAL INFORMATION
    
    
    2Item 1. Unaudited Condensed Consolidated Financial Statements
    
    
    2Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART IIOTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    28EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  1




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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ALTRA INDUSTRIAL MOTION, INC.
 Condensed Consolidated Balance Sheet
Amounts in thousands, except share amounts
 March 29,
    
    
    December 31,2008
    
    
    2007(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    58,961
    
    
    $
    33,906Trade receivables, less allowance for doubtful accounts of $1,387 and $1,548
    
    
    90,371
    
    
    
    73,248Inventories
    
    
    102,104
    
    
    
    101,835Deferred income taxes
    
    
    8,704
    
    
    
    8,286Receivable from sale of Electronics Division
    
    
    
    
    
    
    17,100Prepaid expenses and other
    
    
    7,364
    
    
    
    5,578Assets held for sale
    
    
    4,676
    
    
    
    1,161Total current assets
    
    
    272,180
    
    
    
    241,114Property, plant and equipment, net
    
    
    114,965
    
    
    
    116,610Intangible assets, net
    
    
    88,175
    
    
    
    88,943Goodwill
    
    
    115,535
    
    
    
    114,979Deferred income taxes
    
    
    145
    
    
    
    231Other assets
    
    
    5,800
    
    
    
    6,747Total assets
    
    $
    596,800
    
    
    $
    568,624Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    42,780
    
    
    $
    41,668Accrued payroll
    
    
    16,435
    
    
    
    16,988Accruals and other liabilities
    
    
    25,584
    
    
    
    22,001Taxes payable
    
    
    4,635
    
    
    
    1,196Deferred income taxes
    
    
    8,060
    
    
    
    8,060Current portion of long-term debt
    
    
    3,372
    
    
    
    2,667Total current liabilities
    
    
    100,866
    
    
    
    92,580Long-term debt, less current portion and net of unaccreted discount and premium
    
    
    287,676
    
    
    
    291,399Deferred income taxes
    
    
    24,964
    
    
    
    24,490Pension liabilities
    
    
    13,046
    
    
    
    13,431Other post retirement benefits
    
    
    2,953
    
    
    
    3,170Long-term taxes payable
    
    
    5,717
    
    
    
    5,911Other long term liabilities
    
    
    4,389
    
    
    
    4,308Commitments and Contingencies (Note 16)
    
    
    
    
    
    
    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
    
    
    25,526
    
    
    
    13,208Retained earnings
    
    
    28,935
    
    
    
    20,375Accumulated other comprehensive income
    
    
    4,899
    
    
    
    1,923Total stockholders equity
    
    
    157,189
    
    
    
    133,335Total liabilities and stockholders equity
    
    $
    596,800
    
    
    $
    568,624
 See accompanying notes
 2




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ALTRA INDUSTRIAL MOTION, INC.
 Condensed Consolidated Statements of Income and Comprehensive Income
Amounts in thousands
(unaudited)
 Quarter EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Consolidated Statement of IncomeNet sales
    
    $
    163,182
    
    
    $
    132,706Cost of sales
    
    
    115,384
    
    
    
    94,658Gross profit
    
    
    47,798
    
    
    
    38,048Selling, general and administrative expenses
    
    
    24,713
    
    
    
    20,804Research and development expenses
    
    
    1,731
    
    
    
    1,294Restructuring charges
    
    
    733
    
    
    
    793Income from operations
    
    
    20,621
    
    
    
    15,157Interest expense, net
    
    
    7,441
    
    
    
    9.148Other non-operating income , net
    
    
    (626
    )
    
    
    (47
    )Income from continuing operations before income taxes
    
    
    13,806
    
    
    
    6,056Provision for income taxes
    
    
    4,849
    
    
    
    2,265Net income from continuing operations
    
    
    8,957
    
    
    
    3,791Net loss from discontinued operations, net of taxes of $124
    
    
    (397
    )
    
    
    Net income
    
    $
    8,560
    
    
    $
    3,791Consolidated Statement of Comprehensive IncomeForeign currency translation adjustment
    
    
    2,976
    
    
    
    439Comprehensive income
    
    $
    11,536
    
    
    $
    4,230
 See accompanying notes
 3




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ALTRA INDUSTRIAL MOTION, INC.
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
(unaudited)
 Quarter EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    8,560
    
    
    $
    3,791Adjustments to reconcile net income to cash provided by operating activities:Depreciation
    
    
    4,105
    
    
    
    3,474Amortization of intangible assets
    
    
    1,435
    
    
    
    991Amortization and write-offs of deferred loan costs
    
    
    599
    
    
    
    1,076(Income) loss on foreign currency, net
    
    
    (374
    )
    
    
    38Accretion of debt discount and premium, net
    
    
    179
    
    
    
    236Loss on sale of fixed assets
    
    
    128
    
    
    
    112Stock based compensation
    
    
    416
    
    
    
    257Changes in operating assets and liabilities:Trade receivables
    
    
    (15,986
    )
    
    
    (12,282
    )Inventories
    
    
    413
    
    
    
    (1,024
    )Accounts payable and accrued liabilities
    
    
    5,699
    
    
    
    (4,319
    )Other current assets and liabilities
    
    
    (1,626
    )
    
    
    1,619Other operating assets and liabilities
    
    
    329
    
    
    
    31Net cash provided by (used in) operating activities
    
    
    3,877
    
    
    
    (6,000
    )Cash flows from investing activities:Purchases of fixed assets
    
    
    (4,494
    )
    
    
    (1,034
    )Proceeds from sale of Electronics Division
    
    
    17,000
    
    
    
    Net cash provided by (used in) investing activities
    
    
    12,506
    
    
    
    (1,034
    )Cash flows from financing activities:Borrowings under revolving credit agreement
    
    
    
    
    
    
    520Net payments received from (made on behalf) of Parent
    
    
    11,902
    
    
    
    (1,125
    )Payments on revolving credit agreement
    
    
    (1,723
    )
    
    
    (520
    )Payments on senior notes
    
    
    (1,346
    )
    
    
    (22,673
    )Payments on mortgages
    
    
    (133
    )
    
    
    Payments on capital leases
    
    
    (256
    )
    
    
    (250
    )Net cash provided by (used in) financing activities
    
    
    8,444
    
    
    
    (24,048
    )Effect of exchange rates on cash
    
    
    228
    
    
    
    113Increase (decrease) in cash and cash equivalents
    
    
    25,055
    
    
    
    (30,969
    )Cash and cash equivalents, beginning of period
    
    
    33,906
    
    
    
    42,527Cash and cash equivalents, end of period
    
    $
    58,961
    
    
    $
    11,588Cash paid during the period for:Interest
    
    $
    3,234
    
    
    $
    7,844Income Taxes
    
    $
    2,489
    
    
    $
    6,406Non-Cash Financing:Acquisition of capital equipment under capital lease
    
    $
    
    
    
    $
    1,655
 See accompanying notes
 4




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




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ALTRA
INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed
Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 4. Discontinued Operations
  Accounting for the Impairment or Disposal of Long-Lived Assets
   5. Inventories
  March 29,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    36,165
    
    
    $
    33,601Work in process
    
    
    21,273
    
    
    
    20,376Finished goods
    
    
    44,666
    
    
    
    47,858Inventories, net
    
    $
    102,104
    
    
    $
    101,835
   6




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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
    
    
    750Balance March 29, 2008
    
    $
    115,535
  March 29, 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
    
    
    
    11,555
    
    
    
    62,038
    
    
    
    10,139Product technology and patents
    
    
    5,232
    
    
    
    2,367
    
    
    
    5,232
    
    
    
    2,348Impact of changes in foreign currency
    
    
    4,097
    
    
    
    
    
    
    
    3,430
    
    
    
    Total intangible assets
    
    $
    102,097
    
    
    $
    13,922
    
    
    $
    101,430
    
    
    $
    12,487
   7. Assets Held for Sale
  8. Warranty Costs
  March 29,
    
    
    March 31,2008
    
    
    2007Balance at beginning of period
    
    $
    4,098
    
    
    $
    2,083Accrued warranty costs
    
    
    608
    
    
    
    326Payments and adjustments
    
    
    (1,493
    )
    
    
    (208
    )Balance at end of period
    
    $
    3,213
    
    
    $
    2,201
 7




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed
Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 9. Income Taxes
     10. Pension and Other Employee Benefits
 Defined Benefit (Pension) and Postretirement Benefit Plans
   Quarter EndedPension Benefits
    
    
    Other BenefitsMarch 29, 2008
    
    
    March 31, 2007
    
    
    March 29, 2008
    
    
    March 31, 2007Service cost
    
    $
    16
    
    
    $
    65
    
    
    $
    15
    
    
    $
    18Interest cost
    
    
    378
    
    
    
    336
    
    
    
    52
    
    
    
    49Expected return on plan assets
    
    
    (326
    )
    
    
    (268
    )
    
    
    
    
    
    
    Amortization of prior service
cost (income)
    
    
    
    
    
    
    2
    
    
    
    (243
    )
    
    
    (243
    )Amortization of net (gain)
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (53
    )Net periodic benefit cost (income)
    
    $
    68
    
    
    $
    135
    
    
    $
    (182
    )
    
    $
    (229
    )
 8




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed
Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 11. Long-Term Debt
 Long-term debt obligations at March 29, 2008 and December 31, 2007 were as follows:
 March 29,
    
    
    December 31,2008
    
    
    2007Revolving credit agreement
    
    $
    
    
    
    $
    TB Woods revolving credit agreement
    
    
    6,000
    
    
    
    7,700Overdraft agreements
    
    
    
    
    
    
    9% Senior Secured Notes
    
    
    270,000
    
    
    
    270,00011.25% Senior Notes
    
    
    6,531
    
    
    
    7,790Variable rate demand revenue bonds
    
    
    5,300
    
    
    
    5,300Mortgages
    
    
    2,695
    
    
    
    2,639Capital leases
    
    
    3,154
    
    
    
    3,449Less: debt discount and premium, net of accretion
    
    
    (2,632
    )
    
    
    (2,812
    )Total long-term debt
    
    
    291,048
    
    
    
    294,066
 Revolving Credit Agreement
     TB Woods Revolving Credit Agreement
  Overdraft Agreements
  9% Senior Secured Notes
  9




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed
Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
    11.25% Senior Notes
     Variable Rate Demand Revenue Bonds
   Mortgage
  Capital Leases
  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. Stockholders Equity
  Stock-Based Compensation
  13. Related-Party Transactions
 Joy Global Sales
  14. Concentrations of Credit, Business Risks and Workforce
     15. Geographic Information
  11




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed
Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 Net SalesQuarter Ended
    
    
    Property, Plant and EquipmentMarch 29,
    
    
    March 31,
    
    
    March 29,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007North America (primarily U.S.)
    
    $
    118,703
    
    
    $
    93,279
    
    
    $
    82,191
    
    
    $
    50,454Europe
    
    
    38,239
    
    
    
    35,580
    
    
    
    30,355
    
    
    
    29,143Asia and other
    
    
    6,240
    
    
    
    3,947
    
    
    
    2,419
    
    
    
    1,790Total
    
    $
    163,182
    
    
    $
    132,706
    
    
    $
    114,965
    
    
    $
    81,387
    16. Commitments and Contingencies
 General Litigation
   17. Restructuring, Asset Impairment and Transition Expenses
  TB WoodsAltra Plan
    
    
    Plan
    
    
    TotalExpensesNon-cash asset impairment and loss on sale of fixed asset
    
    $
    70
    
    
    $
    
    
    
    $
    70Other cash expenses
    
    
    
    
    
    
    
    
    
    
    Moving and relocation
    
    
    122
    
    
    
    61
    
    
    
    183Severance
    
    
    480
    
    
    
    
    
    
    
    480Total cash expenses
    
    
    602
    
    
    
    61
    
    
    
    663Total restructuring expenses
    
    $
    672
    
    
    $
    61
    
    
    $
    733
 12




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed
Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
  TB WoodsAltra Plan
    
    
    Plan
    
    
    TotalBalance at December 31, 2007
    
    $
    449
    
    
    $
    1,029
    
    
    $
    1,478Restructuring expense incurred
    
    
    672
    
    
    
    61
    
    
    
    733Cash payments
    
    
    (293
    )
    
    
    (655
    )
    
    
    (948
    )Non-cash loss on disposal of fixed assets
    
    
    (70
    )
    
    
    
    
    
    
    (70
    )Balance at March 29, 2008
    
    $
    758
    
    
    $
    435
    
    
    $
    1,193
  13




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed
Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 18. Guarantor Subsidiaries
  Unaudited
Condensed Consolidating Balance Sheets of the Company
March 29, 2008
 March 29, 2008NonIssuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    43,684
    
    
    $
    (4,235
    )
    
    $
    19,512
    
    
    $
    
    
    
    $
    58,961Trade receivables, less allowance for doubtful accounts
    
    
    
    
    
    
    55,063
    
    
    
    35,308
    
    
    
    
    
    
    
    90,371Loan receivable from related parties
    
    
    
    
    
    
    79,166
    
    
    
    
    
    
    
    (79,166
    )
    
    
    Inventories, less allowances for obsolete materials
    
    
    
    
    
    
    69,033
    
    
    
    33,071
    
    
    
    
    
    
    
    102,104Deferred income taxes
    
    
    
    
    
    
    8,468
    
    
    
    236
    
    
    
    
    
    
    
    8,704Prepaid expenses and other
    
    
    1,008
    
    
    
    2,901
    
    
    
    3,455
    
    
    
    
    
    
    
    7,364Assets held for sale
    
    
    
    
    
    
    3,515
    
    
    
    1,161
    
    
    
    
    
    
    
    4,676Total current assets
    
    
    44,692
    
    
    
    213,911
    
    
    
    92,743
    
    
    
    (79,166
    )
    
    
    272,180Property, plant and equipment, net
    
    
    
    
    
    
    76,700
    
    
    
    38,265
    
    
    
    
    
    
    
    114,965Intangible assets, net
    
    
    
    
    
    
    65,434
    
    
    
    22,741
    
    
    
    
    
    
    
    88,175Goodwill
    
    
    
    
    
    
    89,137
    
    
    
    26,398
    
    
    
    
    
    
    
    115,535Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    145Other assets
    
    
    5,360
    
    
    
    409
    
    
    
    31
    
    
    
    
    
    
    
    5,800Investments in subsidiaries
    
    
    404,555
    
    
    
    
    
    
    
    
    
    
    
    (404,555
    )
    
    
    $
    454,607
    
    
    $
    445,591
    
    
    $
    180,323
    
    
    $
    (483,721
    )
    
    $
    596,800Liabilities and stockholders (deficit) equityCurrent liabilities:Accounts payable
    
    $
    855
    
    
    $
    24,011
    
    
    $
    17,914
    
    
    $
    
    
    
    $
    42,780Accrued payroll
    
    
    1,382
    
    
    
    7,010
    
    
    
    8,043
    
    
    
    
    
    
    
    16,435Accruals and other current liabilities
    
    
    9,791
    
    
    
    10,664
    
    
    
    5,129
    
    
    
    
    
    
    
    25,584Taxes payable
    
    
    
    
    
    
    4,635
    
    
    
    
    
    
    
    
    
    
    
    4,635Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    8,060
    
    
    
    
    
    
    
    8,060Current portion of long-term debt
    
    
    
    
    
    
    2,870
    
    
    
    502
    
    
    
    
    
    
    
    3,372Loans payable from related parties
    
    
    11,491
    
    
    
    
    
    
    
    67,675
    
    
    
    (79,166
    )
    
    
    Total current liabilities
    
    
    23,519
    
    
    
    49,190
    
    
    
    107,323
    
    
    
    (79,166
    )
    
    
    100,866Long-term debt, less current portion
    
    
    273,899
    
    
    
    10,783
    
    
    
    2,994
    
    
    
    
    
    
    
    287,676Deferred income taxes
    
    
    
    
    
    
    22,724
    
    
    
    2,240
    
    
    
    
    
    
    
    24,964Pension liabilities
    
    
    
    
    
    
    9,606
    
    
    
    3,440
    
    
    
    
    
    
    
    13,046Other post-retirement benefits
    
    
    
    
    
    
    2,953
    
    
    
    
    
    
    
    
    
    
    
    2,953Long-term taxes payable
    
    
    
    
    
    
    4,486
    
    
    
    1,231
    
    
    
    
    
    
    
    5,717Other long-term liabilities
    
    
    
    
    
    
    1,212
    
    
    
    3,177
    
    
    
    
    
    
    
    4,389Total liabilities
    
    
    297,418
    
    
    
    100,954
    
    
    
    120,405
    
    
    
    (79,166
    )
    
    
    439,611Total stockholders equity
    
    
    157,189
    
    
    
    344,637
    
    
    
    59,918
    
    
    
    (404,555
    )
    
    
    157,189$
    454,607
    
    
    $
    445,591
    
    
    $
    180,323
    
    
    $
    (483,721
    )
    
    $
    596,800
 14




---



##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed
Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
 Condensed Consolidating Balance Sheets of the Company
December 31, 2007
 December 31, 2007NonIssuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    4,571
    
    
    $
    (492
    )
    
    $
    29,827
    
    
    $
    
    
    
    $
    33,906Trade receivables, less allowance for doubtful accounts
    
    
    
    
    
    
    45,938
    
    
    
    27,310
    
    
    
    
    
    
    
    73,248Loan receivable from related parties
    
    
    
    
    
    
    78,992
    
    
    
    
    
    
    
    (78,992
    )
    
    
    Inventories, less allowances for obsolete materials
    
    
    
    
    
    
    69,720
    
    
    
    32,115
    
    
    
    
    
    
    
    101,835Deferred income taxes
    
    
    
    
    
    
    8,468
    
    
    
    (182
    )
    
    
    
    
    
    
    8,286Receivable for sale of Electronics
    
    
    17,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,100Prepaid expenses and other
    
    
    1,165
    
    
    
    1,634
    
    
    
    2,779
    
    
    
    
    
    
    
    5,578Assets held for sale
    
    
    
    
    
    
    
    
    
    
    1,161
    
    
    
    
    
    
    
    1,161Total current assets
    
    
    22,836
    
    
    
    204,260
    
    
    
    93,010
    
    
    
    (78,992
    )
    
    
    241,114Property, plant and equipment, net
    
    
    
    
    
    
    80,138
    
    
    
    36,472
    
    
    
    
    
    
    
    116,610Intangible assets, net
    
    
    
    
    
    
    66,432
    
    
    
    22,511
    
    
    
    
    
    
    
    88,943Goodwill
    
    
    
    
    
    
    89,323
    
    
    
    25,656
    
    
    
    
    
    
    
    114,979Deferred income taxes
    
    
    
    
    
    
    (66
    )
    
    
    297
    
    
    
    
    
    
    
    231Other assets
    
    
    5,778
    
    
    
    469
    
    
    
    500
    
    
    
    
    
    
    
    6,747Investments in subsidiaries
    
    
    391,493
    
    
    
    
    
    
    
    
    
    
    
    (391,493
    )
    
    
    $
    420,107
    
    
    $
    440,556
    
    
    $
    178,446
    
    
    $
    (470,485
    )
    
    $
    568,624Liabilities and stockholders (deficit) 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
    
    
    274,978
    
    
    
    13,436
    
    
    
    2,985
    
    
    
    
    
    
    
    291,399Deferred income taxes
    
    
    
    
    
    
    25,343
    
    
    
    (853
    )
    
    
    
    
    
    
    24,490Pension liabilities
    
    
    
    
    
    
    10,227
    
    
    
    3,204
    
    
    
    
    
    
    
    13,431Other post-retirement benefits
    
    
    
    
    
    
    3,170
    
    
    
    
    
    
    
    
    
    
    
    3,170Long-term taxes payable
    
    
    
    
    
    
    4,221
    
    
    
    1,690
    
    
    
    
    
    
    
    5,911Other long-term liabilities
    
    
    
    
    
    
    1,139
    
    
    
    3,169
    
    
    
    
    
    
    
    4,308Total liabilities
    
    
    286,772
    
    
    
    104,660
    
    
    
    122,849
    
    
    
    (78,992
    )
    
    
    435,289Total stockholders equity
    
    
    133,335
    
    
    
    335,896
    
    
    
    55,597
    
    
    
    (391,493
    )
    
    
    133,335$
    420,107
    
    
    $
    440,556
    
    
    $
    178,446
    
    
    $
    (470,485
    )
    
    $
    568,624
 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 Statements of Income of the Company
Quarter ended March 29, 2008
 Quarter ended March 29, 2008Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    120,331
    
    
    $
    56,120
    
    
    $
    (13,269
    )
    
    $
    163,182Cost of sales
    
    
    
    
    
    
    88,864
    
    
    
    39,789
    
    
    
    (13,269
    )
    
    
    115,384Gross profit
    
    
    
    
    
    
    31,467
    
    
    
    16,331
    
    
    
    
    
    
    
    47,798Selling, general and administrative expenses
    
    
    
    
    
    
    15,396
    
    
    
    9,317
    
    
    
    
    
    
    
    24,713Research and development costs
    
    
    
    
    
    
    1,062
    
    
    
    669
    
    
    
    
    
    
    
    1,731Restructuring expense
    
    
    
    
    
    
    496
    
    
    
    237
    
    
    
    
    
    
    
    733Income from operations
    
    
    
    
    
    
    14,513
    
    
    
    6,108
    
    
    
    
    
    
    
    20,621Interest expense, net
    
    
    6,754
    
    
    
    609
    
    
    
    78
    
    
    
    
    
    
    
    7,441Other non-operating expense (income)
    
    
    146
    
    
    
    (155
    )
    
    
    (617
    )
    
    
    
    
    
    
    (626
    )Equity in earnings of subsidiaries
    
    
    13,062
    
    
    
    
    
    
    
    
    
    
    
    (13,062
    )
    
    
    Income before income taxes
    
    
    6,162
    
    
    
    14,059
    
    
    
    6,647
    
    
    
    (13,062
    )
    
    
    13,806Provision (benefit) for income taxes
    
    
    (2,398
    )
    
    
    4,921
    
    
    
    2,326
    
    
    
    
    
    
    
    4,849Net income from continuing operations
    
    
    8,560
    
    
    
    9,138
    
    
    
    4,321
    
    
    
    (13,062
    )
    
    
    8,957Net loss from discontinued operations
    
    
    
    
    
    
    (397
    )
    
    
    
    
    
    
    
    
    
    
    (397
    )Net income
    
    $
    8,560
    
    
    $
    8,741
    
    
    $
    4,321
    
    
    $
    (13,062
    )
    
    $
    8,560
 Unaudited
Condensed Consolidating Statements of Income of the Company
Quarter ended March 31, 2007
 Quarter ended March 31, 2007Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    93,624
    
    
    $
    45,538
    
    
    $
    (6,456
    )
    
    $
    132,706Cost of sales
    
    
    
    
    
    
    68,005
    
    
    
    33,109
    
    
    
    (6,456
    )
    
    
    94,658Gross profit
    
    
    
    
    
    
    25,619
    
    
    
    12,429
    
    
    
    
    
    
    
    38,048Selling, general and administrative expenses
    
    
    
    
    
    
    12,656
    
    
    
    8,148
    
    
    
    
    
    
    
    20,804Research and development expenses
    
    
    
    
    
    
    694
    
    
    
    600
    
    
    
    
    
    
    
    1,294Restructuring Charges
    
    
    
    
    
    
    577
    
    
    
    216
    
    
    
    
    
    
    
    793Income from operations
    
    
    
    
    
    
    11,692
    
    
    
    3,465
    
    
    
    
    
    
    
    15,157Interest expense, net
    
    
    7,175
    
    
    
    33
    
    
    
    1,940
    
    
    
    
    
    
    
    9,148Other non-operating (income) expense, net
    
    
    (36
    )
    
    
    (25
    )
    
    
    14
    
    
    
    
    
    
    
    (47
    )Equity in earnings of subsidiaries
    
    
    10,930
    
    
    
    
    
    
    
    
    
    
    
    (10,930
    )
    
    
    Income before income taxes
    
    
    3,791
    
    
    
    11,684
    
    
    
    1,511
    
    
    
    (10,930
    )
    
    
    6,056Provision for income taxes
    
    
    
    
    
    
    1,696
    
    
    
    569
    
    
    
    
    
    
    
    2,265Net income
    
    $
    3,791
    
    
    $
    9,988
    
    
    $
    942
    
    
    $
    (10,930
    )
    
    $
    3,791
 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 Statements of Cash Flows of the Company
Quarter ended March 29, 2008
 Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    8,560
    
    
    $
    8,741
    
    
    $
    4,321
    
    
    $
    (13,062
    )
    
    $
    8,560Undistributed equity in earnings of subsidiaries
    
    
    (13,062
    )
    
    
    
    
    
    
    
    
    
    
    13,062
    
    
    
    Adjustments to reconcile net income to cash
provided by operating activities:Depreciation
    
    
    
    
    
    
    2,705
    
    
    
    1,400
    
    
    
    
    
    
    
    4,105Amortization of intangible assets
    
    
    
    
    
    
    1,029
    
    
    
    406
    
    
    
    
    
    
    
    1,435Amortization and write-off of deferred loan costs
    
    
    418
    
    
    
    1,210
    
    
    
    
    
    
    
    
    
    
    
    599Accretion of debt discount
    
    
    179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179Stock-based compensation
    
    
    416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    416Loss on disposal of fixed assets
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    128Loss on foreign currency, net
    
    
    (171
    )
    
    
    
    
    
    
    (203
    )
    
    
    
    
    
    
    (374
    )Changes in operating assets and liabilities:Trade receivables
    
    
    
    
    
    
    (9,125
    )
    
    
    (6,861
    )
    
    
    
    
    
    
    (15,986
    )Inventories
    
    
    
    
    
    
    687
    
    
    
    (274
    )
    
    
    
    
    
    
    413Accounts payable and accrued liabilities
    
    
    3,449
    
    
    
    (350
    )
    
    
    2,600
    
    
    
    
    
    
    
    5,699Other current assets and liabilities
    
    
    257
    
    
    
    (1,267
    )
    
    
    (616
    )
    
    
    
    
    
    
    (1,626
    )Other operating assets and liabilities
    
    
    (181
    )
    
    
    133
    
    
    
    377
    
    
    
    
    
    
    
    329Net cash provided by (used in) continuing
operating activities
    
    $
    (135
    )
    
    $
    2,862
    
    
    $
    1,150
    
    
    
    
    
    
    $
    3,877Cash flows from investing activities:Purchases of fixed assets
    
    
    
    
    
    
    (3,397
    )
    
    
    (1,097
    )
    
    
    
    
    
    
    (4,494
    )Proceeds from the sale of Electronics
    
    
    17,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,000Net cash provided by (used in) investing activities
    
    $
    17,000
    
    
    $
    (3,397
    )
    
    $
    (1,097
    )
    
    
    
    
    
    $
    12,506Cash flows from financing activities:Payments on senior notes
    
    
    (1,346
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,346
    )Payments on mortgages
    
    
    
    
    
    
    
    
    
    
    (133
    )
    
    
    
    
    
    
    (133
    )Net payments received from parent company
    
    
    11,902
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,902Payments on revolving credit agreements
    
    
    
    
    
    
    (1,723
    )
    
    
    
    
    
    
    
    
    
    
    (1,723
    )Payment of capital leases
    
    
    
    
    
    
    (154
    )
    
    
    (102
    )
    
    
    
    
    
    
    (256
    )Change in affiliated debt
    
    
    11,692
    
    
    
    (1,331
    )
    
    
    (10,361
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    $
    22,248
    
    
    $
    (3,208
    )
    
    $
    (10,596
    )
    
    
    
    
    
    
    8,444Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    228
    
    
    
    
    
    
    
    228Increase (decrease) in cash and cash equivalents
    
    
    39,113
    
    
    
    (3,743
    )
    
    
    (10,315
    )
    
    
    
    
    
    
    25,055Cash and cash equivalents, beginning of the period
    
    
    4,571
    
    
    
    (492
    )
    
    
    29,827
    
    
    
    
    
    
    
    33,906Cash and cash equivalents, end of period
    
    $
    43,684
    
    
    $
    (4,235
    )
    
    $
    19,512
    
    
    $
    
    
    
    $
    58,961
 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 Statements of Cash Flows of the Company
Quarter ended March 31, 2007
 Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    3,791
    
    
    $
    9,988
    
    
    $
    942
    
    
    
    (10,930
    )
    
    $
    3,791Undistributed equity in earnings of subsidiaries
    
    
    (10,930
    )
    
    
    
    
    
    
    
    
    
    
    10,930
    
    
    
    Adjustments to reconcile net income to cash provided by
(used in) operating activities:Depreciation
    
    
    
    
    
    
    2,032
    
    
    
    1,442
    
    
    
    
    
    
    
    3,474Amortization of intangible assets
    
    
    
    
    
    
    612
    
    
    
    379
    
    
    
    
    
    
    
    991Amortization and write-off of deferred loan costs
    
    
    1,076
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,076Accretion of debt discount
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236Loss (gain) on foreign currency
    
    
    286
    
    
    
    
    
    
    
    (248
    )
    
    
    
    
    
    
    38Loss on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    112Stock based compensation
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    257Changes in operating assets and liabilities:Trade receivables
    
    
    
    
    
    
    (7,199
    )
    
    
    (5,083
    )
    
    
    
    
    
    
    (12,282
    )Inventories
    
    
    
    
    
    
    (1,281
    )
    
    
    257
    
    
    
    
    
    
    
    (1,024
    )Accounts payable and accrued liabilities
    
    
    (3,066
    )
    
    
    (1,517
    )
    
    
    264
    
    
    
    
    
    
    
    (4,319
    )Other current assets and liabilities
    
    
    3,018
    
    
    
    (843
    )
    
    
    (556
    )
    
    
    
    
    
    
    1,619Other operating assets and liabilities
    
    
    (10
    )
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    31Net cash provided by (used in) operating activities
    
    
    (5,342
    )
    
    
    1,833
    
    
    
    (2,492
    )
    
    
    
    
    
    
    (6,000
    )Cash flows from investing activities:Purchases of fixed assets
    
    
    
    
    
    
    (729
    )
    
    
    (305
    )
    
    
    
    
    
    
    (1,034
    )Net cash used in investing activities
    
    
    
    
    
    
    (729
    )
    
    
    (305
    )
    
    
    
    
    
    
    (1,034
    )Cash flows from financing activities:Payments on senior notes
    
    
    (22,673
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,673
    )Borrowings under revolving credit agreements
    
    
    520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    520Payments on revolving credit agreements
    
    
    (520
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (520
    )Change in affiliate debt
    
    
    (1,074
    )
    
    
    (353
    )
    
    
    302
    
    
    
    
    
    
    
    (1,125
    )Change in capital leases
    
    
    
    
    
    
    145
    
    
    
    (395
    )
    
    
    
    
    
    
    (250
    )Net cash used in financing activities
    
    
    (23,747
    )
    
    
    (208
    )
    
    
    (93
    )
    
    
    
    
    
    
    (24,048
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    113Increase (decrease) in cash and cash equivalents
    
    
    (29,089
    )
    
    
    896
    
    
    
    (2,777
    )
    
    
    
    
    
    
    (30,969
    )Cash and cash equivalents, beginning of the period
    
    
    41,016
    
    
    
    (5,488
    )
    
    
    6,999
    
    
    
    
    
    
    
    42,527Cash and cash equivalents, end of period
    
    
    11,927
    
    
    
    (4,592
    )
    
    
    4,223
    
    
    
    
    
    
    
    11,558
 18




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of the financial condition and results of operations of Altra
Industrial Motion, Inc. should be read together with the audited financial statements of Altra Industrial
Motion, Inc. and related notes included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2007. The following discussion includes forward-looking statements. For a
discussion of important factors that could cause actual results to differ materially from the
results referred to in the forward-looking statements, see Forward-Looking Statements. in the
Companys Annual Report on Form 10-K for the year ended December 31, 2007.
 General
   Critical Accounting Policies
  Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an Amendment of FASB Statement No. 115
   19




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##### 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.
   20




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##### Table of Contents



Results of Operations
 Quarter EndedMarch 29,
    
    
    March 31,2008
    
    
    2007(Amounts in thousands)Net sales
    
    $
    163,182
    
    
    $
    132,706Cost of sales
    
    
    115,384
    
    
    
    94,658Gross profit
    
    
    47,798
    
    
    
    38,048Gross profit percentage
    
    
    29.3
    %
    
    
    28.7
    %Selling, general and administrative expenses
    
    
    24,713
    
    
    
    20,827Research and development expenses
    
    
    1,731
    
    
    
    1,294Restructuring charges
    
    
    733
    
    
    
    793Income from continuing operations
    
    
    20,621
    
    
    
    15,134Interest expense, net
    
    
    7,441
    
    
    
    9,148Other non-operating income, net
    
    
    (626
    )
    
    
    (47
    )Income from continuing operations before income taxes
    
    
    13,806
    
    
    
    6,033Provision for income taxes
    
    
    4,849
    
    
    
    2,265Net income from continuing operations
    
    
    8,957
    
    
    
    3,768Income from discontinued operations
    
    
    (397
    )
    
    
    0Net income
    
    
    8,560
    
    
    
    3,768
 Quarter Ended March 29, 2008 Compared with Quarter Ended March 31, 2007
 (Amounts in thousands unless otherwise noted)
 Quarter EndedMarch 29, 2008
    
    March 31, 2007
    
    Change
    
    %Net sales
    
    $
    163,182
    
    
    $
    132,706
    
    
    $
    30,476
    
    
    
    23.0
    %
  Quarter EndedMarch 29, 2008
    
    March 31, 2007
    
    Change
    
    %Gross profit
    
    $
    47,798
    
    
    $
    38,048
    
    
    $
    9,750
    
    
    
    25.6
    %Gross profit as a percentage of net sales
    
    
    29.3
    %
    
    
    28.7
    %
   21




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##### Table of Contents



Quarter EndedMarch 29, 2008
    
    March 31, 2007
    
    Change
    
    %Selling, general and administrative expense (SG&A)
    
    $
    24,713
    
    
    $
    20,827
    
    
    $
    3,886
    
    
    
    15.7
    %SG&A as a percentage of sales
    
    
    15.1
    %
    
    
    15.7
    %
   Quarter EndedMarch 29, 2008
    
    March 31, 2007
    
    Change
    
    %Research and development expenses (R&D)
    
    $
    1,731
    
    
    $
    1,294
    
    
    $
    437
    
    
    
    33.8
    %
  Quarter EndedMarch 29, 2008
    
    March 31, 2007
    
    Change
    
    %Restructuring expenses
    
    $
    733
    
    
    $
    793
    
    
    $
    (60
    )
    
    
    (8.2
    %)
  Quarter EndedMarch 29, 2008
    
    March 31, 2007
    
    Change
    
    %Interest expense, net
    
    $
    7,441
    
    
    $
    9,148
    
    
    $
    (1,707
    )
    
    
    (18.7
    %)
  Quarter EndedMarch 29, 2008
    
    March 31, 2007
    
    Change
    
    %Other non-operating income, net
    
    $
    (626
    )
    
    $
    (47
    )
    
    $
    579
    
    
    
    N/A
  22




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##### Table of Contents



Quarter EndedMarch 29, 2008
    
    March 31, 2007
    
    Change
    
    %Earnings before interest taxes depreciation & amortizationEBITDA
    
    $
    26,390
    
    
    $
    19,600
    
    
    $
    6,790
    
    
    
    34.6
    %
  Quarter EndedMarch 29, 2008
    
    March 31, 2007
    
    Change
    
    %Provision for income taxes, continuing operations
    
    $
    4,849
    
    
    $
    2,265
    
    
    $
    2,584
    
    
    
    53.3
    %Provision for income taxes as a % of income before taxes
    
    
    35.1
    %
    
    
    37.5
    %
  Discontinued Operations
    Liquidity and Capital Resources
 Net Cash
 March 29, 2008
    
    December 31, 2007(in thousands)Cash and cash equivalents
    
    $
    58,961
    
    
    $
    45,807
 23




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##### Table of Contents



Cash and cash equivalents increased $13.2 million in the first quarter 2008 due to the following:
    Liquidity
       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
 24




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##### Table of Contents



Contractual Obligations
   1 4
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
     
 PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings
  25




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##### Table of Contents



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
  26




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##### Table of Contents



EXHIBIT INDEX
 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 Registrants Registration
Statement on Form S-4, as amended,
filed with the Securities and Exchange Commission on May 16, 2005. 27




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##### Table of Contents



SIGNATURES
  ALTRA HOLDINGS, INC.May 13, 2008
    By:
    /s/ Michael L. HurtName:
    Michael L. HurtTitle
    Chairman and Chief Executive OfficerMay 13, 2008
    By:
    /s/ Christian StorchName:
    Christian StorchTitle:
    Vice President and Chief Financial Officer 28