##### 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 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to
 Commission file number 333-124944
 ALTRA INDUSTRIAL MOTION, INC.
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    30-0283143
(I.R.S. Employer Identification No.)14 Hayward Street, Quincy, Massachusetts
(Address of principal executive offices)
    
    02171
(Zip Code)
 (617) 328-3300
 NONE  NONE
 þ o
  Large Accelerated filer  o
    
    Accelerated Filer   o
    
    Non-accelerated filer  þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes   o       No  þ




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##### 



TABLE OF CONTENTS
 PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    CONDENSED FINANCIAL STATEMENTS
    
    
    1Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    16Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    19Item 4.
    
    CONTROLS AND PROCEDURES
    
    
    20PART II
    
    OTHER INFORMATIONItem 1.
    
    LEGAL PROCEEDINGS
    
    
    21Item 1A.
    
    RISK FACTORS
    
    
    21Item 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    22Item 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    22Item 4.
    
    SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    22Item 5.
    
    OTHER INFORMATION
    
    
    22Item 6.
    
    EXHIBITS
    
    
    23SIGNATURESEX-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




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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ALTRA INDUSTRIAL MOTION, INC
 Consolidated Balance Sheets
 Dollars in thousands
 March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    5,322
    
    
    $
    10,060Trade receivables, less allowance for doubtful accounts of $2,114 and $1,797
    
    
    68,535
    
    
    
    46,441Inventories, less allowance for obsolete materials of $9,697 and $6,843
    
    
    72,524
    
    
    
    54,654Deferred income taxes
    
    
    2,499
    
    
    
    2,779Prepaid expenses and other current assets
    
    
    4,965
    
    
    
    1,973Total current assets
    
    
    153,845
    
    
    
    115,907Property, plant and equipment, net
    
    
    73,243
    
    
    
    66,393Intangible assets, net
    
    
    60,045
    
    
    
    44,751Goodwill
    
    
    76,838
    
    
    
    65,345Other assets, net
    
    
    5,841
    
    
    
    5,008Total assets
    
    $
    369,812
    
    
    $
    297,404Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    37,881
    
    
    $
    30,724Accrued payroll
    
    
    16,719
    
    
    
    16,016Accruals and other liabilities
    
    
    22,329
    
    
    
    16,239Deferred income taxes
    
    
    188
    
    
    
    33Current portion of capital leases and short term bank borrowings
    
    
    3,651
    
    
    
    186Total current liabilities
    
    
    80,768
    
    
    
    63,198Long-term debt, less current portion and net of unaccreted discount
    
    
    218,234
    
    
    
    159,574Deferred income taxes
    
    
    9,011
    
    
    
    7,550Pension liabilities
    
    
    14,731
    
    
    
    14,368Other post retirement benefits
    
    
    12,650
    
    
    
    12,500Other long term liabilities
    
    
    1,594
    
    
    
    1,601Commitments and Contingencies
    
    
    
    
    
    
    Stockholders equity:Common stock (1,000 shares authorized, issued & outstanding, $0.001 par value)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,814
    
    
    
    48,814Due from Parent
    
    
    (11,955
    )
    
    
    (1,610
    )Retained earnings (deficit)
    
    
    2,766
    
    
    
    (1,318
    )Cumulative foreign currency translation adjustment
    
    
    (5,379
    )
    
    
    (5,851
    )Minimum pension liability
    
    
    (1,422
    )
    
    
    (1,422
    )Total stockholders equity
    
    
    32,824
    
    
    
    38,613Total liabilities and stockholders equity
    
    $
    369,812
    
    
    $
    297,404
  1




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
 Consolidated Statements of Operations and Comprehensive Income (Loss)
 Dollars in thousands
 Three Months EndedApril 1,March 31,
    
    
    20052006
    
    
    (unaudited)(unaudited)
    
    
    (Restated)Net sales
    
    $
    114,784
    
    
    $
    95,302Cost of sales
    
    
    82,930
    
    
    
    73,402Gross profit
    
    
    31,854
    
    
    
    21,900Selling, general and administrative expenses
    
    
    18,727
    
    
    
    15,727Research and development expenses
    
    
    1,204
    
    
    
    1,196Income from operations
    
    
    11,923
    
    
    
    4,977Interest expense, net
    
    
    5,176
    
    
    
    4,262Other non-operating income, net
    
    
    (159
    )
    
    
    Income before income taxes
    
    
    6,906
    
    
    
    715Provision for income taxes
    
    
    2,822
    
    
    
    314Net income
    
    
    4,084
    
    
    
    401Other comprehensive income (loss), net of income taxes:Foreign currency translation adjustment
    
    
    472
    
    
    
    (793
    )Other comprehensive income (loss)
    
    
    472
    
    
    
    (793
    )Comprehensive income (loss)
    
    $
    4,556
    
    
    $
    (392
    )
  2




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
 Consolidated Statements of Cash Flows
 Dollars in thousands
 Three Months EndedApril 1,March 31,
    
    
    20052006
    
    
    (unaudited)(unaudited)
    
    
    (Restated)Cash flows from operating activities:Net income
    
    $
    4,084
    
    
    $
    401Adjustments to reconcile net income to cash
provided by (used in) operating activities:Depreciation
    
    
    2,200
    
    
    
    2,021Amortization of intangible assets
    
    
    745
    
    
    
    740Amortization of deferred loan costs
    
    
    178
    
    
    
    160Accretion of debt discount
    
    
    237
    
    
    
    237Amortization of inventory fair value adjustment
    
    
    984
    
    
    
    1,699Gains on sale of fixed assets
    
    
    (6
    )
    
    
    (15
    )Provision for deferred taxes
    
    
    1,094
    
    
    
    231Changes in operating assets and liabilities:Trade receivables
    
    
    (9,040
    )
    
    
    (5,643
    )Inventories
    
    
    (2,309
    )
    
    
    (1,570
    )Accounts payable and accrued liabilities
    
    
    3,282
    
    
    
    1,249Other current assets and liabilities
    
    
    1,030
    
    
    
    (2,802
    )Other operating assets and liabilities
    
    
    (832
    )
    
    
    (570
    )Net cash provided by (used in) operating activities
    
    
    1,647
    
    
    
    (3,862
    )Cash flows from investing activities:Purchases of fixed assets
    
    
    (1,245
    )
    
    
    (951
    )Sales of fixed assets
    
    
    
    
    
    
    15Payment of additional Kilian purchase price
    
    
    
    
    
    
    (730
    )Acquisitions, net of $441 of cash acquired
    
    
    (50,540
    )
    
    
    Net cash used in investing activities
    
    
    (51,785
    )
    
    
    (1,666
    )Cash flows from financing activities:Proceeds from issuance of senior notes
    
    
    57,625
    
    
    
    Payment of debt issuance costs
    
    
    (1,833
    )
    
    
    Payments made on behalf of Parent company
    
    
    (10,410
    )
    
    
    (801
    )Borrowings under revolving credit agreement
    
    
    5,057
    
    
    
    4,164Payments on revolving credit agreement
    
    
    (5,057
    )
    
    
    Payment of capital leases
    
    
    (57
    )
    
    
    (60
    )Net cash provided by financing activities
    
    
    45,325
    
    
    
    3,303Effect of exchange rates on cash
    
    
    75
    
    
    
    (115
    )Decrease in cash and cash equivalents
    
    
    (4,738
    )
    
    
    (2,340
    )Cash and cash equivalents, beginning of period
    
    
    10,060
    
    
    
    4,729Cash and cash equivalents, end of period
    
    $
    5,322
    
    
    $
    2,389Cash paid during the period for:Interest
    
    $
    14
    
    
    $
    26Income Taxes
    
    $
    184
    
    
    $
    398
  3




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 1. Organization and Nature of Operations
  2. Basis of Presentation
    3. Restated Financial Data
  4. Acquisitions
   4




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
  Total purchase price, including closing costs of approximately $1.7 million
    
    $
    50,981Cash and cash equivalents
    
    
    441Trade receivables
    
    
    12,959Inventories
    
    
    16,442Prepaid expenses and other
    
    
    1,099Property, plant and equipment
    
    
    7,587Intangible assets
    
    
    15,900Total assets acquired
    
    
    54,428Accounts payable, accrued payroll, and accruals and other current liabilities
    
    
    11,282Other liabilities
    
    
    3,472Total liabilities assumed
    
    
    14,754Net assets acquired
    
    
    39,674Excess purchase price over the fair value of net assets acquired
    
    $
    11,307
   Customer relationships
    
    $
    9,064Product technology and patents
    
    
    1,589Total intangible assets subject to amortization
    
    
    10,653Trade names and trademarks, not subject to amortization
    
    
    5,247Total intangible assets
    
    $
    15,900
   Quarter ended
    
    Quarter ended(Pro forma, unaudited, in thousands)
    
    March 31, 2006
    
    April 1, 2005Total Revenues
    
    $
    122,275
    
    
    $
    104,393Net income
    
    $
    5,135
    
    
    $
    517
 5




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 5. Cash and Cash Equivalents
  6. Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    26,860
    
    
    $
    22,512Work in process
    
    
    18,096
    
    
    
    13,876Finished goods
    
    
    37,265
    
    
    
    25,10982,221
    
    
    
    61,497LessAllowance for excess, slow-moving and obsolete inventory
    
    
    (9,697
    )
    
    
    (6,843
    )$
    72,524
    
    
    $
    54,654
 7. Goodwill and Intangible Assets
  Goodwill
    
    CostBalance December 31, 2005
    
    $
    65,345Additions related to Hay Hall acquisition
    
    
    11,307Impact of changes in foreign currency
    
    
    186Balance March 31, 2006
    
    $
    76,838
 March 31, 2006
    
    
    December 31, 2005Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationIntangible assets not subject to amortization:Tradenames and trademarks
    
    $
    21,327
    
    
    $
    
    
    
    $
    16,080
    
    
    $
    Intangible assets subject to amortization:Customer relationships
    
    
    36,866
    
    
    
    3,101
    
    
    
    27,802
    
    
    
    2,515Product technology and patents
    
    
    6,711
    
    
    
    849
    
    
    
    5,122
    
    
    
    690Impact of changes in foreign currency
    
    
    (909
    )
    
    
    
    
    
    
    (1,048
    )
    
    
    Total intangible assets
    
    $
    63,995
    
    
    $
    3,950
    
    
    $
    47,956
    
    
    $
    3,205
   6




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 8. Warranty Costs
  March 31, 2006
    
    
    April 1, 2005Balance at beginning of period
    
    $
    1,876
    
    
    $
    1,528Accrued warranty costs
    
    
    449
    
    
    
    381Payments and adjustments
    
    
    (458
    )
    
    
    (469
    )Balance at end of period
    
    $
    1,867
    
    
    $
    1,440
 9. Income Taxes
 .
 10. Pension and Other Employee Benefits
 Defined Benefit (Pension) and Postretirement Benefit Plans
   Pension Benefits
    
    
    Other BenefitsMarch 31, 2006
    
    
    April 1, 2005
    
    
    March 31, 2006
    
    
    April 1, 2005Service cost
    
    $
    151
    
    
    $
    127
    
    
    $
    84
    
    
    $
    94Interest cost
    
    
    334
    
    
    
    309
    
    
    
    150
    
    
    
    180Amortization of net (gain) loss
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    Expected return on plan assets
    
    
    (207
    )
    
    
    (105
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    2
    
    
    
    
    
    
    
    (101
    )
    
    
    Net periodic benefit cost
    
    $
    280
    
    
    $
    331
    
    
    $
    150
    
    
    $
    274
  11. Financing Arrangements
 Revolving Credit Agreement
 7
    Table of Contents  ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
    9% Senior Secured Notes
   11.25% Senior Notes
    Capital Leases
  12. Stockholders Equity
  8
    Table of Contents  ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 Stock-Based Compensation
  13. Related-Party Transactions
 Kilian Acquisition
  Management Agreement
  Altra Holdings
  14. Concentrations of Credit, Business Risks and Workforce
     9
    Table of Contents  ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 15. Geographic Information
  Property, Plant andNet Sales
    
    
    EquipmentQuarter endedQuarter ended
    
    
    April 1,March 31,
    
    
    2005
    
    
    March 31,
    
    
    December 31,2006
    
    
    (Restated)
    
    
    2006
    
    
    2005North America (primarily U.S.)
    
    $
    84,614
    
    
    $
    71,729
    
    
    $
    47,055
    
    
    $
    47,587Europe
    
    
    26,230
    
    
    
    19,714
    
    
    
    24,418
    
    
    
    16,968Asia and other
    
    
    3,940
    
    
    
    3,859
    
    
    
    1,770
    
    
    
    1,838Total
    
    $
    114,784
    
    
    $
    95,302
    
    
    $
    73,243
    
    
    $
    66,393
    16. Commitments and Contingencies
 General Litigation
   17. Guarantor Subsidiaries
  10
    Table of Contents  ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Balance Sheets of the Company
March 31, 2006
 March 31, 2006NonIssuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    2,788
    
    
    $
    (2,788
    )
    
    $
    5,322
    
    
    $
    
    
    
    $
    5,322Trade receivables, less allowance for doubtful
accounts
    
    
    
    
    
    
    41,762
    
    
    
    26,773
    
    
    
    
    
    
    
    68,535Loans receivable from related parties
    
    
    13,840
    
    
    
    30,826
    
    
    
    
    
    
    
    (44,666
    )
    
    
    Inventories, less allowances for obsolete materials
    
    
    
    
    
    
    47,551
    
    
    
    24,973
    
    
    
    
    
    
    
    72,524Deferred income taxes
    
    
    
    
    
    
    2,372
    
    
    
    127
    
    
    
    
    
    
    
    2,499Prepaid expenses and other
    
    
    394
    
    
    
    2,475
    
    
    
    2,096
    
    
    
    
    
    
    
    4,965Total current assets
    
    
    17,022
    
    
    
    122,198
    
    
    
    59,291
    
    
    
    (44,666
    )
    
    
    153,845Property, plant and equipment, net
    
    
    
    
    
    
    47,055
    
    
    
    26,188
    
    
    
    
    
    
    
    73,243Intangible assets, net
    
    
    
    
    
    
    36,158
    
    
    
    23,887
    
    
    
    
    
    
    
    60,045Goodwill
    
    
    
    
    
    
    54,596
    
    
    
    22,242
    
    
    
    
    
    
    
    76,838Other assets
    
    
    5,353
    
    
    
    456
    
    
    
    32
    
    
    
    
    
    
    
    5,841Investments in subsidiaries
    
    
    235,470
    
    
    
    
    
    
    
    
    
    
    
    (235,470
    )
    
    
    $
    257,845
    
    
    $
    260,463
    
    
    $
    131,640
    
    
    $
    (280,136
    )
    
    $
    369,812Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    22,432
    
    
    $
    15,449
    
    
    $
    
    
    
    $
    37,881Accrued payroll
    
    
    
    
    
    
    12,037
    
    
    
    4,682
    
    
    
    
    
    
    
    16,719Accruals and other current liabilities
    
    
    7,782
    
    
    
    10,082
    
    
    
    4,465
    
    
    
    
    
    
    
    22,329Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    188
    
    
    
    
    
    
    
    188Current portion of capital leases and short term
bank borrowings
    
    
    
    
    
    
    3,453
    
    
    
    198
    
    
    
    
    
    
    
    3,651Loans payable from related parties
    
    
    
    
    
    
    
    
    
    
    44,666
    
    
    
    (44,666
    )
    
    
    Total current liabilities
    
    
    7,782
    
    
    
    48,004
    
    
    
    69,648
    
    
    
    (44,666
    )
    
    
    80,768Long-term debt, less current portion
    
    
    217,239
    
    
    
    120
    
    
    
    875
    
    
    
    
    
    
    
    218,234Deferred income taxes
    
    
    
    
    
    
    2,448
    
    
    
    6,563
    
    
    
    
    
    
    
    9,011Pension liabilities
    
    
    
    
    
    
    11,823
    
    
    
    2,908
    
    
    
    
    
    
    
    14,731Other post-retirement benefits
    
    
    
    
    
    
    12,650
    
    
    
    
    
    
    
    
    
    
    
    12,650Other long-term liabilities
    
    
    
    
    
    
    107
    
    
    
    1,487
    
    
    
    
    
    
    
    1,594Total liabilities
    
    
    225,021
    
    
    
    75,152
    
    
    
    81,481
    
    
    
    (44,666
    )
    
    
    336,988Total stockholders equity
    
    
    32,824
    
    
    
    185,311
    
    
    
    50,159
    
    
    
    (235,470
    )
    
    
    32,824$
    257,845
    
    
    $
    260,463
    
    
    $
    131,640
    
    
    $
    (280,136
    )
    
    $
    369,812
 11
    Table of Contents  ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Balance Sheets of the Company
December 31, 2005
 December 31, 2005NonIssuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    8,819
    
    
    $
    (2,713
    )
    
    $
    3,954
    
    
    $
    
    
    
    $
    10,060Trade receivables, less allowance for doubtful
accounts
    
    
    
    
    
    
    32,892
    
    
    
    13,549
    
    
    
    
    
    
    
    46,441Loan receivable from related parties
    
    
    
    
    
    
    34,306
    
    
    
    4,301
    
    
    
    (38,607
    )
    
    
    Inventories, less allowances for obsolete materials
    
    
    
    
    
    
    43,562
    
    
    
    11,092
    
    
    
    
    
    
    
    54,654Deferred income taxes
    
    
    
    
    
    
    2,652
    
    
    
    127
    
    
    
    
    
    
    
    2,779Prepaid expenses and other
    
    
    25
    
    
    
    934
    
    
    
    1,014
    
    
    
    
    
    
    
    1,973Total current assets
    
    
    8,844
    
    
    
    111,633
    
    
    
    34,037
    
    
    
    (38,607
    )
    
    
    115,907Property, plant and equipment, net
    
    
    
    
    
    
    45,405
    
    
    
    20,988
    
    
    
    
    
    
    
    66,393Intangible assets, net
    
    
    
    
    
    
    36,729
    
    
    
    8,022
    
    
    
    
    
    
    
    44,751Goodwill
    
    
    
    
    
    
    53,784
    
    
    
    11,561
    
    
    
    
    
    
    
    65,345Other assets
    
    
    4,804
    
    
    
    167
    
    
    
    37
    
    
    
    
    
    
    
    5,008Investments in subsidiaries
    
    
    225,974
    
    
    
    
    
    
    
    
    
    
    
    (225,974
    )
    
    
    $
    239,622
    
    
    $
    247,718
    
    
    $
    74,645
    
    
    $
    (264,581
    )
    
    $
    297,404Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    44
    
    
    $
    21,931
    
    
    $
    8,749
    
    
    $
    
    
    
    $
    30,724Accrued payroll
    
    
    
    
    
    
    12,487
    
    
    
    3,529
    
    
    
    
    
    
    
    16,016Accruals and other current liabilities
    
    
    2,937
    
    
    
    10,384
    
    
    
    2,918
    
    
    
    
    
    
    
    16,239Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    33Current portion of capital leases and short term
bank borrowings
    
    
    
    
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    186Loans payable from related parties
    
    
    38,607
    
    
    
    
    
    
    
    
    
    
    
    (38,607
    )
    
    
    Total current liabilities
    
    
    41,588
    
    
    
    44,988
    
    
    
    15,229
    
    
    
    (38,607
    )
    
    
    63,198Long-term debt, less current portion
    
    
    159,421
    
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    159,574Deferred income taxes
    
    
    
    
    
    
    1,719
    
    
    
    5,831
    
    
    
    
    
    
    
    7,550Pension liabilities
    
    
    
    
    
    
    11,505
    
    
    
    2,863
    
    
    
    
    
    
    
    14,368Other post-retirement benefits
    
    
    
    
    
    
    12,500
    
    
    
    
    
    
    
    
    
    
    
    12,500Other long-term liabilities
    
    
    
    
    
    
    107
    
    
    
    1,494
    
    
    
    
    
    
    
    1,601Total liabilities
    
    
    201,009
    
    
    
    70,972
    
    
    
    25,417
    
    
    
    (38,607
    )
    
    
    258,791Total stockholders equity
    
    
    38,613
    
    
    
    176,746
    
    
    
    49,228
    
    
    
    (225,974
    )
    
    
    38,613$
    239,622
    
    
    $
    247,718
    
    
    $
    74,645
    
    
    $
    (264,581
    )
    
    $
    297,404
 12
    Table of Contents  ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Statements of Operations of the Company
Three months ended March 31, 2006
 Three months ended March 31, 2006Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    84,614
    
    
    $
    33,131
    
    
    $
    (2,961
    )
    
    $
    114,784Cost of sales
    
    
    
    
    
    
    61,691
    
    
    
    24,200
    
    
    
    (2,961
    )
    
    
    82,930Gross profit
    
    
    
    
    
    
    22,923
    
    
    
    8,931
    
    
    
    
    
    
    
    31,854Selling, general and administrative expenses
    
    
    1,005
    
    
    
    11,844
    
    
    
    5,878
    
    
    
    
    
    
    
    18,727Research and development expenses
    
    
    
    
    
    
    666
    
    
    
    538
    
    
    
    
    
    
    
    1,204Income (loss) from operations
    
    
    (1,005
    )
    
    
    10,413
    
    
    
    2,515
    
    
    
    
    
    
    
    11,923Interest expense (income)
    
    
    4,407
    
    
    
    (53
    )
    
    
    822
    
    
    
    
    
    
    
    5,176Other non-operating income
    
    
    
    
    
    
    (110
    )
    
    
    (49
    )
    
    
    
    
    
    
    (159
    )Equity in earnings of subsidiaries
    
    
    9,496
    
    
    
    
    
    
    
    
    
    
    
    (9,496
    )
    
    
    Income before income taxes
    
    
    4,084
    
    
    
    10,576
    
    
    
    1,742
    
    
    
    (9,496
    )
    
    
    6,906Provision for income taxes
    
    
    
    
    
    
    2,011
    
    
    
    811
    
    
    
    
    
    
    
    2,822Net income
    
    $
    4,084
    
    
    $
    8,565
    
    
    $
    931
    
    
    $
    (9,496
    )
    
    $
    4,084
 Restated Condensed Consolidating Statements of Operations of the Company
Three months ended April 1, 2005
 Three months ended April 1, 2005Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    72,553
    
    
    $
    24,969
    
    
    $
    (2,220
    )
    
    $
    95,302Cost of sales
    
    
    
    
    
    
    56,871
    
    
    
    18,751
    
    
    
    (2,220
    )
    
    
    73,402Gross profit
    
    
    
    
    
    
    15,682
    
    
    
    6,218
    
    
    
    
    
    
    
    21,900Selling, general and administrative expenses
    
    
    
    
    
    
    11,351
    
    
    
    4,376
    
    
    
    
    
    
    
    15,727Research and development expenses
    
    
    
    
    
    
    571
    
    
    
    625
    
    
    
    
    
    
    
    1,196Income from operations
    
    
    
    
    
    
    3,760
    
    
    
    1,217
    
    
    
    
    
    
    
    4,977Interest expense (income)
    
    
    4,110
    
    
    
    (225
    )
    
    
    377
    
    
    
    
    
    
    
    4,262Equity in earnings of subsidiaries
    
    
    4,511
    
    
    
    
    
    
    
    
    
    
    
    (4,511
    )
    
    
    Income before income taxes
    
    
    401
    
    
    
    3,985
    
    
    
    840
    
    
    
    (4,511
    )
    
    
    715Provision for income taxes
    
    
    
    
    
    
    284
    
    
    
    30
    
    
    
    
    
    
    
    314Net income
    
    $
    401
    
    
    $
    3,701
    
    
    $
    810
    
    
    $
    (4,511
    )
    
    $
    401
 13
    Table of Contents  ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Statements of Cash Flows of the Company
Three months ended March 31, 2006
 Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    4,084
    
    
    $
    8,565
    
    
    $
    931
    
    
    $
    (9,496
    )
    
    $
    4,084Undistributed equity in earnings of subsidiaries
    
    
    (9,496
    )
    
    
    
    
    
    
    
    
    
    
    9,496
    
    
    
    Adjustments to reconcile net income to cash
provided by (used in) operating activities:Depreciation
    
    
    
    
    
    
    1,555
    
    
    
    645
    
    
    
    
    
    
    
    2,200Amortization of intangible assets
    
    
    
    
    
    
    571
    
    
    
    174
    
    
    
    
    
    
    
    745Amortization of deferred loan costs
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Accretion of debt discount
    
    
    237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237Amortization of inventory fair value adjustment
    
    
    
    
    
    
    103
    
    
    
    881
    
    
    
    
    
    
    
    984Gain on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Provision for deferred taxes
    
    
    
    
    
    
    854
    
    
    
    240
    
    
    
    
    
    
    
    1,094Changes in operating assets and liabilities:Trade receivables
    
    
    
    
    
    
    (6,862
    )
    
    
    (2,178
    )
    
    
    
    
    
    
    (9,040
    )Inventories
    
    
    
    
    
    
    (1,718
    )
    
    
    (591
    )
    
    
    
    
    
    
    (2,309
    )Accounts payable and accrued liabilities
    
    
    4,801
    
    
    
    (1,074
    )
    
    
    (445
    )
    
    
    
    
    
    
    3,282Other current assets and liabilities
    
    
    (369
    )
    
    
    1,633
    
    
    
    (234
    )
    
    
    
    
    
    
    1,030Other operating assets and liabilities
    
    
    1,106
    
    
    
    (289
    )
    
    
    (1,649
    )
    
    
    
    
    
    
    (832
    )Net cash provided by (used in) continuing
operating activities
    
    
    541
    
    
    
    3,338
    
    
    
    (2,232
    )
    
    
    
    
    
    
    1,647Cash flows from investing activities:Purchases of fixed assets
    
    
    
    
    
    
    (1,157
    )
    
    
    (88
    )
    
    
    
    
    
    
    (1,245
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (5,692
    )
    
    
    (44,848
    )
    
    
    
    
    
    
    (50,540
    )Net cash used in investing activities
    
    
    
    
    
    
    (6,849
    )
    
    
    (44,936
    )
    
    
    
    
    
    
    (51,785
    )Cash flows from financing activities:Proceeds from issuance of senior subordinated notes
    
    
    57,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,625Payment of debt issuance costs
    
    
    (1,833
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,833
    )Payment on behalf of parent company
    
    
    (10,410
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,410
    )Borrowings under revolving credit agreements
    
    
    5,057
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,057Payments on revolving credit agreements
    
    
    (5,057
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,057
    )Change in affiliate debt
    
    
    (51,954
    )
    
    
    3,480
    
    
    
    48,474
    
    
    
    
    
    
    
    Payment of capital leases
    
    
    
    
    
    
    (44
    )
    
    
    (13
    )
    
    
    
    
    
    
    (57
    )Net cash provided by (used in) financing activities
    
    
    (6,572
    )
    
    
    3,436
    
    
    
    48,461
    
    
    
    
    
    
    
    45,325Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    75Increase (decrease) in cash and cash equivalents
    
    
    (6,031
    )
    
    
    (75
    )
    
    
    1,368
    
    
    
    
    
    
    
    (4,738
    )Cash and cash equivalents, beginning of the period
    
    
    8,819
    
    
    
    (2,713
    )
    
    
    3,954
    
    
    
    
    
    
    
    10,060Cash and cash equivalents, end of period
    
    $
    2,788
    
    
    $
    (2,788
    )
    
    $
    5,322
    
    
    $
    
    
    
    $
    5,322
 14
    Table of Contents  ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted
 Restated Condensed Consolidating Statements of Cash Flows of the Company
Three months ended April 1, 2005
 Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    401
    
    
    $
    3,701
    
    
    $
    810
    
    
    $
    (4,511
    )
    
    $
    401Undistributed equity in earnings of subsidiaries
    
    
    (4,511
    )
    
    
    
    
    
    
    
    
    
    
    4,511
    
    
    
    Adjustments
to reconcile net income to cash used in
operating activities:Depreciation
    
    
    
    
    
    
    1,573
    
    
    
    448
    
    
    
    
    
    
    
    2,021Amortization of intangible assets
    
    
    
    
    
    
    576
    
    
    
    164
    
    
    
    
    
    
    
    740Amortization and write-off of deferred loan costs
    
    
    160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160Accretion of debt discount
    
    
    237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237Amortization of inventory fair value adjustment
    
    
    
    
    
    
    1,270
    
    
    
    429
    
    
    
    
    
    
    
    1,699Gain on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Provision for deferred taxes
    
    
    
    
    
    
    231
    
    
    
    
    
    
    
    
    
    
    
    231Changes in operating assets and liabilities:Trade receivables
    
    
    
    
    
    
    (3,240
    )
    
    
    (2,403
    )
    
    
    
    
    
    
    (5,643
    )Inventories
    
    
    
    
    
    
    (2,162
    )
    
    
    592
    
    
    
    
    
    
    
    (1,570
    )Accounts payable and accrued liabilities
    
    
    2,222
    
    
    
    (334
    )
    
    
    (639
    )
    
    
    
    
    
    
    1,249Other current assets and liabilities
    
    
    
    
    
    
    (2,614
    )
    
    
    (188
    )
    
    
    
    
    
    
    (2,802
    )Other operating assets and liabilities
    
    
    (976
    )
    
    
    (391
    )
    
    
    797
    
    
    
    
    
    
    
    (570
    )Net cash used in continuing operating
activities
    
    
    (2,467
    )
    
    
    (1,390
    )
    
    
    (5
    )
    
    
    
    
    
    
    (3,862
    )Cash flows from investing activities:Purchases of fixed assets
    
    
    
    
    
    
    (724
    )
    
    
    (227
    )
    
    
    
    
    
    
    (951
    )Payment of additional Kilian purchase price
    
    
    
    
    
    
    (730
    )
    
    
    
    
    
    
    
    
    
    
    (730
    )Sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Net cash used in investing activities
    
    
    
    
    
    
    (1,454
    )
    
    
    (212
    )
    
    
    
    
    
    
    (1,666
    )Cash flows from financing activities:Payments made on behalf of Parent company
    
    
    (801
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (801
    )Borrowings under revolving credit agreements
    
    
    4,164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,164Change in affiliate debt
    
    
    (1,746
    )
    
    
    2,304
    
    
    
    (558
    )
    
    
    
    
    
    
    Change in capital leases
    
    
    
    
    
    
    (85
    )
    
    
    25
    
    
    
    
    
    
    
    (60
    )Net cash (used in) provided by financing activities
    
    
    1,617
    
    
    
    2,219
    
    
    
    (533
    )
    
    
    
    
    
    
    3,303Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (115
    )
    
    
    
    
    
    
    (115
    )Increase (decrease) in cash and cash equivalents
    
    
    (850
    )
    
    
    (625
    )
    
    
    (865
    )
    
    
    
    
    
    
    (2,340
    )Cash and cash equivalents, beginning of the period
    
    
    2,219
    
    
    
    (1,913
    )
    
    
    4,423
    
    
    
    
    
    
    
    4,729Cash and cash equivalents, end of period
    
    $
    1,369
    
    
    $
    (2,538
    )
    
    $
    3,558
    
    
    $
    
    
    
    $
    2,389
 15
    Table of Contents  Item 2. Managements Discussion and Analysis of Financial Conditiona 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 financial statements of Altra Industrial Motion, Inc. and its Predecessor and related
notes included in the Companys Annual Report on Form 10-K for
the year ended December 31, 2005. 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, 2005.
 General
  Recent Acquisition
 1 4
 Parent Debt Repayment
  Critical Accounting Policies
  Non-GAAP Financial Measures
  16
    Table of Contents  
    
    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.
   Results of Operations
 Quarter ended
    
    
    Quarter endedMarch 31, 2006
    
    
    April 1, 2005Net sales
    
    $
    114,784
    
    
    $
    95,302Cost of sales
    
    
    82,930
    
    
    
    73,402Gross profit
    
    
    31,854
    
    
    
    21,900Gross profit percentage
    
    
    27.8
    %
    
    
    23.0
    %Selling, general and administrative expenses
    
    
    18,727
    
    
    
    15,727Research and development expenses
    
    
    1,204
    
    
    
    1,196Income from operations
    
    
    11,923
    
    
    
    4,977Interest expense
    
    
    5,176
    
    
    
    4,262Other non-operating (income) expense
    
    
    (159
    )
    
    
    Income before income taxes
    
    
    6,906
    
    
    
    715Provision for income taxes
    
    
    2,822
    
    
    
    314Net income
    
    $
    4,084
    
    
    $
    401
 Three Months Ended March 31, 2006 Compared with Three Months Ended April 1, 2005
 Net sales.
 Gross profit.
 17
    Table of Contents  Selling, general and administrative expenses.
 Research and development expenses.
 EBITDA.
 Interest expense.
 Provision for income taxes.
 Liquidity and Capital Resources
       18
    Table of Contents  Liquidity
  1 4
    Changes in general economic conditions or the cyclical nature of our markets could harm
our operations and financial performance .
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  19
    Table of Contents  Item 4. Controls and Procedures
   20
    Table of Contents  PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our senior revolving credit facility and the indenturse governing the registered notes impose
significant operating and financial restrictions, which may prevent us from pursuing our business
strategies or favorable business opportunities.
  
    
    incur additional indebtedness;
    
    repay subordinated indebtedness prior to stated maturities;
    
    pay dividends on or redeem or repurchase our stock or make other distributions;
    
    issue capital stock;
    
    make investments or acquisitions;
    
    sell certain assets or merge with or into other companies;
    
    restrict dividends, distributions or other payments from our subsidiaries;
    
    sell stock in our subsidiaries;
    
    create liens;
    
    enter into certain transactions with stockholders and affiliates; and
    
    otherwise conduct necessary corporate activities.
   We may be subject to work stoppages at our facilities, or our customers may be subjected to work
stoppages, which could seriously impact our operations and the profitability of our business.
  21
    Table of Contents  Item 2. Unregistered Sales of Equtiy 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
  22
    Table of Contents  Item 6. Exhibits
 The following exhibits are filed as part of this report:
 EXHIBIT INDEX
 Exhibit No.
    
    Description3.1 (1)
    
    Certificate of Incorporation of Altra Industrial Motion, Inc.3.2 (1)
    
    By-laws of Altra Industrial Motion, Inc.4.1 (1)
    
    Indenture, dated as of November 30, 2004, among Altra Industrial Motion, Inc., the Guarantors
party thereto and The Bank of New York Trust Company, N.A., as trustee4.2 (1)
    
    Form of 9% Senior Secured Notes due 2011 (included in Exhibit 4.1)4.3 (2)
    
    Indenture, dated as of February 8, 2006, among Altra Industrial Motion, Inc., the guarantors
party thereto, The Bank of New York, as trustee and paying agent and The Bank of New York
(Luxembourg) S.A., as Luxembourg paying agent4.4 (2)
    
    Form of 111/4% Senior Notes due 20134.5 (2)
    
    Registration Rights Agreement, dated as of February 8, 2006, among Altra Industrial Motion, Inc.,
the guarantors party thereto and Jefferies International Limited, as initial purchasers4.6 (3)
    
    First Supplemental Indenture, dated as of February 7, 2006, among Altra Industrial Motion, Inc.,
the guarantors party thereto and The Bank of New York Trust Company, N.A. as trustee4.7 (2)
    
    Second Supplemental Indenture, dated as of February 8, 2006, among Altra Industrial Motion, Inc.,
the guarantors party thereto and The Bank of New York Trust Company, N.A. as trustee4.8 (3)
    
    Third Supplemental Indenture, dated as of April 24, 2006, among Altra Industrial Motion, Inc.,
the guarantors party thereto and The Bank of New York Trust Company, N.A. as trustee4.9 (3)
    
    First Supplemental Indenture, dated as of April 24, 2006, among Altra Industrial Motion, Inc.,
the guarantors party thereto and The Bank of New York Trust Company, N.A. as trustee31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated by reference to the Registration Statement on Form S-4 (File No.333-124944) filed
with the Securities and Exchange Commission on May 16, 2005(2)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K (File No. 333-124944)
filed with the Securities and Exchange Commission on Februrary 14, 2006(3)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K (File No. 333-124944)
filed with the Securities and Exchange Commission on May 15, 2006 23
    Table of Contents  SIGNATURES
  ALTRA INDUSTRIAL MOTION, INC.May  22, 2006
    By:
    /s/ Michael L. HurtName:
    Michael L. HurtTitle:
    Chief Executive OfficerMay  22, 2006
    By:
    /s/ David WallName:
    David WallTitle:
    Chief Financial Officer 24