##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 2005
 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
 NONE
 NONE
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TABLE OF CONTENTS
  
 PagePART IItem 1.
    
    Business
    
    
    6Item 1A.
    
    Risk Factors
    
    
    9Item 1B.
    
    Unresolved Staff Comments
    
    
    19Item 2.
    
    Properties
    
    
    19Item 3.
    
    Legal Proceedings
    
    
    19Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    19PART IIItem 5.
    
    Market for the Registrants Common Equity and Related Stockholder Matters
    
    
    20Item 6.
    
    Selected Financial Data
    
    
    20Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 8.
    
    Financial Statements and Supplementary Data
    
    
    34Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    74Item 9A.
    
    Controls and Procedures
    
    
    74Item 9B.
    
    Other Information
    
    
    74PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    75Item 11.
    
    Executive Compensation
    
    
    77Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    81Item 13.
    
    Certain Relationships and Related Transactions
    
    
    83Item 14.
    
    Principal Accounting Fees and Services
    
    
    85PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    85Item 15(a)3.
    
    Exhibits
    
    
    86SIGNATURESEX-4.7 FIRST SUPPLEMENTAL INDENTURE DATED 2/7/06EX-4.9 THIRD SUPPLEMENTAL INDENTURE DATED 4/24/06EX-4.10 FIRST SUPPLEMENTAL INDENTURE DATED 4/24/06EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICEREX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER
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FORWARD-LOOKING STATEMENTS
   3




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Item 1. Business
 Our Company
   http://www.sec.gov
 www.altramotion.com
 Business Strategy
  Increase Market Share in Our Existing Markets:
 
    
    Leverage Our Sales and Distribution Network.Due to our strength of brand, breadth
of product offering and large installed base of products, we believe we have developed
strong relationships with our distribution partners. We intend to continue to leverage
our relationships with our distributors to gain shelf space and sell new products. For
example, in 2002 we launched a product in our clutch brake line that incorporated
similar features and technology as competitive products. Due to the strength of our
Warner Electric brand, we quickly captured market share and generated net sales of
approximately $1.9 and $2.4 million for fiscal 2004 and 2005, respectively. In
addition, we will continue to actively pursue new OEM opportunities with innovative
and cost-effective product designs and applications to help grow and protect our
aftermarket revenues. This strategy capitalizes on customer brand preference for our
products, generating pull-through aftermarket demand from our distribution channel. We
believe this strategy also allows our distributors to achieve high profit margins,
which further enhances our preferred position with them.
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
    
    Focus on Strategic Marketing.We intend to continue to build our strategic
marketing organization to focus on new growth opportunities in key, fast-growing OEM
and end user markets, including elevators, food processing, material handling,
packaging machinery and turf and garden. Through a systematic process that leverages
our core brands and products, we seek to identify attractive product niches, collect
customer and market data, identify market drivers, tailor product and service
solutions to specific market and customer requirements and deploy resources to gain
market share and drive future sales growth. In support of our strategic marketing
initiatives, we recently began to redirect our sales organization to focus on key
accounts in specific markets.
    
    Accelerate New Product and Technology Development.In a number of our strategic
markets, we have identified opportunities to expand our served market by introducing
new products and by improving existing products. We intend to refocus our efforts with
our integrated product management, engineering and manufacturing teams to work closely
with customers to improve existing application performance, reduce overall cost of
ownership and develop new products and technologies.
 Capitalize on Growth and Sourcing Opportunities in the Asia-Pacific Market.
 Continue to Improve Operational and Manufacturing Efficiencies.
 Products
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Products
    
    Principal Brands
    
    Principal Markets
    
    Sample ApplicationsClutches, Clutch Brakes
    
    Warner Electric,
Formsprag Clutch,
Stieber, Wichita
Clutch, Marland
    
    Material handling,
turf and garden,
aerospace, marine
and energy
    
    Forklifts,
elevators, lawn
mowers and winchesEnclosed Gear Drives
    
    Boston Gear,
Nuttall Gear
    
    Food processing,
material handling
and specialty
machinery
    
    Conveyors,
industrial ovens
and mixersOpen Gearing
    
    Boston Gear
    
    General industrial
applications and
specialty machinery
    
    Printing and
militaryCouplings
    
    Ameridrives
    
    Steel, power
generation and
petrochemical
    
    Strip mills and
turbinesMachined-race Bearings
    
    Kilian
    
    General industrial
applications and
automotive
    
    Sliding doors,
steering columns,
furniture and
conveyors
  Sales and Marketing
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Distribution
  Competition
  Intellectual Property
   7




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Research and Development and Product Engineering
  
    
    lowering the cost of manufacturing our existing products;
    
    redesigning existing product lines to increase their efficiency or enhance their
performance; and
    
    developing new product applications.
 Suppliers and Raw Materials
  Environmental and Health and Safety Matters
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Employees
  
 Item 1A. Risk Factors
 We operate in the highly competitive mechanical power transmission industry and if we are not able
to compete successfully our business may be harmed.
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Changes in general economic conditions or the cyclical nature of our markets could harm our
operations and financial performance.
  Our operating results may vary significantly in the future due to both internal and external
factors affecting our business and operations.
  
    
    the size, timing, cancellation or rescheduling of significant orders;
    
    product configuration, mix, performance and quality issues;
    
    market acceptance of our new products and product enhancements and new product
announcements or introductions by our competitors;
    
    manufacturing costs;
    
    changes in the cost of raw materials;
    
    changes in pricing by us or our competitors;
    
    federal exchange rates related to our international operations;
    
    seasonality related primarily to the turf and garden market;
    
    our ability to develop, introduce and market new products and product enhancements
on a timely basis;
    
    our success in maintaining brand awareness and in expanding our sales and marketing
programs;
    
    the loss of any of our intellectual property rights or third-party infringement or
misappropriation of our intellectual property rights;
    
    the level of competition;
    
    potential reductions in inventories held by channel partners;
    
    slowing sales of the products of our channel partners;
    
    levels of expenditures on research, engineering and product development;
    
    changes in our business strategies;
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
    
    personnel changes; and
    
    general economic trends and other factors.
 We rely on independent distributors and the loss of these distributors would adversely affect our
business.
  Our ability to develop or adapt to changing technology and manufacturing techniques is uncertain
and our failure to do so could place us at a competitive disadvantage.
   
    
    product quality;
    
    price competitiveness;
    
    technical expertise and development capability;
    
    reliability and timeliness of delivery;
    
    product design capability;
    
    manufacturing expertise;
    
    sales support and customer service; and
    
    overall management.
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Our operations are subject to international risks that could affect our operating results.
  
    
    fluctuations in currency exchange rates;
    
    exchange controls;
    
    compliance with U.S. Department of Commerce export controls;
    
    tariffs or other trade protection measures and import or export licensing requirements;
    
    potentially negative consequences from changes in tax laws;
    
    interest rates;
    
    unexpected changes in regulatory requirements;
    
    a change in foreign intellectual property law;
    
    differing labor regulations;
    
    requirements relating to withholding taxes on remittances and other payments by
subsidiaries;
    
    restrictions on our ability to own or operate subsidiaries, make investments or
acquire new businesses in these jurisdictions;
    
    potential political instability and the actions of foreign governments;
    
    restrictions on our ability to repatriate dividends from our subsidiaries; and
    
    exposure to liabilities under the Foreign Corrupt Practices Act.
  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 under
our debt.
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
    
    our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired;
    
    we must use a substantial portion of our cash flow from operations to pay interest
on the notes and our other indebtedness, which will reduce the funds available to us
for operations and other purposes;
    
    any and all of the indebtedness outstanding under our senior revolving credit
facility will have a prior ranking claim on substantially all of our assets and all of
the indebtedness outstanding under our purchase money indebtedness, equipment
financing and real estate mortgages will have a prior ranking claim on the underlying
assets;
    
    our ability to fund a change of control offer may be limited;
    
    our high level of indebtedness could place us at a competitive disadvantage
compared to our competitors that may have proportionately less debt;
    
    our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate may be limited; and
    
    our high level of indebtedness makes us more vulnerable to economic downturns and
adverse developments in our business.
  Our senior revolving credit facility and the indentures 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;
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
    
    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.
   Material weaknesses in our internal controls over financial reporting have been identified which
could result in a decrease in the value of our bonds.
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If we are unable to complete our assessment as to the adequacy of our internal controls over
financial reporting as of December 31, 2007 as required by Section 404 of the Sarbanes-Oxley Act of
2002, or if material weaknesses are identified and reported, investors could lose confidence in the
reliability of our financial statements, which could result in a decrease in the value of the
notes.
  We rely on estimated forecasts of our OEM customers needs, and inaccuracies in such forecasts
could adversely affect our business.
  The materials used to produce our products are subject to price fluctuations that could increase
costs of production and adversely affect our profitability.
  We could face potential product liability claims relating to products we manufacture or distribute,
which could result in us having to expend significant time and expense to defend these claims and
to pay material claims or settlement amounts.
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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.
  Changes in employment laws could increase our costs and may adversely affect our business.
  
    
    minimum wages;
    
    mandated health benefits;
    
    paid leaves of absence; and
    
    tax reporting.
 Unplanned repairs or equipment outages could interrupt production and reduce income or cash flow.
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We depend on the services of key executives, the loss of whom could materially harm our business.
  We are subject to environmental laws that could impose significant costs on us and the failure to
comply with such laws could subject us to sanctions and material fines and expenses.
  
    
    regulate activities and operations that may have environmental or health and safety
effects, such as discharges to air and water, and management and disposal practices
for solid and hazardous wastes; and
    
    impose liability for the costs of investigating and cleaning up, and damages to
natural resources from, past spills, waste disposals on and off-site, or other
releases of hazardous materials or regulated substances.
  We face additional costs associated with our post-retirement and post-employment obligations to
employees which could have an adverse affect on our financial condition.
  17




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Our future success depends on our ability to integrate acquired companies and manage our growth
effectively.
  We may not be able to protect our intellectual property rights, brands or technology effectively,
which could allow competitors to duplicate or replicate our technology and could adversely affect
our ability to compete.
  Genstar Capital controls our company and its interests may conflict with yours.
  18




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  Location
    
    Owned/Leased
    
    Principal UseAltraUnited StatesSouth Beloit, Illinois
    
    Owned
    
    Production and AdministrativeColumbia City, Indiana
    
    Owned
    
    ProductionWarren, Michigan
    
    Owned
    
    ProductionSyracuse, New York
    
    Owned
    
    Production and AdministrativeErie, Pennsylvania
    
    Owned
    
    ProductionWichita Falls, Texas
    
    Owned
    
    ProductionQuincy, Massachusetts
    
    Leased
    
    Corporate HeadquartersNiagara Falls, New York
    
    Leased
    
    ProductionCharlotte, North Carolina
    
    Leased
    
    ProductionInternationalToronto, Canada
    
    Owned
    
    ProductionBedford, England
    
    Owned
    
    ProductionAllones, France
    
    Owned
    
    ProductionSaint Barthelemy, France
    
    Owned
    
    ProductionToronto, Canada
    
    Leased
    
    ProductionShenzhen, China
    
    Leased
    
    ProductionGarching, Germany
    
    Leased
    
    ProductionHeidelberg, Germany
    
    Owned
    
    Production
 
 Item 3. Legal Matters
  
 Item 4. Submission of Matters to a vote of security holders
  19




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PART II
 
 Item 5. Market for the Registrants common equity and related stockholder matters
  
 Item 6. Selected Historical Financial Data
  PredecessorAltra
    
    
    (PeriodAltra
    
    
    (Period From
    
    
    FromYear
    
    
    December 1
    
    
    January 1ended
    
    
    Through
    
    
    Through
    
    
    
    
    
    
    Year EndedDecember
    
    
    December 31,
    
    
    November 30,
    
    
    
    
    
    
    December 31,31, 2005
    
    
    2004)
    
    
    2004)
    
    
    2003
    
    
    2002
    
    
    2001(dollars in thousands)Income Statement Data:Net sales
    
    $
    363,465
    
    
    $
    28,625
    
    
    $
    275,037
    
    
    $
    266,863
    
    
    $
    253,217
    
    
    $
    259,761Cost of sales
    
    
    271,952
    
    
    
    23,847
    
    
    
    209,253
    
    
    
    207,941
    
    
    
    190,465
    
    
    
    193,577Gross profit
    
    
    91,513
    
    
    
    4,778
    
    
    
    65,784
    
    
    
    58,922
    
    
    
    62,752
    
    
    
    66,184Selling, general and administrative
expenses
    
    
    61,520
    
    
    
    8,973
    
    
    
    45,321
    
    
    
    49,513
    
    
    
    48,303
    
    
    
    50,508Research and development expenses
    
    
    4,683
    
    
    
    378
    
    
    
    3,947
    
    
    
    3,455
    
    
    
    3,103
    
    
    
    2,518(Gain) on sale of assets
    
    
    (99
    )
    
    
    
    
    
    
    (1,300
    )
    
    
    
    
    
    
    
    
    
    
    Restructuring charge, asset
impairment and transition expenses
    
    
    
    
    
    
    
    
    
    
    947
    
    
    
    11,085
    
    
    
    27,825
    
    
    
    Income (loss) from operations
    
    
    25,409
    
    
    
    (4,573
    )
    
    
    16,869
    
    
    
    (5,131
    )
    
    
    (16,479
    )
    
    
    13,158Interest expense
    
    
    17,065
    
    
    
    1,410
    
    
    
    4,294
    
    
    
    5,368
    
    
    
    5,489
    
    
    
    6,655Other expense (income)
    
    
    (17
    )
    
    
    
    
    
    
    148
    
    
    
    465
    
    
    
    (312
    )
    
    
    94Income (loss) before income taxes,
discontinued operations and
cumulative effect of change in
accounting principles
    
    
    8,361
    
    
    
    (5,983
    )
    
    
    12,427
    
    
    
    (10,964
    )
    
    
    (21,656
    )
    
    
    6,409Provision (benefit) for income taxes
    
    
    3,917
    
    
    
    (221
    )
    
    
    5,532
    
    
    
    (1,658
    )
    
    
    2,455
    
    
    
    4,794Loss from disposal of discontinued
operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (700
    )
    
    
    (1,867
    )Income (loss) from operations and
disposal of discontinued
operations, net of income taxes
    
    
    4,444
    
    
    
    (5,762
    )
    
    
    6,895
    
    
    
    (9,306
    )
    
    
    (24,811
    )
    
    
    (252
    )Cumulative effect of change in
accounting principlegoodwill
impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (83,412
    )
    
    
    Net income (loss)
    
    $
    4,444
    
    
    $
    (5,762
    )
    
    $
    6,895
    
    
    $
    (9,306
    )
    
    $
    (108,223
    )
    
    $
    (252
    )Other Financial Data:Depreciation and amortization
    
    $
    11,533
    
    
    $
    919
    
    
    $
    6,074
    
    
    $
    8,653
    
    
    $
    9,547
    
    
    $
    12,207Purchases of fixed assets
    
    
    6,199
    
    
    
    289
    
    
    
    3,489
    
    
    
    5,294
    
    
    
    5,911
    
    
    
    4,374
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PredecessorAltra
    
    
    (PeriodAltra
    
    
    (Period From
    
    
    FromYear
    
    
    December 1
    
    
    January 1ended
    
    
    Through
    
    
    Through
    
    
    
    
    
    
    Year EndedDecember
    
    
    December 31,
    
    
    November 30,
    
    
    
    
    
    
    December 31,31, 2005
    
    
    2004)
    
    
    2004)
    
    
    2003
    
    
    2002
    
    
    2001(dollars in thousands)Cash flow provided by (used in):Operating activities
    
    
    13,835
    
    
    
    5,623
    
    
    
    3,604
    
    
    
    (14,289
    )
    
    
    21,934
    
    
    
    27,658Investing activities
    
    
    (5,197
    )
    
    
    (180,401
    )
    
    
    953
    
    
    
    (1,573
    )
    
    
    (4,585
    )
    
    
    (3,645
    )Financing activities
    
    
    (2,783
    )
    
    
    179,649
    
    
    
    (6,696
    )
    
    
    12,746
    
    
    
    (13,037
    )
    
    
    (23,379
    )
 Altra
    
    Altra
    
    PredecessorDecember 31,
    
    December 31,
    
    
    
    
    
    December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Balance Sheet Data:Cash and cash equivalents
    
    $
    10,060
    
    
    $
    4,729
    
    
    $
    3,163
    
    
    $
    5,214
    
    
    $
    2,706Property, plant and equipment, net
    
    
    66,393
    
    
    
    68,006
    
    
    
    61,605
    
    
    
    69,827
    
    
    
    88,437Total assets
    
    
    297,404
    
    
    
    299,051
    
    
    
    174,324
    
    
    
    173,034
    
    
    
    281,567Long-term debt
    
    
    159,574
    
    
    
    158,740
    
    
    
    1,025
    
    
    
    46,183
    
    
    
    61,338Total stockholders equity (deficit)/Invested capital
    
    
    39,113
    
    
    
    42,879
    
    
    
    (3,004
    )
    
    
    (9,418
    )
    
    
    138,373
 
 Item 7. 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. and its Predecessor should be read together with the Selected Historical Financial
Data, and the financial statements of Altra Industrial Motion, Inc. and its Predecessor and related
notes included elsewhere in this Form 10-K. 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.
 General
  History and the Acquisitions
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Company
    
    Products
    
    Year EstablishedBibby Transmissions Ltd.
    
    Couplings
    
    
    1919Matrix International Ltd.
    
    Clutch Brakes, Couplings
    
    
    1939Twiflex Ltd.
    
    Clutch Brakes, Couplings
    
    
    1946Huco Engineering Industries, Ltd.
    
    Couplings, Power Transmission Components
    
    
    1965Inertia Dynamics Inc.
    
    Clutch Brakes
    
    
    1971
 Recent Cost Savings and Productivity Enhancement Initiatives
  
    
    In 2002 and 2003, the Predecessor incurred transition expenses, including
relocation, training, recruiting and moving costs, directly related to implementing
its restructuring activities amounting to $2.6 million and $9.1 million, respectively.
    
    In 2003, the Predecessor recorded a $2.0 million loss from the sale of certain real
estate associated with facilities closed as a part of its restructuring activities.
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Critical Accounting Policies
   Revenue recognition.
 Inventory.
 Retirement benefits.
 Goodwill and Intangible assets. Business Combinations
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Goodwill and Other Intangible Assets
   Long-lived assets.
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Income taxes.
 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.
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Results of Operations
 Dollars in thousandsFromInceptionCombined
    
    
    (December 1,
    
    
    PredecessorYear
    
    
    12 Months
    
    
    2004)
    
    
    11 Monthsended
    
    
    ended
    
    
    through
    
    
    ended
    
    
    Year-endedDecember
    
    
    December 31,
    
    
    December 31,
    
    
    November 30,
    
    
    December 31,31, 2005
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2003Net sales
    
    $
    363,465
    
    
    $
    303,662
    
    
    $
    28,625
    
    
    $
    275,037
    
    
    $
    266,863Cost of sales
    
    
    271,952
    
    
    
    233,100
    
    
    
    23,847
    
    
    
    209,253
    
    
    
    207,941Gross profit
    
    
    91,513
    
    
    
    70,562
    
    
    
    4,778
    
    
    
    65,784
    
    
    
    58,922Gross profit percentage
    
    
    25.2
    %
    
    
    23.2
    %
    
    
    16.7
    %
    
    
    23.9
    %
    
    
    22.1
    %Selling, general and administrative expenses
    
    
    61,520
    
    
    
    54,294
    
    
    
    8,973
    
    
    
    45,321
    
    
    
    49,513Research and development expenses
    
    
    4,683
    
    
    
    4,325
    
    
    
    378
    
    
    
    3,947
    
    
    
    3,455Gain on sale of assets
    
    
    (99
    )
    
    
    (1,300
    )
    
    
    
    
    
    
    (1,300
    )
    
    
    Restructuring charge, asset impairment and
transition expenses
    
    
    
    
    
    
    947
    
    
    
    
    
    
    
    947
    
    
    
    11,085Income (loss) from operations
    
    
    25,409
    
    
    
    12,296
    
    
    
    (4,573
    )
    
    
    16,869
    
    
    
    (5,131
    )Interest expense
    
    
    17,065
    
    
    
    5,704
    
    
    
    1,410
    
    
    
    4,294
    
    
    
    5,368Other non-operating (income) expense
    
    
    (17
    )
    
    
    148
    
    
    
    
    
    
    
    148
    
    
    
    465Income (loss) before income taxes
    
    
    8,361
    
    
    
    6,444
    
    
    
    (5,983
    )
    
    
    12,427
    
    
    
    (10,964
    )Provision (benefit) for income taxes
    
    
    3,917
    
    
    
    5,311
    
    
    
    (221
    )
    
    
    5,532
    
    
    
    (1,658
    )Net income (loss)
    
    $
    4,444
    
    
    $
    1,133
    
    
    $
    (5,762
    )
    
    $
    6,895
    
    
    $
    (9,306
    )
 26




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##### Table of Contents



Year Ended December 31, 2005 Compared with Year Ended December 31, 2004
 Net sales.
 Gross profit.
 Selling, general and administrative expenses.
 Research and development expenses.
 Gain on sale of assets.
 EBITDA.
 Interest expense.
 Provision for income taxes.
 27




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##### Table of Contents



Year Ended December 31, 2004 Compared with Year Ended December 31, 2003
 Net sales.
 Gross profit.
 Selling, general and administrative expenses.
 Research and development expenses.
 Restructuring charge, asset impairment and transition expenses.
 EBITDA.
 Interest expense.
 (Gain) on sale of assets.
 28




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##### Table of Contents



Other non-operating (income) expense.
 Provision for income taxes.
 Liquidity and Capital Resources
       Liquidity
  29




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##### Table of Contents



1 4
        30




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##### Table of Contents



Contractual Obligations
  Payments Due by Period2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterManagement fee(1)
    
    $
    1.0
    
    
    $
    1.0
    
    
    $
    1.0
    
    
    $
    1.0
    
    
    $
    1.0
    
    
    $
    1.0Senior revolving credit facility(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital leases
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    2.7
    
    
    
    2.3
    
    
    
    1.4
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    1.5Senior secured notes(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165.0Total contractual cash obligations
    
    $
    3.9
    
    
    $
    3.5
    
    
    $
    2.4
    
    
    $
    1.7
    
    
    $
    1.5
    
    
    $
    167.5
 
 (1)
    
    We have entered into an advisory services agreement with Genstar Capital which requires the
annual payment of $1.0 million for management and consulting services until the agreement is
terminated per mutual agreement between Altra and Genstar Capital.(2)
    
    We have up to $30.0 million of borrowing capacity, through November 2009, under our senior
revolving credit facility (including $10.0 million available for use for letters of credit). There
were no outstanding borrowings and $2.4 million of outstanding letters of credit at both December
31, 2005 and March 31, 2006.(3)
    
    We have semi-annual cash interest requirements due on the senior secured notes with $14.9
million payable in, 2006, 2007, 2008, 2009 and 2010 and $13.6 million payable in 2011.    Income Taxes
   31




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##### Table of Contents



Seasonality
  Inflation
  Recent Accounting Pronouncements
  Inventory Costs, an amendment of ARB No. 43,
Chapter 4.
 
 Item 7A. Qualitative and Quantitative Information about Market Risk
  32




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##### Table of Contents



Currency translation.
 Currency transaction exposure.
 Interest rate risk.
 The Sarbanes-Oxley Act of 2002 and Material Weakness in Internal Control
  33




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Report of Independent Registered Public Accounting Firm
 
     
 34




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC
 Consolidated Balance Sheets
 Dollars in thousands
 December2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    10,060
    
    
    $
    4,729Trade receivables, less allowance for doubtful accounts of $1,797 and $1,424
    
    
    46,441
    
    
    
    45,969Inventories, less allowance for obsolete materials of $6,843 and $6,361
    
    
    54,654
    
    
    
    56,732Deferred income taxes
    
    
    2,779
    
    
    
    1,145Prepaid expenses and other
    
    
    1,973
    
    
    
    4,792Total current assets
    
    
    115,907
    
    
    
    113,367Property, plant and equipment, net
    
    
    66,393
    
    
    
    68,006Intangible assets, net
    
    
    44,751
    
    
    
    48,758Goodwill
    
    
    65,345
    
    
    
    63,145Other assets
    
    
    5,008
    
    
    
    5,775Total assets
    
    $
    297,404
    
    
    $
    299,051Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    30,724
    
    
    $
    28,787Accrued payroll
    
    
    16,016
    
    
    
    11,661Accruals and other liabilities
    
    
    16,239
    
    
    
    14,377Deferred income taxes
    
    
    33
    
    
    
    129Current portion of long-term debt
    
    
    186
    
    
    
    913Total current liabilities
    
    
    63,198
    
    
    
    55,867Long-term debt, less current portion and net of unaccreted discount
    
    
    159,574
    
    
    
    158,740Deferred income taxes
    
    
    7,550
    
    
    
    9,828Pension liabilities
    
    
    14,368
    
    
    
    19,534Other post retirement benefits
    
    
    12,500
    
    
    
    12,203Other long term liabilities
    
    
    1,601
    
    
    
    Commitments and ContingenciesStockholders equity:Common stock (1,000 shares authorized, issued & outstanding, $0.001 par value)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    48,814
    
    
    
    48,814Due from Parent
    
    
    (1,610
    )
    
    
    Retained deficit
    
    
    (1,318
    )
    
    
    (5,762
    )Cumulative foreign currency translation adjustment
    
    
    (5,851
    )
    
    
    549Minimum pension liability
    
    
    (1,422
    )
    
    
    (722
    )Total stockholders equity
    
    
    38,613
    
    
    
    42,879Total liabilities and stockholders equity
    
    $
    297,404
    
    
    $
    299,051
  35




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
 Consolidated Statements of Operations and Comprehensive Income (Loss)
 Dollars in thousands
 Altra
    
    
    Predecessor (Note 1)FromInception(December1, 2004
    
    
    11 MonthsYear-ended
    
    
    through
    
    
    ended
    
    
    Year-endedDecember
    
    
    December
    
    
    November 30,
    
    
    December31, 2005
    
    
    31, 2004)
    
    
    2004
    
    
    31, 2003Net sales
    
    $
    363,465
    
    
    $
    28,625
    
    
    $
    275,037
    
    
    $
    266,863Cost of sales
    
    
    271,952
    
    
    
    23,847
    
    
    
    209,253
    
    
    
    207,941Gross profit
    
    
    91,513
    
    
    
    4,778
    
    
    
    65,784
    
    
    
    58,922Selling, general and administrative expenses
    
    
    61,520
    
    
    
    8,973
    
    
    
    45,321
    
    
    
    49,513Research and development expenses
    
    
    4,683
    
    
    
    378
    
    
    
    3,947
    
    
    
    3,455Restructuring charge, asset impairment and
transition expenses
    
    
    
    
    
    
    
    
    
    
    947
    
    
    
    11,085Gain on sale of fixed assets
    
    
    (99
    )
    
    
    
    
    
    
    (1,300
    )
    
    
    Income (loss) from operations
    
    
    25,409
    
    
    
    (4,573
    )
    
    
    16,869
    
    
    
    (5,131
    )Interest expense, net
    
    
    17,065
    
    
    
    1,410
    
    
    
    4,294
    
    
    
    5,368Other non-operating expense (income), net
    
    
    (17
    )
    
    
    
    
    
    
    148
    
    
    
    465Income (loss) before income taxes
    
    
    8,361
    
    
    
    (5,983
    )
    
    
    12,427
    
    
    
    (10,964
    )Provision (benefit) for income taxes
    
    
    3,917
    
    
    
    (221
    )
    
    
    5,532
    
    
    
    (1,658
    )Net income (loss)
    
    
    4,444
    
    
    
    (5,762
    )
    
    
    6,895
    
    
    
    (9,306
    )Other comprehensive (loss) income, net of
income taxes:Minimum pension liability adjustment
    
    
    (700
    )
    
    
    (722
    )
    
    
    (6,031
    )
    
    
    5,418Foreign currency translation adjustment
    
    
    (6,400
    )
    
    
    549
    
    
    
    478
    
    
    
    3,917Other comprehensive (loss) income
    
    
    (7,100
    )
    
    
    (173
    )
    
    
    (5,553
    )
    
    
    9,335Comprehensive (loss) income
    
    $
    (2,656
    )
    
    $
    (5,935
    )
    
    $
    1,342
    
    
    $
    29
  36




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ALTRA INDUSTRIAL MOTION, INC.
 Consolidated Statements of Stockholders Equity
 Dollars in thousands
 AccumulatedOtherInvested
    
    
    Comprehensive
    
    
    Net InvestedCapital
    
    
    Loss
    
    
    CapitalFor the PredecessorBalance at December 31, 2002
    
    $
    33,142
    
    
    $
    (42,560
    )
    
    $
    (9,418
    )Net loss
    
    
    (9,306
    )
    
    
    
    
    
    
    (9,306
    )Contribution from affiliates
    
    
    6,385
    
    
    
    
    
    
    
    6,385Other comprehensive income, net of $4,251 tax benefit
    
    
    
    
    
    
    9,335
    
    
    
    9,335Balance at December 31, 2003
    
    
    30,221
    
    
    
    (33,225
    )
    
    
    (3,004
    )Net income
    
    
    6,895
    
    
    
    
    
    
    
    6,895Contribution from affiliates
    
    
    7,922
    
    
    
    
    
    
    
    7,922Other comprehensive income, net of $3,697 tax benefit
    
    
    
    
    
    
    (5,553
    )
    
    
    (5,553
    )Balance at November 30, 2004
    
    $
    45,038
    
    
    $
    (38,778
    )
    
    $
    6,260
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Due From
    
    
    ComprehensiveStock
    
    
    Capital
    
    
    Deficit
    
    
    Parent
    
    
    Loss
    
    
    TotalFor the CompanyInitial capital contribution
    
    $
    
    
    
    $
    39,994
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    39,994Common stock issuance
related to acquisition
    
    
    
    
    
    
    8,820
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,820Net loss
    
    
    
    
    
    
    
    
    
    
    (5,762
    )
    
    
    
    
    
    
    
    
    
    
    (5,762
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (173
    )
    
    
    (173
    )Balance at December 31, 2004
    
    
    
    
    
    
    48,814
    
    
    
    (5,762
    )
    
    
    
    
    
    
    (173
    )
    
    
    42,879Net income
    
    
    
    
    
    
    
    
    
    
    4,444
    
    
    
    
    
    
    
    
    
    
    
    4,444Payments made on behalf of
parent company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,610
    )
    
    
    
    
    
    
    (1,610
    )Other comprehensive loss,
net of $1,938 tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,100
    )
    
    
    (7,100
    )Balance at December 31, 2005
    
    $
    
    
    
    $
    48,814
    
    
    $
    (1,318
    )
    
    $
    (1,610
    )
    
    $
    (7,273
    )
    
    $
    38,613
  37




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
 Consolidated Statements of Cash Flows
 Dollars in thousands
 Altra
    
    
    Predecessor (Note 1)From Inception(December
    
    
    11 MonthsYear-ended
    
    
    1, 2004 through
    
    
    ended
    
    
    Year-endedDecember 31,
    
    
    December 31,
    
    
    November 30,
    
    
    December 31,2005
    
    
    2004)
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income (loss)
    
    $
    4,444
    
    
    $
    (5,762
    )
    
    $
    6,895
    
    
    $
    (9,306
    )Adjustments to reconcile net income to cash
provided by operating activities:Depreciation
    
    
    8,574
    
    
    
    673
    
    
    
    6,074
    
    
    
    8,653Amortization of intangible assets
    
    
    2,959
    
    
    
    246
    
    
    
    
    
    
    
    Amortization of deferred loan costs
    
    
    621
    
    
    
    49
    
    
    
    
    
    
    
    587Accretion of debt discount
    
    
    942
    
    
    
    79
    
    
    
    
    
    
    
    Amortization of inventory fair value adjustment
    
    
    1,699
    
    
    
    1,699
    
    
    
    
    
    
    
    (Gains) impairments on sale of fixed assets
    
    
    (99
    )
    
    
    
    
    
    
    (1,300
    )
    
    
    2,126Provision (benefit) for deferred taxes
    
    
    248
    
    
    
    (1,031
    )
    
    
    117
    
    
    
    (2,679
    )Changes in operating assets and liabilities:Trade receivables
    
    
    (2,654
    )
    
    
    (324
    )
    
    
    (4,197
    )
    
    
    (578
    )Inventories
    
    
    (1,353
    )
    
    
    (412
    )
    
    
    (6,418
    )
    
    
    (2,232
    )Accounts payable and accrued liabilities
    
    
    (1,832
    )
    
    
    9,473
    
    
    
    3,734
    
    
    
    (13,842
    )Other current assets and liabilities
    
    
    2,226
    
    
    
    (2,126
    )
    
    
    1,477
    
    
    
    (445
    )Other operating assets and liabilities
    
    
    (1,940
    )
    
    
    3,059
    
    
    
    (2,778
    )
    
    
    3,427Net cash provided by (used in) operating activities
    
    
    13,835
    
    
    
    5,623
    
    
    
    3,604
    
    
    
    (14,289
    )Cash flows from investing activities:Purchases of fixed assets
    
    
    (6,199
    )
    
    
    (289
    )
    
    
    (3,489
    )
    
    
    (5,294
    )Acquisitions, net of $2,367 of cash acquired in 2004
    
    
    1,607
    
    
    
    (180,112
    )
    
    
    
    
    
    
    Payment of additional Kilian purchase price
    
    
    (730
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of fixed assets
    
    
    125
    
    
    
    
    
    
    
    4,442
    
    
    
    3,721Net cash (used in) provided by investing activities
    
    
    (5,197
    )
    
    
    (180,401
    )
    
    
    953
    
    
    
    (1,573
    )Cash flows from financing activities:Contributed capital
    
    
    
    
    
    
    39,994
    
    
    
    
    
    
    
    5,000Proceeds from issuance of senior subordinated notes
    
    
    
    
    
    
    158,400
    
    
    
    
    
    
    
    Payments of debt acquired in acquisitions
    
    
    
    
    
    
    (12,178
    )
    
    
    
    
    
    
    (64,242
    )Payment of debt issuance costs
    
    
    (338
    )
    
    
    (6,747
    )
    
    
    
    
    
    
    Payments made on behalf of Parent company
    
    
    (1,610
    )
    
    
    
    
    
    
    
    
    
    
    Borrowings under revolving credit agreement
    
    
    4,408
    
    
    
    4,988
    
    
    
    
    
    
    
    Payments on revolving credit agreement
    
    
    (4,408
    )
    
    
    (4,988
    )
    
    
    
    
    
    
    Payment of capital leases
    
    
    (835
    )
    
    
    (37
    )
    
    
    
    
    
    
    Contribution from affiliates
    
    
    
    
    
    
    
    
    
    
    7,922
    
    
    
    1,385Change in affiliate debt
    
    
    
    
    
    
    179,612
    
    
    
    (14,618
    )
    
    
    70,603Net cash (used in) provided by financing activities
    
    
    (2,783
    )
    
    
    179,649
    
    
    
    (6,696
    )
    
    
    12,746Effect of exchange rates on cash
    
    
    (524
    )
    
    
    75
    
    
    
    159
    
    
    
    1,065Increase (Decrease) in cash and cash equivalents
    
    
    5,331
    
    
    
    4,729
    
    
    
    (1,980
    )
    
    
    (2,051
    )Cash and cash equivalents, beginning of period
    
    
    4,729
    
    
    
    
    
    
    
    3,163
    
    
    
    5,214Cash and cash equivalents, end of period
    
    $
    10,060
    
    
    $
    4,729
    
    
    $
    1,183
    
    
    $
    3,163Cash paid during the period for:Interest
    
    $
    15,448
    
    
    $
    
    
    
    $
    2,796
    
    
    $
    4,061Income Taxes
    
    $
    1,761
    
    
    $
    
    
    
    $
    446
    
    
    $
    1,249
  38




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 1. Description of Business and Summary of Significant Accounting Policies
 Basis of Preparation and Description of Business
     Principles of Consolidation
  Fair Value of Financial Instruments
  Use of Estimates
  39




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 1. Description of Business and Summary of Significant Accounting Policies (Continued)
 Foreign currency translation
   Reclassification
  Cash and Cash Equivalents
  Trade Receivables
  Inventories
   40




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 1. Description of Business and Summary of Significant Accounting Policies (Continued)
 Property, Plant and Equipment
   Buildings and improvements
    
    15 to 45 yearsMachinery and equipment
    
    2 to 15 years
  Intangible Assets
  Goodwill
  Impairment of Goodwill and Indefinite-Lived Intangible Assets
  41




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 1. Description of Business and Summary of Significant Accounting Policies (Continued)
  Impairment of Long-Lived Assets Other Than Goodwill and Indefinite-Lived Intangible Assets
  Debt Issuance Costs
  Revenue Recognition
   Shipping and Handling Costs
  42




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 1. Description of Business and Summary of Significant Accounting Policies (Continued)
 Warranty Costs
  Self-Insurance
  Research and Development
  Advertising
  Stock-Based Compensation
 Share-Based Payment,
  43




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 1. Description of Business and Summary of Significant Accounting Policies (Continued)
 Income Taxes
   2. Recent Accounting Pronouncements
  44




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 2. Recent Accounting Pronouncements (Continued)
 Inventory Costs, an amendment of ARB No. 43,
Chapter 4
 3. Acquisitions
  Business
Combinations
  45




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 3. Acquisitions (Continued)
 Predecessor
    
    
    Kilian
    
    
    TotalTotal purchase price, including closing costs of
approximately $2.6 million
    
    $
    181,019
    
    
    $
    9,594
    
    
    $
    190,613Cash and cash equivalents
    
    
    1,183
    
    
    
    1,184
    
    
    
    2,367Trade receivables
    
    
    39,233
    
    
    
    6,096
    
    
    
    45,329Inventories
    
    
    52,761
    
    
    
    5,108
    
    
    
    57,869Prepaid expenses and other
    
    
    4,770
    
    
    
    207
    
    
    
    4,977Property, plant and equipment
    
    
    59,320
    
    
    
    9,111
    
    
    
    68,431Intangible assets
    
    
    49,004
    
    
    
    
    
    
    
    49,004Deferred income taxeslong term
    
    
    
    
    
    
    104
    
    
    
    104Other assets
    
    
    150
    
    
    
    
    
    
    
    150Total assets acquired
    
    
    206,421
    
    
    
    21,810
    
    
    
    228,231Accounts payable, accrued payroll, and accruals and other
current liabilities
    
    
    46,422
    
    
    
    3,125
    
    
    
    49,547Bank debt
    
    
    
    
    
    
    12,178
    
    
    
    12,178Deferred income taxes
    
    
    8,127
    
    
    
    
    
    
    
    8,127Pensions, other post retirement benefits and other liabilities
    
    
    34,166
    
    
    
    
    
    
    
    34,166Total liabilities assumed
    
    
    88,715
    
    
    
    15,303
    
    
    
    104,018Net assets acquired
    
    
    117,706
    
    
    
    6,507
    
    
    
    124,213Excess purchase price over the fair value of net assets acquired
    
    $
    63,313
    
    
    $
    3,087
    
    
    $
    66,400
  Predecessor
    
    
    Kilian
    
    
    TotalCustomer relationships
    
    $
    27,802
    
    
    $
    
    
    
    $
    27,802Product technology and patents
    
    
    5,122
    
    
    
    
    
    
    
    5,122Total intangible assets subject to amortization
    
    
    32,924
    
    
    
    
    
    
    
    32,924Trade names and trademarks, not subject to amortization
    
    
    16,080
    
    
    
    
    
    
    
    16,080Total intangible assets
    
    $
    49,004
    
    
    $
    
    
    
    $
    49,004
  46




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 3. Acquisitions (Continued)
  (Pro forma, unaudited, in thousands)
    
    2004
    
    2003Total Revenues
    
    $
    343,308
    
    
    $
    305,513Net income (loss)
    
    
    (541
    )
    
    
    (19,769
    )
 4. Inventories
  2005
    
    
    2004Raw materials
    
    $
    22,512
    
    
    $
    29,219Work in process
    
    
    13,876
    
    
    
    12,636Finished goods
    
    
    25,109
    
    
    
    21,23861,497
    
    
    
    63,093LessAllowance for excess, slow-moving and obsolete inventory
    
    
    (6,843
    )
    
    
    (6,361
    )$
    54,654
    
    
    $
    56,732
 5. Property, Plant and Equipment
  2005
    
    
    2004Land
    
    $
    7,892
    
    
    $
    5,848Buildings and improvements
    
    
    16,500
    
    
    
    14,597Machinery and equipment
    
    
    50,402
    
    
    
    48,23474,794
    
    
    
    68,679LessAccumulated depreciation
    
    
    (8,401
    )
    
    
    (673
    )$
    66,393
    
    
    $
    68,006
 47




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 6. Goodwill and Intangible Assets
  GoodwillBalance December 31, 2004
    
    $
    63,145Adjustments, net
    
    
    3,255Impact of changes in foreign currency
    
    
    (1,055
    )Balance December 31, 2005
    
    $
    65,345
  December 31, 2005
    
    
    December 31, 2004Accumulated
    
    
    
    
    
    
    AccumulatedOther Intangibles
    
    Cost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationIntangible assets not subject to amortization:Tradenames and trademarks
    
    $
    16,080
    
    
    $
    
    
    
    $
    16,080
    
    
    $
    Intangible assets subject to amortization:Customer relationships
    
    
    27,802
    
    
    
    2,515
    
    
    
    27,802
    
    
    
    193Product technology and patents
    
    
    5,122
    
    
    
    690
    
    
    
    5,122
    
    
    
    53Impact of changes in foreign currency
    
    
    (1,048
    )
    
    
    
    
    
    
    
    
    
    
    Total intangible assets
    
    $
    47,956
    
    
    $
    3,205
    
    
    $
    49,004
    
    
    $
    246
   7. Warranty Costs
  December 1, 2004
    
    
    PredecessorYear  Ended
    
    
    through
    
    
    11 Months endedDecember 31,
    
    
    December 31,
    
    
    November 30,2005
    
    
    2004
    
    
    2004Balance at beginning of period
    
    $
    1,528
    
    
    $
    1,524
    
    
    $
    1,300Accrued warranty costs
    
    
    1,265
    
    
    
    94
    
    
    
    1,093Payments and adjustments
    
    
    (917
    )
    
    
    (90
    )
    
    
    (869
    )Balance at end of period
    
    $
    1,876
    
    
    $
    1,528
    
    
    $
    1,524
 48




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 8. Income Taxes
  Predecessor (Note 1)December 1,
    
    
    11 Months2004 through
    
    
    ended
    
    
    Year-endedDecember 31,
    
    
    December 31,
    
    
    November 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004
    
    
    2003Domestic
    
    $
    4,635
    
    
    $
    (6,337
    )
    
    $
    9,125
    
    
    $
    (9,189
    )Foreign
    
    
    3,726
    
    
    
    354
    
    
    
    3,302
    
    
    
    (1,775
    )$
    8,361
    
    
    $
    (5,983
    )
    
    $
    12,427
    
    
    $
    (10,964
    )
  Predecessor (Note 1)December 1,
    
    
    11 Months2004 through
    
    
    ended
    
    
    Year-endedDecember 31,
    
    
    December 31,
    
    
    November 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004
    
    
    2003Current:Federal
    
    $
    1,631
    
    
    $
    
    
    
    $
    3,851
    
    
    $
    434Foreign and State
    
    
    2,038
    
    
    
    810
    
    
    
    1,564
    
    
    
    5873,669
    
    
    
    810
    
    
    
    5,415
    
    
    
    1,021Deferred:Federal
    
    
    532
    
    
    
    (564
    )
    
    
    98
    
    
    
    (1,707
    )Foreign and state
    
    
    (284
    )
    
    
    (467
    )
    
    
    19
    
    
    
    (972
    )248
    
    
    
    (1,031
    )
    
    
    117
    
    
    
    (2,679
    )Provision (benefit) for income taxes
    
    $
    3,917
    
    
    $
    (221
    )
    
    $
    5,532
    
    
    $
    (1,658
    )
  FromInception
    
    
    Predecessor (Note 1)(December 1,
    
    
    11 Months2004) through
    
    
    ended
    
    
    Year-endedDecember 31,
    
    
    December 31,
    
    
    November 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004
    
    
    2003Tax at U.S. federal income tax rate
    
    $
    2,926
    
    
    $
    (2,094
    )
    
    $
    4,371
    
    
    $
    (3,749
    )State taxes, net of federal income tax effect
    
    
    373
    
    
    
    (67
    )
    
    
    366
    
    
    
    (209
    )Effect of losses of domestic S corporation
and partnership entities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,927
    )Valuation allowance
    
    
    
    
    
    
    2,011
    
    
    
    895
    
    
    
    7,153Foreign and other
    
    
    618
    
    
    
    (71
    )
    
    
    (100
    )
    
    
    1,074Provision (benefit) for income taxes
    
    $
    3,917
    
    
    $
    (221
    )
    
    $
    5,532
    
    
    $
    (1,658
    )
 49




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 8. Income Taxes (Continued)
  2005
    
    
    2004Deferred tax assets:Post-retirement obligations
    
    $
    12,050
    
    
    $
    10,580Expenses not currently deductible
    
    
    8,657
    
    
    
    8,575Net operating loss carryover
    
    
    1,740
    
    
    
    1,997Other
    
    
    883
    
    
    
    842Total deferred tax assets
    
    
    23,330
    
    
    
    21,994Valuation allowance for deferred tax assets
    
    
    (16,389
    )
    
    
    (18,374
    )Net deferred tax assets
    
    
    6,941
    
    
    
    3,620Deferred tax liabilities:Property, plant and equipment
    
    
    6,264
    
    
    
    4,010Intangible assets
    
    
    5,278
    
    
    
    7,638Other
    
    
    203
    
    
    
    784Total deferred tax liabilities
    
    
    11,745
    
    
    
    12,432Net deferred tax liabilities
    
    $
    (4,804
    )
    
    $
    (8,812
    )
    50




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 8. Income Taxes (Continued)
   9. Pension and Other Employee Benefits
 Defined Benefit (Pension) and Postretirement Benefit Plans
  Employers
Accounting for Pensions, Employers Accounting for Postretirement Benefits
Other than Pensions.
 51




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 9. Pension and Other Employee Benefits (Continued)
  Postretirement BenefitsPension BenefitsPredecessor
    
    
    
    
    
    
    
    
    
    
    Predecessor(Note 1)
    
    
    
    
    
    
    
    
    
    
    (Note 1)From
    
    
    
    
    
    
    
    
    
    
    FromInception
    
    
    
    
    
    
    
    
    
    
    Inception(December 1,
    
    
    11 Months
    
    
    
    
    
    
    (December 1,
    
    
    11 MonthsYear ended
    
    
    2004) through
    
    
    ended
    
    
    Year ended
    
    
    2004) through
    
    
    endedDecember
    
    
    December 31,
    
    
    November 30,
    
    
    December
    
    
    December 31,
    
    
    November 30,31, 2005
    
    
    2004
    
    
    2004
    
    
    31, 2005
    
    
    2004
    
    
    2004Change in benefit
obligation:Obligation at beginning of
period
    
    $
    24,706
    
    
    $
    
    
    
    $
    149,338
    
    
    $
    12,570
    
    
    $
    
    
    
    $
    30,903Benefit obligation assumed
from Predecessor
    
    
    
    
    
    
    23,750
    
    
    
    
    
    
    
    
    
    
    
    12,040
    
    
    
    Service cost
    
    
    591
    
    
    
    35
    
    
    
    530
    
    
    
    295
    
    
    
    30
    
    
    
    269Interest cost
    
    
    1,362
    
    
    
    112
    
    
    
    8,352
    
    
    
    549
    
    
    
    59
    
    
    
    1,654Amendments
    
    
    55
    
    
    
    
    
    
    
    440
    
    
    
    (2,088
    )
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    1,610
    
    
    
    687
    
    
    
    6,757
    
    
    
    (218
    )
    
    
    441
    
    
    
    (2,199
    )Foreign exchange effect
    
    
    (424
    )
    
    
    144
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    203
    
    
    
    (22
    )
    
    
    (10,541
    )
    
    
    125
    
    
    
    
    
    
    
    (1,651
    )Obligation at end of period
    
    $
    27,697
    
    
    $
    24,706
    
    
    $
    155,001
    
    
    $
    10,983
    
    
    $
    12,570
    
    
    $
    28,976Change in plan assets:Fair value of plan assets,
beginning of period
    
    $
    4,647
    
    
    $
    
    
    
    $
    111,287
    
    
    $
    
    
    
    $
    
    
    
    $
    Plan assets transferred
from Predecessor
    
    
    
    
    
    
    4,647
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    309
    
    
    
    
    
    
    
    3,979
    
    
    
    
    
    
    
    
    
    
    
    Employer contribution
    
    
    961
    
    
    
    22
    
    
    
    5,055
    
    
    
    
    
    
    
    
    
    
    
    1,651Benefits paid
    
    
    85
    
    
    
    (22
    )
    
    
    (10,541
    )
    
    
    
    
    
    
    
    
    
    
    (1,651
    )Fair value of plan assets,
end of period
    
    $
    5,832
    
    
    $
    4,647
    
    
    $
    109,780
    
    
    $
    
    
    
    $
    
    
    
    $
    Funded status:Plan assets less than benefit
obligation
    
    $
    (21,865
    )
    
    $
    (20,059
    )
    
    $
    (45,221
    )
    
    $
    (10,983
    )
    
    $
    (12,570
    )
    
    $
    (28,976
    )Unrecognized actuarial loss
    
    
    2,390
    
    
    
    722
    
    
    
    58,494
    
    
    
    162
    
    
    
    367
    
    
    
    1,666Unrecognized prior service
cost
    
    
    49
    
    
    
    
    
    
    
    223
    
    
    
    (1,679
    )
    
    
    
    
    
    
    (28
    )(Accrued) prepaid cost
    
    $
    (19,426
    )
    
    $
    (19,337
    )
    
    $
    13,496
    
    
    $
    (12,500
    )
    
    $
    (12,203
    )
    
    $
    (27,338
    )Amounts recognized in the
balance sheets consist of:Accrued benefit cost
    
    $
    (21,865
    )
    
    $
    (20,059
    )
    
    $
    (45,343
    )
    
    $
    (12,500
    )
    
    $
    (12,203
    )
    
    $
    (27,338
    )Intangible asset
    
    
    49
    
    
    
    
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    Accumulated other
comprehensive income
    
    
    2,390
    
    
    
    722
    
    
    
    58,616
    
    
    
    
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    (19,426
    )
    
    $
    (19,337
    )
    
    $
    13,496
    
    
    $
    (12,500
    )
    
    $
    (12,203
    )
    
    $
    (27,338
    )
 52




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 9. Pension and Other Employee Benefits (Continued)
   PostretirementPension Benefits
    
    Benefits2005
    
    2004
    
    2005
    
    2004Weighted-average discount rate
    
    
    5.5
    %
    
    
    5.8
    %
    
    
    5.5
    %
    
    
    5.8
    %Weighted-average rate of compensation increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  Pension Benefits
    
    
    Postretirement BenefitsPredecessor (Note 1)
    
    
    
    
    
    
    
    
    
    
    Predecessor (Note 1)From
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FromInception
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inception(December 1,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (December 1,Year
    
    
    2004)
    
    
    11 Months
    
    
    
    
    
    
    Year
    
    
    2004)
    
    
    11 Monthsended
    
    
    through
    
    
    ended
    
    
    Year-ended
    
    
    ended
    
    
    through
    
    
    ended
    
    
    Year-endedDecember
    
    
    December 31,
    
    
    November
    
    
    December 31,
    
    
    December
    
    
    December 31,
    
    
    November 30,
    
    
    December 31,31, 2005
    
    
    2004
    
    
    30, 2004
    
    
    2003
    
    
    31, 2005
    
    
    2004
    
    
    2004
    
    
    2003Service cost
    
    $
    591
    
    
    $
    35
    
    
    $
    530
    
    
    $
    650
    
    
    $
    295
    
    
    $
    30
    
    
    $
    269
    
    
    $
    390Interest cost
    
    
    1,362
    
    
    
    112
    
    
    
    8,352
    
    
    
    9,211
    
    
    
    549
    
    
    
    59
    
    
    
    1,654
    
    
    
    1,876Recognized net
actuarial loss
    
    
    
    
    
    
    
    
    
    
    2,783
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    Expected return on
plan assets
    
    
    431
    
    
    
    (31
    )
    
    
    (9,747
    )
    
    
    (10,971
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    72
    
    
    
    
    
    
    
    14
    
    
    
    1,266
    
    
    
    (423
    )
    
    
    
    
    
    
    (19
    )
    
    
    232Net periodic
benefit cost
    
    $
    1,594
    
    
    $
    116
    
    
    $
    1,932
    
    
    $
    179
    
    
    $
    421
    
    
    $
    89
    
    
    $
    2,087
    
    
    $
    2,498
  Pension Benefits
    
    Postretirement BenefitsPredecessor (Note 1)
    
    
    
    
    
    
    
    
    
    Predecessor (Note 1)From
    
    
    
    
    
    
    
    
    
    
    
    
    
    FromInception
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inception(December 1,
    
    
    
    
    
    
    
    
    
    
    
    
    
    (December 1,Year
    
    2004)
    
    11 Months
    
    
    
    
    
    Year
    
    2004)
    
    11 Monthsended
    
    through
    
    ended
    
    Year-ended
    
    ended
    
    through
    
    ended
    
    Year-endedDecember
    
    December 31,
    
    November 30,
    
    December 31,
    
    December
    
    December 31,
    
    November 30,
    
    December 31,31, 2005
    
    2004
    
    2004
    
    2003
    
    31, 2005
    
    2004
    
    2004
    
    2003Discount rate
    
    
    5.5
    %
    
    
    6.0
    %
    
    
    6.2
    %
    
    
    7.2
    %
    
    
    5.5
    %
    
    
    6.0
    %
    
    
    6.3
    %
    
    
    6.8
    %Expected return on
plan assets
    
    
    8.5
    %
    
    
    8.5
    %
    
    
    8.5
    %
    
    
    9.0
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ACompensation rate
increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 53




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 9. Pension and Other Employee Benefits (Continued)
   1-Percentage-
    
    1-Percentage-Point
    
    PointIncrease
    
    DecreaseEffect on service and interest cost components for the
period January 1, 2005 through December 31, 2005
    
    $
    122
    
    
    $
    (101
    )Effect on the December 31, 2005 post-retirement benefit obligation
    
    
    1,453
    
    
    
    (1,378
    )
   Allocation Percentage ofPlan Assets at Year-EndAsset
    
    2005
    
    2005
    
    2004Category
    
    Actual
    
    Target
    
    ActualEquity securities
    
    
    67
    %
    
    
    65
    %
    
    
    (i
    )Fixed income securities
    
    
    33
    %
    
    
    35
    %
    
    
    (i
    )
 
 (i)
    
    The assets for the Companys funded retirement plan at the end of 2004 were held by the
Predecessor, awaiting transfer. Once received, they were invested in a manner consistent with the
2005 target allocation.  54




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 9. Pension and Other Employee Benefits (Continued)
 Expected cash flows
  Pension
    
    PostretirementBenefits
    
    BenefitsExpected benefit payments (from plan assets)
    
    
    2006
    
    
    
    446
    
    
    
    2082007
    
    
    
    633
    
    
    
    2962008
    
    
    
    818
    
    
    
    3942009
    
    
    
    1,035
    
    
    
    4992010
    
    
    
    1,212
    
    
    
    6182011-2015
    
    
    
    8,577
    
    
    
    4,203
  Defined Contribution Plans
   10. Long-Term Debt
 Revolving Credit Agreement
  55




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 10. Long-Term Debt (continued)
    9% Senior Secured Notes
     56




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 10. Long-Term Debt (continued)
  Predecessor Debt
  Capital Leases (see also Note 15)
  11. Stockholders Equity
   12. Related-Party Transactions
 Kilian Acquisition
  Management Agreement
  57




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 12. Related-Party Transactions (continued)
  Transition Services Agreement
  Predecessor Related Party Transactions
     58




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 13. Concentrations of Credit, Business Risks and Workforce
     Net Sales
    
    
    Property, Plant andPredecessor (Note 1)
    
    
    Equipment11 MonthsYear-ended
    
    
    December 1,
    
    
    ended
    
    
    Year-endedDecember
    
    
    2004 through
    
    
    November
    
    
    December31,
    
    
    December 31,
    
    
    30,
    
    
    31,
    
    
    December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004North America
(primarily U.S.)
    
    $
    288,883
    
    
    $
    23,071
    
    
    $
    207,731
    
    
    $
    198,244
    
    
    $
    47,587
    
    
    $
    47,284Europe
    
    
    59,176
    
    
    
    4,632
    
    
    
    54,141
    
    
    
    54,672
    
    
    
    16,968
    
    
    
    18,760Asia and other
    
    
    15,406
    
    
    
    922
    
    
    
    13,165
    
    
    
    13,947
    
    
    
    1,838
    
    
    
    1,962Total
    
    $
    363,465
    
    
    $
    28,625
    
    
    $
    275,037
    
    
    $
    266,863
    
    
    $
    66,393
    
    
    $
    68,006
     59




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 14. Predecessor Restructuring, Asset Impairment and Transition Expenses
 Accounting for Costs Associated
with Exit or Disposal Activities Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)
  Year-ended11 Months ended
    
    
    DecemberNovember 30,
    
    
    31,2004
    
    
    2003Accrued restructuring charge
    
    $
    
    
    
    $
    Impairment or loss on sale of fixed
assets
    
    
    306
    
    
    
    2,011Period cost transition expenses
    
    
    641
    
    
    
    9,074$
    947
    
    
    $
    11,085
  United States Programs
   60




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 14. Predecessor Restructuring, Asset Impairment and Transition Expenses (continued)
    European and Asian Programs
   11 MonthsendedNovember 30,
    
    
    December 31,2004
    
    
    2003United States programs:Speed reducer product line consolidation
    
    $
    
    
    
    $
    2,011Electronic clutch brake consolidation
    
    
    306
    
    
    
    Total United States programs
    
    $
    306
    
    
    $
    2,011Total non-cash asset impairment and loss on sale of assets
    
    $
    306
    
    
    $
    2,011
  11 MonthsendedNovember 30,
    
    
    December 31,2004
    
    
    2003United States programs:Speed reducer product line consolidation
    
    $
    
    
    
    $
    3,516Electronic clutch brake consolidation
    
    
    641
    
    
    
    2,203Sprag clutch consolidation
    
    
    
    
    
    
    24Heavy duty clutch consolidation
    
    
    
    
    
    
    516Administrative streamlining
    
    
    
    
    
    
    592Total United States programs
    
    $
    641
    
    
    $
    6,851Europe and Asia electronic clutch brake consolidation
    
    
    
    
    
    
    2,223Total transition expense
    
    $
    641
    
    
    $
    9,074
 61




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 14. Predecessor Restructuring, Asset Impairment and Transition Expenses (continued)
  11 MonthsendedNovember
    
    
    December30,
    
    
    31,2004
    
    
    2003Training
    
    $
    
    
    
    $
    914Relocation
    
    
    
    
    
    
    959Moving costs
    
    
    
    
    
    
    3,485Severance
    
    
    
    
    
    
    767Duplicate employees
    
    
    
    
    
    
    1,689ERP system integration
    
    
    
    
    
    
    477Other
    
    
    641
    
    
    
    783Total transition expense
    
    $
    641
    
    
    $
    9,074
  Combined,Period from11 Months
    
    
    
    
    
    
    January 1, 2003ended
    
    
    Year ended
    
    
    throughNovember 30,
    
    
    December 31,
    
    
    November 30,2004
    
    
    2003
    
    
    2004United States programs:Speed reducer product line consolidation
    
    $
    331
    
    
    $
    583
    
    
    $
    914Electronic clutch brake consolidation
    
    
    711
    
    
    
    908
    
    
    
    1,619Sprag clutch consolidation
    
    
    89
    
    
    
    103
    
    
    
    192Heavy duty clutch consolidation
    
    
    158
    
    
    
    416
    
    
    
    574Administrative streamlining
    
    
    8
    
    
    
    284
    
    
    
    292Total United States programs
    
    $
    1,297
    
    
    $
    2,294
    
    
    $
    3,591Europe and Asia electronic clutch brake consolidation
    
    
    288
    
    
    
    2,553
    
    
    
    2,841Cash charged against the restructuring reserve
    
    $
    1,585
    
    
    $
    4,847
    
    
    $
    6,432Transition expense
    
    
    641
    
    
    
    9,074
    
    
    
    9,715Total cash utilized
    
    $
    2,226
    
    
    $
    13,921
    
    
    $
    16,147
  11 Months endedNovember 30,2004Balance at beginning of period
    
    $
    1,606Cash payments
    
    
    (1,585
    )Balance at end of period
    
    $
    21
 62




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 15. Commitments and Contingencies
 Minimum Lease Obligations
  Operating
    
    
    CapitalYear ending December 31:
    
    Leases
    
    
    Leases2006
    
    $
    2,709
    
    
    $
    2112007
    
    
    2,269
    
    
    
    1662008
    
    
    1,396
    
    
    
    62009
    
    
    680
    
    
    
    2010
    
    
    513
    
    
    
    Thereafter
    
    
    1,464
    
    
    
    Total lease obligations
    
    $
    9,031
    
    
    
    383Less amounts representing interest
    
    
    
    
    
    
    (44
    )Present value of minimum capital lease obligations
    
    
    
    
    
    $
    339
  General Litigation
   16. Guarantor Subsidiaries
  63




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated 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 (deficit) 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 long-term debt
    
    
    
    
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    186Loans payable from related parties
    
    
    38,607
    
    
    
    
    
    
    
    
    
    
    
    (38,607
    )
    
    
    Total current liabilities
    
    
    41,688
    
    
    
    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
 64




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Balance Sheets of the Company
December 31, 2004
 December 31, 2004NonIssuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    2,219
    
    
    $
    (1,913
    )
    
    $
    4,423
    
    
    $
    
    
    
    $
    4,729Trade receivables, less allowance for doubtful
accounts
    
    
    
    
    
    
    31,412
    
    
    
    14,557
    
    
    
    
    
    
    
    45,969Loan receivable from related parties
    
    
    
    
    
    
    11,392
    
    
    
    912
    
    
    
    (12,304
    )
    
    
    Inventories, less allowances for obsolete materials
    
    
    
    
    
    
    41,938
    
    
    
    14,794
    
    
    
    
    
    
    
    56,732Deferred income taxes
    
    
    
    
    
    
    1,015
    
    
    
    130
    
    
    
    
    
    
    
    1,145Prepaid expenses and other
    
    
    
    
    
    
    3,660
    
    
    
    1,132
    
    
    
    
    
    
    
    4,792Total current assets
    
    
    2,219
    
    
    
    87,504
    
    
    
    35,948
    
    
    
    (12,304
    )
    
    
    113,367Property, plant and equipment, net
    
    
    
    
    
    
    47,284
    
    
    
    20,722
    
    
    
    
    
    
    
    68,006Intangible assets, net
    
    
    
    
    
    
    38,990
    
    
    
    9,768
    
    
    
    
    
    
    
    48,758Goodwill
    
    
    
    
    
    
    49,310
    
    
    
    13,835
    
    
    
    
    
    
    
    63,145Other assets
    
    
    3,341
    
    
    
    147
    
    
    
    2,287
    
    
    
    
    
    
    
    5,775Investments in subsidiaries
    
    
    204,639
    
    
    
    
    
    
    
    
    
    
    
    (204,639
    )
    
    
    $
    210,199
    
    
    $
    223,235
    
    
    $
    82,560
    
    
    $
    (216,943
    )
    
    $
    299,051Liabilities and (deficit) equityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    20,968
    
    
    $
    7,819
    
    
    $
    
    
    
    $
    28,787Accrued payroll
    
    
    733
    
    
    
    6,962
    
    
    
    3,966
    
    
    
    
    
    
    
    11,661Accruals and other current liabilities
    
    
    3,130
    
    
    
    9,958
    
    
    
    1,289
    
    
    
    
    
    
    
    14,377Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    129Current portion of long-term debt
    
    
    
    
    
    
    247
    
    
    
    666
    
    
    
    
    
    
    
    913Affiliate debt
    
    
    4,978
    
    
    
    (4,014
    )
    
    
    11,340
    
    
    
    (12,304
    )
    
    
    Total current liabilities
    
    
    8,841
    
    
    
    34,121
    
    
    
    25,209
    
    
    
    (12,304
    )
    
    
    55,867Long-term debt, less current portion
    
    
    158,479
    
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    158,740Deferred income taxes
    
    
    
    
    
    
    2,474
    
    
    
    7,354
    
    
    
    
    
    
    
    9,828Pension liabilities
    
    
    
    
    
    
    16,301
    
    
    
    3,233
    
    
    
    
    
    
    
    19,534Other post-retirement benefits
    
    
    
    
    
    
    12,203
    
    
    
    
    
    
    
    
    
    
    
    12,203Total liabilities
    
    
    167,320
    
    
    
    65,360
    
    
    
    35,796
    
    
    
    (12,304
    )
    
    
    256,172Total stockholders equity
    
    
    42,879
    
    
    
    157,875
    
    
    
    46,764
    
    
    
    (204,639
    )
    
    
    42,879$
    210,199
    
    
    $
    223,235
    
    
    $
    82,560
    
    
    $
    (216,943
    )
    
    $
    299,051
 65




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Statements of Operations of the Company
Year ended December 31, 2005
 Year ended December 31, 2005Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    279,292
    
    
    $
    93,201
    
    
    $
    (9,028
    )
    
    $
    363,465Cost of sales
    
    
    
    
    
    
    211,898
    
    
    
    69,082
    
    
    
    (9,028
    )
    
    
    271,952Gross (loss) profit
    
    
    
    
    
    
    67,394
    
    
    
    24,119
    
    
    
    
    
    
    
    91,513Selling, general and administrative expenses
    
    
    
    
    
    
    43,729
    
    
    
    17,692
    
    
    
    
    
    
    
    61,421Research and development expenses
    
    
    
    
    
    
    2,478
    
    
    
    2,205
    
    
    
    
    
    
    
    4,683Income from operations
    
    
    
    
    
    
    21,187
    
    
    
    4,222
    
    
    
    
    
    
    
    25,409Interest expense (income)
    
    
    16,908
    
    
    
    (339
    )
    
    
    496
    
    
    
    
    
    
    
    17,065Other non-operating expense (income)
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )Equity in earnings of subsidiaries
    
    
    21,335
    
    
    
    
    
    
    
    
    
    
    
    (21,335
    )
    
    
    Income (loss) before income taxes
    
    
    4,444
    
    
    
    21,526
    
    
    
    3,726
    
    
    
    (21,335
    )
    
    
    8,361Provision for income taxes
    
    
    
    
    
    
    2,655
    
    
    
    1,262
    
    
    
    
    
    
    
    3,917Net (loss) income
    
    $
    4,444
    
    
    $
    18,871
    
    
    $
    2,464
    
    
    $
    (21,335
    )
    
    $
    4,444
 Condensed Consolidating Statements of Operations of the Company
Period from Inception (December 1, 2004) through December 31, 2004
 Period from Inception (December 1, 2004) to December 31, 2004Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    22,591
    
    
    $
    6,850
    
    
    $
    (816
    )
    
    $
    28,625Cost of sales
    
    
    
    
    
    
    19,115
    
    
    
    5,548
    
    
    
    (816
    )
    
    
    23,847Gross (loss) profit
    
    
    
    
    
    
    3,476
    
    
    
    1,302
    
    
    
    
    
    
    
    4,778Selling, general and administrative expenses
    
    
    4,855
    
    
    
    3,480
    
    
    
    638
    
    
    
    
    
    
    
    8,973Research and development expenses
    
    
    
    
    
    
    176
    
    
    
    202
    
    
    
    
    
    
    
    378(Loss) income from operations
    
    
    (4,855
    )
    
    
    (180
    )
    
    
    462
    
    
    
    
    
    
    
    (4,573
    )Interest expense (income)
    
    
    1,384
    
    
    
    (82
    )
    
    
    108
    
    
    
    
    
    
    
    1,410Equity in earnings of subsidiaries
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    (256
    )
    
    
    Income (loss) before income taxes
    
    
    (5,983
    )
    
    
    (98
    )
    
    
    354
    
    
    
    (256
    )
    
    
    (5,983
    )(Benefit) provision for income taxes
    
    
    (221
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (221
    )Net (loss) income
    
    $
    (5,762
    )
    
    $
    (98
    )
    
    $
    354
    
    
    $
    (256
    )
    
    $
    (5,762
    )
 66




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Statements of Operations of the Predecessor
Period from January 1, 2004 through November 30, 2004
 Predecessor (Note 1)Period from January 1, 2004 to November 30, 2004Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    212,005
    
    
    $
    72,402
    
    
    $
    (9,370
    )
    
    $
    275,037Cost of sales
    
    
    166,989
    
    
    
    51,634
    
    
    
    (9,370
    )
    
    
    209,253Gross profit
    
    
    45,016
    
    
    
    20,768
    
    
    
    
    
    
    
    65,784Selling, general and administrative expenses
    
    
    31,538
    
    
    
    13,783
    
    
    
    
    
    
    
    45,321Research and development expenses
    
    
    1,972
    
    
    
    1,975
    
    
    
    
    
    
    
    3,947Gain on sale of assets
    
    
    (1,300
    )
    
    
    
    
    
    
    
    
    
    
    (1,300
    )Restructuring charge, asset impairment and
transition expenses
    
    
    947
    
    
    
    
    
    
    
    
    
    
    
    947Income from operations
    
    
    11,859
    
    
    
    5,010
    
    
    
    
    
    
    
    16,869Interest expense
    
    
    2,751
    
    
    
    1,543
    
    
    
    
    
    
    
    4,294Other non-operating expense (income)
    
    
    (17
    )
    
    
    165
    
    
    
    
    
    
    
    148Equity in income of subsidiaries
    
    
    1,742
    
    
    
    
    
    
    
    (1,742
    )
    
    
    Income before income taxes
    
    
    10,867
    
    
    
    3,302
    
    
    
    (1,742
    )
    
    
    12,427Provision for income taxes
    
    
    3,972
    
    
    
    1,560
    
    
    
    
    
    
    
    5,532Net income
    
    $
    6,895
    
    
    $
    1,742
    
    
    $
    (1,742
    )
    
    $
    6,895
 Condensed Consolidating Statements of Operations of the Predecessor
Year ended December 31, 2003
 Predecessor (Note 1)Year ended December 31, 2003Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    204,983
    
    
    $
    71,798
    
    
    $
    (9,918
    )
    
    $
    266,863Cost of sales
    
    
    164,493
    
    
    
    53,366
    
    
    
    (9,918
    )
    
    
    207,941Gross profit
    
    
    40,490
    
    
    
    18,432
    
    
    
    
    
    
    
    58,922Selling, general and administrative expenses
    
    
    34,860
    
    
    
    14,653
    
    
    
    
    
    
    
    49,513Research and development expenses
    
    
    1,840
    
    
    
    1,615
    
    
    
    
    
    
    
    3,455Restructuring charge, asset impairment and
transition expenses
    
    
    8,928
    
    
    
    2,157
    
    
    
    
    
    
    
    11,085Income (loss) from operations
    
    
    (5,138
    )
    
    
    7
    
    
    
    
    
    
    
    (5,131
    )Interest expense
    
    
    3,570
    
    
    
    1,798
    
    
    
    
    
    
    
    5,368Loss (gain) on sale of assets and other
non-operating expense (income)
    
    
    481
    
    
    
    (16
    )
    
    
    
    
    
    
    465Equity in loss of subsidiaries
    
    
    (2,349
    )
    
    
    
    
    
    
    2,349
    
    
    
    Income (loss) before income taxes
    
    
    (11,538
    )
    
    
    (1,775
    )
    
    
    2,349
    
    
    
    (10,964
    )Provision (benefit) for income taxes
    
    
    (2,232
    )
    
    
    574
    
    
    
    
    
    
    
    (1,658
    )Net loss
    
    $
    (9,306
    )
    
    $
    (2,349
    )
    
    $
    2,349
    
    
    $
    (9,306
    )
 67




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Statements of Cash Flows of the Company
Year ended December 31, 2005
 Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    4,444
    
    
    $
    18,871
    
    
    $
    2,464
    
    
    $
    (21,335
    )
    
    $
    4,444Undistributed equity in earnings of subsidiaries
    
    
    (21,335
    )
    
    
    
    
    
    
    
    
    
    
    21,335
    
    
    
    Adjustments to reconcile net loss to cash
provided by operating activities:Depreciation
    
    
    
    
    
    
    5,845
    
    
    
    2,729
    
    
    
    
    
    
    
    8,574Amortization of intangible assets
    
    
    
    
    
    
    2,261
    
    
    
    698
    
    
    
    
    
    
    
    2,959Amortization and write-off of deferred loan
costs
    
    
    621
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    621Accretion of debt discount
    
    
    942
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    942Amortization of inventory fair value
adjustment
    
    
    
    
    
    
    1,270
    
    
    
    429
    
    
    
    
    
    
    
    1,699Gain on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    (99
    )
    
    
    
    
    
    
    (99
    )Provision for deferred taxes
    
    
    
    
    
    
    568
    
    
    
    (320
    )
    
    
    
    
    
    
    248Changes in operating assets and liabilities:Trade receivables
    
    
    
    
    
    
    (1,608
    )
    
    
    (1,046
    )
    
    
    
    
    
    
    (2,654
    )Inventories
    
    
    
    
    
    
    (2,894
    )
    
    
    1,541
    
    
    
    
    
    
    
    (1,353
    )Accounts payable and accrued liabilities
    
    
    (882
    )
    
    
    (6,632
    )
    
    
    5,682
    
    
    
    
    
    
    
    (1,832
    )Other current assets and liabilities
    
    
    (26
    )
    
    
    2,727
    
    
    
    475
    
    
    
    
    
    
    
    2,226Other operating assets and liabilities
    
    
    (1,746
    )
    
    
    87
    
    
    
    (281
    )
    
    
    
    
    
    
    (1,940
    )Net cash provided by (used in) continuing
operating activities
    
    
    (17,982
    )
    
    
    20,495
    
    
    
    11,322
    
    
    
    
    
    
    
    13,835Cash flows from investing activities:Purchases of fixed assets
    
    
    
    
    
    
    (4,099
    )
    
    
    (2,100
    )
    
    
    
    
    
    
    (6,199
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    1,607
    
    
    
    
    
    
    
    
    
    
    
    1,607Payment of additional Kilian purchase price
    
    
    
    
    
    
    (730
    )
    
    
    
    
    
    
    
    
    
    
    (730
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    20
    
    
    
    105
    
    
    
    
    
    
    
    125Net cash used in investing activities
    
    
    
    
    
    
    (3,202
    )
    
    
    (1,995
    )
    
    
    
    
    
    
    (5,197
    )Cash flows from financing activities:Payment of debt issuance costs
    
    
    (338
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (338
    )Payment on behalf of parent company
    
    
    (1,610
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,610
    )Borrowings under revolving credit agreements
    
    
    4,408
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,408Payments on revolving credit agreements
    
    
    (4,408
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,408
    )Payment of capital leases
    
    
    
    
    
    
    (169
    )
    
    
    (666
    )
    
    
    
    
    
    
    (835
    )Change in affiliated debt
    
    
    26,530
    
    
    
    (17,924
    )
    
    
    (8,606
    )
    
    
    
    
    
    
    Net cash (used in) provided by financing
activities
    
    
    24,582
    
    
    
    (18,093
    )
    
    
    (9,272
    )
    
    
    
    
    
    
    (2,783
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (524
    )
    
    
    
    
    
    
    (524
    )Increase (decrease) in cash and cash equivalents
    
    
    6,600
    
    
    
    (800
    )
    
    
    (469
    )
    
    
    
    
    
    
    5,331Cash and cash equivalents, beginning of the period
    
    
    2,219
    
    
    
    (1,913
    )
    
    
    4,423
    
    
    
    
    
    
    
    4,729Cash and cash equivalents, end of period
    
    $
    8,819
    
    
    $
    (2,713
    )
    
    $
    3,954
    
    
    $
    
    
    
    $
    10,060
 68




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Statements of Cash Flows of the Company
Period from Inception (December 1, 2004) through December 31, 2004
 Non-Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (5,762
    )
    
    $
    (98
    )
    
    $
    354
    
    
    $
    (256
    )
    
    $
    (5,762
    )Undistributed equity in earnings of subsidiaries
    
    
    (256
    )
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    Adjustments to reconcile net loss to cash
provided by operating activities:Depreciation
    
    
    
    
    
    
    551
    
    
    
    122
    
    
    
    
    
    
    
    673Amortization of intangible assets
    
    
    
    
    
    
    196
    
    
    
    50
    
    
    
    
    
    
    
    246Amortization and write-off of deferred loan
costs
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Accretion of debt discount
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79Amortization of inventory fair value
adjustment
    
    
    
    
    
    
    1,270
    
    
    
    429
    
    
    
    
    
    
    
    1,699Provision (benefit) for deferred taxes
    
    
    
    
    
    
    (1,031
    )
    
    
    
    
    
    
    
    
    
    
    (1,031
    )Changes in operating assets and liabilities:Trade receivables
    
    
    
    
    
    
    (1,403
    )
    
    
    1,079
    
    
    
    
    
    
    
    (324
    )Inventories
    
    
    
    
    
    
    994
    
    
    
    (1,406
    )
    
    
    
    
    
    
    (412
    )Accounts payable and accrued liabilities
    
    
    1,900
    
    
    
    8,899
    
    
    
    (1,326
    )
    
    
    
    
    
    
    9,473Other current assets and liabilities
    
    
    
    
    
    
    (2,222
    )
    
    
    96
    
    
    
    
    
    
    
    (2,126
    )Other operating assets and liabilities
    
    
    3,357
    
    
    
    (356
    )
    
    
    58
    
    
    
    
    
    
    
    3,059Net cash provided by (used in) continuing
operating
activities
    
    
    (633
    )
    
    
    6,800
    
    
    
    (544
    )
    
    
    
    
    
    
    5,623Cash flows from investing activities:Purchases of fixed assets
    
    
    
    
    
    
    (243
    )
    
    
    (46
    )
    
    
    
    
    
    
    (289
    )Acquisitions, net of cash acquired
    
    
    (182,479
    )
    
    
    (1,949
    )
    
    
    4,316
    
    
    
    
    
    
    
    (180,112
    )Sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (182,479
    )
    
    
    (2,192
    )
    
    
    4,270
    
    
    
    
    
    
    
    (180,401
    )Cash flows from financing activities:Contributed capital
    
    
    39,994
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,994Proceeds from issuance of senior subordinated
notes
    
    
    158,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158,400Payment of debt acquired in acquisitions
    
    
    (12,178
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,178
    )Payment of debt issuance costs
    
    
    (6,747
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,747
    )Payment of capital leases
    
    
    
    
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    (37
    )Borrowings under revolving credit agreements
    
    
    4,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,988Payments on revolving credit agreements
    
    
    (4,988
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,988
    )Change in affiliated debt
    
    
    5,862
    
    
    
    (6,484
    )
    
    
    622
    
    
    
    
    
    
    
    Net cash (used in) provided by financing
activities
    
    
    185,331
    
    
    
    (6,521
    )
    
    
    622
    
    
    
    
    
    
    
    179,432Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    75Increase (decrease) in cash and cash equivalents
    
    
    2,219
    
    
    
    (1,913
    )
    
    
    4,423
    
    
    
    
    
    
    
    4,729Cash and cash equivalents, beginning of the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents, end of period
    
    $
    2,219
    
    
    $
    (1,913
    )
    
    $
    4,423
    
    
    $
    
    
    
    $
    4,729
 69




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Statements of Cash Flows of the Predecessor
Period from January 1, 2004 through November 30, 2004
 Non-Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    6,895
    
    
    $
    1,742
    
    
    $
    (1,742
    )
    
    $
    6,895Adjustments to reconcile net loss to cash provided by
operating activities:Depreciation
    
    
    5,038
    
    
    
    1,036
    
    
    
    
    
    
    
    6,074Impairments, (gains) losses on fixed assets
    
    
    (1,300
    )
    
    
    
    
    
    
    
    
    
    
    (1,300
    )Provision (benefit) for deferred taxes
    
    
    102
    
    
    
    15
    
    
    
    
    
    
    
    117Changes in operating assets and liabilities:Trade receivables
    
    
    (492
    )
    
    
    (3,705
    )
    
    
    
    
    
    
    (4,197
    )Inventories
    
    
    (2,610
    )
    
    
    (3,808
    )
    
    
    
    
    
    
    (6,418
    )Accounts payable and accrued liabilities
    
    
    4,825
    
    
    
    (1,091
    )
    
    
    
    
    
    
    3,734Other current assets and liabilities
    
    
    2,883
    
    
    
    (1,406
    )
    
    
    
    
    
    
    1,477Other operating assets and liabilities
    
    
    (2,794
    )
    
    
    16
    
    
    
    
    
    
    
    (2,778
    )Net cash provided by (used in) operating activities
    
    
    12,547
    
    
    
    (7,201
    )
    
    
    (1,742
    )
    
    
    3,604Cash flows from investing activities:Purchases of fixed assets
    
    
    (2,533
    )
    
    
    (956
    )
    
    
    
    
    
    
    (3,489
    )Sale of fixed assets
    
    
    4,442
    
    
    
    
    
    
    
    
    
    
    
    4,442Net cash provided by (used in) investing activities
    
    
    1,909
    
    
    
    (956
    )
    
    
    
    
    
    
    953Cash flows from financing activities:Change in affiliated debt
    
    
    (13,697
    )
    
    
    (921
    )
    
    
    
    
    
    
    (14,618
    )(Distribution to) contribution from affiliates
    
    
    2,019
    
    
    
    4,161
    
    
    
    1,742
    
    
    
    7,922Net cash (used in) provided by financing activities
    
    
    (11,678
    )
    
    
    3,334
    
    
    
    1,742
    
    
    
    (6,602
    )Effect of exchange rates on cash
    
    
    
    
    
    
    159
    
    
    
    
    
    
    
    159Increase (decrease) in cash and cash equivalents
    
    
    2,778
    
    
    
    (4,758
    )
    
    
    
    
    
    
    (1,980
    )Cash and cash equivalents, beginning of the period
    
    
    (125
    )
    
    
    3,288
    
    
    
    
    
    
    
    3,163Cash and cash equivalents, end of period
    
    $
    2,653
    
    
    $
    (1,470
    )
    
    $
    
    
    
    $
    1,183
 70




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 Condensed Consolidating Statements of Cash Flows of the Predecessor
Year ended December 31, 2003
 Predecessor (Note 1)Year ended December 31, 2003Non-Guarantor
    
    
    Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net (loss) income
    
    $
    (9,306
    )
    
    $
    (2,349
    )
    
    $
    2,349
    
    
    $
    (9,306
    )Adjustments to reconcile net loss to cash provided by
operating activities:Depreciation and amortization
    
    
    7,396
    
    
    
    1,257
    
    
    
    
    
    
    
    8,653Amortization and write-off of deferred loan costs
    
    
    587
    
    
    
    
    
    
    
    
    
    
    
    587Impairment or loss on fixed assets
    
    
    2,126
    
    
    
    
    
    
    
    
    
    
    
    2,126Provision for deferred taxes
    
    
    (2,480
    )
    
    
    (199
    )
    
    
    
    
    
    
    (2,679
    )Changes in operating assets and liabilities:Trade receivables
    
    
    (1,082
    )
    
    
    504
    
    
    
    
    
    
    
    (578
    )Inventories
    
    
    (2,471
    )
    
    
    239
    
    
    
    
    
    
    
    (2,232
    )Accounts payable and accrued liabilities
    
    
    (12,197
    )
    
    
    (1,645
    )
    
    
    
    
    
    
    (13,842
    )Other current assets and liabilities
    
    
    (903
    )
    
    
    458
    
    
    
    
    
    
    
    (445
    )Other operating assets and liabilities
    
    
    3,646
    
    
    
    (219
    )
    
    
    
    
    
    
    3,427Net cash (used in) provided by operating activities
    
    
    (14,684
    )
    
    
    (1,954
    )
    
    
    2,349
    
    
    
    (14,289
    )Cash flows from investing activities:Purchases of fixed assets
    
    
    (4,381
    )
    
    
    (913
    )
    
    
    
    
    
    
    (5,294
    )Sale of fixed assets
    
    
    3,721
    
    
    
    
    
    
    
    
    
    
    
    3,721Net cash used in investing activities
    
    
    (660
    )
    
    
    (913
    )
    
    
    
    
    
    
    (1,573
    )Cash flows from financing activities:Change in debt
    
    
    (51,668
    )
    
    
    (12,574
    )
    
    
    
    
    
    
    (64,242
    )Change in affiliate debt
    
    
    52,132
    
    
    
    18,471
    
    
    
    
    
    
    
    70,603Contributed capital
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    5,000Contribution from (Distribution to) affiliates
    
    
    7,304
    
    
    
    (3,570
    )
    
    
    (2,349
    )
    
    
    1,385Net cash (used in) provided by financing activities
    
    
    12,768
    
    
    
    2,327
    
    
    
    (2,349
    )
    
    
    12,746Effect of exchange rates on cash
    
    
    
    
    
    
    1,065
    
    
    
    
    
    
    
    1,065Increase (decrease) in cash and cash equivalents
    
    
    (2,576
    )
    
    
    525
    
    
    
    
    
    
    
    (2,051
    )Cash and cash equivalents, beginning of year
    
    
    2,451
    
    
    
    2,763
    
    
    
    
    
    
    
    5,214Cash and cash equivalents, end of year
    
    $
    (125
    )
    
    $
    3,288
    
    
    $
    
    
    
    $
    3,163
 71




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 17. Unaudited Quarterly Results of Operations (in thousands):
 Year ending December 31, 2005
 Fourth
    
    Third
    
    Second
    
    FirstNet Sales
    
    $
    90,205
    
    
    $
    85,056
    
    
    $
    92,902
    
    
    $
    95,302Gross Profit
    
    
    25,075
    
    
    
    21,396
    
    
    
    23,162
    
    
    
    21,880Net income
    
    
    2,012
    
    
    
    414
    
    
    
    1,822
    
    
    
    196
 Year ending December 31, 2004
 Predecessor (Note 1)Period fromInception
    
    
    Period from(December 1)
    
    
    October 1, 2004to
    
    
    toDecember 31,
    
    
    November 30,2004
    
    
    2004
    
    Third
    
    Second
    
    FirstNet Sales
    
    $
    28,625
    
    
    
    $
    46,770
    
    
    $
    72,413
    
    
    $
    77,963
    
    
    $
    77,891Gross Profit
    
    
    4,778
    
    
    
    
    10,088
    
    
    
    17,838
    
    
    
    18,459
    
    
    
    19,399Net income (loss)
    
    
    (5,762
    )
    
    
    
    843
    
    
    
    (1,241
    )
    
    
    2,516
    
    
    
    4,777
  18. Subsequent Event (Unaudited)
   72




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ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 18. Subsequent Event (Unaudited) (continued)
  Total purchase price, including closing costs of approximately $1.7 million
    
    $
    50,981Cash and cash equivalents
    
    
    441Trade receivables
    
    
    11,668Inventories
    
    
    16,989Prepaid expenses and other
    
    
    1,442Property, plant and equipment
    
    
    10,509Intangible assets
    
    
    15,900Total assets acquired
    
    
    56,949Accounts payable, accrued payroll, and accruals and other current liabilities
    
    
    11,862Other liabilities
    
    
    5,647Total liabilities assumed
    
    
    17,509Net assets acquired
    
    
    39,440Excess purchase price over the fair value of net assets acquired
    
    $
    11,541
   Customer relationships
    
    $
    9,064Product technology and patents
    
    
    1,589Total intangible assets subject to amortization
    
    
    10,653Trade names and trademarks, not subject to amortization
    
    
    5,246Total intangible assets
    
    $
    15,900
  1 4
 73




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##### Table of Contents



ALTRA INDUSTRIAL MOTION, INC.
Notes to Consolidated Financial Statements
Dollars in thousands, unless otherwise noted
 
 Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
  
 Item 9A. Controls and Procedures
 (a)
    
    Our management evaluated, with the participation of the Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as
defined in Rules 13(a)-15(f) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), as of December 31, 2005. Based on their evaluation, our principal
executive and principal financial officers concluded that our disclosure controls and
procedures were effective as of December 31, 2005.(b)
    
    There has been no change in our internal control over financial reporting (as defined
in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during our
fiscal quarter ended December 31, 2005, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
 
 Item 9B. Other Information
  74




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PART III
 
 Item 10. Directors and Executive Officers of the Registrant
 MANAGEMENT AND DIRECTORS
  Name
    
    Age
    
    PositionMichael L. Hurt
    
    
    60
    
    
    Chief Executive Officer and DirectorCarl Christenson
    
    
    46
    
    
    President and Chief Operating OfficerDavid Wall
    
    
    47
    
    
    Chief Financial OfficerCraig Schuele
    
    
    42
    
    
    Vice President of Marketing and Business
DevelopmentGerald Ferris
    
    
    56
    
    
    Vice President of Global SalesTimothy McGowan
    
    
    49
    
    
    Vice President of Human ResourcesEdward L. Novotny
    
    
    53
    
    
    Vice President and General Manager, Boston
Gear and Overrunning ClutchJean-Pierre L. Conte
    
    
    42
    
    
    DirectorRichard D. Paterson
    
    
    63
    
    
    DirectorDarren J. Gold
    
    
    35
    
    
    DirectorFrank K. Bauchiero
    
    
    71
    
    
    DirectorLarry McPherson
    
    
    60
    
    
    Director
  Michael L. Hurt
 Carl Christenson
 75




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##### Table of Contents



David Wall
 Craig Schuele
 Gerald Ferris
 Timothy McGowan
 Edward L. Novotny
 Jean-Pierre L. Conte
 Richard D. Paterson
 Darren J. Gold
 76




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##### Table of Contents





Frank Bauchiero


Larry McPherson


Committees of the Board of Directors




Code of Ethics







Item 11


Executive Compensation
  77




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##### Table of Contents



SUMMARY COMPENSATION
 Annual compensation
    
    
    Long-term compensationAwards
    
    
    PayoutsSecuritiesOther
    
    
    Restricted
    
    
    underlyingannual
    
    
    stock
    
    
    options/
    
    
    LTIP
    
    
    All otherSalary
    
    
    Bonus
    
    
    compensation(1)
    
    
    award(s)
    
    
    SARs
    
    
    payouts
    
    
    compensationName and principal position
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    (#)
    
    
    ($)
    
    
    ($)Michael L. Hurt
    
    
    2005
    
    
    
    347,500
    
    
    
    446,375
    (12)
    
    
    12,600
    
    
    
    68,233
    (2)
    
    
    
    
    
    
    
    
    
    
    Chief Executive Officer
    
    
    2004
    
    
    
    43,301
    
    
    
    
    
    
    
    33,877
    
    
    
    18,146
    
    
    
    
    
    
    
    
    
    
    
    125,000and Director
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Charles W. Nims(8)
    
    
    2005
    
    
    
    36,309
    
    
    
    
    
    
    
    9,012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242,132Former President
    
    
    2004
    
    
    
    261,144
    
    
    
    113,889
    
    
    
    12,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191,2502003
    
    
    
    260,188
    
    
    
    54,554
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Carl Christenson
    
    
    2005
    
    
    
    240,994
    
    
    
    290,141
    (9)
    
    
    174,134
    (6)
    
    
    78,000
    (3)President and Chief
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Officer
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David Wall(9)
    
    
    2005
    
    
    
    208,523
    
    
    
    149,925
    (10)
    
    
    51,145
    (7)
    
    
    39,000
    (4)Chief Financial Officer
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Matthew F.
Taylor(11)
    
    
    2005
    
    
    
    36,402
    
    
    
    
    
    
    
    6,206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,675Former Vice President and General Manager, Warner Electric
    
    
    2004
    
    
    
    179,025
    
    
    
    67,036
    
    
    
    37,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,2502003
    
    
    
    77,083
    
    
    
    25,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Edward L. Novotny
    
    
    2005
    
    
    
    183,614
    
    
    
    112,378
    
    
    
    12,600
    
    
    
    19,500
    (5)
    
    
    
    
    
    
    
    
    
    
    Vice President and General Manager, Boston Gear and Overrunning Clutch
    
    
    2004
    
    
    
    178,954
    
    
    
    77,764
    
    
    
    12,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,2502003
    
    
    
    174,930
    
    
    
    24,980
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gerald Ferris
    
    
    2005
    
    
    
    174,882
    
    
    
    67,007
    
    
    
    10,500
    
    
    
    19,500
    (5)
    
    
    
    
    
    
    
    
    
    
    Vice President of Global sales
    
    
    2004
    
    
    
    169,388
    
    
    
    95,659
    
    
    
    12,995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,1252003
    
    
    
    164,401
    
    
    
    47,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Craig Schuele
    
    
    2005
    
    
    
    164,000
    
    
    
    56,683
    
    
    
    10,500
    
    
    
    19,500
    (5)
    
    
    
    
    
    
    
    
    
    
    Vice President of
    
    
    2004
    
    
    
    154,103
    
    
    
    59,360
    
    
    
    9,163
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000Marketing and Business
    
    
    2003
    
    
    
    145,000
    
    
    
    26,390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development
 
 (1)
    
    Excludes customary medical and dental benefits.(2)
    
    Value at time of grant. The aggregate restricted stock holdings of Mr. Hurt at the
end of 2005 were 975,000 shares with a value of $86,379. Restricted stock grants vest in five
equal annual installments and include the right to receive dividends on such stock when
declared by the board.(3)
    
    Value at time of grant. The aggregate restricted stock holdings of Mr. Christenson
at the end of 2005 were 780,000 shares with a value of $78,000. Restricted stock grants vest
in five equal annual installments and include the right to receive dividends on such stock
when declared by the board. 78




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##### Table of Contents



(4)
    
    Value at time of grant. The aggregate restricted stock holdings of Mr. Wall at the
end of 2005 were 390,000 shares with a value of $39,000. Restricted stock grants vest in five
equal annual installments and include the right to receive dividends on such stock when
declared by the board.(5)
    
    Value at time of grant. The aggregate restricted stock holdings of Mr. Novotny, Mr.
Ferris and Mr. Schuele at the end of 2005 were 195,000 shares each with a value of $19,500
each. Restricted stock grants vest in five equal annual installments and include the right to
receive dividends on such stock when declared by the board.(6)
    
    Mr. Christenson was reimbursed $161,534 in 2005 for costs related to his relocation.(7)
    
    Mr. Wall was reimbursed $38,545 in 2005 for costs related to his relocation.(8)
    
    Mr. Nims employment with the Company ended in January 2005. Mr. Nims received
$242,132 in severance during 2005.(9)
    
    Mr. Christenson was paid a signing bonus of $120,000 during 2005.(10)
    
    Mr. Wall was paid a signing bonus of $10,000 during 2005(11)
    
    Mr. Taylor was hired in June 2003. Mr. Taylors employment with the Company ended
in February 2005. Mr. Taylor received $59,675 in severance during 2005.(12)
    
    Mr. Hurt was paid a signing bonus of $146,000 during 2005 Equity Incentive Plan
  79




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##### Table of Contents



Pension
  Director Compensation
  Severance Agreements
  
    
    Charles W. Nims
    
    Matthew F. Taylor
    
    Craig Schuele
    
    Gerald Ferris
    
    Timothy McGowan
    
    Edward L. Novotny
   80




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##### Table of Contents



Option/SAR Grants in Last Fiscal Year
  Employment Arrangements and Change in Control Arrangements
 Executive Employment Agreements.
 Stockholders Agreement. provided
 Restricted Stock Agreements. provided
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
    
    each person known by us to own beneficially more than 5% of the capital stock;
    
    each of the directors of Altra Holdings;
    
    each of our named executive officers; and
    
    all of the directors and our executive officers as a group.
 81




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##### Table of Contents



Beneficial
    
    Number
    
    
    PercentageOwner
    
    of Shares
    
    
    of ClassGenstar Capital Partners III, L.P.(1)
    
    
    25,080,999
    
    
    
    64.8
    %Stargen III, L.P.(2)
    
    
    904,001
    
    
    
    2.3
    %Caisse de dépôt et placement du Québec(3)
    
    
    7,000,000
    
    
    
    18.2
    %Michael L. Hurt
    
    
    1,475,000
    
    
    
    3.8
    %Charles W. Nims
    
    
    
    
    
    
    Carl Christenson
    
    
    1,080,000
    
    
    
    2.8
    %David Wall
    
    
    390,000
    
    
    
    1.0
    %Craig Schuele
    
    
    245,000
    
    
    
    *Gerald Ferris
    
    
    245,000
    
    
    
    *Matthew Taylor
    
    
    
    
    
    
    Edward L. Novotny
    
    
    280,000
    
    
    
    *Jean-Pierre L. Conte(1)
    
    
    25,080,999
    
    
    
    64.8
    %Richard D. Paterson(1)
    
    
    25,080,999
    
    
    
    64.8
    %Darren J. Gold(4)
    
    
    
    
    
    
    Frank Bauchiero(4)
    
    
    818,250
    
    
    
    2.2
    %Larry McPherson
    
    
    318,250
    
    
    
    *All directors and executive officers as a group(1)(2)
    
    
    31,615,000
    
    
    
    81.7
    %
 
 *
    
    Less than one percent (1%).(1)
    
    Genstar Capital Partners III, L.P., a Delaware limited partnership (Genstar III),
owns 64.8% of the outstanding capital stock of Altra Holdings. Genstar Capital exercises
investment discretion and control over the shares held by Genstar III. Jean-Pierre L. Conte,
the chairman and a managing director of Genstar Capital, and Richard D. Paterson, a managing
director of Genstar Capital, may be deemed to share beneficial ownership of the shares shown
as beneficially owned by Genstar III. Each of Mr. Conte and Mr. Paterson disclaims such
beneficial ownership except to the extent of his pecuniary interest therein. The address of
Genstar III is Four Embarcadero Center, Suite 1900, San Francisco, California 94111.(2)
    
    Stargen III, L.P., a Delaware limited partnership, owns 2.3% of the outstanding
capital stock of Altra Holdings. Genstar Capital exercises investment discretion and control
over the shares held by Stargen III, L.P. The address of Stargen III, L.P. is Four Embarcadero
Center, Suite 1900, San Francisco, California 94111.(3)
    
    CDPQ is a limited partner of the Genstar Fund and its address is 1000 place
Jean-Paul-Riopelle, Montreal, Québec.(4)
    
    Includes 750,000 shares of stock held by Frank Bauchiero MKC Worldwide. Mr.
Bauchiero is a Strategic Advisor, and Mr. Gold is a Principal, of Genstar III, and do not
directly or indirectly have or share voting or investment power or have or share the ability
to influence voting or investment power over the shares shown as beneficially owned by Genstar
III. 
 82




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Item 13. Certain Relationships and Related Transactions


Equity Investments
  
    
    not redeemable;
    
    convertible into common stock at the election of the holders of preferred stock and
automatically upon certain enumerated events;
    
    entitled to noncumulative preferential annual dividend payments of $0.08 per share
when, as and if declared by the board of directors of Altra Holdings;
    
    in the event of any liquidation, dissolution, winding up or sale of Altra Holdings,
entitled to a preferential distribution of $1.00 per share (plus any declared but
unpaid dividends);
    
    entitled to protective class voting rights, including the right to veto sales or
mergers of Altra Holdings, to prevent amendments to its certificate of incorporation
and to prohibit future sales of its capital stock; and
    
    entitled to anti-dilution protections.
    CDPQ Subordinated Notes Investment
  
    
    accrue payment-in-kind interest at an annual rate of 17%, provided that Altra
Holdings may in its sole discretion pay such interest in whole or in part in cash to
the extent allowed under the terms of the indenture governing the notes;
    
    mature on November 30, 2019;
    
    are redeemable at the option of Altra Holdings prior to maturity at specified
prepayment premiums; and
    
    are redeemable at the option of the holder at 101% of the principal amount with
accrued interest in the event of a change of control of Altra Holdings or any of its
material subsidiaries.
 83




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Stockholders Agreements
  
    
    imposes restrictions on their transfer of Altra Holdings shares;
    
    grants the parties certain rights of first refusal and co-sale rights with respect
to sales of shares by the other parties;
    
    grants the Genstar Funds the right to require the other parties to participate pro
rata in any sale of shares by the Genstar Funds; and
    
    provides for the Genstar Funds to designate five directors.
  Genstar Capital Management Agreement
   Management Consulting Service Fees
  Severance Agreements
  Employment Agreements
  84




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Restricted Stock Agreements
  
 Item 14. Principal Accountant Fees and Services
   2005
    
    
    2004Audit Fees
    
    $
    2,102
    
    
    $
    1,734Audit-Related
Fees
    
    
    433
    
    
    
    1,393Tax Fees
    
    
    49
    
    
    
    128All Other Fees
    
    
    
    
    
    
    Total
    
    $
    2,584
    
    
    $
    3,255
    
 PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
 (a) List of documents filed as part of this report:
 (1)
    
    Financial Statements
  (2)
    
    Financial Statement Schedules
  85




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(3) Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION2.1*
    
    LLC Purchase Agreement, dated as of October 25, 2004, among Warner Electric Holding,
Inc., Colfax Corporation and Altra Industrial Motion, Inc.]2.2*
    
    Assignment and Assumption Agreement, dated as of November 21, 2004, between Altra
Holdings, Inc. and Altra Industrial Motion, Inc.]4.1*
    
    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*
    
    Form of 9% Senior Secured Notes due 2011 (included in Exhibit 4.1)4.4*
    
    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 agent4.5*
    
    Form of 111/4% Senior Notes due 20134.6*
    
    Registration Rights Agreement, dated as of February 8, 2006, among Altra Industrial
Motion, Inc., the guarantors party thereto and Jefferies International Limited, as
initial purchasers4.7
    
    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 trustee4.8*
    
    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 trustee4.9
    
    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 trustee4.10
    
    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 trustee10.1*
    
    Agreement, dated as of October 24, 2004, between Ameridrives International, L.P. and
United Steel Workers of America Local 3199-1010.2*
    
    Labor Agreement, dated as of December 3, 2001, between Warner Electric LLC (formerly
Warner Electric Inc.) and International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America, Local No. 15510.3*
    
    Labor Agreement, dated as of January 30, 2005, between Warner Electric LLC (formerly
Warner Electric Inc.) and United Steelworkers of America and Local Union No. 324510.4*
    
    Labor Agreement between, dated as of August 9, 2004 between Warner Electric LLC
(formerly Warner Electric Inc.) and International Association of Machinists and
Aerospace Works, AFL-CIO, and Aeronautical Industrial District Lode 776, Local Lodge
277110.5*
    
    Transition Services Agreement, dated as of November 30, 2004, among Warner Electric
Holding, Inc., Colfax Corporation and Altra Industrial Motion, Inc.10.6*
    
    Trademarks and Technology License Agreement, dated November 30, 2004, among Colfax
Corporation, Altra Holdings, Inc. and Altra Industrial Motion, Inc.10.7*
    
    Lease Agreement, dated as of February 13, 2004, between Quincy Hayward Street, LLC
and Boston Gear LLC.10.8*
    
    Lease Agreement, dated as of April 1, 1993, between Textron, Inc. and Nuttall Gear LLC10.9*
    
    Lease Agreement, dated as of January 29, 2003, between Olds Properties Corporation
and Warner Electric LLC.10.10*
    
    Ontario Net Industrial Single Lease, dated November 4, 1994, between Slough Estates
Canada Limited and Kilian Manufacturing Corporation, with extension dated June 22,
199910.11*
    
    Lease Agreement, dated as of January 1, 2003, between Warner Shui Hing Limited and
Bogang Economic Development Company. (English language summary)10.12*
    
    Lease Agreement, dated August 5, 1981, between Stieber GmbH and Schmidt Lacke GmbH.
(English language summary)10.13*
    
    Lease Agreement, dated as of December 21, 1984, between Stieber GmbH and Carola
Grundstucksverwaltungsgesellschft GmbH. (English language summary)10.14*
    
    Employment Agreement, dated as of January 6, 2005, between Altra Industrial Motion,
Inc. and Michael L. Hurt
 86




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION10.15*
    
    Employment Agreement, dated as of January 6, 2005, between Altra Industrial Motion,
Inc. and Carl Christenson10.16*
    
    Employment Agreement, dated as of January 12, 2005, between Altra Industrial Motion,
Inc. and David Wall10.17*
    
    Form of Transition Agreement10.18*
    
    Advisory Services Agreement, dated as of November 30, 2004, among Altra Holdings,
Inc., Altra Industrial Motion, Inc. and Genstar Capital L.P.10.19*
    
    Altra Holdings, Inc. 2004 Equity Incentive Plan10.20*
    
    Form of Restricted Stock Award Agreement10.21*
    
    Stock Purchase Agreement dated as of November 30, 2004, between Altra Holdings, Inc.
and Altra Industrial Motion, Inc.10.22*
    
    Credit Agreement, dated as of November 30, 2004, among Altra Industrial Motion, Inc.
and certain subsidiaries of the Company, as Guarantors, the financial institutions
listed therein, as Lenders, and Wells Fargo Bank, as Lead Arranger10.23*
    
    Security Agreement, dated as of November 30, 2004, among Altra Industrial Motion,
Inc., the other Grantors listed therein and The Bank of New York Trust Company, N.A.10.24*
    
    Patent Security Agreement, dated as of November 30, 2004, among Kilian Manufacturing
Corporation, Warner Electric Technology LLC, Formsprag LLC, Boston Gear LLC,
Ameridrives International, L.P. and The Bank of New York Trust Company, N.A.10.25*
    
    Trademark Security Agreement, dated as of November 30, 2004, among Warner Electric
Technology LLC, Boston Gear LLC and The Bank of New York Trust Company, N.A.10.26*
    
    Intercreditor and Lien Subordination Agreement, dated as of November 30, 2004, among
Wells Fargo Foothill, Inc., The Bank of New York Trust Company, N.A. and Altra
Industrial Motion, Inc.10.27*
    
    Share Purchase Agreement, dated as of November 7, 2005, among Altra Industrial
Motion, Inc. and the stockholders of Hay Hall Holdings Limited listed therein.21.1*
    
    Subsidiaries of Altra Industrial Motion, Inc.31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer
 
 *
    
    Filed previously. 87




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##### Table of Contents



Item 21(b)
 Altra Industrial Motion, Inc.
SCHEDULE II-Valuation and Qualifying Accounts
 Balanceatbeginningof
    
    
    
    
    
    
    
    
    
    Balance atReserve for inventory obsolescence:
    
    period
    
    Additions
    
    Deductions
    
    end of periodPredecessor-For the year ended December 31, 2003
    
    $
    5,089
    
    
    $
    3,033
    
    
    
    ($1,309
    )
    
    $
    6,813Predecessor-For the year ended November 30, 2004
    
    
    6,813
    
    
    
    1,459
    
    
    
    (2,084
    )
    
    
    6,188From Inception (December 1) through December 31, 2004
    
    
    6,188
    
    
    
    545
    
    
    
    (372
    )
    
    
    6,361For the year ended December 31, 2005
    
    $
    6,361
    
    
    $
    2,385
    
    
    
    $(1,903
    )
    
    $
    6,843
 Balanceatbeginningof
    
    
    
    
    
    
    
    
    
    Balance atReserve for uncollectible accounts:
    
    period
    
    Additions
    
    Deductions
    
    end of periodPredecessor-For the year ended December 31, 2003
    
    $
    2,939
    
    
    $
    730
    
    
    
    ($2,053
    )
    
    $
    1,616Predecessor-For the year ended November 30, 2004
    
    
    1,616
    
    
    
    589
    
    
    
    (772
    )
    
    
    1,433From Inception (December 1) through December 31, 2004
    
    
    1,433
    
    
    
    135
    
    
    
    (145
    )
    
    
    1,424For the year ended December 31, 2005
    
    $
    1,424
    
    
    $
    687
    
    
    
    ($   314
    )
    
    $
    1,797
 Balanceatbeginningof
    
    
    
    
    
    
    
    
    
    Balance atIncome tax assets valuation allowance:
    
    period
    
    Additions
    
    Deductions
    
    end of periodPredecessor-For the year ended December 31, 2003
    
    $
    10,261
    
    
    $
    7,573
    
    
    $
    
    
    
    $
    17,834Predecessor-For the year ended November 30, 2004
    
    
    17,834
    
    
    
    895
    
    
    
    
    
    
    
    18,729From Inception (December 1) through December
31, 2004 (1)
    
    
    18,462
    
    
    
    
    
    
    
    (88
    )
    
    
    18,374For the year ended December 31, 2005
    
    $
    18,374
    
    
    
    
    
    
    ($
    1,985
    )
    
    $
    16,389
 
 (1)
    
    The difference between the balance at the end of the period ending November 30, 2004 and the
balance at December 1, 2004 is the result of purchase accounting for the PTH Acquisition. 88




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##### Table of Contents



SIGNATURES
  ALTRA INDUSTRIAL MOTION, INC.May
15, 2006
    
    By:
    
    /s/ Michael L. HurtName: Michael L. HurtTitle: Chief Executive OfficerMay 15, 2006
    
    By:
    
    /s/ David WallName: David WallTitle: Chief Financial Officer
  SIGNATURE
    
    TITLE
    
    Date/s/
Michael L. Hurt
    
    Chief
Executive Officer
and DirectorMichael L. Hurt
    
    
    May 15, 2006/s/ Frank K. Bauchiero
    
    DirectorFrank K. Bauchiero
    
    
    
    May 15, 2006/s/ Jean-Pierre L. Conte
    
    DirectorJean-Pierre L. Conte
    
    
    
    May 15, 2006/s/ Darren J. Gold
    
    DirectorDarren J. Gold
    
    
    
    May 15, 2006/s/ Larry McPherson
    
    DirectorLarry McPherson
    
    
    
    May 15, 2006/s/ Richard D. Paterson
    
    DirectorRichard D. Paterson
    
    
    
    May 15, 2006
 89