Altra Industrial Motion
Altra Holdings, Inc. (Form: 10-Q, Received: 11/03/2010 17:12:07)
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2010
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: 001-33209
ALTRA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
     
Delaware
(State or other jurisdiction of incorporation or organization)
  61-1478870
(I.R.S. Employer Identification No.)
     
300 Granite Street, Suite 201, Braintree, MA
(Address of principal executive offices)
  02184
(Zip code)
(781) 917-0600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large Accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company.)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of November 1, 2010, 26,759,962 shares of Common Stock, $.001 par value per share, were outstanding.
 
 

 

 


 

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  EX-31.1 Section 302 Certification of Chief Executive Officer
  EX-31.2 Section 302 Certification of Chief Financial Officer
  EX-32.1 Section 906 Certification of Chief Executive Officer
  EX-32.2 Section 906 Certification of Chief Financial Officer

 

 


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Item 1.   Financial Statements
ALTRA HOLDINGS, INC.
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
                 
    October 2,     December 31,  
    2010     2009  
    (Unaudited)  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 72,161     $ 51,497  
Trade receivables, less allowance for doubtful accounts of $1,105 and $1,434 at October 2, 2010 and December 31, 2009, respectively
    72,124       52,855  
Inventories
    80,299       71,853  
Deferred income taxes
    9,274       9,265  
Income tax receivable
          4,754  
Assets held for sale
    1,484        
Prepaid expenses and other current assets
    3,940       3,647  
 
           
Total current assets
    239,282       193,871  
 
               
Property, plant and equipment, net
    104,268       105,603  
Intangible assets, net
    70,892       74,905  
Goodwill
    78,947       78,832  
Deferred income taxes
    650       679  
Other non-current assets, net
    11,199       11,309  
 
           
Total assets
  $ 505,238     $ 465,199  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 36,826     $ 27,421  
Accrued payroll
    17,353       12,133  
Accruals and other current liabilities
    30,512       19,971  
Deferred income taxes
    7,087       7,275  
Current portion of long-term debt
    3,356       1,059  
 
           
Total current liabilities
    95,134       67,859  
 
               
Long-term debt — less current portion and net of unaccreted discount
    213,183       216,490  
Deferred income taxes
    17,169       21,051  
Pension liablities
    8,358       9,862  
Long-term taxes payable
    8,883       9,661  
Other long-term liabilities
    892       1,333  
Stockholders’ equity:
               
Common stock ($0.001 par value, 90,000,000 shares authorized, 26,454,292 and 26,057,993 issued and outstanding at October 2, 2010 and December 31, 2009, respectively)
    26       26  
Additional paid-in capital
    133,368       132,552  
Retained earnings
    40,163       21,011  
Accumulated other comprehensive income
    (11,938 )     (14,646 )
 
           
Total stockholders’ equity
    161,619       138,943  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 505,238     $ 465,199  
 
           
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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ALTRA HOLDINGS, INC.
Condensed Consolidated Statements of Income
Amounts in thousands, except per share data
                                 
    Quarter Ended     Year to Date Ended  
    October 2,     September 26,     October 2,     September 26,  
    2010     2009     2010     2009  
    (Unaudited)     (Unaudited)  
Net sales
  $ 128,930     $ 104,766     $ 389,624     $ 341,183  
Cost of sales
    90,289       76,194       273,453       250,950  
 
                       
Gross profit
    38,641       28,572       116,171       90,233  
 
                               
Operating expenses:
                               
Selling, general and administrative expenses
    22,804       19,290       65,991       60,971  
Research and development expenses
    1,746       1,508       5,156       4,569  
Other post employment benefit plan settlement gain
                      (1,467 )
Restructuring costs
    510       1,006       2,198       5,360  
Loss on disposal of assets
          516             516  
 
                       
 
    25,060       22,320       73,345       69,949  
 
                               
Income from operations
    13,581       6,252       42,826       20,284  
 
 
Other non-operarting income and expense:
                               
Interest expense, net
    4,838       6,290       14,734       18,879  
Other non-operating (income) expense, net
    (272 )     (371 )     750       1,248  
 
                       
 
    4,566       5,919       15,484       20,127  
 
                               
Income before income taxes
    9,015       333       27,342       157  
Provision (benefit) for income taxes
    2,441       (315 )     8,190       (143 )
 
                       
 
                               
Net income
  $ 6,574     $ 648     $ 19,152     $ 300  
 
                       
 
                               
Consolidated Statement of Comprehensive Income
                               
Minimum pension liability adjustment
  $ (185 )   $     $ (515 )   $  
Foreign currency translation adjustment
    12,066       847       3,223       9,102  
 
                       
Comprehensive income
  $ 18,455     $ 1,495     $ 21,860     $ 9,402  
 
                       
 
                               
Weighted average shares, basic
    26,414       25,961       26,364       25,940  
Weighted average shares, diluted
    26,495       26,213       26,477       26,112  
 
                               
Net income per share:
                               
Basic
  $ 0.25     $ 0.02     $ 0.73     $ 0.01  
Diluted
  $ 0.25     $ 0.02     $ 0.72     $ 0.01  
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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ALTRA HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
                 
    Year to date ended  
    October 2, 2010     September 26, 2009  
    (Unaudited)  
Cash flows from operating activities
               
Net income
  $ 19,152     $ 300  
Adjustments to reconcile net income to net cash flows:
               
Depreciation
    12,315       12,547  
Amortization of intangible assets
    3,713       4,137  
Amortization and write-offs of deferred financing costs
    536       1,560  
Loss on foreign currency, net
    270       1,092  
Accretion of debt discount, net
    225       621  
Fixed asset impairment/disposal
    441       2,563  
Other post employment benefit plan settlement gain
          (1,467 )
Stock-based compensation
    1,670       2,273  
Changes in assets and liabilities:
               
Trade receivables
    (18,798 )     13,025  
Inventories
    (8,687 )     27,626  
Accounts payable and accrued liabilities
    27,429       (11,929 )
Other current assets and liabilities
    (752 )     71  
Other operating assets and liabilities
    (186 )     (365 )
 
           
Net cash provided by operating activities
    37,328       52,054  
 
           
 
               
Cash flows from investing activities
               
Purchase of property, plant and equipment
    (12,725 )     (5,105 )
Additional purchase price paid for acquisition
    (1,177 )      
 
           
Net cash used in investing activities
    (13,902 )     (5,105 )
 
           
 
               
Cash flows from financing activities
               
Payment on 11 1 / 4 % Old Senior Notes
          (4,950 )
Payment on 9% Old Senior Secured Notes
          (22,200 )
Payments on Old Revolving Credit Agreement
          (3,000 )
Payment of issuance costs on 8 1 / 8 % Senior Secured Notes
    (265 )      
Proceeds from additional borrowings under existing mortgage
          1,467  
Shares surrendered for tax withholdings
    (854 )     (259 )
Payment on mortgages
    (481 )     (524 )
Payment on capital leases
    (563 )     (614 )
 
           
Net cash used in financing activities
    (2,163 )     (30,080 )
 
           
Effect of exchange rate changes on cash and cash equivalents
    (599 )     2,998  
 
           
Net change in cash and cash equivalents
    20,664       19,867  
Cash and cash equivalents at beginning of year
    51,497       52,073  
 
           
Cash and cash equivalents at end of period
  $ 72,161     $ 71,940  
 
           
 
               
Cash paid during the period for:
               
Interest
  $ 9,676     $ 12,419  
Income taxes
  $ 1,210     $ 1,033  
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
1. Organization and Nature of Operations
Headquartered in Braintree, Massachusetts, Altra Holdings, Inc. (the “Company”), through its wholly-owned subsidiary Altra Industrial Motion, Inc. (“Altra Industrial”), is a leading multi-national designer, producer and marketer of a wide range of mechanical power transmission products. The Company brings together strong brands covering over 40 product lines with production facilities in eight countries and sales coverage in over 70 countries. The Company’s leading brands include Boston Gear, Warner Electric, TB Wood’s, Formsprag Clutch, Ameridrives Couplings, Industrial Clutch, Kilian Manufacturing, Marland Clutch, Nuttall Gear, Stieber Clutch, Wichita Clutch, Twiflex Limited, Bibby Transmissions, Matrix International, Inertia Dynamics, Huco Dynatork, and Warner Linear.
2. Basis of Presentation
The Company was formed on November 30, 2004 following acquisitions of The Kilian Company (“Kilian”) and certain subsidiaries of Colfax Corporation (“Colfax”). During 2006, the Company acquired Hay Hall Holdings Limited (“Hay Hall”) and Bear Linear (“Warner Linear”). On April 5, 2007, the Company acquired TB Wood’s Corporation (“TB Wood’s”), and on October 5, 2007, the Company acquired substantially all of the assets of All Power Transmission Manufacturing, Inc. (“All Power”).
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, including necessary to present fairly the Company’s financial position as of October 2, 2010 and December 31, 2009, and results of operations and cash flows for the quarters and year to date periods ended October 2, 2010 and September 26, 2009.
The Company follows a four, four, five week calendar per quarter with all quarters consisting of thirteen weeks of operations with the fiscal year end always on December 31.
3. Fair Value of Financial Instruments
The carrying values of financial instruments, including accounts receivable, accounts payable and other accrued liabilities, approximate their fair values due to their short-term maturities. The carrying amount of the 8 1 / 8 % Senior Secured Notes was $210.0 million at each of October 2, 2010 and December 31, 2009. The estimated fair value of the 8 1 / 8 % Senior Secured Notes at October 2, 2010 and December 31, 2009 was $220.5 million and $215.5 million, respectively, based on quoted market prices for such notes.
4. Net Income per Share
Basic earnings per share is based on the weighted average number of shares of common stock outstanding, and diluted earnings per share is based on the weighted average number of shares of common stock outstanding and all potentially dilutive common stock equivalents outstanding. Common stock equivalents are included in the per share calculations when the effect of their inclusion would be dilutive.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The following is a reconciliation of basic to diluted net income per share:
                                 
    Quarter Ended     Year to Date Ended  
    October 2,     September 26,     October 2,     September 26,  
    2010     2009     2010     2009  
 
                               
Net income
  $ 6,574     $ 648     $ 19,152     $ 300  
 
                               
Shares used in net income per common share — basic
    26,414       25,961       26,364       25,940  
 
                               
Incremental shares of unvested restricted common stock
    81       252       113       172  
 
                       
Shares used in net income per common share — diluted
    26,495       26,213       26,477       26,112  
 
                               
Earnings per share:
                               
Basic
  $ 0.25     $ 0.02     $ 0.73     $ 0.01  
Diluted
  $ 0.25     $ 0.02     $ 0.72     $ 0.01  
5. Inventories
Inventories located at certain subsidiaries acquired in connection with the TB Wood’s acquisition are stated at the lower of cost or market, principally using the last-in, first-out (“LIFO”) method. The remaining subsidiaries are stated at the lower of cost or market, using the first-in, first-out (“FIFO”) method. Market is defined as net realizable value. Inventories at October 2, 2010 and December 31, 2009 consisted of the following:
                 
    October 2,     December 31,  
    2010     2009  
Raw materials
  $ 31,625     $ 28,539  
Work in process
    15,203       13,711  
Finished goods
    33,471       29,603  
 
           
Inventories
  $ 80,299     $ 71,853  
 
           
Approximately 14% of total inventories were valued using the LIFO method as of October 2, 2010 and approximately 13% of total inventories were valued using the LIFO method as of December 31, 2009. The Company recorded a $0.1 million provision as a component of cost of sales to value the inventory on a LIFO basis for each of the quarters ended October 2, 2010 and September 26, 2009. The Company recorded a $0.2 million adjustment and $1.2 million adjustment as a component of cost of sales to value the inventory on a LIFO basis for the year to date periods ended October 2, 2010 and September 26, 2009, respectively.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
6. Goodwill and Intangible Assets
Changes to goodwill from December 31, 2009 through October 2, 2010 were as follows:
         
    2010  
Gross goodwill balance as of January 1
  $ 110,642  
Adjustments related to additional purchase price paid
    532  
Impact of changes in foreign currency
    (417 )
 
     
Gross goodwill balance as of October 2
    110,757  
 
     
 
       
Accumulated impairment as of January 1
    (31,810 )
Impairment charge during the period
     
 
     
Accumulated impairment as of October 2
    (31,810 )
 
     
Net goodwill balance October 2, 2010
  $ 78,947  
 
     
Other intangible assets as of October 2, 2010 and December 31, 2009 consisted of the following:
                                 
    October 2, 2010     December 31, 2009  
            Accumulated             Accumulated  
    Cost     Amortization     Cost     Amortization  
Other intangible assets
                               
Intangible assets not subject to amortization:
                               
Tradenames and trademarks
  $ 30,730     $     $ 30,730     $  
Intangible assets subject to amortization:
                               
Customer relationships
    62,038       22,732       62,038       19,655  
Product technology and patents
    5,435       4,695       5,435       4,059  
Impact of changes in foreign currency
    116             416        
 
                       
Total intangible assets
  $ 98,319     $ 27,427     $ 98,619     $ 23,714  
 
                       
The Company recorded $1.4 million of amortization expense in each of the quarters ended October 2, 2010 and September 26, 2009, and recorded $3.7 million and $4.1 million of amortization expense in the year to date periods ended October 2, 2010 and September 26, 2009 respectively.
The estimated amortization expense for intangible assets is approximately $1.4 million for the remainder of 2010, $5.5 million in each of the next four years and then $16.6 million thereafter.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
7. Warranty Costs
The contractual warranty period generally ranges from three months to thirty-six months based on product and application of the product. Changes in the carrying amount of accrued product warranty costs for each of the year to date periods ended October 2, 2010 and September 26, 2009 are as follows:
                 
    October 2,     September 26,  
    2010     2009  
 
 
Balance at beginning of period
  $ 4,047     $ 4,254  
Accrued current period warranty expense
    1,041       1,100  
Payments
    (1,186 )     (1,199 )
 
           
Balance at end of period
  $ 3,902     $ 4,155  
 
           
8. Assets Held for Sale
In June 2010, the Company entered into a purchase and sale agreement for the Company’s facility in Chattanooga, Tennessee. The sale contemplated by the June 2010 purchase and sale agreement was never consummated and the agreement was terminated. In October 2010, the Company entered into a new purchase and sale agreement for the facility. The Company recorded a $0.1 million impairment of the Chattanooga facility in the quarter ended October 2, 2010. The Company estimated the fair value based on the quoted price listed in the purchase and sale agreement (level 2). The building is classified as an asset held for sale and the associated debt of $2.3 million is classified as current in the condensed consolidated balance sheet.
9. Income Taxes
The estimated effective income tax rates recorded for the quarters ended October 2, 2010 and September 26, 2009 were based upon management’s best estimate of the effective tax rate for the entire year. The 2010 provision for income taxes, as a percentage of income before taxes, was higher than that of 2009, primarily due to increased overall profitability in 2010 partially offset by favorable discrete tax benefits recognized in the third quarter of 2010. Additionally, during the third quarter of 2009, the Company negotiated an agreement with a foreign taxing authority allowing the Company to fully deduct certain interest charges. The Company recorded a cumulative adjustment for the increased interest deduction during the third quarter of 2009. During 2010, the interest benefit is being recognized ratably throughout the year.
At October 2, 2010, the Company had $8.9 million of unrecognized tax benefits. We do not expect the amount of unrecognized tax benefits to change significantly over the next 12 months.
The Company and its subsidiaries file a consolidated federal income tax return in the United States as well as consolidated and separate income tax returns in various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in all of these jurisdictions. With the exception of certain foreign jurisdictions, the Company is no longer subject to income tax examinations for the tax years prior to 2005. Additionally, the Company has indemnification agreements with the sellers of the Colfax, Kilian and Hay Hall entities, which provide for reimbursement to the Company for payments made in satisfaction of tax liabilities relating to pre-acquisition periods.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense in the condensed consolidated statements of income. At December 31, 2009 and October 2, 2010, the Company had $3.5 million and $3.7 million of accrued interest and penalties, respectively. The Company accrued $0.2 million of interest and no penalties during the year to date period ended October 2, 2010.
During the third quarter 2010, the Company determined that it had not recognized in other comprehensive income the deferred tax impact of the unrealized gains and losses on foreign exchange translation related to an inter-company loan. As a result, the net deferred tax liability was over-stated and the cumulative foreign currency translation adjustment was under-stated by $4.0 million at December 31, 2009 and $4.5 million at July 3, 2010. Additionally, the currency translation adjustment included in the statement of comprehensive income was overstated by $1.0 million for the year to date period ended September 26, 2009. This non-cash adjustment did not impact any prior statements of operations, and the Company determined that the amounts were not material to total assets, liabilities, and stockholders’ equity. The correction of the balances was made in the third quarter 2010 by increasing other comprehensive income by $4.1 million with an offset to deferred tax which also included the third quarter activity.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
10. Pension and Other Employee Benefits
Defined Benefit (Pension) and Post-retirement Benefit Plans
The Company sponsors various defined benefit (pension) and post-retirement (medical, dental and life insurance coverage) plans for certain, primarily unionized, active employees. In March 2009, the Company reached a new collective bargaining agreement with the union at its Erie, Pennsylvania facility. One of the provisions of the new agreement eliminated benefits that employees were entitled to receive through the applicable other post employment benefit plan (“OPEB”). This resulted in an OPEB settlement gain of $1.5 million in the year to date period ended September 26, 2009.
The following table represents the components of the net periodic benefit cost associated with the respective plans for the quarter and the year to date periods ended October 2, 2010 and September 26, 2009:
                                 
    Quarter Ended  
    Pension Benefits     Other Benefits  
    October 2,     September 26,     October 2,     September 26,  
    2010     2009     2010     2009  
Service cost
  $ 50     $ 5     $ 1     $ 32  
Interest cost
    334       267       4       69  
Expected return on plan assets
    (309 )     (300 )            
Amortization of prior service income
                (172 )     (244 )
Amortization of net gain
                (40 )     (33 )
 
                       
Net periodic benefit cost (income)
  $ 75     $ (28 )   $ (207 )   $ (176 )
 
                       
                                 
    Year to Date Ended  
    Pension Benefits     Other Benefits  
    October 2,     September 26,     October 2,     September 26,  
    2010     2009     2010     2009  
Service cost
  $ 50     $ 37     $ 2     $ 38  
Interest cost
    962       997       17       107  
Expected return on plan assets
    (919 )     (954 )            
Amortization of prior service income
                (515 )     (732 )
Other post employment benefit plan settlement gain
                      (1,467 )
Amortization of net gain
                (121 )     (47 )
 
                       
Net periodic benefit cost (income)
  $ 93     $ 80     $ (617 )   $ (2,101 )
 
                       
There were no required contributions in 2010, however, the Company made $1.6 million of supplemental payments to the pension plan in the year to date period ended October 2, 2010.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
11. Debt
Outstanding debt obligations at October 2, 2010 and December 31, 2009 were as follows:
                 
    Amounts in millions  
    October 2,     December 31,  
    2010     2009  
 
 
Debt:
               
Revolving Credit Agreement
  $     $  
Senior Secured Notes
    210,000       210,000  
Variable rate demand revenue bonds
    5,300       5,300  
Mortgages
    2,495       3,144  
Capital leases
    1,226       1,821  
 
           
Total debt
    219,021       220,265  
Less: debt discount, net of accretion
    (2,482 )     (2,716 )
 
           
Total long-term debt, net of unaccreted discount
  $ 216,539     $ 217,549  
 
           
Senior Secured Notes
In November 2009, the Company issued $210 million of 8 1 / 8 % Senior Secured Notes (the “Senior Secured Notes”) that mature December 2016. The Senior Secured Notes are guaranteed by the Company’s U.S. domestic subsidiaries and are secured by a second priority lien, subject to first priority liens securing the new senior secured credit facility (“Revolving Credit Agreement”), on substantially all of the Company’s assets and those of its domestic subsidiaries. Interest on the Senior Secured Notes is payable semiannually in arrears, on June 1 and December 1 of each year, commencing on June 1, 2010 at an annual rate of 8 1 / 8 %. The effective interest rate of the Senior Secured Notes is 8.75% after consideration of the $6.8 million of deferred financing costs. The indenture governing the Senior Secured Notes contains covenants which restrict the Company and our subsidiaries. These restrictions limit or prohibit, among other things, the ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in our subsidiaries; and create liens on their assets.
Tender Offer
The Company used the proceeds of the offering of the Senior Secured Notes to repurchase or redeem the 9% Senior Secured Notes (the “Old Senior Secured Notes”). On November 10, 2009, Altra Industrial commenced a cash tender offer to repurchase any and all of its outstanding Old Senior Secured Notes as of the date thereof at a price equal to $1,000 per $1,000 principal amount of notes tendered, plus an early tender premium of $25.00 per $1,000 principal amount of notes tendered, payable on notes tendered before the early tender deadline. Holders who tendered their Old Senior Secured Notes also agreed to waive any rights to written notice of redemption. With respect to any Old Senior Secured Notes that were not tendered, Altra Industrial redeemed all Old Senior Secured Notes that remained outstanding after the expiration of the tender offer by issuing a notice of redemption on the early tender deadline. On the early tender deadline, Altra Industrial satisfied and discharged all of its obligations under the indenture governing the Old Senior Secured Notes by depositing funds with the depositary in an amount sufficient to pay and discharge any remaining indebtedness on the Old Senior Secured Notes upon the consummation of the tender offer. On December 10, 2009, Altra Industrial redeemed all of the Old Senior Secured Notes that remained outstanding following the consummation of the tender offer.
Refinancing Transaction
Concurrently with the closing of the offering of the Senior Secured Notes, Altra Industrial entered into the Revolving Credit Agreement, which provides for borrowing capacity in an initial amount of up to $50.0 million (subject to adjustment pursuant to a borrowing base and subject to increase from time to time in accordance with the terms of the credit facility). The Revolving Credit Agreement replaced Altra Industrial’s then existing senior secured credit facility (the “Old Revolving Credit Agreement”), and the TB Wood’s existing credit facility (the “Old TB Wood’s Revolving Credit Agreement”). There were no borrowings under the Revolving Credit Agreement at October 2, 2010, however, the lender had issued $9.4 million of outstanding letters of credit on behalf of the Company.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Altra Industrial and all of its domestic subsidiaries are borrowers, or “Borrowers”, under the Revolving Credit Agreement. Certain of our existing and subsequently acquired or organized domestic subsidiaries that are not Borrowers do and will guarantee (on a senior secured basis) the Revolving Credit Agreement. Obligations of the other Borrowers under the Revolving Credit Agreement and the guarantees are secured by substantially all of Borrowers’ assets and the assets of each of our existing and subsequently acquired or organized domestic subsidiaries that is a guarantor of our obligations under the Revolving Credit Agreement (with such subsidiaries being referred to as the “U.S. subsidiary guarantors”), including but not limited to: (a) a first-priority pledge of all the capital stock of subsidiaries held by Borrowers or any U.S. subsidiary guarantor (which pledge, in the case of any foreign subsidiary, will be limited to 100% of any non-voting stock and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in and mortgages on substantially all tangible and intangible assets of each Borrower and U.S. subsidiary guarantor, including accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, certain real property, and cash and proceeds of the foregoing (in each case subject to materiality thresholds and other exceptions).
An event of default under the Revolving Credit Agreement would occur in connection with a change of control, among other things, if: (i) Altra Industrial ceases to own or control 100% of each of its Borrower subsidiaries, or (ii) a change of control occurs under the Senior Secured Notes, or any other subordinated indebtedness.
An event of default under the Revolving Credit Agreement would also occur if an event of default occurs under the indentures governing the Senior Secured Notes or if there is a default under any other indebtedness that any Borrower may have involving an aggregate amount of $10 million or more and such default: (i) occurs at final maturity of such debt, (ii) allows the lender thereunder to accelerate such debt or (iii) causes such debt to be required to be repaid prior to its stated maturity. An event of default would also occur under the Revolving Credit Agreement if any of the indebtedness under the Revolving Credit Agreement with limited exception ceases to be secured by a full lien on the assets of Borrowers and guarantors.
Old Revolving Credit Agreement
Prior to entering into the Revolving Credit Agreement, the Company maintained the Old Revolving Credit Agreement, a $30 million revolving borrowings facility with a commercial bank, through its wholly owned subsidiary Altra Industrial. The Old Revolving Credit Agreement was subject to certain limitations resulting from the requirement of Altra Industrial to maintain certain levels of collateralized assets, as defined in the Old Revolving Credit Agreement. In connection with the refinancing transaction described above, the Old Revolving Credit Agreement was terminated.
Old TB Wood’s Revolving Credit Agreement
In connection with the refinancing transaction described above, the Old TB Wood’s Revolving Credit Agreement was paid in full and terminated.
Overdraft Agreements
Certain of the Company’s foreign subsidiaries maintain overdraft agreements with financial institutions. There were no borrowings as of October 2, 2010 or December 31, 2009 under any of the overdraft agreements.
Old Senior Secured Notes
On November 30, 2004, Altra Industrial issued the Old Senior Secured Notes, with a face value of $165.0 million. Interest on the Old Senior Secured Notes is payable semiannually, in arrears, on June 1 and December 1 of each year, beginning June 1, 2005, at an annual rate of 9%.
In connection with the acquisition of TB Wood’s on April 5, 2007, Altra Industrial completed a follow-on offering issuing an additional $105.0 million of the Old Senior Secured Notes. The additional $105.0 million had the same terms and conditions as the previously issued Old Senior Secured Notes. The effective interest rate on the Old Senior Secured Notes, after the follow-on offering was approximately 9.6% after consideration of the amortization of $5.6 million net discount and $6.5 million of deferred financing costs.
During the second quarter of 2009, Altra Industrial retired $8.3 million aggregate principal amount of the outstanding Senior Secured Notes at a redemption price of between 94.75% and 97.125% of the principal amount, plus accrued and unpaid interest. In connection with the redemption, Altra Industrial recorded a gain on the extinguishment of debt of $0.4 million, which is recorded as a reduction in interest expense in the condensed consolidated statement of income (loss). In addition, Altra Industrial wrote-off $0.1 million of deferred financing costs and original issue discount/premium which is included in interest expense.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
During the third quarter of 2009, Altra Industrial retired $14.0 million aggregate principal amount of the outstanding Senior Secured Notes at a redemption price of between 100.5% and 101.6% of the principal amount, plus accrued and unpaid interest. In connection with the redemption, Altra Industrial recorded a loss on the extinguishment of debt of $0.2 million, which is recorded as interest expense in the condensed consolidated statement of income. In addition, Altra Industrial wrote-off $0.2 million of deferred financing costs and original issue discount/premium included in interest expense.
Old Senior Notes
On February 8, 2006, Altra Industrial issued the Old Senior Notes, with a face value of £33 million. Interest on the Old Senior Notes was payable semiannually, in arrears, on August 15 and February 15 of each year, beginning August 15, 2006, at an annual rate of 11.25%. The effective interest rate on the Old Senior Notes was approximately 12.7%, after consideration of the $0.7 million of deferred financing costs (included in other assets). The Old Senior Notes were to mature on February 13, 2013.
During the second quarter of 2009, Altra Industrial retired the remaining principal balance of the Senior Notes of £3.3 million or $5.0 million of the principal amount, plus accrued and unpaid interest. In connection with the redemption, Altra Industrial incurred $0.2 million of pre-payment premium and wrote-off the entire remaining balance of $0.1 million of deferred financing fees, which is recorded as interest expense in the condensed consolidated statement of income.
Variable Rate Demand Revenue Bonds
In connection with the acquisition of TB Wood’s, the Company assumed obligations for certain Variable Rate Demand Revenue Bonds outstanding as of the acquisition date. TB Wood’s had assumed obligations for approximately $3.0 million and $2.3 million of Variable Rate Demand Revenue Bonds issued under the authority of the industrial development corporations of the City of San Marcos, Texas and City of Chattanooga, Tennessee, respectively. These bonds bear variable interest rates (less than 1% as of October 2, 2010) and mature in April 2024 and April 2022, respectively. The bonds were issued to finance production facilities for TB Wood’s manufacturing operations in those cities, and are secured by letters of credit issued under the terms of the Revolving Credit Agreement. The Chattanooga asset is classified as an asset held for sale at October 2, 2010 and the associated debt is classified as current in the condensed consolidated financial statements.
Mortgage
In June 2006, the Company entered into a mortgage on its building in Heidelberg, Germany with a local bank. In 2009, the Company refinanced the Heidelberg mortgage. As of October 2, 2010 the mortgage has a remaining principal of €1.8 million or $2.5 million, and an interest rate of 3.5% and is payable in monthly installments over 15 years.
Capital Leases
The Company leases certain equipment under capital lease arrangements, whose obligations are included in both short-term and long-term debt.
12. Stockholders’ Equity
Stock-Based Compensation
The Company’s Board of Directors established the 2004 Equity Incentive Plan (the “Plan”) that provides for various forms of stock-based compensation to independent directors, officers and senior-level employees of the Company. The restricted shares of common stock issued pursuant to the Plan generally vest ratably over a period ranging from immediately to 5 years, provided that the vesting of the restricted shares may accelerate upon the occurrence of certain liquidity events, if approved by the Board of Directors in connection with the transactions. Common stock awarded under the Plan is generally subject to restrictions on transfer, repurchase rights, and other limitations and rights as set forth in the applicable award agreements. The shares are valued based on the share price on the date of grant.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The Plan permits the Company to grant restricted stock to key employees and other persons who make significant contributions to the success of the Company. The restrictions and vesting schedule for restricted stock granted under the Plan are determined by the Personnel and Compensation Committee of the Board of Directors. Compensation expense recorded during the year to date periods ended October 2, 2010 and September 26, 2009 was $1.7 million and $2.3 million, respectively. Compensation expense recorded during the quarter to date periods ended October 2, 2010 and September 26, 2009 was $0.5 million and $0.7 million, respectively. Stock-based compensation has been recorded as an adjustment to selling, general and administrative expenses in the accompanying condensed consolidated statements of income. Stock-based compensation expense is recognized on a straight-line basis over the vesting period.
The following table sets forth the activity of the Company’s unvested restricted stock grants in the year to date period ended October 2, 2010:
                 
            Weighted-average  
    Shares     grant date fair value  
 
               
Restricted shares unvested January 1, 2010
    560,081     $ 6.55  
Shares granted
    209,405       10.52  
Shares forfeited
    (4,817 )     9.55  
Shares for which restrictions lapsed
    (461,383 )     6.05  
 
           
Restricted shares unvested October 2, 2010
    303,286     $ 10.01  
 
           
Total remaining unrecognized compensation cost was $2.8 million as of October 2, 2010, which will be recognized over a weighted average remaining period of three years. The fair market value of the shares in which the restrictions have lapsed during the year to date period ended October 2, 2010 was $6.0 million. Restricted shares granted are valued based on the fair market value of the stock on the date of grant.
13. Concentrations of Credit, Segment Data and Workforce
Financial instruments, which are potentially subject to counter party performance and concentrations of credit risk, consist primarily of trade accounts receivable. The Company manages these risks by conducting credit evaluations of customers prior to delivery or commencement of services. When the Company enters into a sales contract, collateral is normally not required from the customer. Payments are typically due within thirty days of billing. An allowance for potential credit losses is maintained, and losses have historically been within management’s expectations. No customer represented greater than 10% of total sales for the quarters ended October 2, 2010 and September 26, 2009.
The Company is also subject to counter party performance risk of loss in the event of non-performance by counterparties to financial instruments, such as cash and investments. Cash and investments are held by international or well established financial institutions.
The Company has five operating segments that are regularly reviewed by our chief operating decision maker. Each of these operating segments represents a unit that produces mechanical power transmission products. The Company aggregates all of the operating segments into one reportable segment. The five operating segments have similar long-term average gross profit margins. All of our products are sold by one global sales force and we have one global marketing function. Strategic markets and industries are determined for the entire company and then targeted by the brands. All of our operating segments have common manufacturing and production processes. Each segment includes machine shops which use similar equipment and manufacturing techniques. Each of our segments uses common raw materials, such as aluminum, steel and copper. The materials are purchased and procurement contracts are negotiated by one global purchasing function.
We serve the general industrial market by selling to original equipment manufacturers (“OEM”) and distributors. Our OEM and distributor customers serve the general industrial market. Resource allocation decisions such as capital expenditure requirements and headcount requirements are made at a consolidated level and allocated to the individual operating segments.
Discrete financial information is not available by product line at the level necessary for management to assess performance or make resource allocation decisions.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Net sales to third parties by geographic region are as follows:
                                 
    Net Sales     Net Sales  
    Quarter Ended     Year to Date Ended  
    October 2,     September 26,     October 2,     September 26,  
    2010     2009     2010     2009  
 
                               
North America (primarily U.S.)
  $ 94,335     $ 74,592     $ 286,716     $ 247,921  
Europe
    26,629       23,536       81,204       75,046  
Asia and other
    7,966       6,638       21,704       18,216  
 
                       
Total
  $ 128,930     $ 104,766     $ 389,624     $ 341,183  
 
                       
Net sales to third parties are attributed to the geographic regions based on the country in which the shipment originates.
The net assets of our foreign subsidiaries at October 2, 2010 and December 31, 2009 were $86.2 million and $76.8 million, respectively.
14. Commitments and Contingencies
General Litigation
The Company is involved in various pending legal proceedings arising out of the ordinary course of business. None of these legal proceedings are expected to have a material adverse effect on the results of operations, cash flows, or financial condition of the Company. With respect to these proceedings, management believes that the Company will prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adversely to the Company, there could be a material adverse effect on the results of operations, cash flows, or financial condition of the Company. As of October 2, 2010 and December 31, 2009, there were no product liability claims for which management believed a loss was probable. As a result, no amounts were accrued in the accompanying consolidated balance sheets for product liability losses at those dates.
The Company is indemnified under the terms of certain acquisition agreements for certain pre-existing matters up to agreed upon limits.
15. Restructuring, Asset Impairment and Transition Expenses
In March 2009, the Company adopted a new restructuring plan (“2009 Altra Plan”) to improve the utilization of the manufacturing infrastructure and to realign the business with the current economic conditions. The 2009 Altra Plan is intended to improve operational efficiency by reducing headcount and consolidating facilities. The Company’s total restructuring expense was $2.2 million and $5.4 million for the year to date periods ended October 2, 2010 and September 26, 2009, respectively.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The Company’s restructuring expense, by major component for the year to date periods ended October 2, 2010 and September 26, 2009, respectively, were as follows:
                 
    Year to Date Ended     Year to Date Ended  
    October 2, 2010     September 26, 2009  
    2009 Altra     2009 Altra  
    Plan     Plan  
 
               
Expenses
               
Severance
  $ 1,159     $ 3,159  
Moving and relocation
    413        
Other cash expenses
    395       154  
 
           
 
               
Total cash expenses
    1,967       3,313  
 
           
 
               
Non-cash asset impairment and loss on sale of fixed asset
    231       2,047  
 
           
 
               
Total restructuring expenses
  $ 2,198     $ 5,360  
 
           
The following is a reconciliation of the accrued restructuring costs between December 31, 2009 and October 2, 2010:
         
    2009 Altra Plan  
 
       
Balance at December 31, 2009
  $ 915  
Cash restructuring expense incurred
    1,967  
Cash payments
    (2,488 )
 
     
Balance at October 2, 2010
  $ 394  
 
     
The total restructuring reserve as of October 2, 2010 relates to severance costs to be paid to employees and is recorded in accruals and other current liabilities on the condensed consolidated balance sheet. As of October 2, 2010, the Company has incurred $9.5 million of cumulative expense related to the 2009 Altra Plan. The Company also expects to incur between $0.3 million and $0.5 million of additional expenses associated with the consolidation of facilities under the 2009 Altra Plan in the remainder of 2010.
16. Guarantor Subsidiaries
The following condensed consolidating financial statements present separately the financial position, results of operations, and cash flows for (a) the Company, as parent, (b) the guarantor subsidiaries of the Company consisting of all of the, directly or indirectly, 100% owned U.S. subsidiaries of the Company, (c) the non-guarantor subsidiaries of the Company consisting of all non-domestic subsidiaries of the Company, and (d) eliminations necessary to arrive at the Company’s information on a consolidated basis. These statements are presented in accordance with the disclosure requirements under the Securities and Exchange Commission’s Regulation S-X, Rule 3-10. Separate financial statements of the Guarantor Subsidiaries are not presented because their guarantees are full and unconditional and joint and several.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited condensed consolidating balance sheet
October 2, 2010
                                         
                    Non              
            Guarantor     Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $     $ 39,283     $ 32,878     $     $ 72,161  
Trade receivables, less allowance for doubtful accounts
          46,064       26,060             72,124  
Loans receivable from related parties
    216,228                   (216,228 )      
Inventories
          56,080       24,219             80,299  
Deferred income taxes
          9,087       187             9,274  
Income tax receivable
                             
Assests held for sale
          1,484                   1,484  
Prepaid expenses and other current assets
          2,215       1,725             3,940  
 
                             
Total current assets
    216,228       154,213       85,069       (216,228 )     239,282  
 
                                       
Property, plant and equipment, net
          74,899       29,369             104,268  
Intangible assets, net
          55,346       15,546             70,892  
Goodwill
          58,015       20,932             78,947  
Deferred income taxes
                650             650  
Investment in subsidiaries
    152,386                   (152,386 )      
Other non-current assets
    6,197       4,903       99             11,199  
 
                             
 
                                       
Total assets
  $ 374,811     $ 347,376     $ 151,665     $ (368,614 )   $ 505,238  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Current liabilities:
                                       
Accounts payable
  $     $ 24,770     $ 12,056     $     $ 36,826  
Accrued payroll
          11,223       6,130             17,353  
Accruals and other current liabilities
    5,688       14,774       6,073             26,535  
Deferred income taxes
                7,087             7,087  
Taxes payable
          342       3,635             3,977  
Current portion of long-term debt
          2,981       375             3,356  
Loans payable to related parties
          194,882       21,346       (216,228 )      
 
                             
Total current liabilities
    5,688       248,972       56,702       (216,228 )     95,134  
 
                                       
Long-term debt — less current portion and net of unacreted discount
    207,504       3,466       2,213             213,183  
Deferred income taxes
          13,812       3,357             17,169  
Pension liablities
          5,258       3,100             8,358  
Long-term taxes payable
          8,883                   8,883  
Other long-term liabilities
          773       119             892  
Total stockholders’ equity
    161,619       66,212       86,174       (152,386 )     161,619  
 
                             
 
                                       
Total liabilities and stockholders’ equity
  $ 374,811     $ 347,376     $ 151,665     $ (368,614 )   $ 505,238  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Condensed Consolidating Balance Sheet
December 31, 2009
                                         
                    Non              
            Guarantor     Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 1     $ 19,744     $ 31,752     $     $ 51,497  
Trade receivables, less allowance for doubtful accounts
          33,966       18,889             52,855  
Loans receivable from related parties
    214,583                   (214,583 )      
Inventories
          50,931       20,922             71,853  
Deferred income taxes
          9,087       178             9,265  
Assets held for sale
                             
Income tax receivable
    1,192       3,308       254             4,754  
Prepaid expenses and other current assets
          2,309       1,338             3,647  
 
                             
Total current assets
    215,776       119,345       73,333       (214,583 )     193,871  
 
                                       
Property, plant and equipment, net
          74,559       31,044             105,603  
Intangible assets, net
          58,392       16,513             74,905  
Goodwill
          58,015       20,817             78,832  
Deferred income taxes
                679             679  
Investment in subsidiaries
    125,792                   (125,792 )      
Other non-current assets
    6,394       4,816       99             11,309  
 
                             
 
                                       
Total assets
  $ 347,962     $ 315,127     $ 142,485     $ (340,375 )   $ 465,199  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Current liabilities:
                                       
Accounts payable
  $ 76     $ 18,156     $ 9,189     $     $ 27,421  
Accrued payroll
          7,415       4,718             12,133  
Accruals and other current liabilities
    1,659       10,711       7,601             19,971  
Deferred income taxes
                7,275             7,275  
Current portion of long-term debt
          650       409             1,059  
Loans payable to related parties
          187,611       26,972       (214,583 )      
 
                             
Total current liabilities
    1,735       224,543       56,164       (214,583 )     67,859  
 
                                       
Long-term debt — less current portion and net of unaccreted discount and premium
    207,284       6,267       2,939             216,490  
Deferred income taxes
          17,876       3,175             21,051  
Pension liablities
          6,633       3,229             9,862  
Long-term taxes payables
          9,661                   9,661  
Other long-term liabilities
          1,177       156             1,333  
Total stockholders’ equity
    138,943       48,970       76,822       (125,792 )     138,943  
 
                             
 
                                       
Total liabilities and stockholders’ equity
  $ 347,962     $ 315,127     $ 142,485     $ (340,375 )   $ 465,199  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Income
                                         
    Year to Date Ended October 2, 2010        
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net sales
  $     $ 293,134     $ 125,836     $ (29,346 )   $ 389,624  
Cost of sales
          215,547       87,252       (29,346 )     273,453  
 
                             
Gross profit
          77,587       38,584             116,171  
Selling, general and administrative expenses
    46       44,916       21,029             65,991  
Research and development expenses
          3,091       2,065             5,156  
Restructuring costs
          1,207       991             2,198  
 
                             
Income (loss) from operations
    (46 )     28,373       14,499             42,826  
Interest expense, net
    13,526       1,083       125             14,734  
Other non-operating expense, net
          764       (14 )           750  
Equity in earnings of subsidiaries
    26,594                   (26,594 )      
 
                             
Income before income taxes
    13,022       26,526       14,388       (26,594 )     27,342  
Provision (benefit) for income taxes
    (6,130 )     9,284       5,036             8,190  
 
                             
Net income
  $ 19,152     $ 17,242     $ 9,352     $ (26,594 )   $ 19,152  
 
                             
Unaudited Condensed Consolidating Statement of Income
                                         
    Year to Date Ended September 26, 2009        
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net sales
  $     $ 252,335     $ 110,847     $ (21,999 )   $ 341,183  
Cost of sales
          192,110       80,839       (21,999 )     250,950  
 
                             
Gross profit
          60,225       30,008             90,233  
Selling, general and administrative expenses
          38,145       22,826             60,971  
Research and development expenses
          2,872       1,697             4,569  
Other post employment benefit plan settlement
          (1,467 )                 (1,467 )
Restructuring costs
          3,122       2,238             5,360  
Loss on disposal of assets
          120       396             516  
 
                             
Income from operations
          17,433       2,851             20,284  
Interest expense, net
          18,806       73             18,879  
Other non-operating expense, net
          576       672             1,248  
Equity in earnings of subsidiaries
    300                   (300 )      
 
                             
Income (loss) before income taxes
    300       (1,949 )     2,106       (300 )     157  
Provision (benefit) for income taxes
          (1,069 )     926             (143 )
 
                             
Net income (loss)
  $ 300     $ (880 )   $ 1,180     $ (300 )   $ 300  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Income
                                         
    Quarter Ended October 2, 2010        
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net sales
  $     $ 96,652     $ 42,156     $ (9,878 )   $ 128,930  
Cost of sales
          70,207       29,960       (9,878 )     90,289  
 
                             
Gross profit
          26,445       12,196             38,641  
Selling, general and administrative expenses
          15,702       7,102             22,804  
Research and development expenses
          1,043       703             1,746  
Restructuring costs
          229       281             510  
 
                             
Income from operations
          9,471       4,110             13,581  
Interest expense, net
    4,465       359       14             4,838  
Other non-operating (income) expense, net
          638       (910 )           (272 )
Equity in earnings of subsidiaries
    8,762                   (8,762 )      
 
                             
Income before income taxes
    4,297       8,474       5,006       (8,762 )     9,015  
Provision (benefit) for income taxes
    (2,277 )     2,966       1,752             2,441  
 
                             
Net income
  $ 6,574     $ 5,508     $ 3,254     $ (8,762 )   $ 6,574  
 
                             
Unaudited Condensed Consolidating Statement of Income
                                         
    Quarter Ended September 26, 2009        
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net sales
  $     $ 75,377     $ 37,206     $ (7,817 )   $ 104,766  
Cost of sales
          56,971       27,040       (7,817 )     76,194  
 
                             
Gross profit
          18,406       10,166             28,572  
Selling, general and administrative expenses
          11,885       7,405             19,290  
Research and development expenses
          909       599             1,508  
Restructuring costs
          983       23             1,006  
Loss on disposal of assets
          120       396             516  
 
                             
Income from operations
          4,509       1,743             6,252  
Interest expense, net
          6,290                   6,290  
Other non-operating (income) expense, net
          180       (551 )           (371 )
Equity in earnings of subsidiaries
    648                   (648 )      
 
                             
Income (loss) before income taxes
    648       (1,961 )     2,294       (648 )     333  
Provision (benefit) for income taxes
          (1,310 )     995               (315 )
 
                             
Net income (loss)
  $ 648     $ (651 )   $ 1,299     $ (648 )   $ 648  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Cash Flows
                                         
    Year to Date Ended October 2, 2010  
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Cash flows from operating activities
                                       
Net income
  $ 19,152     $ 17,242     $ 9,352     $ (26,594 )   $ 19,152  
Undistributed equity in earnings of subsidiaries
    (26,594 )                 26,594        
Adjustments to reconcile net income to net cash flows:
                                       
Depreciation
          9,521       2,794             12,315  
Amortization of intangible assets
          3,046       667             3,713  
Amortization and write-offs of deferred loan costs
    536                         536  
Loss on foreign currency, net
                270             270  
Accretion of debt discount
    225                         225  
Loss on disposal of assets
          92       349             441  
Stock-based compensation
          1,670                   1,670  
Changes in assets and liabilities:
                                   
Trade receivables
          (11,409 )     (7,389 )           (18,798 )
Inventories
          (5,148 )     (3,539 )           (8,687 )
Accounts payable and accrued liabilities
    5,145       15,287       6,997             27,429  
Other current assets and liabilities
          (352 )     (400 )           (752 )
Other operating assets and liabilities
          (86 )     (100 )           (186 )
 
                             
Net cash provided by operating activities
    (1,536 )     29,863       9,001             37,328  
 
                             
 
                                       
Cash flows used in investing activities
                                       
Purchase of fixed assets
          (10,570 )     (2,155 )           (12,725 )
Contingent consideration payment
          (645 )     (532 )           (1,177 )
 
                             
Net cash used in investing activities
          (11,215 )     (2,687 )           (13,902 )
 
                             
 
                                       
Cash flows from financing activities
                                       
Payment of debt issuance costs
    (265 )                       (265 )
Shares surrendered for tax withholdings
    (854 )                       (854 )
Payments on mortgages
                (481 )           (481 )
Change in affiliate debt
    2,654       1,361       (4,015 )            
Payment on capital leases
          (470 )     (93 )           (563 )
 
                             
Net cash provided by (used in) financing activities
    1,535       891       (4,589 )           (2,163 )
 
                             
 
                                       
Effect of exchange rate changes on cash and cash equivalents
                (599 )           (599 )
 
                             
Net change in cash and cash equivalents
    (1 )     19,539       1,126             20,664  
Cash and cash equivalents at beginning of year
    1       19,744       31,752             51,497  
 
                             
Cash and cash equivalents at end of period
  $     $ 39,283     $ 32,878     $     $ 72,161  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Cash Flows
                                         
    Year to Date Ended September 26, 2009  
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Cash flows from operating activities
                                       
Net income (loss)
  $ 300     $ (880 )   $ 1,180     $ (300 )   $ 300  
Undistributed equity in earnings of subsidiaries
    (300 )                 300        
Adjustments to reconcile net income (loss) to net cash flows:
                                       
Depreciation
          9,065       3,482             12,547  
Amortization of intangibles and deferred loan costs
          4,659       1,038             5,697  
Gain on foreign currency, net
          270       822             1,092  
Accretion of debt discount and premium, net
          621                   621  
Fixed asset impairment/disposal
          1,703       860             2,563  
Other post employment benefit plan settlement gain
          (1,467 )                 (1,467 )
Stock-based compensation
          2,273                   2,273  
Changes in assets and liabilities:
                                       
Trade receivables
          5,950       7,075             13,025  
Inventories
          21,150       6,476             27,626  
Accounts payable and accrued liabilities
          (4,927 )     (7,002 )           (11,929 )
Other current assets and liabilities
          472       (401 )           71  
Other operating assets and liabilities
          (204 )     (161 )           (365 )
 
                             
Net cash provided by operating activities
          38,685       13,369             52,054  
 
                             
 
                                       
Cash flows from investing activities
                                       
Purchase of fixed assets
          (4,224 )     (881 )           (5,105 )
 
                             
Net cash used in investing activities
          (4,224 )     (881 )           (5,105 )
 
                             
 
                                       
Cash flows from financing activities
                                       
Payments on11 1/4% Senior Notes
          (4,950 )                 (4,950 )
Payments on 9% Senior Secured Notes
          (22,200 )                 (22,200 )
Payments on Revolving Credit Agreement
          (3,000 )                 (3,000 )
Proceeds from additional borrowings under an existing mortgage
                1,467             1,467  
Shares surrendered for tax withholdings
    (259 )                       (259 )
Net payments to Parent
          (259 )             259        
Payments on capital leases
          (478 )     (136 )           (614 )
Payments on mortgages
                (524 )           (524 )
Change in affiliate debt
    259       7,608       (7,608 )     (259 )      
 
                             
Net cash used in financing activities
          (23,279 )     (6,801 )           (30,080 )
 
                             
 
                                       
Effect of exchange rate changes on cash and cash equivalents
                2,998             2,998  
 
                             
Net change in cash and cash equivalents
          11,182       8,685             19,867  
Cash and cash equivalents at beginning of year
    1       24,432       27,640             52,073  
 
                             
Cash and cash equivalents at end of period
  $ 1     $ 35,614     $ 36,325     $     $ 71,940  
 
                             
17. Subsequent Events
The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The Company evaluated subsequent events through the date the financial statements were issued.

 

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company’s current estimates, expectations and projections about the Company’s future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning the Company’s possible future results of operations including revenue, costs of goods sold, and gross margin, business and growth strategies, financing plans, the Company’s competitive position and the effects of competition, the projected growth of the industries in which we operate, and the Company’s ability to consummate strategic acquisitions and other transactions. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” “may,” “should,” “will,” “would,” “project,” and similar expressions. These forward-looking statements are based upon information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause the Company’s actual results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause the Corporation’s actual results to differ materially from the results referred to in the forward-looking statements the Corporation makes in this report include:
    the Company’s access to capital, credit ratings, indebtedness, and ability to raise additional financings and operate under the terms of the Company’s debt obligations;
 
    the risks associated with our debt leverage;
 
    the effects of intense competition in the markets in which we operate;
 
    the Company’s ability to successfully execute, manage and integrate key acquisitions and mergers;
 
    the Company’s ability to obtain or protect intellectual property rights;
 
    the Company’s ability to retain existing customers and our ability to attract new customers for growth of our business;
 
    the effects of the loss or bankruptcy of or default by any significant customer, suppliers, or other entity relevant to the Company’s operations;
 
    the Company’s ability to successfully pursue the Company’s development activities and successfully integrate new operations and systems, including the realization of revenues, economies of scale, cost savings, and productivity gains associated with such operations;
 
    the Company’s ability to complete cost reduction actions and risks associated with such actions;
 
    the Company’s ability to control costs;
 
    the Company’s ability to implement the 2009 Altra Plan to improve operational efficiency;
 
    the Company’s ability to manage expenses associated with the consolidation of facilities;
 
    failure of the Company’s operating equipment or information technology infrastructure;
 
    the Company’s ability to achieve its business plans, including with respect to an uncertain economic environment;
 
    changes in employment, environmental, tax and other laws and changes in the enforcement of laws;
 
    the accuracy of estimated forecasts of OEM customers and the impact of the current global economic environment on our customers;
 
    fluctuations in the costs of raw materials used in our products;
 
    the Company’s ability to attract and retain key executives and other personnel;
 
    work stoppages and other labor issues;
 
    changes in the Company’s pension and retirement liabilities;
 
    the Company’s risk of loss not covered by insurance;
 
    the outcome of litigation to which the Company is a party from time to time, including product liability claims;
 
    changes in accounting rules and standards, audits, compliance with the Sarbanes-Oxley Act, and regulatory investigations;
 
    changes in market conditions that could result in the impairment of goodwill or other assets of the Company;
 
    changes in market conditions in which we operate that could influence the value of the Company’s stock;
 
    the effects of changes to critical accounting estimates; changes in volatility of the Company’s stock price and the risk of litigation following a decline in the price of the Company’s stock price;

 

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    the cyclical nature of the markets in which we operate;
 
    the risks associated with the global recession and volatility and disruption in the global financial markets;
 
    political and economic conditions nationally, regionally, and in the markets in which we operate;
 
    natural disasters, war, civil unrest, terrorism, fire, floods, tornadoes, earthquakes, hurricanes, or other matters beyond the Company’s control;
 
    the risks associated with international operations, including currency risks; and
 
    other factors, risks, and uncertainties referenced in the Company’s filings with the Securities and Exchange Commission, including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS, ALL OF WHICH SPEAK ONLY AS OF THE DATE OF THIS QUARTERLY REPORT. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS QUARTERLY REPORT OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR ANY PERSON ACTING ON THE COMPANY’S BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION AND IN OUR RISK FACTORS SET FORTH IN PART I, ITEM 1A OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2009, AND IN OTHER REPORTS FILED WITH THE SEC BY THE COMPANY.
The following discussion of the financial condition and results of operations of Altra Holdings, Inc. and its subsidiaries should be read together with the audited financial statements of Altra Holdings, Inc. and its subsidiaries and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Unless the context requires otherwise, the terms “Altra Holdings,” the Company,” “we,” “us,” and “our” refer to Altra Holdings, Inc. and its subsidiaries.
General
Altra Holdings, Inc. is the parent company of Altra Industrial Motion, Inc. (“Altra Industrial”) and owns 100% of Altra Industrial’s outstanding capital stock. Altra Industrial, directly or indirectly, owns 100% of the capital stock of its 48 subsidiaries. The following chart illustrates a summary of our corporate structure:
(FLOW CHART)

 

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Although we were incorporated in Delaware in 2004, much of our current business has its roots with the prior acquisition by Colfax Corporation, or Colfax, of a series of power transmission businesses. In December 1996, Colfax acquired the MPT group of Zurn Technologies, Inc. Colfax subsequently acquired Industrial Clutch Corp. in May 1997, Nuttall Gear Corp. in July 1997 and the Boston Gear and Delroyd Worm Gear brands in August 1997 as part of Colfax’s acquisition of Imo Industries, Inc. In February 2000, Colfax acquired Warner Electric, Inc., which sold products under the Warner Electric, Formsprag Clutch, Stieber, and Wichita Clutch brands. Colfax formed Power Transmission Holding LLC, or “PTH”, in June 2004 to serve as a holding company for all of these power transmission businesses. Boston Gear was established in 1877, Warner Electric, Inc. in 1927, and Wichita Clutch in 1949.
On November 30, 2004, we acquired our original core business through the acquisition of PTH from Colfax. We refer to this transaction as the PTH Acquisition.
On October 22, 2004, The Kilian Company, or Kilian, a company formed at the direction of Genstar Capital, then the largest stockholder of Altra Holdings, acquired Kilian Manufacturing Corporation from Timken U.S. Corporation. At the completion of the PTH Acquisition, (i) all of the outstanding shares of Kilian capital stock were exchanged for shares of our capital stock and (ii) Kilian and its subsidiaries were transferred to Altra Industrial.
On February 10, 2006, we purchased all of the outstanding share capital of Hay Hall Holdings Limited, or Hay Hall. Hay Hall was a UK-based holding company established in 1996 that was focused primarily on the manufacture of couplings and clutch brakes.
On May 18, 2006, we acquired substantially all of the assets of Bear Linear Inc., or Warner Linear. Warner Linear manufactures high value-added linear actuators which are electromechanical power transmission devices designed to move and position loads linearly for mobile off-highway and industrial applications.
On April 5, 2007, the Company acquired all of the outstanding shares of TB Wood’s Corporation, or TB Wood’s. TB Wood’s is an established designer, manufacturer and marketer of mechanical and electronic industrial power transmission products with a history dating back to 1857.
On October 5, 2007, we acquired substantially all of the assets of All Power Transmission Manufacturing, Inc., or All Power, a manufacturer of universal joints.
On December 31, 2007, we sold the TB Wood’s adjustable speed drives business, or Electronics Division. We sold the Electronics Division in order to continue our strategic focus on our core electro-mechanical power transmission business.
We are a leading global designer, producer and marketer of a wide range of MPT and motion control products with a presence in over 70 countries. Our global sales and marketing network includes over 1,000 direct OEM customers and over 3,000 distributor outlets. Our product portfolio includes industrial clutches and brakes, enclosed gear drives, open gearing, couplings, engineered bearing assemblies, linear components and other related products. Our products serve a wide variety of end markets including energy, general industrial, material handling, mining, transportation and turf and garden. We primarily sell our products to a wide range of OEMs and through long-standing relationships with industrial distributors such as Motion Industries, Applied Industrial Technologies, Kaman Industrial Technologies and W.W. Grainger.
While the power transmission industry has undergone some consolidation, we estimate that in 2009 the top five broad-based MPT companies represented approximately 21% of the U.S. power transmission market. The remainder of the power transmission industry remains fragmented with many small and family-owned companies that cater to a specific market niche often due to their narrow product offerings. We believe that consolidation in our industry will continue because of the increasing demand for global distribution channels, broader product mixes and better brand recognition to compete in this industry.

 

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Our products, principal brands and markets and sample applications are set forth below:
             
Products   Principal Brands   Principal Markets   Sample Applications
 
 
Clutches and Brakes
  Warner Electric, Wichita Clutch, Formsprag Clutch, Stieber Clutch, Matrix, Inertia Dynamics, Twiflex, Industrial Clutch, Marland Clutch   Aerospace, energy, material handling, metals, turf and garden, mining   Elevators, forklifts, lawn mowers, oil well draw works, punch presses, conveyors
Gearing
  Boston Gear, Nuttall Gear, Delroyd   Food processing, material handling, metals, transportation   Conveyors, ethanol mixers, packaging machinery, metal processing equipment
Engineered Couplings
  Ameridrives, Bibby Transmissions, TB Wood’s   Energy, metals, plastics, chemical   Extruders, turbines, steel strip mills, pumps
Engineered Bearing Assemblies
  Kilian   Aerospace, material handling, transportation   Cargo rollers, seat storage systems, conveyors
Power Transmission Components
  Warner Electric, Boston Gear, Huco Dynatork, Warner Linear, Matrix, TB Wood’s   Material handling, metals, turf and garden   Conveyors, lawn mowers, machine tools
Engineered Belted Drives
  TB Wood’s   Aggregate, HVAC, material handling   Pumps, sand and gravel conveyors, industrial fans
Our Internet address is www.altramotion.com. By following the link “Investor Relations” and then “SEC filings” on our Internet website, we make available, free of charge, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after such forms are filed with or furnished to the SEC. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Form 10-Q.
Business Outlook
Our future financial performance depends, in large part, on conditions in the markets that we serve and on the U.S. and global economies in general. In the last quarter of 2010, we expect to continue to focus on the execution of our long-term growth strategy, and will also continue to focus on executing on plant consolidations and maintaining a reduced cost base. Among other items, we expect our growth initiatives in 2010 will continue to include investing in organic growth, seeking strategic acquisitions, targeting key underpenetrated geographic regions, entering new high-growth markets, enhancing our efficiency and productivity through the Altra Business System and focusing on the development of our people and processes.
During 2010, while it appears that inventory reduction efforts previously executed by our customers have declined significantly, it does not appear that our customers are building inventory. As a result, we believe the majority of our sales increase was due to improvement in end market demand.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, revenues and expenses, as well as related disclosure of contingent assets and liabilities. We base our estimates on past experiences and other assumptions we believe to be appropriate, and we evaluate these estimates on an on-going basis. Management believes there have been no significant changes in our critical accounting policies since December 31, 2009. See the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2009.

 

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Results of Operations
                                 
    Quarter Ended     Year to Date Ended  
    October 2,     September 26,     October 2,     September 26,  
(In thousands, except per share data)   2010     2009     2010     2009  
Net sales
  $ 128,930     $ 104,766     $ 389,624     $ 341,183  
Cost of sales
    90,289       76,194       273,453       250,950  
 
                       
Gross profit
    38,641       28,572       116,171       90,233  
Gross profit percentage
    29.97 %     27.27 %     29.82 %     26.45 %
Selling, general and administrative expenses
    22,804       19,290       65,991       60,971  
Research and development expenses
    1,746       1,508       5,156       4,569  
Other post employment benefit plan settlement gain
                      (1,467 )
Restructuring costs
    510       1,006       2,198       5,360  
Loss on disposal of assets
          516             516  
 
                       
Income from operations
    13,581       6,252       42,826       20,284  
Interest expense, net
    4,838       6,290       14,734       18,879  
Other non-operating (income) expense, net
    (272 )     (371 )     750       1,248  
 
                       
Income before income taxes
    9,015       333       27,342       157  
Provision (benefit) for income taxes
    2,441       (315 )     8,190       (143 )
 
                       
Net income
  $ 6,574     $ 648     $ 19,152     $ 300  
 
                       
Quarter Ended October 2, 2010 compared with Quarter Ended September 26, 2009
(Amounts in thousands unless otherwise noted)
                                 
    Quarter Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Net sales
  $ 128,930     $ 104,766     $ 24,164       23.1 %
The majority of the increase in sales during the third quarter of 2010 is due to improvements in the end markets we serve. We expect that demand at our early-cycle markets will remain strong and that we will continue to see improvement from most of our late-cycle markets during the remainder of 2010. Had the 2010 foreign exchange rates remained constant when compared to 2009, sales would have increased $25.6 million or 24.5%. We expect to see continued increases in sales in 2010 compared to 2009, and expect the run rate for the fourth quarter of 2010 to be consistent with the third quarter 2010.
                                 
    Quarter Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Gross Profit
  $ 38,641     $ 28,572     $ 10,069     35.2 %
Gross Profit as a percent of sales
    30.0 %     27.3 %                
The increase in gross profit as a percentage of sales was primarily due to cost saving measures put into place in 2009, productivity improvements we have implemented, as well as better overhead absorption as a result of higher production levels. Had the 2010 foreign exchange rates remained constant when compared to 2009, gross profit would have increased $10.5 million or 36.7%. We expect our full year 2010 gross profit as a percentage of sales to increase when compared to 2009.

 

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    Quarter Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Selling, general and administrative expense (“SG&A”)
  $ 22,804     $ 19,290     $ 3,514       18.2 %
SG&A as a percent of sales
    17.7 %     18.4 %                
SG&A increased due to the reinstatement of certain employee benefits that were temporarily suspended during 2009 and the unfavorable impact of changes in foreign currency exchange rates. However due to our cost reduction efforts in 2009 that were focused on headcount reductions and the elimination of non-critical expenses, SG&A as a percentage of sales decreased in the third quarter of 2010 when compared to 2009. During the remainder of 2010, we expect to maintain our SG&A costs through plant consolidations, as well as a focus on maintaining our reduced cost base, offset by the reintroduction of certain temporarily suspended employee benefits.
                                 
    Quarter Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Restructuring expenses
  $ 510     $ 1,006     $ (496 )     -49.3 %
In March 2009, we adopted a new restructuring plan (the “2009 Altra Plan”) to continue to improve the utilization of our manufacturing infrastructure and to realign our business with the current economic conditions. We expect the 2009 Altra Plan to improve operational efficiency by consolidating certain facilities. During the third quarter 2010, we recorded $0.5 million of restructuring expenses, of which $0.2 million was related to severance, and $0.3 million was related to other restructuring charges, (primarily moving and relocation costs). We expect to incur between $0.3 million and $0.5 million of additional expenses associated with the consolidation of facilities in 2010.
                                 
    Quarter Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Interest Expense, net
  $ 4,838     $ 6,290     $ (1,452 )     -23.1 %
Net interest expense decreased due to the lower average outstanding balance of debt in 2010 resulting in a reduction of interest expense and due to the impact of a lower interest rate as a result of our refinancing in late 2009.
                                 
    Quarter Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Other non-operating income, net
  $ (272 )   $ (371 )   $ 99       -26.7 %

 

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Other non-operating income in each period relates primarily to changes in foreign currency, primarily the British Pound Sterling and Euro.
                                 
    Quarter Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Provision (benefit) for income taxes
  $ 2,441     $ (315 )   $ 2,756       -874.9 %
Provision (benefit) for income taxes as a % of income from operations before income taxes
    27.1 %     -94.6 %                
The 2010 provision for income taxes, as a percentage of income before taxes, was higher than that of 2009, primarily due to increased overall profitability in 2010. Additionally, during the third quarter of 2009, the Company negotiated an agreement with a foreign taxing authority allowing the Company to fully deduct certain interest charges. The Company recorded a cumulative adjustment for the increased interest deduction during the third quarter of 2009. During 2010, the interest benefit is being recognized ratably throughout the year.
In addition, the Company recorded discrete tax benefits in the third quarter of 2010 for a reduction in deferred tax liabilities due to a decrease in the tax rate in certain foreign jurisdictions and a reduction in the unrecognized tax benefits due to expiration of certain statute of limitations. Collectively, the impact of these discrete items decreased the Company’s effective tax rate by 6.0%.
Year to Date Period Ended October 2, 2010 compared with the Year to Date Period Ended September 26, 2009
(Amounts in thousands unless otherwise noted)
                                 
    Year to Date Period Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Net sales
  $ 389,624     $ 341,183     $ 48,441       14.2 %
The majority of the increase in sales during 2010 is due to improvements in the end markets we serve. We expect that demand at our early-cycle markets will remain strong and that we will continue to see improvement from most of our late-cycle markets during the remainder of 2010. Had the 2010 foreign exchange rates remained constant when compared to 2009, sales would have increased $47.3 million or 13.9%. We expect to see continued increases in sales for the rest of 2010 compared to 2009, consistent with the third quarter 2010 run rate.
                                 
    Year to Date Period Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Gross Profit
  $ 116,171     $ 90,233     $ 25,938       28.7 %
Gross Profit as a percent of sales
    29.8 %     26.4 %                

 

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The increase in gross profit as a percentage of sales was primarily due to our cost saving measures put into place in 2009 and productivity improvements we have implemented, as well as better overhead absorption as a result of higher production levels. In 2009, we recorded a $2.2 million adjustment to inventory due to the economic downturn. Had the 2010 foreign exchange rates remained constant when compared to 2009, gross profit would have increased $25.7 million or 28.4%. We expect our full year 2010 gross profit as a percentage of sales to increase when compared to 2009.
                                 
    Year to Date Period Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Selling, general and administrative expense (“SG&A”)
  $ 65,991     $ 60,971     $ 5,020       8.2 %
SG&A as a percent of sales
    16.9 %     17.9 %                
SG&A increased due to the reinstatement of certain employee benefits that were temporarily suspended during 2009 and the unfavorable impact of changes in foreign currency exchange rates. However, due to our cost reduction efforts in 2009 that were focused on headcount reductions and the elimination of non-critical expenses, SG&A as a percentage of sales decreased in the year to date period ended October 2, 2010 when compared to the year to date period ended September 26, 2009. During the remainder of 2010, we expect to maintain our SG&A costs through plant consolidations, as well as a focus on maintaining our reduced cost base, offset by the reintroduction of certain temporarily suspended employee benefits.
                                 
    Year to Date Period Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Restructuring expenses
  $ 2,198     $ 5,360     $ (3,162 )     -59.0 %
In March 2009, we adopted the 2009 Altra Plan to continue to improve the utilization of our manufacturing infrastructure and to realign our business with the current economic conditions. We expect the 2009 Altra Plan to improve operational efficiency by consolidating certain facilities. During the year to date period ending October 2, 2010, we recorded $2.2 million of restructuring expenses, of which $1.2 million was related to severance, $0.8 million was related to other restructuring charges, (primarily moving and relocation costs) and $0.2 million related to non-cash impairment charges. We expect to incur between $0.3 million and $0.5 million of additional expenses associated with consolidation of facilities in the remainder of 2010.
                                 
    Year to Date Period Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Interest Expense, net
  $ 14,734     $ 18,879     $ (4,145 )     -22.0 %

 

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Net interest expense decreased due to the lower average outstanding balance of debt in 2010 resulting in a reduction of interest expense and due to the impact of a lower interest rate as a result of our refinancing in late 2009.
                                 
    Year to Date Period Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Other non-operating loss
  $ 750     $ 1,248     $ (498 )     -40 %
Other non-operating loss in each period primarily relates to changes in foreign currency, primarily the British Pound Sterling and Euro.
                                 
    Year to Date Period Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Provision (benefit) for income taxes
  $ 8,190     $ (143 )   $ 8,333       -5827 %
Provision (benefit) for income taxes as a % of income from operations before income taxes
    30.0 %     -91.1 %                
The 2010 provision for income taxes, as a percentage of income before taxes, was higher than that of 2009, primarily due to increased profitability in 2010. Additionally, during the third quarter of 2009, the Company negotiated an agreement with a foreign taxing authority allowing the Company to fully deduct certain interest charges. The effect of the tax benefit on the rate in 2009 is greater than 2010 due to lower pre-tax income in 2009. In 2009, the Company also benefitted from the research and development tax credit in the United States which expired at the end of 2009.
In addition, the Company recorded discrete tax benefits in the third quarter of 2010 for a reduction in deferred tax liabilities due to a decrease in the tax rate in certain foreign jurisdictions, a reduction in the unrecognized tax benefits due to expiration of certain statute of limitations and, a reversal of a valuation allowance. Collectively, the impact of these discrete items decreased the Company’s effective tax rate by 5.0%.
Liquidity and Capital Resources
Overview
We finance our capital and working capital requirements through a combination of cash flows from operating activities and borrowings under our senior secured revolving credit facility (“Revolving Credit Agreement”). We expect that our primary ongoing requirements for cash will be for working capital, debt service, capital expenditures, acquisitions and pension plan funding. In the event additional funds are needed, we could borrow additional funds under our Revolving Credit Agreement, or attempt to raise capital in the equity and debt markets. Presently, we have capacity under our Revolving Credit Agreement to borrow up to approximately $50.0 million, based on monthly asset collateral calculations, including letters of credit of which we currently have $9.4 million outstanding. Of this total capacity, we can currently borrow up to an additional $28.1 million without being required to comply with any financial covenants under the agreement. There can be no assurance however that additional debt financing will be available on commercially acceptable terms, if at all. Similarly, there can be no assurance that equity financing will be available on commercially acceptable terms, if at all.

 

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Borrowings
                 
    Amounts in millions  
    October 2,     December 31,  
    2010     2009  
 
               
Debt:
               
Revolving Credit Agreement
  $     $  
Senior Secured Notes
    210.0       210.0  
Variable rate demand revenue bonds
    5.3       5.3  
Mortgages
    2.5       3.1  
Capital leases
    1.2       1.8  
 
           
Total Debt
  $ 219.0     $ 220.2  
 
           
Senior Secured Notes
In November 2009, the Company issued $210 million of 8 1 / 8 % Senior Secured Notes (the “Senior Secured Notes”). The Senior Secured Notes are guaranteed by the Company’s U.S. domestic subsidiaries and are secured by a second priority lien, subject to first priority liens securing our Revolving Credit Agreement, on substantially all of our assets and those of our domestic subsidiaries. Interest on the Senior Secured Notes is payable in arrears, semiannually on June 1 and December 1 of each year, commencing on June 1, 2010. The indenture governing the Senior Secured Notes contains covenants which restrict the Company and our subsidiaries. These restrictions limit or prohibit, among other things, the ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in our subsidiaries; and create liens on their assets. We were in compliance in all material respects with all covenants of the indenture governing the Senior Secured Notes at October 2, 2010
Exchange Offer
On June 28, 2010, the Company commenced an exchange offer to exchange registered notes in denominations of $2,000 and integral multiples of $1,000 principal amount of 8 1/8% Senior Secured Notes due 2016, which have been registered under the Securities Act of 1933, as amended (the “Registered Senior Secured Notes”), for Senior Secured Notes in denominations of $2,000 and integral multiples of $1,000 principal amount of unregistered Senior Secured Notes that were issued in the November, 2009 issuance. The form and terms of the Registered Senior Secured Notes are identical in all material respects to the form and terms of the Senior Secured Notes, except for transfer restrictions, registration rights and additional interest payment provisions relating only to the Senior Secured Notes. The exchange offer expired at 5:00 p.m., New York City time, on July 27, 2010 and, as of that date and time, all of the outstanding unregistered Senior Secured Notes had been exchanged for Registered Senior Secured Notes.
Senior Secured Credit Facility
Concurrently with the closing of the offering of the Senior Secured Notes, Altra Industrial entered into the Revolving Credit Agreement, which provides for borrowing capacity in an initial amount of up to $50.0 million (subject to adjustment pursuant to a borrowing base and subject to increase from time to time in accordance with the terms of the credit facility). The Revolving Credit Agreement replaced Altra Industrial’s then existing senior secured credit facility and the TB Wood’s existing credit facility.

 

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Altra Industrial and all of its domestic subsidiaries are borrowers, or “Borrowers”, under the Revolving Credit Agreement. Certain of our existing and subsequently acquired or organized domestic subsidiaries that are not Borrowers do and will guarantee (on a senior secured basis) the Revolving Credit Agreement. Obligations of the other Borrowers under the Revolving Credit Agreement and the guarantees are secured by substantially all of Borrowers’ assets and the assets of each of our existing and subsequently acquired or organized domestic subsidiaries that is a guarantor of our obligations under the Revolving Credit Agreement (with such subsidiaries being referred to as the “U.S. subsidiary guarantors”), including but not limited to: (a) a first-priority pledge of all the capital stock of subsidiaries held by Borrowers or any U.S. subsidiary guarantor (which pledge, in the case of any foreign subsidiary, will be limited to 100% of any non-voting stock and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in and mortgages on substantially all tangible and intangible assets of each Borrower and U.S. subsidiary guarantor, including accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, certain real property, cash and proceeds of the foregoing (in each case subject to materiality thresholds and other exceptions).
An event of default under the Revolving Credit Agreement would occur in connection with a change of control, among other things, if: (i) Altra Industrial ceases to own or control 100% of each of its Borrower subsidiaries, or (ii) a change of control occurs under the Senior Secured Notes, or any other subordinated indebtedness.
An event of default under the Revolving Credit Agreement would also occur if an event of default occurs under the indentures governing the Senior Secured Notes or if there is a default under any other indebtedness that any Borrower may have involving an aggregate amount of $10 million or more and such default: (i) occurs at final maturity of such debt, (ii) allows the lender there under to accelerate such debt or (iii) causes such debt to be required to be repaid prior to its stated maturity. An event of default would also occur under the Revolving Credit Agreement if any of the indebtedness under the Revolving Credit Agreement ceases with limited exception to be secured by a full lien of the assets of Borrowers and guarantors.
As of October 2, 2010, we were in compliance in all material respects with all covenant requirements associated with all of our borrowings. As of October 2, 2010, we had no borrowings and $9.4 million in letters of credit outstanding under the Revolving Credit Agreement.
Cash and Cash Equivalents
                 
    October 2,     December 31,  
    2010     2009  
    (in thousands)  
Cash and cash equivalents
  $ 72,161     $ 51,497  
Cash and cash equivalents increased $20.7 million in the year to date period ended October 2, 2010.
Cash Flows for year to date period ended October 2, 2010
The primary source of funds provided by operating activities of $37.3 million resulted from cash provided from: (i) net income of $19.2 million; and (ii) the add-back of non-cash depreciation, amortization, stock-based compensation, accretion of debt discount, deferred financing costs, non-cash loss on foreign currency non-cash impairment charges totaling $19.1 million and (iii) offset by a net increase in working capital totaling $1.0 million. While a variety of factors can influence our ability to project future cash flow, we expect to continue to see positive cash flows from operating activities in the fourth quarter of 2010.
Net cash used in investing activities was $13.9 million for the year to date period ended October 2, 2010. This resulted from the purchase of manufacturing equipment and investment in the Company’s new global ERP system all totaling $12.7 million and $1.2 million of additional purchase price paid for settlement of contingent consideration related to the acquisition of Hay Hall. We expect to incur between $3.0 million and $5.0 million of additional capital expenses in 2010.
Net cash used by financing activities was $2.2 million for the year to date period ended October 2, 2010. This resulted primarily from payments of capital lease obligations of $0.6 million, $0.5 million of payments on mortgages, $0.2 million additional costs associated with the issuance of the Senior Secured Notes, and $0.9 of shares surrendered for tax withholding.

 

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We intend to use our remaining existing cash and cash equivalents and cash flow from operations to provide for our working capital needs and to fund potential future acquisitions, debt service, capital expenditures, and pension funding. We believe our future operating cash flows will be sufficient to meet our future operating and investing cash needs. Furthermore, the existing cash balances and the availability of additional borrowings under our Revolving Credit Agreement provide additional potential sources of liquidity should they be required.
Contractual Obligations
There were no significant changes in our contractual obligations subsequent to December 31, 2009.
Reconciliation of Non-GAAP Financial Measures
As used in this report, non-GAAP sales and gross profit are each calculated using either sales or gross profit that excludes changes in foreign currency exchange rates that management does not consider to be directly related to the Company’s core operating performance. Non-GAAP sales and gross profit are calculated as sales and gross profit, respectively, plus foreign currency translation loss or minus foreign currency translation gain over the applicable period. The Company believes that this presentation of non-GAAP sales and gross profit provides important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations.
The following table is a reconciliation of our sales to non-GAAP sales:
                                 
    Quarter Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Net Sales
  $ 128,930     $ 104,766     $ 24,164       23.1 %
Plus: Foreign Currency Translation Loss
  $ 1,452                        
Adjusted Net Sales
  $ 130,382     $ 104,766     $ 25,616       24.5 %
                                 
    Year to Date Period Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Net Sales
  $ 389,624     $ 341,183     $ 48,441       14.2 %
Less: Foreign Currency Translation Gain
  $ (1,181 )                      
Adjusted Net Sales
  $ 388,443     $ 341,183     $ 47,260       13.9 %
The following table is a reconciliation of our gross profit to non-GAAP gross profit:
                                 
    Quarter Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Gross Profit
  $ 38,641     $ 28,572     $ 10,069       35.2 %
Plus: Foreign Currency Translation Loss
  $ 404                        
Adjusted Gross Profit
  $ 39,045     $ 28,572     $ 10,473       36.7 %
                                 
    Year to Date Period Ended  
    October 2,     September 26,              
    2010     2009     Change     %  
 
                               
Gross Profit
  $ 116,171     $ 90,233     $ 25,938       28.7 %
Less: Foreign Currency Translation Gain
  $ (285 )                      
Adjusted Gross Profit
  $ 115,886     $ 90,233     $ 25,653       28.4 %

 

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Item 3.   Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risk factors such as fluctuating interest rates, changes in foreign currency rates, and changes in commodity prices. At present, we do not utilize any derivative instruments to manage these risks. During the reporting period, there have been no material changes to the quantitative and qualitative disclosures regarding our market risk set forth in our Annual Report on Form 10-K for the year ended December 31, 2009.
Item 4.   Controls and Procedures
As of October 2, 2010, our management, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended or the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act, such as this Form 10-Q, is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including the principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of October 2, 2010, our disclosure controls and procedures are effective at a reasonable assurance level.
There has been no change in our internal control over financial reporting (as defined in Rule 13a—15(f) under the Exchange Act) that occurred during our fiscal quarter ended October 2, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1.   Legal Proceedings
We are, from time to time, party to various legal proceedings arising out of our business. During the reporting period, there have been no material changes to the description of legal proceedings set forth in our Annual Report on Form 10-K for the year ended December 31, 2009.
Item 1A.   Risk Factors
The reader should carefully consider the Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission. Those risk factors described elsewhere in this report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2009 are not the only ones we face, but are considered to be the most material. These risk factors could cause our actual results to differ materially from those stated in forward looking statements contained in this Form 10-Q and elsewhere. All risk factors stated in our Annual Report on Form 10-K for the year ended December 31, 2009 are incorporated herein by reference.
During the reporting period, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2009.

 

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Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes our share repurchase activity by month for the three months ended October 2, 2010.
                                 
                            Approximate  
                    Total Number of     Dollar Value of  
    Total Number     Weighted Average     Shares Purchased as     Shares that may be  
    of Shares     Price Paid per     Part of a Publicly     Purchased under  
Period   Purchased (1)     Share     Announced Program     the Program  
July 4, 2010 to July 31, 2010
        $           $  
August 1, 2010 to August 28, 2010
    30,033       14.37              
August 29, 2010 to October 2, 2010
    10,908     $ 12.87           $  
     
(1)   We repurchased these shares of common stock in connection with the vesting of certain stock awards to cover minimum statutory withholding taxes.
Item 3.   Defaults Upon Senior Securities
None.
Item 4.   (Removed and Reserved)
None.
Item 5.   Other Information
None.
Item 6.   Exhibits
The following exhibits are filed as part of this report:

 

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Table of Contents

         
Exhibit    
Number   Description
       
 
  3.1 (1)  
Second Amended and Restated Certificate of Incorporation of the Registrant.
       
 
  3.2 (2)  
Second Amended and Restated Bylaws of the Registrant.
       
 
  31.1 *  
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  31.2 *  
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  32.1 **  
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
  32.2 **  
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
*   Filed herewith.
 
**   Furnished herewith.
 
(1)   Incorporated by reference to Altra Holdings, Inc.’s Registration Statement on Form S-1A, as amended, filed with the Securities and Exchange Commission on December 4, 2006.
 
(2)   Incorporated by reference to Altra Holdings, Inc.’s Current Report on form 8-K filed on October 27, 2008.

 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
                 
    ALTRA HOLDINGS, INC.    
 
               
November 3, 2010   By:   /s/ Carl R. Christenson    
             
 
      Name:   Carl R. Christenson    
 
      Title   President and Chief Executive Officer    
 
               
November 3, 2010   By:   /s/ Christian Storch    
             
 
      Name:   Christian Storch    
 
      Title:   Vice President and Chief Financial Officer    
 
               
November 3, 2010   By:   /s/ Todd B. Patriacca    
             
 
      Name:   Todd B. Patriacca    
 
      Title:   Vice President of Finance, Corporate Controller and Treasurer    

 

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EXHIBIT INDEX
         
Exhibit    
Number   Description
       
 
  31.1 *  
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  31.2 *  
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  32.1 **  
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
  32.2 **  
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
*   Filed herewith.
 
**   Furnished herewith.

 

37

EXHIBIT 31.1
Certification of Chief Executive Officer
I, Carl R. Christenson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Altra Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
                 
Date: November 3, 2010   By:   /s/ Carl R. Christenson    
             
 
      Name:   Carl R. Christenson    
 
      Title:   President and Chief Executive Officer    

 

 

EXHIBIT 31.2
Certification of Chief Financial Officer
I, Christian Storch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Altra Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
                 
Date: November 3, 2010   By:   /s/ Christian Storch    
             
 
      Name:   Christian Storch    
 
      Title:   Vice President and Chief Financial Officer    

 

 

Exhibit 32.1
Certification of Chief Executive Officer
In connection with the Quarterly Report of Altra Holdings, Inc. (the “Company”) on Form 10-Q for the period ended October 2, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carl R. Christenson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”):
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
             
Date: November 3, 2010   By:   /s Carl R. Christenson
         
 
      Name:   Carl R. Christenson
 
      Title:   President and Chief Executive Officer

 

 

Exhibit 32.2
Certification of Chief Financial Officer
In connection with the Quarterly Report of Altra Holdings, Inc. (the “Company”) on Form 10-Q for the period ended October 2, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christian Storch, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (“Section 906):
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
                 
Date: November 3, 2010   By:   /s/ Christian Storch    
             
 
      Name:   Christian Storch    
 
      Title:   Vice President and Chief Financial Officer