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Altra Holdings, Inc. (NASDAQ:AIMC)

Q4 2008 Earnings Call Transcript

March 5, 2009 11:00 am ET

Executives

Carl Christenson – President and CEO

Christian Storch – VP and CFO

Analysts

Steve Sanders – Stephens Inc

Jeff Hammond – KeyBanc Capital Markets

Mike Schneider – Robert W Baird & Company

Eileen Gamble [ph] – Post Advisory Group

Torin Eastburn – CJS Securities

Jordan Hollander – Jefferies & Company

Operator

Good day and welcome to the Altra Holdings Q4 2008 and full year results conference call. (Operator instructions) please note this call is being recorded. I would now like to turn the program over to Carl Christenson, please go ahead sir.

Carl Christenson

Thank you, Tasha. Good afternoon, and welcome to our conference call to discuss Altra's fourth quarter and full year 2008 financial results. Joining me today will be Christian Storch, our CFO. To help you follow our discussion, we have posted slides on our Web site that we will be referencing during the call. Hopefully you would have already have had a chance to access them, but in case you have not I will walk you through the steps. Please go to our Web site www.altramotion.com, click on the Investor Relations on the upper right hand corner, click on Events and Presentations on the left hand side of the screen, and then click on fourth quarter 2008 results then you will see our slides. Please go to page one, and I will pause for a moment to give you time to read the Safe Harbor statement, which covers any forward-looking statements that may be occur during this call. If you are not looking at the presentation, you may refer to our forward-looking statements in our press release or the documents we filed with the SEC.

I will make some opening comments and give you our view of Altra's current business environment; Christian will then review our fourth quarter and full year 2008 financial results in detail. We will also discuss the actions we are taking in response to the slowing of global demand which started to impact our business in the fourth quarter and then we will go to Q&A.

Please go to slide 2. 2008 was a record year for Altra and we are very proud of everything our associates accomplished. We delivered record sales of $635.3 million and record recurring earnings of $1.45 per share. Recurring operating income improved by 22%. We reduced our debt by more than $30 million. We generated over $86 million of revenue from new products, developed $94 million of new business and expanded our presence geographically. In addition we made substantial improvement in the business through the integration of the acquisitions we made in prior years and realized significant productivity improvements as a result of our continued implementation of ABS lean improvements.

While net sales for the full year increased 8.7%, we experienced a significant slowdown in the fourth quarter and net sales for the fourth quarter of 2008 decreased 4% to $144.8 million from $150.9 million in the fourth quarter of 2007. Approximately 380 basis points of the sales decline in the fourth quarter were due to FX partially offset by 360 basis points attributed to price increases. Therefore on a volume basis, sales were essentially flat. We were up significantly in the first part of the quarter but a steep decline in incoming orders resulted in lower shipments in the latter part of the quarter particularly in the last two weeks of December. The volume decline was led by our custom engineered bearings business where we were essentially shut down during the end of December and early January. In addition orders from our industrial distributors were particularly weak and have remained so as a result of lower demand and inventory adjustments that they are making. In spite of the declines we experienced in the latter part of the quarter, we were still able to deliver recurring operating income of $18.2 million or 12.6% of sales, an increase of 22% compared with the fourth quarter of 2007. Recurring EPS increased 54.5% from $0.22 to $0.34.

Now please go to page 3. Now all of our businesses were negatively affected in the fourth quarter. The diversity of our end markets is helping to mitigate the rapid decline and while the vast majority of our end markets are restrained to significant downturn there are few exceptions. We are still experiencing relatively healthy incoming orders for products used in power generation, military and coal mining applications. From a shipments standpoint, our businesses that served the mining and energy markets typically had longer lead times and more significant backlogs which has resulted in the decline in shipments providing the order decline. Our shorter lead time and early cycle businesses were impacted by the decline immediately and our management team reacted swiftly and aggressively to mitigate the situation. Sales and orders in all of our geographic regions have been affected however the decline in North America and Europe has been much greater than the decline in Asia. It appears that the incoming order rate has leveled off albeit at a disappointingly low rate, we believe that there are two primary factors contributing to the depressed business levels. First, our distributors and to a lesser extent our OEM customers are continuing their inventory reduction. Secondly, the end market demand is extremely low as a result of the financial crisis which led to a lack of available credit, reduced confidence and added great uncertainty about the future. More importantly, we see no catalyst that is going to reverse this trend in the short term and the leading indicator indicates that this downturn could last for an extended period of time. Therefore, we continue to aggressively implement our downturn actions so that we can maximize our profitability and cash generation through this part of the cycle.

We are very pleased with how quickly our businesses took action in response to the rapid downturn in incoming order rates. We had been prepared for some time, we had plans in place, and we had been responding appropriately. We believe that as a result of the strength of the management team we have in place, the actions we are taking, our strong cash flow and our debt structure that we are going to be able to take advantage of this downturn to make the company more efficient and stronger. We are managing the business for cash and had established the graphic goals and plans to reduce our working capital. We anticipate that as a result of working capital reduction, we will be able to generate approximately $8 million to $10 million of additional free cash during this downturn. In 2009, we will reduce our capital expenditures and expect that it will be in a range of $6 million to $8 million. While we are making considerable changes in the business, we have significantly reduced headcount; we will continue to invest in growth initiatives. We believe that it is extremely important that we continue to invest in the new products and new business development activities that are critical to the company’s long term growth and those that will enable us to gain market share. In addition we will accelerate our ABS lean plans to improve our business processes, efficiency in response times of our operation and reduce working capital.

Now please go to page 4. The restructuring plan that we are implementing has three major components; payroll cost reductions, site consolidations and procurement cost reductions are targeted to achieve over $40 million of cost reductions in 2009 which represents $50 million of savings done on an annualized basis. The expected savings from the site consolidation will not be realized until 2010, 2011 which we expect to add another $6 million to $7 million of annualized savings. We expect to achieve over $30 million of payroll related reductions by the end of the first quarter the vast majority of which have already been implemented. As of the end of February, we have eliminated approximately 400 positions for 12% of our workforce. In addition, we have reduced work schedules and implemented a one week salary per load for a significant portion of our domestic salary of our workforce including the chairman, the CEO, the CFO and other key executives. We also reduced the record benefits and significantly reduced the expected management bonuses. We are planning to accelerate our facility consolidation plan and we will close up to six manufacturing operations. As I stated before, we anticipate that the site consolidations will contribute approximately $6 million to $7 million of annualized savings as we implement these over the next 18 months. Our associates are attempting to reduce essentially every cost we have no matter how big or how small and we are having tremendous success. Professional services, travel and entertainment, marketing expenses, freight and consumables represent some of the more significant opportunities beyond raw material and purchase component costs. In addition, our Board of Directors agreed to accept 10% lower fees for 2009. We also expect to experience cost improvement as a result of our low cost country sourcing initiatives and lower commodity costs. Finally we anticipate that accelerating ABS activities throughout the business system across the company will have a favorable impact on the cost structure of our operations. We estimate that the total cost of the actions we are taking including site consolidation to be approximately $10 million to $12 million.

Now I will turn the call over to Christian.

Christian Storch

Thank you Carl. Good morning everyone. I start by reviewing a few details in our fourth quarter. Moving on to page 5 in our unaudited fourth quarter 2008 results, sales in the quarter were $144.8 million a decline of 4% from the prior year fourth quarter, a favorable effect of price increases of 360 basis points has more than offset the unfavorable currency effect of approximately 380 basis points. We are pleased that the fourth quarter gross profit margin came in at 29.1% of net sales, an increase of 100 basis points when compared to the prior year. SG&A expenses as a percentage of sales were 15.6% a significant decrease from the 17.1% on the prior year fourth quarter. This decrease demonstrates our ability to move quickly to adapt to a changing market environment. In the fourth quarter we incurred a loss from operations of $15.6 million which included a $31.8 million non-cash impairment charge related to good will as well as restructuring and other non-recurring charges. Excluding these charges, non-GAAP recurring income from operations for the fourth quarter of 2008 was $18.2 million or 12.6% of sales.

To expand on the impairment charge, the company performed its annual impairment test on goodwill and indefinite life intangible assets during the fourth quarter as required under US GAAP. The tests were performed at the business unit reporting level to evaluate the unit's carrying value compared with an estimate of its fair market value. As a result of significant declines in macroeconomic market conditions and global equity valuation, the company's market capitalization has declined substantially. Based on the results of our current valuation, the company recorded a $31.8 million non-cash pretax or $28.4 million after tax goodwill impairment charge in the fourth quarter which primarily relates to the TB Wood's reporting unit. This goodwill impairment charge is a non-cash item and does not impact the company's existing debt covenants or its borrowing capacity under current credit agreements.

Other non-operating income increased by $8.4 million when compared to the prior year, this increase is mainly the result of foreign currency inflation and transaction gains. Interest expense totaled $5.9 million for the quarter down 19% from the prior year level. The decrease is due to lower borrowing levels combined with lower deferred financing expenses. Our normalized fourth quarter tax rate from continuing operations excluding the impairment charge of 35% was also 35% for the full year. The tax rate for the fourth quarter and the full year was adversely impacted by the three fourth quarter event including the impairment charge and foreign tax related adjustments.

Finally we reported a loss for the fourth quarter of $20.7 million excluding the impairment charge and the other non-recurring items and as you know the non-GAAP recurring net income for the quarter was $8.8 million up 54% from the comparable prior year number of $5.7 million. On a per diluted share basis, we reported fourth quarter and full year non-GAAP recurring diluted EPS of $0.34 and $1.45 respectively. Page 6 is a reconciliation that shows how different we reported fourth quarter net income to the non-GAAP recurring net income number. In the reconciliation we have removed raw material one-time cost to give you a feel of what our ongoing business looks like.

Let’s take a look at the unaudited results for the full year, please flip to page 7. Sales for the full year increased 8.7% to $635.3 million excluding acquisition sales grew by 3.6% year over year. I think these were primarily driven by fresh increases and FX gains realized during the first nine months which were completely offset by unfavorable currency trends in the fourth quarter. Our gross profit margin as a percentage of net sales was also up 100 basis points for the full year which came in at 29.3%. SG&A expense as a percentage of net sales was 15.6%, 30 basis points below the prior year as our cost reduction has started to take effect in the fourth quarter. Income from operations was $45.5 million on a non-GAAP recurring basis income from operations was $80.3 million. Net income for 2008 was $6.5 million; non-GAAP recurring net income was $37.8 million up 48% from the compared prior year net income number. Page 8 is a reconciliation that shows how we definitely reported full year net income to the recurring net income numbers. This was a reconciliation of (inaudible) raw material one-time charges; you could look through what our ongoing business looks like.

Now I will cover some balance sheet highlights. Taking a look at page 9, our cash at the end of December was $52.1 million. Our cash balance therefore has grown since the prior year by 14% despite the fact that we retired over $30 million of debt during the year. This increase was driven by a solid cash flow performance as cash flow from operations was $35.1 million for 2008 and $13.5 million in the fourth quarter. To this effect our actual debt position improved significantly year over year. From a working capital perspective at the end of December, working capital which we define as trade receivables plus inventory minus trade payables totaled $133.3 million, a decline of $16.8 million since the end of the third quarter. We continued to see what we capitalize on an opportunity to generate cash over the next quarter for us. Capital spending in 2008 was $19.3 million and $7.1 million for the fourth quarter as we took advantage of the bonus depreciation. This resulted in the cash tax savings of approximately $1.8 million in 2008. Depreciation and amortization was $4.2 million for the quarter and $21.1 million for the full year.

For a brief summary on our liquidity position, please turn to page 10. As we mentioned in our last call at the end of the third quarter, we feel good about our debt structure both on the rate and maturity perspective. We generated over $40 million of cash flow from operations in 2008 and are projecting generating strong operating cash flow in 2009. Our revolver is undrawn and the capacity to exceed $20 million. Our debt is covenant light and we do not have any near term financial needs as a majority of our debt is not due till late 2011 and 2013. In fact, we currently have no financial measurements coming.

With that overview I will now turn our discussion back to Carl.

Carl Christenson

Thank you Christian. We developed comprehensive cost reduction plans that we are now implementing to ensure that our company emerges from the economic slowdown as a stronger and more efficient company. The plans that we are implementing assume that the business levels remain essentially flat for the remainder of the year. This would result in a revenue decline of approximately 25% of which nearly 500 basis points is related to foreign exchange. We have nearly completed implementing the actions necessary for decline of this magnitude and are pleased with the operating income results for the first two months of 2009. We also believe that at this point we are better off not to be overly optimistic in our developing plans in case the economic situation gets worse. We are going to manage the business to the level of opportunities we have, I am confident that as a result of the capabilities and dedication of all of our associates that we will emerge from this difficult times as a better company. I have never seen a more difficult environment to develop a forecast and therefore we are planning for a wide variety of potential outcomes. We know that at least the first half of the year is going to be extremely challenging and there is tremendous uncertainty about the business environment for the second half of the year. One scenario is that the inventory de-stocking continues, the credit markets did not improve and confidence remains tepid resulting in end market demand continuing to be extremely weak. Another more optimistic scenario is that the de-stocking (inaudible) package begins to have an effect sooner rather than later, the credit markets and confident levels improved by midyear which would enable companies to finance projects.

Based on the uncertain experimental environment, our guidance for 2009 assumes that the business level remains flat as it has been for the last few months. Our full year guidance for 2009 is for revenues $460 million to $500 million, recurring EPS to $0.25 to $0.45, $6 million to $8 million in capital expenditures, $20 million to $22 million in depreciation and amortization, 25% to 26% net interest expense and 35% effective tax rate. We provided the depreciation and amortization and the interest expense as part of our guidance to highlight these significant and essentially big costs which has a noteworthy impact in net income. Furthermore we believe that the structure of our debt is very favorable in this environment. In this environment we are very pleased with the operating income as free cash flow projections in light of the significantly lower sales. These operating cash flows excluding restructuring charges will be between $30 million and $40 million.

We will now turn the cal over to the moderator and open up the call to Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) we will take our first question comes from Steve Sanders with Stephens Inc. Please go ahead.

Steve Sanders – Stephens Inc

Good morning Carl and Christian.

Carl Christenson

Hi Steve.

Steve Sanders – Stephens Inc

On your revenue guidance for the year the 25% less the 500 (inaudible) forex headwinds, what have you assumed on pricing for the year? Is it a wash?

Christian Storch

We had a little bit of a gain earlier in the year but we expected during the year there was going to be some fighting the prices will get through the year. So we had substantial price increases last year and so we could benefit from those certainly earlier in the year.

Steve Sanders – Stephens Inc

Okay and then the 20% sort of apples-to-apples revenue decline that you have assumed, is that pretty consistent with the order rates you have seen in the past few months?

Christian Storch

Yes.

Steve Sanders – Stephens Inc

And then typically you guys do a good job of taking some share, leveraging some new products, etc what kind of assumptions have you made in your guidance for those kind of initiatives? In other words, do you think the market is a lot worse than that or have you taken a fairly conservative view on your ability to take some shares?

Carl Christenson

We have probably taken a conservative view on our ability to take share but I think that is probably realistic and we have spent a lot of time this year focusing internally going through the plant consolidations and we are going to continue the most important product initiatives and business development activities but this is a year to, in my opinion, this is a great opportunity for the company to go through this and after the acquisitions we have made integrate those acquisitions and really come out of this thing as a well structured global organization.

Steve Sanders – Stephens Inc

Okay and then how should we think about your ability to respond if things do pick up in the back half of the year, you are obviously taking realistic in these times but fairly conservative on a relative basis view of the world in the back half of the year, have you impaired your ability to respond as things turn out?

Carl Christenson

We don’t believe so Steve. We had a substantial amount of the 400 jobs that we eliminated, we have temporary employees that we can get back if things do pick up and then the positions that we eliminated we don’t believe were critical to growth initiatives and that we could go back and re-build very quickly. We have been very careful not to minimize the impact on places where we see we could come back very quickly.

Steve Sanders – Stephens Inc

Okay. And then the gross margin in the quarter, given that I assume that you had some absorption issues seem pretty strong was there something favorable on the mix side or other factors that supports that 29%?

Carl Christenson

There are two things that I can clear, I think there is some mix where some of the (inaudible) markets are still holding up very strong. Those have typically some higher margins than some of the shorter cycle businesses that we have that contributed plus there was the early effect of some of the cost cutting measures that we put in place starting in November.

Steve Sanders – Stephens Inc

Okay. And then a couple of final questions probably for you Christian, on the restructuring charges, I know you have given us the $10 million to $12 million but I think that may have been tied to 18 months and then I did not actually hear a number associated with some of the other reductions, so how should we think about restructuring charges that will flow through the P&L over the course of the year?

Christian Storch

There are two pieces to our restructuring efforts, there is the plant consolidation, we estimate the cost levied to be $10 million to $12 million. We will incur those over the next 18 months, I can’t give you a good idea of how that will flow through on a quality basis, you have to just – we have not announced which plants we are going to close at this point and the sequence. There is a second piece which is the severance cost related to lease and termination of the employees, the significant headcount reduction that we have started since late November that totaled approximately $3 million, we will be heavily weighted in the first quarter and the remainder in Q2.

Steve Sanders – Stephens Inc

And then the final question, of the $30 million in savings in the largest bucket there, roughly how much of that will flow through operating expenses? Can you give us any kind of color there?

Christian Storch

In the operating segment, the $30 million of write-off was not cost related reductions will be both impacting the gross profit line as well as the G&A line.

Steve Sanders – Stephens Inc

Right. Can you give us a rough split?

Christian Storch

Two thirds above the line and one third on the SG&A line.

Steve Sanders – Stephens Inc

Okay, thank you very much.

Christian Storch

Yes, thank you Steve.

Operator

Thank you. We will take our next question from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Jeff Hammond – KeyBanc Capital Markets

Hi good morning guys.

Carl Christenson

Hi Jeff, good morning.

Jeff Hammond – KeyBanc Capital Markets

Mainly just to re-visit the order rates, can you give us a sense of what the order decline was organically in the fourth quarter and maybe what you were running at, exiting the year what have you been running now at this lower level?

Carl Christenson

Essentially Jeff in November, probably mid-to-late November it started to go down at a very steep rate and mid December probably it did a major run and then it has been relatively flat since then, been very flat and we want the numbers out and look at what we have got in backlog, what is going to happen in the later cycle, business has been adverse with the early cycle businesses and business projecting a flat run rate from where we were from that incoming order rate for the last essentially three months.

Jeff Hammond – KeyBanc Capital Markets

The last three months the order rate has kind of been in this decline of low to mid 20s.

Carl Christenson

Yes.

Jeff Hammond – KeyBanc Capital Markets

Okay. And then Carl you give two scenarios I guess, one a little more pessimistic one, more optimistic, but it seems like the top end of your guidance does not really necessarily capture the more optimistic views, is that a fair statement?

Carl Christenson

Yes that is fair Jeff and I guess in my experience that if you don’t make it in the first and second quarter you got a hell of a time trying to catch up in the third and fourth quarter. It is just very, very difficult to get one of these businesses to make up the gap that is in the first and second quarter. So we don’t see any catalysts out there right now that indicate that things are going to get better. The PMI number which is a good reading indicator for our businesses is pretty grim right now, it is down in the 30s which is long ways to go to get back up to 50 to get the growth numbers. So we think we are better off managing the business for the opportunities that we have got today and if it turns up we can quickly respond and quickly get things turned back around that we want everybody in our organization planning for this kind of numbers.

Jeff Hammond – KeyBanc Capital Markets

Okay and then do you expect the one-time charges to make money in the first quarter?

Christian Storch

Excluding the one-time charges, we expect to make money in the first quarter.

Jeff Hammond – KeyBanc Capital Markets

Okay and then just finally, I know you have not – I guess on the debt covenant, if you were to have the tapped revolver, could you just run through your most restricted debt covenants and then where you stand based on where your ’09 guidance is falling out?

Christian Storch

Yes the revolver has the fixed cost ratio that is triggered with the availability under the revolver well below $12.5 million. Our possessions in ’09 assume that we will not have to draw down the facility although we may remain undrawn for the balance of the year in fact we will be increasing our cash position.

Jeff Hammond – KeyBanc Capital Markets

Okay thanks guys.

Christian Storch

Thanks Jeff.

Operator

Thank you. We will take our next question from Mike Schneider from Robert W Baird & Co. Please go ahead.

Mike Schneider – Robert W Baird & Company

Hi good morning guys.

Carl Christenson

Good morning Mike.

Mike Schneider – Robert W Baird & Company

Just again on the order rates sort of keeping on this path, if you look at your distributors Kaman, Applied Industrial, and Motion these type of companies, they are all talking about order rates in December, January and February of -10 to kind of -15 and that would seem to indicate their versus your order rates they are depleting some on a percentage point basis at least somewhere between 5 and 10 points. As you talked to your distributors is that your understanding and I guess then how do you reconcile that other than just being overly pessimistic for the year that type of distributors sell-through rates versus what your order rates are and your guidance of -20?

Carl Christenson

I think Mike that on our products it may be a little bit worse than that but not a lot worse than that from where they are selling and when I look at the estimate what our inventory position is in our discussion with them we think it is going to be anywhere from three to nine months to get the inventory in proper alignment based on their lower business levels and the amount of inventory that they have. So by the time that washes through, maybe we could see some in the third or fourth quarter and pick up on it but we were not planning on a significant impact on the de-stocking, less de-stocking certainly in the first quarter and the second quarter.

Mike Schneider – Robert W Baird & Company

Okay and on pricing in this environment –

Carl Christenson

Mike let me just make one more comment that we also see that once the de-stopping is over at some of our later cycle businesses, energy and mining related businesses where we have strong backlog right now that those are going to start to fall off. So we think that the balance between the destocking was becoming less and the follow-up on the later cycle businesses that we have it is a wash.

Mike Schneider – Robert W Baird & Company

Okay and just on those later cycle businesses, can you give us a description of just what the growth rates are based on those backlogs today in revenue versus what the incoming orders look like for those types of products, how big of the gap is there?

Carl Christenson

Our backlog in some of those businesses are probably in the range of two to six months I am fully expecting in the next two to six months that we will sees some of that decline and if you look at the rate that they are laying down rigs out there, it is tremendous and they are projecting probably a 40% down year on parts of the market that we serve. So some of the OEs and the guys using the equipment out there are projecting more draconian scenario than we are in the end markets we serve.

Mike Schneider – Robert W Baird & Company

But on the incoming order rates say in January and February, if you were to isolate your power, oil and gas and mining orders, are they running down near or comparable amounts to what the underlying early cycle businesses are?

Carl Christenson

Yes, the order rates are for sure.

Mike Schneider – Robert W Baird & Company

Again this goes to the – I appreciate your comment about the divergent transit destocking begins to diminish but yet your later cycle businesses begin to roll over, it seems to me that is already in the order rate of -20. So it strikes me again that one could characterize this as kind of a worst case scenario where those lines are already reflected in the order raise and -20 seems like again unless your timing takes another market lease step lower that is our worst case number?

Carl Christenson

Yes, you might be right Mike. From what we read in the energy business in the mine, just to check on all the industries, the order rate probably did not reach its bottom in the last couple of months.

Mike Schneider – Robert W Baird & Company

Okay, alright, fair enough.

Carl Christenson

If it is still bad you need to come based on what the projections are from those industries and how quickly they have been laying down rigs than everybody else, it looks like it could be a while and they have got to work through the inventories too (inaudible) so I hope we are lying out their most tested and fit outcome and I really think that we need to manage this business through that kind of an outcome versus assuming that it is going to get better and not making the decisions quick enough to do what we need to do on the cost side.

Mike Schneider – Robert W Baird & Company

Sure. Okay. And on pricing then in this environment, I guess what have you had in terms of discussions with your larger distributors and larger OEMs, have you been already sacrificing price or when does that conversation reach its expected level I guess?

Carl Christenson

We have not had significant price reductions, we have certainly had lots of discussions with the big OEMs and lots of pressure. We had one price increase in November on selected products which we did in anticipation of downturn early this year and unfortunately some of our competition did not follow us, that is probably the one we are getting the most pressure on, that was on selected products and so we may have to do something in some selected areas on those products.

Mike Schneider – Robert W Baird & Company

Okay, and then Christian some detail on the quarter, could you give us the FX shipped in in dollars and then the acquisition contribution in dollars as well in Q4?

Christian Storch

The FX and other income we had a (inaudible) on $3.5 million instead of other income which relates to the re-evaluation of our British pounds denominated bonds with receivable and also relates to some of the company transactions that we set up with Canada and as a result we were allowed to gain to the P&L and then the other part of the question?

Mike Schneider – Robert W Baird & Company

I am sorry, the impact on revenue Christian.

Christian Storch

Revenue for the quarter was a negative 330 [ph] basis points.

Mike Schneider – Robert W Baird & Company

Then acquisition contribution in the quarter in dollars to revenue?

Christian Storch

There was nothing, essentially there was no incremental benefit in our position in the first quarter and the year.

Mike Schneider – Robert W Baird & Company

So All Power did not have any benefit?

Christian Storch

No, we acquired that company in October.

Mike Schneider – Robert W Baird & Company

So it was minimal. Okay, thank you again.

Christian Storch

Thank you Mike.

Operator

Thank you. We will take our next question from Eileen Gamble [ph] from Post Advisory Group. Please go ahead.

Eileen Gamble – Post Advisory Group

Good morning.

Carl Christenson

Good morning Eileen.

Eileen Gamble – Post Advisory Group

I was wondering if you could go over the tax for the quarter, I know that bad debt only declined a little bit but it was significant through working capital, so I just wanted to see what the patents are for?

Eileen Gamble – Post Advisory Group

We had a heavy CapEx spend in the fourth quarter, we spent a little over $7 million on equipment in the fourth quarter. The legislation allowed for a bonus depreciation to a certain amount that has put in service including December 31. We took advantage of that. We generated about $13.5 million of operating cash flow in the quarter, $7 million of that going towards CapEx spend.

Eileen Gamble – Post Advisory Group

Okay. And then on your sales forecast for ’09, I am wondering if you are including any type of deflation from commodity impact and if you don’t mind just reminding us how the cost of metals goes through your piping.

Carl Christenson

For the metal flows through pricing in several ways because we have surcharges, we give permanent price increases but the TV impact on the pricing right now will be on surcharges. There are two primary commodities that go into a lot of products, they are copper and steel and when you look at copper year over year, it is pretty favorable and when you look at steal, it is still up probably 16%, 18% at least if you want to look at the strips of steel that we buy it is still 16%, 18%. It peaked out in I think the third last year, so we still have a headwind on steel and have a bit of a tail wind on our patents.

Eileen Gamble – Post Advisory Group

So is that all your reflected, you know the pack of surcharges that probably reflected in the forecast?

Carl Christenson

Yes.

Eileen Gamble – Post Advisory Group

And then finally, if you could just briefly go over with us the fixed versus variable cost mix in your cost of goods sold?

Christian Storch

We think that about 75% of our cost of sales are variable, 25% is fixed.

Eileen Gamble – Post Advisory Group

Okay, thank you.

Operator

(Operator instructions) we will take our next question from Torin Eastburn from CJS Securities. Please go ahead.

Torin Eastburn – CJS Securities

Hi good morning, just two quick ones, first, are you seeing any bad-debt exclusion and are you quickly reserved for 2009?

Christian Storch

Right now we do not see any bad-debt issues. Our DSO actually in the fourth quarter improved from third quarter and also improved with the prior year and the fourth quarter. Our vendors are still paying us and they are still paying us on time. We do have some automotive exposure now. We see that the balance that has come down dramatically as a result of no shipments to automotive customers in the month of December and in the month of January, so currently that is just slightly above $1 million. This is not through the big three but it is through tier one and tier two suppliers.

Torin Eastburn – CJS Securities

Okay and then aside from CapEx do you have any other planned or somewhat expected uses of cash in the next year?

Christian Storch

With our CapEx we have minimum funding requirements for our benefit plans those are $1.9 million for next year and in the plant consolidation that will be nearly about $2 million of estimate right now of CapEx related to the plant’s consolidation.

Torin Eastburn – CJS Securities

Okay thank you.

Operator

Thank you. (Operator instructions) we will take our next question from Jordan Hollander from Jefferies & Co. Please go ahead.

Jordan Hollander – Jefferies & Company

Hi guys, just a couple of housekeeping questions, first one on the (inaudible) ability, what was that ability in the quarter?

Christian Storch

About $20 million.

Jordan Hollander – Jefferies & Company

$20 million, okay, just reminder of the 2008 Dow Jones tipped below (inaudible)?

Christian Storch

1.1.

Jordan Hollander – Jefferies & Company

1.1 times. Okay and as far as, back to easy cash process and any thoughts on buying back more debt or is it the goal just to keep cash in the balance sheet for now, can we have the –?

Christian Storch

As I mentioned, I was glad to hear that this one has not changed from what we stated at the end of the third quarter. Our position right now is to continue to grew up cash given the uncertainty in the economy, uncertainty about trying to market we are starting to open up again.

Jordan Hollander – Jefferies & Company

And then just has like today our guidance as far as the cash flow from operations that includes the source of cash from working capital elections?

Christian Storch

Yes.

Jordan Hollander – Jefferies & Company

And I guess lastly just I guess some discussion about how the OEM businesses are holding up in January and February as compared to the large (inaudible) distributor base?

Christian Storch

Yes, there is certainly some OEMs at the turf and garden businesses very soft but surprisingly we see some very good projects there and we have done some nice rewards on some significant projects. So it looks like a lot of our OEM ate still doing design work and engineering work and have not cut that dull activity though. So we are optimistic that that is going to continue to run on a company (inaudible).

Jordan Hollander – Jefferies & Company

Okay great, any particular issues that seemed to be holding up the best certainly?

Christian Storch

Yes, I think part of the energy business and certainly the alternative energy pieces seem to be a big segment for us that is growing for us. Our military, there are some nice ones in military and then even in the elevator there is kind of a mixed market that we play in, that market is way down but we have done some pretty good projects on new design work we have been working on so, just a couple of examples.

Jordan Hollander – Jefferies & Company

Great, thanks a lot guys.

Christian Storch

Thank you.

Operator

It appears that we have no further questions at this time.

Carl Christenson

Okay. I would just like to thank everybody for participating in the call and for your supported offer. Have a good day, thank you.

Operator

Thank you. This concludes today’s teleconference. You may now disconnect your lines and have a wonderful day.

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Source: Altra Holdings, Inc. Q4 2008 Earnings Call Transcript
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