Altra Industrial Motion Corp (AIMC) 2008 Q4 法說會逐字稿

Good day, and welcome to the Altra Holdings' Q4 2008 and Full Year Results Conference Call. All lines are currently in a listen-only mode. Later, you will have the opportunity to ask questions during our question-and-answer session. Also, please note this call is being recorded.

I would now like to turn the program over to Mr. Carl Christenson. Please go ahead, sir.

Thank you, Tasha.

Good morning, 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 Website that we will be referencing during the call. Hopefully, you have already had a chance to access them, but in case you haven't, I'll walk you through the steps.

Please go to our Web site, www.altramotion.com, click on the "Investor Relations" in the right-hand corner. Click on "Events and Presentations" on the left-hand side of the screen. 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 statements, which covers any forward-looking statements that may occur during this call. If you are not looking at the presentation, you may refer to our forward-looking statement in our press release or the documents we file 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.

And please go to slide two.

2008 was a record year for Altra, and we are very proud of everything that 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 improvements 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 was 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.

Despite 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%, $0.22 to $0.34.

Now, please go to page three.

Not 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 experiencing a significant downturn, there are a few exceptions.

We are still experiencing relatively healthy incoming orders for products used in power generation, military, and coalmining applications.

From a shipment standpoint, our businesses that serve the mining and energy markets typically had longer lead-times and more significant backlogs, which has resulted in the decline in shipments lagging the order decline.

Our shorter lead-time and early-cycle businesses were impacted by the decline immediately, and our management teams 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 in 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 indicators indicate 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 have 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 have established aggressive goals and plans to reduce our working capital. We anticipate that as a result of working capital reductions, 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 the range of $6 million to $8 million.

While we are making considerable changes in the business and 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 product 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, and response times of our operations and reduce working capital.

Now, please go to page four.

The restructuring plan that we are implementing has three major components -- payroll cost reductions, site consolidations, and procurement cost reductions. Our target is to achieve over $40 million of cost reductions in 2009, which represents $50 million of savings on an annualized basis. The expected savings from the site consolidations 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, or 12% of our workforce.

In addition, we have reduced work schedules and implemented a one-week salary furlough for a significant portion of our domestic salaried workforce, including the chairman, the CEO, the CFO, and other key executives. We also reduced selected benefits and significantly reduced the expected management bonuses.

We are planning to accelerate our facility consolidation plans, 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 purchased 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 our ABS activities, the Altra Business System, across the company, we 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'll turn the call over to Christian.

Thank you, Carl. Good morning, everyone.

I'll start by reviewing a few details on our fourth quarter.

Moving on to page five 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 was more than offset by 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 was 15.6%, a significant decrease from the 17.1% of 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 did incur a loss from operations of $15.6 million, which included a $31.8 million non-cash impairment charge related to goodwill, as well as restructuring and other nonrecurring 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 a 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. This primarily relates to the TB Wood's reporting unit. This goodwill impairment charge is a non-cash item and does not affect the Company's existing debt covenants or its borrowing capacity under current credit agreements.

Other non-operating income increased by $3.4 million when compared to the prior year. This increase is mainly a result of foreign currency translation and transaction gain.

Interest expense totaled $5.9 million for the quarter, down 19% from the prior-year level. The decrease was due to lower borrowing levels combined with lower deferred financing expenses.

Our normalized fourth quarter tax rate from continued operations excluding the impairment charge was 35% and was also 35% for the full year.

The tax rate for the fourth quarter and full year was adversely impacted by discrete fourth quarter events, including the impairment charge in foreign tax audit adjustments.

And, finally, we recorded a loss for the fourth quarter of $20.7 million. Excluding the impairment charge and the other non-recurring items I mentioned earlier, 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 six is a reconciliation that shows how we get from reported fourth quarter net income to the non-GAAP recurring net income number. In this reconciliation, we have removed all material one-time costs 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 seven.

Sales for the full year increased 8.7% to $635.3 million. Excluding acquisitions, sales grew by 3.6% year over year. That increase was primarily driven by price 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 and 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 efforts 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 comparable prior-year net income number.

Page 8 is a reconciliation that shows how we get from reported full-year net income to the recurring net income number. In this reconciliation again, we removed all material one-time charges to give you a feel for what our ongoing business looks like.

Now, I'll cover some balance sheet highlights.

Taking a look at page nine, 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 $45.1 million for 2008 and $13.5 million in the fourth quarter. Due to these facts, our net 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 continue to see working capital as an opportunity to generate cash over the next several quarters.

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 cash tax savings of approximately $1.8 million in 2008.

Depreciation and amortization was $4.3 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 from a rate and a 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 exceeds $20 million. Our debt is covenant light, and we do not have any near-term financing needs as the majority of our debt is not due till late 2011 and 2013. In fact, we currently have no financial maintenance covenants.

With that overview, I'll now turn our discussion back to Carl.

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, more efficient company.

The plans 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, and I am confident that as a result of the capabilities and dedication of all of our associates that we will emerge from this difficult time 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's tremendous uncertainty about the business environment for the second half of the year.

One scenario is that the inventory destocking continues, the credit markets do not improve, and confidence remains tepid, resulting in end-market demand continuing to be extremely weak.

Another more optimistic scenario is that the destocking abates; the stimulus package begins to have an effect sooner rather than later; the credit markets and confidence levels improve by mid-year, which would enable companies to finance projects.

Based on the uncertain external 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 of $460 million to $500 million; recurring EPS of $0.25 to $0.45; $6 million to $8 million in capital expenditures; $20 million to $22 million in depreciation and amortization; $25 million to $26 million net interest expense; and 35% effective tax rate.

We've provided the depreciation and amortization and the interest expense as part of our guidance to highlight the significant and essentially fixed costs, which have a noteworthy impact on the net income.

Furthermore, we believe that the structure of our debt is very favorable in this environment, and we are very pleased with the operating income and free cash flow projections in light of the significantly lower sales. We expect operating cash flows, including restructuring charges, to be between $30 million and $40 million.

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

Thank you. (OPERATOR INSTRUCTIONS)

We'll take our first question from Steve Sanders with Stephens, Inc. Please go ahead.

Good morning, Carl and Christian.

Good morning.

Morning, Steve.

On your revenue guidance for the year, the 25% less the 500 bips of forex headwind, what have you assumed on pricing for the year? Is it a wash?

We'll have a little bit of a gain early in the year, but we expect that during the year there's going to be some fighting for price as we get through the year. So we had substantial price increases last year, and so we'll see some benefit from those certainly early in the year.

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

Yes.

And then, typically, you guys do a good job of taking some share, leveraging some new products, etcetera. What kind of assumptions have you made in your guidance for those kind of initiatives? You know, 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 share?

We've probably taken a conservative view on our ability to take share, but I think that's probably realistic. We're going to spend a lot of time this year focused internally going through the plant consolidations, and we're going to continue the most important new 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've made, integrate those acquisitions and really come out of this thing as a well-structured global organization.

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're obviously taking a -- realistic in these times but fairly conservative on a relative basis view of the world in the back half of the year. So have you impaired your ability to respond if things turn up?

We don't believe so, Steve. We had -- a substantial amount of the 400 jobs that we eliminated were temporary employees that we think 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 rebuild very quickly. And we're being very careful not to -- or to minimize the impact on places where we see we'd come back very quickly -- could come back quickly.

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

Two things I can contribute. I think there's some mix where some of the late-cycle markets were still holding up very strong. Those have typically some higher margins than some of the shorter-cycle business that we have. That contributed, plus it was the early effect of some of the cost-cutting measures that we put in place starting in November.

Okay. And then a couple final questions probably for you, Christian.

On the restructuring charges, I know you've given us the $10 million to $12 million, but I think that may have been tied to 18 months. And then I didn't 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, just a--?

Yes, there's two pieces to our restructuring efforts. There's the plant consolidation. We estimate the cost there to be $10 million to $12 million. They will -- we will incur those over the next 18 months. I can't give you a good idea how that will flow through on a quarterly basis yet because we have not announced which plants we're going to close at this point and the sequence.

Okay.

And there's a second piece which is the severance costs related to the recent terminations of employees, the significant headcount reduction that we have started since late November. That totals approximately $2 million and will be heavily weighted in the first quarter, with the remainder in Q2.

Okay. Okay, and then 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?

When you mean operating expenses, the $30 million of what I call personnel cost-related reductions will be both impacting the gross profit line as well as the G&A line.

And can you give us a rough split?

About two-thirds above the line and one-third on the SG&A line.

Okay. Thank you very much.

Yes, thank you, Steve.

Thank you. We'll take our next question from Jeff Hammond with Keybanc Capital. Please go ahead.

Hi. Good morning, guys.

Hi, Jeff.

Morning.

Hey, maybe just to revisit the order rates, can you give us a sense of what the order decline was organically in the fourth quarter and maybe where that -- you know, what you were running at exiting the year or what you've been running at at this lower level?

It's been -- essentially, Jeff, in November, probably mid to late November, it started to go down at a very steep rate, mid-December probably hit its nadir, and then it's been relatively flat since then. It's been very flat.

And we run the numbers out and look at what we've got in backlog, what's going to happen with the later-cycle businesses we have versus the early-cycle businesses, and we're just projecting a flat run rate from where we were from that incoming order rate for the last essentially three months.

So the last three months, the order rate has kind of been in this decline of low to mid-20s rates?

Yes.

Okay. Okay, and then, Carl, you gave two scenarios, I guess, one a little more pessimistic, one more optimistic. But it seems like the top end of your guidance doesn't really even -- it doesn't necessarily capture the more optimistic view. Is that a fair statement?

Yes, that's fair, Jeff, and I guess it's been my experience that if you don't make it in the first and second quarter, you've got a [expletive] of a time trying to catch up in the third and fourth quarter. It's just very, very difficult to get one of these businesses to make up the gap you lose in the first and second quarter.

So our -- we don't see any catalyst out there right now that indicates that things are going to get better. The PMI number, which is a good leading indicator for our business, is pretty grim right now. It's down in the 30s, which is -- has a long ways to go to get back up above 50 and get to growth numbers.

So we think we're better off managing the business for the opportunities we've got today, and if it turns up, we think we can quickly respond and quickly get things turned back around, but we want everybody in our organization planning for this kind of number.

Okay. And then do you expect, ex the one-time charges, to make money in the first quarter?

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

Okay. And then just, finally, I know you haven't -- I guess on the debt covenants, if you were to have to tap the revolver, could you just run through your more restrictive debt covenants and then where you stand based on where your '09 guidance is falling out?

Yes, the revolver has a fixed coverage ratio that is triggered if the availability under the revolver falls below $12.5 million. Our projection for '09 assume that we will not have to draw down the facility, that we will remain undrawn for the balance of the year. In fact, we will be building our -- increasing our cash position.

Okay. Thanks, guys.

Thanks, Jeff.

Thank you. And we'll take our next question from Mike Schneider from Robert W. Baird. Please go ahead.

Good morning, guys.

Morning.

Morning.

Just again on the order rates -- sorry to keep on this path -- if you look at your distributors -- [inaudible], Applied Industrial, Motion -- these types of companies, they're all talking about order rates in December, January, and February of minus 10 to kind of minus 15, and that would seem to indicate their -- versus your order rates, they're depleting some on a percentage-point basis at least, somewhere between 5 and 10 points.

As you talk 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 distributor sell-through rate versus what your order rates are and your guidance of minus 20?

Well, I think, Mike, that the -- that on our products, it may be a little bit worse than that but not a lot worse than that from where they're selling what they're selling.

And when I look at the -- when we estimate what our inventory position is and our discussions with them, we think it's going to be anywhere from three to nine months to get the inventories 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, some pick-up from it, but we are not planning on a significant impact from the destocking or less destocking certainly in the first and second quarter.

Okay. And on pricing in this environment --

Mike, let me -- can I make one more comment that we also see that once the destocking's over, that some of our later-cycle businesses, you know, energy and mining-related businesses, where we have strong backlogs right now, that those are going to start to fall off. So we think that the balance between the destocking becoming less and the fall-off on the later-cycle businesses that we have, that it kind of is a wash.

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 type of products? How big of a gap is there?

Well, our backlogs in some of those businesses are probably in the range of two to six months, and so we expect in the next two to six months that we'll see some of that decline.

And if you look at the rate that they're laying down rigs out there, it's tremendous, and they're projecting probably a 40% down year on -- in at least the parts of the markets that we serve. So some of the OEs and the guys using the equipment out there are projecting more draconian scenarios than we are in the end markets we serve.

But on the incoming order rates, say in January/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?

Yes, yes, the order rates are for sure.

The order rates are. So that, again, this goes to the -- I appreciate your comment about the kind of divergent trends. If destocking begins to diminish but yet your later-cycle businesses begin to roll over, it seems to me that's already in the order rate of minus 20.

So it strikes me again that one could characterize this as kind of the worst-case scenario where those lines are already reflected in the order rates and minus 20 seems like -- again, unless the economy takes another markedly step lower, that that's a worst-case number.

Yes, and you might be right, Mike, but from what we read in the energy business and the mining, just to pick on those two industries, that the order rate probably didn't reach its bottom in the last couple months.

Okay. All right. Fair enough.

[Inaudible - multiple speakers] bad news to some, but there's still bad news to come based on how -- what the projections are from those industries and how quickly they were laying down rigs and everything else. It looks like it could be a while, and they've got to work through inventories, too. All those guys have inventory out there.

So I hope we are laying out the most pessimistic outcome, and I really think that we need to manage this business to that kind of an outcome versus assuming that it's going to get better and not making the decisions quick enough to do what we need to do on the cost side.

Sure. Okay. And on pricing then in this environment, what have you -- 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 most active level, I guess?

We have not had significant price reductions. We've 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 the downturn early this year, and unfortunately, some of our competition didn't follow us. So that's probably the one we're getting the most pressure on. Now, that was on selected products, and so we may have to do something in some selected areas on those products.

Okay. And then just, Christian, some detail on the quarter. Could you give us the FX hit in dollars and then the acquisition contribution in dollars, as well, to Q4?

Q4 FX was -- in other income, we had a favorable $3.5 million inside of "Other Income," which relates to the revaluation of our British pounds-denominated bonds --

Yes?

-- which was favorable and also relates to some intercompany transactions that we settled with Canada and as a result realized the gain to the P&L.

And then the other part of your question?

And I'm sorry, and the impact on revenue, Christian?

On revenue for the quarter was a negative 380 basis points.

380 basis points. And then acquisition contribution in the quarter in dollars to revenue?

Was nothing. Essentially there was no incremental benefit from acquisitions in the fourth quarter anymore.

So All Power didn't have any benefit?

No.

No, we acquired that company in October -- or early October. So --

So it was minimal. Okay. Thank you again.

Yes, thank you, Mike.

Thank you. We'll take our next question from [Eileen Gamboa] from [Post Advisory]. Please go ahead.

Good morning.

Morning.

Morning.

I was wondering if you could go over the uses of cash for the quarter? I noticed that net debt only declined a little bit, but there was significant improvement in working capital, so I just wanted to see what the cash was used for.

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 for equipment that was put in service before December 31. We took advantage of that. It was a big area.

We generate about $13.5 million of operating cash flow in the quarter, so $7 million of that went towards CapEx spend.

Okay. And then on your sales forecasts for '09, I'm wondering if you're including any type of deflation from commodity impact, and if you don't mind just reminding us how the cost of metals flows through your pricing?

Yes. Well, the metals flow through pricing in several ways because we have surcharges, we do permanent price increases. But where we'd see the impact on the pricing right now would be on surcharges. The two primary commodities that go into our products are copper and steel, and when you look at copper year over year, it's pretty favorable. And when you look at steel, it's still up probably 16, 18%. At least when I look up those types of steel that we buy, it's still up 16 to 18%. It peaked out in, I think, the third quarter of last year, so we --

Right.

-- still have a little headwind on steel and a little bit of tailwind on copper.

So is that already reflected? You know, the effect of the surcharges, that's already reflected in the forecast?

Yes, yes.

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

Yes, we think about 75% of our cost of sales are variable; 25% is fixed.

Okay. Thank you.

(OPERATOR INSTRUCTIONS)

We'll take our next question from Torin Eastburn from CJS Securities. Please go ahead.

Hi. Good morning. Just two quick ones.

First, are you seeing any bad debt issues, and are you adequately reserved for 2009?

Right now, we do not see any bad debt issues. Our DSO has actually in the fourth quarter improved over the third quarter and also improved from the prior year on the fourth quarter.

Our vendors are still paying us, and they're still paying us on time.

We do have some automotive exposure in our receivable balance. That has come down dramatically as a result of no shipments to automotive customers in the month of December and the month of January. So currently, that is just slightly above $1 million. This is not to the Big Three, but it is to tier-one and to tier-two suppliers.

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

Besides CapEx, we have minimum funding requirements for our defined benefit plans. Those are $1.9 million for next year.

And then the plant consolidation, that will be maybe about $2 million we estimate right now of CapEx related to the plant consolidation.

Okay. Thank you.

Thank you. (OPERATOR INSTRUCTIONS)

We'll take our next question from Jordan Hollander from Jefferies and Company. Please go ahead.

Hey, guys. Just a couple of, I guess, housekeeping questions.

First one on the revolver availability. What was that at the end of the quarter?

$20 million.

20 million? Okay. And what -- just a reminder, if the availability does dip below 12.5, what fixed charge ratio -- what's the minimum?

1.1.

1.1 times? Okay. And as far as -- you know, back to the use of cash question, any thoughts on buying back more debt, or is the goal just to keep cash and that on the balance sheet for now given [inaudible - multiple speakers]?

As we mentioned, our strategy at this point has not changed from what we stated at the end of our third quarter. Our position right now is to continue to hoard cash, build cash, given the uncertainty in the economy and uncertainty about when credit markets will start to open up again.

Okay, good. And then just back to the guidance as far as the cash flow from operations guidance. That includes your -- the source of cash from working capital reductions?

Yes.

Okay. And I guess, lastly, just, I guess, some discussion about how the OEM business is holding up, I guess, in January and February as compared to the large destocking of inventory at the distributor base?

Yes, it's mixed. There's certainly some OEMs, like the turf and garden business is very soft, but surprisingly, we've seen some very good project work, and we've won some nice awards on some significant projects. So it looks like a lot of our OEMs are still doing design work and engineering work and have not cut back that activity yet, so we're optimistic that that's going to continue, and we'll continue to get some good wins.

Okay, great. Any particular industries that seem to be holding up the best right now?

Yes, I think parts of the energy business and certainly the alternative energy pieces, which isn't a big segment for us, but it's growing for us. Military. We've had some nice wins in military. And then even in the elevator is kind of a niche market we play in that that market's way down, but there's been some pretty good projects on new designs that we've been working on. So a couple examples.

Okay, great. Thanks a lot, guys.

Thank you.

And it appears that we have no further questions at this time.

Okay. I would just like to thank everybody for participating in the call and for your support of Altra. Have a good day. Thank you.

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