The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
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 Industrial Motion Corp. (the Company) is a leading multi-national designer,
producer and marketer of a wide range of electro-mechanical power transmission products. The Company brings together strong brands covering over 42 product lines with production facilities in twelve countries. Altras leading brands include
Ameridrives Couplings, Bauer Gear Motor, Bibby Turboflex, Boston Gear, Delroyd Worm Gear, Formsprag Clutch, Guardian Couplings, Huco, Industrial Clutch, Inertia Dynamics, Kilian Manufacturing, Lamiflex Couplings, Marland Clutch, Matrix, Nuttall
Gear, Stieber Clutch, Svendborg Brakes, TB Woods, Twiflex, Warner Electric, Warner Linear, and Wichita Clutch.
2. Basis of Presentation
The Companys 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 Companys Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the Companys financial position for the interim periods presented, and cash flows for the interim periods presented. The results are not necessarily indicative of future results. 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.
3. Recent Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting
(ASU 2016-09)
.
The updated guidance revises aspects of stock-based compensation guidance which include income tax consequences, classification of awards as equity or liabilities, and classification on the statement
of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. We are evaluating the impact of adopting this new accounting guidance
on our consolidated financial statements.
In February 2015, the FASB issued ASU 2016-02,
Leases (Topic 842)
(ASU
2016-02). The ASU requires management to recognize lease assets and lease liabilities by lessees for all operating leases. The ASU is effective for periods beginning after December 15, 2018 and interim periods therein on a modified
retrospective basis. We are currently evaluating the impact this guidance will have on our financial statements.
In May 2014, the FASB
issued ASU No. 2014-09
Revenue from Contracts with Customers
. ASU 2014-09 provides a single principles-based, five-step model to be applied to all contracts with customers. The five steps are to (i) identify the contracts with the
customer, (ii) identify the performance obligations in the contact, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when each
performance obligation is satisfied. Revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. In July 2015, the FASB
agreed to delay the effective date of ASU 2014-09 for one year and to permit early adoption by entities as of the original effective dates. Considering the one year deferral, ASU 2014-09 will be effective for the Company beginning on January 1,
2018 and the standard allows for either full retrospective adoption or modified retrospective adoption. The Company is continuing to evaluate the impact that the adoption of this guidance will have on our financial condition, results of operations
and the presentation of our financial statements.
8
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
4. Fair Value of Financial Instruments
Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:
|
|
|
Level 1- Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets);
or model-derived
|
|
|
|
Level 3- Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
|
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.
The carrying values of financial instruments, including accounts receivable, cash equivalents, accounts payable, and other accrued liabilities
approximate fair value. Debt under the Companys 2015 Credit Agreement approximates the fair value due to the variable rate nature at current market rates.
The carrying amount of the 2.75% Convertible Notes (the Convertible Notes) was $85 million at both June 30, 2016 and
December 31, 2015. The estimated fair value of the Convertible Notes at June 30, 2016 and December 31, 2015 was $97.1 million and $91.7 million, respectively, based on inputs other than quoted prices that are observable for the
Convertible Notes (Level 2).
Included in cash and cash equivalents at June 30, 2016 and December 31, 2015 are money market
fund investments of $0.3 million, which are reported at fair value based on quoted market prices for such investments (Level 1).
5. Changes in
Accumulated Other Comprehensive Loss by Component
The following is a reconciliation of changes in accumulated other comprehensive loss
by component for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and
Losses on
Cash Flow
Hedges
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Cumulative
Foreign
Currency
Translation
Adjustment
|
|
|
Total
|
|
Accumulated Other Comprehensive Loss by Component, January 1, 2016
|
|
$
|
(140
|
)
|
|
$
|
(5,807
|
)
|
|
$
|
(57,885
|
)
|
|
$
|
(63,832
|
)
|
Net current-period Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
148
|
|
|
|
(910
|
)
|
|
|
(762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive (Loss) by Component, June 30, 2016
|
|
$
|
(140
|
)
|
|
$
|
(5,659
|
)
|
|
$
|
(58,795
|
)
|
|
$
|
(64,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and
Losses on
Cash Flow
Hedges
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Cumulative
Foreign
Currency
Translation
Adjustment
|
|
|
Total
|
|
Accumulated Other Comprehensive Income (Loss) by Component, January 1, 2015
|
|
$
|
143
|
|
|
$
|
(4,818
|
)
|
|
$
|
(36,740
|
)
|
|
$
|
(41,415
|
)
|
Cumulative losses transferred from Lamiflex
|
|
|
|
|
|
|
|
|
|
|
(410
|
)
|
|
|
(410
|
)
|
Net current-period Other Comprehensive Loss
|
|
|
(219
|
)
|
|
|
|
|
|
|
(11,768
|
)
|
|
|
(11,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss by Component, June 30, 2015
|
|
$
|
(76
|
)
|
|
$
|
(4,818
|
)
|
|
$
|
(48,918
|
)
|
|
$
|
(53,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. 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 is
dilutive.
9
ALTRA INDUSTRIAL MOTION CORP.
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
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Net income attributable to Altra Industrial Motion Corp.
|
|
$
|
9,349
|
|
|
$
|
9,679
|
|
|
$
|
18,159
|
|
|
$
|
19,078
|
|
Shares used in net income per common share - basic
|
|
|
25,699
|
|
|
|
26,280
|
|
|
|
25,699
|
|
|
|
26,204
|
|
Dilutive effect of the equity premium on Convertible Notes at the average price of common
stock
|
|
|
232
|
|
|
|
127
|
|
|
|
9
|
|
|
|
37
|
|
Incremental shares of unvested restricted common stock
|
|
|
37
|
|
|
|
43
|
|
|
|
85
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income per common share - diluted
|
|
|
25,968
|
|
|
|
26,450
|
|
|
|
25,793
|
|
|
|
26,287
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income attributable to Altra Industrial Motion Corp.
|
|
$
|
0.36
|
|
|
$
|
0.37
|
|
|
$
|
0.71
|
|
|
$
|
0.73
|
|
Diluted net income attributable to Altra Industrial Motion Corp.
|
|
$
|
0.36
|
|
|
$
|
0.37
|
|
|
$
|
0.70
|
|
|
$
|
0.73
|
|
During the quarter ended June 30, 2016, the Companys common stock price exceeded the current
conversion price of the Companys Convertible Notes, resulting in additional shares being included in net income per common share in the diluted earnings per share calculation above.
10
7. Inventories
Inventories at June 30, 2016 and December 31, 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31,
2015
|
|
Raw materials
|
|
$
|
35,395
|
|
|
$
|
34,169
|
|
Work in process
|
|
|
12,536
|
|
|
|
12,864
|
|
Finished goods
|
|
|
72,636
|
|
|
|
74,123
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,567
|
|
|
$
|
121,156
|
|
|
|
|
|
|
|
|
|
|
11
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
8. Goodwill and Intangible Assets
Changes in goodwill from January 1, through June 30, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Couplings,
Clutches &
Brakes
|
|
|
Electromagnetic Clutches
& Brakes
|
|
|
Gearing
|
|
|
Total
|
|
Net goodwill balance January 1, 2016
|
|
$
|
25,290
|
|
|
$
|
24,661
|
|
|
$
|
47,358
|
|
|
$
|
97,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of changes in foreign currency and other
|
|
|
195
|
|
|
|
(14
|
)
|
|
|
276
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net goodwill balance June 30, 2016
|
|
$
|
25,485
|
|
|
$
|
24,647
|
|
|
$
|
47,634
|
|
|
$
|
97,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets as of June 30, 2016 and December 31, 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames and trademarks
|
|
$
|
39,367
|
|
|
$
|
|
|
|
$
|
39,367
|
|
|
$
|
39,625
|
|
|
$
|
|
|
|
$
|
39,625
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
113,160
|
|
|
|
60,698
|
|
|
|
52,462
|
|
|
|
112,408
|
|
|
|
56,677
|
|
|
|
55,731
|
|
Product technology and patents
|
|
|
6,095
|
|
|
|
5,427
|
|
|
|
668
|
|
|
|
6,049
|
|
|
|
5,336
|
|
|
|
713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
158,622
|
|
|
$
|
66,125
|
|
|
$
|
92,497
|
|
|
$
|
158,082
|
|
|
$
|
62,013
|
|
|
$
|
96,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded $2.1 million of amortization expense in each of the quarters ended June 30, 2016 and
2015, and recorded $4.3 million of amortization in each of the year to date periods ended June 30, 2016 and 2015.
The estimated
amortization expense for intangible assets is approximately $4.0 million for the remainder of 2016, $8.3 million in each of the next four years and then $15.9 million thereafter.
12
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
9. Warranty Costs
The contractual warranty period of the Companys products generally ranges from three months to two years with certain warranties
extending for longer periods. Estimated expenses related to product warranties are accrued at the time products are sold to customers and are recorded in accruals and other current liabilities on the unaudited condensed consolidated balance sheet.
Estimates are established using historical information as to the nature, frequency and average costs of warranty claims. Changes in the carrying amount of accrued product warranty costs for each of the year to date periods ended June 30, 2016
and June 30, 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Balance at beginning of period
|
|
$
|
9,468
|
|
|
$
|
7,792
|
|
Accrued current period warranty expense
|
|
|
930
|
|
|
|
1,275
|
|
Payments and adjustments
|
|
|
(1,161
|
)
|
|
|
(1,065
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
9,237
|
|
|
$
|
8,002
|
|
|
|
|
|
|
|
|
|
|
10. Debt
Outstanding debt obligations at June 30, 2016 and December 31, 2015 were as follows.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31,
2015
|
|
Debt:
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
|
$
|
118,836
|
|
|
$
|
145,152
|
|
Convertible Notes
|
|
|
85,000
|
|
|
|
85,000
|
|
Mortgages
|
|
|
13,662
|
|
|
|
10,333
|
|
Equipment and working capital notes
|
|
|
347
|
|
|
|
2,832
|
|
Capital leases
|
|
|
433
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
218,278
|
|
|
|
243,817
|
|
Less: debt discount, net of accretion
|
|
|
(7,100
|
)
|
|
|
(9,062
|
)
|
|
|
|
|
|
|
|
|
|
Total debt, net of unaccreted discount
|
|
$
|
211,178
|
|
|
$
|
234,755
|
|
|
|
|
|
|
|
|
|
|
Less current portion of long-term debt
|
|
|
(708
|
)
|
|
|
(3,187
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of unaccreted discount
|
|
$
|
210,470
|
|
|
$
|
231,568
|
|
|
|
|
|
|
|
|
|
|
13
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Second Amended and Restated Credit Agreement
On October 22, 2015, the Company entered into a Second Amended and Restated Credit Agreement by and among the Company, Altra Industrial
Motion Netherlands, B.V. (Altra Netherlands), one of the Companys foreign subsidiaries (collectively with the Company, the Borrowers), the lenders party to the Second Amended and Restated Credit Agreement from time to
time (collectively, the Lenders), J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, and KeyBanc Capital Markets, Inc., as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A., as administrative agent (the
Administrative Agent), to be guaranteed through a Guarantee Agreement by certain domestic subsidiaries of the Company (each a Guarantor and collectively the Guarantors; the Guarantors collectively with the
Borrowers, the Loan Parties), and which may be amended from time to time (the 2015 Credit Agreement). The 2015 Credit Agreement amends and restates the Companys former Amended and Restated Credit Agreement, dated as of
December 6, 2013, as amended (the 2013 Credit Agreement), by and among the Company, and certain of its domestic subsidiaries, including former subsidiary Altra Power Transmission, Inc., the lenders party to the Amended and Restated
Credit Agreement from time to time (the Former Lenders), J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, and KeyBanc Capital Markets, Inc., as joint lead arrangers and joint bookrunners, and the Administrative Agent, guaranteed
by certain domestic subsidiaries of the Company. The 2013 Credit Agreement itself was an amendment and restatement of a prior credit agreement. Pursuant to the 2013 Credit Agreement, the Former Lenders had made available to the Borrowers a revolving
credit facility (the Prior Revolving Credit Facility) of $200 million, which continued in effect an existing term loan then having a balance of approximately $94 million, and made an additional term loan of 50 million to Altra
Netherlands. The two term loans described in the prior sentence are collectively referred to as the Term Loans.
Under the
2015 Credit Agreement, the amount of the Prior Revolving Credit Facility was increased to $350 million (the 2015 Revolving Credit Facility). The amounts available under the 2015 Revolving Credit Facility can be used for general corporate
purposes, including acquisitions, and to repay existing indebtedness. A portion of the 2015 Revolving Credit Facility was used to repay the Term Loans. The Company wrote off approximately $0.5 million of previously recognized deferred financing
costs in connection with the repayment.
The stated maturity of the 2015 Revolving Credit Facility was extended to October 22, 2020.
The maturity of the Prior Revolving Credit Facility had been December 6, 2018. The 2015 Credit Agreement continues to provide for a possible expansion of the credit facilities by an additional $150 million, which can be allocated as additional
term loans and/or additional revolving credit loans.
The amounts available under the 2015 Revolving Credit Facility may be drawn upon in
accordance with the terms of the 2015 Credit Agreement. All amounts outstanding under the 2015 Revolving Credit Facility are due on the stated maturity or such earlier time, if any, required under the 2015 Credit Agreement. The amounts owed under
the 2015 Revolving Credit Facility may be prepaid at any time, subject to usual notification and breakage payment provisions. Interest on the amounts outstanding under the 2015 Revolving Credit Facility is calculated using either an ABR Rate or
Eurodollar Rate, plus the applicable margin. The applicable margins for Eurodollar Loans are between 1.25% to 2.00%, and for ABR Loans are between 0.25% and 1.00%. The amounts of the margins are calculated based on either a consolidated total net
leverage ratio (as defined in the 2015 Credit Agreement), or the then applicable rating(s) of the Companys debt and then to the extent as provided in the 2015 Credit Agreement. The rate at December 31, 2015 was 1.5%. A portion of the 2015
Revolving Credit Facility may also be used for the issuance of letters of credit, and a portion of the amount of the 2015 Revolving Credit Facility is available for borrowings in certain agreed upon foreign currencies. The 2015 Credit Agreement
contains various affirmative and negative covenants and restrictions, which among other things, will require the Borrowers to provide certain financial reports to the Lenders, require the Company to maintain certain financial covenants relating to
consolidated leverage and interest coverage, limit maximum annual capital expenditures, and limit the ability of the Company and its subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other equity distributions,
purchase or redeem capital stock or debt, make certain investments, sell assets, engage in certain transactions, and effect a consolidation or merger. The 2015 Credit Agreement also contains customary events of default.
Ratification Agreement
Pursuant to an
Omnibus Reaffirmation and Ratification and Amendment of Collateral Documents entered into on October 22, 2015 in connection with the 2015 Credit Agreement by and among the Company, the Loan Parties and the Administrative Agent (the
Ratification Agreement), the Loan Parties (exclusive of the foreign subsidiary Borrower) have
14
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
reaffirmed their obligations to the Lenders under the Pledge and Security Agreement dated November 20, 2012 (the Pledge and Security Agreement), pursuant to which each Loan Party
pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all personal property, whether now owned by or owing to,
or after acquired by or arising in favor of such Loan Party (including under any trade name or derivations), and whether owned or consigned by or to, or leased from or to, such Loan Party, and regardless of where located, except for specific
excluded personal property identified in the Pledge and Security Agreement (collectively, the Collateral). Notwithstanding the foregoing, the Collateral does not include, among other items, more than 65% of the capital stock of the first
tier foreign subsidiaries of the Company. The Pledge and Security Agreement contains other customary representations, warranties and covenants of the parties. The 2015 Credit Agreement provides that the obligation to grant the security interest can
cease upon the obtaining of certain corporate family credit ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the 2015 Credit Agreement.
Pursuant to the Ratification Agreement, the Loan Parties (other than the foregoing subsidiary Borrower) have also reaffirmed their
obligations under each of the Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent dated November 20, 2012 (the 2012 Security Agreements) pursuant to which each of the Loan Parties
signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent
applications, registered trademarks and trademark applications owned by such Loan Parties.
Additional Trademark Security Agreement and Patent Security
Agreement
In connection with the reaffirmation of the Pledge and Security Agreement, certain of the Loan Parties delivered a new
Patent Security Agreement and a new Trademark Security Agreement in favor of the Administrative Agent pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the
ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties and not covered by
the 2012 Security Agreements.
As of June 30, 2016 we had $118.8 million outstanding on our 2015 Revolving Credit Facility, including
$106.2 million outstanding on our USD tranche at an interest rate of 1.96% and $12.6 million outstanding on our Euro tranche at an interest rate of 1.50%. As of June 30, 2016 and December 31, 2015, we had $7.9 million and $7.0 million in
letters of credit outstanding, respectively. We had $223.3 million available to borrow under the 2015 Revolving Credit Facility at June 30, 2016.
Convertible Senior Notes
In March 2011, the Company issued the Convertible Notes due March 1, 2031. The Convertible Notes are guaranteed by the Companys
U.S. domestic subsidiaries. Interest on the Convertible Notes is payable semi-annually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%. Proceeds from the offering were
$81.3 million, net of fees and expenses that were capitalized. The proceeds from the offering were used to fund the acquisition of substantially all of the assets and liabilities of Danfoss Bauer GmbH relating to its gear motor business, as well as
bolster the Companys cash position.
The Convertible Notes will mature on March 1, 2031, unless earlier redeemed, repurchased
by the Company or converted, and are convertible into cash or shares, or a combination thereof, at the Companys election. The Convertible Notes are convertible into shares of the Companys common stock based on an initial conversion rate,
subject to adjustment, of 36.0985 shares per $1,000 principal amount of notes (which represents an initial conversion price of approximately $27.70 per share of our common stock), in certain circumstances. The conversion price at June 30, 2016
is $25.84 per share. Prior to March 1, 2030, the Convertible Notes are convertible only in the following circumstances: (1) during any fiscal quarter commencing after June 30, 2011 if the last reported sale price of the Companys
common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) during the 5 business
day period after any 10 consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of notes for each trading day in the measurement period was less than 97% of the product of the last
reported sale price of the Companys common stock and the conversion rate on such trading day; (3) if the Convertible Notes have been called for redemption; or (4) upon the occurrence of specified
15
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
corporate transactions. On or after March 1, 2030, and ending at the close of business on the second business day immediately preceding the maturity date, holders may convert their
Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock, or a combination thereof, at the Companys election. The Company
intends to settle the principal amount in cash and any additional amounts in shares of stock.
If a fundamental change occurs, the
Convertible Notes are redeemable at a price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but excluding, the repurchase
date. The Convertible Notes are also redeemable on each of March 1, 2018, March 1, 2021, and March 1, 2026 for cash at a price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest
(including contingent interest and additional interest, if any) to, but excluding, the option repurchase date.
As of March 1, 2015,
the Company may call all or part of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, plus a
make-whole premium payment in cash, shares of the Companys common stock, or combination thereof, at the Companys option, equal to the sum of the present values of the remaining scheduled payments of interest on the
Convertible Notes to be redeemed through March 1, 2018 to, but excluding, the redemption date, if the last reported sale price of the Companys common stock for 20 or more trading days in a period of 30 consecutive trading days ending on
the trading day prior to the date the Company provides notice of redemption exceeds 130% of the conversion price in effect on each such trading day. On or after March 1, 2018, the Company may redeem for cash all or a portion of the notes at a
redemption price of 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest (including contingent and additional interest, if any) to, but not including, the redemption date.
The Company separately accounted for the debt and equity components of the Convertible Notes to reflect the issuers non-convertible debt
borrowing rate, which interest costs are to be recognized in subsequent periods. The note payable principal balance at the date of issuance of $85.0 million was bifurcated into a debt component of $60.5 million and an equity component of $24.5
million. The difference between the note payable principal balance and the value of the debt component is being accreted to interest expense over the term of the notes. The debt component was recognized at the present value of associated cash flows
discounted using a 8.25% discount rate, the borrowing rate at the date of issuance for a similar debt instrument without a conversion feature. The Company paid approximately $3.7 million of issuance costs associated with the Convertible Notes. The
Company recorded $1.0 million of debt issuance costs as an offset to additional paid-in capital. The balance of $2.7 million of debt issuance costs is classified as other non-current assets and will be amortized over the term of the notes using the
effective interest method.
Because the last reported sale price of the Companys common stock did not exceed 130% of the current
conversion price, which was $25.84, for at least 20 of the last 30 consecutive trading days in the fiscal quarter ended June 30, 2016, the Convertible Notes are not convertible at the election of the holders of the Convertible Notes at any time
during the fiscal quarter ending September 30, 2016. The future convertibility will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of the Companys common stock during the prescribed
measurement periods.
The carrying amount of the principal amount of the liability component, the unamortized discount, and the net
carrying amount are as follows as of June 30, 2016.
|
|
|
|
|
Principal amount of debt
|
|
$
|
85,000
|
|
Unamortized discount
|
|
|
7,100
|
|
|
|
|
|
|
Carrying value of debt
|
|
$
|
77,900
|
|
|
|
|
|
|
16
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Interest expense associated with the Convertible Notes consists of the following components.
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Contractual coupon rate of interest
|
|
$
|
584
|
|
|
$
|
586
|
|
Accretion of Convertible Notes discount and amortization of deferred financing costs
|
|
|
994
|
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
Interest expense for the convertible notes
|
|
$
|
1,578
|
|
|
$
|
1,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year to Date Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Contractual coupon rate of interest
|
|
$
|
1,169
|
|
|
$
|
1,170
|
|
Accretion of Convertible Notes discount and amortization of deferred financing costs
|
|
|
1,962
|
|
|
|
1,898
|
|
|
|
|
|
|
|
|
|
|
Interest expense for the convertible notes
|
|
$
|
3,131
|
|
|
$
|
3,068
|
|
|
|
|
|
|
|
|
|
|
The effective interest yield of the Convertible Notes due in 2031 is 8.5% at June 30, 2016 and the cash
coupon interest rate is 2.75%.
Equipment and Working Capital Notes
A foreign subsidiary of the Company entered into a loan with a bank to equip its facility in Changzhou, China during 2013. The loan is secured
by certain letters of credit issued by the Companys U.S. bank in favor of the lending bank in China. As of June 30, 2016, the total available to borrow was 50.5 million RMB ($7.6 million). The loan is due in installments from 2014
through 2016, with interest varying between 5.4% and 8.02%. The Company has a $2.0 million RMB ($0.3 million) line of credit outstanding at June 30, 2016. The note is callable by the bank at its discretion and as such, has been included in the
current portion of long-term debt in the balance sheet at June 30, 2016.
17
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Mortgages
Heidelberg Germany
During
2015, a foreign subsidiary of the Company entered into a mortgage with a bank for 1.5 million, or $1.7 million, secured by its facility in Heidelberg, Germany to replace its previously existing mortgage. The mortgage has an interest rate
of 1.79%, which is payable in monthly installments through August 2023. The mortgage has a remaining principal balance of 1.5 million, or $1.7 million, at June 30, 2016.
Esslingen Germany
During
2015, a foreign subsidiary of the Company entered into a mortgage with a bank for 6.0 million, or $6.8 million, secured by its facility in Esslingen, Germany. The mortgage has an interest rate of 2.5% per year, which is payable in
annual interest payments of 0.1 million, or $0.1 million, to be paid in monthly installments. The mortgage has a remaining principal balance of 6.0 million, or $6.7 million, at June 30, 2016. The principal portion of the
mortgage will be due in a lump-sum payment in May 2019.
During the quarter ended March 31, 2016, a foreign subsidiary of the Company
entered in to a loan with a bank to equip its facility in Zlate Moravce, Slovakia. As of June 30, 2016, the total available to borrow was 3.0 million, or $3.1 million, and is guaranteed by land security at its parent company facility
in Esslingen, Germany. The loan is due in installments from 2016 through 2020, with an interest rate of 1.95%.
Angers France
During 2015, a foreign subsidiary of the Company entered into a mortgage with a bank for 2.0 million, or $2.3 million, secured by
its facility in in Angers, France. The mortgage has an interest rate of 1.85% per year which is payable in monthly installments from June 2016 until May 2025. The mortgage has a balance of 2.0 million, or $2.2 million, at
June 30, 2016.
Capital Leases
The Company leases certain equipment under capital lease arrangements, whose obligations are included in both short-term and long-term debt.
Capital lease obligations amounted to approximately $0.4 million at June 30, 2016 and approximately $0.5 million at December 31, 2015. Assets subject to capital leases are included in property, plant and equipment with the related
amortization recorded as depreciation expense.
Overdraft Agreements
Certain of our foreign subsidiaries maintain overdraft agreements with financial institutions. There were no borrowings as of June 30,
2016 or December 31, 2015 under any of the overdraft agreements.
11. Stockholders Equity
Stock-Based Compensation
The
Companys 2004 Equity Incentive Plan (the 2004 Plan) permitted the grant of various forms of stock based compensation to our officers and senior level employees. The 2004 Plan expired in 2014 and, upon expiration, there were 750,576
shares subject to outstanding awards under the 2004 Plan. The 2014 Omnibus Incentive Plan (the 2014 Plan) was approved by the Companys shareholders at its 2014 annual meeting. The 2014 Plan provides for various forms of stock based
compensation to our directors, executive personnel and other key employees and consultants. Under the 2014 Plan, the total number of shares of common stock available for delivery pursuant to the grant of awards (Awards) was originally
750,000. Shares of our common stock subject to Awards awarded under the 2004 Plan and outstanding as of the effective date of the 2014 Plan (except for substitute awards) that terminate without being exercised, expire, are forfeited or canceled, are
exchanged for Awards that did not involve shares of common stock, are not issued on the stock settlement of a stock appreciation right, are withheld by the Company or tendered by a participant (either actually or by attestation) to pay an option
exercise price or to pay the withholding tax on any Award, or are settled in cash in lieu of shares will again be available for Awards under the 2014 Plan.
18
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The restricted shares issued pursuant to the 2014 Plan generally vest ratably over a period
ranging from immediately to five years from the date of grant, provided, that the vesting of the restricted shares may accelerate upon the occurrence of certain events. Common stock awarded under the 2014 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.
The 2014 Plan permits the Company to grant, among other things, restricted stock, restricted stock units, and performance share awards 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 2014 Plan are determined by the Personnel and Compensation Committee of the
Board of Directors.
Stock-based compensation expense recorded during the quarters ended June 30, 2016 and June 30, 2015, was
$2.3 million and $2.2 million, respectively. The Company recognizes stock-based compensation expense on a straight-line basis for the shares vesting ratably under the plan and uses the graded-vesting method of recognizing stock-based compensation
expense for the performance share awards based on the probability of the specific performance metrics being achieved over the requisite service period.
The following table sets forth the activity of the Companys restricted stock and performance share grants in the year to date period
ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-average
grant date fair value
|
|
Shares unvested January 1, 2016
|
|
|
161,010
|
|
|
$
|
28.62
|
|
Shares granted
|
|
|
166,882
|
|
|
|
22.70
|
|
Shares for which restrictions lapsed
|
|
|
(24,195
|
)
|
|
|
24.74
|
|
|
|
|
|
|
|
|
|
|
Shares unvested June 30, 2016
|
|
|
303,697
|
|
|
$
|
24.14
|
|
|
|
|
|
|
|
|
|
|
Total remaining unrecognized compensation cost was $5.4 million as of June 30, 2016, which will be
recognized over a weighted average remaining period of 3 years. The fair market value of the shares for which the restrictions have lapsed during the year to date period ended June 30, 2016 was $0.6 million. Restricted shares granted are valued
based on the fair market value of the stock on the date of grant.
Share Repurchase Program
In May 2014, our board of directors approved a share repurchase program authorizing the buyback of up to $50.0 million of the Companys
common stock. Under the program, the Company may purchase shares on the open market, through block trades, in privately negotiated transactions, in compliance with SEC Rule 10b-18 (including through Rule 10b5-1 plans), or in any other appropriate
manner. The timing of the shares repurchased will be at the discretion of management and will depend on a number of factors, including price, market conditions and regulatory requirements. Shares acquired through the repurchase program will be
retired. The Company retains the right to limit, terminate or extend the share repurchase program at any time without prior notice.
For
the quarter ended June 30, 2016, the Company repurchased 80,189 shares of common stock at an average purchase price of $ 27.84 per share. As of June 30, 2016, up to $10.7 million was available to purchase additional shares under
the repurchase program, which expires on December 31, 2016. The Company expects to fund any further repurchases of its common stock through a combination of cash on hand and cash generated by operations.
Dividends
The Company declared a
dividend of $0.15 per share of common stock related to the quarter ended June 30, 2016. The dividend for the quarter ended June 30, 2016 was accrued in the balance sheet at June 30, 2016. The Company declared and paid a cash dividend
$0.15 for the quarter ended June 30, 2015 which was accrued at June 30, 2015.
19
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Future declarations of quarterly cash dividends are subject to approval by the Board of
Directors and to the Boards continuing determination that the declaration of dividends are in the best interest of the Companys stockholders and are in compliance with all laws and agreements of the Company applicable to the declaration
and payment of cash dividends.
12. Restructuring, Asset Impairment, and Transition Expenses
From time to time, the Company will initiate various restructuring programs and incur severance and other restructuring costs.
In the quarter ended March 31, 2015, the Company commenced a restructuring plan (2015 Altra Plan) as a result of weak demand
in Europe and to make certain adjustments to improve business effectiveness, reduce the number of facilities and streamline the Companys cost structure. The actions taken pursuant to the 2015 Altra Plan initially included reducing headcount,
facility consolidations and related asset impairments, and limiting discretionary spending to improve profitability.
The following table
details restructuring charges incurred by segment for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Year to Date Period
Ended
|
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Couplings, Clutches & Brakes
|
|
$
|
1,089
|
|
|
$
|
332
|
|
|
$
|
1,493
|
|
|
$
|
637
|
|
Electromagnetic Clutches & Brakes
|
|
|
345
|
|
|
|
1,368
|
|
|
|
1,017
|
|
|
|
1,367
|
|
Gearing
|
|
|
|
|
|
|
887
|
|
|
|
16
|
|
|
|
2,331
|
|
Corporate
|
|
|
207
|
|
|
|
|
|
|
|
668
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,641
|
|
|
$
|
2,587
|
|
|
$
|
3,194
|
|
|
$
|
4,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts for the year to date period ended June 30, 2016 are related to approximately $1.6 million in
severance, $0.6 million in consolidation costs, $0.4 million in moving and relocation costs, $0.1 million in building impairments, and $0.5 million in travel-related and other restructuring costs. The amounts for the year to date period ended
June 30, 2015 were limited to severance costs related to staff reductions and plant closures and are classified in the accompanying unaudited condensed consolidated statement of income as restructuring costs.
The following is a reconciliation of the accrued restructuring costs between January 1, 2016 and June 30, 2016:
|
|
|
|
|
|
|
All Plans
|
|
Balance at January 1, 2016
|
|
$
|
2,211
|
|
Restructuring expense incurred
|
|
|
3,194
|
|
Non-cash loss on impairment of fixed assets
|
|
|
(448
|
)
|
Cash payments
|
|
|
(3,005
|
)
|
|
|
|
|
|
Balance at June 30, 2016
|
|
$
|
1,952
|
|
|
|
|
|
|
The total restructuring reserve as of June 30, 2016 relates to severance costs to be paid to employees
and is recorded in accruals and other current liabilities on the accompanying unaudited condensed consolidated balance sheet which are expected to be paid during 2016. The Company expects to incur between approximately $7.0 - $9.0 million in
additional restructuring expenses between 2016 and 2018 under the 2015 Altra Plan, primarily in the Couplings, Clutches & Brakes and Gearing business segments.
20
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
13. Segments, Concentrations and Geographic Information
Segments
During the quarter ended
September 30, 2015, the Company realigned its reporting and management structure and corresponding reportable business segments as part of its business simplification efforts. This new structure is better aligned across the Companys end
markets and will better facilitate the Companys strategic initiatives for growth, procurement and facility consolidation.
The Company currently
operates through three business segments that are aligned with key product types and end markets served:
|
|
|
Couplings, Clutches & Brakes.
|
Couplings are the interface
between two shafts, which enable power to be transmitted from one shaft to the other. Clutches in this segment are devices which use mechanical, hydraulic, pneumatic, or friction type connections to facilitate engaging or disengaging two rotating
members. Brakes are combinations of interacting parts that work to slow or stop machinery. Products in this segment are generally used in heavy industrial applications and energy markets.
|
|
|
Electromagnetic Clutches & Brakes.
|
Products in this segment
include brakes and clutches that are used to electronically slow, stop, engage or disengage equipment utilizing electromagnetic friction type connections. Products in this segment are used in industrial and commercial markets including agricultural
machinery, material handling, motion control, and turf & garden.
Gears are utilized to reduce the speed and increase the torque
of an electric motor or engine to the level required to drive a particular piece of equipment. Gears produced by the Company are primarily utilized in industrial applications.
The segment information presented below for the prior periods has been reclassified to conform to the new presentation.
21
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Segment financial information and a reconciliation of segment results to consolidated results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended June 30,
|
|
|
Year to date periods Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Couplings, Clutches & Brakes
|
|
$
|
78,157
|
|
|
$
|
90,351
|
|
|
$
|
153,780
|
|
|
$
|
179,466
|
|
Electromagnetic Clutches & Brakes
|
|
|
57,053
|
|
|
|
58,250
|
|
|
|
114,402
|
|
|
|
115,886
|
|
Gearing
|
|
|
49,096
|
|
|
|
49,611
|
|
|
|
98,015
|
|
|
|
98,817
|
|
Inter-segment eliminations
|
|
|
(1,632
|
)
|
|
|
(1,602
|
)
|
|
|
(3,070
|
)
|
|
|
(4,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
182,674
|
|
|
$
|
196,610
|
|
|
$
|
363,127
|
|
|
$
|
389,971
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Couplings, Clutches & Brakes
|
|
$
|
7,554
|
|
|
$
|
10,809
|
|
|
$
|
13,845
|
|
|
$
|
20,763
|
|
Electromagnetic Clutches & Brakes
|
|
|
7,068
|
|
|
|
6,194
|
|
|
|
13,531
|
|
|
|
11,522
|
|
Gearing
|
|
|
5,867
|
|
|
|
6,076
|
|
|
|
11,629
|
|
|
|
10,825
|
|
Restructuring
|
|
|
(1,641
|
)
|
|
|
(2,587
|
)
|
|
|
(3,194
|
)
|
|
|
(4,343
|
)
|
Corporate expenses (1)
|
|
|
(2,673
|
)
|
|
|
(2,779
|
)
|
|
|
(4,659
|
)
|
|
|
(5,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
16,175
|
|
|
$
|
17,713
|
|
|
$
|
31,152
|
|
|
$
|
33,366
|
|
|
|
|
|
|
Other non-operating (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
$
|
2,904
|
|
|
$
|
2,978
|
|
|
$
|
5,800
|
|
|
$
|
5,934
|
|
Other non-operating (income) expense, net
|
|
|
(205
|
)
|
|
|
750
|
|
|
|
(483
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,699
|
|
|
|
3,728
|
|
|
|
5,317
|
|
|
|
5,855
|
|
Income before income taxes
|
|
|
13,476
|
|
|
|
13,985
|
|
|
|
25,835
|
|
|
|
27,511
|
|
Provision for income taxes
|
|
|
4,127
|
|
|
|
4,360
|
|
|
|
7,676
|
|
|
|
8,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,349
|
|
|
$
|
9,625
|
|
|
$
|
18,159
|
|
|
$
|
19,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Certain expenses are maintained at the corporate level and not allocated to the segments. These include various administrative expenses related to corporate headquarters, depreciation on capitalized software costs,
non-capitalizable software implementation costs and acquisition related expenses.
|
22
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Selected information by segment (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Year to Date Period Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Couplings, Clutches & Brakes
|
|
$
|
3,770
|
|
|
$
|
4,032
|
|
|
$
|
7,458
|
|
|
$
|
7,996
|
|
Electromagnetic Clutches & Brakes
|
|
|
1,177
|
|
|
|
1,137
|
|
|
|
2,325
|
|
|
|
2,287
|
|
Gearing
|
|
|
1,728
|
|
|
|
1,692
|
|
|
|
3,398
|
|
|
|
3,357
|
|
Corporate
|
|
|
813
|
|
|
|
754
|
|
|
|
1,568
|
|
|
|
1,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
7,488
|
|
|
$
|
7,615
|
|
|
$
|
14,749
|
|
|
$
|
15,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31,
2015
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
Couplings, Clutches & Brakes
|
|
$
|
330,985
|
|
|
$
|
312,117
|
|
Electromagnetic Clutches & Brakes
|
|
|
125,485
|
|
|
|
125,887
|
|
Gearing
|
|
|
133,168
|
|
|
|
150,860
|
|
Corporate (2)
|
|
|
28,345
|
|
|
|
43,468
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
617,983
|
|
|
$
|
632,332
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Corporate assets are primarily cash and cash equivalents, tax related asset accounts, certain capitalized software costs, property, plant and equipment and deferred financing costs.
|
Net sales to third parties by geographic region are as follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
Quarter Ended
|
|
|
Year to Date Period Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
North America (primarily U.S.)
|
|
$
|
104,779
|
|
|
$
|
119,485
|
|
|
$
|
216,962
|
|
|
$
|
241,795
|
|
Europe
|
|
|
59,237
|
|
|
|
57,032
|
|
|
|
111,351
|
|
|
|
112,072
|
|
Asia and other
|
|
|
18,658
|
|
|
|
20,093
|
|
|
|
34,814
|
|
|
|
36,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
182,674
|
|
|
$
|
196,610
|
|
|
$
|
363,127
|
|
|
$
|
389,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to third parties are attributed to the geographic regions based on the country in which the shipment
originates.
Concentrations
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 30 days of billing. An allowance for potential credit losses is
23
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
maintained, and losses have historically been within managements expectations. While the Company did
not have any customers that represented total sales greater than 10% for each of the quarters ended June 30, 2016 and 2015, the Gearing business had one customer that approximated 10.1% of total sales for that segment during the quarter ended
June 30, 2015.
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 cash equivalents are held by well-established financial institutions and invested in AAA rated mutual funds. The Company is exposed to swap counterparty credit risk with
well-established financial institutions.
14. Commitments and Contingencies
General Litigation
The Company is
involved in various pending legal proceedings arising out of the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims, and workers compensation claims. 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. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. There were no material amounts
accrued in the accompanying unaudited condensed consolidated balance sheet for potential litigation as of June 30, 2016 or December 31, 2015. For matters where a reserve has not been established and for which we believe a loss is
reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, we believe that such losses, individually and in the aggregate, will not have a
material effect on our unaudited condensed consolidated financial statements.
The Company also risks exposure to product liability claims
in connection with products it has sold and those sold by businesses that the Company acquired. Although in some cases third parties have retained responsibility for product liability claims relating to products manufactured or sold prior to the
acquisition of the relevant business and in other cases the persons from whom the Company has acquired a business may be required to indemnify the Company for certain product liability claims subject to certain caps or limitations on
indemnification, the Company cannot assure that those third parties will in fact satisfy their obligations with respect to liabilities retained by them or their indemnification obligations. If those third parties become unable to or otherwise do not
comply with their respective obligations including indemnity obligations, or if certain product liability claims for which the Company is obligated were not retained by third parties or are not subject to these indemnities, the Company could become
subject to significant liabilities or other adverse consequences. Moreover, even in cases where third parties retain responsibility for product liability claims or are required to indemnify the Company, significant claims arising from products that
have been acquired could have a material adverse effect on the Companys ability to realize the benefits from an acquisition, could result in the reduction of the value of goodwill that the Company recorded in connection with an acquisition, or
could otherwise have a material adverse effect on the Companys business, financial condition, or operations.
24
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
15. Subsequent Events
On July 20, 2016, the Company has declared a dividend of $0.15 per share for the quarter ended September 30, 2016, payable on October 4, 2016 to
shareholders of record as of September 19, 2016.
25