Altra Industrial Motion
Altra Industrial Motion Corp. (Form: 10-Q, Received: 10/26/2016 17:16:24)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 001-33209

 

ALTRA INDUSTRIAL MOTION CORP.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

61-1478870

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

300 Granite Street, Suite 201, Braintree, MA

 

02184

(Address of principal executive offices)

 

(Zip Code)

 

(781) 917-0600

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 (Do not check if a smaller reporting company.)

 

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of October 19, 2016, 25,884,323 shares of Common Stock, $0.001 par value per share, were outstanding.

 

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

Page #

PART I - FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

35

Item 4.

 

Controls and Procedures

 

35

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

36

Item 1A.

 

Risk Factors

 

36

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

Item 3.

 

Defaults Upon Senior Securities

 

37

Item 4.

 

Mine Safety Disclosures

 

37

Item 5.

 

Other Information

 

37

Item 6.

 

Exhibits

 

38

 

 

 

 

SIGNATURES

 

40

 

 

 

 

EXHIBITS

 

41

 

 

 

EX-31.1 Section 302 Certification of Chief Executive Officer

 

 

EX-31.2 Section 302 Certification of Chief Financial Officer

 

 

EX-32.1 Section 906 Certification of Chief Executive Officer

 

 

EX-32.2 Section 906 Certification of Chief Financial Officer

 

 

EX-101 Certain materials formatted in XBRL

 

 

 

 

2


 

PART I - FINANCI AL INFORMATION

I tem 1. Financial Statements (unaudited)

ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Balance Sheets

Amounts in thousands, except share amounts

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

39,765

 

 

$

50,320

 

Trade receivables, less allowance for doubtful accounts of $2,150 and $2,165 at

   September 30, 2016 and December 31, 2015, respectively

 

 

104,671

 

 

 

94,720

 

Inventories

 

 

121,443

 

 

 

121,156

 

Income tax receivable

 

 

2,644

 

 

 

5,146

 

Prepaid expenses and other current assets

 

 

10,486

 

 

 

11,217

 

Assets held for sale

 

 

4,732

 

 

 

4,597

 

Total current assets

 

 

283,741

 

 

 

287,156

 

Property, plant and equipment, net

 

 

142,748

 

 

 

145,413

 

Intangible assets, net

 

 

90,508

 

 

 

96,069

 

Goodwill

 

 

97,775

 

 

 

97,309

 

Deferred income taxes

 

 

3,197

 

 

 

3,201

 

Other non-current assets, net

 

 

2,489

 

 

 

3,184

 

Total assets

 

$

620,458

 

 

$

632,332

 

LIABILITIES, AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

41,845

 

 

$

40,297

 

Accrued payroll

 

 

22,141

 

 

 

22,312

 

Accruals and other current liabilities

 

 

36,721

 

 

 

34,990

 

Income tax payable

 

 

3,891

 

 

 

3,563

 

Current portion of long-term debt

 

 

400

 

 

 

3,187

 

Total current liabilities

 

 

104,998

 

 

 

104,349

 

Long-term debt - less current portion and net of unaccreted discount

 

 

209,754

 

 

 

231,568

 

Deferred income taxes

 

 

44,299

 

 

 

44,185

 

Pension liabilities

 

 

9,171

 

 

 

8,328

 

Long-term taxes payable

 

 

670

 

 

 

647

 

Other long-term liabilities

 

 

691

 

 

 

688

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock ($0.001 par value, 90,000,000 shares authorized, 25,684,806 and

   25,772,507 issued and outstanding at September 30, 2016 and December 31, 2015,

   respectively)

 

 

26

 

 

 

26

 

Additional paid-in capital

 

 

122,203

 

 

 

124,834

 

Retained earnings

 

 

193,344

 

 

 

181,539

 

Accumulated other comprehensive loss

 

 

(64,698

)

 

 

(63,832

)

Total stockholders’ equity

 

 

250,875

 

 

 

242,567

 

Total liabilities, and stockholders’ equity

 

$

620,458

 

 

$

632,332

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

 

3


 

ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Operations

Amounts in thousands, except per share data

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

September 30,

2016

 

 

September 30,

2015

 

 

September 30,

2016

 

 

September 30,

2015

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Net sales

 

$

173,132

 

 

$

183,053

 

 

$

536,259

 

 

$

573,024

 

Cost of sales

 

 

118,957

 

 

 

127,253

 

 

 

369,254

 

 

 

398,765

 

Gross profit

 

 

54,175

 

 

 

55,800

 

 

 

167,005

 

 

 

174,259

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

36,142

 

 

 

34,279

 

 

 

105,548

 

 

 

105,733

 

Research and development expenses

 

 

4,267

 

 

 

4,210

 

 

 

13,345

 

 

 

13,506

 

Restructuring costs

 

 

3,397

 

 

 

651

 

 

 

6,591

 

 

 

4,994

 

 

 

 

43,806

 

 

 

39,140

 

 

 

125,484

 

 

 

124,233

 

Income from operations

 

 

10,369

 

 

 

16,660

 

 

 

41,521

 

 

 

50,026

 

Other non-operating income and expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

2,815

 

 

 

2,924

 

 

 

8,615

 

 

 

8,858

 

Other non-operating expense (income), net

 

 

45

 

 

 

685

 

 

 

(438

)

 

 

606

 

 

 

 

2,860

 

 

 

3,609

 

 

 

8,177

 

 

 

9,464

 

Income before income taxes

 

 

7,509

 

 

 

13,051

 

 

 

33,344

 

 

 

40,562

 

Provision for income taxes

 

 

2,196

 

 

 

2,830

 

 

 

9,872

 

 

 

11,326

 

Net income

 

 

5,313

 

 

 

10,221

 

 

 

23,472

 

 

 

29,236

 

Net loss attributable to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

63

 

Net income attributable to Altra Industrial Motion Corp.

 

$

5,313

 

 

$

10,221

 

 

$

23,472

 

 

$

29,299

 

Weighted average shares, basic

 

 

25,726

 

 

 

26,145

 

 

 

25,684

 

 

 

26,140

 

Weighted average shares, diluted

 

 

26,021

 

 

 

26,145

 

 

 

25,813

 

 

 

26,184

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income attributable to Altra Industrial Motion Corp.

 

$

0.21

 

 

$

0.39

 

 

$

0.91

 

 

$

1.12

 

Diluted net income attributable to Altra Industrial Motion Corp.

 

$

0.20

 

 

$

0.39

 

 

$

0.91

 

 

$

1.12

 

Cash dividend declared

 

$

0.15

 

 

$

0.15

 

 

$

0.45

 

 

$

0.42

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

 

4


 

ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Amounts in thousands

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

September 30,

2016

 

 

September 30,

2015

 

 

September 30,

2016

 

 

September 30,

2015

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Net Income

 

$

5,313

 

 

$

10,221

 

 

$

23,472

 

 

$

29,236

 

Other Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

104

 

 

 

(4,474

)

 

 

(866

)

 

 

(16,242

)

Change in fair value of interest rate swap, net of tax

 

 

 

 

 

(64

)

 

 

 

 

 

(283

)

Other comprehensive loss

 

 

104

 

 

 

(4,538

)

 

 

(866

)

 

 

(16,525

)

Comprehensive income

 

 

5,417

 

 

 

5,683

 

 

 

22,606

 

 

 

12,711

 

Comprehensive loss attributable to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

(192

)

Comprehensive income attributable to Altra Industrial

   Motion Corp.

 

$

5,417

 

 

$

5,683

 

 

$

22,606

 

 

$

12,903

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

 

5


 

ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Cash Flows

Amounts in thousands

 

 

 

Year to Date Ended

 

 

 

September 30,

2016

 

 

September 30,

2015

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

23,472

 

 

$

29,236

 

Adjustments to reconcile net income to net cash flows:

 

 

 

 

 

 

 

 

Depreciation

 

 

16,235

 

 

 

16,232

 

Amortization of intangible assets

 

 

6,384

 

 

 

6,437

 

Amortization of deferred financing costs

 

 

590

 

 

 

689

 

Gain on foreign currency, net

 

 

(130

)

 

 

(128

)

Accretion of debt discount, net

 

 

2,970

 

 

 

2,740

 

Loss on disposal / impairment of fixed assets

 

 

582

 

 

 

856

 

Stock based compensation

 

 

3,370

 

 

 

3,231

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

(10,461

)

 

 

(1,552

)

Inventories

 

 

(837

)

 

 

2,367

 

Accounts payable and accrued liabilities

 

 

3,226

 

 

 

7,106

 

Other current assets and liabilities

 

 

728

 

 

 

(2,609

)

Other operating assets and liabilities

 

 

765

 

 

 

(1,060

)

Net cash provided by operating activities

 

 

46,894

 

 

 

63,545

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(15,684

)

 

 

(19,181

)

Proceeds from sale of land

 

 

 

 

 

1,201

 

Net cash used in investing activities

 

 

(15,684

)

 

 

(17,980

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payments on term loan facility

 

 

 

 

 

(16,027

)

Payments on Revolving Credit Facility

 

 

(30,870

)

 

 

(9,000

)

Dividend payments

 

 

(7,784

)

 

 

(7,130

)

Proceeds from equipment and working capital notes

 

 

2,893

 

 

 

1,100

 

Borrowing under Revolving Credit Facility

 

 

3,000

 

 

 

6,000

 

Payments of equipment and working capital notes

 

 

(2,832

)

 

 

(3,639

)

Proceeds from mortgages and other debt

 

 

 

 

 

7,085

 

Shares surrendered for tax withholding

 

 

(1,288

)

 

 

(1,182

)

Payments on mortgages and other debt

 

 

(349

)

 

 

(352

)

Purchase of non-controlling interest

 

 

 

 

 

(878

)

Purchases of common stock under share repurchase program

 

 

(4,713

)

 

 

(14,285

)

Net cash used in financing activities

 

 

(41,943

)

 

 

(38,308

)

Effect of exchange rate changes on cash and cash equivalents

 

 

178

 

 

 

(5,111

)

Net change in cash and cash equivalents

 

 

(10,555

)

 

 

2,146

 

Cash and cash equivalents at beginning of year

 

 

50,320

 

 

 

47,503

 

Cash and cash equivalents at end of period

 

$

39,765

 

 

$

49,649

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

5,856

 

 

$

5,995

 

Income taxes

 

$

7,665

 

 

$

10,833

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

 

6


 

ALTRA INDUSTRIAL MOTION CORP.

Consolidated Statements of Stockholders’ Equity

Amounts in thousands

(Unaudited)

 

 

 

Common

Stock

 

 

Shares

 

 

Additional

Paid

in Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

 

Redeemable

Non-

Controlling

Interest

 

Balance at January 1, 2015

 

$

26

 

 

 

26,354

 

 

$

139,087

 

 

$

161,061

 

 

$

(41,415

)

 

$

258,759

 

 

$

883

 

Stock-based compensation and vesting

   of restricted stock

 

 

 

 

 

76

 

 

 

2,049

 

 

 

 

 

 

 

 

 

2,049

 

 

 

 

Net income attributable to Altra

   Industrial Motion Corp.

 

 

 

 

 

 

 

 

 

 

 

29,299

 

 

 

 

 

 

29,299

 

 

 

 

Net loss attributable to Minority Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63

)

Purchase of Minority Interest

 

 

 

 

 

 

 

 

223

 

 

 

 

 

 

 

(410

)

 

 

(187

)

 

 

(691

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(11,038

)

 

 

 

 

 

 

(11,038

)

 

 

 

Change in fair value of interest rate

   swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(283

)

 

 

(283

)

 

 

 

Cumulative foreign currency

   translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,242

)

 

 

(16,242

)

 

 

(129

)

Repurchases of common

   stock - 547,780 shares

 

 

 

 

 

(548

)

 

 

(14,285

)

 

 

 

 

 

 

 

 

(14,285

)

 

 

 

Balance at September 30, 2015

 

$

26

 

 

 

25,882

 

 

 

127,074

 

 

 

179,322

 

 

 

(58,350

)

 

 

248,072

 

 

 

 

Balance at January 1, 2016

 

$

26

 

 

 

25,773

 

 

$

124,834

 

 

$

181,539

 

 

$

(63,832

)

 

$

242,567

 

 

$

 

Stock-based compensation and vesting

   of restricted stock

 

 

 

 

 

89

 

 

 

2,082

 

 

 

 

 

 

 

 

 

2,082

 

 

 

 

Net income attributable to Altra

   Industrial Motion Corp.

 

 

 

 

 

 

 

 

 

 

 

23,472

 

 

 

 

 

 

23,472

 

 

 

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(11,667

)

 

 

 

 

 

(11,667

)

 

 

 

Cumulative foreign currency

   translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(866

)

 

 

(866

)

 

 

 

Repurchases of common

   stock - 177,053 shares

 

 

 

 

 

(177

)

 

 

(4,713

)

 

 

 

 

 

 

 

 

(4,713

)

 

 

 

Balance at September 30, 2016

 

$

26

 

 

 

25,685

 

 

$

122,203

 

 

$

193,344

 

 

$

(64,698

)

 

$

250,875

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

 

 

7


ALTRA INDUSTRIAL MOTION CORP.

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. Altra’s 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 Wood’s, Twiflex, Warner Electric, Warner Linear, and Wichita Clutch.

 

 

2. Basis of Presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 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 Company’s 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 August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows (Topic 230): Classification of certain cash receipts and cash payments (a consensus of the emerging issues task force) (“ASU 2016-15”). This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance will be effective for the Company on January 1, 2018. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  The main provisions include presenting financial assets measured at amortized cost at the amount expected to be collected, which is net of an allowance for credit losses, and recording credit losses related to available-for-sale securities through an allowance for credit losses.  The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, and must be applied using a modified retrospective approach with earlier adoption permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

 

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 consolidated financial statements.

8


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customer s (“ASU 2014-09”) . 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 th e 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 t he 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 eff ective 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 eval uate the impact that the adoption of this guidance will have on our financial condition, results of operations and the presentation of our consolidated financial statements.

 

 

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 Company’s 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 September 30, 2016 and December 31, 2015. The estimated fair value of the Convertible Notes at September 30, 2016 and December 31, 2015 was $101.6 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 September 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)

 

 

 

 

 

134

 

 

 

(1,000

)

 

 

(866

)

Accumulated Other Comprehensive Loss by Component,

   September 30, 2016

 

$

(140

)

 

$

(5,673

)

 

$

(58,885

)

 

$

(64,698

)

9


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

 

 

 

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

 

 

(283

)

 

 

 

 

 

(16,242

)

 

 

(16,525

)

Accumulated Other Comprehensive Loss by Component,

   September 30, 2015

 

$

(140

)

 

$

(4,818

)

 

$

(53,392

)

 

$

(58,350

)

 

 

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.

The following is a reconciliation of basic to diluted net income per share:

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

September 30,

2016

 

 

September 30,

2015

 

 

September 30,

2016

 

 

September 30,

2015

 

Net income attributable to Altra Industrial Motion Corp.

 

$

5,313

 

 

$

10,221

 

 

$

23,472

 

 

$

29,299

 

Shares used in net income per common share - basic

 

 

25,726

 

 

 

26,145

 

 

 

25,684

 

 

 

26,140

 

Dilutive effect of the equity premium on Convertible Notes

   at the average price of common stock

 

 

295

 

 

 

-

 

 

 

123

 

 

 

38

 

Incremental shares of unvested restricted common stock

 

 

-

 

 

 

-

 

 

 

6

 

 

 

6

 

Shares used in net income per common share - diluted

 

 

26,021

 

 

 

26,145

 

 

 

25,813

 

 

 

26,184

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income attributable to Altra Industrial

   Motion Corp.

 

$

0.21

 

 

$

0.39

 

 

$

0.91

 

 

$

1.12

 

Diluted net income attributable to Altra Industrial

   Motion Corp.

 

$

0.20

 

 

$

0.39

 

 

$

0.91

 

 

$

1.12

 

 

During the quarter ended September 30, 2016, the Company’s common stock price exceeded the current conversion price of the Company’s Convertible Notes, resulting in additional shares being included in net income per common share in the diluted earnings per share calculation above.

 

 

7. Inventories

Inventories at September 30, 2016 and December 31, 2015 consisted of the following:

 

 

 

September 30,

2016

 

 

December 31,

2015

 

Raw materials

 

$

35,758

 

 

$

34,169

 

Work in process

 

 

11,915

 

 

 

12,864

 

Finished goods

 

 

73,770

 

 

 

74,123

 

 

 

$

121,443

 

 

$

121,156

 

 

 

10


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 September 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

 

 

136

 

 

 

29

 

 

 

301

 

 

 

466

 

Net goodwill balance September 30, 2016

 

$

25,426

 

 

$

24,690

 

 

$

47,659

 

 

$

97,775

 

 

Other intangible assets as of September 30, 2016 and December 31, 2015 consisted of the following:

 

 

 

September 30, 2016

 

 

December 31, 2015

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

 

Other intangible assets