Altra Industrial Motion
Altra Industrial Motion Corp. (Form: 10-Q, Received: 07/27/2017 16:00:14)

 

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 June 30, 2017

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, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 July 24, 2017, 29,309,448 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)

 

1

Item 2.

 

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

 

21

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

Item 4.

 

Controls and Procedures

 

31

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

Item 3.

 

Defaults Upon Senior Securities

 

32

Item 4.

 

Mine Safety Disclosures

 

32

Item 5.

 

Other Information

 

32

Item 6.

 

Exhibits

 

33

 

 

 

 

SIGNATURES

 

34

 

 

 

 

EXHIBITS

 

35

 

 

 

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

 

 

 

 


PART I - FINANCI AL INFORMATION

Item 1. Financial Statements (unaudited)

ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Balance Sheets

Amounts in thousands, except share amounts

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

58,981

 

 

$

69,118

 

Trade receivables, less allowance for doubtful accounts of $5,377 and $3,114 at

   June 30, 2017 and December 31, 2016, respectively

 

 

137,797

 

 

 

120,319

 

Inventories

 

 

142,696

 

 

 

139,840

 

Income tax receivable

 

 

6,417

 

 

 

607

 

Prepaid expenses and other current assets

 

 

14,891

 

 

 

10,429

 

Assets held for sale

 

 

3,967

 

 

 

3,874

 

Total current assets

 

 

364,749

 

 

 

344,187

 

Property, plant and equipment, net

 

 

185,034

 

 

 

177,043

 

Intangible assets, net

 

 

158,766

 

 

 

154,683

 

Goodwill

 

 

198,986

 

 

 

188,841

 

Deferred income taxes

 

 

1,363

 

 

 

2,510

 

Other non-current assets, net

 

 

2,189

 

 

 

2,560

 

Total assets

 

$

911,087

 

 

$

869,824

 

LIABILITIES, AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

57,451

 

 

$

60,845

 

Accrued payroll

 

 

26,736

 

 

 

31,302

 

Accruals and other current liabilities

 

 

40,129

 

 

 

35,080

 

Income tax payable

 

 

7,740

 

 

 

706

 

Current portion of long-term debt

 

 

371

 

 

 

43,690

 

Total current liabilities

 

 

132,427

 

 

 

171,623

 

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

 

 

308,009

 

 

 

325,969

 

Deferred income taxes

 

 

56,132

 

 

 

61,084

 

Pension liabilities

 

 

26,288

 

 

 

23,691

 

Other long-term liabilities

 

 

19,452

 

 

 

4,109

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock ($0.001 par value, 90,000,000 shares authorized, 28,996,039 and

   27,206,162 issued and outstanding at June 30, 2017 and December 31, 2016,

   respectively)

 

 

29

 

 

 

27

 

Additional paid-in capital

 

 

222,913

 

 

 

168,299

 

Retained earnings

 

 

207,439

 

 

 

191,108

 

Accumulated other comprehensive loss

 

 

(61,602

)

 

 

(76,086

)

Total stockholders’ equity

 

 

368,779

 

 

 

283,348

 

Total liabilities, and stockholders’ equity

 

$

911,087

 

 

$

869,824

 

 

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

 

 

1


ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Operations

Amounts in thousands, except per share data

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

June 30, 2017

 

 

June 30, 2016

 

 

June 30, 2017

 

 

June 30, 2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Net sales

 

$

223,357

 

 

$

182,674

 

 

$

438,792

 

 

$

363,127

 

Cost of sales

 

 

151,231

 

 

 

124,474

 

 

 

300,499

 

 

 

250,297

 

Gross profit

 

 

72,126

 

 

 

58,200

 

 

 

138,293

 

 

 

112,830

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

41,619

 

 

 

35,870

 

 

 

82,003

 

 

 

69,406

 

Research and development expenses

 

 

6,160

 

 

 

4,514

 

 

 

12,383

 

 

 

9,078

 

Restructuring costs

 

 

1,198

 

 

 

1,641

 

 

 

3,096

 

 

 

3,194

 

 

 

 

48,977

 

 

 

42,025

 

 

 

97,482

 

 

 

81,678

 

Income from operations

 

 

23,149

 

 

 

16,175

 

 

 

40,811

 

 

 

31,152

 

Other non-operating income and expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

2,031

 

 

 

2,904

 

 

 

3,736

 

 

 

5,800

 

Other non-operating income, net

 

 

(136

)

 

 

(205

)

 

 

(666

)

 

 

(483

)

Loss on extinguishment of convertible debt

 

 

 

 

 

 

 

 

1,797

 

 

 

 

 

 

 

1,895

 

 

 

2,699

 

 

 

4,867

 

 

 

5,317

 

Income before income taxes

 

 

21,254

 

 

 

13,476

 

 

 

35,944

 

 

 

25,835

 

Provision for income taxes

 

 

5,870

 

 

 

4,127

 

 

 

10,234

 

 

 

7,676

 

Net income

 

$

15,384

 

 

$

9,349

 

 

$

25,710

 

 

$

18,159

 

Weighted average shares, basic

 

 

28,978

 

 

 

25,699

 

 

 

28,873

 

 

 

25,699

 

Weighted average shares, diluted

 

 

29,114

 

 

 

25,968

 

 

 

29,042

 

 

 

25,793

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income

 

$

0.53

 

 

$

0.36

 

 

$

0.89

 

 

$

0.71

 

Diluted net income

 

$

0.53

 

 

$

0.36

 

 

$

0.89

 

 

$

0.70

 

Cash dividend declared

 

$

0.17

 

 

$

0.15

 

 

$

0.32

 

 

$

0.30

 

 

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

 

 

2


ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Comprehensive Income

Amounts in thousands

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

June 30, 2017

 

 

June 30, 2016

 

 

June 30, 2017

 

 

June 30, 2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Net Income

 

$

15,384

 

 

$

9,349

 

 

$

25,710

 

 

$

18,159

 

Other Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

10,275

 

 

 

(4,951

)

 

 

13,827

 

 

 

(762

)

Change in fair value of derivative financial instruments, net of tax

 

 

(161

)

 

 

 

 

 

657

 

 

 

 

Other comprehensive loss

 

 

10,114

 

 

 

(4,951

)

 

 

14,484

 

 

 

(762

)

Comprehensive income

 

$

25,498

 

 

$

4,398

 

 

 

40,194

 

 

 

17,397

 

 

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

 

 

3


ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Cash Flows

Amounts in thousands

 

 

 

Year to Date Ended

 

 

 

June 30, 2017

 

 

June 30, 2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

25,710

 

 

$

18,159

 

Adjustments to reconcile net income to net cash flows:

 

 

 

 

 

 

 

 

Depreciation

 

 

12,930

 

 

 

10,487

 

Amortization of intangible assets

 

 

4,685

 

 

 

4,262

 

Amortization of deferred financing costs

 

 

299

 

 

 

393

 

Loss/(Gain) on foreign currency, net

 

 

132

 

 

 

(100

)

Accretion of debt discount, net

 

 

 

 

 

1,962

 

(Gain)/Loss on disposal of fixed assets

 

 

(74

)

 

 

411

 

Loss on extinguishment of debt

 

 

1,797

 

 

 

 

Stock based compensation

 

 

3,153

 

 

 

2,312

 

Amortization of inventory fair value adjustment

 

 

2,347

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

(12,812

)

 

 

(8,890

)

Inventories

 

 

(1,473

)

 

 

238

 

Accounts payable and accrued liabilities

 

 

(9,212

)

 

 

1,470

 

Other current assets and liabilities

 

 

(1,146

)

 

 

(698

)

Other operating assets and liabilities

 

 

(380

)

 

 

526

 

Net cash provided by operating activities

 

 

25,956

 

 

 

30,532

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(14,416

)

 

 

(10,861

)

Working capital settlement from prior year acquisitions

 

 

2,883

 

 

 

 

Net cash used in investing activities

 

 

(11,533

)

 

 

(10,861

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payments on 2015 Revolving Credit Facility

 

 

(24,054

)

 

 

(26,507

)

Dividend payments

 

 

(8,300

)

 

 

(3,903

)

Borrowing under 2015 Revolving Credit Facility

 

 

5,000

 

 

 

 

Payments of equipment, working capital notes, mortgages and other debt

 

 

(505

)

 

 

(2,545

)

Cash paid to redeem Convertible Notes

 

 

(954

)

 

 

 

Proceeds from mortgages and other debt

 

 

 

 

 

3,112

 

Shares surrendered for tax withholding

 

 

(386

)

 

 

(103

)

Purchases of common stock under share repurchase program

 

 

 

 

 

(4,391

)

Net cash used in financing activities

 

 

(29,199

)

 

 

(34,337

)

Effect of exchange rate changes on cash and cash equivalents

 

 

4,639

 

 

 

(1,324

)

Net change in cash and cash equivalents

 

 

(10,137

)

 

 

(15,990

)

Cash and cash equivalents at beginning of year

 

 

69,118

 

 

 

50,320

 

Cash and cash equivalents at end of period

 

$

58,981

 

 

$

34,330

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

3,752

 

 

$

3,584

 

Income taxes

 

 

11,802

 

 

 

5,176

 

Non-cash Financing and Investing

 

 

 

 

 

 

 

 

Conversion of Convertible Notes to common stock

 

$

51,851

 

 

$

 

 

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

 

 

4


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 Income

(Loss)

 

 

Total

 

Balance at January 1, 2016

 

$

26

 

 

 

25,773

 

 

$

124,834

 

 

$

181,539

 

 

$

(63,832

)

 

$

242,567

 

Stock-based compensation and vesting

   of restricted stock

 

 

 

 

 

19

 

 

 

2,208

 

 

 

 

 

 

 

 

 

2,208

 

Net income

 

 

 

 

 

 

 

 

 

 

 

18,159

 

 

 

 

 

 

18,159

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(7,791

)

 

 

 

 

 

 

(7,791

)

Changes in Accumulated Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(762

)

 

 

(762

)

Repurchases of common

   stock - 294,013 shares

 

 

 

 

 

(172

)

 

 

(4,391

)

 

 

 

 

 

 

 

 

(4,391

)

Balance at June 30, 2016

 

$

26

 

 

 

25,620

 

 

$

122,651

 

 

$

191,907

 

 

$

(64,594

)

 

$

249,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2017

 

$

27

 

 

 

27,206

 

 

$

168,299

 

 

$

191,108

 

 

$

(76,086

)

 

$

283,348

 

Stock-based compensation and vesting

   of restricted stock

 

 

 

 

 

42

 

 

 

2,765

 

 

 

 

 

 

 

 

 

2,765

 

Net income

 

 

 

 

 

 

 

 

 

 

 

25,710

 

 

 

 

 

 

25,710

 

Conversion of convertible debt

 

 

2

 

 

 

1,748

 

 

 

51,849

 

 

 

 

 

 

 

 

 

51,851

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(9,379

)

 

 

 

 

 

(9,379

)

Changes in Accumulated Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,484

 

 

 

14,484

 

Balance at June 30, 2017

 

$

29

 

 

 

28,996

 

 

$

222,913

 

 

$

207,439

 

 

$

(61,602

)

 

$

368,779

 

 

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

 

 

 

5


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”, “we”, or “our”) 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, Stromag, 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, 2016. 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 Standards

 

In October 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). This ASU requires entities to recognize the income tax consequences of many intercompany asset transfers at the transaction date. The seller and buyer will immediately recognize the current and deferred income tax consequences of an intercompany transfer of an asset other than inventory. The tax consequences were previously deferred until the asset is sold to a third party or recovered through use. This guidance will be effective for the Company on January 1, 2018. We are currently evaluating this guidance and the impact it will have on our consolidated financial statements.

 

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 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 and expect to recognize a significant lease obligation upon adoption.

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (“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 contract, (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. 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 expects to adopt this new guidance using the modified retrospective method that will result in a cumulative effect adjustment as of the date of

6


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

adoption. We are 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 consolidated financia l statements, but currently do not expect the adoption to be material to our consolidated financial statements.

Recently Adopted Accounting Standards

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 Company adopted this guidance on January 1, 2017 which resulted in the recognition of excess tax benefits in our provision for income taxes with the Unaudited Condensed Consolidated Statements of Operations rather than paid-in capital and was not material for the quarter ended June 30, 2017. Additionally, our Unaudited Condensed Consolidated Statements of Cash Flows now present excess tax benefits as an operating activity, adjusted prospectively. Finally, the Company elected to continue to estimate forfeitures based on historical data and recognizes forfeiture compensation expense over the vesting period of the award.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). Under this guidance, entities utilizing the first-in-first-out (“FIFO”) or average cost method should measure inventory at the lower of cost or net realizable value, whereas net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this guidance on January 1, 2017. The adoption of this ASU did not have a material impact to our Unaudited Condensed 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 and the fact that the agreement was renegotiated in the prior period.

The Company determines the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various types of financial instruments (such as forwards, options and swaps), the Company uses standard models with market-based inputs, which take into account the present value of estimated future cash flows and the ability of the Company or the financial counterparty to perform. For interest rate and cross currency swaps, the significant inputs to these models are interest rate curves for discounting future cash flows and are adjusted for credit risk. For forward foreign currency contracts, the significant inputs are interest rate curves for discounting future cash flows, and exchange rate curves of the foreign currency for translating future cash flows. See additional discussion of the Company’s use of financial instruments including a cross-currency swap included in Note 15.

 

 

 

7


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

5. Changes in Accumul ated 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, 2017

 

$

(646

)

 

$

(5,668

)

 

$

(69,772

)

 

$

(76,086

)

Net current-period Other Comprehensive Income Gain (Loss)

 

 

657

 

 

 

(171

)

 

 

13,998

 

 

 

14,484

 

Accumulated Other Comprehensive Income (Loss) by Component,

   June 30, 2017

 

$

11

 

 

$

(5,839

)

 

$

(55,774

)

 

$

(61,602

)

 

 

 

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

 

 

 

 

 

148

 

 

 

(910

)

 

 

(762

)

Accumulated Other Comprehensive Loss by Component,

   June 30, 2016

 

$

(140

)

 

$

(5,659

)

 

$

(58,795

)

 

$

(64,594

)

 

 

6. Acquisitions

 

On December 30, 2016, we acquired the shares and certain assets and liabilities of the Stromag business from GKN plc., and as a result, the Company’s unaudited condensed consolidated financial statements reflect Stromag’s results of operations from the beginning of business on December 30, 2016 forward. Stromag is a leading global manufacturer of highly engineered clutches and brakes, couplings, and limit switches for use in a variety of end markets including renewable energy, crane & hoist, and marine. We refer to this transaction as the Stromag Acquisition.

As of June 30, 2017, the allocation of the purchase price for the Stromag Acquisition is preliminary. The fair value of all the acquired identifiable assets and liabilities is provisional pending finalization of the Company’s acquisition accounting. The Company believes that such preliminary allocations provide a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize fair value. The Company recorded certain immaterial measurement period adjustments during the quarter ended June 30, 2017. The preliminary purchase price allocations below include such adjustments.

8


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

 

 

Preliminary Purchase Price Allocation

 

Total purchase price, excluding acquisition costs of approximately $2.9 million

 

$

191,852

 

Cash and cash equivalents

 

 

8,758

 

Trade receivables

 

 

24,087

 

Inventories

 

 

23,048

 

Property, plant and equipment

 

 

40,343

 

Intangible assets

 

 

74,795

 

Prepaid expenses and other current assets

 

 

778

 

Total assets acquired

 

$

171,809

 

Accounts payable

 

 

(15,370

)

Accrued payroll

 

 

(7,171

)

Accrued expenses and other current liabilities

 

 

(4,357

)

Income tax payable

 

 

(2,525

)

Deferred tax liability

 

 

(27,859

)

Other long-term liabilities

 

 

(1,255

)

Pension liability

 

 

(15,283

)

Total liabilities assumed

 

$

(73,820

)

Net assets acquired

 

 

97,989

 

Excess purchase price over fair value of net assets acquired

 

$

93,863

 

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. This goodwill is not deductible for income tax purposes. The Company expects to develop synergies, such as lower cost country sourcing, global procurement, the ability to cross-sell product, and the ability to penetrate certain geographic areas, as a result of the acquisition of Stromag.

During the second quarter, the Company and the seller completed the working capital adjustment under the sale and purchase agreement which reduced the purchase price by $2.9 million.

 

 

Intangible assets acquired consist of:

 

 

 

 

 

Customer relationships

 

 

$

56,019

 

Trade names and trademarks

 

 

 

18,776

 

Total intangible assets

 

 

$

74,795

 

 

Customer relationships are subject to amortization which will be amortized on a straight-line basis over their estimated useful lives of 15 years, which represents the anticipated period over which the Company estimates it will benefit from the acquired assets.

 

The following table sets forth the unaudited pro forma results of operations of the Company for the quarter and year to date periods ended June 30, 2017, as if the Company had acquired Stromag at the beginning of the period. The pro forma information contains the actual operating results of the Company, including Stromag, adjusted to include the pro forma impact of (i) additional depreciation expense as a result of estimated depreciation based on the fair value of fixed assets and; (ii) additional expense as a result of the estimated amortization of identifiable intangible assets; (iii) additional interest expense for borrowings under the Credit Agreement associated with the Stromag Acquisition. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred at the beginning of the period or that may be obtained in the future.

 

 

Proforma (unaudited)

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

June 30, 2016

 

 

June 30, 2016

 

Total revenues

$

221,061

 

 

$

437,938

 

Net income

$

11,305

 

 

$

22,193

 

Basic earnings per share

$

0.44

 

 

$

0.86

 

Diluted earnings per share

$

0.44

 

 

$

0.86

 

9


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

 

 

7. 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

 

 

 

June 30, 2017

 

 

June 30, 2016

 

 

June 30, 2017

 

 

June 30, 2016

 

Net income

 

$

15,384

 

 

$

9,349

 

 

$

25,710

 

 

$

18,159

 

Shares used in net income per common share - basic

 

 

28,978

 

 

 

25,699

 

 

 

28,873

 

 

 

25,699

 

Dilutive effect of the equity premium on Convertible Notes at the average price of common stock

 

 

 

 

 

232

 

 

 

 

 

 

9

 

Incremental shares of unvested restricted common stock

 

 

136

 

 

 

37

 

 

 

169

 

 

 

85

 

Shares used in net income per common share - diluted

 

 

29,114

 

 

 

25,968

 

 

 

29,042

 

 

 

25,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income

 

$

0.53

 

 

$

0.36

 

 

$

0.89

 

 

$

0.71

 

Diluted net income

 

$

0.53

 

 

$

0.36

 

 

$

0.89

 

 

$

0.70

 

 

 

8. Inventories

Inventories at June 30, 2017 and December 31, 2016 consisted of the following:

 

 

 

June 30, 2017

 

 

December 31, 2016

 

Raw materials

 

$

43,636

 

 

$

45,507

 

Work in process

 

 

23,529

 

 

 

20,128

 

Finished goods

 

 

75,531

 

 

 

74,205

 

 

 

$

142,696

 

 

$

139,840

 

 

 

9. Goodwill and Intangible Assets

Changes in goodwill from January 1, 2017 through June 30, 2017 were as follows:

 

 

 

Couplings,

Clutches &

Brakes

 

 

Electromagnetic Clutches &

Brakes

 

 

Gearing

 

 

Total

 

Net goodwill balance January 1, 2017

 

$

104,465

 

 

$

37,161

 

 

$

47,215

 

 

$

188,841

 

Measurement period adjustment related to acquisition of Stromag (See Note 6)

 

$

712

 

 

$

361

 

 

$

-

 

 

 

1,073

 

Impact of changes in foreign currency and other

 

 

8,213

 

 

 

286

 

 

 

573

 

 

 

9,072

 

Net goodwill balance June 30, 2017

 

$

113,390

 

 

$

37,808

 

 

$

47,788

 

 

$

198,986

 

 

10


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

Other intangible assets as of June 30, 2017 and December 31, 2016 consisted of the following:

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

 

Other intangible assets