Altra Industrial Motion
Altra Industrial Motion Corp. (Form: 10-Q, Received: 05/02/2017 17:30:26)

 

 

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 March 31, 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 April 28, 2017, 29,309,448 shares of Common Stock, $0.001 par value per share, were outstanding.

 

1


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

 

32

Item 4.

 

Controls and Procedures

 

32

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

34

Item 1A.

 

Risk Factors

 

34

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

Item 3.

 

Defaults Upon Senior Securities

 

34

Item 4.

 

Mine Safety Disclosures

 

34

Item 5.

 

Other Information

 

35

Item 6.

 

Exhibits

 

35

 

 

 

 

SIGNATURES

 

36

 

 

 

 

EXHIBITS

 

37

 

 

 

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

Item 1. Financial Statements (unaudited)

ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Balance Sheets

Amounts in thousands, except share amounts

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,937

 

 

$

69,118

 

Trade receivables, less allowance for doubtful accounts of $3,193 and $3,114 at

   March 31, 2017 and December 31, 2016, respectively

 

 

132,618

 

 

 

120,319

 

Inventories

 

 

139,444

 

 

 

139,840

 

Income tax receivable

 

 

2,714

 

 

 

607

 

Prepaid expenses and other current assets

 

 

17,448

 

 

 

10,429

 

Assets held for sale

 

 

3,907

 

 

 

3,874

 

Total current assets

 

 

349,068

 

 

 

344,187

 

Property, plant and equipment, net

 

 

178,504

 

 

 

177,043

 

Intangible assets, net

 

 

153,373

 

 

 

154,683

 

Goodwill

 

 

192,861

 

 

 

188,841

 

Deferred income taxes

 

 

1,333

 

 

 

2,510

 

Other non-current assets, net

 

 

2,389

 

 

 

2,560

 

Total assets

 

$

877,528

 

 

$

869,824

 

LIABILITIES, AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

60,942

 

 

$

60,845

 

Accrued payroll

 

 

24,010

 

 

 

31,302

 

Accruals and other current liabilities

 

 

35,882

 

 

 

35,080

 

Income tax payable

 

 

6,992

 

 

 

706

 

Current portion of long-term debt

 

 

340

 

 

 

43,690

 

Total current liabilities

 

 

128,166

 

 

 

171,623

 

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

 

 

317,649

 

 

 

325,969

 

Deferred income taxes

 

 

52,767

 

 

 

61,084

 

Pension liabilities

 

 

24,474

 

 

 

23,691

 

Other long-term liabilities

 

 

7,025

 

 

 

4,109

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock ($0.001 par value, 90,000,000 shares authorized, 28,985,171 and

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

   respectively)

 

 

29

 

 

 

27

 

Additional paid-in capital

 

 

221,736

 

 

 

168,299

 

Retained earnings

 

 

197,038

 

 

 

191,108

 

Accumulated other comprehensive loss

 

 

(71,356

)

 

 

(76,086

)

Total stockholders’ equity

 

 

347,447

 

 

 

283,348

 

Total liabilities, and stockholders’ equity

 

$

877,528

 

 

$

869,824

 

 

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

 

 

 

March 31, 2017

 

 

March 31, 2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net sales

 

$

215,435

 

 

$

180,453

 

Cost of sales

 

 

149,268

 

 

 

125,823

 

Gross profit

 

 

66,167

 

 

 

54,630

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

40,384

 

 

 

33,536

 

Research and development expenses

 

 

6,223

 

 

 

4,564

 

Restructuring costs

 

 

1,898

 

 

 

1,553

 

 

 

 

48,505

 

 

 

39,653

 

Income from operations

 

 

17,662

 

 

 

14,977

 

Other non-operating income and expense:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

1,705

 

 

 

2,896

 

Other non-operating income, net

 

 

(530

)

 

 

(278

)

Loss on extinguishment of convertible debt

 

 

1,797

 

 

 

 

 

 

 

2,972

 

 

 

2,618

 

Income before income taxes

 

 

14,690

 

 

 

12,359

 

Provision for income taxes

 

 

4,364

 

 

 

3,549

 

Net income

 

$

10,326

 

 

$

8,810

 

Weighted average shares, basic

 

 

28,763

 

 

 

25,740

 

Weighted average shares, diluted

 

 

28,897

 

 

 

25,759

 

Net income per share:

 

 

 

 

 

 

 

 

Basic net income

 

$

0.36

 

 

$

0.34

 

Diluted net income

 

$

0.36

 

 

$

0.34

 

Cash dividend declared

 

$

0.15

 

 

$

0.15

 

 

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

Amounts in thousands

 

 

 

Quarter Ended

 

 

 

March 31, 2017

 

 

March 31, 2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net Income

 

$

10,326

 

 

$

8,810

 

Other Comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

3,912

 

 

 

4,189

 

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

 

 

818

 

 

 

 

Other comprehensive loss

 

 

4,730

 

 

 

4,189

 

Comprehensive income

 

$

15,056

 

 

$

12,999

 

 

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

 

 

 

March 31, 2017

 

 

March 31, 2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

10,326

 

 

$

8,810

 

Adjustments to reconcile net income to net cash flows:

 

 

 

 

 

 

 

 

Depreciation

 

 

6,461

 

 

 

5,119

 

Amortization of intangible assets

 

 

2,345

 

 

 

2,119

 

Amortization of deferred financing costs

 

 

149

 

 

 

196

 

Loss/(Gain) on foreign currency, net

 

 

(144

)

 

 

217

 

Accretion of debt discount, net

 

 

 

 

 

968

 

(Gain)/Loss on disposal / impairment of fixed assets

 

 

(58

)

 

 

448

 

Loss on extinguishment of debt

 

 

1,797

 

 

 

 

Stock based compensation

 

 

1,751

 

 

 

1,163

 

Amortization of inventory fair value adjustment

 

 

2,347

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

(11,348

)

 

 

(8,087

)

Inventories

 

 

(1,365

)

 

 

2,929

 

Accounts payable and accrued liabilities

 

 

(6,997

)

 

 

(6,832

)

Other current assets and liabilities

 

 

(4,052

)

 

 

(1,311

)

Other operating assets and liabilities

 

 

1,810

 

 

 

311

 

Net cash provided by operating activities

 

 

3,022

 

 

 

6,050

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(7,333

)

 

 

(5,653

)

Net cash used in investing activities

 

 

(7,333

)

 

 

(5,653

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payments on 2015 Revolving Credit Facility

 

 

(13,459

)

 

 

(4,447

)

Dividend payments

 

 

(3,904

)

 

 

 

Borrowing under 2015 Revolving Credit Facility

 

 

5,000

 

 

 

 

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

 

 

(267

)

 

 

(1,281

)

Cash paid to redeem Convertible Notes

 

 

(954

)

 

 

 

Proceeds from mortgages and other debt

 

 

 

 

 

3,351

 

Shares surrendered for tax withholding

 

 

(163

)

 

 

(91

)

Purchases of common stock under share repurchase program

 

 

 

 

 

(2,159

)

Net cash used in financing activities

 

 

(13,747

)

 

 

(4,627

)

Effect of exchange rate changes on cash and cash equivalents

 

 

1,877

 

 

 

(1,247

)

Net change in cash and cash equivalents

 

 

(16,181

)

 

 

(5,477

)

Cash and cash equivalents at beginning of year

 

 

69,118

 

 

 

50,320

 

Cash and cash equivalents at end of period

 

$

52,937

 

 

$

44,843

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

1,797

 

 

$

2,354

 

Income taxes

 

 

2,937

 

 

 

1,784

 

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.

 

 

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 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

 

 

 

 

 

12

 

 

 

1,072

 

 

 

 

 

 

 

 

 

1,072

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,810

 

 

 

 

 

 

8,810

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(3,908

)

 

 

 

 

 

 

(3,908

)

Cumulative foreign currency

   translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,189

 

 

 

4,189

 

Repurchases of common

   stock - 91,403 shares

 

 

 

 

 

(91

)

 

 

(2,159

)

 

 

 

 

 

 

 

 

(2,159

)

Balance at March 31, 2016

 

$

26

 

 

 

25,694

 

 

$

123,747

 

 

$

186,441

 

 

$

(59,643

)

 

$

250,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2017

 

$

27

 

 

 

27,206

 

 

$

168,299

 

 

$

191,108

 

 

$

(76,086

)

 

$

283,348

 

Stock-based compensation and vesting

   of restricted stock

 

 

 

 

 

31

 

 

 

1,588

 

 

 

 

 

 

 

 

 

1,588

 

Net income

 

 

 

 

 

 

 

 

 

 

 

10,326

 

 

 

 

 

 

10,326

 

Conversion of convertible debt

 

 

2

 

 

 

1,748

 

 

 

51,849

 

 

 

 

 

 

 

 

 

 

 

51,851

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(4,396

)

 

 

 

 

 

(4,396

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

818

 

 

 

818

 

Cumulative foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,912

 

 

 

3,912

 

Balance at March 31, 2017

 

$

29

 

 

 

28,985

 

 

$

221,736

 

 

$

197,038

 

 

$

(71,356

)

 

$

347,447

 

 

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”, “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 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. 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

8


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 th at the adoption of this guidance will have on our financial condition, results of operations and the presentation of our consolidated financial 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 Condensed Consolidated Statements of Operations rather than paid-in capital and was not material for the quarter ended March 31, 2017. Additionally, our 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 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 nature at current market rates.

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

 

 

9


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

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, 2017

 

$

(646

)

 

$

(5,668

)

 

$

(69,772

)

 

$

(76,086

)

Net current-period Other Comprehensive Income (Loss)

 

 

818

 

 

 

(234

)

 

 

4,146

 

 

 

4,730

 

Accumulated Other Comprehensive Income (Loss) by Component,

   March 31, 2017

 

$

172

 

 

$

(5,902

)

 

$

(65,626

)

 

$

(71,356

)

 

 

 

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

 

 

 

 

 

110

 

 

 

4,079

 

 

 

4,189

 

Accumulated Other Comprehensive Loss by Component,

   March 31, 2016

 

$

(140

)

 

$

(5,697

)

 

$

(53,806

)

 

$

(59,643

)

 

 

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 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 March 31, 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 March 31, 2017. The preliminary purchase price allocations include such adjustments.

10


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

 

$

194,736

 

Cash and cash equivalents

 

 

8,758

 

Trade receivables

 

 

24,014

 

Inventories

 

 

23,558

 

Property, plant and equipment

 

 

40,343

 

Intangible assets

 

 

74,795

 

Prepaid expenses and other current assets

 

 

778

 

Total assets acquired

 

$

172,246

 

Accounts payable

 

 

(15,370

)

Accrued payroll

 

 

(7,171

)

Accrued expenses and other current liabilities

 

 

(4,357

)

Income tax payable

 

 

(2,525

)

Deferred tax liability

 

 

(26,880

)

Other long-term liabilities

 

 

(1,255

)

Pension liability

 

 

(15,283

)

Total liabilities assumed

 

$

(72,841

)

Net assets acquired

 

 

99,406

 

Excess purchase price over fair value of net assets acquired

 

$

95,330

 

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.

 

 

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 to date period ended March 31, 2016, 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

 

 

 

March 31, 2016

 

Total revenues

 

$

216,876

 

Net income

 

$

10,887

 

Basic earnings per share

 

$

0.42

 

Diluted earnings per share

 

$

0.42

 

 

 

11


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

 

 

 

March 31, 2017

 

 

March 31, 2016

 

Net income

 

$

10,326

 

 

$

8,810

 

Shares used in net income per common share - basic

 

 

28,763

 

 

 

25,740

 

Incremental shares of unvested restricted common stock

 

 

134

 

 

 

19

 

Shares used in net income per common share - diluted

 

 

28,897

 

 

 

25,759

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic net income

 

$

0.36

 

 

$

0.34

 

Diluted net income

 

$

0.36

 

 

$

0.34

 

 

 

8. Inventories

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

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Raw materials

 

$

44,623

 

 

$

45,507

 

Work in process

 

 

21,933

 

 

 

20,128

 

Finished goods

 

 

72,888

 

 

 

74,205

 

 

 

$

139,444

 

 

$

139,840

 

 

 

9. Goodwill and Intangible Assets

Changes in goodwill from January 1, 2017 through March 31, 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)

 

$

1,865

 

 

$

340

 

 

$

-

 

 

 

2,205

 

Impact of changes in foreign currency and other

 

 

1,596

 

 

 

114

 

 

 

105

 

 

 

1,815

 

Net goodwill balance March 31, 2017

 

$

107,926

 

 

$

37,615

 

 

$

47,320

 

 

$

192,861

 

 

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

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

 

Other intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradenames and trademarks

 

$

50,910

 

 

$

 

 

$

50,910

 

 

$

50,416

 

 

$

 

 

$

50,416

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

165,243

 

 

 

63,378

 

 

$

101,865

 

 

 

164,406

 

 

 

60,761

 

 

 

103,645

 

Product technology and patents

 

 

6,450

 

 

 

5,852

 

 

$

598

 

 

 

6,090

 

 

 

5,468

 

 

 

622

 

Total intangible assets

 

$

222,603

 

 

$

69,230

 

 

$

153,373

 

 

$

220,912

 

 

$

66,229

 

 

$

154,683

 

12


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

 

The Company recorded $2.3 million and $2.1 million of amortization expense in the quarters ended March 31, 2017 and 2016, respectively.

The estimated amortization expense for intangible assets is approximately $6.7 million for the remainder of 2017, $9.6 million in each of the next four years and then $57.6 million thereafter.

 

 

10. Warranty Costs

The contractual warranty period of the Company's 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 quarters ended March 31, 2017 and March 31, 2016 are as follows:  

 

 

 

March 31, 2017

 

 

March 31, 2016

 

Balance at beginning of period

 

$

9,158

 

 

$

9,468

 

Accrued current period warranty expense

 

 

122

 

 

 

133

 

Payments and adjustments

 

 

(110

)

 

 

(104

)

Balance at end of period

 

$

9,170

 

 

$

9,497

 

 

 

 

 

 

11. Debt

Outstanding debt obligations at March 31, 2017 and December 31, 2016 were as follows.

 

 

 

March 31, 2017

 

 

December 31,

2016

 

Debt:

 

 

 

 

 

 

 

 

Revolving Credit Facility

 

$

305,407

 

 

$

313,620

 

Convertible Notes

 

 

 

 

 

45,656

 

Mortgages

 

 

12,269

 

 

 

12,755

 

Capital leases

 

 

313

 

 

 

363

 

Total debt

 

 

317,989

 

 

 

372,394

 

Less: debt discount, net of accretion

 

 

 

 

 

(2,735

)

Total debt, net of unaccreted discount

 

$

317,989

 

 

$

369,659

 

Less current portion of long-term debt

 

 

(340

)

 

 

(43,690

)

Total long-term debt, net of unaccreted discount

 

$

317,649

 

 

$

325,969

 

 

Second Amended and Restated Credit Agreement

 

On October 22, 2015, the Company entered into a Second Amended and Restated Credit Agreement, which may be amended from time to time (the “2015 Credit Agreement”). Under the 2015 Credit Agreement, the amount of the Company’s 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. The stated maturity of the 2015 Revolving Credit Facility is October 22, 2020.     

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

13


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

Revolving Credit Facility is calculated us ing 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 consol idated total net leverage ratio (as defined in the 2015 Credit Agreement), or the then applicable rating(s) of