UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-Q
| | |
þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 3, 2010
or
| | For the quarterly period ended September 26, 2009 |
or
|
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
For the transition period fromto
Commission File NumberNumber: 001-33209
ALTRA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| | |
Delaware (State or other jurisdiction of incorporation or organization) | | 61-1478870 (I.R.S. Employer Identification No.) |
| | |
300 Granite Street, Suite 201, Braintree, MA (Address of principal executive offices) | | 02184 (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. Yesþ Noo
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 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo
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” inRule 12b-2 of the Exchange Act.
| | | | | | |
Large acceleratedAccelerated filero | | Accelerated filerþ | | Non-accelerated filero(Do not check if a smaller reporting company.) | | Smaller reporting companyo |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yeso Noþ
As of NovemberMay 1, 2009, 26,623,1712010, 26,801,631 shares of Common Stock, $.001 par value per share, were outstanding.
| | |
Item 1. | | Financial Statements |
ALTRA HOLDINGS, INC.
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
| | | | | | | | |
| | September 26,
| | | December 31,
| |
| | 2009 | | | 2008 | |
| | (Unaudited) | |
|
ASSETS |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 71,940 | | | $ | 52,073 | |
Trade receivable, less allowance for doubtful accounts of $1,413 and $1,277 at September 26, 2009 and December 31, 2008, respectively | | | 58,605 | | | | 68,803 | |
Inventories | | | 72,255 | | | | 98,410 | |
Deferred income taxes | | | 8,032 | | | | 8,032 | |
Assets held for sale (See Note 8) | | | — | | | | 4,676 | |
Prepaid expenses and other current assets | | | 10,054 | | | | 6,514 | |
| | | | | | | | |
Total current assets | | | 220,886 | | | | 238,508 | |
Property, plant and equipment, net | | | 107,769 | | | | 110,220 | |
Intangible assets, net | | | 76,447 | | | | 79,339 | |
Goodwill | | | 78,955 | | | | 77,497 | |
Deferred income taxes | | | 495 | | | | 495 | |
Other non-current assets, net | | | 6,319 | | | | 7,525 | |
| | | | | | | | |
Total assets | | $ | 490,871 | | | $ | 513,584 | |
| | | | | | | | |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 25,819 | | | $ | 33,890 | |
Accrued payroll | | | 13,438 | | | | 16,775 | |
Accruals and other current liabilities | | | 25,533 | | | | 18,755 | |
Deferred income taxes | | | 6,906 | | | | 6,906 | |
Current portion of long-term debt | | | 995 | | | | 3,391 | |
| | | | | | | | |
Total current liabilities | | | 72,691 | | | | 79,717 | |
Long-term debt — less current portion and net of unaccreted discount | | | 231,633 | | | | 258,132 | |
Deferred income taxes | | | 23,318 | | | | 23,336 | |
Pension liablities | | | 11,730 | | | | 11,854 | |
Other post retirement benefits | | | 63 | | | | 2,270 | |
Long-term taxes payable | | | 9,075 | | | | 7,976 | |
Other long-term liabilities | | | 2,080 | | | | 1,434 | |
Commitments and contingencies (See Note 14) | | | — | | | | — | |
Stockholders’ equity: | | | | | | | | |
Common stock ($0.001 par value, 90,000,000 shares authorized, 25,994,723 and 25,582,543 issued and outstanding at September 26, 2009 and December 31, 2008, respectively) | | | 26 | | | | 26 | |
Additional paid-in capital | | | 131,618 | | | | 129,604 | |
Retained earnings | | | 23,625 | | | | 23,325 | |
Accumulated other comprehensive income | | | (14,988 | ) | | | (24,090 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 140,281 | | | | 128,865 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 490,871 | | | $ | 513,584 | |
| | | | | | | | |
| | | | | | | | |
| | April 3, | | | December 31, | |
| | 2010 | | | 2009 | |
| | (Unaudited) | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 53,566 | | | $ | 51,497 | |
Trade receivables, less allowance for doubtful accounts of $1,424 and $1,434 at April 3, 2010 and December 31, 2009, respectively | | | 65,829 | | | | 52,855 | |
Inventories | | | 72,847 | | | | 71,853 | |
Deferred income taxes | | | 9,265 | | | | 9,265 | |
Income tax receivable | | | 2,781 | | | | 4,754 | |
Prepaid expenses and other current assets | | | 5,155 | | | | 3,647 | |
| | | | | | |
Total current assets | | | 209,443 | | | | 193,871 | |
| | | | | | | | |
Property, plant and equipment, net | | | 104,584 | | | | 105,603 | |
Intangible assets, net | | | 72,772 | | | | 74,905 | |
Goodwill | | | 78,644 | | | | 78,832 | |
Deferred income taxes | | | 679 | | | | 679 | |
Other non-current assets, net | | | 11,347 | | | | 11,309 | |
| | | | | | |
| | | | | | | | |
Total assets | | $ | 477,469 | | | $ | 465,199 | |
| | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 35,772 | | | $ | 27,421 | |
Accrued payroll | | | 10,324 | | | | 12,133 | |
Accruals and other current liabilities | | | 24,948 | | | | 19,971 | |
Deferred income taxes | | | 7,275 | | | | 7,275 | |
Current portion of long-term debt | | | 1,041 | | | | 1,059 | |
| | | | | | |
Total current liabilities | | | 79,360 | | | | 67,859 | |
| | | | | | | | |
Long-term debt — less current portion and net of unaccreted discount | | | 216,093 | | | | 216,490 | |
Deferred income taxes | | | 20,999 | | | | 21,051 | |
Pension liablities | | | 9,206 | | | | 9,862 | |
Long-term taxes payable | | | 9,427 | | | | 9,661 | |
Other long-term liabilities | | | 1,088 | | | | 1,333 | |
Stockholders’ equity: | | | | | | | | |
Common stock ($0.001 par value, 90,000,000 shares authorized, 26,362,684 and 26,057,993 issued and outstanding at April 3, 2010 and December 31, 2009, respectively) | | | 26 | | | | 26 | |
Additional paid-in capital | | | 132,812 | | | | 132,552 | |
Retained earnings | | | 26,750 | | | | 21,011 | |
Accumulated other comprehensive loss | | | (18,292 | ) | | | (14,646 | ) |
| | | | | | |
Total stockholders’ equity | | | 141,296 | | | | 138,943 | |
| | | | | | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 477,469 | | | $ | 465,199 | |
| | | | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
ALTRA HOLDINGS, INC.
Condensed Consolidated Statements of Income
Amounts in thousands, except per share data
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | | Year to Date Ended | |
| | September 26,
| | | September 27,
| | | September 26,
| | | September 27,
| |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | (Unaudited) | |
|
Net sales | | $ | 104,766 | | | $ | 159,448 | | | $ | 341,183 | | | $ | 490,523 | |
Cost of sales | | | 76,194 | | | | 113,627 | | | | 250,950 | | | | 346,517 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 28,572 | | | | 45,821 | | | | 90,233 | | | | 144,006 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | 19,290 | | | | 25,655 | | | | 60,971 | | | | 76,816 | |
Research and development expenses | | | 1,508 | | | | 1,663 | | | | 4,569 | | | | 5,160 | |
Other post employment benefit plan settlement gain | | | — | | | | (107 | ) | | | (1,467 | ) | | | (276 | ) |
Restructuring costs | | | 1,006 | | | | 81 | | | | 5,360 | | | | 1,149 | |
Loss on disposal of assets | | | 516 | | | | — | | | | 516 | | | | — | |
| | | | | | | | | | | | | | | | |
| | | 22,320 | | | | 27,292 | | | | 69,949 | | | | 82,849 | |
Income from operations | | | 6,252 | | | | 18,529 | | | | 20,284 | | | | 61,157 | |
Other non-operarting income and expense: | | | | | | | | | | | | | | | | |
Interest expense, net | | | 6,290 | | | | 7,302 | | | | 18,879 | | | | 22,456 | |
Other non-operating (income) expense, net | | | (371 | ) | | | (1,408 | ) | | | 1,248 | | | | (2,887 | ) |
| | | | | | | | | | | | | | | | |
| | | 5,919 | | | | 5,894 | | | | 20,127 | | | | 19,569 | |
Income from continuing operations before income taxes | | | 333 | | | | 12,635 | | | | 157 | | | | 41,588 | |
Provision (benefit) for income taxes | | | (315 | ) | | | 4,000 | | | | (143 | ) | | | 14,127 | |
| | | | | | | | | | | | | | | | |
Net income from continuing operations | | | 648 | | | | 8,635 | | | | 300 | | | | 27,461 | |
Net income (loss) from discontinued operations, net of income taxes of $43 for the year to date period ended September 27, 2008 | | | — | | | | 172 | | | | — | | | | (224 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 648 | | | $ | 8,807 | | | $ | 300 | | | $ | 27,237 | |
| | | | | | | | | | | | | | | | |
Consolidated Statement of Comprehensive Income | | | | | | | | | | | | | | | | |
Pension liability adjustment | | $ | — | | | $ | 1,500 | | | $ | — | | | $ | 1,500 | |
Foreign currency translation adjustment | | | 847 | | | | (6,051 | ) | | | 9,102 | | | | (8,353 | ) |
| | | | | | | | | | | | | | | | |
Comprehensive income | | $ | 1,495 | | | $ | 4,256 | | | $ | 9,402 | | | $ | 20,384 | |
| | | | | | | | | | | | | | | | |
Weighted average shares, basic | | | 25,961 | | | | 25,488 | | | | 25,940 | | | | 25,479 | |
Weighted average shares, diluted | | | 26,213 | | | | 26,157 | | | | 26,112 | | | | 26,159 | |
Basic earnings per share: | | | | | | | | | | | | | | | | |
Net income from continuing operations | | $ | 0.02 | | | $ | 0.34 | | | $ | 0.01 | | | $ | 1.08 | |
Net income (loss) from discontinued operations | | | — | | | | 0.01 | | | | — | | | | (0.01 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 0.02 | | | $ | 0.35 | | | $ | 0.01 | | | $ | 1.07 | |
| | | | | | | | | | | | | | | | |
Diluted earnings per share: | | | | | | | | | | | | | | | | |
Net income from continuing operations | | $ | 0.02 | | | $ | 0.33 | | | $ | 0.01 | | | $ | 1.05 | |
Net income (loss) from discontinued operations | | | — | | | | 0.01 | | | | — | | | | (0.01 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 0.02 | | | $ | 0.34 | | | $ | 0.01 | | | $ | 1.04 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Quarter Ended | |
| | April 3, | | | March 28, | |
| | 2010 | | | 2009 | |
| | (Unaudited) | |
Net sales | | $ | 127,706 | | | $ | 124,540 | |
Cost of sales | | | 90,303 | | | | 92,337 | |
| | | | | | |
Gross profit | | | 37,403 | | | | 32,203 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Selling, general and administrative expenses | | | 20,972 | | | | 21,743 | |
Research and development expenses | | | 1,779 | | | | 1,567 | |
Other post employment benefit plan settlement gain | | | — | | | | (1,467 | ) |
Restructuring costs | | | 1,046 | | | | 1,872 | |
| | | | | | |
| | | 23,797 | | | | 23,715 | |
| | | | | | | | |
Income from operations | | | 13,606 | | | | 8,488 | |
| | | | | | | | |
Other non-operarting income and expense: | | | | | | | | |
Interest expense, net | | | 4,940 | | | | 6,349 | |
Other non-operating (income) expense, net | | | 295 | | | | (162 | ) |
| | | | | | |
| | | 5,235 | | | | 6,187 | |
| | | | | | | | |
Income before income taxes | | | 8,371 | | | | 2,301 | |
Provision for income taxes | | | 2,632 | | | | 883 | |
| | | | | | |
| | | | | | | | |
Net income | | $ | 5,739 | | | $ | 1,418 | |
| | | | | | |
| | | | | | | | |
Consolidated Statement of Comprehensive income (loss) | | | | | | | | |
Foreign currency translation adjustment | | | (3,646 | ) | | | (2,543 | ) |
| | | | | | |
Comprehensive income (loss) | | $ | 2,093 | | | $ | (1,125 | ) |
| | | | | | |
| | | | | | | | |
Weighted average shares, basic | | | 26,343 | | | | 25,911 | |
Weighted average shares, diluted | | | 26,425 | | | | 25,943 | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Basic | | $ | 0.22 | | | $ | 0.05 | |
Diluted | | $ | 0.22 | | | $ | 0.05 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
ALTRA HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
| | | | | | | | |
| | Year to Date Ended | |
| | September 26,
| | | September 27,
| |
| | 2009 | | | 2008 | |
| | (Unaudited) | |
|
Cash flows from operating activities | | | | | | | | |
Net income | | $ | 300 | | | $ | 27,237 | |
Adjustments to reconcile net income to net cash flows: | | | | | | | | |
Depreciation | | | 12,547 | | | | 12,409 | |
Amortization of intangible assets | | | 4,137 | | | | 4,346 | |
Amortization and write-offs of deferred financing costs | | | 1,560 | | | | 1,863 | |
Loss (gain) on foreign currency, net | | | 1,092 | | | | (1,597 | ) |
Accretion of debt discount, net | | | 621 | | | | 759 | |
Loss on sale of Electronics Division | | | — | | | | 224 | |
Fixed asset impairment/disposal | | | 2,563 | | | | — | |
Loss on sale of fixed assets | | | — | | | | 193 | |
Other post employment benefit plan settlement gain | | | (1,467 | ) | | | (276 | ) |
Stock based compensation | | | 2,273 | | | | 1,516 | |
Changes in assets and liabilities: | | | | | | | | |
Trade receivables | | | 13,025 | | | | (14,905 | ) |
Inventories | | | 27,626 | | | | (5,871 | ) |
Accounts payable and accrued liabilities | | | (11,929 | ) | | | 5,885 | |
Other current assets and liabilities | | | 71 | | | | (383 | ) |
Other operating assets and liabilities | | | (365 | ) | | | 234 | |
| | | | | | | | |
Net cash provided by operating activities | | | 52,054 | | | | 31,634 | |
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Purchase of property, plant and equipment | | | (5,105 | ) | | | (12,234 | ) |
Proceeds from sale of Electronics Division | | | — | | | | 17,310 | |
| | | | | | | | |
Net cash provided by (used in) investing activities | | | (5,105 | ) | | | 5,076 | |
| | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Payments on Senior Notes | | | (4,950 | ) | | | (1,346 | ) |
Payments on Senior Secured Notes | | | (22,200 | ) | | | (27,500 | ) |
Payments on Revolving Credit Agreement | | | (3,000 | ) | | | (1,723 | ) |
Proceeds from additional borrowings under an existing mortgage | | | 1,467 | | | | — | |
Shares repurchased | | | (259 | ) | | | — | |
Payment on mortgages | | | (524 | ) | | | (228 | ) |
Payment on capital leases | | | (614 | ) | | | (779 | ) |
| | | | | | | | |
Net cash used in financing activities | | | (30,080 | ) | | | (31,576 | ) |
| | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | 2,998 | | | | (1,119 | ) |
| | | | | | | | |
Net change in cash and cash equivalents | | | 19,867 | | | | 4,015 | |
Cash and cash equivalents at beginning of year | | | 52,073 | | | | 45,807 | |
| | | | | | | | |
Cash and cash equivalents at end of period | | $ | 71,940 | | | $ | 49,822 | |
| | | | | | | | |
Cash paid during the period for: | | | | | | | | |
Interest | | $ | 12,419 | | | $ | 21,840 | |
Income taxes | | $ | 1,033 | | | $ | 11,964 | |
| | | | | | | | |
| | Quarter ended | |
| | April 3, 2010 | | | March 28, 2009 | |
| | (Unaudited) | |
Cash flows from operating activities | | | | | | | | |
Net income | | $ | 5,739 | | | $ | 1,418 | |
Adjustments to reconcile net income to net cash flows: | | | | | | | | |
Depreciation | | | 4,159 | | | | 4,158 | |
Amortization of intangible assets | | | 1,383 | | | | 1,361 | |
Amortization and write-offs of deferred financing costs | | | 172 | | | | 430 | |
Loss (gain) on foreign currency, net | | | 314 | | | | (201 | ) |
Accretion of debt discount, net | | | 73 | | | | 154 | |
Fixed asset impairment/disposal | | | — | | | | 749 | |
Other post employment benefit plan settlement gain | | | — | | | | (1,467 | ) |
Stock based compensation | | | 548 | | | | 977 | |
Changes in assets and liabilities: | | | | | | | | |
Trade receivables | | | (15,037 | ) | | | (2,258 | ) |
Inventories | | | (1,569 | ) | | | 8,072 | |
Accounts payable and accrued liabilities | | | 14,522 | | | | (306 | ) |
Other current assets and liabilities | | | (2,002 | ) | | | (1,539 | ) |
Other operating assets and liabilities | | | (128 | ) | | | 4 | |
| | | | | | |
Net cash provided by operating activities | | | 8,174 | | | | 11,552 | |
| | | | | | |
|
Cash flows from investing activities | | | | | | | | |
Purchase of property, plant and equipment | | | (2,694 | ) | | | (1,821 | ) |
Additional purchase price paid for acquisition | | | (1,177 | ) | | | — | |
| | | | | | |
Net cash used in investing activities | | | (3,871 | ) | | | (1,821 | ) |
| | | | | | |
|
Cash flows from financing activities | | | | | | | | |
Payment of bond issuance costs | | | (63 | ) | | | — | |
Shares forfeited in lieu of tax | | | (288 | ) | | | — | |
Payment on mortgages | | | (121 | ) | | | (120 | ) |
Payment on capital leases | | | (175 | ) | | | (179 | ) |
| | | | | | |
Net cash used in financing activities | | | (647 | ) | | | (299 | ) |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | (1,587 | ) | | | (102 | ) |
| | | | | | |
Net change in cash and cash equivalents | | | 2,069 | | | | 9,330 | |
Cash and cash equivalents at beginning of year | | | 51,497 | | | | 52,073 | |
| | | | | | |
Cash and cash equivalents at end of period | | $ | 53,566 | | | $ | 61,403 | |
| | | | | | |
| | | | | | | | |
Cash paid during the period for: | | | | | | | | |
Interest | | $ | 398 | | | $ | 538 | |
Income taxes | | $ | 192 | | | $ | 140 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
| |
1. 1. Organization and Nature of Operations | Organization and Nature of Operations |
Headquartered in Braintree, Massachusetts, Altra Holdings, Inc. (“the Company”)(the Company), through its wholly-owned subsidiary Altra Industrial Motion, Inc. (“Altra Industrial”), is a leading multi-national designer, producer and marketer of a wide range of mechanical power transmission products. The Company brings together strong brands covering over 40 product lines with production facilities in eight countries and sales coverage in over 70 countries. The Company’s leading brands include Boston Gear, Warner Electric, TB Wood’s, Formsprag Clutch, Ameridrives Couplings, Industrial Clutch, Kilian Manufacturing, Marland Clutch, Nuttall Gear, Stieber Clutch, Wichita Clutch, Twiflex Limited, Bibby Transmissions, Matrix International, Inertia Dynamics, Huco Dynatork, and Warner Linear.
| |
2. 2. Basis of Presentation | Basis of Presentation |
The Company was formed on November 30, 2004 following acquisitions of certain subsidiaries of Colfax Corporation (“Colfax”) and The Kilian Company (“Kilian”). During 2006, the Company acquired Hay Hall Holdings Limited (“Hay Hall”) and Bear Linear (“Warner Linear”). On April 5, 2007, the Company acquired TB Wood’s Corporation (“TB Wood’s”), and on October 5, 2007, the Company acquired substantially all of the assets of All Power Transmission Manufacturing, Inc. (“All Power”). These acquisitions are discussed in detail in Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Company’s unaudited consolidated condensed financial statements have been prepared in accordance with the instructions toForm 10-Q Form10-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 onForm 10-K for the year ended December 31, 2008.2009. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 26, 2009April 3, 2010 and December 31, 2008,2009, and results of operations for the quarter ended and year to date period ended September 26, 2009 and September 27, 2008, and cash flows for the year to date periodsquarters ended September 26, 2009April 3, 2010 and September 27, 2008.
March 28, 2009.
The Company follows a four, four, five week calendar per quarter with all quarters consisting of thirteen weeks of operations with the fiscal year end always on December 31.
| |
3. 3. Fair Value of Financial Instruments | Fair Value of Financial Instruments |
The carrying values of financial instruments, including accounts receivable, accounts payable and other accrued liabilities, approximate their fair values due to their short-term maturities. The carrying amount of the 9%81/8% Senior Secured Notes was $220.3 million and $242.5$210 million at September 26, 2009each of April 3, 2010 and December 31, 2008, respectively.2009. The estimated fair value of the 9%81/8% Senior Secured Notes at September 26, 2009April 3, 2010 and December 31, 20082009 was $224.7$213.2 million and $232.8$215.5 million, respectively, based on quoted market prices for such notes.
| |
4. 4. Net Income per Share | 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 would be dilutive.
5
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
The following is a reconciliation of basic to diluted net income per share:
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | | Year to Date Ended | |
| | September 26,
| | | September 27,
| | | September 26,
| | | September 27,
| |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Income from continuing operations | | $ | 648 | | | $ | 8,635 | | | $ | 300 | | | $ | 27,461 | |
Net income (loss) from discontinued operations | | | — | | | | 172 | | | | — | | | | (224 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 648 | | | $ | 8,807 | | | $ | 300 | | | $ | 27,237 | |
Shares used in net income per common share — basic | | | 25,961 | | | | 25,488 | | | | 25,940 | | | | 25,479 | |
Incremental shares of unvested restricted common stock | | | 252 | | | | 669 | | | | 172 | | | | 680 | |
| | | | | | | | | | | | | | | | |
Shares used in net income per common share — diluted | | | 26,213 | | | | 26,157 | | | | 26,112 | | | | 26,159 | |
Earnings per share — Basic: | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 0.02 | | | $ | 0.34 | | | $ | 0.01 | | | $ | 1.08 | |
Net income (loss) from discontinued operations | | | — | | | | 0.01 | | | | — | | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 0.02 | | | $ | 0.35 | | | $ | 0.01 | | | $ | 1.07 | |
| | | | | | | | | | | | | | | | |
Earnings per share — Diluted: | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 0.02 | | | $ | 0.33 | | | $ | 0.01 | | | $ | 1.05 | |
Net income (loss) from discontinued operations | | | — | | | | 0.01 | | | | — | | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 0.02 | | | $ | 0.34 | | | $ | 0.01 | | | $ | 1.04 | |
| | | | | | | | | | | | | | | | |
| |
5. | Discontinued Operations |
On December 31, 2007, the Company completed the divestiture of the TB Wood’s adjustable speed drives business (the “Electronics Division”) to Vacon PLC (“Vacon”) for $29.0 million.
In connection with the sale of the Electronics Division, the Company entered into a transition services agreement. Pursuant to the transition services agreement, the Company provided services such as sales support, warehousing, accounting and IT services to Vacon. The Company recorded the income received as an offset to the related expense of providing the service. During the quarter and year to date periods ended September 27, 2008, the Company recorded a reduction of $0.1 million and $0.3 million against cost of sales, respectively, and $0.2 million and $0.9 million as an offset to selling, general and administrative expenses, respectively. No transition services have been provided in 2009. The Company leases building space to Vacon. The Company recorded $0.1 million and $0.5 million of lease income in other income in the condensed consolidated statement of income during the quarter and year to date periods ended September 26, 2009 and September 27, 2008.
Loss from discontinued operations in the year to date period ended September 27, 2008 was comprised of a working capital adjustment, net of taxes.
6
| | | | | | | | |
| | Quarter Ended | |
| | April 3, | | | March 28, | |
| | 2010 | | | 2009 | |
| | | | | | | | |
Net income | | $ | 5,739 | | | $ | 1,418 | |
| | | | | | | | |
Shares used in net income per common share — basic | | | 26,343 | | | | 25,911 | |
| | | | | | | | |
Incremental shares of unvested restricted common stock | | | 82 | | | | 32 | |
| | | | | | |
Shares used in net income per common share — diluted | | | 26,425 | | | | 25,943 | |
| | | | | | | | |
Earnings per share: | | | | | | | | |
Basic | | $ | 0.22 | | | $ | 0.05 | |
Diluted | | $ | 0.22 | | | $ | 0.05 | |
ALTRA HOLDINGS, INC.
5. Inventories
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Inventories located at certain subsidiaries acquired in connection with the TB Wood’s acquisition are stated at the lower of cost or market, principally using thelast-in, first-out (“LIFO”) method. The remaining subsidiaries are stated at the lower of cost or market, using thefirst-in, first-out (“FIFO”) method. Market is defined as net realizable value. Inventories at September 26, 2009April 3, 2010 and December 31, 20082009 consisted of the following:
| | | | | | | | |
| | September 26,
| | | December 31,
| |
| | 2009 | | | 2008 | |
|
Raw materials | | | 28,946 | | | $ | 31,925 | |
Work in process | | | 14,891 | | | | 21,310 | |
Finished goods | | | 28,418 | | | | 45,175 | |
| | | | | | | | |
Inventories | | $ | 72,255 | | | $ | 98,410 | |
| | | | �� | | | | |
| | | | | | | | |
| | April 3, | | | December 31, | |
| | 2010 | | | 2009 | |
Raw materials | | $ | 30,630 | | | $ | 28,539 | |
Work in process | | | 13,950 | | | | 13,711 | |
Finished goods | | | 28,267 | | | | 29,603 | |
| | | | | | |
Inventories | | $ | 72,847 | | | $ | 71,853 | |
| | | | | | |
Approximately 13%14% of total inventories at September 26, 2009April 3, 2010 were valued using the LIFO method. The Company recorded a $0.1 million adjustment and $1.2$0.1 million adjustment as a component of cost of sales to value the inventory on a LIFO basis for the yearquarters ended April 3, 2010 and March 28, 2009, respectively.
6
ALTRA HOLDINGS, INC.
Notes to date periods ended September 26, 2009Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
6. Goodwill and September 27, 2008, respectively. For the quarter ended September 27, 2008, the Company recorded a $0.4 million adjustment as a component of cost of sales to value the inventory on a LIFO basis.
If the LIFO inventory was accounted for using the FIFO method, the inventory balance at September 26, 2009 would be $1.5 million higher.
| |
7. Intangible Assets | Goodwill and Intangible Assets |
Changes to goodwill from December 31, 20082009 through September 26, 2009April 3, 2010 were as follows:
| | | | |
Balance December 31, 2008 | | | 77,497 | |
Impact of changes in foreign currency | | | 1,458 | |
| | | | |
Balance September 26, 2009 | | $ | 78,955 | |
| | | | |
| | | | |
| | 2010 | |
Gross goodwill balance as of January 1 | | $ | 110,642 | |
Adjustments related to additional purchase price paid | | | 532 | |
Impact of changes in foreign currency | | | (720 | ) |
| | | |
Gross goodwill balance as of April 3 | | | 110,454 | |
| | | |
| | | | |
Accumulated impairment as of January 1 | | | (31,810 | ) |
Impairment charge during the period | | | — | |
| | | |
Accumulated impairment as of April 3 | | | (31,810 | ) |
| | | |
Net goodwill balance April 3, 2010 | | $ | 78,644 | |
| | | |
Other intangible assets as of September 26, 2009April 3, 2010 and December 31, 20082009 consisted of the following:
| | | | | | | | | | | | | | | | |
| | September 26, 2009 | | | December 31, 2008 | |
| | | | | Accumulated
| | | | | | Accumulated
| |
Other Intangible Assets | | Cost | | | Amortization | | | Cost | | | Amortization | |
|
Intangible assets not subject to amortization: | | | | | | | | | | | | | | | | |
Tradenames and trademarks | | $ | 30,730 | | | $ | — | | | $ | 30,730 | | | $ | — | |
Intangible assets subject to amortization: | | | | | | | | | | | | | | | | |
Customer relationships | | | 62,038 | | | | 18,494 | | | | 62,038 | | | | 15,065 | |
Product technology and patents | | | 5,435 | | | | 3,819 | | | | 5,435 | | | | 3,111 | |
Impact of changes in foreign currency | | | 557 | | | | — | | | | (688 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Total intangible assets | | $ | 98,760 | | | $ | 22,313 | | | $ | 97,515 | | | $ | 18,176 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | April 3, 2010 | | | December 31, 2009 | |
| | | | | | Accumulated | | | | | | | Accumulated | |
Other intangible assets | | Cost | | | Amortization | | | Cost | | | Amortization | |
Intangible assets not subject to amortization: | | | | | | | | | | | | | | | | |
Tradenames and trademarks | | $ | 30,730 | | | $ | — | | | $ | 30,730 | | | $ | — | |
Intangible assets subject to amortization: | | | | | | | | | | | | | | | | |
Customer relationships | | | 62,038 | | | | 20,801 | | | | 62,038 | | | | 19,655 | |
Product technology and patents | | | 5,435 | | | | 4,296 | | | | 5,435 | | | | 4,059 | |
Impact of changes in foreign currency | | | (334 | ) | | | — | | | | 416 | | | | — | |
| | | | | | | | | | | | |
Total intangible assets | | $ | 97,869 | | | $ | 25,097 | | | $ | 98,619 | | | $ | 23,714 | |
| | | | | | | | | | | | |
The Company recorded $1.4 million of amortization expense in each of the quarters ended September 26, 2009April 3, 2010 and September 27, 2008, and $4.1 million and $4.3 million for the year to date periods ended September 26, 2009 and September 27, 2008, respectively.
7
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
March 28, 2009.
The estimated amortization expense for intangible assets is approximately $1.4$4.1 million for the remainder of 20092010 and $5.5 million in each of the next four years and then $21.8$16.3 million thereafter.
7
| |
8. ALTRA HOLDINGS, INC. | Assets Held for Sale |
During the fourth quarter of 2007, management entered into a planNotes to exit its building locatedUnaudited Condensed Consolidated Interim Financial Statements
Amounts in Stratford, Canada. thousands, unless otherwise noted
7. Warranty Costs
The operationscontractual warranty period generally ranges from three months to thirty-six months based on product and application of the facility, which was acquired as partproduct. Changes in the carrying amount of accrued product warranty costs for each of the TB Wood’s acquisition, were integrated into certain of the Company’s other existing facilities in 2008.quarters ended April 3, 2010 and March 28, 2009 are as follows:
| | | | | | | | |
| | April 3, | | | March 28, | |
| | 2010 | | | 2009 | |
|
Balance at beginning of period | | $ | 4,047 | | | $ | 4,254 | |
Accrued current period warranty expense | | | 387 | | | | 241 | |
Payments | | | (756 | ) | | | (395 | ) |
| | | | | | |
Balance at end of period | | $ | 3,678 | | | $ | 4,100 | |
| | | | | | |
In the second quarter of 2009, due to real estate market conditions in Stratford, Canada, the Company reevaluated the classification of this building as an asset held for sale and reclassified the building, with a net book value of $1.2 million, to held and used. As a result of the change in classification, the Company recorded acatch-up depreciation adjustment of $0.1 million in the second quarter of 2009.
As of December 31, 2008, management planned to exit two buildings, one in Scotland, Pennsylvania and one in Chattanooga, Tennessee. The two buildings were previously the operating facilities for the Electronics Division which was divested on December 31, 2007. The Company leases the space to Vacon.
In the first quarter of 2009, due to real estate market conditions in Scotland, Pennsylvania and Chattanooga, Tennessee, the Company reevaluated the classification of these buildings as assets held for sale and reclassified the buildings, with a net book value of $3.5 million, to held and used. As a result of the change in classification, the Company recorded acatch-up depreciation adjustment of $0.2 million in the first quarter ended September 26, 2009.
| |
9. 8. Income Taxes | Income Taxes |
The estimated effective income tax rates recorded for the quarters ended September 26,April 3, 2010 and March 28, 2009 and September 27, 2008 were based upon management’s best estimate of the effective tax rate for the entire year. The change in the effective tax rate from 38.4% for the quarter ended March 28, 2009 to 31.4% for the quarter ended April 3, 2010, principally relates to a change in the earnings mix among tax jurisdictions. During the third quarter of 2009, the Company negotiated an agreement with a foreign taxing authority. The agreement allowsauthority allowing the Company to fully deduct certain interest charges. These interest charges that had previously beenwere classified as non-deductible in 2009. The benefit from this deduction resultedthe first quarter 2009 tax rate and fully deductible in the Company recording a benefit for income taxesfirst quarter 2010 tax rate. Additionally, in the yearfirst quarter of 2010, the Company reversed an unrecognized tax benefit due to the expiration of the statue of limitations. The 2010 tax rate differs from the statutory rate due to the impact of non-U.S. tax rates and quarterpermanent differences.
At April 3, 2010, the Company had $9.4 million of unrecognized tax benefits. We do not expect the amount of unrecognized tax benefits disclosed above to date period ended September 26, 2009.
change significantly over the next 12 months.
The Company and its subsidiaries file a consolidated federal income tax return in the United States as well as consolidated and separate income tax returns in the U.S. federal jurisdiction as well as in various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in all of these jurisdictions. With the exception of certain foreign jurisdictions, the Company is no longer subject to income tax examinations for the tax years prior to 2005. Additionally, the Company has indemnification agreements with the sellers of the Colfax, Kilian and Hay Hall entities, which provide for reimbursement to the Company for payments made in satisfaction of tax liabilities relating to pre-acquisition periods.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense in the condensed consolidated statements of income. At December 31, 20082009 and September 26, 2009,April 3, 2010, the Company had $2.7$3.5 million and $3.4$3.6 million of accrued interest and penalties, respectively. The Company accrued $0.4$0.1 million of interest and no penalties during the year to date period ended September 26, 2009.first quarter of 2010.
| |
10. 9. Pension and Other Employee Benefits | Pension and Other Employee Benefits |
Defined Benefit (Pension) and Post-retirement Benefit Plans
The Company sponsors various defined benefit (pension) and post-retirement (medical, dental and life insurance coverage) plans for certain, primarily unionized, active employees. In March 2009, the Company reached a new collective bargaining agreement with the union at its Erie, Pennsylvania facility. One of the provisions of the new agreement eliminateseliminated benefits that employees were entitled to receive through the applicable other post employment benefit plan (“OPEB”). OPEB benefits will no longer be available to retired
8
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
or active employees. This resulted in an OPEB settlement gain of $1.5 million in the yearquarter ended March 28, 2009.
8
ALTRA HOLDINGS, INC.
Notes to date period ended September 26, 2009. In addition, no additional years of credited service will be accrued on the defined benefit pension plan effective February 28, 2009. There was no curtailment gain or loss as a result of the changeUnaudited Condensed Consolidated Interim Financial Statements
Amounts in the pension plan, the plan had no unrecognized prior service cost and there was no change in the projected benefit obligation.
thousands, unless otherwise noted
The following table represents the components of the net periodic benefit cost associated with the respective plans for the quarters ended April 3, 2010 and March 28, 2009:
| | | | | | | | | | | | | | | | |
| | Quarter Ended | |
| | Pension Benefits | | | Other Benefits | |
| | April 3, | | | March 28, | | | April 3, | | | March 28, | |
| | 2010 | | | 2009 | | | 2010 | | | 2009 | |
Service cost | | $ | — | | | $ | 16 | | | $ | 1 | | | $ | 3 | |
Interest cost | | | 314 | | | | 365 | | | | 6 | | | | 19 | |
Expected return on plan assets | | | (305 | ) | | | (327 | ) | | | — | | | | — | |
Amortization of prior service income | | | — | | | | — | | | | (172 | ) | | | (245 | ) |
Other post employment benefit plan settlement gain | | | — | | | | — | | | | — | | | | (1,467 | ) |
Amortization of net gain | | | — | | | | — | | | | (40 | ) | | | (7 | ) |
| | | | | | | | | | | | |
Net periodic benefit cost (income) | | $ | 9 | | | $ | 54 | | | $ | (205 | ) | | $ | (1,697 | ) |
| | | | | | | | | | | | |
10. Debt
Outstanding debt obligations at April 3, 2010 and December 31, 2009 were as follows:
| | | | | | | | |
| | Amounts in millions | |
| | April 3, | | | December 31, | |
| | 2010 | | | 2009 | |
| | | | | | | | |
Debt: | | | | | | | | |
Revolving Credit Agreement | | $ | — | | | $ | — | |
Senior Secured Notes | | | 210,000 | | | | 210,000 | |
Variable rate demand revenue bonds | | | 5,300 | | | | 5,300 | |
Mortgages | | | 2,857 | | | | 3,144 | |
Capital leases | | | 1,620 | | | | 1,821 | |
Less: debt discount, net of accretion | | | (2,643 | ) | | | (2,716 | ) |
| | | | | | |
Total long-term debt | | $ | 217,134 | | | $ | 217,549 | |
| | | | | | |
Senior Secured Notes
In November 2009, the Company issued $210 million of 81/8% Senior Secured Notes (the “Senior Secured Notes”). The Senior Secured Notes are guaranteed by the Company’s U.S. domestic subsidiaries and are secured by a second priority lien, subject to first priority liens securing the new senior secured credit facility (“Revolving Credit Agreement”), on substantially all of the Company’s assets and those of its domestic subsidiaries. Interest on the Senior Secured Notes is payable semiannually in arrears, on June 1 and December 1 of each year, commencing on June 1, 2010 at an annual rate of 81/8%. The indenture governing the Senior Secured Notes contains covenants which restrict our subsidiaries. These restrictions limit or prohibit, among other things, their ability to date periods ended September 26, 2009incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in our subsidiaries; and September 27, 2008:
| | | | | | | | | | | | | | | | |
| | Quarter Ended | |
| | Pension Benefits | | | Other Benefits | |
| | September 26,
| | | September 27,
| | | September 26,
| | | September 27,
| |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Service cost | | $ | 5 | | | $ | 16 | | | $ | 32 | | | $ | 13 | |
Interest cost | | | 267 | | | | 378 | | | | 69 | | | | 50 | |
Expected return on plan assets | | | (300 | ) | | | (326 | ) | | | — | | | | — | |
Amortization of prior service income | | | — | | | | — | | | | (244 | ) | | | (244 | ) |
Other post employment benefit plan settlement gain | | | — | | | | — | | | | — | | | | (107 | ) |
Amortization of net gain | | | — | | | | — | | | | (33 | ) | | | (7 | ) |
| | | | | | | | | | | | | | | | |
Net periodic benefit cost (income) | | $ | (28 | ) | | $ | 68 | | | $ | (176 | ) | | $ | (295 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Year to Date Ended | |
| | Pension Benefits | | | Other Benefits | |
| | September 26,
| | | September 27,
| | | September 26,
| | | September 27,
| |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Service cost | | $ | 37 | | | $ | 48 | | | $ | 38 | | | $ | 43 | |
Interest cost | | | 997 | | | | 1,135 | | | | 107 | | | | 154 | |
Expected return on plan assets | | | (954 | ) | | | (979 | ) | | | — | | | | — | |
Amortization of prior service income | | | — | | | | — | | | | (732 | ) | | | (731 | ) |
Other post employment benefit plan settlement gain | | | — | | | | — | | | | (1,467 | ) | | | (276 | ) |
Amortization of net gain | | | — | | | | — | | | | (47 | ) | | | (19 | ) |
| | | | | | | | | | | | | | | | |
Net periodic benefit cost (income) | | $ | 80 | | | $ | 204 | | | $ | (2,101 | ) | | $ | (829 | ) |
| | | | | | | | | | | | | | | | |
create liens on their assets.
9
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Outstanding debt obligations at September 26, 2009 and December 31, 2008 were as follows:
| | | | | | | | |
| | September 26,
| | | December 31,
| |
| | 2009 | | | 2008 | |
|
Senior Revolving Credit Agreement | | $ | — | | | $ | — | |
TB Wood’s Credit Agreement | | | 3,000 | | | | 6,000 | |
Overdraft agreements | | | — | | | | — | |
9% Senior Secured Notes | | | 220,300 | | | | 242,500 | |
11.25% Senior Notes | | | — | | | | 4,706 | |
Variable Rate Demand Revenue Bonds | | | 5,300 | | | | 5,300 | |
Mortgages | | | 3,285 | | | | 2,257 | |
Capital leases | | | 2,036 | | | | 2,672 | |
Less: debt discount | | | (1,293 | ) | | | (1,912 | ) |
| | | | | | | | |
Total long-term debt | | $ | 232,628 | | | $ | 261,523 | |
| | | | | | | | |
Tender Offer
The Company used the proceeds of the offering of the Senior Secured Notes to repurchase or redeem the 9% Senior Secured Notes (the “Old Senior Secured Notes”). On November 10, 2009, Altra Industrial commenced a cash tender offer to repurchase any and all of its outstanding Old Senior Secured Notes as of the date thereof at a price equal to $1,000.00 per $1,000 principal amount of notes tendered, plus an early tender premium of $25.00 per $1,000 principal amount of notes tendered, payable on notes tendered before the early tender deadline. Holders who tendered their Old Senior Secured Notes also agreed to waive any rights to written notice of redemption. With respect to any Old Senior Secured Notes that were not tendered, Altra Holdings redeemed all Old Senior Secured Notes that remained outstanding after the expiration of the tender offer by issuing a notice of redemption on the early tender deadline. On the early tender deadline, Altra Holdings satisfied and discharged all of its obligations under the indenture governing the Old Senior Secured Notes by depositing funds with the depositary in an amount sufficient to pay and discharge any remaining indebtedness on the Old Senior Secured Notes upon the consummation of the tender offer.
Refinancing Transaction
Concurrently with the closing of the offering of the Senior Secured Notes the Company entered into the Revolving Credit Agreement, which provides for borrowing capacity in an initial amount of up to $50.0 million (subject to adjustment pursuant to a borrowing base and subject to increase from time to time in accordance with the terms of the credit facility). The Revolving Credit Agreement replaced Altra Industrial’s then existing senior secured credit facility (the “Old Revolving Credit Agreement”), and the TB Wood’s existing credit facility (the “Old TB Wood’s Revolving Credit Agreement”).
Altra Industrial and all of its domestic subsidiaries are borrowers, or “Borrowers”, under the Revolving Credit Agreement. Certain of our existing and subsequently acquired or organized domestic subsidiaries that are not Borrowers do and will guarantee (on a senior secured basis) the Revolving Credit Agreement. Obligations of the other Borrowers under the Revolving Credit Agreement and the guarantees are secured by substantially all of Borrowers’ assets and the assets of each of our existing and subsequently acquired or organized domestic subsidiaries that is a guarantor of our obligations under the Revolving Credit Agreement (with such subsidiaries being referred to as the “U.S. subsidiary guarantors”), including but not limited to: (a) a first-priority pledge of all the capital stock of subsidiaries held by Borrowers or any U.S. subsidiary guarantor (which pledge, in the case of any foreign subsidiary, will be limited to 100% of any non-voting stock and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in and mortgages on substantially all tangible and intangible assets of each Borrower and U.S. subsidiary guarantor, including accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, certain real property, and cash and proceeds of the foregoing (in each case subject to materiality thresholds and other exceptions).
An event of default under the Revolving Credit Agreement would occur in connection with a change of control, among other things, if: (i) Altra Industrial ceases to own or control 100% of each of its Borrower subsidiaries, or (ii) a change of control occurs under the Senior Secured Notes, or any other subordinated indebtedness.
An event of default under the Revolving Credit Agreement would also occur if an event of default occurs under the indentures governing the Senior Secured Notes or if there is a default under any other indebtedness that any Borrower may have involving an aggregate amount of $10 million or more and such default: (i) occurs at final maturity of such debt, (ii) allows the lender there under to accelerate such debt or (iii) causes such debt to be required to be repaid prior to its stated maturity. An event of default would also occur under the Revolving Credit Agreement if any of the indebtedness under the Revolving Credit Agreement with limited exception to be secured by a full lien on the assets of Borrowers and guarantors.
Old Revolving Credit Agreement
ThePrior to entering into the Revolving Credit Agreement, the Company maintainsmaintained the Old Revolving Credit Agreement, a $30 million revolving borrowings facility with a commercial bank (the “Senior“Old Revolving Credit Agreement”) through its wholly owned subsidiary Altra Industrial. The SeniorOld Revolving Credit Agreement iswas subject to certain limitations resulting from the requirement of Altra Industrial to maintain certain levels of collateralized assets, as defined in the SeniorOld Revolving Credit Agreement. Altra Industrial may use up to $10.0 million of its availability underIn connection with the Seniorrefinancing transaction described above, the Old Revolving Credit Agreement for standby letters of credit issued on its behalf, the issuance of which will reduce the amount of borrowings that would otherwise be available to Altra Industrial. Altra Industrial may re-borrow any amounts paid to reduce the amount of outstanding borrowings; however, all borrowings under the Senior Revolving Credit Agreement must be repaid in full as of November 30, 2010.
Substantially all of Altra Industrial’s assets have been pledged as collateral against outstanding borrowings under the Senior Revolving Credit Agreement. The Senior Revolving Credit Agreement requires Altra Industrial to maintain a minimum fixed charge coverage ratio of 1.20 for all four quarter periods when availability under the line falls below $12.5 million. Altra Industrial’s availability under the Senior Revolving Credit Agreement has not dropped below $12.5 million during 2009. The Revolving Credit imposes customary affirmative covenants and restrictions on Altra Industrial.
There were no borrowings under the Senior Revolving Credit Agreement at September 26, 2009 or December 31, 2008. However, the lender had issued $3.2 million and $7.6 million of outstanding letters of credit as of September 26, 2009 and December 31, 2008, respectively, under the Senior Revolving Credit Agreement.
The interest rate on any outstanding borrowings on the line of credit are the lender’s prime rate plus 25 basis points or LIBOR plus 175 basis points. The rate on all outstanding letters of credit are 1.5% and .25% on any unused availability under the Senior Revolving Credit Agreement.
was terminated.
Old TB Wood’s Revolving Credit Agreement
As part of the TB Wood’s acquisition in 2007, the Company refinanced $13.0 million of debt associated with TB Wood’s line of credit. As of September 26, 2009 and December 31, 2008, there were $6.1was $6.0 million andof debt outstanding under the Old TB Wood’s Revolving Credit Agreement. As of December 31, 2008 there was $6.0 million of outstanding letters of credit undercredit. In connection with the TB Wood’s Credit Agreement, respectively. All borrowing underrefinancing transaction described above, the Old TB Wood’s Revolving Credit Agreement are due on November 30, 2010. The interest rate on any outstandingwas paid in full and terminated.
10
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
borrowings on the line of credit are the lender’s Prime Rate plus 25 basis points or LIBOR plus 175 basis points.
Overdraft Agreements
Certain of the Company’s foreign subsidiaries maintain overdraft agreements with financial institutions. There were no borrowings as of September 26, 2009April 3, 2010 or December 31, 20082009 under any of the overdraft agreements.
9%Old Senior Secured Notes
On November 30, 2004, Altra Industrial issued 9%the Old Senior Secured Notes, (the “Senior Secured Notes”), with a face value of $270.0$165.0 million. Interest on the Old Senior Secured Notes is payable semi-annually,semiannually, in arrears, on June 1 and December 1 of each year.year, beginning June 1, 2005, at an annual rate of 9%.
In connection with the acquisition of TB Wood’s on April 5, 2007, Altra Industrial completed a follow-on offering issuing an additional $105.0 million of the Old Senior Secured Notes. The additional $105.0 million had the same terms and conditions as the previously issued Old Senior Secured Notes. The effective interest rate on the Old Senior Secured Notes, mature on December 1, 2011 unless previously redeemed byafter the follow-on offering was approximately 9.6% after consideration of the amortization of $5.6 million net discount and $6.5 million of deferred financing costs.
During 2009, Altra Industrial.
Industrial retired all of the outstanding Old Senior Secured Notes. In connection with the pay-down, Altra Industrial incurred $5.1 million of pre-payment premiums and wrote-off $3.2 million of deferred financing costs, and $1.9 million of discount/premium which was recorded as a component of interest expense.
The Old Senior Secured Notes arewere guaranteed by Altra Industrial’s U.S. domestic subsidiaries and arewere secured by a second priority lien, subject to first priority liens securing the SeniorOld Revolving Credit Agreement, on substantially all of Altra Industrial’s assets. The Old Senior Secured Notes contain manycontained numerous terms, covenants and conditions, which imposeimposed substantial limitations on Altra Industrial.
During the second quarter of 2009, Altra Industrial retired $8.3 million aggregate principal amount of the outstanding Senior Secured Notes at a redemption price of between 94.75% and 97.125% of the principal amount, plus accrued and unpaid interest. In connection with the redemption, Altra Industrial recorded a gain on the extinguishment of debt of $0.4 million, which is recorded as a reduction in interest expense in the condensed consolidated statement of income. In addition, Altra Industrial wrote-off $0.1 million of deferred financing costs and original issue discount/premium which is included in interest expense.
During the third quarter of 2009, Altra Industrial retired $14.0 million aggregate principal amount of the outstanding Senior Secured Notes at a redemption price of between 100.5% and 101.6% of the principal amount, plus accrued and unpaid interest. In connection with the redemption, Altra Industrial recorded a loss on the extinguishment of debt of $0.2 million, which is recorded as interest expense in the condensed consolidated statement of income. In addition, Altra Industrial wrote-off $0.2 million of deferred financing costs and original issue discount/premium included in interest expense.
11.25%Old Senior Notes
On February 8, 2006, Altra Industrial issued 11.25%the Old Senior Notes, (“Senior Notes”), with a face value of £33 million. Interest on the Old Senior Notes was payable semi-annually,semiannually, in arrears, on August 15 and February 15 of each year, beginning August 15, 2006, at an annual rate of 11.25%.
The effective interest rate on the Old Senior Notes was approximately 12.7%, after consideration of the $0.7 million of deferred financing costs (included in other assets). The Old Senior Notes were to mature on February 13, 2013.
During the second quarter of 2009, Altra Industrial retired the remaining principal balance of the Old Senior Notes, of £3.3 million or $5.0 million of principal amount, plus accrued and unpaid interest. In connection with the redemption, Altra Industrial incurred $0.2 million of pre-payment premium and wrote-off the entire remaining balance of $0.1$0.2 million of deferred financing fees, which is recorded as interest expense in the condensed consolidated statement of income (loss).
income. The Old Senior Notes were guaranteed on a senior unsecured basis by Altra Industrial’s U.S. domestic subsidiaries. The Old Senior Notes contained numerous terms, covenants and conditions, which imposed substantial limitations on the Company.
Variable Rate Demand Revenue Bonds
In connection with the acquisition of TB Wood’s, the Company assumed the obligation to make payments due underobligations for certain Variable Rate Demand Revenue Bonds outstanding as of the acquisition date. TB Wood’s had assumed obligations with respect tofor approximately $3.0 million and $2.3 million through the issuance of Variable Rate Demand Revenue Bonds issued under the authority of the industrial development corporations of the
11
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
City of San Marcos, Texas and City of the Chattanooga, Tennessee, respectively. These bonds bear variable interest rates (less than 1% interest on September 26, 2009),as of April 3, 2010) and mature in April 2024 and April 2022, respectively. The bonds were issued to finance production facilities for TB Wood’s manufacturing operations in San Marcos and Chattanooga,those cities, and are secured by letters of credit issued under the terms of the TB Wood’sRevolving Credit Agreement.
As of December 31, 2008, The Company currently is leasing the Company planned to sell the buildingfacility in Chattanooga, Tennessee. AccordingTennessee to the terms of the indenture and lease, before the Company can acquire the building, free of all encumbrances, the outstanding debt under the Variable Rate Demand Revenue Bonds must be paid in full. As a result, the debt was classified as a current liability on the condensed consolidated balance sheet as of December 31, 2008.
In the first quarter of 2009, due to real estate market conditions in Chattanooga, the Company reevaluated the classification of this building as an asset held for sale and reclassified this building to held and used. As a result of the change in classification, the Company reclassified $2.3 million of debt associated with the Chattanooga property to long-term debt on the Company’s condensed consolidated balance sheet.
third party.
Mortgage
In June 2006, the Company entered into a mortgage on its building in Heidelberg, Germany with a local bank. In the third quarter of 2009, the Company re-financedrefinanced the Heidelberg mortgage. The Company borrowed an additional €1.0 million. The newAs of April 3, 2010 the mortgage has a remaining principal of €2.1 million or $2.9 million, and an interest rate of 3.5% and is payable in monthly installments over three15 years. As of September 26, 2009 and December 31, 2008, the mortgage had a remaining principal balance outstanding of €2.2 million, or $3.3 million, and €1.6 million, or $2.3 million, respectively.
Capital Leases
The Company leases certain equipment under capital lease arrangements, whose obligations are included in both short-term and long-term debt.
11
ALTRA HOLDINGS, INC.
| |
12. Notes to Unaudited Condensed Consolidated Interim Financial Statements Amounts in thousands, unless otherwise noted 11. Stockholders’ Equity | Stockholders’ Equity |
Stock-Based Compensation
The Company’s Board of Directors established the 2004 Equity Incentive Plan (the “Plan”) that provides for various forms of stock basedstock-based compensation to independent directors, officers and senior-level employees of the Company. The restricted shares of common stock issued pursuant to the Plan generally vest ratably over a period of 3.5ranging from immediately to 5 years, provided that the vesting of the restricted shares may accelerate upon the occurrence of certain liquidity events, if approved by the Board of Directors in connection with the transactions. Shares grantedCommon stock awarded under the Plan is generally subject to non-management membersrestrictions on transfer, repurchase rights, and other limitations and rights as set forth in the applicable award agreements. The shares are valued based on the share price on the date of the Board of Directors generally vest immediately.
grant.
The Plan permits the Company to grant restricted stock to key employees and other persons who make significant contributions to the success of the Company. The restrictions and vesting schedule for restricted stock granted under the Plan are determined by the Personnel and Compensation Committee of the Board of Directors. Compensation expense recorded during the quarters ended September 26,April 3, 2010 and March 28, 2009 and September 27, 2008 was $0.7$0.5 million and $0.5$1.0 million, respectively. Compensation expense for the year to date periods ended September 26, 2009 and September 27, 2008 was $2.3 million and $1.5 million, respectively. Stock basedStock-based compensation is recorded as an adjustment to selling, general and administrative expenses in the accompanying condensed consolidated statementstatements of income. Stock basedStock-based compensation expense is recognized on a straight-line basis over the vesting period.
12
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
The following table sets forth the activity of the Company’s unvested restricted stock grants in the year to date period ended September 26, 2009:April 3, 2010:
| | | | | | | | |
| | | | Weighted-Average
|
| | | | Grant Date Fair
|
| | Shares | | Value |
|
Restricted shares unvested December 31, 2008 | | | 797,714 | | | $ | 5.53 | |
Shares granted | | | 284,941 | | | $ | 6.96 | |
Forfeitures | | | (13,649 | ) | | $ | 7.34 | |
Shares for which restrictions lapsed | | | (440,558 | ) | | $ | 5.35 | |
| | | | | | | | |
Restricted shares unvested September 26, 2009 | | | 628,448 | | | $ | 6.26 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | Weighted-average | |
| | Shares | | | grant date fair value | |
|
Restricted shares unvested December 31, 2009 | | | 560,081 | | | $ | 6.55 | |
Shares granted | | | 207,555 | | | $ | 10.50 | |
Shares for which restrictions lapsed | | | (328,717 | ) | | $ | 4.45 | |
| | | | | | |
Restricted shares unvested April 3, 2010 | | | 438,919 | | | $ | 10.00 | |
| | | | | | |
Total remaining unrecognized compensation cost was approximately $3.0$3.7 million as of September 26, 2009,April 3, 2010, which will be recognized over a weighted average remaining period of three years. The fair market value of the shares in which the restrictions have lapsed during the year to date periodquarter ended September 26, 2009April 3, 2010 was $3.9$4.1 million. Restricted shares granted are valued based on the fair market value of the stock on the date of grant.
| |
13. 12. Concentrations of Credit, Segment Data and Workforce | Concentrations of Credit, Segment Data and Workforce |
Financial instruments, which are potentially subject to counter party performance and concentrations of credit risk, consist primarily of trade accounts receivable. The Company manages these risks by conducting credit evaluations of customers prior to delivery or commencement of services. When the Company enters into a sales contract, collateral is normally not required from the customer. Payments are typically due within thirty days of billing. An allowance for potential credit losses is maintained, and losses have historically been within management’s expectations. No customer represented greater than 10% of total sales for the quarters ended September 26, 2009April 3, 2010 and September 27, 2008.
March 28, 2009.
The Company is also subject to counter party performance risk of loss in the event of non-performance by counterparties to financial instruments, such as cash and investments. Cash and investments are held by international or well established financial institutions.
12
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The Company has five operating segments that are regularly reviewed by our chief operating decision maker. Each of these operating segments represents a unit that produces mechanical power transmission products. The Company aggregates all of the operating segments into one reportable segment. The five operating segments have similar long-term average gross profit margins. All of our products are sold by one global sales force and we have one global marketing function. Strategic markets and industries are determined for the entire company and then targeted by the brands. All of our operating segments have common manufacturing and production processes. Each segment includes a machine shop which uses similar equipment and manufacturing techniques. Each of our segments uses common raw materials, such as aluminum, steel and copper. The materials are purchased and procurement contracts are negotiated by one global purchasing function.
We serve the general industrial market by selling to original equipment manufacturers (“OEM”) and distributors. Our OEM and distributor customers serve the general industrial market. Resource allocation decisions such as capital expenditure requirements and headcount requirements are made at a consolidated level and allocated to the individual operating segments.
Discrete financial information is not available by product line at the level necessary for management to assess performance or make resource allocation decisions.
13
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Net sales to third parties by geographic region are as follows:
| | | | | | | | | | | | | | | | |
| | Net Sales | |
| | Quarter Ended | | | Year To Date Ended | |
| | September 26,
| | | September 27,
| | | September 26,
| | | September 27,
| |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
North America (primarily U.S.) | | $ | 74,592 | | | $ | 110,793 | | | $ | 247,921 | | | $ | 347,190 | |
Europe | | | 23,536 | | | | 40,028 | | | | 75,046 | | | | 121,289 | |
Asia and other | | | 6,638 | | | | 8,627 | | | | 18,216 | | | | 22,044 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 104,766 | | | $ | 159,448 | | | $ | 341,183 | | | $ | 490,523 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Net Sales | |
| | Quarter Ended | |
| | April 3, | | | March 28, | |
| | 2010 | | | 2009 | |
| | | | | | | | |
North America (primarily U.S.) | | $ | 93,165 | | | $ | 91,603 | |
Europe | | | 27,888 | | | | 27,679 | |
Asia and other | | | 6,653 | | | | 5,258 | |
| | | | | | |
Total | | $ | 127,706 | | | $ | 124,540 | |
| | | | | | |
Net sales to third parties are attributed to the geographic regions based on the country in which the shipment originates.
The net assets of our foreign subsidiaries at September 26, 2009April 3, 2010 and December 31, 20082009 were $74.7$80.3 million and $73.5$76.8 million, respectively.
| |
14. 13. Commitments and Contingencies | Commitments and Contingencies |
General Litigation
The Company is involved in various pending legal proceedings arising out of the ordinary course of business. None of these legal proceedings are expected to have a material adverse effect on the results of operations, cash flows, or financial condition of the Company. With respect to these proceedings, management believes that the Company will prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adversely to the Company, there could be a material adverse effect on the results of operations, cash flows, or financial condition of the Company. As of September 26, 2009April 3, 2010 and December 31, 2008,2009, there were no suchproduct liability claims for which management believed a loss was probable. As a result, no amounts were accrued in the accompanying consolidated balance sheets for product liability losses related to such claims at those dates.
The Company is indemnified under the terms of certain acquisition agreements for certain pre-existing matters up to agreed upon limits.
| |
15. | Restructuring, Asset Impairment and Transition Expenses |
During 2007, the Company adopted two restructuring programs. The first was intended to improve operational efficiency by reducing headcount, consolidating operating facilities and relocating manufacturing to lower cost areas (the “Altra Plan”). The second was related to the acquisition of TB Wood’s and was intended to reduce duplicate staffing and consolidate facilities (the “TB Wood’s Plan”). The TB Wood’s Plan was initially formulated at the time of the TB Wood’s acquisition and therefore the associated accrual was recorded as part of purchase accounting.
14
13
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
The Company has not incurred any additional expenses related to either the Altra Plan or the TB Wood’s Plan in 2009. The Company’s restructuring expense, by major component for the year to date period ended September 27, 2008 were as follows:
| | | | | | | | | | | | |
| | Altra Plan | | | TB Wood’s Plan | | | Total | |
|
Expenses | | | | | | | | | | | | |
Other cash expenses | | $ | — | | | $ | — | | | $ | — | |
Moving and relocation | | | 467 | | | | 84 | | | | 551 | |
Severance | | | 411 | | | | — | | | | 411 | |
| | | | | | | | | | | | |
Total cash expenses | | | 878 | | | | 84 | | | | 962 | |
| | | | | | | | | | | | |
Non-cash asset impairment and loss on sale of fixed asset | | | 187 | | | | — | | | | 187 | |
| | | | | | | | | | | | |
Total restructuring expenses | | $ | 1,065 | | | $ | 84 | | | $ | 1,149 | |
| | | | | | | | | | | | |
14. Restructuring, Asset Impairment and Transition Expenses
In March 2009, the Company adopted a new restructuring plan (“2009 Altra Plan”) to improve the utilization of the manufacturing infrastructure and to realign the business with the current economic conditions. The 2009 Altra Plan is intended to improve operational efficiency by reducing headcount and consolidating facilities. The Company’s total restructuring expense for the quarter ended September 26, 2009April 3, 2010 was $1.0 million.
On April 7, 2009, the Company announced that it would be closing its facility in Mt. Pleasant, Michigan and relocating the manufacturing to certain of theThe Company’s other facilities. In connection with this decision, the Company completed an impairment analysis. The facility which had a carrying value of $1.4 million was written down to the fair value of $0.7 million, resulting in an impairment charge of $0.7 million. The Company estimated the fair value using observable inputs (level 2) by reviewing sale prices of comparable buildings in the Mt. Pleasant, Michigan area. The relocation is expected to be completed by the end of 2009.
On July 7, 2009, the Company announced that it would be closing its manufacturing facility in South Beloit, Illinois and relocating the manufacturing operations to certain of the Company’s other facilities. In connection with this decision, the Company completed an impairment analysis. The facility which had a carrying value of $2.1 million was written down to the fair value of $1.5 million, resulting in an impairment charge of $0.6 million. The Company estimated the fair value using observable inputs (level 2). The Company reviewed sale prices of comparable buildings in the South Beloit, Illinois area. The relocation is expected to be completed by the first quarter of 2010. In September 2009, the Company negotiated a plant closing agreement with the local union at the South Beloit facility. The Company has agreed to pay approximately $0.7 million in severance and performance bonuses to those employees who remain employed through their termination date. The Company expects to pay these amounts in the fourth quarter of 2009 through the first quarter of 2010.
The Company expects to move a majority of the assets at this location to certain other locations. As a result, the Company does not expect to have a significant impairment on these assets.
15
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
The expenses for the year to date period ended September 26, 2009 are classifiedrestructuring expense, by major component for the quarters ended April 3, 2010 and March 28, 2009, respectively, were as follows:
| | | | | | | | |
| | September 27, 2009 | |
| | Year to Date
| | | Quarter to Date
| |
2009 Altra Plan | | Period Ended | | | Period Ended | |
|
Expenses: | | | | | | | | |
Other cash expenses | | $ | 154 | | | $ | 107 | |
Severance | | | 3,159 | | | | 476 | |
| | | | | | | | |
Total cash expenses | | | 3,313 | | | | 583 | |
| | | | | | | | |
Non-cash asset impairment and other non-cash charges | | | 2,047 | | | | 423 | |
| | | | | | | | |
Total restructuring expenses | | $ | 5,360 | | | $ | 1,006 | |
| | | | | | | | |
| | | | | | | | |
| | Quarter Ended | | | Quarter Ended | |
| | April 3, 2010 | | | March 28, 2009 | |
| | 2009 Altra | | | 2009 Altra | |
| | Plan | | | Plan | |
| | | | | | | | |
Expenses | | | | | | | | |
Other cash expenses | | $ | 14 | | | $ | 7 | |
Moving and relocation | | | 263 | | | | 0 | |
Severance | | | 769 | | | | 1,116 | |
| | | | | | |
| | | | | | | | |
Total cash expenses | | | 1,046 | | | | 1,123 | |
| | | | | | |
| | | | | | | | |
Non-cash asset impairment and loss on sale of fixed asset | | | — | | | | 749 | |
| | | | | | |
| | | | | | | | |
Total restructuring expenses | | $ | 1,046 | | | $ | 1,872 | |
| | | | | | |
The following is a reconciliation of the accrued restructuring costs between December 31, 20082009 and September 26, 2009:April 3, 2010:
| | | | |
| | All Plans | |
|
Balance at December 31, 2008 | | $ | 1,321 | |
Cash restructuring expense incurred | | | 3,328 | |
Cash payments | | | (3,785 | ) |
| | | | |
Balance at September 26, 2009 | | $ | 864 | |
| | | | |
| |
16. | Guarantor Subsidiaries |
| | | | |
| | 2009 Altra Plan | |
|
Balance at December 31, 2009 | | $ | 915 | |
Cash restructuring expense incurred | | | 1,046 | |
Cash payments | | | (1,061 | ) |
| | | |
Balance at April 3, 2010 | | $ | 900 | |
| | | |
The Company has filed a Registration Statement onForm S-3 with the Securities and Exchange Commission to allow it to issue debt securities that may be fully and unconditionally guaranteed by each of the Company’s, directly or indirectly, 100% owned U.S. domestic subsidiariestotal restructuring reserve as of April 3, 2010 relates to severance costs to be paid to employees. The Company also expects to incur between $1.3 million and $1.5 million of additional expenses associated with workforce reductions and consolidation of facilities under the date of issuance. 2009 Altra Plan in 2010.
15. Guarantor Subsidiaries
The following condensed consolidating financial statements present separately the financial position, results of operations, and cash flows for (a) the Company, as parent, (b) the guarantor subsidiaries of the Company consisting of all of the, directly or indirectly, 100% owned U.S. domestic subsidiaries of the Company, (c) the non-guarantor subsidiaries of the Company consisting of all non-domestic subsidiaries of the Company, and (d) eliminations necessary to arrive at the Company’s information on a consolidated basis. These statements are presented in accordance with the disclosure requirements under the Securities and Exchange Commission’sRegulation S-X,Rule 3-10. Separate financial statements of the Guarantor Subsidiaries are not presented because their guarantees are full and unconditional and joint and several.
16
14
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Unaudited condensed consolidating balance sheet
September 26, 2009
April 3, 2010
| | | | | | | | | | | | | | | | | | | | | |
| | | | Guarantor
| | Non Guarantor
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | | | Guarantor | | Non Guarantor | | | | | |
| | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | |
ASSETS | ASSETS | |
Current assets: | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1 | | | $ | 35,614 | | | $ | 36,325 | | | $ | — | | | $ | 71,940 | | | $ | 1 | | $ | 22,063 | | $ | 31,502 | | $ | — | | $ | 53,566 | |
Trade receivables, less allowance for doubtful accounts | | | — | | | | 36,552 | | | | 22,053 | | | | — | | | | 58,605 | | | — | | 43,170 | | 22,659 | | — | | 65,829 | |
Loans receivable from related parties | | | — | | | | 39,408 | | | | — | | | | (39,408 | ) | | | — | | | 212,244 | | — | | — | | | (212,244 | ) | | — | |
Inventories | | | — | | | | 50,154 | | | | 22,101 | | | | — | | | | 72,255 | | | — | | 51,353 | | 21,494 | | — | | 72,847 | |
Deferred income taxes | | | — | | | | 8,032 | | | | — | | | | — | | | | 8,032 | | | — | | 9,087 | | 178 | | — | | 9,265 | |
Assets held for sale | | | — | | | | — | | | | — | | | | — | | | | — | | |
Income tax receivable | | | 1,192 | | 1,589 | | — | | — | | 2,781 | |
Prepaid expenses and other current assets | | | 1,194 | | | | 5,694 | | | | 3,166 | | | | — | | | | 10,054 | | | — | | 3,179 | | 1,976 | | — | | 5,155 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 1,195 | | | | 175,454 | | | | 83,645 | | | | (39,408 | ) | | | 220,886 | | | 213,437 | | 130,441 | | 77,809 | | | (212,244 | ) | | 209,443 | |
| | | | | | | | | | | | | | | | | | | — | | |
Property, plant and equipment, net | | | — | | | | 75,615 | | | | 32,154 | | | | — | | | | 107,769 | | | — | | 75,054 | | 29,530 | | — | | 104,584 | |
Intangible assets, net | | | — | | | | 59,397 | | | | 17,050 | | | | — | | | | 76,447 | | | — | | 57,360 | | 15,412 | | — | | 72,772 | |
Goodwill | | | — | | | | 58,015 | | | | 20,940 | | | | — | | | | 78,955 | | | — | | 58,547 | | 20,097 | | — | | 78,644 | |
Deferred income taxes | | | — | | | | — | | | | 495 | | | | — | | | | 495 | | | — | | — | | 679 | | — | | 679 | |
Investment in subs | | | 139,086 | | | | — | | | | — | | | | (139,086 | ) | | | — | | |
Investment in subsidiaries | | | 134,817 | | — | | — | | | (134,817 | ) | | — | |
Other non-current assets | | | — | | | | 6,207 | | | | 112 | | | | — | | | | 6,319 | | | 6,320 | | 4,928 | | 99 | | — | | 11,347 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total assets | | $ | 140,281 | | | $ | 374,688 | | | $ | 154,396 | | | $ | (178,494 | ) | | $ | 490,871 | | | $ | 354,574 | | $ | 326,330 | | $ | 143,626 | | $ | (347,061 | ) | | $ | 477,469 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | — | | | $ | 17,663 | | | $ | 8,156 | | | $ | — | | | $ | 25,819 | | | $ | — | | $ | 24,839 | | $ | 10,933 | | $ | — | | $ | 35,772 | |
Accrued payroll | | | — | | | | 7,799 | | | | 5,639 | | | | — | | | | 13,438 | | | — | | 5,278 | | 5,046 | | — | | 10,324 | |
Accruals and other current liabilities | | | — | | | | 16,282 | | | | 9,251 | | | | — | | | | 25,533 | | | 5,925 | | 11,572 | | 7,451 | | — | | 24,948 | |
Deferred income taxes | | | — | | | | — | | | | 6,906 | | | | — | | | | 6,906 | | | — | | — | | 7,275 | | — | | 7,275 | |
Current portion of long-term debt | | | — | | | | 641 | | | | 354 | | | | — | | | | 995 | | | — | | 670 | | 371 | | — | | 1,041 | |
Loans payable to related parties | | | — | | | | — | | | | 39,408 | | | | (39,408 | ) | | | — | | | — | | 188,945 | | 23,299 | | | (212,244 | ) | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | — | | | | 42,385 | | | | 69,714 | | | | (39,408 | ) | | | 72,691 | | | 5,925 | | 231,304 | | 54,375 | | | (212,244 | ) | | 79,360 | |
Long-term debt — less current portion and net of unacreted discount and premium | | | — | | | | 228,453 | | | | 3,180 | | | | — | | | | 231,633 | | |
| | |
Long-term debt — less current portion and net of unacreted discount | | | 207,353 | | 6,095 | | 2,645 | | — | | 216,093 | |
Deferred income taxes | | | — | | | | 20,822 | | | | 2,496 | | | | — | | | | 23,318 | | | — | | 17,876 | | 3,123 | | — | | 20,999 | |
Pension liablities | | | — | | | | 8,702 | | | | 3,028 | | | | — | | | | 11,730 | | | — | | 6,136 | | 3,070 | | — | | 9,206 | |
Other post retirement benefits | | | — | | | | 63 | | | | — | | | | — | | | | 63 | | |
Long-term taxes payables | | | — | | | | 9,075 | | | | — | | | | — | | | | 9,075 | | | — | | 9,427 | | — | | — | | 9,427 | |
Other long-term liabilities | | | — | | | | 788 | | | | 1,292 | | | | — | | | | 2,080 | | | — | | 969 | | 119 | | — | | 1,088 | |
Total stockholders’ equity | | | 140,281 | | | | 64,400 | | | | 74,686 | | | | (139,086 | ) | | | 140,281 | | | 141,296 | | 54,523 | | 80,294 | | | (134,817 | ) | | 141,296 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
Total liabilities and stockholders’ equity | | $ | 140,281 | | | $ | 374,688 | | | $ | 154,396 | | | $ | (178,494 | ) | | $ | 490,871 | | | $ | 354,574 | | $ | 326,330 | | $ | 143,626 | | $ | (347,061 | ) | | $ | 477,469 | |
| | | | | | | | | | | | | | | | | | | | | | |
17
15
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Unaudited Condensed Consolidating Balance Sheet
December 31, 20082009
| | | | | | | | | | | | | | | | | | | | | |
| | | | Guarantor
| | Non Guarantor
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | | | Guarantor | | Non Guarantor | | | | | |
| | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | |
ASSETS | ASSETS | |
Current assets: | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1 | | | $ | 24,432 | | | $ | 27,640 | | | $ | — | | | $ | 52,073 | | | $ | 1 | | $ | 19,744 | | $ | 31,752 | | $ | — | | $ | 51,497 | |
Trade receivables, less allowance for doubtful accounts | | | — | | | | 41,051 | | | | 27,752 | | | | — | | | | 68,803 | | | — | | 33,966 | | 18,889 | | — | | 52,855 | |
Loans receivable from related parties | | | — | | | | 37,649 | | | | — | | | | (37,649 | ) | | | — | | | 214,583 | | — | | — | | | (214,583 | ) | | — | |
Inventories | | | — | | | | 71,304 | | | | 27,106 | | | | — | | | | 98,410 | | | — | | 50,931 | | 20,922 | | — | | 71,853 | |
Deferred income taxes | | | — | | | | 7,923 | | | | 109 | | | | — | | | | 8,032 | | | — | | 9,087 | | 178 | | — | | 9,265 | |
Assets held for sale | | | — | | | | 3,515 | | | | 1,161 | | | | — | | | | 4,676 | | | — | | — | | — | | — | | — | |
Income tax receivable | | | 1,192 | | 3,308 | | 254 | | — | | 4,754 | |
Prepaid expenses and other current assets | | | 1,192 | | | | 6,164 | | | | (842 | ) | | | — | | | | 6,514 | | | — | | 2,309 | | 1,338 | | — | | 3,647 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 1,193 | | | | 192,038 | | | | 82,926 | | | | (37,649 | ) | | | 238,508 | | | 215,776 | | 119,345 | | 73,333 | | | (214,583 | ) | | 193,871 | |
| | |
Property, plant and equipment, net | | | — | | | | 77,424 | | | | 32,796 | | | | — | | | | 110,220 | | | — | | 74,559 | | 31,044 | | — | | 105,603 | |
Intangible assets, net | | | — | | | | 62,481 | | | | 16,858 | | | | — | | | | 79,339 | | | — | | 58,392 | | 16,513 | | — | | 74,905 | |
Goodwill | | | — | | | | 58,016 | | | | 19,481 | | | | — | | | | 77,497 | | | — | | 58,015 | | 20,817 | | — | | 78,832 | |
Deferred income taxes | | | — | | | | — | | | | 495 | | | | — | | | | 495 | | | — | | — | | 679 | | — | | 679 | |
Investment in subs | | | 127,672 | | | | — | | | | — | | | | (127,672 | ) | | | — | | |
Investment in subsidiaries | | | 125,792 | | — | | — | | | (125,792 | ) | | — | |
Other non-current assets | | | — | | | | 7,489 | | | | 36 | | | | — | | | | 7,525 | | | 6,394 | | 4,816 | | 99 | | — | | 11,309 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total assets | | $ | 128,865 | | | $ | 397,448 | | | $ | 152,592 | | | $ | (165,321 | ) | | $ | 513,584 | | | $ | 347,962 | | $ | 315,127 | | $ | 142,485 | | $ | (340,375 | ) | | $ | 465,199 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | — | | | $ | 22,105 | | | $ | 11,785 | | | $ | — | | | $ | 33,890 | | | $ | 76 | | $ | 18,156 | | $ | 9,189 | | $ | — | | $ | 27,421 | |
Accrued payroll | | | — | | | | 9,610 | | | | 7,165 | | | | — | | | | 16,775 | | | — | | 7,415 | | 4,718 | | — | | 12,133 | |
Accruals and other current liabilities | | | — | | | | 12,478 | | | | 6,277 | | | | — | | | | 18,755 | | | 1,659 | | 10,711 | | 7,601 | | — | | 19,971 | |
Deferred income taxes | | | — | | | | — | | | | 6,906 | | | | — | | | | 6,906 | | | — | | — | | 7,275 | | — | | 7,275 | |
Current portion of long-term debt | | | — | | | | 2,925 | | | | 466 | | | | — | | | | 3,391 | | | — | | 650 | | 409 | | — | | 1,059 | |
Loans payable to related parties | | | — | | | | — | | | | 37,649 | | | | (37,649 | ) | | | — | | | — | | 187,611 | | 26,972 | | | (214,583 | ) | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | — | | | | 47,118 | | | | 70,248 | | | | (37,649 | ) | | | 79,717 | | | 1,735 | | 224,543 | | 56,164 | | | (214,583 | ) | | 67,859 | |
| | |
Long-term debt — less current portion and net of unacreted discount and premium | | | — | | | | 255,933 | | | | 2,199 | | | | — | | | | 258,132 | | | 207,284 | | 6,267 | | 2,939 | | — | | 216,490 | |
Deferred income taxes | | | — | | | | 20,822 | | | | 2,514 | | | | — | | | | 23,336 | | | — | | 17,876 | | 3,175 | | — | | 21,051 | |
Pension liablities | | | — | | | | 8,922 | | | | 2,932 | | | | — | | | | 11,854 | | | — | | 6,633 | | 3,229 | | — | | 9,862 | |
Other post retirement benefits | | | — | | | | 2,270 | | | | — | | | | — | | | | 2,270 | | |
Long-term taxes payables | | | — | | | | 7,976 | | | | — | | | | — | | | | 7,976 | | | — | | 9,661 | | — | | — | | 9,661 | |
Other long-term liabilities | | | — | | | | 241 | | | | 1,193 | | | | — | | | | 1,434 | | | — | | 1,177 | | 156 | | — | | 1,333 | |
Total stockholders’ equity | | | 128,865 | | | | 54,166 | | | | 73,506 | | | | (127,672 | ) | | | 128,865 | | | 138,943 | | 48,970 | | 76,822 | | | (125,792 | ) | | 138,943 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
Total liabilities and stockholders’ equity | | $ | 128,865 | | | $ | 397,448 | | | $ | 152,592 | | | $ | (165,321 | ) | | $ | 513,584 | | | $ | 347,962 | | $ | 315,127 | | $ | 142,485 | | $ | (340,375 | ) | | $ | 465,199 | |
| | | | | | | | | | | | | | | | | | | | | | |
18
16
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Unaudited Condensed Consolidating Statement of Income
| | | | | | | | | | | | | | | | | | | | | |
| | Year to Date Period Ended September 26, 2009 | | | | | | | | | | | | | | | | | | | | | |
| | | | Guarantor
| | Non-Guarantor
| | | | | | | Quarter Ended April 3, 2010 | |
| | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | | | Guarantor | | Non-Guarantor | | | | | |
| | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | |
Net sales | | $ | — | | | $ | 252,335 | | | $ | 110,847 | | | $ | (21,999 | ) | | $ | 341,183 | | | $ | — | | $ | 95,084 | | $ | 41,994 | | $ | (9,372 | ) | | $ | 127,706 | |
Cost of sales | | | — | | | | 192,110 | | | | 80,839 | | | | (21,999 | ) | | | 250,950 | | | — | | 71,314 | | 28,361 | | | (9,372 | ) | | 90,303 | |
| | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | — | | | | 60,225 | | | | 30,008 | | | | — | | | | 90,233 | | | — | | 23,770 | | 13,633 | | — | | 37,403 | |
Selling, general and administrative expenses | | | — | | | | 38,145 | | | | 22,826 | | | | — | | | | 60,971 | | | 26 | | 13,496 | | 7,450 | | — | | 20,972 | |
| | | | | | | | | | | | |
Research and development expenses | | | — | | | | 2,872 | | | | 1,697 | | | | — | | | | 4,569 | | | — | | 1,084 | | 695 | | — | | 1,779 | |
Other post employment benefit plan settlement gain | | | — | | | | (1,467 | ) | | | — | | | | — | | | | (1,467 | ) | |
Restructuring costs | | | — | | | | 3,122 | | | | 2,238 | | | | — | | | | 5,360 | | | — | | 798 | | 248 | | — | | 1,046 | |
Loss on disposal of assets | | | — | | | | 120 | | | | 396 | | | | | | | | 516 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Income from operations | | | — | | | | 17,433 | | | | 2,851 | | | | — | | | | 20,284 | | |
Income (loss) from operations | | | | (26 | ) | | 8,392 | | 5,240 | | — | | 13,606 | |
Interest expense, net | | | — | | | | 18,806 | | | | 73 | | | | — | | | | 18,879 | | | 4,496 | | 385 | | 59 | | — | | 4,940 | |
Other non-operating expense, net | | | — | | | | 576 | | | | 672 | | | | — | | | | 1,248 | | | — | | 74 | | 221 | | — | | 295 | |
Equity in earnings of subsidiaries | | | 300 | | | | — | | | | — | | | | (300 | ) | | | — | | | 9,025 | | — | | — | | | (9,025 | ) | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 300 | | | | (1,949 | ) | | | 2,106 | | | | (300 | ) | | | 157 | | |
Income before income taxes | | | 4,503 | | 7,933 | | 4,960 | | | (9,025 | ) | | 8,371 | |
Provision (benefit) for income taxes | | | — | | | | (1,069 | ) | | | 926 | | | | — | | | | (143 | ) | | | (1,236 | ) | | 2,380 | | 1,488 | | — | | 2,632 | |
| | | | | | | | | | | | | | | | | | | | | | |
Net income | | | 300 | | | | (880 | ) | | | 1,180 | | | | (300 | ) | | | 300 | | | $ | 5,739 | | $ | 5,553 | | $ | 3,472 | | $ | (9,025 | ) | | $ | 5,739 | |
| | | | | | | | | | | | | | | | | | | | | | |
19
17
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Unaudited Condensed Consolidating Statement of Income
| | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended September 26, 2009 | | | | | | | | | | | | | | | | | | | | | |
| | | | Guarantor
| | Non-Guarantor
| | | | | | | Quarter Ended March 28, 2009 | |
| | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | | | Guarantor | | Non-Guarantor | | | | | |
| | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | |
Net sales | | $ | — | | | $ | 75,377 | | | $ | 37,206 | | | $ | (7,817 | ) | | $ | 104,766 | | | $ | — | | $ | 93,541 | | $ | 38,282 | | $ | (7,283 | ) | | $ | 124,540 | |
Cost of sales | | | — | | | | 56,971 | | | | 27,040 | | | | (7,817 | ) | | | 76,194 | | | — | | 72,396 | | 27,224 | | | (7,283 | ) | | 92,337 | |
| | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | — | | | | 18,406 | | | | 10,166 | | | | — | | | | 28,572 | | | — | | 21,145 | | 11,058 | | — | | 32,203 | |
Selling, general and administrative expenses | | | — | | | | 11,885 | | | | 7,405 | | | | — | | | | 19,290 | | | — | | 13,946 | | 7,797 | | — | | 21,743 | |
Research and development expenses | | | — | | | | 909 | | | | 599 | | | | — | | | | 1,508 | | | — | | 1,030 | | 537 | | — | | 1,567 | |
Other post employment benefit plan settlement | | | — | | | (1,467 | ) | | — | | — | | | (1,467 | ) |
Restructuring costs | | | — | | | | 983 | | | | 23 | | | | — | | | | 1,006 | | | — | | 1,514 | | 358 | | — | | 1,872 | |
Loss on disposal of assets | | | — | | | | 120 | | | | 396 | | | | — | | | | 516 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | — | | | | 4,509 | | | | 1,743 | | | | — | | | | 6,252 | | |
Interest expense (income), net | | | — | | | | 6,290 | | | | — | | | | — | | | | 6,290 | | |
Other non-operating expense, net | | | — | | | | 180 | | | | (551 | ) | | | — | | | | (371 | ) | |
Income from operations | | | — | | 6,122 | | 2,366 | | — | | 8,488 | |
Interest expense, net | | | — | | 6,300 | | 49 | | — | | 6,349 | |
Other non-operating income | | | — | | | (120 | ) | | | (42 | ) | | — | | | (162 | ) |
Equity in earnings of subsidiaries | | | 648 | | | | — | | | | — | | | | (648 | ) | | | — | | | 1,418 | | — | | — | | | (1,418 | ) | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 648 | | | | (1,961 | ) | | | 2,294 | | | | (648 | ) | | | 333 | | |
Provision (benefit) for income taxes | | | — | | | | (1,310 | ) | | | 995 | | | | — | | | | (315 | ) | |
Income (loss) from before income taxes | | | 1,418 | | | (58 | ) | | 2,359 | | | (1,418 | ) | | 2,301 | |
Provision for income taxes | | | — | | 10 | | 873 | | — | | 883 | |
| | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | 648 | | | | (651 | ) | | | 1,299 | | | | (648 | ) | | | 648 | | |
Net income | | | $ | 1,418 | | $ | (68 | ) | | $ | 1,486 | | $ | (1,418 | ) | | $ | 1,418 | |
| | | | | | | | | | | | | | | | | | | | | | |
20
18
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Unaudited Condensed Consolidating Statement of IncomeCash Flows
| | | | | | | | | | | | | | | | | | | | |
| | Year to Date Period Ended September 27, 2008 | |
| | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | — | | | $ | 353,805 | | | $ | 176,919 | | | $ | (40,201 | ) | | $ | 490,523 | |
Cost of sales | | | — | | | | 262,405 | | | | 124,313 | | | | (40,201 | ) | | | 346,517 | |
| | | | | | | | | | | | | | | | | | | | |
Gross profit | | | — | | | | 91,400 | | | | 52,606 | | | | — | | | | 144,006 | |
Selling, general and administrative expenses | | | — | | | | 48,034 | | | | 28,782 | | | | — | | | | 76,816 | |
Research and development expenses | | | — | | | | 3,050 | | | | 2,110 | | | | — | | | | 5,160 | |
Other post employment benefit plan settlement gain | | | — | | | | (276 | ) | | | — | | | | — | | | | (276 | ) |
Restructuring costs | | | — | | | | 555 | | | | 594 | | | | — | | | | 1,149 | |
| | | | | | | | | | | | | | | | | | | | |
Income from operations | | | — | | | | 40,037 | | | | 21,120 | | | | — | | | | 61,157 | |
Interest expense, net | | | — | | | | 22,270 | | | | 186 | | | | — | | | | 22,456 | |
Other non-operating (income) expense, net | | | — | | | | (1,455 | ) | | | (1,432 | ) | | | — | | | | (2,887 | ) |
Equity in earnings of subsidiaries | | | 27,237 | | | | — | | | | — | | | | (27,237 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | | 27,237 | | | | 19,222 | | | | 22,366 | | | | (27,237 | ) | | | 41,588 | |
Provision (benefit) for income taxes | | | — | | | | 6,523 | | | | 7,604 | | | | — | | | | 14,127 | |
| | | | | | | | | | | | | | | | | | | | |
Income from continuing operations | | | 27,237 | | | | 12,699 | | | | 14,762 | | | | (27,237 | ) | | | 27,461 | |
Net loss from discountinued operations | | | — | | | | (224 | ) | | | — | | | | — | | | | (224 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | 27,237 | | | | 12,475 | | | | 14,762 | | | | (27,237 | ) | | | 27,237 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended April 3, 2010 | |
| | | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 5,739 | | | $ | 5,553 | | | $ | 3,472 | | | $ | (9,025 | ) | | $ | 5,739 | |
Undistributed equity in earnings of subsidiaries | | | (9,025 | ) | | | — | | | | — | | | | 9,025 | | | | — | |
Adjustments to reconcile net income to net cash flows: | | | | | | | | | | | | | | | — | | | | — | |
Depreciation | | | — | | | | 3,268 | | | | 891 | | | | — | | | | 4,159 | |
Amortization of intangible assets | | | — | | | | 1,032 | | | | 351 | | | | — | | | | 1,383 | |
Amortization and write-offs of deferred loan costs | | | 172 | | | | — | | | | — | | | | — | | | | 172 | |
Loss on foreign currency, net | | | — | | | | — | | | | 314 | | | | — | | | | 314 | |
Accretion of debt discount and premium, net | | | 73 | | | | — | | | | — | | | | — | | | | 73 | |
Deferred income tax | | | — | | | | 26 | | | | (26 | ) | | | — | | | | — | |
Stock based compensation | | | — | | | | 548 | | | | — | | | | — | | | | 548 | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | |
Trade receivables | | | — | | | | (10,494 | ) | | | (4,543 | ) | | | — | | | | (15,037 | ) |
Inventories | | | — | | | | (421 | ) | | | (1,148 | ) | | | — | | | | (1,569 | ) |
Accounts payable and accrued liabilities | | | 4,190 | | | | 7,318 | | | | 3,014 | | | | — | | | | 14,522 | |
Other current assets and liabilities | | | — | | | | (1,316 | ) | | | (686 | ) | | | — | | | | (2,002 | ) |
Other operating assets and liabilities | | | (35 | ) | | | (113 | ) | | | 20 | | | | — | | | | (128 | ) |
| | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 1,114 | | | | 5,401 | | | | 1,659 | | | | — | | | | 8,174 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | |
Purchase of fixed assets | | | — | | | | (2,349 | ) | | | (345 | ) | | | — | | | | (2,694 | ) |
Contingent consideration payment | | | — | | | | (1,177 | ) | | | — | | | | — | | | | (1,177 | ) |
| | | | | | | | | | | | | | | |
Net cash used in investing activities | | | — | | | | (3,526 | ) | | | (345 | ) | | | — | | | | (3,871 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | |
Payment of debt issuance costs | | | (64 | ) | | | 1 | | | | — | | | | — | | | | (63 | ) |
Shares repurchased | | | (288 | ) | | | — | | | | — | | | | — | | | | (288 | ) |
Payments on mortgages | | | — | | | | — | | | | (121 | ) | | | — | | | | (121 | ) |
Change in affiliate debt | | | (762 | ) | | | 618 | | | | 144 | | | | — | | | | — | |
Payment on capital leases | | | — | | | | (175 | ) | | | — | | | | — | | | | (175 | ) |
| | | | | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | (1,114 | ) | | | 444 | | | | 23 | | | | — | | | | (647 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | (1,587 | ) | | | — | | | | (1,587 | ) |
| | | | | | | | | | | | | | | |
Net change in cash and cash equivalents | | | — | | | | 2,319 | | | | (250 | ) | | | — | | | | 2,069 | |
Cash and cash equivalents at beginning of year | | | 1 | | | | 19,744 | | | | 31,752 | | | | — | | | | 51,497 | |
| | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 1 | | | $ | 22,063 | | | $ | 31,502 | | | $ | — | | | $ | 53,566 | |
| | | | | | | | | | | | | | | |
21
19
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Unaudited Condensed Consolidating Statement of IncomeCash Flows
| | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended September 27, 2008 | |
| | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | — | | | $ | 113,469 | | | $ | 59,203 | | | $ | (13,224 | ) | | $ | 159,448 | |
Cost of sales | | | — | | | | 84,460 | | | | 42,391 | | | | (13,224 | ) | | | 113,627 | |
| | | | | | | | | | | | | | | | | | | | |
Gross profit | | | — | | | | 29,009 | | | | 16,812 | | | | — | | | | 45,821 | |
Selling, general and administrative expenses | | | — | | | | 16,268 | | | | 9,387 | | | | — | | | | 25,655 | |
Research and development expenses | | | — | | | | 955 | | | | 708 | | | | — | | | | 1,663 | |
Other post employment benefit plan settlement | | | — | | | | (107 | ) | | | — | | | | — | | | | (107 | ) |
Restructuring costs | | | — | | | | (228 | ) | | | 309 | | | | — | | | | 81 | |
| | | | | | | | | | | | | | | | | | | | |
Income from operations | | | — | | | | 12,121 | | | | 6,408 | | | | — | | | | 18,529 | |
Interest expense, net | | | — | | | | 7,289 | | | | 13 | | | | — | | | | 7,302 | |
Other non-operating (income) expense, net | | | — | | | | 1,319 | | | | (2,727 | ) | | | — | | | | (1,408 | ) |
Equity in earnings of subsidiaries | | | 8,807 | | | | — | | | | — | | | | (8,807 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | | 8,807 | | | | 3,513 | | | | 9,122 | | | | (8,807 | ) | | | 12,635 | |
Provision (benefit) for income taxes | | | — | | | | 766 | | | | 3,234 | | | | — | | | | 4,000 | |
| | | | | | | | | | | | | | | | | | | | |
Net income from continuing operations | | | 8,807 | | | | 2,747 | | | | 5,888 | | | | (8,807 | ) | | | 8,635 | |
Net income from discontinued operations | | | — | | | | 172 | | | | | | | | | | | | 172 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | 8,807 | | | | 2,919 | | | | 5,888 | | | | (8,807 | ) | | | 8,807 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended March 28, 2009 | |
| | | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 1,418 | | | $ | (68 | ) | | $ | 1,486 | | | $ | (1,418 | ) | | $ | 1,418 | |
Undistributed equity in earnings of subsidiaries | | | (1,418 | ) | | | — | | | | — | | | | 1,418 | | | | — | |
Adjustments to reconcile net income to net cash flows: | | | | | | | | | | | | | | | | | | | — | |
Depreciation | | | — | | | | 3,141 | | | | 1,017 | | | | — | | | | 4,158 | |
Amortization of intangibles and deferred loan costs | | | — | | | | 1,462 | | | | 329 | | | | — | | | | 1,791 | |
Gain on foreign currency, net | | | — | | | | (201 | ) | | | — | | | | — | | | | (201 | ) |
Accretion of debt discount and premium, net | | | — | | | | 154 | | | | — | | | | — | | | | 154 | |
Fixed asset impairment/disposal | | | — | | | | 749 | | | | — | | | | — | | | | 749 | |
Other post employment benefit plan settlement gain | | | — | | | | (1,467 | ) | | | — | | | | — | | | | (1,467 | ) |
Stock based compensation | | | — | | | | 977 | | | | — | | | | — | | | | 977 | |
Changes in assets and liabilities: | | | — | | | | | | | | — | | | | — | | | | — | |
Trade receivables | | | — | | | | (2,872 | ) | | | 614 | | | | — | | | | (2,258 | ) |
Inventories | | | — | | | | 7,365 | | | | 707 | | | | — | | | | 8,072 | |
Accounts payable and accrued liabilities | | | — | | | | 1,842 | | | | (2,148 | ) | | | — | | | | (306 | ) |
Other current assets and liabilities | | | — | | | | 375 | | | | (1,914 | ) | | | — | | | | (1,539 | ) |
Other operating assets and liabilities | | | — | | | | 4 | | | | — | | | | — | | | | 4 | |
| | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | — | | | | 11,461 | | | | 91 | | | | — | | | | 11,552 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | |
Purchase of fixed assets | | | — | | | | (1,494 | ) | | | (327 | ) | | | — | | | | (1,821 | ) |
| | | | | | | | | | | | | | | |
Net cash used in by investing activities | | | — | | | | (1,494 | ) | | | (327 | ) | | | — | | | | (1,821 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | |
Payments on mortgages | | | — | | | | — | | | | (120 | ) | | | — | | | | (120 | ) |
Change in affiliate debt | | | — | | | | 1,229 | | | | (1,229 | ) | | | — | | | | — | |
Payment on capital leases | | | — | | | | (151 | ) | | | (28 | ) | | | — | | | | (179 | ) |
| | | | | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | — | | | | 1,078 | | | | (1,377 | ) | | | — | | | | (299 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | (102 | ) | | | — | | | | (102 | ) |
| | | | | | | | | | | | | | | |
Net change in cash and cash equivalents | | | — | | | | 11,045 | | | | (1,715 | ) | | | — | | | | 9,330 | |
Cash and cash equivalents at beginning of year | | | 1 | | | | 24,432 | | | | 27,640 | | | | — | | | | 52,073 | |
| | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 1 | | | $ | 35,477 | | | $ | 25,925 | | | $ | — | | | $ | 61,403 | |
| | | | | | | | | | | | | | | |
22
20
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
Unaudited Condensed Consolidating Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | |
| | Year to Date Period Ended September 26, 2009 | |
| | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
|
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 300 | | | $ | (880 | ) | | $ | 1,180 | | | $ | (300 | ) | | $ | 300 | |
Undistributed equity in earnings of subsidiaries | | $ | (300 | ) | | $ | — | | | $ | — | | | $ | 300 | | | | — | |
Adjustments to reconcile net income to net cash flows: | | | | | | | | | | | | | | | | | | | — | |
Depreciation | | | — | | | | 9,065 | | | | 3,482 | | | | — | | | | 12,547 | |
Amortization of intangible assets | | | — | | | | 3,099 | | | | 1,038 | | | | — | | | | 4,137 | |
Amortization and write-offs of deferred loan costs | | | — | | | | 1,560 | | | | — | | | | — | | | | 1,560 | |
Loss on foreign currency, net | | | — | | | | 270 | | | | 822 | | | | — | | | | 1,092 | |
Accretion of debt discount and premium, net | | | — | | | | 621 | | | | — | | | | — | | | | 621 | |
Fixed asset impairment | | | — | | | | 1,703 | | | | 860 | | | | — | | | | 2,563 | |
Other post employment benefit plan settlement gain | | | — | | | | (1,467 | ) | | | — | | | | — | | | | (1,467 | ) |
Stock based compensation | | | — | | | | 2,273 | | | | — | | | | — | | | | 2,273 | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | |
Trade receivables | | | — | | | | 5,950 | | | | 7,075 | | | | — | | | | 13,025 | |
Inventories | | | — | | | | 21,150 | | | | 6,476 | | | | — | | | | 27,626 | |
Accounts payable and accrued liabilities | | | — | | | | (4,927 | ) | | | (7,002 | ) | | | — | | | | (11,929 | ) |
Other current assets and liabilities | | | — | | | | 472 | | | | (401 | ) | | | — | | | | 71 | |
Other operating assets and liabilities | | | — | | | | (204 | ) | | | (161 | ) | | | — | | | | (365 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used in) provided by operating activities | | | — | | | | 38,685 | | | | 13,369 | | | | — | | | | 52,054 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | |
Purchase of fixed assets | | | — | | | | (4,224 | ) | | | (881 | ) | | | — | | | | (5,105 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | — | | | | (4,224 | ) | | | (881 | ) | | | — | | | | (5,105 | ) |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | |
Payments on Senior Notes | | | — | | | | (4,950 | ) | | | — | | | | — | | | | (4,950 | ) |
Payments on Senior Secured Notes | | | — | | | | (22,200 | ) | | | — | | | | — | | | | (22,200 | ) |
Proceeds from additional borrowings under an existing mortgage | | | — | | | | — | | | | 1,467 | | | | — | | | | 1,467 | |
Payments on revolving credit agreement | | | — | | | | (3,000 | ) | | | — | | | | — | | | | (3,000 | ) |
Shares repurchased | | | (259 | ) | | | | | | | — | | | | — | | | | (259 | ) |
Net payments to Parent | | | — | | | | (259 | ) | | | — | | | | 259 | | | | — | |
Payments on mortgages | | | — | | | | — | | | | (524 | ) | | | — | | | | (524 | ) |
Change in affiliate debt | | | 259 | | | | 7,608 | | | | (7,608 | ) | | | (259 | ) | | | — | |
Payment on capital leases | | | — | | | | (478 | ) | | | (136 | ) | | | — | | | | (614 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | — | | | | (23,279 | ) | | | (6,801 | ) | | | — | | | | (30,080 | ) |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 2,998 | | | | — | | | | 2,998 | |
| | | | | | | | | | | | | | | | | | | | |
Net change in cash and cash equivalents | | | — | | | | 11,182 | | | | 8,685 | | | | — | | | | 19,867 | |
Cash and cash equivalents at beginning of year | | | 1 | | | | 24,432 | | | | 27,640 | | | | — | | | | 52,073 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 1 | | | $ | 35,614 | | | $ | 36,325 | | | $ | — | | | $ | 71,940 | |
| | | | | | | | | | | | | | | | | | | | |
23
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)16. Subsequent Events
Unaudited Condensed Consolidating Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | |
| | Year to Date Period Ended September 27, 2008 | |
| | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
|
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 27,237 | | | $ | 12,475 | | | $ | 14,762 | | | $ | (27,237 | ) | | $ | 27,237 | |
Undistributed equity in earnings of subsidiaries | | $ | (27,237 | ) | | $ | — | | | $ | — | | | $ | 27,237 | | | | — | |
Adjustments to reconcile net income to net cash flows: | | | | | | | | | | | | | | | | | | | — | |
Depreciation | | | — | | | | 8,123 | | | | 4,286 | | | | — | | | | 12,409 | |
Amortization of intangible assets | | | — | | | | 3,106 | | | | 1,240 | | | | — | | | | 4,346 | |
Amortization and write-offs of deferred loan costs | | | — | | | | 1,863 | | | | — | | | | — | | | | 1,863 | |
Loss on foreign currency, net | | | — | | | | (516 | ) | | | (1,081 | ) | | | — | | | | (1,597 | ) |
Accretion of debt discount and premium, net | | | — | | | | 759 | | | | — | | | | — | | | | 759 | |
Loss on sale of fixed assets | | | — | | | | 193 | | | | — | | | | — | | | | 193 | |
Other post employment benefit plan settlement gain | | | — | | | | (276 | ) | | | — | | | | — | | | | (276 | ) |
Loss on sale of Electronics Division | | | — | | | | 224 | | | | — | | | | — | | | | 224 | |
Stock based compensation | | | — | | | | 1,516 | | | | — | | | | — | | | | 1,516 | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | |
Trade receivables | | | — | | | | (3,754 | ) | | | (11,151 | ) | | | — | | | | (14,905 | ) |
Inventories | | | — | | | | (3,673 | ) | | | (2,198 | ) | | | — | | | | (5,871 | ) |
Accounts payable and accrued liabilities | | | — | | | | 947 | | | | 4,938 | | | | — | | | | 5,885 | |
Other current assets and liabilities | | | (2 | ) | | | (856 | ) | | | 475 | | | | — | | | | (383 | ) |
Other operating assets and liabilities | | | — | | | | 16 | | | | 218 | | | | — | | | | 234 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used in) provided by operating activities | | | (2 | ) | | | 20,147 | | | | 11,489 | | | | — | | | | 31,634 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | |
Purchase of fixed assets | | | — | | | | (8,831 | ) | | | (3,403 | ) | | | — | | | | (12,234 | ) |
Proceeds from the sale of Electronics | | | — | | | | 17,310 | | | | — | | | | — | | | | 17,310 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used in) provided by investing activities | | | — | | | | 8,479 | | | | (3,403 | ) | | | — | | | | 5,076 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | |
Payments on Senior Notes | | | — | | | | (1,346 | ) | | | — | | | | — | | | | (1,346 | ) |
Payments on Senior Secured Notes | | | — | | | | (27,500 | ) | | | — | | | | — | | | | (27,500 | ) |
Payments on revolving credit agreement | | | — | | | | (1,723 | ) | | | — | | | | — | | | | (1,723 | ) |
Payments received from Parent Company | | | — | | | | 11,898 | | | | — | | | | (11,898 | ) | | | — | |
Payments on mortgages | | | — | | | | — | | | | (228 | ) | | | — | | | | (228 | ) |
Change in affiliate debt | | | (11,898 | ) | | | 11,631 | | | | (11,631 | ) | | | 11,898 | | | | — | |
Payment on capital leases | | | — | | | | (456 | ) | | | (323 | ) | | | — | | | | (779 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | (11,898 | ) | | | (7,496 | ) | | | (12,182 | ) | | | — | | | | (31,576 | ) |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | (1,119 | ) | | | — | | | | (1,119 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net change in cash and cash equivalents | | | (11,900 | ) | | | 21,130 | | | | (5,215 | ) | | | — | | | | 4,015 | |
Cash and cash equivalents at beginning of year | | | 11,901 | | | | (492 | ) | | | 29,827 | | | | — | | | | 41,236 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 1 | | | $ | 20,638 | | | $ | 24,612 | | | $ | — | | | $ | 45,251 | |
| | | | | | | | | | | | | | | | | | | | |
24
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted — (Continued)
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. The Company evaluated subsequent events through November 3, 2009 (thethe date the financial statements were issued).issued.
25
21
| | |
Item 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report onForm 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company’s current estimates, expectations and projections about the Company’s future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning the Company’s possible future results of operations including revenue, costs of goods sold, and gross margin, business and growth strategies, financing plans, the Company’s competitive position and the effects of competition, the projected growth of the industries in which we operate, and the Company’s ability to consummate strategic acquisitions and other transactions. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” “may,” “should,” “will,” “would,” “project,” and similar expressions. These forward-looking statements are based upon information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause the Company’s actual results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause the Corporation’s actual results to differ materially from the results referred to in the forward-looking statements the Corporation makes in this report include:
the Company’s access to capital, credit ratings, indebtedness, and ability to raise additional financings and operate under the terms of the Company’s debt obligations;
| | |
| • | the Company’s access to capital, credit ratings, indebtedness, and ability to raise additional financings and operate under the terms of the Company’s debt obligations; |
|
| • | the risks associated with our debt leverage; |
|
| • | the effects of intense competition in the markets in which we operate; |
|
| • | the Company’s ability to successfully execute, manage and integrate key acquisitions and mergers; |
|
| • | the Company’s ability to obtain or protect intellectual property rights; |
|
| • | the Company’s ability to retain existing customers and our ability to attract new customers for growth of our business; |
|
| • | the effects of the loss or bankruptcy of or default by any significant customer, suppliers, or other entity relevant to the Company’s operations; |
|
| • | the Company’s ability to successfully pursue the Company’s development activities and successfully integrate new operations and systems, including the realization of revenues, economies of scale, cost savings, and productivity gains associated with such operations; |
|
| • | the Company’s ability to complete cost reduction actions and risks associated with such actions; |
|
| • | the Company’s ability to control costs; |
|
| • | failure of the Company’s operating equipment or information technology infrastructure; |
|
| • | the Company’s ability to achieve its business plans, including with respect to an uncertain economic environment; |
|
| • | changes in employment, environmental, tax and other laws and changes in the enforcement of laws; |
|
| • | the accuracy of estimated forecasts of OEM customers and the impact of the current global economic environment on our customers; |
|
| • | fluctuations in the costs of raw materials used in our products; |
|
| • | the Company’s ability to attract and retain key executives and other personnel; |
|
| • | work stoppages and other labor issues; |
|
| • | changes in the Company’s pension and retirement liabilities; |
the risks associated with our debt leverage;
the effects of intense competition in the markets in which we operate;
the Company’s ability to successfully execute, manage and integrate key acquisitions and mergers;
the Company’s ability to obtain or protect intellectual property rights;
the Company’s ability to retain existing customers and our ability to attract new customers for growth of our business;
the effects of the loss or bankruptcy of or default by any significant customer, suppliers, or other entity relevant to the Company’s operations;
the Company’s ability to successfully pursue the Company’s development activities and successfully integrate new operations and systems, including the realization of revenues, economies of scale, cost savings, and productivity gains associated with such operations;
the Company’s ability to complete cost reduction actions and risks associated with such actions;
the Company’s ability to control costs;
failure of the Company’s operating equipment or information technology infrastructure;
the Company’s ability to achieve its business plans, including with respect to an uncertain economic environment;
changes in employment, environmental, tax and other laws and changes in the enforcement of laws;
the accuracy of estimated forecasts of OEM customers and the impact of the current global economic environment on our customers;
fluctuations in the costs of raw materials used in our products;
the Company’s ability to attract and retain key executives and other personnel;
work stoppages and other labor issues;
changes in the Company’s pension and retirement liabilities;
the Company’s risk of loss not covered by insurance;
the outcome of litigation to which the Company is a party from time to time, including product liability claims;
changes in accounting rules and standards, audits, compliance with the Sarbanes-Oxley Act, and regulatory investigations;
changes in market conditions that could result in the impairment of goodwill or other assets of the Company;
changes in market conditions in which we operate that could influence the value of the Company’s stock;
the effects of changes to critical accounting estimates; changes in volatility of the Company’s stock price and the risk of litigation following a decline in the price of the Company’s stock price;
the cyclical nature of the markets in which we operate;
the risks associated with the global recession and volatility and disruption in the global financial markets;
26
22
political and economic conditions nationally, regionally, and in the markets in which we operate;
| | |
| • | the Company’s risk of loss not covered by insurance; |
|
| • | the outcome of litigation to which the Company is a party from time to time, including product liability claims; |
|
| • | changes in accounting rules and standards, audits, compliance with the Sarbanes-Oxley Act, and regulatory investigations; |
|
| • | changes in market conditions that would result in the impairment of goodwill or other assets of the Company; |
|
| • | changes in market conditions in which we operate that would influence the value of the Company’s stock; |
|
| • | the effects of changes to critical accounting estimates; changes in volatility of the Company’s stock price and the risk of litigation following a decline in the price of the Company’s stock price; |
|
| • | the cyclical nature of the markets in which we operate; |
|
| • | the risks associated with the global recession and volatility and disruption in the global financial markets; |
|
| • | political and economic conditions nationally, regionally, and in the markets in which we operate; |
|
| • | natural disasters, war, civil unrest, terrorism, fire, floods, tornadoes, earthquakes, hurricanes, or other matters beyond the Company’s control; |
|
| • | the risks associated with international operations, including currency risks; and |
|
| • | other factors, risks, and uncertainties referenced in the Company’s filings with the Securities and Exchange Commission, including the “Risk Factors” set forth in the Company’s Annual Report onForm 10-K for the year ended December 31, 2008. |
natural disasters, war, civil unrest, terrorism, fire, floods, tornadoes, earthquakes, hurricanes, or other matters beyond the Company’s control;
the risks associated with international operations, including currency risks; and
other factors, risks, and uncertainties referenced in the Company’s filings with the Securities and Exchange Commission, including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS, ALL OF WHICH SPEAK ONLY AS OF THE DATE OF THIS QUARTERLY REPORT. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS QUARTERLY REPORT OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR ANY PERSON ACTING ON THE COMPANY’S BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION AND IN OUR RISK FACTORS SET FORTH IN PART I, ITEM 1A OF THE COMPANY’S ANNUAL REPORT ONFORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008,2009, AND IN OTHER REPORTS FILED WITH THE SEC BY THE COMPANY.
The following discussion of the financial condition and results of operations of Altra Holdings, Inc. and its subsidiaries should be read together with the audited financial statements of Altra Holdings, Inc. and its subsidiaries and related notes included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2008.2009. Unless the context requires otherwise, the terms “Altra Holdings,” the Company,” “we,” “us,” and “our” refer to Altra Holdings, Inc. and its subsidiaries.
27
General
Altra Holdings, Inc. is the parent company of Altra Industrial Motion, Inc. (“Altra Industrial”) and owns 100% of Altra Industrial’s outstanding capital stock. Altra Industrial, directly or indirectly, owns 100% of the capital stock of its 48 subsidiaries. The following chart illustrates a summary of our corporate structure:
23
Although we were incorporated in Delaware in 2004, much of our current business has its roots with the prior acquisition by Colfax Corporation, or Colfax, of a series of power transmission businesses. In December 1996, Colfax acquired the MPT group of Zurn Technologies, Inc. Colfax subsequently acquired Industrial Clutch Corp. in May 1997, Nuttall Gear Corp. in July 1997 and the Boston Gear and Delroyd Worm Gear brands in August 1997 as part of Colfax’s acquisition of Imo Industries, Inc. In February 2000, Colfax acquired Warner Electric, Inc., which sold products under the Warner Electric, Formsprag Clutch, Stieber, and Wichita Clutch brands. Colfax formed Power Transmission Holding LLC, or PTH,“PTH”, in June 2004 to serve as a holding company for all of these power transmission businesses. Boston Gear was established in 1877, Warner Electric, Inc. in 1927, and Wichita Clutch in 1949.
On November 30, 2004, we acquired our original core business through the acquisition of PTH from Colfax. We refer to this transaction as the PTH Acquisition.
On October 22, 2004, The Kilian Company, or Kilian, a company formed at the direction of Genstar Capital, the then largest stockholder of Altra Holdings, acquired Kilian Manufacturing Corporation from Timken U.S. Corporation. At the completion of the PTH Acquisition, (i) all of the outstanding shares of Kilian capital stock were exchanged for shares of our capital stock and (ii) Kilian and its subsidiaries were transferred to our wholly owned subsidiary.
Altra Industrial.
On February 10, 2006, we purchased all of the outstanding share capital of Hay Hall Holdings Limited, or Hay Hall. Hay Hall iswas a UK-based holding company established in 1996 that iswas focused primarily on the manufacture of couplings and clutch brakes. Hay Hall consistsconsisted of five main businesses that arewere niche focused and havehad strong brand names and established reputations within their primary markets.
Through Hay Hall, we acquired 15 strong brands in complementary product lines, improved customer leverage, and expanded geographic presence in over 11 countries. Hay Hall’s product offerings diversified our revenue base and strengthened our key product areas, such as electric clutches, brakes, and couplings. Matrix International, Inertia Dynamics and Twiflex, three Hay Hall businesses, combined with Warner Electric, Wichita Clutch, Formsprag Clutch and Stieber, make the consolidated company one of the largest individual manufacturers of industrial clutches and brakes in the world.
On May 18, 2006, we acquired substantially all of the assets of Bear Linear Inc., or Warner Linear. BearWarner Linear manufactures high value-added linear actuators which are electromechanical power transmission devices designed to move and position loads linearly for mobile off-highway and industrial applications. BearWarner Linear’s product design
28
and engineering expertise, coupled with our sourcing alliance with a low cost country manufacturer, were critical components in our strategic expansion withininto the motion control market.
On April 5, 2007, the Company acquired all of the outstanding shares of TB Wood’s Corporation, or TB Wood’s. TB Wood’s is an established designer, manufacturer and marketer of mechanical and electronic industrial power transmission products with a history dating back to 1857.
On October 5, 2007, we acquired substantially all of the assets of All Power Transmission Manufacturing, Inc., or All Power.
On December 31, 2007, we sold the TB Wood’s adjustable speed drives business or Electronics Division, to Vacon, Inc.Division. We sold the Electronics Division in order to continue our strategic focus on our core electro-mechanical power transmission business.
The subsidiariesWe are a leading global designer, producer and marketer of Altra Industrial design, produce and market a wide range of mechanical power transmission (“MPT”)MPT and motion control products. The business conducted at our subsidiaries is organized into five operating segments; Electromagnetic Clutches & Brakes, Heavy Duty Clutches & Brakes, Overrunning Clutches & Engineered Bearing Assemblies, Engineered Couplings and Gearing & Belted Drives. We haveproducts with a presence in over 70 countries. Our global sales and marketing network includes over 1,000 direct original equipment manufacturers (“OEM”)OEM customers and over 3,000 distributor outlets. Our product portfolio includes industrial clutches and brakes, enclosed gear drives, open gearing, couplings, engineered bearing assemblies, linear components and other related products. Our products serve a wide variety of end markets including energy, general industrial, material handling, mining, transportation and turf and garden. We are headquarteredprimarily sell our products to a wide range of OEMs and through long-standing relationships with industrial distributors such as Motion Industries, Applied Industrial Technologies, Kaman Industrial Technologies and W.W. Grainger.
24
While the power transmission industry has undergone some consolidation, we estimate that in Braintree, Massachusetts.
2009 the top five broad-based MPT companies represented approximately 21% of the U.S. power transmission market. The remainder of the power transmission industry remains fragmented with many small and family-owned companies that cater to a specific market niche often due to their narrow product offerings. We believe that consolidation in our industry will continue because of the increasing demand for global distribution channels, broader product mixes and better brand recognition to compete in this industry.
Our operating segments,products, principal brands and principal markets and sample applications are set forth below:
| | | | | | | | | | | | |
Operating Segment Products | | Principal Brands | | | Principal Markets | | | Sample Applications | |
|
Heavy Duty Clutches & Brakes | | Wichita Clutch
Twiflex
Industrial Clutch | | Energy
Metals
Marine |
Electromagnetic Clutches &and Brakes | | Warner Electric,
Matrix International
Inertia Dynamics
Warner Linear Wichita | | Turf and Garden
Forklift
Elevator
Material Handling |
Overrunning Clutches & BearingsAerospace, energy, | | Elevators, forklifts, lawn |
| | Clutch, Formsprag Clutch, | | material handling, | | mowers, oil well draw |
| | Stieber
Kilian Clutch, Matrix, | | metals, turf and | | works, punch presses, |
| | Inertia Dynamics, Twiflex, | | garden, mining | | conveyors |
| | Industrial Clutch, | | | | | | | | |
| | Marland Clutch | | Aerospace
Mining
Material Handling
Transportation | | | | | | |
Gearing | | Boston Gear, Nuttall Gear, | | Food processing, | | Conveyors, ethanol mixers, |
| | Delroyd | | material handling, | | packaging machinery, metal |
| | | | | | metals, transportation | | processing equipment |
Engineered Couplings | | Ameridrives, Bibby | | Energy, metals, | | Extruders, turbines, steel |
| | Transmissions, TB Wood’s
Ameridrives
Bibby Transmission
Huco Dynatork
All | | plastics, chemical | | strip mills, pumps |
Engineered Bearing | | Kilian | | Aerospace, material | | Cargo rollers, seat |
Assemblies | | | | | | handling, | | storage systems, conveyors |
| | | | | | transportation | | | | |
Power | | Warner Electric, Boston | | Material handling, | | Conveyors, lawn mowers, |
Transmission | | Energy
Metals
Petro/Chem
Medical
MilitaryGear, Huco Dynatork, | | metals, turf and Defensegarden | | machine tools |
Gearing &Components | | Warner Linear, Matrix, TB | | | | | | | | |
| | Wood’s | | | | | | | | |
Engineered Belted Drives | | Boston Gear TB Wood’s
Nuttall/Delroyd
Centric Clutch | | Food Processing
Material Handling
Energy Aggregate, HVAC, | | Pumps, sand and gravel |
| | | | | | material handling | | conveyors, industrial fans |
Our Internet address is www.altramotion.com. By following the link “Investor Relations” and then “SEC filings” on our Internet website, we make available, free of charge, our Annual Report onForm 10-K, our Quarterly Reports onForm 10-Q, our Current Reports onForm 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after such forms are filed with or furnished to the SEC. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, thisForm 10-Q.
Business Outlook
Our future financial performance depends, in large part, on conditions in the markets that we serve and on the U.S. and global economies in general. During NovemberFor 2010, we expect to return to growth activities, but will also continue to focus on generating cash flow, executing on plant consolidations, and December 2008,maintaining a reduced cost base. Among other items, we saw a significant changeexpect our growth initiatives in economic conditions both2010 will include investing in North Americaorganic growth, seeking strategic acquisitions, targeting key underpenetrated geographic regions, entering new high-growth markets, enhancing our efficiency and internationally as mostproductivity through the focusing on the development of our end markets experienced dramatic downturns. people and processes.
During the fourthfirst quarter of 2008, we began to see several of our distributors
29
and OEM customers implement inventory reduction programs which continued throughout the first two quarters of 2009. Beginning in the third quarter of 2009,2010, it appearedappears that inventory reduction efforts previously executed by our customers began to come to an endhave declined significantly as sales to our largest distribution customers improved duringhave improved. While some of our first-quarter sales increase was likely due to some of our OEM customers restocking their channels, we believe the third quarter. However, we continuemajority of the increase was due to expect weaknessimprovement in order rates for the remainder of 2009 as compared with 2008.end market demand.
25
In response to the continued challenging economic conditions of 2009, we have taken and continue to take swift and aggressive actions to reduce our expenses and maximize near-term profitability. Our cost-reduction initiatives are centered on three areas: workforce cutbacks, plant consolidations and procurement and other cost reductions. In February 2009, the Company’s discretionary 401(k) match was suspended and a temporary reduction in executive compensation was initiated. On June 1, 2009, the Company announced the temporary suspension of all Company contributions to the 401(k) plan. We also have announced a general hiring freeze, a freeze of all non-union employee salaries and reduced work schedules. During the year to date period ended September 26, 2009, we incurred $5.4 million of restructuring expense including a $2.0 million non-cash charge primarily related to impairment charges at the Mount Pleasant and South Beloit facilities that are expected to close in 2009 and in the first quarter of 2010, respectively. The remaining expense relates mainly to severance. We expect to incur between an additional $2.5 and $3.5 million of expenses associated with workforce reduction and consolidation of facilities in 2009 and between $1.3 million and $1.9 million of such additional expenses in 2010. Beginning in 2010, we expect to see annualized savings from the headcount reductions and consolidation of facilities of approximately $30 million. We expect savings in 2009 to be $17.9 million. Including procurement and other cost reduction efforts, annualized savings would be approximately $77 million (approximately $60 million in 2009). We estimate that once volume returns to prior year levels, between $10 and $12 million of these savings will be permanent in nature.
We will continue our strong focus on working capital management and cash flow generation with the intent of improving our liquidity by reducing inventory and accounts receivable levels. As of September 26, 2009, we have a cash balance of $71.9 million.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, revenues and expenses, as well as related disclosure of contingent assets and liabilities. We base our estimates on past experiences and other assumptions we believe to be appropriate, and we evaluate these estimates on an on-going basis. Management believes there have been no significant changes in our critical accounting policies since December 31, 2008, except as listed below.2009. See the discussion of critical accounting policies in our Annual Report onForm 10-K for the year ended December 31, 2008.
Goodwill, Intangibles and other long-lived assets. In connection with our acquisitions, goodwill and intangible assets were identified and recorded at their fair value. We recorded intangible assets for customer relationships, trade names and trademarks, product technology, patents and goodwill. In valuing the customer relationships, trade names and trademarks, we utilized variations of the income approach. The income approach was considered the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income. The income approach relies on historical financial and qualitative information, as well as assumptions and estimates for projected financial information. Projected financial information is subject to risk if our estimates are incorrect. The most significant estimate relates to our projected revenues and profitability. If we do not meet the projected revenues and profitability used in the valuation calculations then the intangible assets could be impaired. In determining the value of customer relationships, we reviewed historical customer attrition rates which were determined to be approximately 4% per year. Most of our customers tend to be long-term customers with very little turnover. While we do not typically have long-term contracts with customers, we have established long-term relationships with customers which make it difficult for competitors to displace us. Additionally, we assessed historical revenue growth within our industry and customers’ industries in determining the value of customer relationships. The value of our customer relationships intangible asset could become impaired if future results differ significantly from any of the underlying assumptions. This could include a higher customer attrition rate or a change in industry
30
R&D expenses represented approximately 1% of sales in both periods. We do not expect significant variances in future periods.