UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30,September 29, 2012
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-33209
ALTRA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 61-1478870 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
300 Granite Street, Suite 201, Braintree, MA | 02184 | |
(Address of principal executive offices) | (Zip Code) |
(781) 917-0600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company.) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of July 23, 2012, 26,935,783October 23,2012, 26,888,216 shares of Common Stock, $0.001 par value per share, were outstanding.
Page # | ||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||
EXHIBITS | ||||||
EX-10.2 Amended and Restated Employment Agreement | ||||||
EX-31.1 Section 302 Certification of Chief Executive Officer | ||||||
EX-31.2 Section 302 Certification of Chief Financial Officer | ||||||
EX-32.1 Section 906 Certification of Chief Executive Officer | ||||||
EX-32.2 Section 906 Certification of Chief Financial Officer | ||||||
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Item 1. Financial Statements (unaudited)
ALTRA HOLDINGS, INC.
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
September 29, | December 31, | |||||||||||||||
2012 | 2011 | |||||||||||||||
June 30, 2012 | December 31, 2011 | (Unaudited) | ||||||||||||||
(Unaudited) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 95,235 | $ | 92,515 | $ | 88,136 | $ | 92,515 | ||||||||
Trade receivables, less allowance for doubtful accounts of $1,467 and $1,092 at June 30, 2012 and December 31, 2011, respectively | 101,823 | 91,859 | ||||||||||||||
Trade receivables, less allowance for doubtful accounts of $1,894 and $1,092 at September 29, 2012 and December 31, 2011, respectively | 94,513 | 91,859 | ||||||||||||||
Inventories | 120,973 | 125,970 | 124,336 | 125,970 | ||||||||||||
Deferred income taxes | 5,849 | 5,856 | 5,840 | 5,856 | ||||||||||||
Income tax receivable | 4,222 | 7,299 | 3,013 | 7,299 | ||||||||||||
Prepaid expenses and other current assets | 7,376 | 7,141 | 6,752 | 7,141 | ||||||||||||
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Total current assets | 335,478 | 330,640 | 322,590 | 330,640 | ||||||||||||
Property, plant and equipment, net | 129,835 | 123,464 | 136,645 | 123,464 | ||||||||||||
Intangible assets, net | 73,328 | 77,108 | 78,405 | 77,108 | ||||||||||||
Goodwill | 83,257 | 83,799 | 85,027 | 83,799 | ||||||||||||
Deferred income taxes | 1,557 | 1,614 | 1,497 | 1,614 | ||||||||||||
Other non-current assets, net | 9,347 | 13,360 | 8,191 | 13,360 | ||||||||||||
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Total assets | $ | 632,802 | $ | 629,985 | $ | 632,355 | $ | 629,985 | ||||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 43,184 | $ | 52,768 | $ | 41,495 | $ | 52,768 | ||||||||
Accrued payroll | 18,593 | 19,734 | 20,841 | 19,734 | ||||||||||||
Accruals and other current liabilities | 32,743 | 28,798 | 36,413 | 28,798 | ||||||||||||
Deferred income taxes | 116 | 118 | 102 | 118 | ||||||||||||
Current portion of long-term debt | 21,475 | 688 | 997 | 688 | ||||||||||||
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Total current liabilities | 116,111 | 102,106 | 99,848 | 102,106 | ||||||||||||
Long-term debt - less current portion and net of unaccreted discount | 240,194 | 263,361 | 241,614 | 263,361 | ||||||||||||
Deferred income taxes | 36,157 | 35,798 | 36,269 | 35,798 | ||||||||||||
Pension liabilities | 11,923 | 12,896 | 11,213 | 12,896 | ||||||||||||
Other post retirement benefits | 260 | 296 | 254 | 296 | ||||||||||||
Long-term taxes payable | 1,288 | 6,227 | 1,303 | 6,227 | ||||||||||||
Other long-term liabilities | 674 | 905 | 743 | 905 | ||||||||||||
Redeemable non-controlling interest | 1,298 | — | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock ($0.001 par value, 90,000,000 shares authorized, 26,620,698 and 26,600,056 issued and outstanding at June 30, 2012 and December 31, 2011, respectively) | 27 | 27 | ||||||||||||||
Common stock ($0.001 par value, 90,000,000 shares authorized, 26,718,610 and 26,600,056 issued and outstanding at September 29, 2012 and December 31, 2011, respectively) | 27 | 27 | ||||||||||||||
Additional paid-in capital | 151,720 | 150,234 | 151,562 | 150,234 | ||||||||||||
Retained earnings | 102,989 | 83,211 | 110,160 | 83,211 | ||||||||||||
Accumulated other comprehensive income | (28,541 | ) | (25,076 | ) | (21,936 | ) | (25,076 | ) | ||||||||
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Total stockholders’ equity | 226,195 | 208,396 | 239,813 | 208,396 | ||||||||||||
Total liabilities, non-controlling interest and stockholders’ equity | $ | 632,355 | $ | 629,985 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 632,802 | $ | 629,985 | ||||||||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALTRA HOLDINGS, INC.
Condensed ConsolidatingConsolidated Statement of Comprehensive Income
Amounts in thousands, except per share data
Quarter Ended | Year to Date Ended | Quarter Ended | Year to Date Ended | |||||||||||||||||||||||||||||
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||
Net sales | $ | 187,943 | $ | 165,395 | $ | 380,328 | $ | 325,242 | $ | 174,488 | $ | 177,853 | $ | 554,816 | $ | 503,095 | ||||||||||||||||
Cost of sales | 131,941 | 116,985 | 267,653 | 228,997 | 122,477 | 124,824 | 390,130 | 353,821 | ||||||||||||||||||||||||
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Gross profit | 56,002 | 48,410 | 112,675 | 96,245 | 52,011 | 53,029 | 164,686 | 149,274 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 31,884 | 26,912 | 63,881 | 52,428 | 30,785 | 31,577 | 94,666 | 84,005 | ||||||||||||||||||||||||
Research and development expenses | 2,942 | 2,426 | 5,969 | 4,743 | 2,823 | 2,801 | 8,792 | 7,544 | ||||||||||||||||||||||||
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34,826 | 29,338 | 69,850 | 57,171 | 33,608 | 34,378 | 103,458 | 91,549 | |||||||||||||||||||||||||
Income from operations | 21,176 | 19,072 | 42,825 | 39,074 | 18,403 | 18,651 | 61,228 | 57,725 | ||||||||||||||||||||||||
Other non-operating (income) expense: | ||||||||||||||||||||||||||||||||
Other non-operarting (income) expense: | ||||||||||||||||||||||||||||||||
Interest expense, net | 6,504 | 6,153 | 12,278 | 11,316 | 6,637 | 6,698 | 18,915 | 18,014 | ||||||||||||||||||||||||
Other non-operating (income) expense, net | 1,207 | (599 | ) | 1,432 | (885 | ) | 402 | 216 | 1,834 | (668 | ) | |||||||||||||||||||||
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7,711 | 5,554 | 13,710 | 10,431 | 7,039 | 6,914 | 20,749 | 17,346 | |||||||||||||||||||||||||
Income before income taxes | 13,465 | 13,518 | 29,115 | 28,643 | 11,364 | 11,737 | 40,479 | 40,379 | ||||||||||||||||||||||||
Provision for income taxes | 2,856 | 4,600 | 7,990 | 9,003 | ||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 2,846 | (403 | ) | 10,836 | 8,600 | |||||||||||||||||||||||||||
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Net income | $ | 10,609 | $ | 8,918 | $ | 21,125 | $ | 19,640 | 8,518 | 12,140 | 29,643 | 31,779 | ||||||||||||||||||||
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Net loss attributable to non-controlling interest | 29 | — | 29 | — | ||||||||||||||||||||||||||||
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Net income attributable to Altra Holdings, Inc. | $ | 8,547 | $ | 12,140 | $ | 29,672 | $ | 31,779 | ||||||||||||||||||||||||
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Other Comprehensive Income | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (8,742 | ) | (149 | ) | (3,465 | ) | 5,569 | 6,605 | (7,008 | ) | 3,140 | (1,439 | ) | |||||||||||||||||||
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Total comprehensive income | $ | 1,867 | $ | 8,769 | $ | 17,660 | $ | 25,209 | 15,152 | 5,132 | 32,812 | 30,340 | ||||||||||||||||||||
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Comprehensive loss attributable to non-controlling interest | — | — | — | — | ||||||||||||||||||||||||||||
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Comprehensive income attributable to Altra Holdings, Inc. | $ | 15,152 | $ | 5,132 | $ | 32,812 | $ | 30,340 | ||||||||||||||||||||||||
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Weighted average shares, basic | 26,606 | 26,491 | 26,541 | 26,491 | 26,675 | 26,546 | 26,632 | 26,508 | ||||||||||||||||||||||||
Weighted average shares, diluted | 26,664 | 26,613 | 26,674 | 26,657 | 26,708 | 26,655 | 26,737 | 26,712 | ||||||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.40 | $ | 0.34 | $ | 0.80 | $ | 0.74 | ||||||||||||||||||||||||
Diluted | $ | 0.40 | $ | 0.34 | $ | 0.79 | $ | 0.74 | ||||||||||||||||||||||||
Basic net income attributable to Altra Holdings, Inc | $ | 0.32 | $ | 0.46 | $ | 1.11 | $ | 1.20 | ||||||||||||||||||||||||
Diluted net income attributable to Altra Holdings, Inc. | $ | 0.32 | $ | 0.46 | $ | 1.11 | $ | 1.19 | ||||||||||||||||||||||||
Cash dividend declared | $ | 0.05 | $ | — | $ | 0.05 | $ | — | $ | 0.05 | $ | — | $ | 0.10 | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALTRA HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
Year to Date Ended | Year to Date Ended | |||||||||||||||
June 30, 2012 | July 2, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income | $ | 21,125 | $ | 19,640 | $ | 29,643 | $ | 31,779 | ||||||||
Adjustments to reconcile net income to net cash flows: | ||||||||||||||||
Depreciation | 9,962 | 8,420 | 15,038 | 13,258 | ||||||||||||
Amortization of intangible assets | 3,321 | 2,863 | 5,052 | 4,568 | ||||||||||||
Amortization of deferred financing costs | 666 | 784 | 1,447 | 1,372 | ||||||||||||
Loss (gain) on foreign currency, net | 340 | (158 | ) | 44 | (324 | ) | ||||||||||
Accretion of debt discount, net | 1,588 | 1,045 | 2,585 | 1,887 | ||||||||||||
Stock-based compensation | 1,543 | 1,374 | 2,233 | 1,933 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Trade receivables | (13,198 | ) | (22,275 | ) | (2,134 | ) | (17,671 | ) | ||||||||
Inventories | 4,179 | (8,318 | ) | 3,106 | (13,873 | ) | ||||||||||
Accounts payable and accrued liabilities | (2,751 | ) | 6,301 | (557 | ) | 9,552 | ||||||||||
Other current assets and liabilities | 170 | (625 | ) | 984 | 880 | |||||||||||
Other operating assets and liabilities | (2,646 | ) | (1,896 | ) | (2,948 | ) | (4,254 | ) | ||||||||
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Net cash provided by operating activities | 24,299 | 7,155 | 54,493 | 29,107 | ||||||||||||
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Cash flows from investing activities | ||||||||||||||||
Purchase of property, plant and equipment | (16,906 | ) | (8,898 | ) | (25,162 | ) | (13,840 | ) | ||||||||
Proceeds from sale of Chattanooga facility | — | 1,484 | ||||||||||||||
Proceeds from sale of Chattanooga Facility | — | 1,484 | ||||||||||||||
Acquisition of Lamiflex, net of $68 cash received | (7,444 | ) | — | |||||||||||||
Acquisition of Bauer, net of $41 cash received | — | (62,291 | ) | — | (69,460 | ) | ||||||||||
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Net cash used in investing activities | (16,906 | ) | (69,705 | ) | (32,606 | ) | (81,816 | ) | ||||||||
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Cash flows from financing activities | ||||||||||||||||
Payment of issuance costs for Convertible Notes | — | (3,414 | ) | — | (3,414 | ) | ||||||||||
Proceeds from issuance of Convertible Notes | — | 85,000 | — | 85,000 | ||||||||||||
Purchase of 8 1/8 Senior Secured Notes | (21,000 | ) | (8,230 | ) | ||||||||||||
Redemption of variable rate demand revenue bonds related to the Chattanooga facility | — | (2,290 | ) | — | (2,290 | ) | ||||||||||
Redemption of variable rate demand revenue bonds related to the San Marcos facility | (3,000 | ) | — | (3,000 | ) | — | ||||||||||
Shares surrendered for tax withholdings | (57 | ) | (65 | ) | (905 | ) | (914 | ) | ||||||||
Dividend payment | (1,348 | ) | — | |||||||||||||
Payment on mortgages | (678 | ) | (197 | ) | (736 | ) | (516 | ) | ||||||||
Net payments on capital leases | (228 | ) | (400 | ) | (303 | ) | (627 | ) | ||||||||
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Net cash (used in) provided by financing activities | (3,963 | ) | 78,634 | (27,292 | ) | 69,009 | ||||||||||
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Effect of exchange rate changes on cash and cash equivalents | (710 | ) | 1,680 | 1,026 | 1,238 | |||||||||||
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Net change in cash and cash equivalents | 2,720 | 17,764 | (4,379 | ) | 17,538 | |||||||||||
Cash and cash equivalents at beginning of year | 92,515 | 72,723 | 92,515 | 72,723 | ||||||||||||
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Cash and cash equivalents at end of period | $ | 95,235 | $ | 90,487 | $ | 88,136 | $ | 90,261 | ||||||||
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Cash paid during the period for: | ||||||||||||||||
Interest | $ | 9,252 | $ | 8,737 | $ | 11,848 | $ | 10,462 | ||||||||
Income taxes | $ | 6,639 | $ | 8,290 | $ | 8,567 | $ | 9,685 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALTRA HOLDINGS, INC.
Consolidated Statement of Stockholders’ Equity
Amounts in thousands
Common Stock | Shares | Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | Redeemable Non- Controlling Interest | ||||||||||||||||||||||
Balance at January 1, 2011 | $ | 26 | 26,466 | $ | 133,861 | $ | 45,536 | $ | (14,671 | ) | $ | 164,752 | $ | — | ||||||||||||||
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Stock based compensation and vesting of restricted stock | — | 130 | 1,019 | — | — | 1,019 | — | |||||||||||||||||||||
Net income | — | — | — | 31,779 | — | 31,779 | — | |||||||||||||||||||||
Convertible Notes | — | — | 24,510 | — | — | 24,510 | — | |||||||||||||||||||||
Deferred taxes on Convertible Notes | — | — | (9,393 | ) | — | — | (9,393 | ) | — | |||||||||||||||||||
Deferred financing costs on Convertible Notes | — | — | (990 | ) | — | — | (990 | ) | — | |||||||||||||||||||
Cumulative foreign currency translation adjustment | — | — | — | — | (1,439 | ) | (1,439 | ) | — | |||||||||||||||||||
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Balance at October 1, 2011 | $ | 26 | 26,596 | $ | 149,007 | $ | 77,315 | $ | (16,110 | ) | $ | 210,238 | $ | — | ||||||||||||||
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Balance at January 1, 2012 | $ | 27 | 26,600 | $ | 150,234 | $ | 83,211 | $ | (25,076 | ) | $ | 208,396 | $ | — | ||||||||||||||
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Stock based compensation and vesting of restricted stock | — | 119 | 1,328 | — | — | 1,328 | ||||||||||||||||||||||
Net income | — | — | — | 29,643 | — | 29,643 | — | |||||||||||||||||||||
Net loss attributable to non-controlling interest | — | — | — | — | — | — | (29 | ) | ||||||||||||||||||||
Fair value of non-controlling interest at acquisition | — | — | — | — | — | — | 1,327 | |||||||||||||||||||||
Dividends declared | — | — | — | (2,694 | ) | — | (2,694 | ) | — | |||||||||||||||||||
Cumulative foreign currency translation adjustment | — | — | — | — | 3,140 | 3,140 | — | |||||||||||||||||||||
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Balance at September 29, 2012 | $ | 27 | 26,719 | $ | 151,562 | $ | 110,160 | $ | (21,936 | ) | $ | 239,813 | $ | 1,298 | ||||||||||||||
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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
1. Organization and Nature of Operations
Headquartered in Braintree, Massachusetts, Altra Holdings, Inc. (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 electro-mechanical power transmission and motion control products. The Company brings together strong brands covering over 50 product lines with production facilities in nine 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, Warner Linear, and Bauer Gear Motor.Motor, and PowerFlex.
2. Basis of Presentation
The Company was formed on November 30, 2004 following acquisitions of The Kilian Company (“Kilian”) and certain subsidiaries of Colfax Corporation (“Colfax”). During 2006, the Company acquired Hay Hall Holdings Limited (“Hay Hall”) and Bear 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. On May 29, 2011, the Company acquired substantially all of the assets of Danfoss Bauer GmbH relating to its gear motor business. On July 11, 2012, the Company acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda. (“Lamiflex”) relating to its high-speed disc couplings business.
Non-controlling Interest—The Company recorded the redeemable non-controlling interest from its acquisition of an 85% ownership interest of Lamiflex at fair value at the date of acquisition. In connection with this acquisition, the Company entered into put and call option agreements with the minority shareholders for the potential purchase of the non-controlling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the non-controlling interest is considered redeemable and is classified as temporary equity on the Company’s condensed consolidated balance sheet. The non-controlling interest is reviewed at each subsequent reporting period and adjusted, as needed, to reflect its then redemption value.
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. 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 June 30,September 29, 2012 and December 31, 2011, results of operations for the quarter and year to date periods ended June 30,September 29, 2012 and July 2,October 1, 2011, and cash flows for the year to date periods ended June 30,September 29, 2012 and July 2,October 1, 2011.
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. Fair Value of Financial Instruments
The carrying values of financial instruments, including accounts receivable, cash equivalents, accounts payable and other accrued liabilities, approximate their fair values due to their short-term maturities. The carrying amount of the 81/8% Senior Secured Notes (the “Senior Secured Notes”) was $177.0 million and $198.0 million at each of June 30,September 29, 2012 and December 31, 2011.2011, respectively. The estimated fair value of the Senior Secured Notes at June 30,September 29, 2012 and December 31, 2011 was $212.9$189.7 million and $210.4 million, respectively, based on quoted market prices for such notes (level 2).
The carrying amount of the 2.75% Convertible Senior Notes (the “Convertible Notes”) was $85.0 million at each of June 30,September 29, 2012 and December 31, 2011. The estimated fair value of the Convertible Notes at June 30,September 29, 2012 and December 31, 2011, was $78.0$83.6 million and $79.1 million, respectively, based on quoted market prices for such notes (level 2).
Included in cash and cash equivalents as of June 30,September 29, 2012 and December 31, 2011 were money market fund investments of $46.7$38.1 million and $48.9 million, respectively, which are reported at fair value based on quoted market prices for such investments (level 1).
4. 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.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The following is a reconciliation of basic to diluted net income per share:
Quarter Ended | Year to Date Ended | Quarter Ended | Year to Date Ended | |||||||||||||||||||||||||||||
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | September 29, | October 1, | September 29, | October 1, | |||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||||||||||||||||
Net income | $ | 10,609 | $ | 8,918 | $ | 21,125 | $ | 19,640 | ||||||||||||||||||||||||
Net income attributable to Altra Holdings, Inc | $ | 8,547 | $ | 12,140 | $ | 29,672 | $ | 31,779 | ||||||||||||||||||||||||
Shares used in net income per common share - basic | 26,606 | 26,491 | 26,541 | 26,491 | 26,675 | 26,546 | 26,632 | 26,508 | ||||||||||||||||||||||||
Incremental shares of unvested restricted common stock | 58 | 122 | 133 | 166 | 33 | 109 | 105 | 204 | ||||||||||||||||||||||||
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Shares used in net income per common share - diluted | 26,664 | 26,613 | 26,674 | 26,657 | 26,708 | 26,655 | 26,737 | 26,712 | ||||||||||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.40 | $ | 0.34 | $ | 0.80 | $ | 0.74 | ||||||||||||||||||||||||
Diluted | $ | 0.40 | $ | 0.34 | $ | 0.79 | $ | 0.74 | ||||||||||||||||||||||||
Basic net income attributable to Altra Holdings, Inc. | $ | 0.32 | $ | 0.46 | $ | 1.11 | $ | 1.20 | ||||||||||||||||||||||||
Diluted net income attributable to Altra Holdings, Inc. | $ | 0.32 | $ | 0.46 | $ | 1.11 | $ | 1.19 |
The Company excluded 3,068,9983,085,874 shares related to the Convertible Notes (see Note 11) from the above earnings per share calculation as these shares were anti-dilutive.
5. Acquisitions
In May 2011, the Company consummated an agreement to acquire substantially all of the assets and liabilities of Danfoss Bauer GmbH relating to its gear motor business (“Bauer”) for cash consideration of €43.1 million ($62.3 million). This transaction is referred to as the Bauer Acquisition. Following closing, the Company made additional payments in the amount of €4.8 million ($7.0 million) to reflect an adjustment for working capital and €0.1 million ($0.2 million) to reflect an adjustment for pension liability.
The closing date of the Bauer Acquisition was May 29, 2011, and as a result, the Company’s consolidated financial statements reflect Bauer’s results of operations from the beginning of business on May 30, 2011 forward.
In July 2012, the Company consummated an agreement to acquire 85% of privately held Lamiflex do Brasil Equipamentos Industrias Ltda. now known as Lamiflex Do Brasil Equipamentos Industriais S.A. This transaction is known as the Lamiflex Acquisition. The Company acquired 85% of the stock of Lamiflex for 17.4 million Reais ($8.6 million), which was subject to a reduction of 2.1 million Reais ($1.1 million) for estimated net debt at closing. The net debt assumed at closing is subject to a final net debt calculation adjustment.
The closing date of the Lamiflex Acquisition was July 11, 2012, and as a result, the Company’s consolidated financial statements reflect Lamiflex’s results of operations from the beginning of business on July 11, 2012 forward.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The Company is in the process of completing its final purchase price allocation. The Company is still finalizing the valuation of customer relationships, trademarks, deferred tax assets and liabilities and fixed assets. The purchase price is subject to change based on the finalization of certain purchase price adjustments. The Company is still evaluating whether the goodwill created in the Lamiflex Acquisition is tax deductible.
The preliminary value of the acquired assets, assumed liabilities and identified intangibles from the acquisition of Lamiflex, as presented below, are based upon the Company’s preliminary estimate of the fair value as of the date of the acquisition. The purchase price allocation was calculated as if the Company had acquired 100% of Lamiflex. The preliminary purchase price allocation as of the acquisition date is as follows:
Total Assumed purchase price, excluding acquisition costs of approximately $0.4 million | $ | 8,839 | ||
Less: Redeemable noncontrolling interest | 1,327 | |||
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Total purchase price paid at closing | 7,512 | |||
Cash and cash equivalents | 68 | |||
Trade receivables, net of amounts pledged | 639 | |||
Inventories | 710 | |||
Prepaid and other | 49 | |||
Property, plant and equipment | 3,020 | |||
Other assets | 79 | |||
Intangibles assets | 5,856 | |||
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Total assets acquired | $ | 10,421 | ||
Accounts payable | 537 | |||
Accrued expenses and other current liabilities | 851 | |||
Other liabilities, including long-term debt | 964 | |||
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Total liabilities assumed | $ | 2,352 | ||
Net assets acquired | 8,069 | |||
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Excess of purchase price over fair value of net assets acquired | 770 | |||
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The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The Company expects to develop synergies, such as the ability to cross-sell product and to penetrate into certain geographic areas, as a result of the acquisition of Lamiflex.
The Company recorded a redeemable non-controlling interest from its acquisition of an 85% ownership interest of Lamiflex at fair value at the date of acquisition. In connection with the Lamiflex Acquisition, the Company entered into put and call option agreements with the minority shareholders for the potential purchase of the non-controlling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the non-controlling interest is considered redeemable and is classified as temporary equity on the Company’s Condensed Consolidated Balance Sheet.
The estimated amounts recorded as intangible assets consist of the following:
Customer relationships, subject to amortization | $ | 5,496 | ||
Trade names and trademarks, not subject to amortization | 360 | |||
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Total intangible assets | $ | 5,856 | ||
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Customer relationships are subject to amortization which will be straight-lined over their estimated useful lives of 13 years, which represents the anticipated period over which the Company estimates it will benefit from the acquired assets.
The following table sets forth the unaudited pro forma results of operations of the Company for the quarter and year to date periods ended July 2,September 29, 2012 and October 1, 2011 as if the Company had acquired Bauer and Lamiflex at the beginning of the respective period. The pro forma information contains the actual operating results of the Company, including Bauer and Lamiflex, adjusted to include the pro forma impact of (i) additional depreciation expense as a result of estimated depreciation based on the fair value of fixed assets; (ii) additional expense as a result of the estimated amortization of identifiable intangible assets (iii) additional interest expense associated with the Convertible Notes issued on March 7, 2011 in connection with the Bauer Acquisition; (iv) elimination of certain acquisition related costs; and (v) the elimination of additional expense as a result of fair value adjustment to inventory recorded in connection with the Bauer Acquisition and the Lamiflex Acquisition. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred at the beginning of the period or that may be obtained in the future.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Pro Forma (unaudited) | Quarter to Date Period Ended | Year to Date Period Ended | ||||||||||||||||||||||
Quarter Ended | Year to Date Period Ended | September 29, | October 1, | September 29, | October 1, | |||||||||||||||||||
July 2, 2011 | July 2, 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Total revenues | $ | 185,153 | $ | 375,173 | $ | 174,488 | $ | 180,732 | $ | 557,527 | $ | 561,434 | ||||||||||||
Net income | $ | 11,029 | $ | 22,521 | ||||||||||||||||||||
Net income attributable to Altra Holdings, Inc. | $ | 8,547 | $ | 12,634 | $ | 29,989 | $ | 36,434 | ||||||||||||||||
Basic earnings per share: | ||||||||||||||||||||||||
Net income | $ | 0.42 | $ | 0.85 | ||||||||||||||||||||
Net income attributable to Altra Holdings, Inc. | $ | 0.32 | $ | 0.48 | $ | 1.13 | $ | 1.37 | ||||||||||||||||
Diluted earnings per share: | ||||||||||||||||||||||||
Net income | $ | 0.41 | $ | 0.84 | ||||||||||||||||||||
Net income attributable to Altra Holdings, Inc. | $ | 0.32 | $ | 0.47 | $ | 1.12 | $ | 1.36 |
6. Inventories
Inventories located at certain subsidiaries are stated at the lower of cost or market, principally using the last-in, first-out (“LIFO”) method. The remaining subsidiaries are stated at the lower of cost or market, using the first-in, first-out (“FIFO”) method. Market is defined as net realizable value. Inventories at June 30,September 29, 2012 and December 31, 2011 consisted of the following:
June 30, | December 31, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Raw materials | $ | 44,178 | $ | 45,664 | $ | 45,788 | $ | 45,664 | ||||||||
Work in process | 21,706 | 23,838 | 23,187 | 23,838 | ||||||||||||
Finished goods | 55,089 | 56,468 | 55,361 | 56,468 | ||||||||||||
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Inventories | $ | 120,973 | $ | 125,970 | $ | 124,336 | $ | 125,970 | ||||||||
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Approximately 11% of total inventories were valued using the LIFO method as of June 30,September 29, 2012 and December 31, 2011, respectively. The Company recorded a $0.1 million provision as a component of cost of sales to value the inventory on a LIFO basis for each of the quarters ended June 30,September 29, 2012 and July 2,October 1, 2011. The Company recorded a $0.2$0.3 million adjustment and $0.3$0.4 million adjustment as a component of cost of sales to value the inventory on a LIFO basis for the year to date periods ended June 30,September 29, 2012 and July 2,October 1, 2011, respectively.
As part of the Bauer Acquisition, the Company valued the acquired inventory at estimated fair market value less cost to sell. The resulting valuation increased the carrying value of the inventory by $0.5 million and was included as part of cost of goods sold during the secondyear-to-date period ended October, 1 2011.
As part of the Lamiflex Acquisition, the Company valued the acquired inventory at estimated fair market value less cost to sell. The resulting valuation increased the carrying value of the inventory by $0.1 million and was included as part of cost of goods sold during the quarter of 2011.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise notedended September 29, 2012.
7. Goodwill and Intangible Assets
Changes to goodwill from December 31, 2011 through June 30,September 29, 2012 were as follows:
2012 | 2012 | |||||||
Gross goodwill balance as of January 1 | $ | 115,609 | $ | 115,609 | ||||
Acquisition of Goodwill (Lamiflex) | 770 | |||||||
Impact of changes in foreign currency | (542 | ) | 458 | |||||
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Gross goodwill balance as of June 30 | 115,067 | |||||||
Gross goodwill balance as of September 29 | 116,837 | |||||||
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Accumulated impairment as of January 1 | (31,810 | ) | (31,810 | ) | ||||
Impairment charge during the period | — | — | ||||||
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Accumulated impairment as of June 30 | (31,810 | ) | ||||||
Accumulated impairment as of September 29 | (31,810 | ) | ||||||
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Net goodwill balance June 30, 2012 | $ | 83,257 | ||||||
Net goodwill balance September 29, 2012 | $ | 85,027 | ||||||
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Goodwill is reviewed for impairment when events or circumstances indicate that the carrying amount of goodwill may not be recovered. As of September 29, 2012, the Company concluded that the European economic downturn was a triggering event to perform a Step 1 goodwill impairment analysis for its Bauer Gear Motor reporting unit, which has significant operations in Europe. The Company performed a Step 1 goodwill impairment analysis and reviewed the difference between the estimated fair value and net book value. If the excess is less than $1.0 million, the reporting unit could be required to perform a step two goodwill impairment analysis in future periods, if the estimated profitability decreased by 10% when compared to our forecasts. As of September 29, 2012, Bauer Gear Motor had an estimated fair value that was at least $1.0 million greater than the net book value. As a result, the Company concluded that there was no impairment.
Other intangible assets as of June 30,September 29, 2012 and December 31, 2011 consisted of the following:
June 30, 2012 | December 31, 2011 | September 29, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||
Cost | Accumulated Amortization | Cost | Accumulated Amortization | Accumulated | Accumulated | |||||||||||||||||||||||||||
Other intangible assets | Cost | Amortization | Cost | Amortization | ||||||||||||||||||||||||||||
Intangible assets not subject to amortization: | ||||||||||||||||||||||||||||||||
Tradenames and trademarks | $ | 34,125 | $ | — | $ | 34,125 | $ | — | $ | 34,485 | $ | — | $ | 34,125 | $ | — | ||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||||||||||
Customer relationships | 74,101 | 32,739 | 74,312 | 29,704 | 79,808 | 34,426 | 74,312 | 29,704 | ||||||||||||||||||||||||
Product technology and patents | 5,651 | 5,602 | 5,576 | 5,316 | 5,646 | 5,646 | 5,576 | 5,316 | ||||||||||||||||||||||||
Impact of changes in foreign currency | (2,208 | ) | — | (1,885 | ) | — | (1,462 | ) | — | (1,885 | ) | — | ||||||||||||||||||||
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Total intangible assets | $ | 111,669 | $ | 38,341 | $ | 112,128 | $ | 35,020 | $ | 118,477 | $ | 40,072 | $ | 112,128 | $ | 35,020 | ||||||||||||||||
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The Company recorded $1.7$1.8 million and $1.5$1.7 million of amortization expense in each of the quarters ended June 30,September 29, 2012 and July 2,October 1, 2011, respectively, and recorded $3.3$5.1 million and $2.9$4.6 million of amortization expense in the year to date periods ended June 30,September 29, 2012 and July 2,October 1, 2011, respectively.
The estimated amortization expense for intangible assets is approximately $3.3$1.8 million for the remainder of 2012, $6.7$7.2 million in each of the next four years and then $9.1$13.3 million thereafter.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
8. Warranty Costs
The contractual warranty period generally ranges from three months to two years with a few extending up to thirty-six months based on product and application of the product. Changes in the carrying amount of accrued product warranty costs for each of the year to date periods ended June 30,September 29, 2012 and July 2,October 1, 2011 are as follows:
September 29, | October 1, | |||||||||||||||
June 30, 2012 | July 2, 2011 | 2012 | 2011 | |||||||||||||
Balance at beginning of period | $ | 4,898 | $ | 3,583 | $ | 4,898 | $ | 3,583 | ||||||||
Additional warranty related to Bauer | — | 825 | — | 1,720 | ||||||||||||
Accrued current period warranty expense | 901 | 262 | 750 | 1,618 | ||||||||||||
Payments | (998 | ) | (975 | ) | (534 | ) | (1,645 | ) | ||||||||
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Balance at end of period | $ | 4,801 | $ | 3,695 | $ | 5,114 | $ | 5,276 | ||||||||
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9. Income Taxes
The estimated effective income tax rates recorded for the year to date periodsquarters ended June 30,September 29, 2012 and July 2,October 1, 2011, were based upon management’s best estimate of the effective tax rate for the entire year.
The 2012 provision for income taxes, as a percentage of income before taxes, was lowerhigher than that of 2011, as result of aprimarily due to favorable New York state incomediscrete tax settlementbenefits recognized in the second quarter of 2012 for which the Company was fully indemnified. This tax benefit was entirely offset by a related $0.9 million expense recorded in Other Non-Operating Expense.ended October 1, 2011.
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 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 2007.
Additionally, the Company has indemnification agreements with the sellers of the Bauer, Colfax, Kilian, Bauer, Lamiflex and Hay Hall entities whichthat 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 comprehensive income. At December 31, 2011 and June 30,September 29, 2012, the Company had $2.7 million and $0.3$0.4 million of accrued interest and penalties, respectively. The reduction of interest and penalties by $2.4$2.3 million during the year to date period ended June 30,September 29, 2012 was primarily a result of a New York state income tax settlement for which the Company was fully indemnified by the acquired business’ former owner.
10. 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 employees.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The following table represents the components of the net periodic benefit cost associated with the respective plans for the quarter and year to date periods ended June 30,September 29, 2012 and July 2,October 1, 2011:
Quarter Ended | Quarter Ended | |||||||||||||||||||||||||||||||
Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||||||||||||||||||
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||||||||||||||
Service cost | $ | 25 | $ | 25 | $ | — | $ | — | $ | 25 | $ | 25 | $ | 1 | $ | 1 | ||||||||||||||||
Interest cost | 273 | 291 | 3 | 4 | 273 | 291 | 3 | 4 | ||||||||||||||||||||||||
Expected return on plan assets | (268 | ) | (266 | ) | — | — | (268 | ) | (266 | ) | (13 | ) | — | |||||||||||||||||||
Amortization of prior service income | — | — | — | — | ||||||||||||||||||||||||||||
Amortization of net gain | 24 | 7 | (13 | ) | (13 | ) | 25 | 7 | — | (13 | ) | |||||||||||||||||||||
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Net periodic benefit cost (income) | $ | 54 | $ | 57 | $ | (10 | ) | $ | (9 | ) | $ | 55 | $ | 57 | $ | (9 | ) | $ | (8 | ) | ||||||||||||
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Year to Date Ended | Year to Date Ended | |||||||||||||||||||||||||||||||
Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||||||||||||||||||
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||||||||||||||
Service cost | $ | 50 | $ | 50 | $ | 1 | $ | 1 | $ | 75 | $ | 75 | $ | 2 | $ | 2 | ||||||||||||||||
Interest cost | 546 | 572 | 7 | 8 | 819 | 863 | 10 | 12 | ||||||||||||||||||||||||
Expected return on plan assets | (536 | ) | (512 | ) | — | — | (804 | ) | (778 | ) | — | — | ||||||||||||||||||||
Amortization of prior service income | — | — | (1 | ) | (1 | ) | — | — | (1 | ) | (1 | ) | ||||||||||||||||||||
Amortization of net gain | 49 | 25 | (26 | ) | (26 | ) | 74 | 32 | (39 | ) | (39 | ) | ||||||||||||||||||||
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Net periodic benefit cost (income) | $ | 109 | $ | 135 | $ | (19 | ) | $ | (18 | ) | $ | 164 | $ | 192 | $ | (28 | ) | $ | (26 | ) | ||||||||||||
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There were no required contributions in the second quarter of 2012, however, theThe Company made $1.0$2.0 million of supplemental payments to the pension plan in contributions during the year to date period ended June 30, 2012.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
AmountsSeptember 29, 2012, which consisted of $1.5 million in thousands, unless otherwise noted
required contributions and a supplemental contribution of $0.5 million.
11. Debt
Outstanding debt obligations at June 30,September 29, 2012 and December 31, 2011 were as follows:
June 30, 2012 | December 31, 2011 | September 29, 2012 | December 31, 2011 | |||||||||||||
Debt: | ||||||||||||||||
Revolving Credit Agreement | $ | — | $ | — | $ | — | $ | — | ||||||||
Convertible Notes | 85,000 | 85,000 | 85,000 | 85,000 | ||||||||||||
Senior Secured Notes | 198,045 | 198,045 | 177,045 | 198,045 | ||||||||||||
Variable rate demand revenue bonds | — | 3,000 | — | 3,000 | ||||||||||||
Mortgages | 1,030 | 1,762 | 1,001 | 1,762 | ||||||||||||
Capital leases | 201 | 417 | ||||||||||||||
Capital leases and other | 1,155 | 417 | ||||||||||||||
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Total debt | 284,276 | 288,224 | 264,201 | 288,224 | ||||||||||||
Less: debt discount, net of accretion | (22,607 | ) | (24,175 | ) | (21,590 | ) | (24,175 | ) | ||||||||
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Total debt, net of unaccreted discount | $ | 261,669 | $ | 264,049 | $ | 242,611 | $ | 264,049 | ||||||||
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Less current portion of long-term debt | 21,475 | 688 | 997 | 688 | ||||||||||||
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Total long-term debt | $ | 240,194 | $ | 263,361 | $ | 241,614 | $ | 263,361 | ||||||||
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Convertible Notes
On March 7, 2011, the Company issued $85.0 million of Convertible Notes due on March 1, 2031. Interest on the Convertible Notes is payable semiannually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%.
The Company separately accounted for the debt and equity components of the Convertible Notes to reflect the issuer’s non-convertible debt borrowing rate, which interest costs are to be recognized in subsequent periods. The note payable principal balance at the date of issuance of $85.0 million was bifurcated into a debt component of $60.5 million and an equity component of $24.5 million. The difference between the note payable principal balance and the value of the debt
component is being accreted to interest expense over the term of the Convertible Notes. The debt component was recognized at the present value of associated cash flows discounted using a 8.25% discount rate, the borrowing rate at the date of issuance for a similar debt instrument without a conversion feature. The Company paid approximately $3.5 million of issuance costs associated with the Convertible Notes. The Company recorded $1.0 million of debt issuance costs as an offset to additional paid-in capital. As of June 30,September 29, 2012, the Company has amortized $0.5$0.6 million of debt issuance costs. The balance of $2.0$1.9 million of debt issuance costs is classified as other non-current assets on the Condensed Consolidated Balance Sheet and will be amortized over the term of the notes using the effective interest method.
The carrying amount of the equity component and the principal amount of the liability component, the unamortized discount, and the net carrying amount are as follows as of June 30,September 29, 2012:
June 30, 2012 | ||||
Principal amount of debt | $ | 85,000 | ||
Unamortized discount | 20,819 | |||
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Carrying value of debt | $ | 64,181 | ||
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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
September 29, 2012 | ||||
Principal amount of debt | $ | 85,000 | ||
Unamortized discount | 20,091 | |||
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Carrying value of debt | $ | 64,909 | ||
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Interest expense associated with the Convertible Notes consisted of the following for the year to date period ended June 30,September 29, 2012:
June 30, 2012 | September 29, 2012 | |||||||
Contractual coupon rate of interest | $ | 1,169 | $ | 1,753 | ||||
Accretion of convertible notes discount and amortization of deferred financing costs | 1,420 | 2,150 | ||||||
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Interest expense for the Convertible Notes | $ | 2,589 | $ | 3,903 | ||||
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The effective interest yield of the Convertible Notes due in 2031 is 8.5% at June 30,September 29, 2012 and the cash coupon interest rate is 2.75%.
Senior Secured Notes
In November 2009, the Company issued the Senior Secured Notes with a face value of $210.0 million. Interest on the Senior Secured Notes is payable semi-annually in arrears, on June 1 and December 1 of each year, commencing on June 1, 2010 at an annual rate of 81/8%. The effective interest rate of the Senior Secured Notes was approximately 8.75% after consideration of the $6.7 million of deferred financing costs (included in other non-current assets), which are being amortized over the term using the effective interest method. The principal balance of the Senior Secured Notes matures on December 1, 2016.
During 2011, the Company repurchased $12.0 million of Senior Secured Notes. The Company repurchased the Senior Secured Notes at a premium of $0.3 million, which was recorded as part of interest expense in the third and fourth quarters of 2011. Due to the repurchase of the Senior Secured Notes, the Company also wrote-off a proportional amount of the deferred financing fees and original issue discount associated with the Senior Secured Notes totaling $0.4 million which was also recorded as part of interest expense in the third and fourth quarters of 2011.
During the quarter ended September 29, 2012, the Company repurchased $21.0 million of Senior Secured Notes at a premium of $0.6 million, which was recorded as part of interest expense in the quarter ended September 29, 2012. Due to the repurchase of the Senior Secured Notes, the Company also wrote-off a proportional amount of the deferred financing fees and original issue discount associated with the Senior Secured Notes totaling $0.6 million which was recorded as part of interest expense in the quarter ended September 29, 2012.
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 Revolving Credit Agreement, on substantially all of the Company’s assets and those of its domestic subsidiaries. The indenture governing the Senior Secured Notes contains covenants which restrict the Company and its subsidiaries. These restrictions limit or prohibit, among other things, the Company’s ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay cash 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 its subsidiaries; and create liens on their assets. There are no financial covenants associated with the Senior Secured Notes.
Revolving Credit Agreement
Concurrently with the closing of the offering of the Senior Secured Notes, Altra Industrial entered into a new senior secured credit facility (the “Revolving Credit Agreement”). In 2011, Altra Industrial amended the Revolving Credit Agreement to increase the borrowing base to $65.0 million (subject to adjustment pursuant to a borrowing base and subject to increase from time to time in accordance with the terms of the amended credit facility) and to extend the term to October 31, 2016. As part of the amendment, additional financing fees of $0.3 million were capitalized and will be amortized over the life of agreement.
Altra Industrial can borrow up to $52.5 million under the Revolving Credit Agreement without being required to comply with any financial covenants under the agreement. Altra Industrial may use up to $30.0 million of its availability under the 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 Revolving Credit Agreement must be repaid in full as of October 31, 2016 or the redemption of the Senior Secured Notes, whichever is earlier.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
There were no borrowings under the Revolving Credit Agreement at June 30,September 29, 2012 and December 31, 2011, however, the lender had issued $3.9 million and $6.5 million of outstanding letters of credit on behalf of Altra Industrial as of June 30,both September 29, 2012 and December 31, 2011, respectively.2011.
Altra Industrial and all of its domestic subsidiaries are borrowers, (collectively, “Borrowers”) under the Revolving Credit Agreement. Certain of the Company’s 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 the Company’s existing and subsequently acquired or organized domestic subsidiaries that is a guarantor of the Borrower’s 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 of any Borrower involving an aggregate amount of $10.0 million or more and such default: (i) occurs at final maturity of such debt, (ii) allows the lender thereunder 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 ceases, with limited exception, to be secured by a full lien on the assets of Borrowers and guarantors.
Variable Rate Demand Revenue Bonds
In connection with the acquisition of TB Wood’s, the Company assumed obligations for certain Variable Rate Demand Revenue Bonds outstanding as of the acquisition date. TB Wood’s had assumed obligations for approximately $3.0 million and $2.3 million of Variable Rate Demand Revenue Bonds issued under the authority of the industrial development corporations of the City of San Marcos, Texas and the City of Chattanooga, Tennessee, respectively. The Company sold the Chattanooga facility on April 14, 2011 and redeemed the bonds associated with the facility at the time. The Company redeemed the bonds associated with the San Marcos facility during the first quarter ofended March 31, 2012. As of June 30,September 29, 2012, the Variable Rate Demand Revenue Bonds have been paid in full.
Mortgage
In June 2006, the Company entered into a mortgage on its building in Heidelberg, Germany with a local bank. In 2009, the Company refinanced the Heidelberg mortgage and increased the amount borrowed by an additional €1.0 million. The new mortgage is payable in monthly installments and is due in 2015. As of June 30,September 29, 2012 and December 31, 2011, the mortgage had a remaining principal of €0.8 million or $1.0 million, and €1.3 million or $1.8 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. Capital lease obligations amounted to approximately $0.2$0.1 million and $0.4 million at June 30,September 29, 2012 and December 31, 2011, respectively. Assets subject to capital leases are included in property, plant and equipment with the related amortization recorded as depreciation expense.
Overdraft Agreements
Certain of the Company’s foreign subsidiaries maintain overdraft agreements with financial institutions. There were no borrowings as of June 30, 2012 and December 31, 2011 under any of the overdraft agreements.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
12. Stockholders’ Equity
On June 5, 2012, the Company’s Board of Directors approved the payment of a quarterly cash dividend of $0.05 per share. The dividend of $1.3 million was paid on July 2, 2012 to stockholders of record as of the close of business on June 18, 2012.
On July 24, 2012, the Company’s Board of Directors approved the payment of a quarterly cash dividend of $0.05 per share for the quarter ended September 29, 2012. The dividend of $1.3 million was paid on October 2, 2012 to shareholders of record as of the close of business on September 18, 2012 and was accrued for in the balance sheet at September 29, 2012.
Future declarations of quarterly cash dividends are subject to approval by the Board of Directors and to the Board’s continuing determination that the declaration of dividends are in the best interest of the Company’s stockholders and are in compliance with all laws and agreements of the Company applicable to the declaration and payment of cash dividends.
Stock-Based Compensation
The Company’s Board of Directors established the 2004 Equity Incentive Plan (the “Plan”) that provides for various forms of stock-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 ranging 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. Common stock awarded under the Plan is generally subject to restrictions on transfer, repurchase rights, and other limitations and rights as set forth in the applicable award agreements. The shares are valued based on the share price on the date of grant.
The Plan permits the Company to grant restricted stock, among other things, 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 year to date periods ended June 30,September 29, 2012 and July 2,October 1, 2011, was $1.5$2.2 million and $1.4$1.9 million, respectively. Compensation expense recorded during the quarters ended June 30,September 29, 2012 and July 2,October 1, 2011, was $0.8$0.7 million and $0.7$0.6 million, respectively. Stock-based compensation has been recorded as an adjustment to selling, general and administrative expenses in the accompanying condensed consolidated statements of income. Stock-based compensation expense is recognized on a straight-line basis over the vesting period.
The following table sets forth the activity of the Company’s unvested restricted stock grants in the year to date period ended June 30,September 29, 2012:
Shares | Weighted-average grant date fair value | Shares | Weighted-average grant date fair value | |||||||||||||
Restricted shares unvested January 1, 2012 | 211,031 | $ | 13.52 | 211,031 | $ | 13.52 | ||||||||||
Shares granted | 128,018 | 21.27 | 130,918 | 21.17 | ||||||||||||
Shares forfeited | (1,620 | ) | 21.94 | |||||||||||||
Shares for which restrictions lapsed | (23,964 | ) | 20.65 | (170,604 | ) | 15.36 | ||||||||||
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Restricted shares unvested June 30, 2012 | 315,085 | $ | 16.09 | |||||||||||||
Restricted shares unvested September 29, 2012 | 169,725 | $ | 18.58 | |||||||||||||
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Total remaining unrecognized compensation cost was $3.5$2.9 million as of June 30,September 29, 2012, which will be recognized over a weighted average remaining period of three years. The fair market value of the shares for which the restrictions have lapsed during the year to date period ended June 30,September 29, 2012 was $0.5$3.0 million. Restricted shares granted are valued based on the fair market value of the stock on the date of grant.
13. 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 each of the quarters ended June 30,September 29, 2012 and July 2,October 1, 2011.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
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.institutions and invested in AAA rated mutual funds or United States Government Securities.
The Company has six operating segments that are regularly reviewed by its chief operating decision maker. Each of the Company’s six operating segments, which are the same as its reporting units, produceproduces mechanical power transmission products. The Company aggregates all of the operating segments into one reportable segment. The six operating segments have similar long-term average gross profit margins. All of the Company’s products are sold by one global sales force and the Company has one global marketing function. Strategic markets and industries are determined for the entire company and then targeted by the brands. All of the operating segments have common manufacturing and production processes. Each segment includes machine shops which use similar equipment and manufacturing techniques to produce industrial components that transmit and control motion and power. Each of the segments uses common raw materials, such as aluminum, steel and copper. The Company purchases these materials and negotiates procurement contracts using one global purchasing function.
The Company serves the general industrial market by selling to original equipment manufacturers (“OEM”) and distributors. The Company’s 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.
The Company’s chief operating decision maker is currently re-evaluating how the Company’s business is organized, how financial information is reviewed and, as a result, how many operating segments the Company will have.
Net sales to third parties by geographic region are as follows:
Net Sales | Net Sales | Quarter Ended | Year to Date Ended | |||||||||||||||||||||||||||||
Quarter Ended | Year to Date Ended | September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | |||||||||||||||||||||||||||
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | |||||||||||||||||||||||||||||
North America (primarily U.S.) | $ | 121,033 | $ | 112,058 | $ | 246,012 | $ | 229,141 | ||||||||||||||||||||||||
The Americas (primarily U.S.) | $ | 112,708 | $ | 107,000 | $ | 358,719 | $ | 336,141 | ||||||||||||||||||||||||
Europe | 55,077 | 43,444 | 112,523 | 77,539 | 49,832 | 59,565 | 162,356 | 137,104 | ||||||||||||||||||||||||
Asia and other | 11,833 | 9,893 | 21,793 | 18,562 | 11,948 | 11,288 | 33,741 | 29,850 | ||||||||||||||||||||||||
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Total | $ | 187,943 | $ | 165,395 | $ | 380,328 | $ | 325,242 | $ | 174,488 | $ | 177,853 | $ | 554,816 | $ | 503,095 | ||||||||||||||||
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Net sales to third parties are attributed to the geographic regions based on the country in which the shipment originates.
The net assets of the Company’s foreign subsidiaries at June 30,September 29, 2012 and December 31, 2011 were $104.9$116.3 million and $100.0 million, respectively.
14. Commitments and Contingencies
General Litigation
The Company is involved in various pending legal proceedings arising out of the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims, and workers’ compensation claims. None of these legal proceedings are expected to have a material adverse effect on the results of operations, cash flows, or financial condition of the Company. With respect to these proceedings, management believes that the Company will prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adversely to the Company, there could be a material adverse effect on the results of operations, cash flows, or financial condition of the Company. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. There were no material amounts accrued in the accompanying consolidated balance sheets for potential litigation as of September 29, 2012 or December 31, 2011. For matters where a reserve has not been established and for which we believe a loss is reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, we believe that such losses, individually and in the aggregate, will not have a material effect on our consolidated financial statements.
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The Company also risks exposure to product liability claims in connection with products it has sold and those sold by businesses that the Company acquired. Although in some cases third parties have retained responsibility for product liability claims relating to products manufactured or sold prior to the acquisition of the relevant business and in other cases the persons from whom the Company has acquired a business may be required to indemnify the Company for certain product liability claims subject to certain caps or limitations on indemnification, the Company cannot assure that those third parties will in fact satisfy their obligations with respect to liabilities retained by them or their indemnification obligations. If those third parties become unable to or otherwise do not comply with their respective obligations including indemnity obligations, or if certain product liability claims for which the Company is obligated were not retained by third parties or are not subject to these indemnities, the Company could become subject to significant liabilities or other adverse consequences. Moreover, even in cases where third parties retain responsibility for product liability claims or are required to indemnify the Company, significant claims arising from products that have been acquired could have a material adverse effect on the Company’s ability to realize the benefits from an acquisition, could result in the reduction of the value of goodwill that the Company recorded in connection with an acquisition, or could otherwise have a material adverse effect on the Company’s business, financial condition, or operations.
15. Guarantor Subsidiaries
All of the Company’s direct and indirect 100% owned U.S. domestic subsidiaries are guarantors of the Company’s Senior Secured Notes. 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. 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’s Regulation 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.
In the preparation of our Form 10-Q for the period ended June 30,September 29, 2012, errors were identified in the previously reported guarantor subsidiaries footnote. These changes did not impact the condensed consolidated balance sheet, condensed consolidated statement of comprehensive income, or the condensed consolidated statement of cash flows. The nature of the corrections are (i) to properly account for the non-guarantor subsidiaries that consolidate into the guarantor subsidiaries under the equity method of accounting, including to properly account for certain intercompany loan transactions, and(ii) to properly record the impact of certain foreign currency transactions.transactions and, (iii) to properly record the tax impact of the above adjustments. The tables below provide disclosure of the changes to the guarantor footnote for the condensed consolidating balance sheet as of December 31, 2011, the unaudited condensed consolidating statement of comprehensive income for the quarter and year to date period ended July 2,October 1, 2011, and the unaudited condensed consolidating statement of cash flows for the year to date period ended July 2,October 1, 2011.
Condensed Consolidating Balance Sheet | ||||||||||||||||||||||||||||||||||||||||
December 31, 2011 | Condensed Consolidating Balance Sheet | |||||||||||||||||||||||||||||||||||||||
December 31, 2011 | ||||||||||||||||||||||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Loans receivable from related parties | ||||||||||||||||||||||||||||||||||||||||
As reported | $ | 259,891 | $ | — | $ | — | $ | (259,891 | ) | $ | — | $ | 259,891 | $ | — | $ | — | $ | (259,891 | ) | $ | — | ||||||||||||||||||
As adjusted | 256,976 | — | — | (256,976 | ) | — | 256,976 | — | — | (256,976 | ) | — | ||||||||||||||||||||||||||||
Investment in subs | ||||||||||||||||||||||||||||||||||||||||
As reported | 202,463 | — | — | (202,463 | ) | — | 202,463 | — | — | (202,463 | ) | — | ||||||||||||||||||||||||||||
As adjusted | 205,378 | 99,983 | — | (305,361 | ) | — | 205,378 | 99,983 | — | (305,361 | ) | — | ||||||||||||||||||||||||||||
Total assets | ||||||||||||||||||||||||||||||||||||||||
As reported | 469,445 | 386,405 | 236,489 | (462,354 | ) | 629,985 | 469,445 | 386,405 | 236,489 | (462,354 | ) | 629,985 | ||||||||||||||||||||||||||||
As adjusted | 469,445 | 486,388 | 236,489 | (562,337 | ) | 629,985 | 469,445 | 486,388 | 236,489 | (562,337 | ) | 629,985 | ||||||||||||||||||||||||||||
Loans payable to related parties | ||||||||||||||||||||||||||||||||||||||||
As reported | — | 188,595 | 71,296 | (259,891 | ) | — | — | 188,595 | 71,296 | (259,891 | ) | — | ||||||||||||||||||||||||||||
As adjusted | — | 176,878 | 80,098 | (256,976 | ) | — | — | 176,878 | 80,098 | (256,976 | ) | — | ||||||||||||||||||||||||||||
Total current liabilities | ||||||||||||||||||||||||||||||||||||||||
As reported | 2,222 | 245,390 | 114,385 | (259,891 | ) | 102,106 | 2,222 | 245,390 | 114,385 | (259,891 | ) | 102,106 | ||||||||||||||||||||||||||||
As adjusted | 2,222 | 233,673 | 123,187 | (256,976 | ) | 102,106 | 2,222 | 233,673 | 123,187 | (256,976 | ) | 102,106 | ||||||||||||||||||||||||||||
Total stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||
As reported | 208,396 | 93,678 | 108,785 | (202,463 | ) | 208,396 | 208,396 | 93,678 | 108,785 | (202,463 | ) | 208,396 | ||||||||||||||||||||||||||||
As adjusted | 208,396 | 205,378 | 99,983 | (305,361 | ) | 208,396 | 208,396 | 205,378 | 99,983 | (305,361 | ) | 208,396 | ||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||
As reported | 469,445 | 386,405 | 236,489 | (462,354 | ) | 629,985 | 469,445 | 386,405 | 236,489 | (462,354 | ) | 629,985 | ||||||||||||||||||||||||||||
As adjusted | $ | 469,445 | $ | 486,388 | $ | 236,489 | $ | (562,337 | ) | $ | 629,985 | $ | 469,445 | $ | 486,388 | $ | 236,489 | $ | (562,337 | ) | $ | 629,985 | ||||||||||||||||||
Unaudited Condensed Consolidating Statement of Comprehensive Income | ||||||||||||||||||||||||||||||||||||||||
Quarter Ended October 1, 2011 | ||||||||||||||||||||||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Interest expense, net | ||||||||||||||||||||||||||||||||||||||||
As reported | $ | 6,395 | $ | 253 | $ | 50 | $ | — | $ | 6,698 | ||||||||||||||||||||||||||||||
As adjusted | 6,450 | 198 | 50 | — | 6,698 | |||||||||||||||||||||||||||||||||||
Equity in earnings of subsidiaries | ||||||||||||||||||||||||||||||||||||||||
As reported | 11,806 | — | — | (11,806 | ) | — | ||||||||||||||||||||||||||||||||||
As adjusted | 7,295 | 2,391 | — | (9,686 | ) | — | ||||||||||||||||||||||||||||||||||
Income before income taxes | ||||||||||||||||||||||||||||||||||||||||
As reported | 5,411 | 12,679 | 5,453 | (11,806 | ) | 11,737 | ||||||||||||||||||||||||||||||||||
As adjusted | 6,419 | 9,551 | 5,453 | (9,686 | ) | 11,737 | ||||||||||||||||||||||||||||||||||
Provision (benefit) for income taxes | ||||||||||||||||||||||||||||||||||||||||
As reported | (6,729 | ) | 3,264 | 3,062 | — | (403 | ) | |||||||||||||||||||||||||||||||||
As adjusted | (5,721 | ) | 2,256 | 3,062 | — | (403 | ) | |||||||||||||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||||||||
As reported | 12,140 | 9,415 | 2,391 | (11,806 | ) | 12,140 | ||||||||||||||||||||||||||||||||||
As adjusted | $ | 12,140 | $ | 7,295 | $ | 2,391 | $ | (9,686 | ) | $ | 12,140 |
Unaudited Condensed Consolidating Statement of Comprehensive Income | ||||||||||||||||||||
Quarter Ended July 2, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Interest expense, net | ||||||||||||||||||||
As reported | $ | 5,913 | $ | 222 | $ | 18 | $ | — | $ | 6,153 | ||||||||||
As adjusted | 323 | 5,812 | 18 | — | 6,153 | |||||||||||||||
Equity in earnings of subsidiaries | ||||||||||||||||||||
As reported | 13,551 | — | — | (13,551 | ) | — | ||||||||||||||
As adjusted | 7,872 | 4,666 | — | (12,538 | ) | — | ||||||||||||||
Income before income taxes | ||||||||||||||||||||
As reported | 7,638 | 13,670 | 5,761 | (13,551 | ) | 13,518 | ||||||||||||||
As adjusted | 7,549 | 12,746 | 5,761 | (12,538 | ) | 13,518 | ||||||||||||||
Provision (benefit) for income taxes | ||||||||||||||||||||
As reported | (1,280 | ) | 4,785 | 1,095 | — | 4,600 | ||||||||||||||
As adjusted | (1,369 | ) | 4,874 | 1,095 | — | 4,600 | ||||||||||||||
Net income | ||||||||||||||||||||
As reported | 8,918 | 8,885 | 4,666 | (13,551 | ) | 8,918 | ||||||||||||||
As adjusted | $ | 8,918 | $ | 7,872 | $ | 4,666 | $ | (12,538 | ) | $ | 8,918 |
Unaudited Condensed Consolidating Statement of Comprehensive Income | ||||||||||||||||||||
Year to Date Ended July 2, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Interest expense, net | ||||||||||||||||||||
As reported | $ | 10,870 | $ | 406 | $ | 40 | $ | — | $ | 11,316 | ||||||||||
As adjusted | 528 | 10,748 | 40 | — | 11,316 | |||||||||||||||
Equity in earnings of subsidiaries | ||||||||||||||||||||
As reported | 27,776 | — | — | (27,776 | ) | — | ||||||||||||||
As adjusted | 17,345 | 10,597 | — | (27,942 | ) | — | ||||||||||||||
Income before income taxes | ||||||||||||||||||||
As reported | 16,906 | 26,430 | 13,083 | (27,776 | ) | 28,643 | ||||||||||||||
As adjusted | 16,817 | 26,685 | 13,083 | (27,942 | ) | 28,643 | ||||||||||||||
Provision (benefit) for income taxes | ||||||||||||||||||||
As reported | (2,734 | ) | 9,251 | 2,486 | — | 9,003 | ||||||||||||||
As adjusted | (2,823 | ) | 9,340 | 2,486 | — | 9,003 | ||||||||||||||
Net income | ||||||||||||||||||||
As reported | 19,640 | 17,179 | 10,597 | (27,776 | ) | 19,640 | ||||||||||||||
As adjusted | $ | 19,640 | $ | 17,345 | $ | 10,597 | $ | (27,942 | ) | $ | 19,640 |
Unaudited Condensed Consolidating Statement of Cash Flows | ||||||||||||||||||||
Year to Date Ended July 2, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net income | ||||||||||||||||||||
As reported | $ | 19,640 | $ | 17,179 | $ | 6,098 | $ | (23,277 | ) | $ | 19,640 | |||||||||
As adjusted | 19,640 | 17,345 | 10,597 | (27,942 | ) | 19,640 | ||||||||||||||
Undistributed equity in earnings of subsidiaries | ||||||||||||||||||||
As reported | (23,277 | ) | — | — | 23,277 | — | ||||||||||||||
As adjusted | (27,942 | ) | — | — | 27,942 | — | ||||||||||||||
Net cash provided by (used in) operating activities | ||||||||||||||||||||
As reported | (1,253 | ) | 4,184 | 4,224 | — | 7,155 | ||||||||||||||
As adjusted | (5,918 | ) | 4,350 | 8,723 | — | 7,155 | ||||||||||||||
Change in affiliate debt | ||||||||||||||||||||
As reported | (80,268 | ) | | 22,515 | | | 57,753 | | — | — | ||||||||||
As adjusted | (75,603 | ) | 22,349 | | 53,254 | | — | — | ||||||||||||
Net cash provided by financing activities | ||||||||||||||||||||
As reported | 1,253 | 20,074 | 57,307 | — | 78,634 | |||||||||||||||
As adjusted | $ | 5,918 | $ | 19,908 | $ | 52,808 | $ | — | $ | 78,634 |
Interest expense, net As reported As adjusted Equity in earnings of subsidiaries As reported As adjusted Income before income taxes As reported As adjusted Provision (benefit) for income taxes As reported As adjusted Net income As reported As adjusted Net income As reported As adjusted Undistributed equity in earnings of subsidiaries As reported As adjusted Change in cash provided by operating activities As reported As adjusted Change in affiliate debt As reported As adjusted Change in cash provided by financing activities As reported As adjustedALTRA HOLDINGS, INC. Unaudited Condensed Consolidating Statement of Comprehensive Income Year to Date Ended October 1, 2011 Issuer Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated $ 17,265 $ 659 $ 90 $ — $ 18,014 17,319 605 90 — 18,014 39,581 — — (39,581 ) — 24,639 12,988 — (37,627 ) — 22,316 39,108 18,536 (39,581 ) 40,379 23,235 36,235 18,536 (37,627 ) 40,379 (9,463 ) 12,515 5,548 — 8,600 (8,544 ) 11,596 5,548 — 8,600 31,779 26,593 12,988 (39,581 ) 31,779 $ 31,779 $ 24,639 $ 12,988 $ (37,627 ) $ 31,779 Unaudited Condensed Consolidating Statement of Cash Flows Year to Date Ended October 1, 2011 Issuer Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated $ 31,779 $ 26,593 $ 12,988 $ (39,581 ) $ 31,779 31,779 24,639 12,988 (37,627 ) 31,779 (39,581 ) — — 39,581 — $ (24,639 ) $ (12,988 ) $ — $ 37,627 $ — (567 ) 8,642 21,032 — 29,107 $ 14,375 $ (6,300 ) $ 21,032 $ — $ 29,107 (71,875 ) 16,442 55,433 — — $ (86,817 ) $ 31,384 $ 55,433 $ — $ — $ 567 $ 13,924 $ 54,518 $ — $ 69,009 (14,375 ) 28,866 54,518 — 69,009
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Balance Sheet
June 30,September 29, 2012
Issuer | Guarantor Subsidiaries | Non Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 46,595 | $ | 48,640 | $ | — | $ | 95,235 | ||||||||||
Trade receivables, less allowance for doubtful accounts | — | 59,206 | 42,617 | — | 101,823 | |||||||||||||||
Loans receivable from related parties | 262,879 | — | — | (262,879 | ) | — | ||||||||||||||
Inventories | — | 73,929 | 47,044 | — | 120,973 | |||||||||||||||
Deferred income taxes | — | 5,325 | 524 | — | 5,849 | |||||||||||||||
Income tax receivable | — | 4,140 | 82 | — | 4,222 | |||||||||||||||
Prepaid expenses and other current assets | — | 2,507 | 4,869 | — | 7,376 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 262,879 | 191,702 | 143,776 | (262,879 | ) | 335,478 | ||||||||||||||
Property, plant and equipment, net | — | 84,167 | 45,668 | — | 129,835 | |||||||||||||||
Intangible assets, net | — | 48,314 | 25,014 | — | 73,328 | |||||||||||||||
Goodwill | — | 56,446 | 26,811 | — | 83,257 | |||||||||||||||
Deferred income taxes | — | — | 1,557 | — | 1,557 | |||||||||||||||
Investment in subsidiaries | 220,694 | 104,895 | — | (325,589 | ) | — | ||||||||||||||
Other non-current assets, net | 6,512 | 1,654 | 1,181 | — | 9,347 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 490,085 | $ | 487,178 | $ | 244,007 | $ | (588,468 | ) | $ | 632,802 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | — | $ | 26,969 | $ | 16,215 | $ | — | $ | 43,184 | ||||||||||
Accrued payroll | — | 8,452 | 10,141 | — | 18,593 | |||||||||||||||
Accruals and other current liabilities | 3,467 | 18,091 | 11,185 | — | 32,743 | |||||||||||||||
Deferred income taxes | — | — | 116 | — | 116 | |||||||||||||||
Current portion of long-term debt | 21,000 | 156 | 319 | — | 21,475 | |||||||||||||||
Loans payable to related parties | — | 173,969 | 88,910 | (262,879 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 24,467 | 227,637 | 126,886 | (262,879 | ) | 116,111 | ||||||||||||||
Long-term debt - less current portion and net of unacreted discount | 239,423 | 48 | 723 | — | 240,194 | |||||||||||||||
Deferred income taxes | — | 30,072 | 6,085 | — | 36,157 | |||||||||||||||
Pension liabilities | — | 6,551 | 5,372 | — | 11,923 | |||||||||||||||
Other post employment benefits | — | 260 | — | — | 260 | |||||||||||||||
Long-term taxes payable | — | 1,288 | — | — | 1,288 | |||||||||||||||
Other long-term liabilities | — | 628 | 46 | — | 674 | |||||||||||||||
Total stockholders’ equity | 226,195 | 220,694 | 104,895 | (325,589 | ) | 226,195 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and stockholders’ equity | $ | 490,085 | $ | 487,178 | $ | 244,007 | $ | (588,468 | ) | $ | 632,802 | |||||||||
|
|
|
|
|
|
|
|
|
|
ASSETS Current assets: Cash and cash equivalents Trade receivables, less allowance for doubtful accounts Loans receivable from related parties Inventories Deferred income taxes Income tax receivable Prepaid expenses and other current assets Total current assets Property, plant and equipment, net Intangible assets, net Goodwill Deferred income taxes Investment in subsidiaries Other non-current assets, net Total assets LIABILITIES, NON-CONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable Accrued payroll Accruals and other current liabilities Deferred income taxes Current portion of long-term debt Loans payable to related parties Total current liabilities Long-term debt - less current portion and net of unaccreted discount Deferred income taxes Pension liabilities Other post employment benefits Long-term taxes payable Other long-term liabilities Redeemable non-Controlling Interest Total stockholders’ equity Total liabilities, non-controlling interest and stockholders’ equity ALTRA HOLDINGS, INC. Issuer Guarantor
Subsidiaries Non Guarantor
Subsidiaries Eliminations Consolidated $ — $ 37,504 $ 50,632 $ — $ 88,136 — 55,258 39,255 — 94,513 245,311 — — (245,311 ) — — 76,583 47,753 — 124,336 — 5,325 515 — 5,840 — 2,832 181 — 3,013 — 2,866 3,886 — 6,752 245,311 180,368 142,222 (245,311 ) 322,590 — 84,507 52,138 — 136,645 — 47,341 31,064 — 78,405 — 56,446 28,581 — 85,027 — — 1,497 — 1,497 234,689 116,302 — (350,991 ) — 6,225 1,164 802 — 8,191 $ 486,225 $ 486,128 $ 256,304 $ (596,302 ) $ 632,355 $ — $ 25,939 $ 15,556 $ — $ 41,495 — 9,665 11,176 — 20,841 5,991 17,792 12,630 — 36,413 — — 102 — 102 — 109 888 — 997 — 159,911 85,400 (245,311 ) — 5,991 213,416 125,752 (245,311 ) 99,848 240,421 44 1,149 — 241,614 — 30,072 6,197 — 36,269 — 5,607 5,606 — 11,213 — 254 — — 254 — 1,303 — — 1,303 — 743 — — 743 — — 1,298 — 1,298 239,813 234,689 116,302 (350,991 ) 239,813 $ 486,225 $ 486,128 $ 256,304 $ (596,302 ) $ 632,355
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Condensed Consolidating Balance Sheet
December 31, 2011
Issuer | Guarantor Subsidiaries | Non Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 49,876 | $ | 42,639 | $ | — | $ | 92,515 | ||||||||||
Trade receivables, less allowance for doubtful accounts | — | 52,706 | 39,153 | — | 91,859 | |||||||||||||||
Loans receivable from related parties | 256,976 | — | — | (256,976 | ) | — | ||||||||||||||
Inventories | — | 76,632 | 49,338 | — | 125,970 | |||||||||||||||
Deferred income taxes | — | 5,325 | 531 | — | 5,856 | |||||||||||||||
Income tax receivable | — | 6,868 | 431 | — | �� | 7,299 | ||||||||||||||
Prepaid expenses and other current assets | — | 3,096 | 4,045 | — | 7,141 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 256,976 | 194,503 | 136,137 | (256,976 | ) | 330,640 | ||||||||||||||
Property, plant and equipment, net | — | 79,576 | 43,888 | — | 123,464 | |||||||||||||||
Intangible assets, net | — | 50,329 | 26,779 | — | 77,108 | |||||||||||||||
Goodwill | — | 56,446 | 27,353 | — | 83,799 | |||||||||||||||
Deferred income taxes | — | — | 1,614 | — | 1,614 | |||||||||||||||
Investment in subs | 205,378 | 99,983 | — | (305,361 | ) | — | ||||||||||||||
Other non-current assets, net | 7,091 | 5,551 | 718 | — | 13,360 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 469,445 | $ | 486,388 | $ | 236,489 | $ | (562,337 | ) | $ | 629,985 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | — | $ | 30,278 | $ | 22,490 | $ | — | $ | 52,768 | ||||||||||
Accrued payroll | — | 9,522 | 10,212 | — | 19,734 | |||||||||||||||
Accruals and other current liabilities | 2,222 | 16,645 | 9,931 | — | 28,798 | |||||||||||||||
Deferred income taxes | — | — | 118 | — | 118 | |||||||||||||||
Current portion of long-term debt | — | 350 | 338 | — | 688 | |||||||||||||||
Loans payable to related parties | — | 176,878 | 80,098 | (256,976 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 2,222 | 233,673 | 123,187 | (256,976 | ) | 102,106 | ||||||||||||||
Long-term debt - less current portion and net of unaccreted discount and premium | 258,827 | 3,060 | 1,474 | — | 263,361 | |||||||||||||||
Deferred income taxes | — | 29,595 | 6,203 | — | 35,798 | |||||||||||||||
Pension liabilities | — | 7,435 | 5,461 | — | 12,896 | |||||||||||||||
Long-term taxes payables | — | 6,227 | — | — | 6,227 | |||||||||||||||
Other long-term liabilities | — | 1,020 | 181 | — | 1,201 | |||||||||||||||
Total stockholders’ equity | 208,396 | 205,378 | 99,983 | (305,361 | ) | 208,396 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and stockholders’ equity | $ | 469,445 | $ | 486,388 | $ | 236,489 | $ | (562,337 | ) | $ | 629,985 | |||||||||
|
|
|
|
|
|
|
|
|
|
ASSETS Current assets: Cash and cash equivalents Trade receivables, less allowance for doubtful accounts Loans receivable from related parties Inventories Deferred income taxes Income tax receivable Prepaid expenses and other current assets Total current assets Property, plant and equipment, net Intangible assets, net Goodwill Deferred income taxes Investment in subs Other non-current assets, net Total assets LIABILITIES, NON-CONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable Accrued payroll Accruals and other current liabilities Deferred income taxes Current portion of long-term debt Loans payable to related parties Total current liabilities Long-term debt - less current portion and net of unaccreted discount and premium Deferred income taxes Pension liabilities Long-term taxes payables Other long-term liabilities Redeemable non-Controlling Interest Total Stockholders’ equity Total liabilities, non-controlling interest and stockholders’ equity ALTRA HOLDINGS, INC. Issuer Guarantor
Subsidiaries Non Guarantor
Subsidiaries Eliminations Consolidated $ — $ 49,876 $ 42,639 $ — $ 92,515 — 52,706 39,153 — 91,859 256,976 — — (256,976 ) — — 76,632 49,338 — 125,970 — 5,325 531 — 5,856 — 6,868 431 — 7,299 — 3,096 4,045 — 7,141 256,976 194,503 136,137 (256,976 ) 330,640 — 79,576 43,888 — 123,464 — 50,329 26,779 — 77,108 — 56,446 27,353 — 83,799 — — 1,614 — 1,614 205,378 99,983 — (305,361 ) — 7,091 5,551 718 — 13,360 $ 469,445 $ 486,388 $ 236,489 $ (562,337 ) $ 629,985 $ — $ 30,278 $ 22,490 $ — $ 52,768 — 9,522 10,212 — 19,734 2,222 16,645 9,931 — 28,798 — — 118 — 118 — 350 338 — 688 — 176,878 80,098 (256,976 ) — 2,222 233,673 123,187 (256,976 ) 102,106 258,827 3,060 1,474 — 263,361 — 29,595 6,203 — 35,798 — 7,435 5,461 — 12,896 — 6,227 — — 6,227 — 1,020 181 — 1,201 — — — — — 208,396 205,378 99,983 (305,361 ) 208,396 $ 469,445 $ 486,388 $ 236,489 $ (562,337 ) $ 629,985
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Comprehensive Income
Year to Date Ended June 30, 2012 | Year to Date Ended September 29, 2012 | |||||||||||||||||||||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Net sales | $ | — | $ | 252,987 | $ | 151,682 | $ | (24,341 | ) | $ | 380,328 | $ | — | $ | 366,332 | $ | 223,563 | $ | (35,079 | ) | $ | 554,816 | ||||||||||||||||||
Cost of sales | — | 184,279 | 107,715 | (24,341 | ) | 267,653 | — | 266,899 | 158,310 | (35,079 | ) | 390,130 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Gross profit | — | 68,708 | 43,967 | — | 112,675 | — | 99,433 | 65,253 | — | 164,686 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | — | 34,626 | 29,255 | — | 63,881 | — | 52,775 | 41,891 | — | 94,666 | ||||||||||||||||||||||||||||||
Research and development expenses | — | 2,874 | 3,095 | — | 5,969 | — | 4,330 | 4,462 | — | 8,792 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Income from operations | — | 31,208 | 11,617 | — | 42,825 | — | 42,328 | 18,900 | — | 61,228 | ||||||||||||||||||||||||||||||
Intercompany interest (income) expense, net | (17,014 | ) | 16,960 | 54 | — | |||||||||||||||||||||||||||||||||||
Interest (income) expense, net | (238 | ) | 12,510 | 6 | — | 12,278 | 17,196 | 1,642 | 77 | — | 18,915 | |||||||||||||||||||||||||||||
Other non-operating expense, net | — | 1,312 | 120 | — | 1,432 | — | 1,108 | 726 | — | 1,834 | ||||||||||||||||||||||||||||||
Equity in earnings of subsidiaries | 18,781 | 8,377 | — | (27,158 | ) | — | 26,185 | 13,193 | — | (39,378 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Income before income taxes | 19,019 | 25,763 | 11,491 | (27,158 | ) | 29,115 | 26,003 | 35,811 | 18,043 | (39,378 | ) | 40,479 | ||||||||||||||||||||||||||||
Provision (benefit) for income taxes | (2,106 | ) | 6,982 | 3,114 | — | 7,990 | ||||||||||||||||||||||||||||||||||
Provision for income taxes | (3,640 | ) | 9,626 | 4,850 | — | 10,836 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income | 21,125 | 18,781 | 8,377 | (27,158 | ) | 21,125 | 29,643 | 26,185 | 13,193 | (39,378 | ) | 29,643 | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net loss (income) attributable to non-controlling interest | — | — | 29 | — | 29 | |||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net income attributable to Altra Holdings, Inc. | $ | 29,643 | $ | 26,185 | $ | 13,222 | $ | (39,378 | ) | $ | 29,672 | |||||||||||||||||||||||||||||
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|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (3,465 | ) | (3,465 | ) | (3,465 | ) | 6,930 | (3,465 | ) | 3,140 | 3,140 | 3,140 | (6,280 | ) | 3,140 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total comprehensive income | $ | 17,660 | $ | 15,316 | $ | 4,912 | $ | (20,228 | ) | $ | 17,660 | 32,783 | 29,325 | 16,362 | (45,658 | ) | 32,812 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive loss attributable to non-controlling interest | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Comprehensive income attributable to Altra Holdings, Inc. | $ | 32,783 | $ | 29,325 | $ | 16,362 | $ | (45,658 | ) | $ | 32,812 | |||||||||||||||||||||||||||||
|
|
|
|
|
Unaudited Condensed Consolidating Statement of Comprehensive Income
Year to Date Ended July 2, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 233,802 | $ | 112,444 | $ | (21,004 | ) | $ | 325,242 | |||||||||
Cost of sales | — | 169,729 | 80,272 | (21,004 | ) | 228,997 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 64,073 | 32,172 | — | 96,245 | |||||||||||||||
Selling, general and administrative expenses | — | 35,044 | 17,384 | — | 52,428 | |||||||||||||||
Research and development expenses | — | 2,656 | 2,087 | — | 4,743 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income from operations | — | 26,373 | 12,701 | — | 39,074 | |||||||||||||||
Interest expense, net | 528 | 10,748 | 40 | — | 11,316 | |||||||||||||||
Other non-operating income, net | — | (463 | ) | (422 | ) | — | (885 | ) | ||||||||||||
Equity in earnings of subsidiaries | 17,345 | 10,597 | — | (27,942 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income before income taxes | 16,817 | 26,685 | 13,083 | (27,942 | ) | 28,643 | ||||||||||||||
Provision (benefit) for income taxes | (2,823 | ) | 9,340 | 2,486 | — | 9,003 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | 19,640 | 17,345 | 10,597 | (27,942 | ) | 19,640 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income | ||||||||||||||||||||
Foreign currency translation adjustment | 5,569 | 5,569 | 5,569 | (11,138 | ) | 5,569 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive income | $ | 25,209 | $ | 22,914 | $ | 16,166 | $ | (39,080 | ) | $ | 25,209 | |||||||||
|
|
|
|
|
|
|
|
|
|
Net sales Cost of sales Gross profit Selling, general and administrative expenses Research and development expenses Income from operations Intercompany interest expense (income), net Interest expense, net Other non-operating income, net Equity in earnings of subsidiaries Income before income taxes Provision (benefit) for income taxes Net income Other comprehensive income Foreign currency translation adjustment Total comprehensive income ALTRA HOLDINGS, INC. Year to Date Ended October 1, 2011 Issuer Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated $ — $ 344,731 $ 191,944 $ (33,580 ) $ 503,095 — 249,795 137,606 (33,580 ) 353,821 — 94,936 54,338 — 149,274 — 51,639 32,366 — 84,005 — 3,962 3,582 — 7,544 — 39,335 18,390 — 57,725 (15,915 ) 15,915 — — — 17,319 605 90 — 18,014 — (432 ) (236 ) — (668 ) 24,639 12,988 — (37,627 ) — 23,235 36,235 18,536 (37,627 ) 40,379 (8,544 ) 11,596 5,548 — 8,600 31,779 24,639 12,988 (37,627 ) 31,779 (1,439 ) (1,439 ) (1,439 ) 2,878 (1,439 ) $ 30,340 $ 23,200 $ 11,549 $ (34,749 ) $ 30,340
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Comprehensive Income
Quarter Ended June 30, 2012 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 124,594 | $ | 76,497 | $ | (13,148 | ) | $ | 187,943 | |||||||||
Cost of sales | — | 89,772 | 55,317 | (13,148 | ) | 131,941 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit | — | 34,822 | 21,180 | — | 56,002 | |||||||||||||||
Selling, general and administrative expenses | — | 16,381 | 15,503 | — | 31,884 | |||||||||||||||
Research and development expenses | — | 1,459 | 1,483 | — | 2,942 | |||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Income from operations | — | 16,982 | 4,194 | — | 21,176 | |||||||||||||||
Interest (income) expense, net | (58 | ) | 6,557 | 5 | — | 6,504 | ||||||||||||||
Other non-operating expense (income), net | — | 1,370 | (163 | ) | — | 1,207 | ||||||||||||||
Equity in earnings of subsidiaries | 9,146 | 3,258 | — | (12,404 | ) | — | ||||||||||||||
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|
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|
|
| |||||||||||
Income before income taxes | 9,204 | 12,313 | 4,352 | (12,404 | ) | 13,465 | ||||||||||||||
Provision (benefit) for income taxes | (1,405 | ) | 3,167 | 1,094 | — | 2,856 | ||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
Net income | 10,609 | 9,146 | 3,258 | (12,404 | ) | 10,609 | ||||||||||||||
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|
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| |||||||||||
Other comprehensive income | ||||||||||||||||||||
Foreign currency translation adjustment | (8,742 | ) | (8,742 | ) | (8,742 | ) | 17,484 | (8,742 | ) | |||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive income | $ | 1,867 | $ | 404 | $ | (5,484 | ) | $ | 5,080 | $ | 1,867 | |||||||||
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|
Net sales Cost of sales Gross profit Selling, general and administrative expenses Research and development expenses Income from operations Intercompany interest (income) expense, net Interest (income) expense, net Other non-operating expense (income), net Equity in earnings of subsidiaries Income before income taxes Provision (benefit) for income taxes Net income Net loss (income) attributable to non-controlling interest Net income attributable to Altra Holdings, Inc. Other comprehensive income Foreign currency translation adjustment Total comprehensive income Net sales Cost of sales Gross profit Selling, general and administrative expenses Research and development expenses Income from operations Intercompany interest (income) expense, net Interest expense, net Other non-operating income, net Equity in earnings of subsidiaries Income before income taxes Provision (benefit) for income taxes Net income Other comprehensive income (loss) Foreign currency translation adjustment (loss) Total comprehensive income (loss) Unaudited Condensed Consolidating Statement of Comprehensive Income Quarter Ended September 29, 2012 Issuer Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated $ — $ 113,345 $ 71,881 $ (10,738 ) $ 174,488 — 82,620 50,595 (10,738 ) 122,477 — 30,725 21,286 — 52,011 — 18,149 12,636 — 30,785 — 1,456 1,367 — 2,823 — 11,120 7,283 — 18,403 (5,479 ) 5,461 18 — 5,899 631 107 — 6,637 — (204 ) 606 — 402 7,404 4,816 — (12,220 ) — 6,984 10,048 6,552 (12,220 ) 11,364 (1,534 ) 2,644 1,736 — 2,846 8,518 7,404 4,816 (12,220 ) 8,518 — — 29 — 29 $ 8,518 $ 7,404 $ 4,845 $ (12,220 ) $ 8,547 6,605 6,605 6,605 (13,210 ) 6,605 $ 15,123 $ 14,009 $ 11,450 $ (25,430 ) $ 15,152 Quarter Ended October 1, 2011 Issuer Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated $ — $ 110,929 $ 79,500 $ (12,576 ) $ 177,853 — 80,066 57,334 (12,576 ) 124,824 — 30,863 22,166 — 53,029 — 16,595 14,982 — 31,577 — 1,306 1,495 — 2,801 — 12,962 5,689 — 18,651 (5,574 ) 5,574 — — — 6,450 198 50 — 6,698 — 30 186 — 216 7,295 2,391 — (9,686 ) — 6,419 9,551 5,453 (9,686 ) 11,737 (5,721 ) 2,256 3,062 — (403 ) 12,140 7,295 2,391 (9,686 ) 12,140 (7,008 ) (7,008 ) (7,008 ) 14,016 (7,008 ) $ 5,132 $ 287 $ (4,617 ) $ 4,330 $ 5,132
Quarter Ended July 2, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 114,241 | $ | 61,559 | $ | (10,405 | ) | $ | 165,395 | |||||||||
Cost of sales | — | 82,066 | 45,324 | (10,405 | ) | 116,985 | ||||||||||||||
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|
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| |||||||||||
Gross profit | — | 32,175 | 16,235 | — | 48,410 | |||||||||||||||
Selling, general and administrative expenses | — | 17,372 | 9,540 | — | 26,912 | |||||||||||||||
Research and development expenses | — | 1,232 | 1,194 | — | 2,426 | |||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
Income from operations | — | 13,571 | 5,501 | — | 19,072 | |||||||||||||||
Interest expense, net | 323 | 5,812 | 18 | — | 6,153 | |||||||||||||||
Other non-operating income, net | — | (321 | ) | (278 | ) | — | (599 | ) | ||||||||||||
Equity in earnings of subsidiaries | 7,872 | 4,666 | — | (12,538 | ) | — | ||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
Income before income taxes | 7,549 | 12,746 | 5,761 | (12,538 | ) | 13,518 | ||||||||||||||
Provision (benefit) for income taxes | (1,369 | ) | 4,874 | 1,095 | — | 4,600 | ||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Net income | 8,918 | 7,872 | 4,666 | (12,538 | ) | 8,918 | ||||||||||||||
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|
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| |||||||||||
Other comprehensive income | ||||||||||||||||||||
Foreign currency translation adjustment | (149 | ) | (149 | ) | (149 | ) | 298 | (149 | ) | |||||||||||
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|
|
|
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|
|
|
| |||||||||||
Total comprehensive income | $ | 8,769 | $ | 7,723 | $ | 4,517 | $ | (12,240 | ) | $ | 8,769 | |||||||||
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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Cash Flows
Year to Date Ended June 30, 2012 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||
Net income | $ | 21,125 | $ | 18,781 | $ | 8,377 | $ | (27,158 | ) | $ | 21,125 | |||||||||
Undistributed equity in earnings of subsidiaries | (27,158 | ) | — | — | 27,158 | — | ||||||||||||||
Adjustments to reconcile net income to net cash flows: | ||||||||||||||||||||
Depreciation | — | 6,192 | 3,770 | — | 9,962 | |||||||||||||||
Amortization of intangible assets | — | 2,015 | 1,306 | — | 3,321 | |||||||||||||||
Amortization and write-offs of deferred financing costs | 579 | 87 | — | — | 666 | |||||||||||||||
Loss on foreign currency, net | — | — | 340 | — | 340 | |||||||||||||||
Accretion of debt discount, net | 1,588 | — | — | — | 1,588 | |||||||||||||||
Stock-based compensation | — | 1,543 | — | — | 1,543 | |||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||
Trade receivables | — | (9,048 | ) | (4,150 | ) | — | (13,198 | ) | ||||||||||||
Inventories | — | 2,703 | 1,476 | — | 4,179 | |||||||||||||||
Accounts payable and accrued liabilities | (102 | ) | 1,505 | (4,154 | ) | — | (2,751 | ) | ||||||||||||
Other current assets and liabilities | — | 1,066 | (896 | ) | — | 170 | ||||||||||||||
Other operating assets and liabilities | — | (2,145 | ) | (501 | ) | — | (2,646 | ) | ||||||||||||
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|
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| |||||||||||
Net cash (used in) provided by operating activities | (3,968 | ) | 22,699 | 5,568 | — | 24,299 | ||||||||||||||
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|
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|
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| |||||||||||
Cash flows used in investing activities | ||||||||||||||||||||
Purchase of property, plant and equipment | — | (10,629 | ) | (6,277 | ) | — | (16,906 | ) | ||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Net cash used in investing activities | — | (10,629 | ) | (6,277 | ) | — | (16,906 | ) | ||||||||||||
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|
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|
|
|
|
|
|
| |||||||||||
Cash flows from financing activities | ||||||||||||||||||||
Redemption of variable rate demand revenue bonds related to the San Marcos facility | — | (3,000 | ) | — | — | (3,000 | ) | |||||||||||||
Shares repurchased for tax withholdings | — | (57 | ) | — | — | (57 | ) | |||||||||||||
Payments on mortgages | — | — | (678 | ) | — | (678 | ) | |||||||||||||
Payments on capital leases | — | (194 | ) | (34 | ) | — | (228 | ) | ||||||||||||
Change in affiliate debt | 3,968 | (12,100 | ) | 8,132 | — | — | ||||||||||||||
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|
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|
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| |||||||||||
Net cash provided by (used in) financing activities | 3,968 | (15,351 | ) | 7,420 | — | (3,963 | ) | |||||||||||||
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| |||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | (710 | ) | — | (710 | ) | |||||||||||||
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|
| |||||||||||
Net change in cash and cash equivalents | — | (3,281 | ) | 6,001 | — | 2,720 | ||||||||||||||
Cash and cash equivalents at beginning of year | — | 49,876 | 42,639 | — | 92,515 | |||||||||||||||
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| |||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 46,595 | $ | 48,640 | $ | — | $ | 95,235 | ||||||||||
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|
Cash flows from operating activities Net income Undistributed equity in earnings of subsidiaries Adjustments to reconcile net income to net cash flows: Depreciation Amortization of intangible assets Amortization and write-offs of deferred financing costs Loss on foreign currency, net Accretion of debt discount, net Stock-based compensation Changes in assets and liabilities: Trade receivables Inventories Accounts payable and accrued liabilities Other current assets and liabilities Other operating assets and liabilities Net cash provided by operating activities Cash flows used in investing activities Purchase of property, plant and equipment Acquisition of Lamifelx, net of $68 cash Net cash used in investing activities Cash flows from financing activities Redemption of variable rate demand revenue bonds related to the San Marcos facility Purchase of 8 1/8 Senior Secured notes Shares repurchased for tax withholdings Dividend payment Payments on mortgages Payments on capital leases Change in affiliate debt Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of period ALTRA HOLDINGS, INC. Year to Date Ended September 29, 2012 Issuer Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated $ 29,643 $ 26,185 $ 13,193 $ (39,378 ) $ 29,643 (26,185 ) (13,193 ) — 39,378 — — 9,264 5,774 — 15,038 — 3,106 1,946 — 5,052 1,330 117 — — 1,447 — — 44 — 44 2,585 — — — 2,585 — 2,233 — — 2,233 — (3,353 ) 1,219 — (2,134 ) — 49 3,057 — 3,106 2,423 2,006 (4,986 ) — (557 ) — 707 277 — 984 (464 ) (2,532 ) 48 — (2,948 ) 9,332 24,589 20,572 — 54,493 — (14,963 ) (10,199 ) — (25,162 ) — — (7,444 ) — (7,444 ) — (14,963 ) (17,643 ) — (32,606 ) — (3,000 ) — — (3,000 ) (21,000 ) — — — (21,000 ) — (905 ) — — (905 ) (1,348 ) — — — (1,348 ) — — (736 ) — (736 ) — (257 ) (46 ) — (303 ) 13,016 (17,836 ) 4,820 — — (9,332 ) (21,998 ) 4,038 — (27,292 ) — — 1,026 — 1,026 — (12,372 ) 7,993 — (4,379 ) — 49,876 42,639 — 92,515 $ — $ 37,504 $ 50,632 $ — $ 88,136
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Cash Flows
Year to Date Ended July 2, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||
Net income | $ | 19,640 | $ | 17,345 | $ | 10,597 | $ | (27,942 | ) | $ | 19,640 | |||||||||
Undistributed equity in earnings of subsidiaries | (27,942 | ) | — | — | 27,942 | — | ||||||||||||||
Adjustments to reconcile net income to net cash flows: | — | |||||||||||||||||||
Depreciation | — | 5,422 | 2,998 | — | 8,420 | |||||||||||||||
Amortization of intangible assets | — | 2,070 | 793 | — | 2,863 | |||||||||||||||
Amortization and write-offs of deferred financing costs | 560 | 224 | — | — | 784 | |||||||||||||||
Loss on foreign currency, net | — | — | (158 | ) | — | (158 | ) | |||||||||||||
Accretion of debt discount, net | 1,045 | — | — | — | 1,045 | |||||||||||||||
Stock-based compensation | — | 1,374 | — | — | 1,374 | |||||||||||||||
Changes in assets and liabilities: | — | |||||||||||||||||||
Trade receivables | — | (12,786 | ) | (9,489 | ) | — | (22,275 | ) | ||||||||||||
Inventories | — | (3,750 | ) | (4,568 | ) | — | (8,318 | ) | ||||||||||||
Accounts payable and accrued liabilities | 779 | (2,071 | ) | 7,593 | — | 6,301 | ||||||||||||||
Other current assets and liabilities | — | (1,317 | ) | 692 | — | (625 | ) | |||||||||||||
Other operating assets and liabilities | — | (2,161 | ) | 265 | — | (1,896 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) operating activities | (5,918 | ) | 4,350 | 8,723 | — | 7,155 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash flows used in investing activities | ||||||||||||||||||||
Purchase of property, plant and equipment | — | (5,179 | ) | (3,719 | ) | — | (8,898 | ) | ||||||||||||
Acquisition of Bauer net of cash $41 thousand cash received | — | (1,146 | ) | (61,145 | ) | — | (62,291 | ) | ||||||||||||
Proceeds from sale of Chattanooga | — | 1,484 | — | — | 1,484 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash used in investing activities | — | (4,841 | ) | (64,864 | ) | — | (69,705 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash flows from financing activities | ||||||||||||||||||||
Proceeds from issuance of Convertible Notes | 85,000 | — | — | — | 85,000 | |||||||||||||||
Payment of debt issuance costs | (3,414 | ) | — | — | — | (3,414 | ) | |||||||||||||
Shares surrendered for tax withholdings | (65 | ) | — | — | — | (65 | ) | |||||||||||||
Redemption of bonds related to Chattanooga | — | (2,290 | ) | — | — | (2,290 | ) | |||||||||||||
Payments on mortgages | — | — | (197 | ) | — | (197 | ) | |||||||||||||
Payments on capital leases | — | (151 | ) | (249 | ) | — | (400 | ) | ||||||||||||
Change in affiliate debt | (75,603 | ) | 22,349 | 53,254 | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by financing activities | 5,918 | 19,908 | 52,808 | — | 78,634 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 1,680 | 1,680 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net change in cash and cash equivalents | — | 19,417 | (1,653 | ) | — | 17,764 | ||||||||||||||
Cash and cash equivalents at beginning of year | — | 37,125 | 35,598 | — | 72,723 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 56,542 | $ | 33,945 | $ | — | $ | 90,487 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities Net income Undistributed equity in earnings of subsidiaries Adjustments to reconcile net income to net cash flows: Depreciation Amortization of intangible assets Amortization and write-offs of deferred financing costs Gain on foreign currency, net Accretion of debt discount, net Stock-based compensation Changes in assets and liabilities: Trade receivables Inventories Accounts payable and accrued liabilities Other current assets and liabilities Other operating assets and liabilities Net cash provided by operating activities Cash flows used in investing activities Purchase of property, plant and equipment Acquisition of Bauer net of cash $41 thousand cash received Proceeds from sale of Chattanooga Net cash used in investing activities Cash flows from financing activities Proceeds from issuance from Convertible Notes Purchase of 8 1/8 Senior Secured Notes Payment of issuance costs for Convertible Notes Shares surrendered for tax withholdings Redemption of variable rate demand revenue bonds related to the Chattanooga facility Payments on mortgages Payments on capital leases Change in affiliate debt Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of period ALTRA HOLDINGS, INC. Year to Date Ended October 1, 2011 Issuer Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated $ 31,779 $ 24,639 $ 12,988 $ (37,627 ) $ 31,779 (24,639 ) (12,988 ) — 37,627 — — — 5,422 7,836 — 13,258 — 3,089 1,479 — 4,568 1,037 335 — — 1,372 — — (324 ) — (324 ) 1,887 — — — 1,887 — 1,933 — — 1,933 — — (9,354 ) (8,317 ) — (17,671 ) — (9,008 ) (4,865 ) — (13,873 ) 4,311 (3,329 ) 8,570 — 9,552 — (675 ) 1,555 — 880 — (6,364 ) 2,110 — (4,254 ) 14,375 (6,300 ) 21,032 — 29,107 — (5,966 ) (7,874 ) — (13,840 ) — (1,146 ) (68,314 ) — (69,460 ) — 1,484 — — 1,484 — (5,628 ) (76,188 ) — (81,816 ) 85,000 — — — 85,000 (8,230 ) — — — (8,230 ) (3,414 ) — — — (3,414 ) (914 ) — — — (914 ) — (2,290 ) — — (2,290 ) — — (516 ) — (516 ) — (228 ) (399 ) — (627 ) (86,817 ) 31,384 55,433 — — (14,375 ) 28,866 54,518 — 69,009 — — 1,238 1,238 — 16,938 600 — 17,538 — 37,125 35,598 — 72,723 $ — $ 54,063 $ 36,198 $ — $ 90,261
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
16. Subsequent Events
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.
On July 12, 2012, the Company announced that its subsidiary, Altra Industrial Motion Netherlands BV, acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda. (“Lamiflex”) for a cash consideration of 17.4 million Reais (approximately $8.6 million), subject to a post-closing adjustment for net debt. Lamiflex is a Brazilian manufacturer of high-speed disc couplings, providing engineered solutions to a variety of industries, including oil and gas, power generation, metals and mining. Due to the timing of the acquisition, the Company is still in the process of completing the allocation of the purchase price.
On July 31, 2012, the Company redeemed $21.0 million of Senior Secured Notes at a 103% premium. These Senior Secured Notes were classified as current in the accompanying condensed consolidated balance sheet in the quarter ended June 30, 2012. The premium of $0.6 million was accrued and recorded as part of interest expense in the quarter ended June 30, 2012.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 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, gross margin, future profitability, future economic improvement, 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 Company’s actual results to differ materially from the results referred to in the forward-looking statements the Company makes in this report include:
the Company’s access to capital, credit ratings, indebtedness, and ability to raise additional capital and operate under the terms of the Company’s debt obligations;
the risks associated with our debt;
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, including the Bauer Acquisition and the Lamiflex acquisition;Acquisition;
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, supplier, 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;
the effects of unanticipated deficiencies, if any, in the disclosure controls and internal controls of Bauer;
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 and European economic environments 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 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;
the cyclical nature of the markets in which we operate;
the risks associated with the global recession and European economic downturn and volatility and disruption in the global and European 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;
the risks associated with the Company’s investment in a new manufacturing facility in China; 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, 2011.
ALL FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS 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 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 ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2011, AND IN OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION 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 on Form 10-K for the year ended December 31, 2011. Unless the context requires otherwise, the terms “Altra Holdings,” “ the“the Company,” “we,” “us,” and “our” refer to Altra Holdings, Inc. and its subsidiaries.
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 57 subsidiaries. The following chart illustrates a summary of our corporate structure:
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 electro-mechanical power transmission 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”, 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, then the 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 Altra Industrial.
On February 10, 2006, we purchased all of the outstanding share capital of Hay Hall Holdings Limited, or Hay Hall. Hay Hall was a UK-based holding company established in 1996 that was focused primarily on the manufacture of couplings and clutch brakes.
On May 18, 2006, we acquired substantially all of the assets of Bear Linear Inc., or Warner Linear. Warner 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.
On April 5, 2007, the Companywe 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., a manufacturer of universal joints.
On December 31, 2007, we sold the TB Wood’s adjustable speed drives business, or Electronics Division. We sold the Electronics Division in order to continue our strategic focus on our core electro-mechanical power transmission business.
On May 29, 2011, we acquired substantially all of the assets and liabilities of Danfoss Bauer GmbH relating to its gearmotor business (“Bauer”). Bauer is a European manufacturer of high-quality gearmotors, offering engineered solutions to a variety of industries, including material handling, metals, food processing and energy. We refer to this transaction as the Bauer Acquisition.
On July 12,11, 2012, we announced that our subsidiary, Altra Industrial Motion Netherlands BV, acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda. or Lamiflex., now known as Lamiflex Do Brasil Equipamentos Industriais S.A. (“Lamiflex”). Lamiflex is the premier Brazilian manufacturer of high-speed disc couplings, providing engineered solutions to a variety of industries, including oil and gas, power generation, metals and mining.
We are a leading global designer, producer and marketer of a wide range of electro-mechanical power transmission and motion control products with a presence in over 70 countries. Our global sales and marketing network includes over 1,000 direct 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 primarily 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.
While the power transmission industry has undergone some consolidation, we estimate that in 2012 the top five broad-based electro-mechanical power transmission companies represented approximately 20% 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 products, principal brands and markets and sample applications are set forth below:
Products | Principal Brands | Principal Markets | Sample Applications | |||
Clutches and Brakes | Warner Electric, Wichita Clutch, Formsprag Clutch, Stieber Clutch, Matrix, Inertia Dynamics, Twiflex, Industrial Clutch, Marland Clutch | Aerospace, energy, material handling, metals, turf and garden, mining | Elevators, forklifts, lawn mowers, oil well draw works, punch presses, conveyors | |||
Gearing | Boston Gear, Nuttall Gear, Delroyd, Bauer Gear Motor | Food processing, material handling, metals, transportation | Conveyors, ethanol mixers, packaging machinery, metal processing equipment | |||
Engineered Couplings | Ameridrives, Bibby Transmissions, TB Wood’s, | Energy, metals, plastics, chemical | Extruders, turbines, steel strip mills, pumps | |||
Engineered Bearing Assemblies | Kilian | Aerospace, material handling, transportation | Cargo rollers, seat storage systems, conveyors | |||
Power Transmission Components | Warner Electric, Boston Gear, Huco Dynatork, Warner Linear, Matrix, TB Wood’s | Material handling, metals, turf and garden | Conveyors, lawn mowers, machine tools | |||
Engineered Belted Drives | TB Wood’s | Aggregate, HVAC, material handling | Pumps, sand and gravel 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 on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 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 Securities and Exchange Commission. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Form 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., European and global economies in general. In the remainder of 2012, we expect to continue to focus on the execution of our long-term growth strategy, and will also continue to focus on maintaining a reduced cost base. Among other items, we expect our strategic initiatives induring the second halfremainder of 2012 will continue to include investing in organic growth, seeking strategic acquisitions, targeting key underpenetrated geographic regions, entering new high-growth markets, enhancing our efficiency and productivity through the Altra Business System and focusing on the development of our people and processes.
In July 2012, we announced the acquisition ofacquired Brazil-based Lamiflex. We believe the Lamiflex acquisition will create business opportunities for us in certain previously underpenetrated geographic regions and will provide us with a platform from which we can further execute our acquisition strategy.
During the first halfAs a result of 2012, we experienced continued strength across many of our end markets in North America and Asia and continued to gain market share through the development of new products that are in direct alignment with customers’ needs. With the current weaknesssluggish demand in Europe and general global economic conditions, we have accelerated our cost reductionbegun to take actions to improve profitability in the coming quarters. We are currently evaluating restructuring activities primarily within Europe to improve operational efficiency. We expect to have formalized a restructuring plan by the end of 2012.
These actions, which we expect to accelerate during the next few quarters, include reducing headcount, limiting discretionary spending, moving certain product line manufacturing to low-cost countries and profit improvement plans across our European operations.raising pricing in certain end markets. We expect sales and profitability growth to continue to moderate as a result of moderating economic conditions in North America and Asia uncertainand continued weakness in Europe. Given that our Senior Secured Notes become callable December 1, 2012, and the current conditions in Europe, and substantial changes in exchange rates.the credit markets, we currently are evaluating potential refinancing options.
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. With the exception of business combinations noted below, management believes there have been no significant changes in our critical accounting policies since December 31, 2011. See the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2011.
Business Combinations
Business combinations are accounted for at fair value. Acquisition costs are generally expensed as incurred and recorded in selling, general and administrative expenses; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets and liabilities acquired. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.
Results of Operations
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(In thousands, except per share data) | 2012 | 2011 | 2012 | 2011 | September 29, 2012 | October 1, 2011 | September 29, 2012 | October 1, 2011 | ||||||||||||||||||||||||
Net sales | $ | 187,943 | $ | 165,395 | $ | 380,328 | $ | 325,242 | $ | 174,488 | $ | 177,853 | $ | 554,816 | $ | 503,095 | ||||||||||||||||
Cost of sales | 131,941 | 116,985 | 267,653 | 228,997 | 122,477 | 124,824 | 390,130 | 353,821 | ||||||||||||||||||||||||
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Gross profit | 56,002 | 48,410 | 112,675 | 96,245 | 52,011 | 53,029 | 164,686 | 149,274 | ||||||||||||||||||||||||
Gross profit percentage | 29.80 | % | 29.27 | % | 29.63 | % | 29.59 | % | 29.81 | % | 29.82 | % | 29.68 | % | 29.67 | % | ||||||||||||||||
Selling, general and administrative expenses | 31,884 | 26,912 | 63,881 | 52,428 | 30,785 | 31,577 | 94,666 | 84,005 | ||||||||||||||||||||||||
Research and development expenses | 2,942 | 2,426 | 5,969 | 4,743 | 2,823 | 2,801 | 8,792 | 7,544 | ||||||||||||||||||||||||
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Income from operations | 21,176 | 19,072 | 42,825 | 39,074 | 18,403 | 18,651 | 61,228 | 57,725 | ||||||||||||||||||||||||
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Interest expense, net | 6,504 | 6,153 | 12,278 | 11,316 | 6,637 | 6,698 | 18,915 | 18,014 | ||||||||||||||||||||||||
Other non-operating (income) expense, net | 1,207 | (599 | ) | 1,432 | (885 | ) | 402 | 216 | 1,834 | (668 | ) | |||||||||||||||||||||
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Income before income taxes | 13,465 | 13,518 | 29,115 | 28,643 | 11,364 | 11,737 | 40,479 | 40,379 | ||||||||||||||||||||||||
Provision for income taxes | 2,856 | 4,600 | 7,990 | 9,003 | 2,846 | (403 | ) | 10,836 | 8,600 | |||||||||||||||||||||||
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Net income | $ | 10,609 | $ | 8,918 | $ | 21,125 | $ | 19,640 | $ | 8,518 | $ | 12,140 | $ | 29,643 | $ | 31,779 | ||||||||||||||||
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Quarter Ended June 30,September 29, 2012 compared with Quarter Ended July 2,October 1, 2011
(Amounts in thousands, unless otherwise noted)
Quarter Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Net sales | $ | 187,943 | $ | 165,395 | $ | 22,548 | 13.6 | % |
Quarter Ended | ||||||||||||||||
September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||
Net sales | $ | 174,488 | $ | 177,853 | $ | (3,365 | ) | -1.9 | % |
The majority of the increasedecrease in sales during the second quarter ofended September 29, 2012 was due to improvements in the end markets we serve and the acquisition of Bauer. Of the increase in sales, approximately $18.0 million are additional sales related to the acquisition of Bauer and $3.6 million relates to the impact of price increases, offset by $2.5 million related to the economic downturn in Europe and $3.5 million related to the negative impact of foreign exchange rate changes attributedof $5.6 million primarily related to the Euro and British Pound Sterling rates compared to 2011. Early-cycle markets sales were flat to moderately increased while late-cycle markets such as mining2011 and energy increased markedly. We expect that demand at our early-cycle markets will remain flat and growtha decrease in our late-cycle markets will remain consistent withEuropean sales due to the first halfsoftening of 2012 or be slightly down.the European economy. The negative impact of foreign exchange was offset by an increase in sales due to the acquisition of Lamiflex of $1.4 million and the Company’s performance in North America and Asia. We expect to see a continued increasessoftening in salesour order rates in the remainder of 2012, compared to 2011.particularly in Europe.
Quarter Ended | Quarter Ended | |||||||||||||||||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||||||||||||||
Gross Profit | $ | 56,002 | $ | 48,410 | $ | 7,592 | 15.7 | % | $ | 52,011 | $ | 53,029 | $ | (1,018 | ) | -1.9 | % | |||||||||||||||
Gross Profit as a percentage of sales | 29.8 | % | 29.3 | % | ||||||||||||||||||||||||||||
Gross Profit as a percent of sales | 29.8 | % | 29.8 | % |
The increase in grossGross profit as a percentage of sales wasremained consistent with prior year despite a decrease in sales, primarily due to productivity improvements,the price increases implemented during the past twelve months, and low cost country sourcing as well as better overhead absorption as a result of higher production levels, partially offset by the effect of foreign exchange of $0.9 million, primarily related to the Euro and British Pound Sterling.productivity improvements. We expect our full year 2012 gross profit as a percentage of sales to continue to be consistent with 2011.
Selling, general and administrative expense (“SG&A”) SG&A as a percent of sales Quarter Ended September 29,
2012 October 1,
2011 Change % $ 30,785 $ 31,577 $ (792 ) -2.5 % 17.6 % 17.8 %
The decrease in SG&A is due primarily to the impact of the change in foreign exchange rates, particularly the Euro. In addition, in the quarter to date period ended October 1, 2011, we incurred one-time acquisition related expense of $0.7 million related to the acquisition of Bauer. SG&A as a percentage of sales decreased when compared to 2011 due to the profit improvement plans in place at our Bauer business and a decrease in certain employee benefit costs.
Quarter Ended | ||||||||||||||||
September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||
Research and development expenses (“R&D”) | $ | 2,823 | $ | 2,801 | $ | 22 | 0.8 | % |
R&D expenses as a percentage of sales remained consistent with prior year. We do not forecast significant variances in future periods.
Quarter Ended | ||||||||||||||||
September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||
Interest Expense, net | $ | 6,637 | $ | 6,698 | $ | (61 | ) | -0.9 | % |
Net interest expense is consistent with the quarter ended October 1, 2011. In both 2011 and 2012, we redeemed a portion of our Senior Secured Notes. As a result of the redemption we recorded a write off of deferred financing costs and the original issue discount of $0.7 million and $0.3 million in the quarters ended September 29, 2012 and October 1, 2011, respectively. As a result of our Senior Secured Notes becoming callable on December 1, 2012 and the prevailing credit markets, we are currently evaluating refinancing alternatives.
Quarter Ended | ||||||||||||||||
September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||
Other non-operating expense, net | $ | 402 | $ | 216 | $ | 186 | 86.1 | % |
The increase in other non-operating expense is due to changes in foreign currency, primarily the British Pound Sterling and Euro from the prior year period.
Provision for income taxes Provision for income taxes as a % of income before income taxes Quarter Ended September 29,
2012 October 1,
2011 Change % $ 2,846 $ (403 ) $ 3,249 -806.2 % 25.0 % -3.4 %
The prior year period provision for income taxes, as a percentage of income before taxes, was significantly higher than that of the quarter ended September 29, 2012 primarily due to the 2011 recognition of benefits of certain significant discrete items described below. During the quarter ended October 1, 2011 the Company recognized a tax benefit for the reduction of the Company’s reserve for uncertain tax positions due to a favorable New Jersey Supreme Court ruling in a case that did not involve the Company. The reserve amount released in the quarter ended October 1, 2011 as the result of the ruling consisted of approximately $2.3 million of tax, $1.8 million accrued interest and $0.5 million of penalties. In addition, during the quarter ended October 1, 2011, the Company reversed $1.4 million of deferred tax assets related to the federal benefit of the accrued state reserve. The net benefit to the Company was approximately $3.2 million. Finally, during the quarter ended October 1, 2011, the Company released $0.7 million of a valuation allowance against state income tax attributes. This amount was fully recognized in the Company’s effective rate for the quarter ended October 1, 2011. In the quarter ended September 29, 2012, there was a favorable benefit recorded related to the change in tax rates in certain jurisdictions of $0.4 million.
Year to Date Period Ended September 29, 2012 compared with the Year to Date Period Ended October 1, 2011
(Amounts in thousands unless otherwise noted)
Year to Date Period Ended | ||||||||||||||||
September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||
Net sales | $ | 554,816 | $ | 503,095 | $ | 51,721 | 10.3 | % |
Sales increased during the year to date period ended September 29, 2012 primarily due to the acquisition of Bauer. Of the increase in sales, approximately $39.5 million are additional sales related to the acquisition of Bauer and modest increases in sales in North America and the rest of the world, partially offset by the impact related to the economic downturn in Europe and $9.3 million related to the negative impact of foreign exchange rate changes primarily attributed to the Euro and British Pound Sterling rates compared to 2011. We expect to see a continued softening in our order rates in the remainder of 2012, particularly in Europe.
Year to Date Period Ended | ||||||||||||||||
September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||
Gross Profit | $ | 164,686 | $ | 149,274 | $ | 15,412 | 10.3 | % | ||||||||
Gross Profit as a percent of sales | 29.7 | % | 29.7 | % |
The increase in gross profit during the year to date period ended September 29, 2012 is due primarily to the acquisition of Bauer. Of the increase in gross profit, approximately $10.6 million is related to the acquisition of Bauer. In addition, price increases implemented during the past twelve months, profit improvements within Bauer, productivity improvements and low cost country sourcing have resulted in gross profit margins staying consistent with prior year. These factors are offset by the negative impact of foreign exchange rate changes primarily related to the Euro and British Pound Sterling compared to 2011 of $2.9 million.
Quarter Ended | Year to Date Period Ended | |||||||||||||||||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||||||||||||||
Selling, general and administrative expense (“SG&A”) | $ | 31,884 | $ | 26,912 | $ | 4,972 | 18.5 | % | $ | 94,666 | $ | 84,005 | $ | 10,661 | 12.7 | % | ||||||||||||||||
SG&A as a percentage of sales | 17.0 | % | 16.3 | % | ||||||||||||||||||||||||||||
SG&A as a percent of sales | 17.1 | % | 16.7 | % |
Of the increase in SG&A, $4.4$10.1 million was due to the acquisitionacquisitions of Bauer as well asand Lamiflex. The increased costs associated with wage increases were offset by the favorable effect of foreign exchange of $0.5$1.8 million and a decrease in acquisition related expense of $2.3 million. SG&A as a percentage of sales increased modestly as a result of the acquisition of Bauer. We forecast modestexpect increases to our SG&A costs as we invest in resources to enable us to grow faster in emerging markets and strategic industries infor the remainder of 2012.2012, however, we have begun to take actions in Europe to improve profitability in the coming quarters. These actions, which we expect to accelerate during the next few quarters, include reducing headcount and limiting discretionary spending.
Quarter Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Research and development expenses (“R&D”) | $ | 2,942 | $ | 2,426 | $ | 516 | 21.3 | % |
Year to Date Period Ended | ||||||||||||||||
September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||
Research and development expenses (“R&D”) | $ | 8,792 | $ | 7,544 | $ | 1,248 | 16.5 | % |
R&D expenses increased on an absolute dollar basis but represented approximately 1%1.5% of sales in both periods. $0.4$1.0 million of the increase in R&D expense in 2012 is related to the fully year effect of the acquisition of Bauer, which occurred in May 2011. Increased R&D activities as well as headcount additions also contributed to the increase in R&D expense. We do not forecast significant variances in future periods.
Quarter Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Interest Expense, net | $ | 6,504 | $ | 6,153 | $ | 351 | 5.7 | % |
Year to Date Period Ended | ||||||||||||||||
September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||
Interest Expense, net | $ | 18,915 | $ | 18,014 | $ | 901 | 5.0 | % |
Net interest expense increased due to the additional premium accruedpaid related to the redemption of Senior Secured Notes in July 2012, offset by lower expense on the Senior Secured Notes, as a result of the repurchaseslower outstanding average borrowings. As a result of our Senior Secured Notes becoming callable on December, 1, 2012 and prevailing conditions in the third and fourth quarters of 2011. In the remainder of 2012,credit markets, we expect our interest payments to be lower, offset by the write off of deferred financing costs, which will be recorded to interest expense.are currently are evaluating refinancing.
Quarter Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Other non-operating expense(income), net | $ | 1,207 | $ | (599 | ) | $ | 1,806 | -301.5 | % |
Year to Date Period Ended | ||||||||||||||||
September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||
Other non-operating (income)expense, net | $ | 1,834 | $ | (668 | ) | $ | 2,502 | -374.6 | % |
Other non-operating expense (income) in the second quarter ofyear to date period ended September 29, 2012 relatesrelated primarily to the settlement of a tax matter with the State of New York for which we were entitled to be fully indemnified. The settlement was for less than the indemnification receivable we had recorded, resulting in a reversal of part of the receivable amounting to an expense of $0.9 million. We recorded an offsetting benefit in the 2012 tax provision as a result of the settlement. The remainder of expense in 2012, and income in 2011, relates to changes in foreign currency, primarily the British Pound Sterling and EuroEuro.
Quarter Ended | ||||||||||||||||||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | September 29, 2012 | October 1, 2011 | Change | % | |||||||||||||||||||||||||
Provision for income taxes | $ | 2,856 | $ | 4,600 | $ | (1,744 | ) | -37.9 | % | $ | 10,836 | $ | 8,600 | $ | 2,236 | 26.0 | % | |||||||||||||||
Provision for income taxes as a percentage of income before income taxes | 21.2 | % | 34.0 | % | ||||||||||||||||||||||||||||
from operations before income taxes | 26.8 | % | 21.3 | % |
The 2012 second quarter provision for income taxes, as a percentage of income before taxes, was significantly lowerhigher than that of the 2011 second quarter primarily due to 2011 favorable discrete items including a third quarter tax benefit for the recognitionreduction of certain discrete items. Specificallythe Company’s reserve for uncertain tax positions due to a favorable New Jersey Supreme Court ruling in a case that did not involve the Company. The reserve amount released as a result of the ruling consisted of approximately $2.3 million of tax, $1.8 million accrued interest and $0.5 million of penalties. In addition, during the second quarter ended October 1, 2011, the Company reversed $1.4 million of deferred tax assets related to the federal benefit of the accrued state reserve. The net benefit to the Company was approximately $3.2 million. Finally, during the quarter ended October 1, 2011 the Company released $0.7 million of a valuation allowance against state income tax attributes. This amount was fully recognized in the Company’s effective rate for the quarter ended October 1, 2011.
Certain discrete tax items that occurred in the quarter ended June 30, 2012 partially offsetting the 2011 discrete tax items. During the quarter ended June 30, 2012, the Company settled a tax matter with the State of New York for which the Company was fully indemnified. Upon completion of the settlement, the Company released its reserve for tax, interest and penalties related to the unrecognized tax benefit. In addition, the Company recognized the completion of the 2010 limited scope audit, and the substantial completion of the 2007 audit by the Internal Revenue Service.
Year to Date Period EndedService during the quarter ended June 30, 2012. During the quarter ended September 29, 2012, compared with the Year to Date Period Ended July 2, 2011
(Amounts in thousands unless otherwise noted)
Year to Date Period Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Net sales | $ | 380,328 | $ | 325,242 | $ | 55,086 | 16.9 | % |
The majority of the increase in sales during the first half of 2012there was due to improvements in the end markets we serve and the acquisition of Bauer. Of the increase in sales, approximately $44.9 million are additional salesa benefit recorded related to the acquisition of Bauer and $5.1 million relates to the impact of price increases, offset by $2.8 million related to the economic downturnchange in Europe and $4.3 million related to the negative impact of foreign exchange rate changes attributed primarily to the Euro and British Pound Sterling rates compared to 2011. Early-cycle markets sales were flat to moderately increased while late-cycle markets such as mining and energy increased markedly. We expect that demand at our early-cycle markets will remain flat and growth in our late-cycle markets will remain consistent with the first half of 2012 or slightly down. We expect to see continued increases in sales in 2012 compared to 2011.
Year to Date Period Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Gross Profit | $ | 112,675 | $ | 96,245 | $ | 16,430 | 17.1 | % | ||||||||
Gross Profit as a percentage of sales | 29.6 | % | 29.6 | % |
The decrease in gross profit as a percentage of sales was primarily due to the unfavorable impact of foreign exchangetax rates in the amountcertain jurisdictions of $1.4 million, primarily related to the Euro and British Pound Sterling, partially offset by productivity improvements, price increases implemented during the past twelve months, and low cost country sourcing, as well as better overhead absorption as a result of higher production levels. We expect our full year 2012 gross profit as a percentage of sales to be higher than 2011.
Year to Date Period Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Selling, general and administrative expense (“SG&A”) | $ | 63,881 | $ | 52,428 | $ | 11,453 | 21.8 | % | ||||||||
SG&A as a percentage of sales | 16.8 | % | 16.1 | % |
Of the increase in SG&A, $10.6 million was due to the acquisition of Bauer, as well as wage increases, offset by the favorable effect of foreign exchange of $0.7$0.4 million. SG&A as a percentage of sales increased modestly as a result of the acquisition of Bauer. We forecast modest increases to our SG&A costs and plan to leverage them on increased sales as we invest in resources to enable us to grow faster in emerging markets and strategic industries in the remainder of 2012.
Research and development expenses (“R&D”) Year to Date Period Ended June 30,
2012 July 2,
2011 Change % $ 5,969 $ 4,743 $ 1,226 25.8 %
R&D expenses increased on an absolute dollar basis but represented approximately 1% of sales in both periods. $1.0 million of the increase in R&D expense in 2012 is related to the acquisition of Bauer in May 2011. Increased R&D activities as well as headcount additions also contributed to the increase in R&D expense. We do not forecast significant variances in future periods.
Year to Date Period Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Interest Expense, net | $ | 12,278 | $ | 11,316 | $ | 962 | 8.5 | % |
Net interest expense increased due to the additional premium accrued related to the redemption of Senior Secured Notes in July 2012, offset by lower expense on the Senior Secured Notes, as a result of the repurchases in the third and fourth quarters of 2011. In the remainder of 2012, we expect our interest payments to be lower, offset by the write of deferred financing costs, which will be recorded to interest expense.
Year to Date Period Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Other non-operating (income) expense, net | $ | 1,432 | $ | (885 | ) | $ | 2,317 | -261.8 | % |
Other non-operating expense (income) in the year to date periods ended June 30, 2012 relates primarily to the settlement of a tax matter with the State of New York for which we were entitled to be fully indemnified. The settlement was for less than the indemnification receivable we had recorded, resulting in an expense of $0.9 million. The remainder of expense in 2012, and income in 2011, relates to changes in foreign currency, primarily the British Pound Sterling and Euro.
Year to Date Period Ended | ||||||||||||||||
June 30, 2012 | July 2, 2011 | Change | % | |||||||||||||
Provision for income taxes | $ | 7,990 | $ | 9,003 | $ | (1,013 | ) | -11.3 | % | |||||||
Provision for income taxes as a percentage of income from operations before income taxes | 27.4 | % | 31.4 | % |
The 2012 provision for income taxes, as a percentage of income before taxes, was lower than that of 2011 primarily due to favorable discrete items. The Company settled with the State of New York for an item that previously impacted the Company’s effective tax rate. In addition, the Company recognized the completion of the 2010 limited scope audit, and the substantial completion of the 2007 audit by the Internal Revenue Service. In the year to date period ended July 2, 2011, there was a favorable discrete item related to a refund of foreign withholding taxes.
Liquidity and Capital Resources
Overview
We finance our capital and working capital requirements through a combination of cash flows from operating activities and borrowings under our senior secured revolving credit facility (“Revolving Credit Agreement”). We expect that our primary ongoing requirements for cash will be for working capital, debt service, capital expenditures, acquisitions, pension plan funding, and paying dividends to our stockholders. In the event additional funds are needed, we could borrow additional funds under our Revolving Credit Agreement, attempt to secure new debt, attempt to refinance our 8 1/8% Senior Notes due December 2016 (the “Senior Secured Notes”), or attempt to raise capital in the equity markets. Presently, we have capacity under our Revolving Credit Agreement to borrow $65.0 million, based on monthly asset collateral calculations, including letters of credit of which we currently have $3.9$6.5 million outstanding. Of this total capacity, we can currently borrow up to $52.5 million without being required to comply with any financial covenants under the agreement. In order to refinance the existing Senior Secured Notes, we would incur a pre-payment premium. There can be no assurance however that additional debt financing will be available on commercially acceptable terms, or at all. Similarly, there can be no assurance that equity financing will be available on commercially acceptable terms, or at all.
Given that our Senior Secured Notes become callable December 1, 2012, and the current conditions in the credit markets, we currently are evaluating refinancing options.
Borrowings
Amounts in millions | ||||||||
June 30, 2012 | December 31, 2011 | |||||||
Debt: | ||||||||
Revolving Credit Agreement | $ | — | $ | — | ||||
Convertible Notes | 85.0 | 85.0 | ||||||
Senior Secured Notes | 198.0 | 198.0 | ||||||
Variable rate demand revenue bonds | — | 3.0 | ||||||
Mortgages | 1.0 | 1.8 | ||||||
Capital leases | 0.2 | 0.4 | ||||||
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Total Debt | $ | 284.2 | $ | 288.2 | ||||
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Debt: Revolving Credit Agreement Convertible Notes Senior Secured Notes Variable rate demand revenue bonds Mortgages Capital leases and other Total Debt September 29,
2012 December 31,
2011 $ — $ — 85.0 85.0 177.0 198.0 — 3.0 1.0 1.8 1.2 0.4 $ 264.2 $ 288.2
Convertible Senior Notes
In March 2011, the Company issued Convertible Senior Notes (the “Convertible Notes”) due on March 1, 2031. The Convertible Notes are unsecured obligations and are guaranteed by each of the Company’s U.S. domestic subsidiariesexisting and are secured by a second priority lien, subject to first priority liens securing our Revolving Credit Agreement and our Senior Secured Notes, on substantially all of our assets and those of ourfuture domestic subsidiaries. Interest on the Convertible Notes is payable semi-annually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%. Proceeds from the offering were $81.6 million, net of fees and expenses, which were capitalized. The proceeds from the offering were used to fund the Bauer Acquisition, as well as bolster the Company’s cash position
We were in compliance in all material respects with all covenants of the indenture governing the Convertible Notes at June 30,September 29, 2012.
Senior Secured Notes
In November 2009, the Company issued $210.0 million of 81/8% Senior Secured Notes. We used the proceeds of the offering of the Senior Secured Notes to repurchase or redeem Altra Industrial’s 9% Senior Secured Notes issued in November 2004.
During 2011, the Company repurchased $12.0 million of Senior Secured Notes. The Company repurchased the Senior Secured Notes at a premium of $0.3 million, which was recorded as part of interest expense in the third and fourth quarters of 2011. Due to the repurchase of the Senior Secured Notes, the Company also wrote-off a proportional amount of the deferred financing fees and original issue discount associated with the Senior Secured Notes totaling $0.4 million which was also recorded as part of interest expense in the third and fourth quarters of 2011.
During the quarter ended September 29, 2012, the Company repurchased $21.0 million of Senior Secured Notes at a premium of $0.6 million, which was recorded as part of interest expense in the quarter ended September 29, 2012. Due to the repurchase of the Senior Secured Notes, the Company also wrote-off a proportional amount of the deferred financing fees and original issue discount associated with the Senior Secured Notes totaling $0.6 million which was recorded as part of interest expense in the quarter ended September 29, 2012.
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 our Revolving Credit Agreement, on substantially all of our assets and those of our domestic subsidiaries. Interest on the Senior Secured Notes is payable in arrears, semi-annually on June 1 and December 1 of each year, commencing on June 1, 2010. The indenture governing the Senior Secured Notes contains covenants which restrict the Company and its subsidiaries. These restrictions limit or prohibit, among other things, the ability to incur 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 create liens on their assets.
We were in compliance in all material respects with all covenants of the indenture governing the Senior Secured Notes at June 30,September 29, 2012.
Revolving Credit Agreement
Concurrently with the closing of the offering of the Senior Secured Notes, Altra Industrial entered into the Revolving Credit Agreement. In November 2011, Altra Industrial amended the Revolving Credit Agreement to increase the borrowing capacity to $65.0 million (subject to adjustment pursuant to a borrowing base calculation and subject to increase from time to time in accordance with the terms of the amended credit facility) and to extend the term to October 31, 2016.
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, 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 $10.0 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 ceases with limited exception to be secured by a full lien of the assets of Borrowers and guarantors.
As of June 30,September 29, 2012, we were in compliance in all material respects with all covenant requirements associated with all of our borrowings.Revolving Credit Agreement. As of June 30,September 29, 2012, we had no borrowings and $3.9$6.5 million in letters of credit outstanding under the Revolving Credit Agreement.
Cash and Cash Equivalents
The following is a summary of our cash balances and cash flows (in thousands) as of and for the year to date periods ended June 30,September 29, 2012 and October 1, 2011, respectively,
2012 | 2011 | 2012 | 2011 | |||||||||||||
Cash flows from operating activities | $ | 24,299 | $ | 7,155 | $ | 54,493 | $ | 29,107 | ||||||||
Cash flows from investing activities | (16,906 | ) | (69,705 | ) | (32,606 | ) | (81,816 | ) | ||||||||
Cash flows from financing activities | (3,963 | ) | 78,634 | (27,292 | ) | (69,009 | ) | |||||||||
Effect of exchange rate on cash and cash equivalents | 1,026 | 1,238 | ||||||||||||||
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Cash and cash equivalents at the end of the period | $ | 95,235 | $ | 90,487 | $ | 88,136 | $ | 90,261 | ||||||||
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The primary sources of funds provided by operating activities of $24.3$54.5 million for the year to date period ended June 30,September 29, 2012 resulted from cash provided from net income of $21.1$29.6 million. The net impact of the add-back of non-cash depreciation, amortization, stock-based compensation, accretion of debt discount, deferred financing costs, and non-cash loss on foreign currency was $17.4$26.4 million. This amount was offset by a net increase in current assets and liabilities of $14.2$1.5 million.
The net increase in current assets and liabilities wascash flows from operations is primarily related to an increasea decrease in accounts receivable due to the acquisition of Bauer in May 2011.and inventory. Due to the focus on the integration of Bauer, and the inclusion of an additional $18.4 million of accounts receivables, the cash collection of those receivables in 2011 was not as timely as it has been since. Inventory balances have decreased due to planned inventory management efforts that have positively impacted our focus on inventory reductions at certain of our locations.levels. While a variety of factors can influence our ability to project future cash flow, we expect to see positive cash flows from operating activities during the remainder of 2012.2012 due to a decrease in working capital, specifically accounts receivable and inventory.
The change in net cash used in investing activities was primarily due to the acquisition of Bauer in May 2011. The increase in capital expenditures relates to additional expenditures for our implementation of SAP of $3.0$3.2 million as well as to fund our plant construction in ChangZhou, China of $3.2$5.6 million. We expect to incur between $13.3$5 million and $18.3$10 million of additional capital expenses in the remainder of 2012 related to our construction project in ChangZhou, continued implementation of our ERP system, and purchases of machinery and equipment for production expansion and maintenance of our current manufacturing facilities.
The change in net cash (used in) providedused in by financing activities was primarily due to the issuance of $85.0 million of Convertible Notes in March 2011. The cash used in financing activities in the year to date period ended June 30,September 29, 2012 was used to purchase $21.0 million of 8 1/8 Senior Secured Notes, to redeem $3.0 million in variable rate demand revenue bonds related to our San Marcos facility, as well asto make payments of capital lease obligations of $0.2$0.3 million, $0.7 million of payments on mortgages, and $0.1to repurchase $0.9 million forof shares repurchased in lieu of tax withholdings.withholdings, and to make $1.3 million of dividend payments
We intend to use our remaining existing cash and cash equivalents and cash flow from operations to provide for our working capital needs, to fund potential future acquisitions, debt service, and capital expenditures, for pension funding, to repay our debt, and to pay dividends to our stockholders. In July 2012, we redeemed $21.0 million of Senior Secured Notes. We believe our future operating cash flows will be sufficient to meet our future operating and investing cash needs. Furthermore, the existing cash balances and the availability of additional borrowings under our Revolving Credit Agreement provide additional potential sources of liquidity should they be required. As a result of continued sluggish demand in Europe and general global economic conditions, we have begun to take actions to improve profitability in the coming quarters. We are currently evaluating restructuring activities, primarily within Europe to improve operational efficiency. We expect to have formalized a restructuring plan by the end of 2012.
Contractual Obligations
There were no significant changes in our contractual obligations subsequent to December 31, 2011.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risk factors such as fluctuating interest rates, changes in foreign currency rates, and changes in commodity prices. At present, we do not utilize derivative instruments to manage these risks. During the reporting period, there have been no material changes to the quantitative and qualitative disclosures regarding our market risk set forth in our Annual Report on Form 10-K for the year ended December 31, 2011.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of June 30,September 29, 2012, our management, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act, such as this Form 10-Q, is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of June 30,September 29, 2012, our disclosure controls and procedures are effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
ThereWith the exception of changes resulting from the Lamiflex Acquisition that occurred on July 11, 2012, there has been no change in our internal control over financial reporting (as defined in Rule 13a–13a—15(f) under the Exchange Act) that occurred during our fiscal quarter ended June 30,September 29, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Note Regarding Acquisition
In making its assessment of disclosure controls and procedures and of changes in internal control over financial reporting as of September 29, 2012, management has excluded the operations of Lamiflex. The Company is currently assessing the control environment of this acquired business.
The Company’s consolidated financial statements reflect Lamiflex’s results of operations from the beginning of business on July 11, 2012 forward. The acquired business’ total revenue was less than 1% of the Company’s total revenue at September 29, 2012.
We are, from time to time, party to various legal proceedings arising out of our business. During the reporting period, there have been no material changes to the description of legal proceedings set forth in our Annual Report on Form 10-K for the year ended December 31, 2011.
The reader should carefully consider the Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission. Those risk factors described below, elsewhere in this report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2011 are not the only ones we face, but are considered to be the most material. These risk factors could cause our actual results to differ materially from those stated in forward looking statements contained in this Form 10-Q and elsewhere. All risk factors stated in our Annual Report on Form 10-K for the year ended December 31, 2011, and our Quarterly ReportReports on Form 10-Q for the quarterquarters ended March 31, 2012 and June 30, 2012 are incorporated herein by reference.
During the reporting period, except for below, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011 and our Quarterly ReportReports on Form 10-Q for the quarterquarters ended March 31, 2012 and June 30, 2012.
Continued extreme volatility and disruption in global financial markets could significantly impactWe may be subject to work stoppages at our facilities, or our customers suppliers, weaken the markets we serve and harmmay be subjected to work stoppages, which could seriously impact our operations and financial performance.the profitability of our business.
As of December 31, 2011, we had approximately 3,466 full time employees, of whom approximately 51% were employed outside the United States. Approximately 169 of our North American employees, and 503 of our European employees are represented by labor unions. In addition, our employees in Europe are generally represented by local and national social works councils that hold discussions with employer industry associations regarding wage and work issues every two to three years. Our financial performance depends,European facilities, particularly those in large part, on conditionsFrance and Germany, may participate in such discussions and be subject to any agreements reached with employees. Additionally, approximately 59 employees in the marketsTB Wood’s production facilities in Mexico are unionized under collective bargaining agreements that we serveare subject to annual renewals.
We are a party to four U.S. collective bargaining agreements. The agreements will expire on, July 2013, October 2013, June 2014, and October 2014, respectively. We have entered into a plant closing agreement with labor union employees at our South Beloit manufacturing facility. We expect the facility to close on or before the U.S. and global economies in general. As widely reported, U.S. and global financial markets have been experiencing extreme disruption in recent years, including, among other things, concerns regarding the stability and viability of major financial institutions, the declining stateJuly 2013 expiry of the housing markets,relevant collective bargaining agreement. We may be unable to renew these agreements on terms that are satisfactory to us, if at all. In addition, one of our four U.S. collective bargaining agreements contains provisions for additional, potentially significant, lump-sum severance payments to all employees covered by the agreements who are terminated as the result of a severe tightening in the credit markets, a low levelplant closing and one of liquidity in many financial markets, and extreme volatility in credit and equity markets. Further, in recent months, economic conditions in the European Union have deteriorated and with the Bauer Acquisition our exposure to European markets has increased. Given the significance and widespread nature of these nearly unprecedented circumstances, the U.S., European, and global economies could remain significantly challenged in a recessionary state for an indeterminate period of time. While currently these conditions have not impairedcollective bargaining agreements contains provisions restricting our ability to access credit marketsterminate or relocate operations.
If our unionized workers or those represented by a works council were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations. Such disruption could interfere with our ability to deliver products on a timely basis and finance our operations, there can be no assurance that there will not be a further deterioration in financial marketscould have other negative effects, including decreased productivity and confidence in major economies.increased labor costs. In addition, the recent tightening of credit in financial markets may adversely affect the abilityif a greater percentage of our work force becomes unionized, our business and financial results could be materially adversely affected. Many of our direct and indirect customers to obtain financing for significant purchases and operations andhave unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or their suppliers could result in a decrease inslowdowns or closures of assembly plants where our products are used and could cause cancellation of purchase orders forwith us or otherwise result in reduced revenues from these customers.
Recently, employees at our productsKilian manufacturing plant in Toronto, Canada voted in favor of the certification of a union at that facility. As a result of this vote, we have engaged in the process of negotiating a new collective bargaining agreement and serviceswe believe we have reached an agreement in principal with the union. If further negotiations are required, however, such negotiations could divert management attention and result in increased operating expenses and lower net income. Furthermore, if we are unable to negotiate and finalize an acceptable collective bargaining agreement, our operating expenses could increase significantly as well as impact the abilitya result of our customers to make payments. Similarly, this tighteningwork stoppages, including strikes. Any of credit maythese matters could adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. These conditions would harm our business by adversely affecting our sales,condition, results of operations profitability,and cash flows, financial condition and long-term anticipated growth rate, which could result in potential impairment of certain long-term assets including goodwill.flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes our share repurchase activity by month for the quarter ended June 30,September 29, 2012.
Approximate Period April 1, 2012 to April 28, 2012 April 29, 2012 to May 26, 2012 May 27, 2012 to June 30, 2012 Approximate Period July 1, 2012 to July 28, 2012 July 29, 2012 to August 25, 2012 August 26, 2012 to September 29, 2012 Total Number
of Shares
Purchased (1) Average
Price Paid per
Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or Programs Dollar Value of
Shares That May Yet be
Purchased Under
The Plans or Programs — $ — — $ — — $ — — $ — 145 $ 15.87 — $ — Total Number
of Shares
Purchased (1) Average
Price Paid per
Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs Approximate
Dollar Value of
Shares That May Yet be
Purchased Under
The Plans or Programs — $ — — $ — 404,701 $ 17.26 — $ — 11,764 $ 18.41 — $ —
(1) | We repurchased these shares of common stock in connection with the vesting of certain stock awards to cover minimum statutory withholding taxes. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
None.Effective November 5, 2012, we have entered into an amended and restated employment agreement with Christian Storch, our Chief Financial Officer. Mr. Storch’s previous employment agreement was scheduled to expire in December 2012. Mr. Storch’s amended and restated employment agreement was approved by our Board of Directors on November 5, 2012 and has an effective date of November 5, 2012. Under the terms of his employment agreement, Mr. Storch has a one-year employment term, following which the agreement automatically renews for successive one-year terms unless either we or Mr. Storch terminates the agreement upon 6 months prior notice to such renewal date. Pursuant to his employment agreement, Mr. Storch will continue to receive his current base salary of $371,527 per year for his services. Mr. Storch’s employment agreement contains usual and customary restrictive covenants, including 12 month non-competition provisions and non-solicitation/no hire of employees or customers provisions, non-disclosure of proprietary information provisions and non-disparagement provisions. In the event of a termination without “cause” or departure for “good reason,” Mr. Storch is entitled to severance equal to 12 months salary, continuation of medical and dental benefits for the 12-month period following the date of termination, and an amount equal to his pro-rated bonus for the year of termination. In addition, upon such termination, fifty percent (50%) of Mr. Storch’s unvested restricted stock received from our equity incentive plan shall automatically vest. Under the agreement, Mr. Storch is also eligible to participate in all compensation or employee benefit plans or programs and to receive all benefits and perquisites for which salaried employees of the Company generally are eligible under any current or future plan or program on the same basis as other senior executives of the Company.
The foregoing summary is qualified in its entirety by reference to Mr. Storch’s employment agreement, which is being filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated by reference herein.
The following exhibits are filed as part of this report:
Exhibit |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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EXHIBIT INDEX
| Description | |
3.1(1) | Second Amended and Restated Certificate of Incorporation of the Registrant. | |
3.2(2) | Second Amended and Restated Bylaws of the Registrant. | |
10.2*† | Amended and Restated Employment Agreement, dated as of November 5, 2012, among Altra Industrial Motion, Inc., Altra Holdings, Inc. and Christian Storch.† | |
31.1* | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1** | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2** | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101*** | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
* | Filed herewith. |
** | Furnished herewith. |
*** | As provided in Rule 406T of Regulation S-T, this information is furnished herewith and not filed for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended. |
† | Management contract or compensatory plan or arrangement. |
(1) | Incorporated by reference to Altra Holdings, Inc.’s Registration Statement on Form S-1A, as amended, filed with the Securities and Exchange Commission on December 4, 2006. |
(2) | Incorporated by reference to Altra Holdings, Inc.’s Current Report on form 8-K filed on October 27, 2008. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALTRA HOLDINGS, INC. | ||||||
November 7, 2012 | By: | /s/ Carl R. Christenson | ||||
Name: | Carl R. Christenson | |||||
Title | President and Chief Executive Officer | |||||
November 7, 2012 | By: | /s/ Christian Storch | ||||
Name: | Christian Storch | |||||
Title: | Vice President and Chief Financial Officer | |||||
November 7, 2012 | By: | /s/ Todd B. Patriacca | ||||
Name: | Todd B. Patriacca | |||||
Title: | Vice President of Finance, Corporate Controller and Treasurer |
EXHIBIT INDEX
Exhibit Number | Description | |
3.1(1) | Second Amended and Restated Certificate of Incorporation of the Registrant. | |
3.2(2) | Second Amended and Restated Bylaws of the Registrant. | |
10.2*† | Amended and Restated Employment Agreement, dated as of November 5, 2012, among Altra Industrial Motion, Inc., Altra Holdings, Inc. and Christian Storch. | |
31.1* | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1** | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2** | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101*** | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Statement of Earnings, (ii) the Unaudited Condensed Consolidated Balance Sheet, (iii) the Unaudited Condensed Consolidated Statement of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial Statements. |
* | Filed herewith. |
** | Furnished herewith. |
*** | As provided in Rule 406T of Regulation S-T, this information is furnished herewith and not filed for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended. |
† | Management contract or compensatory plan or arrangement. |
(1) | Incorporated by reference to Altra Holdings, Inc.’s Registration Statement on Form S-1A, as amended, filed with the Securities and Exchange Commission on December 4, 2006. |
(2) | Incorporated by reference to Altra Holdings, Inc.’s Current Report on form 8-K filed on October 27, 2008. |
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