UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 28, 2013March 31, 2014

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.INDUSTRIAL MOTION CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware 61-1478870

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

300 Granite Street, Suite 201, Braintree, MA 02184
(Address of principal executive offices) (Zip Code)

(781) 917-0600

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  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 ¨x  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 October 8, 2013, 26,968,006April 2, 2014, 27,067,409 shares of Common Stock, $0.001 par value per share, were outstanding.

 

 

 


TABLE OF CONTENTS

 

   Page # 

PART I—FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements (unaudited)

   3 

Item 2.

 

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

   2225 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

   3539 

Item 4.

 

Controls and Procedures

   3539 

PART II—OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

   3641 

Item 1A.

 

Risk Factors

   3641 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

   3641 

Item 3.

 

Defaults Upon Senior Securities

   3641 

Item 4.

 

Mine Safety Disclosures

   3641 

Item 5.

 

Other Information

   3742 

Item 6.

 

Exhibits

   3742 

SIGNATURES

   3843 

EXHIBITS

   3944 

EX-31.1 Section 302 Certification of Chief Executive Officer

  

EX-31.2 Section 302 Certification of Chief Financial Officer

  

EX-32.1 Section 906 Certification of Chief Executive Officer

  

EX-32.2 Section 906 Certification of Chief Financial Officer

  

EX-101 Certain materials formatted in XBRL

  

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Condensed Consolidated Balance Sheets

Amounts in thousands, except share amounts

 

  September 28, December 31, 
  2013 2012   March 31,
2014
 December 31,
2013
 
  (Unaudited)     (Unaudited)   

ASSETS

      

Current assets:

      

Cash and cash equivalents

  $70,272   $85,154    $61,849   $63,604  

Trade receivables, less allowance for doubtful accounts of $2,772 and $2,560 at September 28, 2013 and December 31, 2012, respectively

   99,773   92,933  

Trade receivables, less allowance for doubtful accounts of $2,479 and $2,245 at March 31, 2014 and December 31, 2013, respectively

   120,673   109,084  

Inventories

   120,571   123,776     139,727   143,665  

Deferred income taxes

   9,646   8,918     9,736   9,754  

Income tax receivable

   867   6,397     1,823   5,032  

Prepaid expenses and other current assets

   6,274   6,578     17,108   18,066  
  

 

  

 

   

 

  

 

 

Total current assets

   307,403    323,756     350,916    349,205  

Property, plant and equipment, net

   136,196    138,094     156,134    157,535  

Intangible assets, net

   71,137    76,098     116,648    118,768  

Goodwill

   88,115    88,225     105,217    104,339  

Deferred income taxes

   1,173    1,150     926    934  

Other non-current assets, net

   4,490    5,716     4,651    4,895  
  

 

  

 

   

 

  

 

 

Total assets

  $608,514   $633,039    $734,492   $735,676  
  

 

  

 

   

 

  

 

 

LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY

      

Current liabilities:

      

Accounts payable

  $47,454   $43,042    $52,452   $51,180  

Accrued payroll

   20,277    19,893     22,446    23,983  

Accruals and other current liabilities

   33,384    33,796     36,180    34,979  

Deferred income taxes

   —      34     45    44  

Income tax payable

   13,187    12,963  

Current portion of long-term debt

   12,800    9,135     17,784    16,924  
  

 

  

 

   

 

  

 

 

Total current liabilities

   113,915    105,900     142,094    140,073  

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

   181,085    238,460  

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

   249,147    261,348  

Deferred income taxes

   39,444    38,821     53,868    53,813  

Pension liabilities

   12,048    14,529     7,890    8,025  

Other post retirement benefits

   196    230  

Long-term taxes payable

   1,155    1,118     755    1,038  

Other long-term liabilities

   720    730     1,026    1,055  

Redeemable non-controlling interest

   1,041    1,239     1,028    991  

Commitment and Contingencies (See Note 17)

      

Stockholders’ equity:

      

Common stock ($0.001 par value, 90,000,000 shares authorized, 26,817,671 and 26,724,349 issued and outstanding at September 28, 2013 and December 31, 2012, respectively)

   27    27  

Common stock ($0.001 par value, 90,000,000 shares authorized, 26,836,964 and 26,819,795 issued and outstanding at March 31, 2014 and December 31, 2013, respectively)

   27    27  

Additional paid-in capital

   153,419    152,188     155,213    154,471  

Retained earnings

   128,722    103,200     141,889    133,231  

Accumulated other comprehensive loss

   (23,258  (23,403   (18,445  (18,396
  

 

  

 

   

 

  

 

 

Total stockholders’ equity

   258,910    232,012     278,684    269,333  

Total liabilities, non-controlling interest and stockholders’ equity

  $608,514   $633,039  

Total liabilities, redeemable non-controlling interest and stockholders’ equity

  $734,492   $735,676  
  

 

  

 

   

 

  

 

 

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

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Operations

Amounts in thousands, except per share data

 

  Quarter Ended 
  Quarter Ended   Year to Date Ended   March 31,
2014
   March 30,
2013
 
  September 28,
2013
   September 29,
2012
   September 28,
2013
   September 29,
2012
   (Unaudited)   (Unaudited) 
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 

Net sales

  $175,443    $174,488    $541,688    $554,816    $210,138    $185,150  

Cost of sales

   121,785     122,477     378,112     390,130     148,342     129,651  
  

 

   

 

   

 

   

 

   

 

   

 

 

Gross profit

   53,658     52,011     163,576     164,686     61,796     55,499  

Operating expenses:

            

Selling, general and administrative expenses

   31,672     30,785     96,742     94,666     38,262     32,442  

Research and development expenses

   3,002     2,823     9,150     8,792     3,889     2,934  

Restructuring costs

   97     —       655     —       —       320  
  

 

   

 

   

 

   

 

   

 

   

 

 
   34,771     33,608     106,547     103,458     42,151     35,696  

Income from operations

   18,887     18,403     57,029     61,228     19,645     19,803  

Other non-operating expense:

        

Other non-operating income and expense:

    

Interest expense, net

   2,567     6,637     7,830     18,915     3,019     2,605  

Other non-operating expense, net

   686     402     783     1,834  

Other non-operating expense (income), net

   534     (47
  

 

   

 

 
  

 

   

 

   

 

   

 

    3,553     2,558  
   3,253     7,039     8,613     20,749  

Income before income taxes

   15,634     11,364     48,416     40,479     16,092     17,245  

Provision for income taxes

   5,176     2,846     15,423     10,836     4,729     5,386  
  

 

   

 

   

 

   

 

   

 

   

 

 

Net income

   10,458     8,518     32,993     29,643     11,363     11,859  
  

 

   

 

   

 

   

 

   

 

   

 

 

Net loss attributable to non-controlling interest

   43     29     77     29     2     21  
  

 

   

 

   

 

   

 

   

 

   

 

 

Net income attributable to Altra Holdings, Inc.

  $10,501    $8,547    $33,070    $29,672  

Net income attributable to Altra Industrial Motion Corp.

  $11,365    $11,880  
  

 

   

 

 
  

 

   

 

   

 

   

 

 

Weighted average shares, basic

   26,780     26,675     26,750     26,632     26,733     26,733  

Weighted average shares, diluted

   26,836     26,708     26,852     26,737     27,444     26,767  

Net income per share:

            

Basic net income attributable to Altra Holdings, Inc

  $0.39    $0.32    $1.24    $1.11  

Diluted net income attributable to Altra Holdings, Inc.

  $0.39    $0.32    $1.23    $1.11  

Basic net income attributable to Altra Industrial Motion Corp.

  $0.43    $0.44  

Diluted net income attributable to Altra Industrial Motion Corp.

  $0.41    $0.44  

Cash dividend declared

  $0.10    $0.05    $0.28    $0.10    $0.10    $0.08  

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

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Condensed Consolidated Statement of Comprehensive Income

Amounts in thousands

 

  Quarter Ended   Year to Date Ended   Quarter Ended 
  September 28, September 29,   September 28, September 29,   March 31,
2014
 March 30,
2013
 
  2013 2012   2013 2012   (Unaudited) (Unaudited) 
  (Unaudited) (Unaudited)   (Unaudited) (Unaudited) 

Net Income

  $10,458   $8,518    $32,993   $29,643    $11,363   $11,859  

Other Comprehensive income (loss):

         

Foreign currency translation adjustment

   (6,727 6,605     (46 3,140     (54 (6,883

Change in fair value of interest rate swap

   (346 —       191   —    

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

   5    —    
  

 

  

 

   

 

  

 

   

 

  

 

 

Other comprehensive income (loss)

   (7,073  6,605     145    3,140  

Other comprehensive loss

   (49  (6,883

Comprehensive income

   3,385    15,123     33,138    32,783     11,314    4,976  

Comprehensive loss attributable to noncontrolling interest

   43    29     77    29  

Comprehensive income attributable to noncontrolling interest

   37    21  
  

 

  

 

   

 

  

 

   

 

  

 

 

Comprehensive income attributable to Altra Holdings, Inc.

  $3,428   $15,152    $33,215   $32,812  

Comprehensive income attributable to Altra Industrial Motion Corp.

  $11,351   $4,997  
  

 

  

 

   

 

  

 

   

 

  

 

 

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

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Cash Flows

Amounts in thousands

 

  Year to Date Ended   Quarter Ended 
  September 28, September 29,   March 31,
2014
 March 30
2013
 
  2013 2012   (Unaudited) (Unaudited) 
  (Unaudited) (Unaudited) 

Cash flows from operating activities

      

Net income

  $32,993   $29,643    $11,363   $11,859  

Adjustments to reconcile net income to net cash flows:

   

Adjustments to reconcile net income to net cashflows:

   

Depreciation

   16,047   15,038     5,845   5,220  

Amortization of intangible assets

   4,882   5,052     2,219   1,613  

Amortization of deferred financing costs

   646   1,447     232   189  

Loss on foreign currency, net

   593   44     305   110  

Amortization of inventory fair value adjustment

   2,151    —    

Accretion of debt discount, net

   2,331   2,585     823   760  

Loss on disposal / impairment of fixed assets

   212    —    

Stock-based compensation

   2,397   2,233     874   849  

Changes in assets and liabilities:

      

Trade receivables

   (8,756 (2,134   (11,957 (15,063

Inventories

   3,451   3,106     1,439   (663

Accounts payable and accrued liabilities

   9,197   (557   4,944   6,154  

Other current assets and liabilities

   254   984     829   (833

Other operating assets and liabilities

   (1,866 (2,948   (206 (900
  

 

  

 

   

 

  

 

 

Net cash from operating activities

   62,169    54,493     19,073    9,295  
  

 

  

 

 
  

 

  

 

 

Cash flows from investing activities

      

Purchase of property, plant and equipment

   (14,361  (25,162   (5,617  (4,499

Acquisition of Lamiflex, net of $68 cash received

   —      (7,444
  

 

  

 

   

 

  

 

 

Net cash from investing activities

   (14,361  (32,606   (5,617  (4,499
  

 

  

 

   

 

  

 

 

Cash flows from financing activities

      

Payments on Term Loan Facility

   (3,750  —    

Payments on Revolving Credit Facility

   (54,304  —    

Purchase of 8 1/8 Senior Secured Notes

   —      (21,000

Proceeds from Equipment and Working Capital Notes

   3,550    —    

Payment of Equipment and Working Capital notes

 �� (1,100  —    

Dividend payments

   (4,852  (1,348

Redemption of variable rate demand revenue bonds related to the San Marcos facility

   —      (3,000

Payments on term loan facility

   (6,261  (1,875

Payments on revolving credit facility

   (6,165  (19,304

Dividend payment

   (2,696  —    

Proceeds from equipment loan

   582    1,170  

Shares surrendered for tax withholding

   (1,166  (905   (132  —    

Payments on mortgages and other

   (515  (736   (199  (278

Payments on capital leases

   (25  (303   —      (9
  

 

  

 

   

 

  

 

 

Net cash from financing activities

   (62,162  (27,292   (14,871  (20,296
  

 

  

 

 
  

 

  

 

 

Effect of exchange rate changes on cash and cash equivalents

   (528  1,026     (340  (3,483

Net change in cash and cash equivalents

   (14,882  (4,379   (1,755  (18,983

Cash and cash equivalents at beginning of year

   85,154    92,515     63,604    85,154  
  

 

  

 

   

 

  

 

 

Cash and cash equivalents at end of period

  $70,272   $88,136    $61,849   $66,171  
  

 

  

 

   

 

  

 

 

Cash paid during the period for:

      

Interest

  $5,561   $11,848    $2,715   $2,583  

Income taxes

  $15,156   $8,567    $1,571   $1,899  

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

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Consolidated Statement of Stockholders’ Equity

Amounts in thousands

(Unaudited)

 

  Common
Stock
   Shares   Additional
Paid
in Capital
   Retained
Earnings
 Accumulated
Other

Comprehensive
Income (Loss)
 Total Redeemable
Non-
Controlling
Interest
   Common
Stock
   Shares   Additional
Paid

in Capital
   Retained
Earnings
 Accumulated
Other
Comprehensive
Income (Loss)
 Total Redeemable
Non-Controlling
Interest
 

Balance at January 1, 2012

  $27     26,600    $150,234    $83,211   $(25,076 $208,396   $—    

Balance at January 1, 2013

  $27     26,724    $152,188    $103,200   $(23,403 $232,012   $1,239  
  

 

   

 

   

 

   

 

  

 

  

 

  

 

 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Stock-based compensation and vesting of restricted stock

   —       119     1,328     —      —      1,328    —       —       18     849     —      —      849    —    

Net income attributable to Alta Holdings

   —       —       —       29,672    —      29,672    —    

Net income attributable to Altra Industrial Motion Corp.

   —       —       —       11,880    —      11,880    —    

Net loss attributable to non-controlling interest

   —       —       —       (29  —      (29  (29   —       —       —       —      —      —      (21

Fair value of non-controlling interest at acquisition

   —       —       —       —      —      —      1,327  

Dividends declared

   —       —       —       (2,694  —      (2,694  —       —       —       —       (2,152  —      (2,152  —    

Cumulative foreign currency translation adjustment

   —       —       —       —      3,140    3,140    —       —       —       —       —      (6,883  (6,883  —    
  

 

   

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Balance at September 29, 2012

  $27     26,719    $151,562    $110,160   $(21,936 $239,813   $1,298  

Balance at March 30, 2013

  $27     26,742    $153,037    $112,928   $(30,286 $235,706   $1,218  
  

 

   

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Balance at January 1, 2013

  $27    ��26,724    $152,188    $103,200   $(23,403 $232,012   $1,239  
           
  

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Balance at January 1, 2014

  $27     26,820    $154,471    $133,231   $(18,396 $269,333   $991  
  

 

   

 

   

 

   

 

  

 

  

 

  

 

 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Stock-based compensation and vesting of restricted stock

   —       94     1,231     —      —      1,231    —       —       247     742     —      —      742    —    

Net income attributable to Altra Holdings, Inc.

   —       —       —       33,070    —      33,070    —    

Net income attributable to Altra Industrial Motion Corp.

   —       —       —       11,365    —      11,365    —    

Net loss attributable to non-controlling interest

   —       —       —       (77  —      (77  (77   —       —       —       —      —      —      (2

Dividends declared

   —       —       —       (7,471  —      (7,471  —       —       —       —       (2,707  —      (2,707  —    

Change in fair value of interest rate swap

   —       —       —       —      191    191    —       —       —       —       —      5    5    —    

Cumulative foreign currency translation adjustment

   —       —       —       —      (46  (46  (121   —       —       —       —      (54  (54  39  
  

 

   

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Balance at September 28, 2013

  $27     26,818    $153,419    $128,722   $(23,258 $258,910   $1,041  

Balance at March 31, 2014

  $27     27,067    $155,213    $141,889   $(18,445 $278,684   $1,028  
  

 

   

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

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

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

1. Organization and Nature of Operations

Headquartered in Braintree, Massachusetts, Altra Holdings, Inc.Industrial Motion Corp. (the “Company”), through its wholly-owned subsidiary Altra Industrial Motion,Power Transmissions, Inc. (“Altra Industrial”APT”), 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 5040 product lines with production facilities in nine countries and sales coverage in over 70eleven countries. The Company’sAltra’s leading brands include Ameridrives Couplings, Bauer Gear Motor, Bibby Turboflex, Boston Gear, Warner Electric, TB Wood’s,Delroyd Worm Gear, Formsprag Clutch, Ameridrives Couplings,Huco, Industrial Clutch, Inertia Dynamics, Kilian Manufacturing, Lamiflex Couplings, Marland Clutch, Matrix, Nuttall Gear, Stieber Clutch, Wichita Clutch,Svendborg Brakes, TB Wood’s, Twiflex, Limited, Bibby Transmissions, Matrix International, Inertia Dynamics, Huco Dynatork,Warner Electric, Warner Linear, Bauer Gear Motor, and PowerFlex.Wichita Clutch.

In November 2013, Altra Holdings, Inc. changed its name to Altra Industrial Motion Corp., and Altra Industrial Motion, Inc., the Company’s wholly owned subsidiary, changed its name to Altra Power Transmission, Inc.

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 (“Bauer”). On July 11, 2012, the Company acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda. (“Lamiflex”). On December 17, 2013, the Company completed the acquisition of Svendborg Brakes A/S, now known as Svendborg Brakes ApS, and S.B. Patent Holding ApS (together “Svendborg”). The Company acquired all the issued and outstanding shares of Svendborg from Friction Holding A/S.

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, 2012.2013. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 28, 2013March 31, 2014 and December 31, 2012,2013, results of operations for the quarterquarters ended March 31, 2014 and year to date periods ended September 28,March 30, 2013, and September 29, 2012, and cash flows for the year to date periodsquarters ended September 28, 2013March 31, 2014 and September 29, 2012. March 30, 2013.

The Company followsmodified its quarterly reporting calendar effective at the beginning of fiscal year 2014 to report on a four, four, five week calendar per quartermonth-end basis with all quarters consistingending on the last day of the final month of each quarter. Historically, the Company’s reporting calendar for all quarters presented has consisted of thirteen weeks of operations with theper quarter. The Company’s fiscal year end alwayswill remain December 31. The effects of the change in the reporting periods did not have a significant impact on December 31.the consolidated financial statements.

3. Fair Value of Financial Instruments

The carrying values of financial instruments, including accounts receivable, cash equivalents, accounts payable, and other accrued liabilities and debtapproximate fair value. Debt under the Company’s Credit Agreement with certain financial institutions including an initial term loan facility of $100,000,000 (the “Terma Term Loan Facility”)Facility and an initial revolving credit facility of $200,000,000 (the “Revolvinga Revolving Credit Facility”)Facility approximate theirthe fair values due to theirthe variable rate nature at current market rates.

ALTRA HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

The carrying amount of the 2.75% Convertible Notes (the “Convertible Notes”) was $85.0 million at each of September 28, 2013March 31, 2014 and December 31, 2012.March 30, 2013. The estimated fair value of the Convertible Notes at September 28, 2013March 31, 2014 and December 31, 2012,2013 was $101.0$120.9 million and $94.3$116.5 million, respectively, based on inputs other than quoted prices that are observable for the Convertible Notes (level 2).

Included in cash and cash equivalents as of March 31, 2014 and December 31, 2013 are money market fund investments of $12.9 million and $16.6 million, respectively, which are reported at fair value based on quoted market prices for such investments (level 1).

The estimated fair value of the Company’s interest rate swap agreement with certain financial institutions (“Interest Rate Swap”) at September 28,each of March 31, 2014 and December 31, 2013 was $0.2 million, based on inputs other than quoted prices that are observable for the Interest Rate Swap (level 2). There was no Interest Rate Swap at December 31, 2012.Inputs include present value of fixed and projected floating rate cash flows over the term of the swap contract.

Included

ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in cash and cash equivalents as of September 28, 2013 and December 31, 2012 are money market fund investments of $20.4 million and $30.3 million, respectively, which are reported at fair value based on quoted market prices for such investments (level 1).thousands, unless otherwise noted

4. Changes in Accumulated Other Comprehensive Income (Loss) by Component

The following is a reconciliation of changes in Accumulated Other Comprehensive Income (Loss) by Component for the periods presented:

 

  Gains and
Losses on
Cash Flow
Hedges
   Defined
Benefit
Pension
Plans
 Cumulative
Foreign
Currency
Translation
Adjustment
 Total 

Accumulated Other Comprehensive Income (Loss) by Component, January 1, 2012

  $—      $(2,485 $(22,591 $(25,076

Net current-period Other Comprehensive Income (Loss)

   —       —     3,140   3,140  
  

 

   

 

  

 

  

 

 

Accumulated Other Comprehensive Income (Loss) by Component, September 29, 2012

  $—      $(2,485 $(19,451 $(21,936
  

 

   

 

  

 

  

 

 
  Gains and
Losses on
Cash Flow
Hedges
   Defined
Benefit
Pension
Plans
 Cumulative
Foreign
Currency
Translation
Adjustment
 Total   Gains and
Losses on
Cash Flow
Hedges
   Defined
Benefit
Pension
Plans
 Cumulative
Foreign
Currency
Translation
Adjustment
 Total 

Accumulated Other Comprehensive Income (Loss) by Component, January 1, 2013

  $—      $(4,607 $(18,796 $(23,403  $—      $(4,607 $(18,796 $(23,403

Net current-period Other Comprehensive Income (Loss)

   191     —     (46 145     —       —     (6,883 (6,883
  

 

   

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Accumulated Other Comprehensive Income (Loss) by Component, September 28, 2013

  $191    $(4,607 $(18,842 $(23,258

Accumulated Other Comprehensive Income (Loss) by Component, March 30, 2013

  $—      $(4,607 $(25,679 $(30,286
  

 

   

 

  

 

  

 

   

 

   

 

  

 

  

 

 

   Gains and
Losses on
Cash Flow
Hedges
   Defined
Benefit
Pension
Plans
  Cumulative
Foreign
Currency
Translation
Adjustment
  Total 

Accumulated Other Comprehensive Income (Loss) by Component, January 1, 2014

  $135    $(3,133 $(15,398 $(18,396

Net current-period Other Comprehensive Income (Loss)

   5     —      (54  (49
  

 

 

   

 

 

  

 

 

  

 

 

 

Accumulated Other Comprehensive Income (Loss) by Component, March 31, 2014

  $140    $(3,133 $(15,452 $(18,445
  

 

 

   

 

 

  

 

 

  

 

 

 

5. 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 beis dilutive.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

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 
   September 28,
2013
   September 29,
2012
   September 28,
2013
   September 29,
2012
 

Net income attributable to Altra Holdings, Inc

  $10,501    $8,547    $33,070    $29,672  

Shares used in net income per common share—basic

   26,780     26,675     26,750     26,632  

Incremental shares of unvested restricted common stock

   56     33     102     105  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in net income per common share—diluted

   26,836     26,708     26,852     26,737  

Earnings per share:

        

Basic net income attributable to Altra Holdings, Inc.

  $0.39    $0.32    $1.24    $1.11  

Diluted net income attributable to Altra Holdings, Inc.

  $0.39    $0.32    $1.23    $1.11  
   Quarter Ended 
   March 31,
2014
   March 30,
2013
 

Net income attributable to Altra Industrial Motion Corp.

  $11,365    $11,880  

Shares used in net income per common share - basic

   26,733     26,733  

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

   660     —    

Incremental shares of unvested restricted common stock

   51     34  
  

 

 

   

 

 

 

Shares used in net income per common share - diluted

   27,444     26,767  

Earnings per share:

    

Basic net income attributable to Altra Industrial Motion Corp.

  $0.43    $0.44  

Diluted net income attributable to Altra Industrial Motion Corp.

  $0.41    $0.44  

The Company excluded 2,278,000 shares related toDuring the quarter ended March 31, 2014, the average price of the Company’s common stock exceeded the current conversion price of the Company’s Convertible Notes (see Note 12) fromof $27.02 resulting in an additional 660,000 shares being included in the aboveshares used in net income per common share in the diluted earnings per share calculation as these shares were anti-dilutive.above (See Note 12).

6. Acquisitions

In July 2012,December 2013, the Company consummated an agreement (the “Purchase Agreement”) to acquire 85%all of privately held Lamiflex do Brasil Equipamentos Industriais Ltda.the issued and outstanding shares of Svendborg Brakes A/S, now known as Lamiflex Do Brasil Equipamentos Industriais S.A.Svendborg Brakes ApS, and S.B. Patent Holding ApS (together “Svendborg”) for cash consideration of €80.1 million ($110.2 million), less the cash remaining on the balance sheet at close of €5.4 million ($7.5 million). This transaction is knownreferred to as the LamiflexSvendborg Acquisition. Through the Svendborg Acquisition, the Company acquired the leading global manufacturer of premium quality caliper brakes. With the Svendborg Acquisition, in addition to a presence in Denmark, the Company acquired Denmark’s well-established sales network in 7 additional countries in Western Europe, China, South America, Australia and the United States as well as a manufacturing facility in China.

Altra financed the transaction through a combination of cash and additional borrowings under its Credit Agreement. Under the Purchase Agreement, the seller agreed to provide the Company with a limited set of representations and warranties, including with respect to outstanding and potential liabilities. Claims for a breach of a representation or warranty are secured by a limited escrow and warranty and indemnity insurance. Damages resulting from a breach of a representation or warranty could have a material and adverse effect on the Company’s financial condition and results of operations, and there is no guarantee that the Company would actually be able to recover all or any portion of the sums payable in connection with such breach.

Under the Purchase Agreement, the seller agreed to provide the Company with an indemnification for certain tax liabilities related to transfer pricing (the “Transfer Pricing Claims”) identified as part of an ongoing tax audit in Denmark. As part of the Purchase Agreement, an escrow in the amount of approximately €8.5 million ($11.6 million) was established for the Transfer Pricing Claims. The Company acquired 85% of the stock of Lamiflex for 17.4estimated this liability to be $8.1 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 closing date of the Lamiflex Acquisition was July 11, 2012, and as a result has recorded a liability included in taxes payable and an escrow receivable in other current assets. The purchase price in the Company’s condensed consolidated financial statements reflect Lamiflex’s results of operations fromreconciliation below represents cash consideration less the beginning of business on July 11, 2012 forward.estimated escrow receivable for which the Company expects to be indemnified.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

The Company has completedclosing date of the valuationSvendborg Acquisition was December 17, 2013, and as a result, the Company’s consolidated financial statements reflect Svendborg’s results of customer relationships, trademarks, deferred taxoperations from the beginning of business on December 17, 2013 forward.

As of March 31, 2014, the allocation of the purchase price for the Svendborg Acquisition is preliminary. The fair value of all the acquired identifiable assets and liabilities summarized below is provisional pending finalization of the Company’s acquisition accounting. Measurement period adjustments reflect new information obtained about facts and fixed assets and has recorded themcircumstances that existed as part of its balance sheet.

the acquisition date. The Company recordedbelieves that such preliminary allocations provide a redeemable non-controlling interest from its acquisitionreasonable basis for estimating the fair values of an 85% ownership interestassets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize fair value.

   At Acquisition
Date
   Measurement
Period
Adjustments
  At Acquisition
Date (As
Adjusted)
 

Purchase price, excluding acquisition costs of approximately $2.5 million

  $102,096    $—     $102,096  

Cash and cash equivalents

   7,483     —      7,483  

Trade receivables

   21,575     (329  21,246  

Inventories

   25,452     (224  25,228  

Prepaid and other

   5,511     (76  5,435  

Property, plant and equipment

   12,216     —      12,216  

Other assets

   1,133     —      1,133  

Intangible assets

   48,893     —      48,893  
  

 

 

   

 

 

  

 

 

 

Total assets acquired

  $122,263    $(629 $121,634  

Accounts payable

   4,833     —      4,833  

Accrued expenses and other current liabilities

   9,620     168    9,788  

Taxes payable

   10,254     —      10,254  

Deferred tax liability

   11,483     —      11,483  
  

 

 

   

 

 

  

 

 

 

Total liabilities assumed

  $36,190    $168   $36,358  

Net assets acquired

   86,073     (797  85,276  
  

 

 

   

 

 

  

 

 

 

Excess of purchase price over fair value of net assets acquired

  $16,023    $797   $16,820  
  

 

 

   

 

 

  

 

 

 

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

The Company updated the non-controlling interest is considered redeemable and is classified as temporary equityacquisition accounting for the measurement period adjustments noted in the table above during the quarter ended March 31, 2014.

Customer relationships, subject to amortization

  $40,050  

Trade names and trademarks, not subject to amortization

   8,500  

Patents

   343  
  

 

 

 

Total intangible assets

  $48,893  
  

 

 

 

Customer relationships are subject to amortization which will be amortized on a straight-line basis over their estimated useful lives of 17 years, which represents the Company’santicipated period over which the Company estimates it will benefit from the acquired assets.

ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Balance Sheet.Interim Financial Statements

Amounts in thousands, unless otherwise noted

The following table sets forth the unaudited pro forma results of operations of the Company for the yearquarter to date period ended September 29, 2012,March 30, 2013, as if the Company had acquired LamiflexSvendborg at the beginning of the period. The pro forma information contains the actual operating results of the Company, including Lamiflex,Svendborg, adjusted to include the pro forma impact of (i) additional depreciation expense as a result of estimated depreciation based on the fair value of fixed assets and; (ii) additional expense as a result of the estimated amortization of identifiable intangible assets; (iii) additional interest expense for borrowings under the Credit Agreement associated with the Svendborg 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.

 

  Pro Forma
(unaudited)
   Pro Forma
(unaudited)
 
  Year to Date Period
Ended
   Quarter Ended 
  September 29, 2012   March 30, 2013 

Total revenues

  $557,527    $205,119  

Net income attributable to Altra Holdings, Inc.

  $29,989  

Net income attributable to Altra Industrial Motion Corp.

  $12,812  

Basic earnings per share:

    

Net income attributable to Altra Holdings, Inc.

  $1.13  

Net income attributable to Altra Industrial Motion Corp.

  $0.48  

Diluted earnings per share:

    

Net income attributable to Altra Holdings, Inc.

  $1.12  

Net income attributable to Altra Industrial Motion Corp.

  $0.48  

7. Inventories

Inventories are generally stated at the lower of cost or market, using the first-in, first-out (“FIFO”) method. Market is defined as net realizable value. Inventories located at certain subsidiaries are stated at the lower of cost or market, principally using the last-in, first-out (“LIFO”) method. Inventories at September 28, 2013March 31, 2014 and December 31, 20122013 consisted of the following:

 

  September 28,
2013
   December 31,
2012
   March 31,
2 0 14
   December 31,
2013
 

Raw materials

  $36,230    $39,902    $52,703    $56,824  

Work in process

   18,743     21,199     18,953     18,432  

Finished goods

   65,598     62,675     68,071     68,409  
  

 

   

 

   

 

   

 

 
  $120,571    $123,776    $139,727    $143,665  
  

 

   

 

   

 

   

 

 

Approximately 9%7.3% and 10%7.5% of total inventories were valued using the LIFO method as of September 28, 2013March 31, 2014 and December 31, 2012,2013, respectively. The CompanyThere was no provision recorded a $0.1 million provision as a component of cost of sales to value the inventory on a LIFO basis for the quarter ended September 29, 2012. The Company recorded a $0.3 million adjustment as a component of cost of sales to value the inventory on a LIFO basis for the year to date period ended September 29, 2012. There was no provision necessary to value the inventory on a LIFO basis for the quarter or year to date periods ended September 28,March 31, 2014 or March 30, 2013.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

8. Goodwill and Intangible Assets

Changes to goodwill from January 1, through September 28, 2013March 31, 2014 were as follows:

 

  2013   2014 

Gross goodwill balance as of January 1

  $120,035    $136,149  

Impact of changes in foreign currency

   (110   81  
  

 

 

Gross goodwill balance as of September 28

   119,925  

Measurement period adjustments related to acquisition of Svendborg (See Note 6)

   797  

Gross goodwill balance as of March 31

   137,027  
  

 

   

 

 

Accumulated impairment as of January 1

   (31,810   (31,810

Impairment charge during the period

   —       —    
  

 

   

 

 

Accumulated impairment as of September 28

   (31,810

Accumulated impairment as of March 31

   (31,810
  

 

   

 

 

Net goodwill balance September 28, 2013

  $88,115  

Net goodwill balance March 31

  $105,217  
  

 

   

 

 

Other intangible assets as of September 28, 2013March 31, 2014 and December 31, 20122013 consisted of the following:

 

  September 28, 2013   December 31, 2012   March 31, 2014   December 31, 2013 
  Cost Accumulated
Amortization
   Cost Accumulated
Amortization
   Cost Accumulated
Amortization
   Cost Accumulated
Amortization
 

Other intangible assets

            

Intangible assets not subject to amortization:

            

Tradenames and trademarks

  $34,485   $—      $34,485   $—      $42,985   $—      $42,985   $—    

Intangible assets subject to amortization:

            

Customer relationships

   78,864   41,084     78,864   36,202     118,914   44,821     118,914   42,645  

Product technology and patents

   5,719   5,719     5,719   5,657     6,062   5,762��    6,062   5,719  

Impact of changes in foreign currency

   (1,128 —       (1,111 —       (730  —       (829  —    
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Total intangible assets

  $117,940   $46,803    $117,957   $41,859    $167,231   $50,583    $167,132   $48,364  
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

The Company recorded $1.7$2.2 million and $1.8$1.6 million of amortization expense in the quarters ended September 28,March 31, 2014 and March 30, 2013, and September 29, 2012, respectively, and recorded $4.9 million and $5.1 million of amortization expense in the year to date periods ended September 28, 2013 and September 29, 2012, respectively.

The estimated amortization expense for intangible assets is approximately $1.6$6.6 million for the remainder of 2013, $6.42014, $8.8 million in each of the next four years and then $9.5$31.9 million thereafter.

9. Warranty Costs

The contractual warranty period generally ranges from three months to two years with a fewcertain warranties extending up to thirty-six monthsfor longer periods based on the product and application of the product. Changes in the carrying amount of accrued product warranty costs for each of the quarters ended September 28,March 31, 2014 and March 30, 2013 and September 29, 2012 are as follows:

 

  March 31,
2014
 March 30,
2013
 
  September 28,
2013
 September 29,
2012
 

Balance at beginning of period

  $5,625   $4,898    $8,739   $5,625  

Accrued current period warranty expense

   1,758   1,651     201   519  

Payments

   (1,743 (1,435   (580 (416
  

 

  

 

   

 

  

 

 

Balance at end of period

  $5,640   $5,114    $8,360   $5,728  
  

 

  

 

   

 

  

 

 

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

10. Income Taxes

The estimated effective income tax rates recorded for the year to date periodsquarters ended September 28,March 31, 2014 and March 30, 2013, and September 29, 2012, were based upon management’s best estimate of the effective tax rate for the entire year.

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 2008.2010.

Additionally, the Company has indemnification agreements with the sellers of the Svendborg, Bauer and Lamiflex entities that 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 operations. At each ofMarch 31, 2014 and December 31, 2012 and September 28, 2013, the Company had $0.2 million and $0.4 million of accrued interest and penalties.penalties, respectively.

11. 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.active employees (those in the employment of the Company at, and certain employees hired since, November 30, 2004).

The following table representstables represent the componentsreconciliation of the net periodic benefit cost associated withobligation, fair value of plan assets and funded status of the respective defined benefit (pension) plans for the quartersas of March 31, 2014 and year to date periods ended September 28, 2013 and September 29, 2012:March 30, 2013:

 

  Quarter Ended 
  Quarter Ended   Pension Benefits 
  Pension Benefits Other Benefits   March 31, March 30, 
  September 28,
2013
 September 29,
2012
 September 28,
2013
 September 29,
2012
   2014 2013 

Service cost

  $37   $25   $—     $1    $38   $38  

Interest cost

   246   273   4   3     273   246  

Expected return on plan assets

   (267 (268 —     —       (269 (267

Amortization of net gain

   41   25   (13 (13   27   42  
  

 

  

 

  

 

  

 

   

 

  

 

 

Net periodic benefit cost (income)

  $57   $55   $(9 $(9  $69   $59  
  

 

  

 

  

 

  

 

   

 

  

 

 
  Year to Date Ended 
  Pension Benefits Other Benefits 
  September 28,
2013
 September 29,
2012
 September 28,
2013
 September 29,
2012
 

Service cost

  $113   $75   $2   $2  

Interest cost

   738   819   10   10  

Expected return on plan assets

   (801 (804 —     —    

Amortization of prior service income

   —     —     (1 (1

Amortization of net gain

   125   74   (39 (39
  

 

  

 

  

 

  

 

 

Net periodic benefit cost (income)

  $175   $164   $(28 $(28
  

 

  

 

  

 

  

 

 

The Company made $3.0$0.2 million in contributions during the year to date periodquarter ended September 28, 2013.March 31, 2014.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

12. Debt

Outstanding debt obligations at September 28, 2013March 31, 2014 and December 31, 20122013 were as follows:

 

  March 31, December 31, 
  September 28,
2013
 December 31,
2012
   2014 2013 

Debt:

      

Revolving Credit Facility

  $25,000   $79,304    $35,000   $41,198  

Convertible Notes

   85,000   85,000     85,000   85,000  

Term Notes

   96,250   100,000  

Equipment and working capital notes

   3,569   1,100  

Term Loan Facility

   156,864   163,245  

Equipment Loan

   4,737   4,155  

Mortgages

   715   963     515   659  

Capital leases

   73   99     155   178  

Other

   253   435     —      —    
  

 

  

 

   

 

  

 

 

Total debt

   210,860    266,901     282,271    294,435  

Less: debt discount, net of accretion

   (16,975  (19,306   (15,340  (16,163
  

 

  

 

   

 

  

 

 

Total debt, net of unaccreted discount

  $193,885   $247,595    $266,931   $278,272  
  

 

  

 

   

 

  

 

 

Less current portion of long-term debt

   12,800    9,135     17,784    16,924  
  

 

  

 

   

 

  

 

 

Total long-term debt, net of unaccreted discount

  $181,085   $238,460    $249,147   $261,348  
  

 

  

 

   

 

  

 

 

Credit Agreement

In November 2012,December 2013, the Company entered into aan Amended and Restated Credit Agreement with certain financial institutions (collectively,(the “Credit Agreement”). The Credit Agreement amends and restates the “Lenders”), to be guaranteed by certain domestic subsidiaries of the Company (each a “Guarantor” and collectively the “Guarantors”Company’s former credit agreement, dated November 20, 2012 (the “Former Credit Agreement”). Pursuant to the Former Credit Agreement, the Lendersformer lenders made available to the Company an initial term loan facility of $100,000,000 (the “Term Loan Facility”) and an initial revolving credit facility of $200,000,000.

Pursuant to the Credit Agreement, the lenders made an additional term loan of €50,000,000 (the “Additional Term Loan”) to Altra Industrial Motion Netherlands B.V. The Credit Agreement kept in effect the balance (approximately $94,375,000) of the existing term loan facility (the “Initial Term Loan”) made to the domestic borrowers under the Former Credit Agreement (collectively, the two term loans are referred to as the “Term Loan Facility”), as well as the revolving credit facility of $200,000,000 made under the Former Credit Agreement (the “Revolving Credit Facility”). The Credit Agreement continues, even after the making of the Additional Term Loan, to provide for a possible expansion of the credit facilities by an additional $150,000,000, which can be allocated as additional term loans and/or additional revolving credit loans. The amounts available under the Term Loan Facility were used, and amounts available under the Revolving Credit Facility can be used, for general corporate purposes, including acquisitions, and to repay existing indebtedness. The stated maturity of these credit facilities is December 6, 2018, and there are scheduled quarterly principal payments due on the outstanding amount of the Term Loan Facility. With respect to the Initial Term Loan, the scheduled quarterly principal payments due on the outstanding amount have been reamortized in accordance with the new December 6, 2018 maturity date. The previous maturity of the Revolving Credit Facility and the Initial Term Loan was November 20, 2017.

The amounts available under the Revolving Credit Facility may be drawn upon in accordance with the terms of the Credit Agreement. All amounts outstanding under the credit facilities are due on the stated maturity or such earlier time, if any, required under the Credit Agreement. The amounts owed under either of the credit facilities may be prepaid at any time, subject to usual notification and breakage payment provisions. Interest on the amounts outstanding under the credit facilities is calculated using either an ABR Rate or Eurodollar rate,Rate, plus the applicable margin. The applicable margins for Eurodollar Loans are between 1.375% to 1.875%, and for ABR Loans are between 0.375% and 0.875%. The Credit Agreement provides for a possible expansionamounts of the facilities by an aggregate additional $150,000,000, which can be allocated as additional term loans and/margins are calculated based on either a consolidated total net leverage ratio (as defined in the Credit Agreement), or additional revolving credit loans. The amounts available under the Term Loan Facility and Revolving Credit Facility are to be available for general corporate purposes and to repay existing indebtedness. The stated maturity of both of these credit facilities is November 20, 2017, and there are scheduled quarterly principal payments due on the outstanding amountthen applicable rating(s) of the Term Loan Facility.Company’s debt if and then to the extent as provided in the Credit Agreement. A portion of the Revolving Credit Facility may also be used for the issuance of letters of credit, and a portion of the amount of the Revolving Credit Facility is available for borrowings in certain agreed upon foreign currencies.

The proceeds of the Term Loan Facility and a portion of the proceeds of the Revolving Credit Facility, along with cash on hand, were used by the Company to contribute all funds necessary to redeem all of the Company’s Senior Secured Notes in December 2012 (the “Redemption”). As of September 28, 2013March 31, 2014 and December 31, 2012,2013, we had $25.0$35.0 million and $79.3$41.2 million outstanding on our Revolving Credit Facility, respectively. As of September 28, 2013March 31, 2014 and December 31, 2012,2013, we had $7.7$10.2 and $7.6$9.8 million in letters of credit outstanding, respectively. We had $167.3$154.8 million and $113.1$149.0 million available under the Revolving Credit Facility at September 28, 2013March 31, 2014 and December 31, 2012,2013, respectively.

The Credit Agreement contains various affirmative and negative covenants and restrictions, which among other things, will require the Company and certain Subsidiaries to provide certain financial reports to the Lenders, require the Company to maintain certain financial covenants relating to consolidated leverage and interest coverage, limit maximum annual capital expenditures, and limit the ability of the Company and its subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, purchase or redeem capital stock or debt stock or debt, make certain investments, sell assets, engage in certain transactions, and effect a consolidation or merger. The Credit Agreement also contains customary events of default.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

Pledge and Security Agreement; Trademark Security Agreement; Patent Security Agreement.

Pursuant to an Omnibus Reaffirmation and Ratification of Collateral Documents entered into on December 6, 2013 in connection with the Credit Agreement on November 20, 2012,by and among the Company, the Loan Parties and the Administrative Agent (the “Ratification Agreement”), the Loan Parties (exclusive of the foreign subsidiary Borrower) have reaffirmed their obligations to the Lenders under the Pledge and Security Agreement The Credit Agreement provides that the obligation to grant the security interest can cease upon the obtaining of certain corporate family credit ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the Credit Agreement.

Pursuant to the Ratification Agreement, the Loan Parties (other than the foregoing subsidiary Borrower) have also reaffirmed their obligations under each of the Patent Security Agreement and a Trademark Security Agreement.

The Loan Parties and the Administrative Agent entered into a Pledge and Security Agreement (the “Pledge and Security Agreement”), pursuant to which each Loan Party pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all personal property, whether now owned by or owing to, or after acquired by or arising in favor of such Loan Party (including under any trade name or derivations), and whether owned or consigned by or to, or leased from or to, such Loan Party, and regardless of where located, except for specific excluded personal property identified in the Pledge and Security Agreement (collectively, the “Collateral”). Notwithstanding the foregoing, the Collateral does not include, among other items, more than 65% of the capital stock of the first tier foreign subsidiaries of the Company. The Pledge and Security Agreement contains other customary representations, warranties and covenants of the parties. The Credit Agreement provides that the obligation to grant the security interest can cease upon the obtaining of certain corporate family ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the Credit Agreement.

In connection with the Pledge and Security Agreement, certain of the Loan Parties delivered a Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties.

Convertible Senior Notes

OnIn March 7, 2011, the Company issued $85.0 million of Convertible Senior Notes (the “Convertible Notes”) due March 1, 2031. The Convertible Notes are guaranteed by the Company’s U.S. domestic subsidiaries. Interest on the Convertible Notes is payable semi-annually in arrears, on March 1 2031. and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%. Proceeds from the offering were $81.3 million, net of fees and expenses that were capitalized. The proceeds from the offering were used to fund the Bauer Acquisition, as well as bolster the Company’s cash position.

The Convertible Notes will mature on March 31,1, 2031, unless earlier redeemed, repurchased by the Company or converted, and are convertible into cash or shares, or a combination thereof, at the Company’s election. InterestThe Convertible Notes are convertible into shares of the Company’s common stock based on an initial conversion rate, subject to adjustment, of 36.0985 shares per $1,000 principal amount of notes (which represents an initial conversion price of approximately $27.70 per share of our common stock), in certain circumstances. The conversion price at March 31, 2014 is $27.02 per share. Prior to March 1, 2030, the Convertible Notes are convertible only in the following circumstances: (1) during any fiscal quarter commencing after June 30, 2011 if the last reported sale price of the Company’s common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) during the five business day period after any 10 consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day in the measurement period was less than 97% of the product of the last reported sale price of the Company’s common stock and the conversion rate on such trading day; (3) if the Convertible Notes have been called for redemption; or (4) upon the occurrence of specified corporate transactions. These circumstances have not been met as of the quarter ended March 31, 2014.

On or after March 1, 2030, and ending at the close of business on the second business day immediately preceding the maturity date, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock, or a combination thereof, at the Company’s election. The Company intends to settle the principal amount in cash and any additional amounts in shares of stock.

If a fundamental change occurs, the Convertible Notes are redeemable at a price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but excluding, the repurchase date. The Convertible Notes are also redeemable on each of March 1, 2018, March 1, 2021, and March 1, 2026 for cash at a price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but excluding, the option repurchase date.

On or after March 1, 2015, the Company may call all or part of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, plus a “make-whole premium” payment in cash, shares of the Company’s common stock, or combination thereof, at the Company’s option, equal to the

sum of the present values of the remaining scheduled payments of interest on the Convertible Notes is payable semiannually in arrears, onto be redeemed through March 1, 2018 to, but excluding, the redemption date, if the last reported sale price of the Company’s common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day prior to the date the Company provides notice of redemption exceeds 130% of the conversion price in effect on each such trading day. On or after March 1, 2018, the Company may redeem for cash all or a portion of the notes at a redemption price of 100% of the principle amount of the Convertible Notes to be redeemed, plus accrued and September 1 of each year,unpaid interest (including contingent and commenced on September 1, 2011 at an annual rate of 2.75%.additional interest, if any) to, but not including, the redemption date.

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 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 $3.7 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. The balance of $2.7 million of debt issuance costs is classified as other non-current assets and will be amortized over the term of the notes using the effective interest method.

The carrying amount of the principal amount of the liability component, the unamortized discount, and the net carrying amount are as follows as of September 28, 2013:March 31, 2014:

 

  September 28,
2013
 

Principal amount of debt

  $85,000    $85,000  

Unamortized discount

   16,975     15,340  
  

 

   

 

 

Carrying value of debt

  $68,025    $69,660  
  

 

   

 

 

Interest expense associated with the Convertible Notes consisted of the following for the year to date periodquarter ended September 28, 2013:March 31, 2014:

 

  September 28,
2013
 

Contractual coupon rate of interest

  $1,753    $584  

Accretion of Convertible Notes discount and amortization of deferred financing costs

   2,594     911  
  

 

   

 

 

Interest expense for the convertible notes

  $4,347    $1,495  
  

 

   

 

 

The effective interest yield of the Convertible Notes due in 2031 is 8.5% at September 28, 2013March 31, 2014 and the cash coupon interest rate is 2.75%.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

Senior Secured Notes

In November 2009, the Company issued 8 1/8% Senior Secured Notes (the “Senior Secured Notes”) with a face value of $210 million. Interest on the Senior Secured Notes was payable semi-annually in arrears, on June 1 and December 1 of each year, commencing on June 1, 2010 at an annual rate of 8 1/8%. 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 was scheduled to mature on December 1, 2016.

The Senior Secured Notes were guaranteed by the Company’s U.S. domestic subsidiaries and were secured by a second priority lien, subject to first priority liens securing the Old Revolving Credit Agreement, on substantially all of the Company’s assets and those of its domestic subsidiaries. The indenture governing the Senior Secured Notes contained covenants which restricted the Company and its subsidiaries. These restrictions limited or prohibited, 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 our subsidiaries; and create liens on their assets. There are no financial covenants associated with the Senior Secured Notes.

During 2012, Altra Industrial retired the remaining principal balance of the 8 1/8% Senior Secured Notes, of $198.0 million.

Old Revolving Credit Agreement

Prior to entering into the current Credit Agreement, Altra Industrial had previously entered into a senior secured credit facility, (the “Old Revolving Credit Agreement”), that provided for borrowing capacity in an initial amount of up 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 credit facility).

The Old Revolving Credit Agreement was replaced with the new Revolving Credit Facility in November 2012.

Equipment and Working Capital Notes

The Company entered into a 24.6 million RMB ($3.9 million) loan with a bank to equip its new facility in Changzhou, China during 2012.2013. The loan had a remaining principal balanceCompany is allowed to borrow up to 90% of 7.0the amount of certain outstanding letters of credit issued by the Company’s U.S. bank in favor of the lending bank in China. As of March 31, 2014, the total available to borrow was 38.8 million RMB ($1.16.3 million) at December 31, 2012. The note was refinanced in an amount of approximately 6.5 million RMB ($1.1 million) during the quarter ended September 28, 2013 with a new bank.. The note is due in installments from July2014 through September 2014, when the note expires. Interest is payable monthly at2016, with interest varying between 5.04% and 6.69%.

The Company entered intohas a 15.429.2 million RMB ($2.54.7 million) loan with a bank to equip its new facility in Changzhou, China during the quarter ended September 28, 2013. The loan has a remaining principal balanceline of 15.4 million RMB ($2.5 million)credit outstanding at September 28, 2013. The note is due in in installments between June and August of 2016, when the note expires. Interest is payable monthly at 5.54%.March 31, 2014. The note is callable by the bank at its discretion and as such, has been included in the current portion of long-term debt in the balance sheet at September 28, 2013.March 31, 2014.

Mortgage

The Company has a mortgage with a bank on its facility in Heidelberg, Germany with an interest rate of 2.9% and is payable in monthly installments over the next three years. As of September 28, 2013March 31, 2014 and December 31, 2012,2013, the mortgage had a remaining principal balance of €0.4 million or $0.5 million, and €0.5 million or $0.7 million and €0.7 million or $1.0 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 $0.1$0.2 million at September 28, 2013March 31, 2014 and December 31, 2012.2013. Assets subject to capital leases are included in property, plant and equipment with the related amortization recorded as depreciation expense.

Overdraft Agreements

Certain of our foreign subsidiaries maintain overdraft agreements with financial institutions. There were no borrowings as of September 28, 2013March 31, 2014 or December 31, 20122013 under any of the overdraft agreements.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

13. Stockholders’ Equity

The Company declared dividends of $0.10 per share of common stock for the year to date periodquarter ended September 29, 2012.March 31, 2014. The Company declared a cash dividend of $0.05$0.08 per share for the quarter ended September 29, 2012.March 30, 2013. The dividend of $1.3$2.7 million was paid on October 2, 2012April 3, 2014 to shareholders of record as of the close of business on SeptemberMarch 18, 20122014 and was accrued for in the balance sheet at September 29, 2012.

The Company declared dividends of $0.28 per share of common stock for the year to date period ended September 28, 2013. The Company declared a cash dividend of $0.10 per share for the quarter ended September 28, 2013. The dividend of $2.7 million, paid on October 2, 2013, was accrued for in the balance sheet at September 28, 2013.March 31, 2014.

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 (as amended, 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 5five years from the date of grant, 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, restricted stock, restricted stock units, and performance share awards 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.

The Plan also permits the Company to grant performance share awards, among other things, to the Company’s executives and certain other officers and employees based on pre-established annual performance objectives and goals. The company issued performance share unit awards during February 2013 and has accrued compensation expense based on the probable outcome of these annual objectives and goals.

Stock-based compensationCompensation expense recorded during the year to date periods ended September 28, 2013 and September 29, 2012, was $2.4 million and $2.2 million, respectively. Stock-based compensation expense recorded during the quarters ended September 28, 2013 and September 29, 2012, was $0.6 million and $0.7 million, respectively. Stock-based compensation has been recorded as an adjustment to(in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.expense) quarters ended March 31, 2014 and March 30, 2013, was $0.9 million and $0.8 million, respectively. The Company recognizes stock-based compensation expense on a straight linestraight-line basis for the shares vesting ratably under the plan and uses the graded-vesting method of recognizing stock-based compensation expense for the performance share awards based on the probability of the specific performance metrics being achieved over the requisite service period.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

The following table sets forth the activity of the Company’s unvested restricted stock and performance share grants in the year to date periodquarter ended September 28, 2013:March 31, 2014:

 

      Weighted-average 
   Shares  grant date fair value 

Restricted shares unvested January 1, 2013

   162,586   $18.67  

Shares granted

   127,326    24.53  

Shares vested

   (139,577  21.50  
  

 

 

  

 

 

 

Restricted shares unvested September 28, 2013

   150,335   $22.95  
  

 

 

  

 

 

 
      Weighted-average 
   Shares  grant date fair value 

Shares unvested January 1, 2014

   149,635   $23.02  

Shares granted

   112,225    33.65  

Shares for which restrictions lapsed

   (19,555  34.07  
  

 

 

  

Shares unvested March 31, 2014

   242,305   $26.92  
  

 

 

  

Total remaining unrecognized compensation cost was $3.6$5.9 million as of September 28, 2013,March 31, 2014, 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 periodquarter ended September 28, 2013March 31, 2014 was $3.5$0.7 million. Restricted shares granted are valued based on the fair market value of the stock on the date of grant.

14. Derivative Financial Instruments

Interest Rate Swap

During the quarter ended June 29,In April 2013, the Company entered into an interest rate swap agreement designed to fix the variable interest rate payable on $98.1 milliona portion of its outstanding borrowings, currently $90.0 million, under the Credit Agreement, at 0.626% exclusive of the credit spreadmargin under the Former Credit Agreement. The interest rate swap agreement and its terms are also applicable to the variable interest rate borrowings under the current Credit Agreement.

The interest rate swap agreement was designed to manage exposure to interest rates on the Company’s variable rate indebtedness. The Company recognizes all derivatives on its balance sheet at fair value. The Company has designated its interest rate swap agreement, which is forward-dated, as a cash flow hedge. Changes in the fair value of the swap are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swap will be reported by the Company in interest expense. There was no ineffectiveness associated with the swap during the quarter or year to date periods ended September 28, 2013,March 31, 2014, nor was any amount excluded from ineffectiveness testing for these periods.the period.

The fair value of the swap recognized in other long-term assets and in other comprehensive income (loss) is as follows (in thousands):follows:

 

      Fixed Rate,                   Fair Value 
      before     Fair Value   Notional         March 31,   December 31, 

Effective Date

  Notional
Amount
   applicable
Margin
 Maturity   September 28,
2013
   December 31,
2012
   Amount   Fixed Rate Maturity   2014   2013 

April 30, 2013

  $98,125     0.626 November 30, 2016    $191    $—     $90,000     0.626 November 30, 2016    $218    $213  

15. 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 or year to date periods ended September 28, 2013March 31, 2014 and September 29, 2012.March 30, 2013.

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 investmentscash equivalents are held by well-established financial institutions and invested in AAA rated mutual funds or United States Government Securities.funds. The Company is exposed to swap counterparty credit risk with financial institutions. The Company’s counterparty is a well-established financial institution.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

The Company has three operating segments that are regularly reviewed by our chief operating decision maker. Each of these operating segments represents a unit that produces mechanical power transmission products. The Company aggregates all of the operating segments into one reportable segment. The three operating segments are expected to have similar long-term average gross profit margins. All of our products are sold by one global sales force and we have one global marketing function with the exception of the Bauer gear motornewly acquired Svendborg business for which the Company is in the process of integrating sales and marketing activities. Strategic markets and industries are determined for the entire company and then targeted by the brands. All of our operating segments have common manufacturing and production processes. Each operating segment includes a machine shop which uses similar equipment and manufacturing techniques. Each of our operating segments uses common raw materials, such as aluminum, steel and copper. The materials are purchased and procurement contracts are negotiated by one global purchasing function.

The Company serves the general industrial market by selling to original equipment manufacturers (“OEM”) and distributors. Our OEM and distributor customers serve the general industrial market. Resource allocation decisions such as capital expenditure requirements and headcount requirements are made at a consolidated level and allocated to the individual operating segments.

Discrete financial information is not available by product line at the level necessary for management to assess performance or make resource allocation decisions.

Net sales to third parties by geographic region are as follows:

 

  Net Sales 
  Net Sales   Net Sales   Quarter Ended 
  Quarter Ended   Year to Date Ended   March 31,   March 30, 
  September 28,
2013
   September 29,
2012
   September 28,
2013
   September 29,
2012
   2014   2013 

North America (primarily U.S.)

  $109,810    $112,708    $343,844    $358,719    $125,788    $120,548  

Europe

   52,315     49,832     160,895     162,356     67,836     54,205  

Asia and other

   13,318     11,948     36,949     33,741     16,514     10,397  
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $175,443    $174,488    $541,688    $554,816    $210,138    $185,150  
  

 

   

 

   

 

   

 

   

 

   

 

 

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 September 28, 2013March 31, 2014 and December 31, 20122013 were $128.5$141.8 million and $117.0$138.7 million, respectively.

ALTRA HOLDINGS, INC.INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

16. Restructuring

In the quarter ended December 31, 2012, the Company adopted a restructuring plan (“2012 Altra Plan”) as a result of continued sluggish demand in Europe and general global economic conditions. The actions included intaken pursuant to the 2012 Altra Plan includeincluded reducing headcount and limiting discretionary spending to improve profitability in Europe. The Company recorded $0.1 million and $0.7 million indid not record any restructuring charges associated with the 2012 Altra Plan in the quarter and year to date periods ended September 28, 2013, respectively. The costs were primarily severance charges due in connection with the reduction of the workforce at our European locations.March 31, 2014.

The Company’s total restructuring expense, by major component for the year to date periodquarters ended September 28,March 31, 2014 and March 30, 2013 was as follows:

 

  Quarter Year to Date 
  Ended Ended   Quarter Ended   Quarter Ended 
  September 28, September 28,   March 31,   March 30, 
  2013 2013   2014   2013 
  2012 2012   2012   2012 
  Altra Plan Altra Plan   Altra Plan   Altra Plan 

Severance

  $137   $653    $—      $283  

Other

   (40 2     —       37  
  

 

  

 

   

 

   

 

 

Total cash expenses

  $97   $655    $—      $320  
  

 

  

 

   

 

   

 

 

The following is a reconciliation of the accrued restructuring costs between December 31, 2012 and September 28, 2013cost:

 

  All Plans   All Plans 

Balance at January 1, 2013

  $2,920  

Balance at January 1, 2014

  $429  

Restructuring expense incurred

   655     —    

Cash payments

   (3,293   (53
  

 

   

 

 

Balance at September 28, 2013

  $282  

Balance at March 31, 2014

  $376  
  

 

   

 

 

The total restructuring reserve as of September 28, 2013March 31, 2014 relates to severance costs to be paid to employees and is recorded in accruals and other current liabilities on the accompanying condensed consolidated balance sheet. The Company expects to incur approximately $0.3 to $0.6 million in restructuring expenses during the remainder of 2013 under the 2012 Altra Plan.

17. 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 condensed consolidated balance sheets for potential litigation as of September 28, 2013March 31, 2014 or December 31, 2012.2013. 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.INDUSTRIAL MOTION CORP.

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.

18. 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.

The Company made a voluntary $2.0 million pension contribution in October 2013.

On October 29, 2013,April 24, 2014, the Company declared a dividend of $0.10$0.12 per share for the quarter ended December 31, 2013,June 30, 2014, payable on January 3,July 2, 2014 to shareholders of record as of DecemberJune 18, 2013.2014.

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 cyclical nature of the markets in which we operate;

changes in market conditions in which we operate that would influence the value of the Company’s ability to successfully execute, manage and integrate key acquisitions and mergers, including the Bauer Acquisition and the Lamiflex Acquisition;stock;

 

the Company’s ability to obtain or protect intellectual property rights;achieve its business plans, including with respect to an uncertain economic environment;

the risks associated with international operations, including currency risks;

 

the Company’s ability to retain existing customers and our ability to attract new customers for growth of our business;

 

the effects of the loss or bankruptcy of or default by any significant customer, suppliers, or other entity relevant to the Company’s operations;

 

the Company’s ability to successfully pursue the Company’s development activities and successfully integrate new operations and systems, including the realization of revenues, economies of scale, cost savings, and productivity gains associated with such operations;

the Company’s ability to complete cost reduction actions and risks associated with such actions;

 

the Company’s ability to control costs;

the risks associated with the portion of the Company’s total assets comprised of goodwill and indefinite lived intangibles;

failure of the Company’s operating equipment or information technology infrastructure;

the Company’s ability to achieve its business plans, including with respect to an uncertain economic environment;

changes in employment, environmental, tax and other laws and changes in the enforcement of laws;

the accuracy of estimated forecasts of OEM customers and the impact of the current global and European economic environment on our customers;

fluctuations in the costs of raw materials used in our products;

the Company’s ability to attract and retain key executives and other personnel;

work stoppages and other labor issues;

changes in the Company’s pension and retirement liabilities;

the Company’s risk of loss not covered by insurance;

the outcome of litigation to which the Company is a party from time to time, including product liability claims;

changes in accounting rules and standards, audits, compliance with the Sarbanes-Oxley Act, and regulatory investigations;

changes in market conditions that 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 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 Company’s risk of loss not covered by insurance;

the accuracy of estimated forecasts of OEM customers and the impact of the current global and European economic environment on our customers;

the risks association with certain minimum purchase agreements we have with suppliers;

fluctuations in the costs of raw materials used in our products;

the outcome of litigation to which the Company is a party from time to time, including product liability claims;

work stoppages and other labor issues;

changes in employment, environmental, tax and other laws and changes in the enforcement of laws;

the Company’s ability to attract and retain key executives and other personnel;

changes in the Company’s pension and retirement liabilities;

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 obtain or protect intellectual property rights;

the risks associated with international operations, including currency risks;the portion of the Company’s total assets comprised of goodwill and indefinite lived intangibles;

changes in market conditions that would result in the impairment of goodwill or other assets of the Company;

changes in accounting rules and standards, audits, compliance with the Sarbanes-Oxley Act, and regulatory investigations;

 

the effects of unanticipated deficiencies, if any, in the disclosure controls and internal controls of Bauer;Svendborg;

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;

failure of the Company’s operating equipment or information technology infrastructure;

the Company’s ability to implement our new ERP system;

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 risks associated with the Company’s exposure to variable interest rates and foreign currency exchange rates;

the risks associated with interest rate swap contracts;

the risks associated with the potential dilution of our common stock as a result of our convertible bonds;

the risks associated with the Company’s exposure to renewable energy markets;

the risks related to regulations regarding conflict minerals;

the risks associated with the global recession and European economic downturn and volatility and disruption in the global financial markets;

the Company’s ability to successfully execute, manage and integrate key acquisitions and mergers, including the Lamiflex Acquisition and the Svendborg Acquisition;

 

the risks associated with the Company’s investment in a new manufacturing facility in China;

the counter party credit risk associated with the Company’s interest rate swap; 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, 2012 and the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2013.this document

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, 2012,2013, 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.Industrial Motion Corp. and its subsidiaries should be read together with the audited financial statements of Altra Holdings, Inc.Industrial Motion Corp. and its subsidiaries and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.2013. Unless the context requires otherwise, the terms “Altra Holdings,Industrial Motion Corp.,” “the Company,” “we,” “us,” and “our” refer to Altra Holdings, Inc.Industrial Motion Corp. and its subsidiaries.

General

Altra Industrial Motion Corp. (“Altra” or the “Company”) (formerly Altra Holdings, Inc.) is the parent company of Altra Power Transmission, Inc. (“APT”) (formerly Altra Industrial Motion, Inc., or Altra Industrial,) and owns 100% of Altra Industrial’sAPT’s outstanding capital stock. Altra Industrial,APT, directly or indirectly, owns 100% of the capital stock of 5667 of its subsidiaries and 85% of the capital stock of one of its subsidiaries located in Brazil. The following chart illustrates a summary of our corporate structure:

 

LOGOLOGO

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 ofthe MPT (mechanical power transmission businesses. In December 1996, Colfax acquired the electro-mechanical power transmissiontransmission) group of Zurn Technologies, Inc. in December 1996. 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.APT.

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. Hay Hall consisted of five main businesses that were niche focused and had strong brand names and established reputations within their primary markets. Through Hay Hall, we acquired 15 strong brands in complementary product lines, improved customer leverage and expanded geographic presence in over 11 countries.

On May 18, 2006, we acquired substantially all of the assets of Bear Linear Inc., ornow known as 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, we 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.products. In December 2007, the Company divested the TB Wood’s electronics division.

On October 5, 2007, we acquired substantially all of the assets of All Power Transmission Manufacturing, Inc., or All Power, 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 gearmotorgear motor business, (“Bauer”).or Bauer. We refer to this transaction as the Bauer Acquisition. Bauer is a European manufacturer of high-quality gearmotors,gear motors, 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 11, 2012, we acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda., now known as Lamiflex Do Brasil Equipamentos Industriais S.A. (“Lamiflex”)., or Lamiflex. Lamiflex is one of 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.

On November 22, 2013, we changed our legal corporate name from Altra Holdings, Inc. to Altra Industrial Motion Corp.

On December 17, 2013, we completed the acquisition of Svendborg Brakes A/S, now known as Svendborg Brakes ApS, and S.B. Patent Holding ApS (together “Svendborg”). We acquired all the issued and outstanding shares of Svendborg from Friction Holding A/S. Svendborg is the leading global manufacturer of premium quality caliper brakes.

We are a leading global designer, producer and marketer of a wide range of electro-mechanicalelectromechanical 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, gearmotors,gear motors, 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 20122013 the top five broad-based electro-mechanicalelectromechanical 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, Svendborg Brakes, Matrix, Inertia Dynamics, Twiflex, Industrial Clutch, Marland Clutch  Aerospace, energy,
material handling,
handling, metals, turf and garden,
garden, mining
  Elevators,
forklifts, lawn
mowers, oil well
draw works,
works, punch presses,
conveyors
Gearing  Boston Gear, Nuttall Gear, Delroyd, Bauer Gear Motor  Food processing,
material handling,
handling, metals,
transportation
  Conveyors,
ethanol mixers,
packaging
machinery, metal
processing
equipment
Engineered Couplings  Ameridrives, Bibby Transmissions, TB Wood’s, PowerFlex  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. During

We have noted improvement in the activity levels of many of our end markets. We believe we are well positioned to capitalize on this improving environment. We also continue to make steady progress on profit improvement initiatives, which should continue to contribute positively to our performance going forward. In addition, we expect Svendborg to make a greater contribution to the bottom line as we proceed through the remainder of 2013, we expect to benefit from operational improvements at underperforming businesses, the European restructuring, and our pricing initiatives.2014.

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. See the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2012.

Goodwill, Intangibles and other long-lived assets.

Third-quarter revenues and net income associated with certain reporting units was deemed to be a triggering event for an evaluation2013. There have been no changes in the identification or application of the recoverability of portions of our goodwill with respect to those reporting units as of September 28, 2013. The Company performed an interim impairment test and determined that there was no impairment of goodwill as of September 28, 2013. The fair value of our reporting units, which includes goodwill, was substantially in excess of their carrying values as of September 28, 2013.Company’s critical accounting policies during the quarter ended March 31, 2014.

Results of Operations

   Quarter Ended  Year to Date Ended 
   September 28,
2013
  September 29,
2012
  September 28,
2013
  September 29,
2012
 

Net sales

  $175,433   $174,488   $541,688   $554,816  

Cost of sales

   121,785    122,477    378,112    390,130  
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   53,658    52,011    163,576    164,686  

Gross profit percentage

   30.6  29.8  30.2  29.7

Selling, general and administrative expenses

   31,672    30,785    96,742    94,666  

Research and development expenses

   3,002    2,823    9,150    8,792  

Restructuring costs

   97    —      655    —    
  

 

 

  

 

 

  

 

 

  

 

 

 

Income from operations

   18,887    18,403    57,029    61,228  

Interest expense, net

   2,567    6,637    7,830    18,915  

Other non-operating expense, net

   686    402    783    1,834  
  

 

 

  

 

 

  

 

 

  

 

 

 

Income before income taxes

   15,634    11,364    48,416    40,479  

Provisions for income taxes

   5,176    2,846    15,423    10,836  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

   10,458    8,518    32,993    29,643  

Net loss attributable to non-controlling interest

   43    29    77    29  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income attributable to Altra Holdings, Inc.

  $10,501   $8,547   $33,070   $29,672  
  

 

 

  

 

 

  

 

 

  

 

 

 

Quarter Ended September 28, 2013 compared with Quarter Ended September 29, 2012

(Amounts in thousands, unless otherwise noted)

 

Amounts in thousands, except percentage data)

  Quarter Ended 
  Quarter Ended 
  March 31, March 30, 
  September 28,
2013
   September 29,
2012
   Change   %   2014 2013 

Net sales

  $175,443    $174,488    $955     0.5  $210,138   $185,150  

Cost of sales

   148,342   129,651  
  

 

  

 

 

Gross profit

   61,796    55,499  

Gross profit percentage

   29.4  30.0

Selling, general and administrative expenses

   38,262    32,442  

Research and development expenses

   3,889    2,934  

Restructuring costs

   —      320  
  

 

  

 

 

Income from operations

   19,645    19,803  

Interest expense, net

   3,019    2,605  

Other non-operating expense (income), net

   534    (47
  

 

  

 

 

Income before income taxes

   16,092    17,245  

Provision for income taxes

   4,729    5,386  
  

 

  

 

 

Net income

   11,363    11,859  

Net loss attributable to non-controlling interest

   2    21  
  

 

  

 

 

Net income attributable to Altra Industrial Motion Corp.

  $11,365   $11,880  
  

 

  

 

 

Quarter Ended March 31, 2014 compared with Quarter Ended March 30, 2013

Amounts in thousands, except percentage data

  Quarter-Ended 
   March 31,   March 30,     
   2014   2013   Change   % 

Net sales

  $210,138    $185,150    $24,988     13.5

The increase in sales during the quarter ended September 28, 2013March 31, 2014 was due to consistentthe acquisition of Svendborg, positive foreign exchange rates, profit improvement initiatives and slightly higher sales levels enhanced bythan in the positivequarter ended March 30, 2013. Of the increase in sales, approximately $20.0 million relates to the inclusion of additional sales related to the acquisition of Svendborg for the quarter, $1.3 million is related to the impact of foreign exchange rate changes of $0.4 million primarily relatedincreases attributed to the increase in the Euro and British Pound Sterling rates compared to 2012.2013, and the impact of profit improvement initiatives of $1.2 million. We expect our order rates to see sales forremain stable throughout the remainder of 2013 to remain relatively flat when compared to 2012.2014.

 

Amounts in thousands, except percentage data)

  Quarter Ended 

Amounts in thousands, except percentage data

  Quarter Ended 
  March 31,
2014
 March 30,
2013
 Change   % 
  September 28,
2013
 September 29,
2012
 Change   % 

Gross Profit

  $53,658   $52,011   $1,647     3.2  $61,796   $55,499   $6,297     11.3

Gross Profit as a percent of sales

   30.6 29.8      29.4 30.0   

Gross profit as a percentage of sales improved in the quarter ended September 28, 2013, primarilydecreased due to the price increases implemented duringimpact of acquired inventory related to the past twelve months, low cost country sourcing, productivity improvements and the continued benefitsSvendborg acquisition which was recorded at fair value rather than cost. Without this charge of our 2012 restructuring plan explained under Note 16. We expect our full year 2013$2.2 million, gross profit as a percentage of sales to continue to show improvement over 2012.

would be 30.4% for the quarter ended March 31, 2014.

Amounts in thousands, except percentage data)

  Quarter Ended 

Amounts in thousands, except percentage data

  Quarter Ended 
  March 31, 2014 March 30, 2013 Change   % 
  September 28,
2013
 September 29,
2012
 Change   % 

Selling, general and administrative expense (“SG&A”)

  $31,672   $30,785   $887     2.9  $38,262   $32,442   $5,820     17.9

SG&A as a percent of sales

   18.1 17.6      18.2 17.5   

The entire increase in SG&A as a percentageis due to the inclusion of salesSG&A related to the acquisition of Svendborg.

Amounts in thousands, except percentage data

  Quarter Ended 
   March 31, 2014   March 30, 2013   Change   % 

Research and development expenses (“R&D”)

  $3,889    $2,934    $955     32.5

Of the increase in the quarter ended September 28, 2013R&D, approximately $0.4 million relates to wage increases combined with changes in foreign currency, primarily the British Pound Sterling and Euro.inclusion of R&D related to the acquisition of Svendborg for the quarter.

Amounts in thousands, except percentage data)

  Quarter Ended 
   September 28,
2013
   September 29,
2012
   Change   % 

Research and development expenses (“R&D”)

  $3,002    $2,823    $179     6.3

R&D expenses as a percentage of sales excluding the impact of Svendborg remained consistent with prior year at approximately 1.6%-1.7% of sales. We do not forecast significant variances in future periods.

 

Amounts in thousands, except percentage data)

  Quarter Ended 

Amounts in thousands, except percentage data

  Quarter Ended 
  March 31, 2014   March 30, 2013   Change % 
  September 28,
2013
   September 29,
2012
   Change   % 

Restructuring

  $97    $—      $97     —      $—      $320    $(320  —    

During the quarter ended December 31, 2012, we adopted a restructuring plan (the “2012 Altra Plan”) to improve profitability in Europe. These actions include reducing headcount, moving and relocating equipment and limiting discretionary spending. The Company expectsdid not incur any additional expenses under the plan in the quarter ended March 31, 2014 and does not expect to incur any additional expenses of between approximately $0.3 to $0.6 million during the remainder of 2013 associated with the 2012 Altra Plan.Plan during the remainder of 2014.

 

Amounts in thousands, except percentage data)

  Quarter Ended 
   September 28,
2013
   September 29,
2012
   Change  % 

Interest expense, net

  $2,567    $6,637    $(4,070  -61.3

Amounts in thousands, except percentage data

  Quarter Ended 
   March 31, 2014   March 30, 2013   Change   % 

Interest Expense, net

  $3,019    $2,605    $414     15.9

Net interest expense decreased substantially in the quarter ended September 28, 2013, due to the Company refinancing its debt at much lower rates than were in effectincreased during the quarter ended September 29, 2012. The Company also had lower outstanding borrowingsMarch 31, 2014 over the comparable 2013 period, primarily due to the borrowing of approximately additional 54.5 million Euros for the acquisition of Svendborg and the purchase of land and building in Esslingen Germany during the quarter ended September 28,December 31, 2013. The Company expects to continue to see savings in interest expense throughout the remainder of 2013, when compared to 2012 periods.

 

Amounts in thousands, except percentage data)

  Quarter Ended 
   September 28,
2013
   September 29,
2012
   Change   % 

Other non-operating expense, net

  $686    $402    $284     70.6
Amounts in thousands, except percentage data  Quarter Ended 
   March 31, 2014   March 30, 2013  Change   % 

Other non-operating expense (income), net

  $534    $(47 $581     -1236.2

Other non-operating incomeexpense (income) in each period in the chart above relates primarily to changes in foreign currency.

Amounts in thousands, except percentage data)

  Quarter Ended 
Amounts in thousands, except percentage data  Quarter Ended 
  March 31,
2014
 March 30,
2013
 Change % 
  September 28,
2013
 September 29,
2012
 Change   % 

Provision for income taxes

  $5,176   $2,846   $2,330     81.9  $4,729   $5,386   $(657  -12.2

Provision for income taxes as a % of income before income taxes

   33.1 25.0      29.4  31.2  

The provision for income taxes, for the quarter ended September 28, 2013, as a percentage of income before taxes, was higher than the quarter ended September 29, 2012 primarily as a result of lower amounts of foreign income taxed at lower tax rates and higher amounts of US income, primarily due to lower interest expense, being taxed at higher tax rates in 2013 compared to 2012. This was partially offset by the reinstatement of the research and development tax credit in the U.S.

Year to Date Period Ended September 28, 2013 compared with Year to Date Period Ended September 29, 2012

(Amounts in thousands, unless otherwise noted)

   Year to Date Period Ended 
   September 28,
2013
   September 29,
2012
   Change  % 

Net sales

  $541,688    $554,816    $(13,128  -2.4

The decrease in sales during the year to date period ended September 28, 2013 was due to lower sales levels across all operating segments as a result of weak demand in all geographies except Asia. This was partially offset by the inclusion of Lamiflex sales for the full year to date period ended September 28, 2013. Lamiflex was acquired during the quarter ended September 29, 2012. We expect to see sales forMarch 31, 2014 was lower than that of the remainder of 2013 to remain relatively flat when compared to the fourth quarter of 2012.

   Year to Date Period Ended 
   September 28,
2013
  September 29,
2012
  Change  % 

Gross Profit

  $163,576   $164,686   $(1,110  -0.7

Gross Profit as a percent of sales

   30.2  29.7  

Gross profit as a percentage of sales improved in the year to date period ended September 28,March 30, 2013 primarily due to the price increases implemented duringimpact of certain discrete items combined with the past twelve months, low cost country sourcing, productivity improvements and the benefitsimpact of our 2012 restructuring plan. We expect our full year 2013 gross profit as a percentage of sales to continue to show improvement over 2012.

Amounts in thousands, except percentage data

  Year to Date Period Ended 
   September 28,
2013
  September 29,
2012
  Change   % 

Selling, general and administrative expense (“SG&A”)

  $96,742   $94,666   $2,076     2.2

SG&A as a percent of sales

   17.9  17.1   

The increase in SG&Afavorable statutory tax rate reductions in the year to date period ended September 28, 2013 is due primarily to the inclusion of the expenses of Lamiflex, which was acquired in the quarter ended September 29, 2012.

Amounts in thousands, except percentage data

  Year to Date Period Ended 
   September 28,
2013
   September 29,
2012
   Change   % 

Research and development expenses (“R&D”)

  $9,150    $8,792    $358     4.1

R&D expenses as a percentage of sales remained consistent with prior year at approximately 1.7% of sales. We do not forecast significant variances in future periods.

Amounts in thousands, except percentage data

  Year to Date Period Ended 
   September 28,
2013
   September 29,
2012
   Change   % 

Restructuring

  $655    $—      $655     —    

During the quarter ended December 31, 2012, we adopted a restructuring plan (the “2012 Altra Plan”) to improve profitability in Europe These actions include reducing headcount, moving and relocating equipment and limiting discretionary spending. The Company expects to incur additional expenses of between approximately $0.3 and $0.6 million during the remainder of 2013 associatedUnited Kingdom along with the 2012 Altra Plan.

Amounts in thousands, except percentage data

  Year to Date Period Ended 
   September 28,
2013
   September 29,
2012
   Change  % 

Interest Expense, net

  $7,830    $18,915    $(11,085  -58.6

Net interest expense decreased substantially in the year to date period ended September 28, 2013 due to the Company refinancing its debt at much lower rates than were in effect during the year to date period ended September 29, 2012. The Company also had lower outstanding borrowings during the year to date period ended September 28, 2013. The Company expects to continue to see savings in interest expense throughout the remainder of 2013 when compared to 2012 periods.

Amounts in thousands, except percentage data

  Year to Date Period Ended 
   September 28,
2013
   September 29,
2012
   Change  % 

Other non-operating expense, net

  $783    $1,834    $(1,051  -57.3

Other non-operating expense (income) in the year to date period ended September 29, 2012 related 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 other non-operating income in each period relates primarily to changes in foreign currency, primarily the British Pound Sterling and Euro.

Amounts in thousands, except percentage data

  Year to Date Period Ended 
   September 28,
2013
  September 29,
2012
  Change   % 

Provision for income taxes

  $15,423   $10,836   $4,587     42.3

Provision for income taxes as a % of income before income taxes

   31.9  26.8   

The provision for income taxes for the year to date period ended September 28, 2013, as a percentage of income before taxes, was higher than the year to date period ended September 29, 2012 provision for income taxes primarily as a result of lower amounts of foreign income being taxed at lower tax rates and higher amounts of US incomes, primarily due to lower interest expense in the US, being taxed at higherfavorable statutory tax rates in 2013 compared to 2012. Additionally,jurisdictions in 2012,which the Company recognized a favorable discrete benefit related to the settlement with the State of New York for an item that previously impacted the Company’s effective tax rate. This was partially offset by the reinstatement of the research and development tax credit in the U.S.newly acquired Svenborg acquisition operates in.

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 revolving credit facility (“Revolving Credit Facility”).Facility. We expect that our primary ongoing requirements for cash will be for working capital, debt service, capital expenditures, acquisitions, pension plan funding,pensions and to pay dividends to our stockholders.dividends. In the event additional funds are needed for operations, we could borrow additional funds available under our existing Revolving Credit Facility, request an expansion by up to $150,000,000 of the amount available to be borrowed under the Credit Agreement, attempt to secure new debt, attempt to refinance our loans under the Credit Agreement, or attempt to raise capital in the equity markets. Presently, we have the ability under our Revolving Credit Facility to borrow an additional $167.3$154.8 million, based on current availability calculations. There can be no assurance however that additional debt financing will be available on commercially acceptable terms, orif at all. Similarly, there can be no assurance that equity financing will be available on commercially acceptable terms, orif at all.

Borrowings

 

  Amounts in millions 
  Amounts in millions   March 31,   December 31, 
  September 28,
2013
   December 31,
2012
   2014   20 3 

Debt:

        

Revolving Credit Facility

  $25.0    $79.3    $35.0    $41.2  

Convertible Notes

   85.0     85.0     85.0    $85.0  

Term Loan

   96.2     100.0  

Equipment and working capital notes

   3.6     1.1  

Term Loan Facility

   156.9    $163.2  

Equipment Loan

   4.7    $4.2  

Mortgages

   0.7     1.0     0.5    $0.7  

Capital leases

   0.1     0.1     0.2    $0.2  

Other

   0.3     0.4  
  

 

   

 

   

 

   

 

 

Total Debt

  $210.9    $266.9  

Total debt

  $282.3    $294.4  
  

 

   

 

   

 

   

 

 

Credit Agreement

In November 2012,December 2013, the Company entered into aan Amended and Restated Credit Agreement with certain financial institutions (collectively,(the “Credit Agreement”). The Credit Agreement amends and restates the “Lenders”), to be guaranteed by certain domestic subsidiaries of the Company (each a “Guarantor” and collectively the “Guarantors”Company’s former credit agreement, dated November 20, 2012 (the “Former Credit Agreement”). Pursuant to the Former Credit Agreement, the Lendersformer lenders made available to the Company an initial term loan facility of $100,000,000 (the “Term Loan Facility”) and an initial revolving credit facility of $200,000,000.

Pursuant to the Credit Agreement, the lenders made an additional term loan of €50,000,000 (the “Additional Term Loan”) to Altra Industrial Motion Netherlands B.V. The Credit Agreement kept in effect the balance (approximately $94,375,000) of the existing term loan facility (the “Initial Term Loan”) made to the domestic borrowers under the Former Credit Agreement (collectively, the two term loans are referred to as the “Term Loan Facility”), as well as the revolving credit facility of $200,000,000 made under the Former Credit Agreement (the “Revolving Credit Facility”). The Credit Agreement continues, even after the making of the Additional Term Loan, to provide for a possible expansion of the credit facilities by an additional $150,000,000, which can be allocated as additional term loans and/or additional revolving credit loans. The amounts available under the Term Loan Facility were used, and amounts available under the Revolving Credit Facility can be used, for general corporate purposes, including acquisitions, and to repay existing indebtedness. The stated maturity of these credit facilities is December 6, 2018, and there are scheduled quarterly principal payments due on the outstanding amount of the Term Loan Facility. With respect to the Initial Term Loan, the scheduled quarterly principal payments due on the outstanding amount have been reamortized in accordance with the new December 6, 2018 maturity date. The previous maturity of the Revolving Credit Facility and the Initial Term Loan was November 20, 2017.

The amounts available under the Revolving Credit Facility may be drawn upon in accordance with the terms of the Credit Agreement. All amounts outstanding under the credit facilities are due on the stated maturity or such earlier time, if any, required under the Credit Agreement. The amounts owed under either of the credit facilities may be prepaid at any time, subject to usual notification and breakage payment provisions. Interest on the amounts outstanding under the credit facilities is calculated using either an ABR Rate or Eurodollar rate,Rate, plus the applicable margin. The applicable margins for Eurodollar Loans are between 1.375% to 1.875%, and for ABR Loans are between 0.375% and 0.875%. The Credit Agreement provides for a possible expansionamounts of the facilities by an aggregate additional $150,000,000, which can be allocated as additional term loans and/margins are calculated based on either a consolidated total net leverage ratio (as defined in the Credit Agreement), or additional revolving credit loans. The amounts available under the Term Loan Facility and Revolving Credit Facility are to be available for general corporate purposes and to repay existing indebtedness. The stated maturity of both of these credit facilities is November 20, 2017, and there are scheduled quarterly principal payments due on the outstanding amountthen applicable rating(s) of the Term Loan Facility.Company’s debt if and then to the extent as provided in the Credit Agreement. A portion of the Revolving Credit Facility may also be used for the issuance of letters of credit, and a portion of the amount of the Revolving Credit Facility is available for borrowings in certain agreed upon foreign currencies.

The proceeds of the Term Loan Facility and a portion of the proceeds of the Revolving Credit Facility, along with cash on hand, were used by the Company to contribute all funds necessary to redeem all of the Company’s Senior Secured Notes in December 2012 (the “Redemption”). As of September 28, 2013March 31, 2014 and December 31, 2012,2013, we had $25.0$35.0 million and $79.3$41.2 million outstanding on our Revolving Credit Facility, respectively. As of September 28, 2013March 31, 2014 and December 31, 2012,2013, we had $7.7$10.2 and $7.6$9.8 million in letters of credit outstanding, respectively. We had $167.3$154.8 million and $113.1$149.0 million and available under the Revolving Credit Facility at September 28, 2013March 31, 2014 and December 31, 2012,2013, respectively.

The Credit Agreement contains various affirmative and negative covenants and restrictions, which among other things, will require the Company and certain Subsidiaries to provide certain financial reports to the Lenders, require the Company to maintain certain financial covenants relating to consolidated leverage and interest coverage, limit maximum annual capital expenditures, and limit the ability of the Company and its subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, purchase or redeem capital stock or debt stock or debt, make certain investments, sell assets, engage in certain transactions, and effect a consolidation or merger. The Credit Agreement also contains customary events of default.

Hedging Activities

During the quarter and year to date periodsperiod ended September 28, 2013,March 31, 2014, we utilized a derivative instrument, namely an interest rate swap, to manage exposure to interest rates on the Company’s variable rate indebtedness. Our derivative instrument is with a major financial institution and is not for speculative or trading purposes. The Company has designated its interest rate swap agreement which is forward-dated, as a cash flow hedge, and changes in the fair value of the swap are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swap will be reported by the Company in interest expense. For more information on the interest rate swap, please see Note 14.

Pledge and Security Agreement; Trademark Security Agreement; Patent Security Agreement.

Pursuant to an Omnibus Reaffirmation and Ratification of Collateral Documents entered into on December 6, 2013 in connection with the Credit Agreement onby and among the Company, the Loan Parties and the Administrative Agent (the “Ratification Agreement”), the Loan Parties (exclusive of the foreign subsidiary Borrower) have reaffirmed their obligations to the Lenders under the Pledge and Security Agreement dated November 20, 2012 (the “Pledge and Security Agreement”), pursuant to which each Loan Party pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all personal property, whether now owned by or owing to, or after acquired by or arising in favor of such Loan Party (including under any trade name or derivations), and whether owned or consigned by or to, or leased from or to, such Loan Party, and regardless of where located, except for specific excluded personal property identified in the Pledge and Security Agreement (collectively, the “Collateral”). Notwithstanding the foregoing, the Collateral does not include, among other items, more than 65% of the capital stock of the first tier foreign subsidiaries of the Company. The Pledge and Security Agreement contains other customary representations, warranties and covenants of the parties. The Credit Agreement provides that the obligation to grant the security interest can cease upon the obtaining of certain corporate family credit ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the Credit Agreement.

Pursuant to the Ratification Agreement, the Loan Parties (other than the foregoing subsidiary Borrower) have also reaffirmed their obligations under each of the Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent dated November 20, 2012 pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties.

The Loan Parties and the Administrative Agent entered into a Pledge and Security Agreement (the “Pledge and Security Agreement”), pursuant to which each Loan Party pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all personal property, whether now owned by or owing to, or after acquired by or arising in favor of such Loan Party (including under any trade name or derivations), and whether owned or consigned by or to, or leased from or to, such Loan Party, and regardless of where located, except for specific excluded personal property identified in the Pledge and Security Agreement (collectively, the “Collateral”). Notwithstanding the foregoing, the Collateral does not include, among other items, more than 65% of the capital stock of the first tier foreign subsidiaries of the Company. The Pledge and Security Agreement contains other customary representations, warranties, and covenants of the parties. The Credit Agreement provides that the obligation to grant the security interest can cease upon the obtaining of certain corporate family ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the Credit Agreement.

In connection with the Pledge and Security Agreement, certain of the Loan Parties delivered a Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties.

We were in compliance in all material respects with all covenants of the indenture governing the Credit Agreement at March 31, 2014.

Convertible Senior Notes

In March 2011, the Company issued Convertible Senior Notes (the “Convertible Notes”) due March 1, 2031. The Convertible Notes are guaranteed by the Company’s U.S. 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 $81.3 million, net of fees and expenses that were capitalized. The proceeds from the offering were used to fund the Bauer Acquisition, as well as bolster the Company’s cash position.

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 periodsquarters ended September 28,March 31, 2014 and March 30, 2013, and September 29, 2012, respectively:

 

  September 28,
2013
 September 29,
2012
 Change   March 31, 2014 March 30, 2013 Change 

Cash and cash equivalents at the beginning of the period

  $85,154   $92,515   $(7,361  $63,604   $85,154   $(21,550

Cash flows from operating activities

   62,169   54,493   7,676     19,073   9,295   9,778  

Cash flows from investing activities

   (14,361 (32,606 18,245     (5,617 (4,499 (1,118

Cash flows from financing activities

   (62,162 (27,292 (34,870   (14,871 (20,296 5,425  

Effect of exchange rate changes on cash and cash equivalents

   (528 1,026   (1,554   (340 (3,483 3,143  
  

 

  

 

  

 

   

 

  

 

  

 

 

Cash and cash equivalents at the end of the period

  $70,272   $88,136   $(17,864  $61,849   $66,171   $(4,322
  

 

  

 

  

 

   

 

  

 

  

 

 

Cash Flows for 20132014

The primary sources of funds provided from operating activities of approximately $62.0$19.1 million for the year to date periodquarter ended September 28, 2013March 31, 2014 resulted from cash provided from net income of $33.0$11.4 million. The net impact of the add-back of certain items including non-cash depreciation, amortization, stock-based compensation, accretion of debt discount, deferred financing costs, and non-cash loss on foreign currency was approximately $26.9$12.7 million. This amount was offset by a net decreaseincrease in current assets and liabilities of approximately $2.3$5.0 million.

The change in cash flows from operating activities in 20132014 as compared to 20122013 related to a federal tax refundthe cash generated from the operations of $4.8 million being received inSvendborg for the quarter ended March 30, 2013. Additionally, accounts payable31, 2014 and accrued liabilities has increased by an additional $4.9 million when compared to the decrease for the year to date period ended September 29, 2012 due to lower sales volumes.better working capital management. 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 fiscal 20132014 due to income from operations, lower interest expense than in prior years anda large number of non-cash charges, a decrease in working capital.capital and profitability initiatives.

Net cash used in investing activities decreased from 2012 primarilyincreased compared to the quarter ended March 30, 2013 due to lowermore capital expenditures being required during the year to date periodquarter ended September 28, 2013. Expenditures decreased during the year to date period ended September 28, 2013 as compared to the year to date period ended September 29, 2012 as there were greater capital expenditures for new equipment including our new facility in Changzhou, China during the year to date period ended September 29, 2012 that was not repeated during the year to date period ended September 28, 2013.March 31, 2014.

The change in net cash from financing activities wasin the quarter ended March 31, 2014 as compared to quarter ended March 30, 2013 related primarily due to an $8.8 million decrease in principal payments made on the repayment of approximately $58.1 million towards ourcompany’s Term Loan Facility and Revolving Credit Facility. This was partially offset by the $3.0$2.7 million redemption of the variable demand rate revenue bondsdividend payments made during the year to date periodquarter ended September 29, 2012.March 31, 2014 along with a $0.6 decrease in proceeds received from equipment loans.

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, including principal payments, capital expenditures for pension funding, and to pay dividends to our stockholders. We have approximately $52.2$46.5 million of cash and cash equivalents held by foreign subsidiaries that are generally subject to U.S. income taxation on repatriation to the U.S. 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 Facility 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 adopted a restructuring plan (the “2012 Altra Plan”) in the quarter ended December 31, 2012 to improve profitability in Europe. The actions included in the 2012 Altra Plan include reducing headcount and limiting discretionary spending. We expect to experience improved liquidity as a result of these measures in 2013.

Contractual Obligations

There were no significant changes in our contractual obligations subsequent to December 31, 2012.2013.

 

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. During the reporting period, except as set forth below, 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, 2012.2013.

During the quarter ended September 28, 2013,March 31, 2014, we utilized a derivative instrument, namely an interest rate swap, to manage exposure to interest rates on the Company’s variable rate indebtedness. Our derivative instrument is with a major financial institution and is not for speculative or trading purposes. The Company has designated its interest rate swap agreement which is forward-dated, as a cash flow hedge, and changes in the fair value of the swap are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swap will be reported by the Company in interest expense.

We recorded the interest rate swap at fair value, which amounted to an asset of $0.2 million at September 28, 2013.March 31, 2014. Hedge ineffectiveness, if any, associated with the swap will be reported by the Company as interest expense. With other variables held constant, a hypothetical 50 basis point decrease in the LIBOR yield curve would have resulted in a decrease of approximately $1.0$1.2 million in the fair value of the interest rate swap. See Note 14 for further information.

 

Item 4.Controls and Procedures

Disclosure Controls and Procedures

As of September 28, 2013,March 31, 2014, 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, as 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 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 September 28, 2013,March 31, 2014, our disclosure controls and procedures are effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(e) or 15d-15(e)13a—15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 28, 2013,March 31, 2014, 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 changes in internal control over financial reporting as of March 31, 2014, management has excluded the operations of various legal entities which make up the Svendborg Acquisition (consolidated by the Company as of December 17, 2013) as noted in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The Company is currently assessing the control environment of this acquired business.

The Company’s consolidated financial statements reflect Svendborg’s results of operations from the beginning of business on December 17, 2014 forward. The acquired business’ total revenues were less than 10% of the Company’s total revenue at March 31, 2014.

PART II—OTHER INFORMATION

 

Item 1.Legal Proceedings

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, 2012.2013.

 

Item 1A.Risk Factors

The reader should carefully consider the Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2012, and our Quarterly Report on Form 10-Q for the quarter ended June 29, 2013 filed with the Securities and Exchange Commission. Those risk factors described elsewhere in this report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2012, and our Quarterly Report on Form 10-Q for the quarter ended June 29, 2013 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, 2012, and our Quarterly Report on Form 10-Q for the quarter ended June 29, 2013 are incorporated herein by reference.

During the reporting period, 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, 2012 and our Quarterly Report on Form 10-Q for the quarter ended June 29, 2013. The information presented below updates and should be read in conjunction with the risk factors and information disclosed in the Form 10-K for the year ended December 31, 2012 and our Quarterly Report on Form 10-Q for the quarter ended June 29, 2013.

 

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 September 28, 2013.March 31, 2014.

 

Approximate Period

  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
 

June 30, 2013 to July 27, 2013

   —      $—       —      $    —    

July 28, 2013 to August 24, 2013

   42,551    $25.27     —      $    —    

August 25, 2013 to September 28, 2013

   851    $24.77     —      $    —    
Approximate Period  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
 

January 1, 2014 to January 31, 2014

   —      $—       —      $—    

February 1, 2014 to February 28, 2014

   3,817    $34.53     —      $—    

March 1, 2014 to March 31, 2014

   —      $—       —      $—    

 

(1)We repurchased these shares of common stock in connection with the vesting of certain stock awards to cover minimum statutory withholding taxes.taxes, and not pursuant to any repurchasing plans.

 

Item 3.Defaults Upon Senior Securities

None.

 

Item 4.Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Item 5.Other Information

None.

 

Item 6.Exhibits

The following exhibits are filed as part of this report:

 

Exhibit

Number

 

Description

3.1(1) Second Amended and Restated Certificate of Incorporation of the Registrant.
3.2(2) Second Amended and Restated BylawsBy laws of the Registrant.
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 28, 2013,March 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Statement of Operations, (ii) the Unaudited Condensed Consolidated Statement of Comprehensive Income, (iii) the Unaudited Condensed Consolidated Balance Sheet, (iv) the Unaudited Condensed Consolidated Statement of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

 

*Filed herewith.
**Furnished herewith.
(1)Incorporated by reference to Altra Holdings, Inc.’sIndustrial Motion Corp. 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.Industrial Motion Corp.’s Current Report on form 8-K filed on October 27, 2008.

SIGNATURES

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.INDUSTRIAL MOTION CORP.
OctoberApril 29, 20132014 By: 

/s/ Carl R. Christenson

 Name: Carl R. Christenson
 Title PresidentChairman and Chief Executive Officer
OctoberApril 29, 20132014 By: 

/s/ Christian Storch

 Name: Christian Storch
 Title: Vice President and Chief Financial Officer
OctoberApril 29, 20132014 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.
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 28, 2013,March 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Statement of Operations, (ii) the Unaudited Condensed Statement of Comprehensive Income, (iii) the Unaudited Condensed Consolidated Balance Sheet, (iv) the Unaudited Condensed Consolidated Statement of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

 

*Filed herewith.
**Furnished herewith.
(1)Incorporated by reference to Altra Holdings, Inc.’sIndustrial Motion Corp. 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.’sIndustrial Motion Corp. Current Report on form 8-K filed on October 27, 2008.

 

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