UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 29, 2012
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-33209
ALTRA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 61-1478870 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
300 Granite Street, Suite 201, Braintree, MA | 02184 | |
(Address of principal executive offices) | (Zip Code) |
(781) 917-0600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company.) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of October 23,2012, 26,888,216 shares of Common Stock, $0.001 par value per share, were outstanding.
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Item 1. |
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Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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EXHIBITS |
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EX-10.2 Amended and Restated Employment Agreement |
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EX-31.1 Section 302 Certification of Chief Executive Officer |
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EX-31.2 Section 302 Certification of Chief Financial Officer |
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EX-32.1 Section 906 Certification of Chief Executive Officer |
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EX-32.2 Section 906 Certification of Chief Financial Officer |
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EX-101 Certain materials formatted in XBRL |
2
Item 1. Financial Statements (unaudited)
ALTRA HOLDINGS, INC.
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
September 29, | December 31, | |||||||
2012 | 2011 | |||||||
(Unaudited) | ||||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 88,136 | $ | 92,515 | ||||
Trade receivables, less allowance for doubtful accounts of $1,894 and $1,092 at September 29, 2012 and December 31, 2011, respectively |
94,513 | 91,859 | ||||||
Inventories |
124,336 | 125,970 | ||||||
Deferred income taxes |
5,840 | 5,856 | ||||||
Income tax receivable |
3,013 | 7,299 | ||||||
Prepaid expenses and other current assets |
6,752 | 7,141 | ||||||
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Total current assets |
322,590 | 330,640 | ||||||
Property, plant and equipment, net |
136,645 | 123,464 | ||||||
Intangible assets, net |
78,405 | 77,108 | ||||||
Goodwill |
85,027 | 83,799 | ||||||
Deferred income taxes |
1,497 | 1,614 | ||||||
Other non-current assets, net |
8,191 | 13,360 | ||||||
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Total assets |
$ | 632,355 | $ | 629,985 | ||||
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LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 41,495 | $ | 52,768 | ||||
Accrued payroll |
20,841 | 19,734 | ||||||
Accruals and other current liabilities |
36,413 | 28,798 | ||||||
Deferred income taxes |
102 | 118 | ||||||
Current portion of long-term debt |
997 | 688 | ||||||
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Total current liabilities |
99,848 | 102,106 | ||||||
Long-term debt - less current portion and net of unaccreted discount |
241,614 | 263,361 | ||||||
Deferred income taxes |
36,269 | 35,798 | ||||||
Pension liabilities |
11,213 | 12,896 | ||||||
Other post retirement benefits |
254 | 296 | ||||||
Long-term taxes payable |
1,303 | 6,227 | ||||||
Other long-term liabilities |
743 | 905 | ||||||
Redeemable non-controlling interest |
1,298 | | ||||||
Stockholders equity: |
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Common stock ($0.001 par value, 90,000,000 shares authorized, 26,718,610 and 26,600,056 issued and outstanding at September 29, 2012 and December 31, 2011, respectively) |
27 | 27 | ||||||
Additional paid-in capital |
151,562 | 150,234 | ||||||
Retained earnings |
110,160 | 83,211 | ||||||
Accumulated other comprehensive income |
(21,936 | ) | (25,076 | ) | ||||
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Total stockholders equity |
239,813 | 208,396 | ||||||
Total liabilities, non-controlling interest and stockholders equity |
$ | 632,355 | $ | 629,985 | ||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ALTRA HOLDINGS, INC.
Condensed Consolidated Statement of Comprehensive Income
Amounts in thousands, except per share data
Quarter Ended | Year to Date Ended | |||||||||||||||
September 29, 2012 |
October 1, 2011 |
September 29, 2012 |
October 1, 2011 |
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(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Net sales |
$ | 174,488 | $ | 177,853 | $ | 554,816 | $ | 503,095 | ||||||||
Cost of sales |
122,477 | 124,824 | 390,130 | 353,821 | ||||||||||||
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Gross profit |
52,011 | 53,029 | 164,686 | 149,274 | ||||||||||||
Operating expenses: |
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Selling, general and administrative expenses |
30,785 | 31,577 | 94,666 | 84,005 | ||||||||||||
Research and development expenses |
2,823 | 2,801 | 8,792 | 7,544 | ||||||||||||
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33,608 | 34,378 | 103,458 | 91,549 | |||||||||||||
Income from operations |
18,403 | 18,651 | 61,228 | 57,725 | ||||||||||||
Other non-operarting (income) expense: |
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Interest expense, net |
6,637 | 6,698 | 18,915 | 18,014 | ||||||||||||
Other non-operating (income) expense, net |
402 | 216 | 1,834 | (668 | ) | |||||||||||
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7,039 | 6,914 | 20,749 | 17,346 | |||||||||||||
Income before income taxes |
11,364 | 11,737 | 40,479 | 40,379 | ||||||||||||
Provision (benefit) for income taxes |
2,846 | (403 | ) | 10,836 | 8,600 | |||||||||||
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Net income |
8,518 | 12,140 | 29,643 | 31,779 | ||||||||||||
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Net loss attributable to non-controlling interest |
29 | | 29 | | ||||||||||||
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Net income attributable to Altra Holdings, Inc. |
$ | 8,547 | $ | 12,140 | $ | 29,672 | $ | 31,779 | ||||||||
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Other Comprehensive Income |
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Foreign currency translation adjustment |
6,605 | (7,008 | ) | 3,140 | (1,439 | ) | ||||||||||
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Total comprehensive income |
15,152 | 5,132 | 32,812 | 30,340 | ||||||||||||
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Comprehensive loss attributable to non-controlling interest |
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Comprehensive income attributable to Altra Holdings, Inc. |
$ | 15,152 | $ | 5,132 | $ | 32,812 | $ | 30,340 | ||||||||
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Weighted average shares, basic |
26,675 | 26,546 | 26,632 | 26,508 | ||||||||||||
Weighted average shares, diluted |
26,708 | 26,655 | 26,737 | 26,712 | ||||||||||||
Net income per share: |
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Basic net income attributable to Altra Holdings, Inc |
$ | 0.32 | $ | 0.46 | $ | 1.11 | $ | 1.20 | ||||||||
Diluted net income attributable to Altra Holdings, Inc. |
$ | 0.32 | $ | 0.46 | $ | 1.11 | $ | 1.19 | ||||||||
Cash dividend declared |
$ | 0.05 | $ | | $ | 0.10 | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ALTRA HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
Year to Date Ended | ||||||||
September 29, 2012 |
October 1, 2011 |
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(Unaudited) | (Unaudited) | |||||||
Cash flows from operating activities |
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Net income |
$ | 29,643 | $ | 31,779 | ||||
Adjustments to reconcile net income to net cash flows: |
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Depreciation |
15,038 | 13,258 | ||||||
Amortization of intangible assets |
5,052 | 4,568 | ||||||
Amortization of deferred financing costs |
1,447 | 1,372 | ||||||
Loss (gain) on foreign currency, net |
44 | (324 | ) | |||||
Accretion of debt discount, net |
2,585 | 1,887 | ||||||
Stock-based compensation |
2,233 | 1,933 | ||||||
Changes in assets and liabilities: |
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Trade receivables |
(2,134 | ) | (17,671 | ) | ||||
Inventories |
3,106 | (13,873 | ) | |||||
Accounts payable and accrued liabilities |
(557 | ) | 9,552 | |||||
Other current assets and liabilities |
984 | 880 | ||||||
Other operating assets and liabilities |
(2,948 | ) | (4,254 | ) | ||||
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Net cash provided by operating activities |
54,493 | 29,107 | ||||||
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Cash flows from investing activities |
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Purchase of property, plant and equipment |
(25,162 | ) | (13,840 | ) | ||||
Proceeds from sale of Chattanooga Facility |
| 1,484 | ||||||
Acquisition of Lamiflex, net of $68 cash received |
(7,444 | ) | | |||||
Acquisition of Bauer, net of $41 cash received |
| (69,460 | ) | |||||
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Net cash used in investing activities |
(32,606 | ) | (81,816 | ) | ||||
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Cash flows from financing activities |
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Payment of issuance costs for Convertible Notes |
| (3,414 | ) | |||||
Proceeds from issuance of Convertible Notes |
| 85,000 | ||||||
Purchase of 8 1/8 Senior Secured Notes |
(21,000 | ) | (8,230 | ) | ||||
Redemption of variable rate demand revenue bonds related to the Chattanooga facility |
| (2,290 | ) | |||||
Redemption of variable rate demand revenue bonds related to the San Marcos facility |
(3,000 | ) | | |||||
Shares surrendered for tax withholdings |
(905 | ) | (914 | ) | ||||
Dividend payment |
(1,348 | ) | | |||||
Payment on mortgages |
(736 | ) | (516 | ) | ||||
Net payments on capital leases |
(303 | ) | (627 | ) | ||||
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Net cash (used in) provided by financing activities |
(27,292 | ) | 69,009 | |||||
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Effect of exchange rate changes on cash and cash equivalents |
1,026 | 1,238 | ||||||
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Net change in cash and cash equivalents |
(4,379 | ) | 17,538 | |||||
Cash and cash equivalents at beginning of year |
92,515 | 72,723 | ||||||
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Cash and cash equivalents at end of period |
$ | 88,136 | $ | 90,261 | ||||
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Cash paid during the period for: |
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Interest |
$ | 11,848 | $ | 10,462 | ||||
Income taxes |
$ | 8,567 | $ | 9,685 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
ALTRA HOLDINGS, INC.
Consolidated Statement of Stockholders Equity
Amounts in thousands
Common Stock |
Shares | Additional Paid in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total | Redeemable Non- Controlling Interest |
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Balance at January 1, 2011 |
$ | 26 | 26,466 | $ | 133,861 | $ | 45,536 | $ | (14,671 | ) | $ | 164,752 | $ | | ||||||||||||||
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Stock based compensation and vesting of restricted stock |
| 130 | 1,019 | | | 1,019 | | |||||||||||||||||||||
Net income |
| | | 31,779 | | 31,779 | | |||||||||||||||||||||
Convertible Notes |
| | 24,510 | | | 24,510 | | |||||||||||||||||||||
Deferred taxes on Convertible Notes |
| | (9,393 | ) | | | (9,393 | ) | | |||||||||||||||||||
Deferred financing costs on Convertible Notes |
| | (990 | ) | | | (990 | ) | | |||||||||||||||||||
Cumulative foreign currency translation adjustment |
| | | | (1,439 | ) | (1,439 | ) | | |||||||||||||||||||
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Balance at October 1, 2011 |
$ | 26 | 26,596 | $ | 149,007 | $ | 77,315 | $ | (16,110 | ) | $ | 210,238 | $ | | ||||||||||||||
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Balance at January 1, 2012 |
$ | 27 | 26,600 | $ | 150,234 | $ | 83,211 | $ | (25,076 | ) | $ | 208,396 | $ | | ||||||||||||||
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Stock based compensation and vesting of restricted stock |
| 119 | 1,328 | | | 1,328 | ||||||||||||||||||||||
Net income |
| | | 29,643 | | 29,643 | | |||||||||||||||||||||
Net loss attributable to non-controlling interest |
| | | | | | (29 | ) | ||||||||||||||||||||
Fair value of non-controlling interest at acquisition |
| | | | | | 1,327 | |||||||||||||||||||||
Dividends declared |
| | | (2,694 | ) | | (2,694 | ) | | |||||||||||||||||||
Cumulative foreign currency translation adjustment |
| | | | 3,140 | 3,140 | | |||||||||||||||||||||
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Balance at September 29, 2012 |
$ | 27 | 26,719 | $ | 151,562 | $ | 110,160 | $ | (21,936 | ) | $ | 239,813 | $ | 1,298 | ||||||||||||||
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6
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
1. Organization and Nature of Operations
Headquartered in Braintree, Massachusetts, Altra Holdings, Inc. (the Company), through its wholly-owned subsidiary Altra Industrial Motion, Inc. (Altra Industrial), is a leading multi-national designer, producer and marketer of a wide range of electro-mechanical power transmission and motion control products. The Company brings together strong brands covering over 50 product lines with production facilities in nine countries and sales coverage in over 70 countries. The Companys leading brands include Boston Gear, Warner Electric, TB Woods, Formsprag Clutch, Ameridrives Couplings, Industrial Clutch, Kilian Manufacturing, Marland Clutch, Nuttall Gear, Stieber Clutch, Wichita Clutch, Twiflex Limited, Bibby Transmissions, Matrix International, Inertia Dynamics, Huco Dynatork, Warner Linear, Bauer Gear Motor, and PowerFlex.
2. Basis of Presentation
The Company was formed on November 30, 2004 following acquisitions of The Kilian Company (Kilian) and certain subsidiaries of Colfax Corporation (Colfax). During 2006, the Company acquired Hay Hall Holdings Limited (Hay Hall) and Bear Linear. On April 5, 2007, the Company acquired TB Woods Corporation (TB Woods), and on October 5, 2007, the Company acquired substantially all of the assets of All Power Transmission Manufacturing, Inc. On May 29, 2011, the Company acquired substantially all of the assets of Danfoss Bauer GmbH relating to its gear motor business. On July 11, 2012, the Company acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda. (Lamiflex) relating to its high-speed disc couplings business.
Non-controlling InterestThe Company recorded the redeemable non-controlling interest from its acquisition of an 85% ownership interest of Lamiflex at fair value at the date of acquisition. In connection with this acquisition, the Company entered into put and call option agreements with the minority shareholders for the potential purchase of the non-controlling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the non-controlling interest is considered redeemable and is classified as temporary equity on the Companys condensed consolidated balance sheet. The non-controlling interest is reviewed at each subsequent reporting period and adjusted, as needed, to reflect its then redemption value.
The Companys 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 Companys Annual Report on Form 10-K for the year ended December 31, 2011. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Companys financial position as of September 29, 2012 and December 31, 2011, results of operations for the quarter and year to date periods ended September 29, 2012 and October 1, 2011, and cash flows for the year to date periods ended September 29, 2012 and October 1, 2011.
The Company follows a four, four, five week calendar per quarter with all quarters consisting of thirteen weeks of operations with the fiscal year end always on December 31.
3. Fair Value of Financial Instruments
The carrying values of financial instruments, including accounts receivable, cash equivalents, accounts payable and other accrued liabilities, approximate their fair values due to their short-term maturities. The carrying amount of the 8 1/8% Senior Secured Notes (the Senior Secured Notes) was $177.0 million and $198.0 million at September 29, 2012 and December 31, 2011, respectively. The estimated fair value of the Senior Secured Notes at September 29, 2012 and December 31, 2011 was $189.7 million and $210.4 million, respectively, based on quoted market prices for such notes (level 2).
The carrying amount of the 2.75% Convertible Senior Notes (the Convertible Notes) was $85.0 million at each of September 29, 2012 and December 31, 2011. The estimated fair value of the Convertible Notes at September 29, 2012 and December 31, 2011, was $83.6 million and $79.1 million, respectively, based on quoted market prices for such notes (level 2).
7
Included in cash and cash equivalents as of September 29, 2012 and December 31, 2011 were money market fund investments of $38.1 million and $48.9 million, respectively, which are reported at fair value based on quoted market prices for such investments (level 1).
4. Net Income per Share
Basic earnings per share is based on the weighted average number of shares of common stock outstanding, and diluted earnings per share is based on the weighted average number of shares of common stock outstanding and all potentially dilutive common stock equivalents outstanding. Common stock equivalents are included in the per share calculations when the effect of their inclusion would be dilutive.
The following is a reconciliation of basic to diluted net income per share:
Quarter Ended | Year to Date Ended | |||||||||||||||
September 29, | October 1, | September 29, | October 1, | |||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income attributable to Altra Holdings, Inc |
$ | 8,547 | $ | 12,140 | $ | 29,672 | $ | 31,779 | ||||||||
Shares used in net income per common share - basic |
26,675 | 26,546 | 26,632 | 26,508 | ||||||||||||
Incremental shares of unvested restricted common stock |
33 | 109 | 105 | 204 | ||||||||||||
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Shares used in net income per common share - diluted |
26,708 | 26,655 | 26,737 | 26,712 | ||||||||||||
Earnings per share: |
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Basic net income attributable to Altra Holdings, Inc. |
$ | 0.32 | $ | 0.46 | $ | 1.11 | $ | 1.20 | ||||||||
Diluted net income attributable to Altra Holdings, Inc. |
$ | 0.32 | $ | 0.46 | $ | 1.11 | $ | 1.19 |
The Company excluded 3,085,874 shares related to the Convertible Notes (see Note 11) from the above earnings per share calculation as these shares were anti-dilutive.
5. Acquisitions
In May 2011, the Company consummated an agreement to acquire substantially all of the assets and liabilities of Danfoss Bauer GmbH relating to its gear motor business (Bauer) for cash consideration of 43.1 million ($62.3 million). This transaction is referred to as the Bauer Acquisition. Following closing, the Company made additional payments in the amount of 4.8 million ($7.0 million) to reflect an adjustment for working capital and 0.1 million ($0.2 million) to reflect an adjustment for pension liability.
The closing date of the Bauer Acquisition was May 29, 2011, and as a result, the Companys consolidated financial statements reflect Bauers results of operations from the beginning of business on May 30, 2011 forward.
In July 2012, the Company consummated an agreement to acquire 85% of privately held Lamiflex do Brasil Equipamentos Industrias Ltda. now known as Lamiflex Do Brasil Equipamentos Industriais S.A. This transaction is known as the Lamiflex Acquisition. The Company acquired 85% of the stock of Lamiflex for 17.4 million Reais ($8.6 million), which was subject to a reduction of 2.1 million Reais ($1.1 million) for estimated net debt at closing. The net debt assumed at closing is subject to a final net debt calculation adjustment.
The closing date of the Lamiflex Acquisition was July 11, 2012, and as a result, the Companys consolidated financial statements reflect Lamiflexs results of operations from the beginning of business on July 11, 2012 forward.
8
ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The Company is in the process of completing its final purchase price allocation. The Company is still finalizing the valuation of customer relationships, trademarks, deferred tax assets and liabilities and fixed assets. The purchase price is subject to change based on the finalization of certain purchase price adjustments. The Company is still evaluating whether the goodwill created in the Lamiflex Acquisition is tax deductible.
The preliminary value of the acquired assets, assumed liabilities and identified intangibles from the acquisition of Lamiflex, as presented below, are based upon the Companys preliminary estimate of the fair value as of the date of the acquisition. The purchase price allocation was calculated as if the Company had acquired 100% of Lamiflex. The preliminary purchase price allocation as of the acquisition date is as follows:
Total Assumed purchase price, excluding acquisition costs of approximately $0.4 million |
$ | 8,839 | ||
Less: Redeemable noncontrolling interest |
1,327 | |||
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Total purchase price paid at closing |
7,512 | |||
Cash and cash equivalents |
68 | |||
Trade receivables, net of amounts pledged |
639 | |||
Inventories |
710 | |||
Prepaid and other |
49 | |||
Property, plant and equipment |
3,020 | |||
Other assets |
79 | |||
Intangibles assets |
5,856 | |||
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Total assets acquired |
$ | 10,421 | ||
Accounts payable |
537 | |||
Accrued expenses and other current liabilities |
851 | |||
Other liabilities, including long-term debt |
964 | |||
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Total liabilities assumed |
$ | 2,352 | ||
Net assets acquired |
8,069 | |||
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Excess of purchase price over fair value of net assets acquired |
770 | |||
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The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The Company expects to develop synergies, such as the ability to cross-sell product and to penetrate into certain geographic areas, as a result of the acquisition of Lamiflex.
The Company recorded a redeemable non-controlling interest from its acquisition of an 85% ownership interest of Lamiflex at fair value at the date of acquisition. In connection with the Lamiflex Acquisition, the Company entered into put and call option agreements with the minority shareholders for the potential purchase of the non-controlling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the non-controlling interest is considered redeemable and is classified as temporary equity on the Companys Condensed Consolidated Balance Sheet.
The estimated amounts recorded as intangible assets consist of the following:
Customer relationships, subject to amortization |
$ | 5,496 | ||
Trade names and trademarks, not subject to amortization |
360 | |||
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Total intangible assets |
$ | 5,856 | ||
|
|
Customer relationships are subject to amortization which will be straight-lined over their estimated useful lives of 13 years, which represents the anticipated period over which the Company estimates it will benefit from the acquired assets.
9
The following table sets forth the unaudited pro forma results of operations of the Company for the year to date periods ended September 29, 2012 and October 1, 2011 as if the Company had acquired Bauer and Lamiflex at the beginning of the respective period. The pro forma information contains the actual operating results of the Company, including Bauer and Lamiflex, adjusted to include the pro forma impact of (i) additional depreciation expense as a result of estimated depreciation based on the fair value of fixed assets; (ii) additional expense as a result of the estimated amortization of identifiable intangible assets (iii) additional interest expense associated with the Convertible Notes issued on March 7, 2011 in connection with the Bauer Acquisition; (iv) elimination of certain acquisition related costs; and (v) the elimination of additional expense as a result of fair value adjustment to inventory recorded in connection with the Bauer Acquisition and the Lamiflex Acquisition. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred at the beginning of the period or that may be obtained in the future.
Quarter to Date Period Ended | Year to Date Period Ended | |||||||||||||||
September 29, | October 1, | September 29, | October 1, | |||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Total revenues |
$ | 174,488 | $ | 180,732 | $ | 557,527 | $ | 561,434 | ||||||||
Net income attributable to Altra Holdings, Inc. |
$ | 8,547 | $ | 12,634 | $ | 29,989 | $ | 36,434 | ||||||||
Basic earnings per share: |
||||||||||||||||
Net income attributable to Altra Holdings, Inc. |
$ | 0.32 | $ | 0.48 | $ | 1.13 | $ | 1.37 | ||||||||
Diluted earnings per share: |
||||||||||||||||
Net income attributable to Altra Holdings, Inc. |
$ | 0.32 | $ | 0.47 | $ | 1.12 | $ | 1.36 |
6. Inventories
Inventories located at certain subsidiaries are stated at the lower of cost or market, principally using the last-in, first-out (LIFO) method. The remaining subsidiaries are stated at the lower of cost or market, using the first-in, first-out (FIFO) method. Market is defined as net realizable value. Inventories at September 29, 2012 and December 31, 2011 consisted of the following:
2012 | 2011 | |||||||
Raw materials |
$ | 45,788 | $ | 45,664 | ||||
Work in process |
23,187 | 23,838 | ||||||
Finished goods |
55,361 | 56,468 | ||||||
|
|
|
|
|||||
Inventories |
$ | 124,336 | $ | 125,970 | ||||
|
|
|
|
Approximately 11% of total inventories were valued using the LIFO method as of September 29, 2012 and December 31, 2011, respectively. The Company recorded a $0.1 million provision as a component of cost of sales to value the inventory on a LIFO basis for each of the quarters ended September 29, 2012 and October 1, 2011. The Company recorded a $0.3 million adjustment and $0.4 million adjustment as a component of cost of sales to value the inventory on a LIFO basis for the year to date periods ended September 29, 2012 and October 1, 2011, respectively.
As part of the Bauer Acquisition, the Company valued the acquired inventory at estimated fair market value less cost to sell. The resulting valuation increased the carrying value of the inventory by $0.5 million and was included as part of cost of goods sold during the year-to-date period ended October, 1 2011.
As part of the Lamiflex Acquisition, the Company valued the acquired inventory at estimated fair market value less cost to sell. The resulting valuation increased the carrying value of the inventory by $0.1 million and was included as part of cost of goods sold during the quarter ended September 29, 2012.
10
7. Goodwill and Intangible Assets
Changes to goodwill from December 31, 2011 through September 29, 2012 were as follows:
2012 | ||||
Gross goodwill balance as of January 1 |
$ | 115,609 | ||
Acquisition of Goodwill (Lamiflex) |
770 | |||
Impact of changes in foreign currency |
458 | |||
|
|
|||
Gross goodwill balance as of September 29 |
116,837 | |||
|
|
|||
Accumulated impairment as of January 1 |
(31,810 | ) | ||
Impairment charge during the period |
| |||
|
|
|||
Accumulated impairment as of September 29 |
(31,810 | ) | ||
|
|
|||
Net goodwill balance September 29, 2012 |
$ | 85,027 | ||
|
|
Goodwill is reviewed for impairment when events or circumstances indicate that the carrying amount of goodwill may not be recovered. As of September 29, 2012, the Company concluded that the European economic downturn was a triggering event to perform a Step 1 goodwill impairment analysis for its Bauer Gear Motor reporting unit, which has significant operations in Europe. The Company performed a Step 1 goodwill impairment analysis and reviewed the difference between the estimated fair value and net book value. If the excess is less than $1.0 million, the reporting unit could be required to perform a step two goodwill impairment analysis in future periods, if the estimated profitability decreased by 10% when compared to our forecasts. As of September 29, 2012, Bauer Gear Motor had an estimated fair value that was at least $1.0 million greater than the net book value. As a result, the Company concluded that there was no impairment.
Other intangible assets as of September 29, 2012 and December 31, 2011 consisted of the following:
September 29, 2012 | December 31, 2011 | |||||||||||||||
Accumulated | Accumulated | |||||||||||||||
Other intangible assets | Cost | Amortization | Cost | Amortization | ||||||||||||
Intangible assets not subject to amortization: |
||||||||||||||||
Tradenames and trademarks |
$ | 34,485 | $ | | $ | 34,125 | $ | | ||||||||
Intangible assets subject to amortization: |
||||||||||||||||
Customer relationships |
79,808 | 34,426 | 74,312 | 29,704 | ||||||||||||
Product technology and patents |
5,646 | 5,646 | 5,576 | 5,316 | ||||||||||||
Impact of changes in foreign currency |
(1,462 | ) | | (1,885 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total intangible assets |
$ | 118,477 | $ | 40,072 | $ | 112,128 | $ | 35,020 | ||||||||
|
|
|
|
|
|
|
|
The Company recorded $1.8 million and $1.7 million of amortization expense in each of the quarters ended September 29, 2012 and October 1, 2011, respectively, and recorded $5.1 million and $4.6 million of amortization expense in the year to date periods ended September 29, 2012 and October 1, 2011, respectively.
The estimated amortization expense for intangible assets is approximately $1.8 million for the remainder of 2012, $7.2 million in each of the next four years and then $13.3 million thereafter.
8. Warranty Costs
The contractual warranty period generally ranges from three months to two years with a few extending up to thirty-six months based on product and application of the product. Changes in the carrying amount of accrued product warranty costs for each of the year to date periods ended September 29, 2012 and October 1, 2011 are as follows:
September 29, | October 1, | |||||||
2012 | 2011 | |||||||
Balance at beginning of period |
$ | 4,898 | $ | 3,583 | ||||
Additional warranty related to Bauer |
| 1,720 | ||||||
Accrued current period warranty expense |
750 | 1,618 | ||||||
Payments |
(534 | ) | (1,645 | ) | ||||
|
|
|
|
|||||
Balance at end of period |
$ | 5,114 | $ | 5,276 | ||||
|
|
|
|
11
9. Income Taxes
The estimated effective income tax rates recorded for the quarters ended September 29, 2012 and October 1, 2011, were based upon managements best estimate of the effective tax rate for the entire year.
The 2012 provision for income taxes, as a percentage of income before taxes, was higher than that of 2011, primarily due to favorable discrete tax benefits recognized in the quarter ended October 1, 2011.
The Company and its subsidiaries file a consolidated federal income tax return in the United States as well as consolidated and separate income tax returns in various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in all of these jurisdictions. With the exception of certain foreign jurisdictions, the Company is no longer subject to income tax examinations for the tax years prior to 2007.
Additionally, the Company has indemnification agreements with the sellers of the Colfax, Kilian, Bauer, Lamiflex and Hay Hall 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 comprehensive income. At December 31, 2011 and September 29, 2012, the Company had $2.7 million and $0.4 million of accrued interest and penalties, respectively. The reduction of interest and penalties by $2.3 million during the year to date period ended September 29, 2012 was primarily a result of a New York state income tax settlement for which the Company was fully indemnified by the acquired business former owner.
10. Pension and Other Employee Benefits
Defined Benefit (Pension) and Post-retirement Benefit Plans
The Company sponsors various defined benefit (pension) and post-retirement (medical, dental and life insurance coverage) plans for certain, primarily unionized employees.
The following table represents the components of the net periodic benefit cost associated with the respective plans for the quarter and year to date periods ended September 29, 2012 and October 1, 2011:
Quarter Ended | ||||||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||
September 29, 2012 |
October 1, 2011 |
September 29, 2012 |
October 1, 2011 |
|||||||||||||
Service cost |
$ | 25 | $ | 25 | $ | 1 | $ | 1 | ||||||||
Interest cost |
273 | 291 | 3 | 4 | ||||||||||||
Expected return on plan assets |
(268 | ) | (266 | ) | (13 | ) | | |||||||||
Amortization of net gain |
25 | 7 | | (13 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost (income) |
$ | 55 | $ | 57 | $ | (9 | ) | $ | (8 | ) | ||||||
|
|
|
|
|
|
|
|
12
Year to Date Ended | ||||||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||
September 29, 2012 |
October 1, 2011 |
September 29, 2012 |
October 1, 2011 |
|||||||||||||
Service cost |
$ | 75 | $ | 75 | $ | 2 | $ | 2 | ||||||||
Interest cost |
819 | 863 | 10 | 12 | ||||||||||||
Expected return on plan assets |
(804 | ) | (778 | ) | | | ||||||||||
Amortization of prior service income |
| | (1 | ) | (1 | ) | ||||||||||
Amortization of net gain |
74 | 32 | (39 | ) | (39 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost (income) |
$ | 164 | $ | 192 | $ | (28 | ) | $ | (26 | ) | ||||||
|
|
|
|
|
|
|
|
The Company made $2.0 million in contributions during the year to date period ended September 29, 2012, which consisted of $1.5 million in required contributions and a supplemental contribution of $0.5 million.
11. Debt
Outstanding debt obligations at September 29, 2012 and December 31, 2011 were as follows:
September 29, 2012 |
December 31, 2011 |
|||||||
Debt: |
||||||||
Revolving Credit Agreement |
$ | | $ | | ||||
Convertible Notes |
85,000 | 85,000 | ||||||
Senior Secured Notes |
177,045 | 198,045 | ||||||
Variable rate demand revenue bonds |
| 3,000 | ||||||
Mortgages |
1,001 | 1,762 | ||||||
Capital leases and other |
1,155 | 417 | ||||||
|
|
|
|
|||||
Total debt |
264,201 | 288,224 | ||||||
Less: debt discount, net of accretion |
(21,590 | ) | (24,175 | ) | ||||
|
|
|
|
|||||
Total debt, net of unaccreted discount |
$ | 242,611 | $ | 264,049 | ||||
|
|
|
|
|||||
Less current portion of long-term debt |
997 | 688 | ||||||
|
|
|
|
|||||
Total long-term debt |
$ | 241,614 | $ | 263,361 | ||||
|
|
|
|
Convertible Notes
On March 7, 2011, the Company issued $85.0 million of Convertible Notes due on March 1, 2031. Interest on the Convertible Notes is payable semiannually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%.
The Company separately accounted for the debt and equity components of the Convertible Notes to reflect the issuers 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
13
component is being accreted to interest expense over the term of the Convertible Notes. The debt component was recognized at the present value of associated cash flows discounted using a 8.25% discount rate, the borrowing rate at the date of issuance for a similar debt instrument without a conversion feature. The Company paid approximately $3.5 million of issuance costs associated with the Convertible Notes. The Company recorded $1.0 million of debt issuance costs as an offset to additional paid-in capital. As of September 29, 2012, the Company has amortized $0.6 million of debt issuance costs. The balance of $1.9 million of debt issuance costs is classified as other non-current assets on the Condensed Consolidated Balance Sheet and will be amortized over the term of the notes using the effective interest method.
The carrying amount of the equity component and the principal amount of the liability component, the unamortized discount, and the net carrying amount are as follows as of September 29, 2012:
September 29, 2012 |
||||
Principal amount of debt |
$ | 85,000 | ||
Unamortized discount |
20,091 | |||
|
|
|||
Carrying value of debt |
$ | 64,909 | ||
|
|
Interest expense associated with the Convertible Notes consisted of the following for the year to date period ended September 29, 2012:
September 29, 2012 |
||||
Contractual coupon rate of interest |
$ | 1,753 | ||
Accretion of convertible notes discount and amortization of deferred financing costs |
2,150 | |||
|
|
|||
Interest expense for the Convertible Notes |
$ | 3,903 | ||
|
|
The effective interest yield of the Convertible Notes due in 2031 is 8.5% at September 29, 2012 and the cash coupon interest rate is 2.75%.
Senior Secured Notes
In November 2009, the Company issued the Senior Secured Notes with a face value of $210.0 million. Interest on the Senior Secured Notes is payable semi-annually in arrears, on June 1 and December 1 of each year, commencing on June 1, 2010 at an annual rate of 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 matures on December 1, 2016.
During 2011, the Company repurchased $12.0 million of Senior Secured Notes. The Company repurchased the Senior Secured Notes at a premium of $0.3 million, which was recorded as part of interest expense in the third and fourth quarters of 2011. Due to the repurchase of the Senior Secured Notes, the Company also wrote-off a proportional amount of the deferred financing fees and original issue discount associated with the Senior Secured Notes totaling $0.4 million which was also recorded as part of interest expense in the third and fourth quarters of 2011.
During the quarter ended September 29, 2012, the Company repurchased $21.0 million of Senior Secured Notes at a premium of $0.6 million, which was recorded as part of interest expense in the quarter ended September 29, 2012. Due to the repurchase of the Senior Secured Notes, the Company also wrote-off a proportional amount of the deferred financing fees and original issue discount associated with the Senior Secured Notes totaling $0.6 million which was recorded as part of interest expense in the quarter ended September 29, 2012.
14
The Senior Secured Notes are guaranteed by the Companys U.S. domestic subsidiaries and are secured by a second priority lien, subject to first priority liens securing the Revolving Credit Agreement, on substantially all of the Companys assets and those of its domestic subsidiaries. The indenture governing the Senior Secured Notes contains covenants which restrict the Company and its subsidiaries. These restrictions limit or prohibit, among other things, the Companys ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay cash dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in its subsidiaries; and create liens on their assets. There are no financial covenants associated with the Senior Secured Notes.
Revolving Credit Agreement
Concurrently with the closing of the offering of the Senior Secured Notes, Altra Industrial entered into a new senior secured credit facility (the Revolving Credit Agreement). In 2011, Altra Industrial amended the Revolving Credit Agreement to increase the borrowing base to $65.0 million (subject to adjustment pursuant to a borrowing base and subject to increase from time to time in accordance with the terms of the amended credit facility) and to extend the term to October 31, 2016. As part of the amendment, additional financing fees of $0.3 million were capitalized and will be amortized over the life of agreement.
Altra Industrial can borrow up to $52.5 million under the Revolving Credit Agreement without being required to comply with any financial covenants under the agreement. Altra Industrial may use up to $30.0 million of its availability under the Revolving Credit Agreement for standby letters of credit issued on its behalf, the issuance of which will reduce the amount of borrowings that would otherwise be available to Altra Industrial. Altra Industrial may re-borrow any amounts paid to reduce the amount of outstanding borrowings; however, all borrowings under the Revolving Credit Agreement must be repaid in full as of October 31, 2016 or the redemption of the Senior Secured Notes, whichever is earlier.
There were no borrowings under the Revolving Credit Agreement at September 29, 2012 and December 31, 2011, however, the lender had issued $6.5 million of outstanding letters of credit on behalf of Altra Industrial as of both September 29, 2012 and December 31, 2011.
Altra Industrial and all of its domestic subsidiaries are borrowers, (collectively, Borrowers) under the Revolving Credit Agreement. Certain of the Companys existing and subsequently acquired or organized domestic subsidiaries that are not Borrowers do and will guarantee (on a senior secured basis) the Revolving Credit Agreement. Obligations of the other Borrowers under the Revolving Credit Agreement and the guarantees are secured by substantially all of Borrowers assets and the assets of each of the Companys existing and subsequently acquired or organized domestic subsidiaries that is a guarantor of the Borrowers obligations under the Revolving Credit Agreement (with such subsidiaries being referred to as the U.S. subsidiary guarantors), including but not limited to: (a) a first-priority pledge of all the capital stock of subsidiaries held by Borrowers or any U.S. subsidiary guarantor (which pledge, in the case of any foreign subsidiary, will be limited to 100% of any non-voting stock and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in and mortgages on substantially all tangible and intangible assets of each Borrower and U.S. subsidiary guarantor, including accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, certain real property, and cash and proceeds of the foregoing (in each case subject to materiality thresholds and other exceptions).
An event of default under the Revolving Credit Agreement would occur in connection with a change of control, among other things, if: (i) Altra Industrial ceases to own or control 100% of each of its borrower subsidiaries, or (ii) a change of control occurs under the Senior Secured Notes, or any other subordinated indebtedness.
An event of default under the Revolving Credit Agreement would also occur if an event of default occurs under the indentures governing the Senior Secured Notes or if there is a default under any other indebtedness of any Borrower involving an aggregate amount of $10.0 million or more and such default: (i) occurs at final maturity of such debt, (ii) allows the lender thereunder to accelerate such debt or (iii) causes such debt to be required to be repaid prior to its stated maturity. An event of default would also occur under the Revolving Credit Agreement if any of the indebtedness under the Revolving Credit Agreement ceases, with limited exception, to be secured by a full lien on the assets of Borrowers and guarantors.
Variable Rate Demand Revenue Bonds
In connection with the acquisition of TB Woods, the Company assumed obligations for certain Variable Rate Demand Revenue Bonds outstanding as of the acquisition date. TB Woods had assumed obligations for approximately $3.0 million and $2.3 million of Variable Rate Demand Revenue Bonds issued under the authority of the industrial development corporations of the City of San Marcos, Texas and the City of Chattanooga, Tennessee, respectively. The Company sold the Chattanooga facility on April 14, 2011 and redeemed the bonds associated with the facility at the time. The Company redeemed the bonds associated with the San Marcos facility during the quarter ended March 31, 2012. As of September 29, 2012, the Variable Rate Demand Revenue Bonds have been paid in full.
15
Mortgage
In June 2006, the Company entered into a mortgage on its building in Heidelberg, Germany with a local bank. In 2009, the Company refinanced the Heidelberg mortgage and increased the amount borrowed by an additional 1.0 million. The new mortgage is payable in monthly installments and is due in 2015. As of September 29, 2012 and December 31, 2011, the mortgage had a remaining principal of 0.8 million or $1.0 million, and 1.3 million or $1.8 million, respectively.
Capital Leases
The Company leases certain equipment under capital lease arrangements, whose obligations are included in both short-term and long-term debt. Capital lease obligations amounted to approximately $0.1 million and $0.4 million at September 29, 2012 and December 31, 2011, respectively. Assets subject to capital leases are included in property, plant and equipment with the related amortization recorded as depreciation expense.
12. Stockholders Equity
On June 5, 2012, the Companys Board of Directors approved the payment of a quarterly cash dividend of $0.05 per share. The dividend of $1.3 million was paid on July 2, 2012 to stockholders of record as of the close of business on June 18, 2012.
On July 24, 2012, the Companys Board of Directors approved the payment of a quarterly cash dividend of $0.05 per share for the quarter ended September 29, 2012. The dividend of $1.3 million was paid on October 2, 2012 to shareholders of record as of the close of business on September 18, 2012 and was accrued for in the balance sheet at September 29, 2012.
Future declarations of quarterly cash dividends are subject to approval by the Board of Directors and to the Boards continuing determination that the declaration of dividends are in the best interest of the Companys 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 Companys Board of Directors established the 2004 Equity Incentive Plan (the Plan) that provides for various forms of stock-based compensation to independent directors, officers and senior-level employees of the Company. The restricted shares of common stock issued pursuant to the Plan generally vest ratably over a period ranging from immediately to 5 years, provided that the vesting of the restricted shares may accelerate upon the occurrence of certain liquidity events, if approved by the Board of Directors in connection with the transactions. Common stock awarded under the Plan is generally subject to restrictions on transfer, repurchase rights, and other limitations and rights as set forth in the applicable award agreements. The shares are valued based on the share price on the date of grant.
The Plan permits the Company to grant restricted stock, among other things, to key employees and other persons who make significant contributions to the success of the Company. The restrictions and vesting schedule for restricted stock granted under the Plan are determined by the Personnel and Compensation Committee of the Board of Directors. Compensation expense recorded during the year to date periods ended September 29, 2012 and October 1, 2011, was $2.2 million and $1.9 million, respectively. Compensation expense recorded during the quarters ended September 29, 2012 and October 1, 2011, was $0.7 million and $0.6 million, respectively. Stock-based compensation has been recorded as an adjustment to selling, general and administrative expenses in the accompanying condensed consolidated statements of income. Stock-based compensation expense is recognized on a straight-line basis over the vesting period.
16
The following table sets forth the activity of the Companys unvested restricted stock grants in the year to date period ended September 29, 2012:
Shares | Weighted-average grant date fair value |
|||||||
Restricted shares unvested January 1, 2012 |
211,031 | $ | 13.52 | |||||
Shares granted |
130,918 | 21.17 | ||||||
Shares forfeited |
(1,620 | ) | 21.94 | |||||
Shares for which restrictions lapsed |
(170,604 | ) | 15.36 | |||||
|
|
|
|
|||||
Restricted shares unvested September 29, 2012 |
169,725 | $ | 18.58 | |||||
|
|
|
|
Total remaining unrecognized compensation cost was $2.9 million as of September 29, 2012, which will be recognized over a weighted average remaining period of three years. The fair market value of the shares for which the restrictions have lapsed during the year to date period ended September 29, 2012 was $3.0 million. Restricted shares granted are valued based on the fair market value of the stock on the date of grant.
13. Concentrations of Credit, Segment Data and Workforce
Financial instruments, which are potentially subject to counter party performance and concentrations of credit risk, consist primarily of trade accounts receivable. The Company manages these risks by conducting credit evaluations of customers prior to delivery or commencement of services. When the Company enters into a sales contract, collateral is normally not required from the customer. Payments are typically due within thirty days of billing. An allowance for potential credit losses is maintained, and losses have historically been within managements expectations. No customer represented greater than 10% of total sales for each of the quarters ended September 29, 2012 and October 1, 2011.
The Company is also subject to counter party performance risk of loss in the event of non-performance by counterparties to financial instruments, such as cash and investments. Cash and investments are held by well established financial institutions and invested in AAA rated mutual funds or United States Government Securities.
The Company has six operating segments that are regularly reviewed by its chief operating decision maker. Each of the Companys six operating segments, which are the same as its reporting units, produces mechanical power transmission products. The Company aggregates all of the operating segments into one reportable segment. The six operating segments have similar long-term average gross profit margins. All of the Companys products are sold by one global sales force and the Company has one global marketing function. Strategic markets and industries are determined for the entire company and then targeted by the brands. All of the operating segments have common manufacturing and production processes. Each segment includes machine shops which use similar equipment and manufacturing techniques to produce industrial components that transmit and control motion and power. Each of the segments uses common raw materials, such as aluminum, steel and copper. The Company purchases these materials and negotiates procurement contracts using one global purchasing function.
The Company serves the general industrial market by selling to original equipment manufacturers (OEM) and distributors. Resource allocation decisions such as capital expenditure requirements and headcount requirements are made at a consolidated level and allocated to the individual operating segments.
Discrete financial information is not available by product line at the level necessary for management to assess performance or make resource allocation decisions.
The Companys chief operating decision maker is currently re-evaluating how the Companys business is organized, how financial information is reviewed and, as a result, how many operating segments the Company will have.
17
Net sales to third parties by geographic region are as follows:
Quarter Ended | Year to Date Ended | |||||||||||||||
September 29, 2012 |
October 1, 2011 |
September 29, 2012 |
October 1, 2011 |
|||||||||||||
The Americas (primarily U.S.) |
$ | 112,708 | $ | 107,000 | $ | 358,719 | $ | 336,141 | ||||||||
Europe |
49,832 | 59,565 | 162,356 | 137,104 | ||||||||||||
Asia and other |
11,948 | 11,288 | 33,741 | 29,850 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 174,488 | $ | 177,853 | $ | 554,816 | $ | 503,095 | ||||||||
|
|
|
|
|
|
|
|
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 Companys foreign subsidiaries at September 29, 2012 and December 31, 2011 were $116.3 million and $100.0 million, respectively.
14. Commitments and Contingencies
General Litigation
The Company is involved in various pending legal proceedings arising out of the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims, and workers compensation claims. None of these legal proceedings are expected to have a material adverse effect on the results of operations, cash flows, or financial condition of the Company. With respect to these proceedings, management believes that the Company will prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adversely to the Company, there could be a material adverse effect on the results of operations, cash flows, or financial condition of the Company. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. There were no material amounts accrued in the accompanying consolidated balance sheets for potential litigation as of September 29, 2012 or December 31, 2011. For matters where a reserve has not been established and for which we believe a loss is reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, we believe that such losses, individually and in the aggregate, will not have a material effect on our consolidated financial statements.
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 Companys 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 Companys business, financial condition, or operations.
18
15. Guarantor Subsidiaries
All of the Companys direct and indirect 100% owned U.S. domestic subsidiaries are guarantors of the Companys Senior Secured Notes. The following condensed consolidating financial statements present separately the financial position, results of operations, and cash flows for (a) the Company, as parent, (b) the guarantor subsidiaries of the Company consisting of all of the, directly or indirectly, 100% owned U.S. subsidiaries of the Company, (c) the non-guarantor subsidiaries of the Company consisting of all non-domestic subsidiaries of the Company, and (d) eliminations necessary to arrive at the Companys information on a consolidated basis. These statements are presented in accordance with the disclosure requirements under the Securities and Exchange Commissions Regulation S-X, Rule 3-10. Separate financial statements of the guarantor subsidiaries are not presented because their guarantees are full and unconditional and joint and several.
In the preparation of our Form 10-Q for the period ended September 29, 2012, errors were identified in the previously reported guarantor subsidiaries footnote. These changes did not impact the condensed consolidated balance sheet, condensed consolidated statement of comprehensive income, or the condensed consolidated statement of cash flows. The nature of the corrections are (i) to properly account for the non-guarantor subsidiaries that consolidate into the guarantor subsidiaries under the equity method of accounting, including to properly account for certain intercompany loan transactions, (ii) to properly record the impact of certain foreign currency transactions and, (iii) to properly record the tax impact of the above adjustments. The tables below provide disclosure of the changes to the guarantor footnote for the condensed consolidating balance sheet as of December 31, 2011, the unaudited condensed consolidating statement of comprehensive income for the quarter and year to date period ended October 1, 2011, and the unaudited condensed consolidating statement of cash flows for the year to date period ended October 1, 2011.
Condensed Consolidating Balance Sheet | ||||||||||||||||||||
December 31, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Loans receivable from related parties |
||||||||||||||||||||
As reported |
$ | 259,891 | $ | | $ | | $ | (259,891 | ) | $ | | |||||||||
As adjusted |
256,976 | | | (256,976 | ) | | ||||||||||||||
Investment in subs |
||||||||||||||||||||
As reported |
202,463 | | | (202,463 | ) | | ||||||||||||||
As adjusted |
205,378 | 99,983 | | (305,361 | ) | | ||||||||||||||
Total assets |
||||||||||||||||||||
As reported |
469,445 | 386,405 | 236,489 | (462,354 | ) | 629,985 | ||||||||||||||
As adjusted |
469,445 | 486,388 | 236,489 | (562,337 | ) | 629,985 | ||||||||||||||
Loans payable to related parties |
||||||||||||||||||||
As reported |
| 188,595 | 71,296 | (259,891 | ) | | ||||||||||||||
As adjusted |
| 176,878 | 80,098 | (256,976 | ) | | ||||||||||||||
Total current liabilities |
||||||||||||||||||||
As reported |
2,222 | 245,390 | 114,385 | (259,891 | ) | 102,106 | ||||||||||||||
As adjusted |
2,222 | 233,673 | 123,187 | (256,976 | ) | 102,106 | ||||||||||||||
Total stockholders equity |
||||||||||||||||||||
As reported |
208,396 | 93,678 | 108,785 | (202,463 | ) | 208,396 | ||||||||||||||
As adjusted |
208,396 | 205,378 | 99,983 | (305,361 | ) | 208,396 | ||||||||||||||
Total liabilities and stockholders equity |
||||||||||||||||||||
As reported |
469,445 | 386,405 | 236,489 | (462,354 | ) | 629,985 | ||||||||||||||
As adjusted |
$ | 469,445 | $ | 486,388 | $ | 236,489 | $ | (562,337 | ) | $ | 629,985 | |||||||||
Unaudited Condensed Consolidating Statement of Comprehensive Income | ||||||||||||||||||||
Quarter Ended October 1, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Interest expense, net |
||||||||||||||||||||
As reported |
$ | 6,395 | $ | 253 | $ | 50 | $ | | $ | 6,698 | ||||||||||
As adjusted |
6,450 | 198 | 50 | | 6,698 | |||||||||||||||
Equity in earnings of subsidiaries |
||||||||||||||||||||
As reported |
11,806 | | | (11,806 | ) | | ||||||||||||||
As adjusted |
7,295 | 2,391 | | (9,686 | ) | | ||||||||||||||
Income before income taxes |
||||||||||||||||||||
As reported |
5,411 | 12,679 | 5,453 | (11,806 | ) | 11,737 | ||||||||||||||
As adjusted |
6,419 | 9,551 | 5,453 | (9,686 | ) | 11,737 | ||||||||||||||
Provision (benefit) for income taxes |
||||||||||||||||||||
As reported |
(6,729 | ) | 3,264 | 3,062 | | (403 | ) | |||||||||||||
As adjusted |
(5,721 | ) | 2,256 | 3,062 | | (403 | ) | |||||||||||||
Net income |
||||||||||||||||||||
As reported |
12,140 | 9,415 | 2,391 | (11,806 | ) | 12,140 | ||||||||||||||
As adjusted |
$ | 12,140 | $ | 7,295 | $ | 2,391 | $ | (9,686 | ) | $ | 12,140 |
19
Unaudited Condensed Consolidating Statement of Comprehensive Income | ||||||||||||||||||||
Year to Date Ended October 1, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Interest expense, net |
||||||||||||||||||||
As reported |
$ | 17,265 | $ | 659 | $ | 90 | $ | | $ | 18,014 | ||||||||||
As adjusted |
17,319 | 605 | 90 | | 18,014 | |||||||||||||||
Equity in earnings of subsidiaries |
||||||||||||||||||||
As reported |
39,581 | | | (39,581 | ) | | ||||||||||||||
As adjusted |
24,639 | 12,988 | | (37,627 | ) | | ||||||||||||||
Income before income taxes |
||||||||||||||||||||
As reported |
22,316 | 39,108 | 18,536 | (39,581 | ) | 40,379 | ||||||||||||||
As adjusted |
23,235 | 36,235 | 18,536 | (37,627 | ) | 40,379 | ||||||||||||||
Provision (benefit) for income taxes |
||||||||||||||||||||
As reported |
(9,463 | ) | 12,515 | 5,548 | | 8,600 | ||||||||||||||
As adjusted |
(8,544 | ) | 11,596 | 5,548 | | 8,600 | ||||||||||||||
Net income |
||||||||||||||||||||
As reported |
31,779 | 26,593 | 12,988 | (39,581 | ) | 31,779 | ||||||||||||||
As adjusted |
$ | 31,779 | $ | 24,639 | $ | 12,988 | $ | (37,627 | ) | $ | 31,779 | |||||||||
Unaudited Condensed Consolidating Statement of Cash Flows | ||||||||||||||||||||
Year to Date Ended October 1, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net income |
||||||||||||||||||||
As reported |
$ | 31,779 | $ | 26,593 | $ | 12,988 | $ | (39,581 | ) | $ | 31,779 | |||||||||
As adjusted |
31,779 | 24,639 | 12,988 | (37,627 | ) | 31,779 | ||||||||||||||
Undistributed equity in earnings of subsidiaries |
||||||||||||||||||||
As reported |
(39,581 | ) | | | 39,581 | | ||||||||||||||
As adjusted |
$ | (24,639 | ) | $ | (12,988 | ) | $ | | $ | 37,627 | $ | | ||||||||
Change in cash provided by operating activities |
||||||||||||||||||||
As reported |
(567 | ) | 8,642 | 21,032 | | 29,107 | ||||||||||||||
As adjusted |
$ | 14,375 | $ | (6,300 | ) | $ | 21,032 | $ | | $ | 29,107 | |||||||||
Change in affiliate debt |
||||||||||||||||||||
As reported |
(71,875 | ) | 16,442 | 55,433 | | | ||||||||||||||
As adjusted |
$ | (86,817 | ) | $ | 31,384 | $ | 55,433 | $ | | $ | | |||||||||
Change in cash provided by financing activities |
||||||||||||||||||||
As reported |
$ | 567 | $ | 13,924 | $ | 54,518 | $ | | $ | 69,009 | ||||||||||
As adjusted |
(14,375 | ) | 28,866 | 54,518 | | 69,009 |
20
Unaudited Condensed Consolidating Balance Sheet
September 29, 2012
Issuer | Guarantor Subsidiaries |
Non Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 37,504 | $ | 50,632 | $ | | $ | 88,136 | ||||||||||
Trade receivables, less allowance for doubtful accounts |
| 55,258 | 39,255 | | 94,513 | |||||||||||||||
Loans receivable from related parties |
245,311 | | | (245,311 | ) | | ||||||||||||||
Inventories |
| 76,583 | 47,753 | | 124,336 | |||||||||||||||
Deferred income taxes |
| 5,325 | 515 | | 5,840 | |||||||||||||||
Income tax receivable |
| 2,832 | 181 | | 3,013 | |||||||||||||||
Prepaid expenses and other current assets |
| 2,866 | 3,886 | | 6,752 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
245,311 | 180,368 | 142,222 | (245,311 | ) | 322,590 | ||||||||||||||
Property, plant and equipment, net |
| 84,507 | 52,138 | | 136,645 | |||||||||||||||
Intangible assets, net |
| 47,341 | 31,064 | | 78,405 | |||||||||||||||
Goodwill |
| 56,446 | 28,581 | | 85,027 | |||||||||||||||
Deferred income taxes |
| | 1,497 | | 1,497 | |||||||||||||||
Investment in subsidiaries |
234,689 | 116,302 | | (350,991 | ) | | ||||||||||||||
Other non-current assets, net |
6,225 | 1,164 | 802 | | 8,191 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 486,225 | $ | 486,128 | $ | 256,304 | $ | (596,302 | ) | $ | 632,355 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES, NON-CONTROLLING INTEREST, AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 25,939 | $ | 15,556 | $ | | $ | 41,495 | ||||||||||
Accrued payroll |
| 9,665 | 11,176 | | 20,841 | |||||||||||||||
Accruals and other current liabilities |
5,991 | 17,792 | 12,630 | | 36,413 | |||||||||||||||
Deferred income taxes |
| | 102 | | 102 | |||||||||||||||
Current portion of long-term debt |
| 109 | 888 | | 997 | |||||||||||||||
Loans payable to related parties |
| 159,911 | 85,400 | (245,311 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
5,991 | 213,416 | 125,752 | (245,311 | ) | 99,848 | ||||||||||||||
Long-term debt - less current portion and net of unaccreted discount |
240,421 | 44 | 1,149 | | 241,614 | |||||||||||||||
Deferred income taxes |
| 30,072 | 6,197 | | 36,269 | |||||||||||||||
Pension liabilities |
| 5,607 | 5,606 | | 11,213 | |||||||||||||||
Other post employment benefits |
| 254 | | | 254 | |||||||||||||||
Long-term taxes payable |
| 1,303 | | | 1,303 | |||||||||||||||
Other long-term liabilities |
| 743 | | | 743 | |||||||||||||||
Redeemable non-Controlling Interest |
| | 1,298 | | 1,298 | |||||||||||||||
Total stockholders equity |
239,813 | 234,689 | 116,302 | (350,991 | ) | 239,813 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities, non-controlling interest and stockholders equity |
$ | 486,225 | $ | 486,128 | $ | 256,304 | $ | (596,302 | ) | $ | 632,355 | |||||||||
|
|
|
|
|
|
|
|
|
|
21
Condensed Consolidating Balance Sheet
December 31, 2011
Issuer | Guarantor Subsidiaries |
Non Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 49,876 | $ | 42,639 | $ | | $ | 92,515 | ||||||||||
Trade receivables, less allowance for doubtful accounts |
| 52,706 | 39,153 | | 91,859 | |||||||||||||||
Loans receivable from related parties |
256,976 | | | (256,976 | ) | | ||||||||||||||
Inventories |
| 76,632 | 49,338 | | 125,970 | |||||||||||||||
Deferred income taxes |
| 5,325 | 531 | | 5,856 | |||||||||||||||
Income tax receivable |
| 6,868 | 431 | | 7,299 | |||||||||||||||
Prepaid expenses and other current assets |
| 3,096 | 4,045 | | 7,141 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
256,976 | 194,503 | 136,137 | (256,976 | ) | 330,640 | ||||||||||||||
Property, plant and equipment, net |
| 79,576 | 43,888 | | 123,464 | |||||||||||||||
Intangible assets, net |
| 50,329 | 26,779 | | 77,108 | |||||||||||||||
Goodwill |
| 56,446 | 27,353 | | 83,799 | |||||||||||||||
Deferred income taxes |
| | 1,614 | | 1,614 | |||||||||||||||
Investment in subs |
205,378 | 99,983 | | (305,361 | ) | | ||||||||||||||
Other non-current assets, net |
7,091 | 5,551 | 718 | | 13,360 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 469,445 | $ | 486,388 | $ | 236,489 | $ | (562,337 | ) | $ | 629,985 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES, NON-CONTROLLING INTEREST, AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 30,278 | $ | 22,490 | $ | | $ | 52,768 | ||||||||||
Accrued payroll |
| 9,522 | 10,212 | | 19,734 | |||||||||||||||
Accruals and other current liabilities |
2,222 | 16,645 | 9,931 | | 28,798 | |||||||||||||||
Deferred income taxes |
| | 118 | | 118 | |||||||||||||||
Current portion of long-term debt |
| 350 | 338 | | 688 | |||||||||||||||
Loans payable to related parties |
| 176,878 | 80,098 | (256,976 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
2,222 | 233,673 | 123,187 | (256,976 | ) | 102,106 | ||||||||||||||
Long-term debt - less current portion and net of unaccreted discount and premium |
258,827 | 3,060 | 1,474 | | 263,361 | |||||||||||||||
Deferred income taxes |
| 29,595 | 6,203 | | 35,798 | |||||||||||||||
Pension liabilities |
| 7,435 | 5,461 | | 12,896 | |||||||||||||||
Long-term taxes payables |
| 6,227 | | | 6,227 | |||||||||||||||
Other long-term liabilities |
| 1,020 | 181 | | 1,201 | |||||||||||||||
Redeemable non-Controlling Interest |
| | | | | |||||||||||||||
Total Stockholders equity |
208,396 | 205,378 | 99,983 | (305,361 | ) | 208,396 | ||||||||||||||
Total liabilities, non-controlling interest and stockholders equity |
$ | 469,445 | $ | 486,388 | $ | 236,489 | $ | (562,337 | ) | $ | 629,985 | |||||||||
|
|
|
|
|
|
|
|
|
|
22
Unaudited Condensed Consolidating Statement of Comprehensive Income
Year to Date Ended September 29, 2012 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 366,332 | $ | 223,563 | $ | (35,079 | ) | $ | 554,816 | |||||||||
Cost of sales |
| 266,899 | 158,310 | (35,079 | ) | 390,130 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 99,433 | 65,253 | | 164,686 | |||||||||||||||
Selling, general and administrative expenses |
| 52,775 | 41,891 | | 94,666 | |||||||||||||||
Research and development expenses |
| 4,330 | 4,462 | | 8,792 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
| 42,328 | 18,900 | | 61,228 | |||||||||||||||
Intercompany interest (income) expense, net |
(17,014 | ) | 16,960 | 54 | | |||||||||||||||
Interest (income) expense, net |
17,196 | 1,642 | 77 | | 18,915 | |||||||||||||||
Other non-operating expense, net |
| 1,108 | 726 | | 1,834 | |||||||||||||||
Equity in earnings of subsidiaries |
26,185 | 13,193 | | (39,378 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
26,003 | 35,811 | 18,043 | (39,378 | ) | 40,479 | ||||||||||||||
Provision for income taxes |
(3,640 | ) | 9,626 | 4,850 | | 10,836 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
29,643 | 26,185 | 13,193 | (39,378 | ) | 29,643 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss (income) attributable to non-controlling interest |
| | 29 | | 29 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to Altra Holdings, Inc. |
$ | 29,643 | $ | 26,185 | $ | 13,222 | $ | (39,378 | ) | $ | 29,672 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income |
||||||||||||||||||||
Foreign currency translation adjustment |
3,140 | 3,140 | 3,140 | (6,280 | ) | 3,140 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
32,783 | 29,325 | 16,362 | (45,658 | ) | 32,812 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive loss attributable to non-controlling interest |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to Altra Holdings, Inc. |
$ | 32,783 | $ | 29,325 | $ | 16,362 | $ | (45,658 | ) | $ | 32,812 | |||||||||
|
|
|
|
|
|
|
|
|
|
23
Unaudited Condensed Consolidating Statement of Comprehensive Income
Year to Date Ended October 1, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 344,731 | $ | 191,944 | $ | (33,580 | ) | $ | 503,095 | |||||||||
Cost of sales |
| 249,795 | 137,606 | (33,580 | ) | 353,821 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 94,936 | 54,338 | | 149,274 | |||||||||||||||
Selling, general and administrative expenses |
| 51,639 | 32,366 | | 84,005 | |||||||||||||||
Research and development expenses |
| 3,962 | 3,582 | | 7,544 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
| 39,335 | 18,390 | | 57,725 | |||||||||||||||
Intercompany interest expense (income), net |
(15,915 | ) | 15,915 | | | | ||||||||||||||
Interest expense, net |
17,319 | 605 | 90 | | 18,014 | |||||||||||||||
Other non-operating income, net |
| (432 | ) | (236 | ) | | (668 | ) | ||||||||||||
Equity in earnings of subsidiaries |
24,639 | 12,988 | | (37,627 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
23,235 | 36,235 | 18,536 | (37,627 | ) | 40,379 | ||||||||||||||
Provision (benefit) for income taxes |
(8,544 | ) | 11,596 | 5,548 | | 8,600 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
31,779 | 24,639 | 12,988 | (37,627 | ) | 31,779 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income |
||||||||||||||||||||
Foreign currency translation adjustment |
(1,439 | ) | (1,439 | ) | (1,439 | ) | 2,878 | (1,439 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
$ | 30,340 | $ | 23,200 | $ | 11,549 | $ | (34,749 | ) | $ | 30,340 | |||||||||
|
|
|
|
|
|
|
|
|
|
24
Unaudited Condensed Consolidating Statement of Comprehensive Income
Quarter Ended September 29, 2012 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 113,345 | $ | 71,881 | $ | (10,738 | ) | $ | 174,488 | |||||||||
Cost of sales |
| 82,620 | 50,595 | (10,738 | ) | 122,477 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 30,725 | 21,286 | | 52,011 | |||||||||||||||
Selling, general and administrative expenses |
| 18,149 | 12,636 | | 30,785 | |||||||||||||||
Research and development expenses |
| 1,456 | 1,367 | | 2,823 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
| 11,120 | 7,283 | | 18,403 | |||||||||||||||
Intercompany interest (income) expense, net |
(5,479 | ) | 5,461 | 18 | | |||||||||||||||
Interest (income) expense, net |
5,899 | 631 | 107 | | 6,637 | |||||||||||||||
Other non-operating expense (income), net |
| (204 | ) | 606 | | 402 | ||||||||||||||
Equity in earnings of subsidiaries |
7,404 | 4,816 | | (12,220 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
6,984 | 10,048 | 6,552 | (12,220 | ) | 11,364 | ||||||||||||||
Provision (benefit) for income taxes |
(1,534 | ) | 2,644 | 1,736 | | 2,846 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
8,518 | 7,404 | 4,816 | (12,220 | ) | 8,518 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss (income) attributable to non-controlling interest |
| | 29 | | 29 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to Altra Holdings, Inc. |
$ | 8,518 | $ | 7,404 | $ | 4,845 | $ | (12,220 | ) | $ | 8,547 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income |
||||||||||||||||||||
Foreign currency translation adjustment |
6,605 | 6,605 | 6,605 | (13,210 | ) | 6,605 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
$ | 15,123 | $ | 14,009 | $ | 11,450 | $ | (25,430 | ) | $ | 15,152 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Quarter Ended October 1, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 110,929 | $ | 79,500 | $ | (12,576 | ) | $ | 177,853 | |||||||||
Cost of sales |
| 80,066 | 57,334 | (12,576 | ) | 124,824 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 30,863 | 22,166 | | 53,029 | |||||||||||||||
Selling, general and administrative expenses |
| 16,595 | 14,982 | | 31,577 | |||||||||||||||
Research and development expenses |
| 1,306 | 1,495 | | 2,801 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
| 12,962 | 5,689 | | 18,651 | |||||||||||||||
Intercompany interest (income) expense, net |
(5,574 | ) | 5,574 | | | | ||||||||||||||
Interest expense, net |
6,450 | 198 | 50 | | 6,698 | |||||||||||||||
Other non-operating income, net |
| 30 | 186 | | 216 | |||||||||||||||
Equity in earnings of subsidiaries |
7,295 | 2,391 | | (9,686 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
6,419 | 9,551 | 5,453 | (9,686 | ) | 11,737 | ||||||||||||||
Provision (benefit) for income taxes |
(5,721 | ) | 2,256 | 3,062 | | (403 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
12,140 | 7,295 | 2,391 | (9,686 | ) | 12,140 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income (loss) |
||||||||||||||||||||
Foreign currency translation adjustment (loss) |
(7,008 | ) | (7,008 | ) | (7,008 | ) | 14,016 | (7,008 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income (loss) |
$ | 5,132 | $ | 287 | $ | (4,617 | ) | $ | 4,330 | $ | 5,132 | |||||||||
|
|
|
|
|
|
|
|
|
|
25
Unaudited Condensed Consolidating Statement of Cash Flows
Year to Date Ended September 29, 2012 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||
Net income |
$ | 29,643 | $ | 26,185 | $ | 13,193 | $ | (39,378 | ) | $ | 29,643 | |||||||||
Undistributed equity in earnings of subsidiaries |
(26,185 | ) | (13,193 | ) | | 39,378 | | |||||||||||||
Adjustments to reconcile net income to net cash flows: |
||||||||||||||||||||
Depreciation |
| 9,264 | 5,774 | | 15,038 | |||||||||||||||
Amortization of intangible assets |
| 3,106 | 1,946 | | 5,052 | |||||||||||||||
Amortization and write-offs of deferred financing costs |
1,330 | 117 | | | 1,447 | |||||||||||||||
Loss on foreign currency, net |
| | 44 | | 44 | |||||||||||||||
Accretion of debt discount, net |
2,585 | | | | 2,585 | |||||||||||||||
Stock-based compensation |
| 2,233 | | | 2,233 | |||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||
Trade receivables |
| (3,353 | ) | 1,219 | | (2,134 | ) | |||||||||||||
Inventories |
| 49 | 3,057 | | 3,106 | |||||||||||||||
Accounts payable and accrued liabilities |
2,423 | 2,006 | (4,986 | ) | | (557 | ) | |||||||||||||
Other current assets and liabilities |
| 707 | 277 | | 984 | |||||||||||||||
Other operating assets and liabilities |
(464 | ) | (2,532 | ) | 48 | | (2,948 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities |
9,332 | 24,589 | 20,572 | | 54,493 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows used in investing activities |
||||||||||||||||||||
Purchase of property, plant and equipment |
| (14,963 | ) | (10,199 | ) | | (25,162 | ) | ||||||||||||
Acquisition of Lamifelx, net of $68 cash |
| | (7,444 | ) | | (7,444 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
| (14,963 | ) | (17,643 | ) | | (32,606 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities |
||||||||||||||||||||
Redemption of variable rate demand revenue bonds related to the San Marcos facility |
| (3,000 | ) | | | (3,000 | ) | |||||||||||||
Purchase of 8 1/8 Senior Secured notes |
(21,000 | ) | | | | (21,000 | ) | |||||||||||||
Shares repurchased for tax withholdings |
| (905 | ) | | | (905 | ) | |||||||||||||
Dividend payment |
(1,348 | ) | | | | (1,348 | ) | |||||||||||||
Payments on mortgages |
| | (736 | ) | | (736 | ) | |||||||||||||
Payments on capital leases |
| (257 | ) | (46 | ) | | (303 | ) | ||||||||||||
Change in affiliate debt |
13,016 | (17,836 | ) | 4,820 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
(9,332 | ) | (21,998 | ) | 4,038 | | (27,292 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | 1,026 | | 1,026 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
| (12,372 | ) | 7,993 | | (4,379 | ) | |||||||||||||
Cash and cash equivalents at beginning of year |
| 49,876 | 42,639 | | 92,515 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
$ | | $ | 37,504 | $ | 50,632 | $ | | $ | 88,136 | ||||||||||
|
|
|
|
|
|
|
|
|
|
26
Unaudited Condensed Consolidating Statement of Cash Flows
Year to Date Ended October 1, 2011 | ||||||||||||||||||||
Issuer | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||
Net income |
$ | 31,779 | $ | 24,639 | $ | 12,988 | $ | (37,627 | ) | $ | 31,779 | |||||||||
Undistributed equity in earnings of subsidiaries |
(24,639 | ) | (12,988 | ) | | 37,627 | | |||||||||||||
Adjustments to reconcile net income to net cash flows: |
| |||||||||||||||||||
Depreciation |
| 5,422 | 7,836 | | 13,258 | |||||||||||||||
Amortization of intangible assets |
| 3,089 | 1,479 | | 4,568 | |||||||||||||||
Amortization and write-offs of deferred financing costs |
1,037 | 335 | | | 1,372 | |||||||||||||||
Gain on foreign currency, net |
| | (324 | ) | | (324 | ) | |||||||||||||
Accretion of debt discount, net |
1,887 | | | | 1,887 | |||||||||||||||
Stock-based compensation |
| 1,933 | | | 1,933 | |||||||||||||||
Changes in assets and liabilities: |
| |||||||||||||||||||
Trade receivables |
| (9,354 | ) | (8,317 | ) | | (17,671 | ) | ||||||||||||
Inventories |
| (9,008 | ) | (4,865 | ) | | (13,873 | ) | ||||||||||||
Accounts payable and accrued liabilities |
4,311 | (3,329 | ) | 8,570 | | 9,552 | ||||||||||||||
Other current assets and liabilities |
| (675 | ) | 1,555 | | 880 | ||||||||||||||
Other operating assets and liabilities |
| (6,364 | ) | 2,110 | | (4,254 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities |
14,375 | (6,300 | ) | 21,032 | | 29,107 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows used in investing activities |
||||||||||||||||||||
Purchase of property, plant and equipment |
| (5,966 | ) | (7,874 | ) | | (13,840 | ) | ||||||||||||
Acquisition of Bauer net of cash $41 thousand cash received |
| (1,146 | ) | (68,314 | ) | | (69,460 | ) | ||||||||||||
Proceeds from sale of Chattanooga |
| 1,484 | | | 1,484 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
| (5,628 | ) | (76,188 | ) | | (81,816 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities |
||||||||||||||||||||
Proceeds from issuance from Convertible Notes |
85,000 | | | | 85,000 | |||||||||||||||
Purchase of 8 1/8 Senior Secured Notes |
(8,230 | ) | | | | (8,230 | ) | |||||||||||||
Payment of issuance costs for Convertible Notes |
(3,414 | ) | | | | (3,414 | ) | |||||||||||||
Shares surrendered for tax withholdings |
(914 | ) | | | | (914 | ) | |||||||||||||
Redemption of variable rate demand revenue bonds related to the Chattanooga facility |
| (2,290 | ) | | | (2,290 | ) | |||||||||||||
Payments on mortgages |
| | (516 | ) | | (516 | ) | |||||||||||||
Payments on capital leases |
| (228 | ) | (399 | ) | | (627 | ) | ||||||||||||
Change in affiliate debt |
(86,817 | ) | 31,384 | 55,433 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by financing activities |
(14,375 | ) | 28,866 | 54,518 | | 69,009 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | 1,238 | 1,238 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
| 16,938 | 600 | | 17,538 | |||||||||||||||
Cash and cash equivalents at beginning of year |
| 37,125 | 35,598 | | 72,723 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
$ | | $ | 54,063 | $ | 36,198 | $ | | $ | 90,261 | ||||||||||
|
|
|
|
|
|
|
|
|
|
27
16. Subsequent Events
The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.
28
Item 2. Managements 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 Companys current estimates, expectations and projections about the Companys future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning the Companys 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 Companys competitive position and the effects of competition, the projected growth of the industries in which we operate, and the Companys 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 Companys 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 Companys actual results to differ materially from the results referred to in the forward-looking statements the Company makes in this report include:
| the Companys access to capital, credit ratings, indebtedness, and ability to raise additional capital and operate under the terms of the Companys debt obligations; |
| the risks associated with our debt; |
| the effects of intense competition in the markets in which we operate; |
| the Companys ability to successfully execute, manage and integrate key acquisitions and mergers, including the Bauer Acquisition and the Lamiflex Acquisition; |
| the Companys ability to obtain or protect intellectual property rights; |
| the Companys ability to retain existing customers and our ability to attract new customers for growth of our business; |
| the effects of the loss or bankruptcy of or default by any significant customer, supplier, or other entity relevant to the Companys operations; |
| the Companys ability to successfully pursue the Companys 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 Companys ability to complete cost reduction actions and risks associated with such actions; |
| the Companys ability to control costs; |
| failure of the Companys operating equipment or information technology infrastructure; |
| the Companys ability to achieve its business plans, including with respect to an uncertain economic environment; |
| the effects of unanticipated deficiencies, if any, in the disclosure controls and internal controls of Bauer; |
| changes in employment, environmental, tax and other laws and changes in the enforcement of laws; |
| the accuracy of estimated forecasts of OEM customers and the impact of the current global and European economic environments on our customers; |
| fluctuations in the costs of raw materials used in our products; |
| the Companys ability to attract and retain key executives and other personnel; |
| work stoppages and other labor issues; |
| changes in the Companys pension and retirement liabilities; |
| the Companys 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; |
29
| 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 Companys stock; |
| the effects of changes to critical accounting estimates; |
| changes in volatility of the Companys stock price and the risk of litigation following a decline in the price of the Companys stock; |
| the cyclical nature of the markets in which we operate; |
| the risks associated with the global recession and European economic downturn and volatility and disruption in the global and European financial markets; |
| political and economic conditions nationally, regionally, and in the markets in which we operate; |
| natural disasters, war, civil unrest, terrorism, fire, floods, tornadoes, earthquakes, hurricanes, or other matters beyond the Companys control; |
| the risks associated with international operations, including currency risks; |
| the risks associated with the Companys investment in a new manufacturing facility in China; and |
| other factors, risks, and uncertainties referenced in the Companys filings with the Securities and Exchange Commission, including the Risk Factors set forth in the Companys Annual Report on Form 10-K for the year ended December 31, 2011. |
ALL FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS REPORT. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS REPORT OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR ANY PERSON ACTING ON THE COMPANYS 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 COMPANYS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2011, AND IN OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY THE COMPANY.
The following discussion of the financial condition and results of operations of Altra Holdings, Inc. and its subsidiaries should be read together with the audited financial statements of Altra Holdings, Inc. and its subsidiaries and related notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011. Unless the context requires otherwise, the terms Altra Holdings, the Company, we, us, and our refer to Altra Holdings, Inc. and its subsidiaries.
30
General
Altra Holdings, Inc. is the parent company of Altra Industrial Motion, Inc. (Altra Industrial), and owns 100% of Altra Industrials outstanding capital stock. Altra Industrial, directly or indirectly, owns 100% of the capital stock of its 57 subsidiaries. The following chart illustrates a summary of our corporate structure:
Although we were incorporated in Delaware in 2004, much of our current business has its roots with the prior acquisition by Colfax Corporation, or Colfax, of a series of power transmission businesses. In December 1996, Colfax acquired the electro-mechanical power transmission group of Zurn Technologies, Inc. Colfax subsequently acquired Industrial Clutch Corp. in May 1997, Nuttall Gear Corp. in July 1997 and the Boston Gear and Delroyd Worm Gear brands in August 1997 as part of Colfaxs acquisition of Imo Industries, Inc. In February 2000, Colfax acquired Warner Electric, Inc., which sold products under the Warner Electric, Formsprag Clutch, Stieber, and Wichita Clutch brands. Colfax formed Power Transmission Holding LLC, or PTH, in June 2004 to serve as a holding company for all of these power transmission businesses. Boston Gear was established in 1877, Warner Electric, Inc. in 1927, and Wichita Clutch in 1949.
On November 30, 2004, we acquired our original core business through the acquisition of PTH from Colfax. We refer to this transaction as the PTH Acquisition.
On October 22, 2004, The Kilian Company, or Kilian, a company formed at the direction of Genstar Capital, then the largest stockholder of Altra Holdings, acquired Kilian Manufacturing Corporation from Timken U.S. Corporation. At the completion of the PTH Acquisition, (i) all of the outstanding shares of Kilian capital stock were exchanged for shares of our capital stock and (ii) Kilian and its subsidiaries were transferred to Altra Industrial.
On February 10, 2006, we purchased all of the outstanding share capital of Hay Hall Holdings Limited, or Hay Hall. Hay Hall was a UK-based holding company established in 1996 that was focused primarily on the manufacture of couplings and clutch brakes.
On May