aimc-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2019

or

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

For the transition period from                      to

Commission File Number: 001-33209

 

ALTRA INDUSTRIAL MOTION CORP.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

61-1478870

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

300 Granite Street, Suite 201, Braintree, MA

 

02184

(Address of principal executive offices)

 

(Zip Code)

 

(781) 917-0600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

AIMC

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 29, 2019, there were 64,494,632 million outstanding shares of the registrant’s common stock, $0.001 par value per share.

 

 


TABLE OF CONTENTS

 

 

 

 

Page #

PART I - FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (unaudited)

 

1

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

Condensed Consolidated Statement of Operations

 

2

 

 

Condensed Consolidated Statements of Comprehensive Income

 

3

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

Notes to Unaudited Condensed Consolidated Interim Financial Statements

 

6

Item 2.

 

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

 

25

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

34

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

35

Item 1A.

 

Risk Factors

 

35

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 3.

 

Defaults Upon Senior Securities

 

35

Item 4.

 

Mine Safety Disclosures

 

36

Item 5.

 

Other Information

 

36

Item 6.

 

Exhibits

 

36

 

 

 

 

SIGNATURES

 

38

 

 


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Balance Sheets

Amounts in millions, except share amounts

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

152.4

 

 

$

169.0

 

Trade receivables, less allowance for doubtful accounts of $5.2 and $5.6 million at

   March 31, 2019 and December 31, 2018, respectively

 

 

281.8

 

 

 

259.8

 

Inventories

 

 

241.0

 

 

 

231.2

 

Income tax receivable

 

 

8.5

 

 

 

10.2

 

Prepaid expenses and other current assets

 

 

32.8

 

 

 

33.1

 

Assets held for sale

 

 

 

 

 

0.7

 

Total current assets

 

 

716.5

 

 

 

704.0

 

Property, plant and equipment, net

 

 

360.5

 

 

 

364.4

 

Intangible assets, net

 

 

1,559.9

 

 

 

1,585.7

 

Goodwill

 

 

1,683.5

 

 

 

1,662.3

 

Deferred income taxes

 

 

3.3

 

 

 

4.9

 

Other non-current assets

 

 

13.3

 

 

 

15.9

 

Operating lease right of use assets

 

 

43.3

 

 

 

 

Total assets

 

$

4,380.3

 

 

$

4,337.2

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

172.3

 

 

$

175.8

 

Accrued payroll

 

 

53.6

 

 

 

57.0

 

Accruals and other current liabilities

 

 

78.7

 

 

 

79.6

 

Income tax payable

 

 

9.3

 

 

 

7.5

 

Current portion of long-term debt

 

 

18.2

 

 

 

17.2

 

Operating lease liabilities

 

 

14.9

 

 

 

 

Total current liabilities

 

 

347.0

 

 

 

337.1

 

Long-term debt - less current portion

 

 

1,676.6

 

 

 

1,690.9

 

Deferred income taxes

 

 

399.1

 

 

 

393.2

 

Pension liabilities

 

 

32.1

 

 

 

32.0

 

Long-term taxes payable

 

 

4.5

 

 

 

5.4

 

Other long-term liabilities

 

 

18.5

 

 

 

30.4

 

Operating lease liabilities, net of current portion

 

 

30.1

 

 

 

 

Commitments and Contingencies (Note 18)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock ($0.001 par value per share, 120.0 million shares authorized,

   64.3 and 64.2 million shares issued and outstanding at March 31, 2019

   and December 31, 2018, respectively)

 

 

0.1

 

 

 

0.1

 

Additional paid-in capital

 

 

1,688.5

 

 

 

1,687.1

 

Retained earnings

 

 

256.7

 

 

 

232.6

 

Accumulated other comprehensive loss

 

 

(72.9

)

 

 

(71.6

)

Total stockholders’ equity

 

 

1,872.4

 

 

 

1,848.2

 

Total liabilities, and stockholders’ equity

 

$

4,380.3

 

 

$

4,337.2

 

 

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

 

 

1


ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Operations

Amounts in millions, except per share data

 

 

 

Quarter Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net sales

 

$

482.8

 

 

$

240.4

 

Cost of sales

 

 

307.9

 

 

 

166.2

 

Gross profit

 

 

174.9

 

 

 

74.2

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

90.9

 

 

 

47.1

 

Research and development expenses

 

 

15.3

 

 

 

6.5

 

Restructuring costs

 

 

2.3

 

 

 

0.9

 

 

 

 

108.5

 

 

 

54.5

 

Income from operations

 

 

66.4

 

 

 

19.7

 

Other non-operating income and expense:

 

 

 

 

 

 

 

 

Loss on settlement of pension plan

 

 

 

 

 

5.1

 

Interest expense, net

 

 

19.8

 

 

 

1.8

 

Other non-operating expense/(income), net

 

 

1.1

 

 

 

(0.1

)

 

 

 

20.9

 

 

 

6.8

 

Income before income taxes

 

 

45.5

 

 

 

12.9

 

Provision for income taxes

 

 

10.3

 

 

 

3.9

 

Net income

 

$

35.2

 

 

$

9.0

 

Weighted average shares, basic

 

 

64.2

 

 

 

29.1

 

Weighted average shares, diluted

 

 

64.4

 

 

 

29.2

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

 

0.55

 

 

 

0.31

 

Diluted

 

 

0.55

 

 

 

0.31

 

Cash dividend declared per share

 

 

0.17

 

 

 

0.17

 

 

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

 

 

2


ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Comprehensive Income

(Amounts in millions)

 

 

 

 

Quarter Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net Income

 

$

35.2

 

 

$

9.0

 

Other Comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

(12.5

)

 

 

7.8

 

Reclassification adjustment from loss on partial

   settlement of pension plan, net of tax

 

 

 

 

 

3.8

 

Change in pension liability adjustment, net of tax

 

 

(0.3

)

 

 

0.6

 

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

 

 

11.5

 

 

 

0.3

 

Total other comprehensive (loss) income:

 

 

(1.3

)

 

 

12.5

 

Comprehensive income

 

$

33.9

 

 

$

21.5

 

 

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

 

 

3


ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Cash Flows

(Amounts in millions)

 

 

 

Quarter Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

35.2

 

 

$

9.0

 

Adjustments to reconcile net income to net operating cash flows:

 

 

 

 

 

 

 

 

Depreciation

 

 

14.3

 

 

 

6.9

 

Amortization of intangible assets

 

 

17.8

 

 

 

2.5

 

Amortization of deferred financing costs

 

 

1.1

 

 

 

0.2

 

Loss(gain) on foreign currency, net

 

 

1.0

 

 

 

(0.1

)

Loss on partial settlement of pension plan

 

 

 

 

 

5.1

 

Loss on disposal, impairment and other

 

 

0.3

 

 

 

0.1

 

Stock based compensation

 

 

3.5

 

 

 

1.3

 

Changes in assets and liabilities, net of assets acquired:

 

 

 

 

 

 

 

 

Trade receivables

 

 

(22.5

)

 

 

(12.9

)

Inventories

 

 

(10.6

)

 

 

(0.5

)

Accounts payable and accrued liabilities

 

 

(4.9

)

 

 

(5.9

)

Other current assets and liabilities

 

 

18.5

 

 

 

0.0

 

Other operating assets and liabilities

 

 

(14.4

)

 

 

(2.0

)

Net cash provided by operating activities

 

 

39.3

 

 

 

3.7

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(14.0

)

 

 

(7.0

)

A&S acquisition purchase price adjustment

 

 

(13.5

)

 

 

 

Proceeds from sale of building

 

 

0.3

 

 

 

 

Net cash used in investing activities

 

 

(27.2

)

 

 

(7.0

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payments on 2015 Revolving Credit Facility

 

 

 

 

 

(4.9

)

Payments on Term Loan Facility

 

 

(15.0

)

 

 

 

Dividend payments

 

 

(11.1

)

 

 

(5.0

)

Borrowing under 2015 Revolving Credit Facility

 

 

 

 

 

8.0

 

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

 

 

(0.2

)

 

 

(0.3

)

Proceeds from issuance of China debt

 

 

1.2

 

 

 

 

Shares surrendered for tax withholding

 

 

(2.1

)

 

 

(1.5

)

Net cash used in financing activities

 

 

(27.2

)

 

 

(3.7

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(1.5

)

 

 

1.4

 

Net change in cash and cash equivalents

 

 

(16.6

)

 

 

(5.6

)

Cash and cash equivalents at beginning of period

 

 

169.0

 

 

 

52.0

 

Cash and cash equivalents at end of period

 

$

152.4

 

 

$

46.4

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest paid on borrowings

 

$

11.4

 

 

$

1.8

 

Income taxes paid

 

$

7.9

 

 

$

2.6

 

 

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

 

 

4


ALTRA INDUSTRIAL MOTION CORP.

Condensed Consolidated Statements of Stockholders’ Equity

Amounts in millions

(Unaudited)

 

 

 

 

 

 

Common

Stock

 

 

Shares

 

 

Additional

Paid

in Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive Income

(Loss)

 

 

Total

 

Balance at January 1, 2018

 

$

0.0

 

 

 

29.1

 

 

$

223.3

 

 

$

223.2

 

 

$

(49.8

)

 

$

396.7

 

Stock-based compensation and vesting

   of restricted stock, net of withholdings

 

 

 

 

 

0.0

 

 

 

(0.2

)

 

 

 

 

 

 

 

 

(0.2

)

Net income

 

 

 

 

 

 

 

 

 

 

 

9.0

 

 

 

 

 

 

9.0

 

Dividends declared, $0.17 per share

 

 

 

 

 

 

 

 

 

 

 

(5.0

)

 

 

 

 

 

(5.0

)

Change in fair value of derivative financial

   instruments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.3

 

 

 

0.3

 

Minimum pension adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.4

 

 

 

4.4

 

Cumulative foreign currency translation

   adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7.8

 

 

 

7.8

 

Balance at March 31, 2018

 

$

0.0

 

 

 

29.1

 

 

$

223.1

 

 

$

227.2

 

 

$

(37.3

)

 

$

413.0

 

 

 

Balance at January 1, 2019

 

$

0.1

 

 

 

64.2

 

 

$

1,687.1

 

 

$

232.6

 

 

$

(71.6

)

 

$

1,848.2

 

Stock-based compensation and vesting

   of restricted stock, net of withholdings

 

 

 

 

 

0.1

 

 

 

1.4

 

 

 

 

 

 

 

 

 

1.4

 

Net income

 

 

 

 

 

 

 

 

 

 

 

35.2

 

 

 

 

 

 

35.2

 

Dividends declared, $0.17 per share

 

 

 

 

 

 

 

 

 

 

 

(11.1

)

 

 

 

 

 

(11.1

)

Change in fair value of derivative

   financial instruments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.5

 

 

 

11.5

 

Minimum pension adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.3

)

 

 

(0.3

)

Cumulative foreign currency translation

   adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12.5

)

 

 

(12.5

)

Balance at March 31, 2019

 

$

0.1

 

 

 

64.3

 

 

$

1,688.5

 

 

$

256.7

 

 

$

(72.9

)

 

$

1,872.4

 

 

 

 

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

 

5


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in millions, unless otherwise noted

 

1. Organization and Nature of Operations

Headquartered in Braintree, Massachusetts, Altra Industrial Motion Corp. (the “Company,” “Altra,” “We,” or “Our”) is a leading global designer, producer and marketer of a wide range of electro-mechanical power transmission and motion control (“PTMC”) products. The Company brings together strong brands with production facilities in seventeen countries. Altra’s leading brands include Ameridrives Couplings, Bauer Gear Motor, Bibby Turboflex, Boston Gear, Delroyd Worm Gear, Formsprag Clutch, Guardian Couplings, Huco, Industrial Clutch, Inertia Dynamics, Jacobs Vehicle Systems, Kilian Manufacturing, Kollmorgen, Lamiflex Couplings, Marland Clutch, Matrix, Nuttall Gear, Portescap, Stieber Clutch, Stromag, Svendborg Brakes, TB Wood’s, Thomson, Twiflex, Warner Electric, Warner Linear, and Wichita Clutch.

 

 

2. Basis of Presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States, or GAAP. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 1, 2019. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position and cash flows for the interim periods presented.  The results are not necessarily indicative of future results.  The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Certain prior year numbers have been adjusted to conform to the current year rounding convention of reporting financial data in millions of dollars, except as otherwise noted.

 

 

3. Recent Accounting Standards

Recent Accounting Pronouncements

 

On January 1, 2019 the Company adopted ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) using the modified retrospective approach for all lease arrangements at the beginning period of adoption. Results for the reporting period beginning January 1, 2019 are presented under ASU 2016-02, which required, among other items, lessees to recognize a right-of-use asset (“ROU assets”) and lease liability for most leases. As permitted by the new lease standard, the Company elected (i) not to reevaluate land easements if they were not previously accounted for as leases, (ii) not to reassess prior conclusions about lease identification, lease classification and initial direct costs (iii) not to apply the recognition requirements to short-term leases, and (iv) not to separate non-lease components from associated lease components, for all classes of underlying assets. Upon adoption of the new lease standard, the Company recorded right of use assets of approximately $46.7 million and lease liabilities of approximately $48.2 million in connection with its operating leases. See Note 5 for additional information regarding our commitments under various lease obligations.

 

Lease Accounting Policy

 

Arrangements that are determined to be leases at inception are recognized in long-term ROU assets, current lease liabilities, and long-term lease liabilities in the condensed consolidated balance sheet at lease commencement. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future fixed lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company applies its incremental borrowing rate based on the economic environment at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease prepayments made and initial direct costs incurred and is reduced by lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases or payments are recognized on a straight-line basis over the lease term.

 

4. Acquisition

 

On October 1, 2018, the Company and Fortive Corporation (“Fortive”) consummated the previously announced combination (the “Fortive Transaction”) of Altra with four operating companies from Fortive’s Automation & Specialty platform (the “A&S Business”), and as a result, the consolidated financial statements reflect the A&S Business’s results of operations from October 1, 2018 onward.

 

6


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in millions, unless otherwise noted

 

The A&S Business, consisting of four key brands, Kollmorgen, Portescap, Thomson and Jacobs Vehicle Systems, designs, manufactures, markets and sells electromechanical and electronic motion control products, including standard and custom motors, drives and controls; linear motion systems, ball screws, linear bearings, clutches/brakes, linear actuators and mechanical components; and through Jacobs Vehicle Systems, supplemental braking systems for commercial vehicles.

 

As of March 31, 2019, the allocation of the purchase price of the A&S Business is provisional. The fair value of all the acquired identifiable assets and liabilities is provisional pending finalization of the Company’s acquisition accounting, including the finalization of the valuation of the intangible assets acquired, identification and measurement of the inventory and property, plant and equipment, the measurement of tax basis in certain jurisdictions and the resulting deferred taxes that might arise from book and tax basis differences, as well as identification and measurement of uncertain tax positions, if any. The Company believes that such preliminary allocations provide a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize fair value. The Company recorded certain measurement period adjustments during the quarter ended March 31, 2019 in the amount of $26.2 million. The preliminary purchase price allocation below includes such adjustments.

 

Preliminary purchase price allocation:

 

At Acquisition Date

 

 

Measurement Period Adjustments

 

 

At Acquisition Date (As Adjusted)

 

Consideration transferred:

 

 

 

 

 

 

 

 

 

 

 

 

Total cash consideration

 

$

1,003.4

 

 

$

 

 

$

1,003.4

 

Total equity consideration

 

 

1,458.7

 

 

 

 

 

 

1,458.7

 

A&S acquisition purchase price adjustment

 

 

 

 

 

13.5

 

 

 

13.5

 

Fair value of consideration transferred

 

$

2,462.1

 

 

$

13.5

 

 

$

2,475.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognized identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

Less: cash on A&S balance sheet at 10/1/2018

 

 

54.1

 

 

 

(0.5

)

 

 

53.6

 

Receivables

 

 

129.7

 

 

 

(0.8

)

 

 

128.9

 

Inventory

 

 

89.1

 

 

 

(2.3

)

 

 

86.8

 

Prepaids and other current assets

 

 

6.9

 

 

 

(0.2

)

 

 

6.7

 

Property, plant and equipment

 

 

178.3

 

 

 

(1.0

)

 

 

177.3

 

Intangibles

 

 

1,454.0

 

 

 

 

 

 

1,454.0

 

Other non-current assets

 

 

7.9

 

 

 

(0.4

)

 

 

7.5

 

Accounts payable

 

 

(98.9

)

 

 

0.8

 

 

 

(98.1

)

Accrued payroll

 

 

(15.2

)

 

 

0.5

 

 

 

(14.7

)

Accrued expenses and other current liabilities

 

 

(33.7

)

 

 

 

 

 

(33.7

)

Pension liability and other post employment benefits

 

 

(12.0

)

 

 

 

 

 

(12.0

)

Deferred tax liability

 

 

(355.7

)

 

 

(8.5

)

 

 

(364.2

)

Other long term liability

 

 

(2.6

)

 

 

(0.3

)

 

 

(2.9

)

Senior unsecured notes assumed

 

 

(400.0

)

 

 

 

 

 

(400.0

)

Total identifiable net assets assumed

 

 

1,001.9

 

 

 

(12.7

)

 

 

989.2

 

Goodwill

 

$

1,460.2

 

 

$

26.2

 

 

$

1,486.4

 

 

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill, which is not deductible for income tax purposes. The goodwill in this acquisition is attributable to the Company’s expectation to achieve synergies, such as facility consolidations, global procurement efficiencies, the ability to cross-sell product, and the ability to penetrate certain geographic areas.

 

 

7


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in millions, unless otherwise noted

 

Intangible assets acquired consist of:

 

 

 

 

Customer relationships

 

$

1,025.0

 

Trade names and trademarks

 

 

209.0

 

Technology

 

 

204.0

 

In-process research and development ("IPR&D")

 

 

16.0

 

Total intangible assets

 

$

1,454.0

 

 

Customer relationships and technology are subject to amortization, and will be recognized on a straight-line basis over the estimated useful lives of 20 years and 7-10 years, respectively, which represents the anticipated period over which the Company estimates it will benefit from the acquired assets. The tradenames and trademarks are considered to have an indefinite life and will not be amortized.

 

The major acquired technology IPR&D relates to the next generation of valvetrain technologies, which focus on improving engine brake performance, improving fuel efficiency and meeting future worldwide emissions regulations.  The IPR&D projects are not currently amortized and will be reviewed for impairment at least annually and amortization will commence when the assets are placed into service.  There was no evidence of impairment to IPR&D as of March 31, 2019.  

 

The Company recorded net sales from the A&S Business of $249.1 million for the three months ended March 31, 2019.  The Company recorded net income from the A&S Business of $32.1 million for the three months ended March 31, 2019. Net income includes amortization expense from the A&S Business of $15.5 million for the three months ended March 31, 2019.

 

The following table sets forth the unaudited pro forma results of operations of the Company for the quarter ended March 31, 2018, as if the Company had acquired the A&S Business on January 1, 2018. The pro forma information contains the actual operating results of the Company and the A&S Business, 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 and (iii) additional interest expense for borrowings associated with the A&S Acquisition. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred at the beginning of the period or that may be obtained in the future.

 

 

 

Pro forma (unaudited)

 

 

 

Quarter Ended March 31,

 

 

 

2018

 

Total revenues

 

$

491.0

 

Net income

 

 

26.2

 

Basic earnings per share

 

 

0.41

 

Diluted earnings per share

 

 

0.41

 

 

5. Lease Accounting

 

On January 1, 2019 the Company adopted ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) using the modified retrospective approach for all lease arrangements at the beginning period of adoption. Leases existing for the reporting period beginning January 1, 2019 are presented under ASU 2016-02. We lease property and equipment under finance and operating leases. At March 31, 2019, the Company’s ROU assets and lease liabilities for operating and finance leases totaled approximately $43.8 million and $45.5 million, respectively.  Finance lease ROU assets are included in non-current other assets and finance lease liabilities are included in current and non-current other liabilities on the Company’s condensed consolidated balance sheets. The impact of adopting the new lease standard was not material to the Company’s condensed consolidated statement of operations for the periods presented.

 

Quantitative information regarding the Company’s leases is as follows:

8


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in millions, unless otherwise noted

 

 

 

 

March 31, 2019

 

Lease cost(1):

 

 

 

 

Operating lease cost

 

 

4.3

 

Short-term lease cost

 

 

0.1

 

Total lease cost

 

$

4.4

 

 

 

(1)

Finance lease costs and variable lease costs are immaterial to the Company.  The Company does not have lease or sub lease income.  

 

Maturities of Lease Liabilities

 

Operating Leases

 

 

Finance Leases

 

2019

 

$

12.5

 

 

$

0.1

 

2020

 

 

13.1

 

 

 

0.2

 

2021

 

 

8.0

 

 

 

0.2

 

2022

 

 

6.1

 

 

 

0.1

 

2023

 

 

4.3

 

 

 

 

After 2023

 

 

4.8

 

 

 

 

Total lease payments

 

 

48.8

 

 

 

0.6

 

Less interest

 

 

3.8

 

 

 

0.1

 

Present value of lease liabilities

 

$

45.0

 

 

$

0.5

 

 

Other Information

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Operating cash flows from finance leases

 

$

0.0

 

Operating cash flows from operating leases

 

$

4.3

 

Financing cash flows from finance leases

 

$

0.0

 

Weighted average remaining lease term - finance leases

 

3.5

 

Weighted average remaining lease term - operating leases

 

4.4

 

Average discount rate - finance leases

 

 

5.50

%

Average discount rate - operating leases

 

 

3.43

%

 

 

As previously disclosed in our 2018 Annual Report on Form 10-K and under Topic 840, future minimum lease payments for operating leases having initial or remaining noncancelable lease terms in excess of one year would have been as follows:

 

Year ending December 31:

 

Operating Leases

 

 

Capital Leases

 

2019

 

$

15.3

 

 

$

0.2

 

2020

 

 

11.2

 

 

 

0.2

 

2021

 

 

7.8

 

 

 

0.2

 

2022

 

 

6.1

 

 

 

0.1

 

2023

 

 

4.4

 

 

 

 

Thereafter

 

 

5.1

 

 

 

 

Total lease obligations

 

 

49.9

 

 

 

0.7

 

Less amounts representing interest

 

 

 

 

 

(0.1

)

Present value of minimum capital lease obligations

 

$

49.9

 

 

$

0.6

 

 

 

6. Revenue Recognition

 

9


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in millions, unless otherwise noted

 

We sell our products through three primary commercial channels: original equipment manufacturers (OEMs), industrial distributors and direct to end users. Each of our segments sells similar products, which are balanced across end-user industries including, without limitation, energy, food processing, general industrial, material handling, mining, transportation, industrial automation, robotics, medical devices, and turf & garden.

 

The following table disaggregates our revenue for each reportable segment. The Company believes that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

 

 

 

Quarter Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Net Sales:

 

 

 

 

 

 

 

 

Power Transmission Technologies

 

$

234.9

 

 

$

240.4

 

Automation & Specialty

 

 

249.1

 

 

 

 

Inter-segment eliminations

 

 

(1.2

)

 

 

 

Net sales

 

$

482.8

 

 

$

240.4

 

 

Net sales by geographic region based on point of shipment origin are as follows:

 

 

 

Net Sales

 

 

 

Quarter Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

North America (primarily U.S.)

 

$

273.0

 

 

$

125.7

 

Europe excluding Germany

 

 

81.7

 

 

 

44.2

 

Germany

 

 

62.2

 

 

 

49.3

 

Asia and other

 

 

65.9

 

 

 

21.2

 

Total

 

$

482.8

 

 

$

240.4

 

 

The payment terms and conditions in our customer contracts vary. In some cases, customers will partially prepay for their goods; in other cases, after appropriate credit evaluations, payment will be due in arrears. In addition, there are constraints that cause variability in the ultimate consideration to be recognized. These constraints typically include early payment discounts, volume rebates, rights of return, surcharges, and other customer consolidation.

 

A contract asset is created when the Company satisfies a performance obligation by transferring a promised good to the customer. Contract assets may represent conditional or unconditional rights to consideration. The right is conditional, and recorded as a contract asset, if the Company must first satisfy another performance obligation in the contract before it is entitled to payment from the customer. Contract assets are transferred to billed receivables once the right becomes unconditional. If the Company has the unconditional right to receive consideration from the customer, the contract asset is accounted for as a billed receivable and presented separately from other contract assets. A right is unconditional if nothing other than the passage of time is required before payment of that consideration is due. If the Company receives a customer payment prior to satisfying a performance obligation or in excess of estimates of what the Company expects to be entitled to, the payment is recorded as a contract liability. Contracts with payment in arrears are recognized as receivables.

The opening and closing balances of the Company’s contract liability and receivables as of the quarter ended March 31, 2019 are as follows:

 

 

 

Deferred Revenue (Current)

 

 

Accounts Receivable

 

Beginning - January 1, 2019

 

$

7.4

 

 

$

259.8

 

Closing - March 31, 2019

 

 

7.8

 

 

 

281.8

 

Increase/(Decrease)

 

$

0.4

 

 

$

22.0

 

 

The revenue recognized during the three months ended March 31, 2019 and 2018 that was included in the contract liabilities at the beginning of the period amounted to $2.1 and $0.8, respectively.

10


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in millions, unless otherwise noted

 

 

7. Fair Value of Financial Instruments

 

Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

 

 

Level 1- Quoted prices in active markets for identical assets or liabilities.

 

Level 2- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived.

 

Level 3- Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents and are classified as Level 1.

The Company determines the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various types of financial instruments (such as forwards, options and swaps), the Company uses standard models with market-based inputs, which take into account the present value of estimated future cash flows and the ability of the Company or the financial counterparty to perform. For interest rate and cross currency swaps, the significant inputs to these models are interest rate curves for discounting future cash flows and are adjusted for credit risk. For forward foreign currency contracts, the significant inputs are interest rate curves for discounting future cash flows and exchange rate curves of the foreign currency for translating future cash flows. See additional discussion of the Company’s use of financial instruments including cross-currency swaps and interest rate swaps included in Note 17.

The carrying values of financial instruments, including accounts receivable, cash equivalents, accounts payable, and other accrued liabilities are carried at cost, which approximates fair value. Debt under the Altra Credit Agreement (as defined herein) of $1,305.0 million approximates the fair value due to the variable interest rate. Further, the agreement was negotiated in October 2018 and there have not been any significant changes in our credit rating. The carrying amount of the Notes (as defined herein) was $400 million and the estimated fair value of the Notes was $412.0 million at March 31, 2019.

 

8. Changes in Accumulated Other Comprehensive Loss by Component

The following is a reconciliation of changes in accumulated other comprehensive loss by component for the periods presented:

 

 

 

Gains and

Losses on

Cash Flow

Hedges

 

 

Defined

Benefit

Pension

Plans

 

 

Cumulative

Foreign

Currency

Translation

Adjustment

 

 

Total

 

Accumulated Other Comprehensive Loss by Component,

   January 1, 2019

 

$

(12.9

)

 

$

(0.2

)

 

$

(58.5

)

 

$

(71.6

)

Net current-period Other Comprehensive Income

   Gain/(Loss)

 

 

11.5

 

 

 

(0.3

)

 

 

(12.5

)

 

 

(1.3

)

Accumulated Other Comprehensive Gain/(Loss) by

   Component, March 31, 2019

 

$

(1.4

)

 

$

(0.5

)

 

$

(71.0

)

 

$

(72.9

)

11


ALTRA INDUSTRIAL MOTION CORP.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in millions, unless otherwise noted

 

 

 

 

Gains and

Losses on

Cash Flow

Hedges

 

 

Defined

Benefit

Pension

Plans

 

 

Cumulative

Foreign

Currency

Translation

Adjustment

 

 

Total

 

Accumulated Other Comprehensive Loss by Component, January 1, 2018

 

$

(0.4

)

 

$

(3.7

)

 

$

(45.7

)

 

$

(49.8

)

Net current-period Other Comprehensive Income Gain/(Loss)

 

 

0.3

 

 

 

0.6