Company Quick10K Filing
Altra Industrial Motion
Price28.50 EPS1
Shares65 P/E22
MCap1,841 P/FCF10
Net Debt1,454 EBIT109
TEV3,295 TEV/EBIT30
TTM 2019-09-30, in MM, except price, ratios
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8-K 2018-02-12

AIMC 10Q Quarterly Report

Part I-Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.2 d414118dex102.htm
EX-31.1 d414118dex311.htm
EX-31.2 d414118dex312.htm
EX-32.1 d414118dex321.htm
EX-32.2 d414118dex322.htm

Altra Industrial Motion Earnings 2012-09-29

Balance SheetIncome StatementCash Flow
4.43.52.61.80.90.02012201420172020
Assets, Equity
0.50.40.30.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
Ops, Inv, Fin

10-Q 1 d414118d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

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

(Registrant’s telephone number, including area code)

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large Accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company.)    Smaller reporting company   ¨

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

As of October 23,2012, 26,888,216 shares of Common Stock, $0.001 par value per share, were outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page #  

PART I - FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements (unaudited)

     3   

Item 2.

 

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

     29   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     41   

Item 4.

 

Controls and Procedures

     41   

PART II - OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     42   

Item 1A.

 

Risk Factors

     42   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     42   

Item 3.

 

Defaults Upon Senior Securities

     42   

Item 4.

 

Mine Safety Disclosures

     42   

Item 5.

 

Other Information

     43   

Item 6.

 

Exhibits

     43   

SIGNATURES

     44   

EXHIBITS

  

EX-10.2 Amended and Restated Employment Agreement

  

EX-31.1 Section 302 Certification of Chief Executive Officer

  

EX-31.2 Section 302 Certification of Chief Financial Officer

  

EX-32.1 Section 906 Certification of Chief Executive Officer

  

EX-32.2 Section 906 Certification of Chief Financial Officer

  

EX-101 Certain materials formatted in XBRL

  

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

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

    

Current assets:

    

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   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Total assets

   $ 632,355      $ 629,985   
  

 

 

   

 

 

 

LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

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   
  

 

 

   

 

 

 

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:

    

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
  

 

 

   

 

 

 

Total stockholders’ equity

     239,813        208,396   

Total liabilities, non-controlling interest and stockholders’ equity

   $ 632,355      $ 629,985   
  

 

 

   

 

 

 

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

 

3


Table of Contents

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
 
     (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   
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     52,011         53,029        164,686         149,274   

Operating expenses:

          

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   
  

 

 

    

 

 

   

 

 

    

 

 

 
     33,608         34,378        103,458         91,549   

Income from operations

     18,403         18,651        61,228         57,725   

Other non-operarting (income) expense:

          

Interest expense, net

     6,637         6,698        18,915         18,014   

Other non-operating (income) expense, net

     402         216        1,834         (668
  

 

 

    

 

 

   

 

 

    

 

 

 
     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   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

     8,518         12,140        29,643         31,779   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss attributable to non-controlling interest

     29         —          29         —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to Altra Holdings, Inc.

   $ 8,547       $ 12,140      $ 29,672       $ 31,779   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other Comprehensive Income

          

Foreign currency translation adjustment

     6,605         (7,008     3,140         (1,439
  

 

 

    

 

 

   

 

 

    

 

 

 

Total comprehensive income

     15,152         5,132        32,812         30,340   
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive loss attributable to non-controlling interest

     —           —          —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive income attributable to Altra Holdings, Inc.

   $ 15,152       $ 5,132      $ 32,812       $ 30,340   
  

 

 

    

 

 

   

 

 

    

 

 

 

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:

          

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


Table of Contents

ALTRA HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

Amounts in thousands

 

     Year to Date Ended  
     September 29,
2012
    October 1,
2011
 
     (Unaudited)     (Unaudited)  

Cash flows from operating activities

    

Net income

   $ 29,643      $ 31,779   

Adjustments to reconcile net income to net cash flows:

    

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:

    

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
  

 

 

   

 

 

 

Net cash provided by operating activities

     54,493        29,107   
  

 

 

   

 

 

 

Cash flows from investing activities

    

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
  

 

 

   

 

 

 

Net cash used in investing activities

     (32,606     (81,816
  

 

 

   

 

 

 

Cash flows from financing activities

    

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
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (27,292     69,009   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     1,026        1,238   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (4,379     17,538   

Cash and cash equivalents at beginning of year

     92,515        72,723   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 88,136      $ 90,261   
  

 

 

   

 

 

 

Cash paid during the period for:

    

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


Table of Contents

ALTRA HOLDINGS, INC.

Consolidated Statement of Stockholders’ Equity

Amounts in thousands

 

     Common
Stock
     Shares      Additional Paid
in Capital
    Retained
Earnings
    Accumulated Other
Comprehensive
Income (Loss)
    Total     Redeemable Non-
Controlling Interest
 

Balance at January 1, 2011

   $ 26         26,466       $ 133,861      $ 45,536      $ (14,671   $ 164,752      $ —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at October 1, 2011

   $ 26         26,596       $ 149,007      $ 77,315      $ (16,110   $ 210,238      $ —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2012

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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        —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 29, 2012

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

6


Table of Contents

ALTRA HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

1. Organization and Nature of Operations

Headquartered in Braintree, Massachusetts, Altra Holdings, Inc. (the “Company”), through its wholly-owned subsidiary Altra Industrial Motion, Inc. (“Altra Industrial”), is a leading multi-national designer, producer and marketer of a wide range of electro-mechanical power transmission and motion control products. The Company brings together strong brands covering over 50 product lines with production facilities in nine countries and sales coverage in over 70 countries. The Company’s leading brands include Boston Gear, Warner Electric, TB Wood’s, Formsprag Clutch, Ameridrives Couplings, Industrial Clutch, Kilian Manufacturing, Marland Clutch, Nuttall Gear, Stieber Clutch, Wichita Clutch, Twiflex Limited, Bibby Transmissions, Matrix International, Inertia Dynamics, Huco Dynatork, Warner Linear, 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 Wood’s Corporation (“TB Wood’s”), and on October 5, 2007, the Company acquired substantially all of the assets of All Power Transmission Manufacturing, Inc. On May 29, 2011, the Company acquired substantially all of the assets of Danfoss Bauer GmbH relating to its gear motor business. On July 11, 2012, the Company acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda. (“Lamiflex”) relating to its high-speed disc couplings business.

Non-controlling Interest—The Company recorded the redeemable non-controlling interest from its acquisition of an 85% ownership interest of Lamiflex at fair value at the date of acquisition. In connection with this acquisition, the Company entered into put and call option agreements with the minority shareholders for the potential purchase of the non-controlling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the non-controlling interest is considered redeemable and is classified as temporary equity on the Company’s condensed consolidated balance sheet. The non-controlling interest is reviewed at each subsequent reporting period and adjusted, as needed, to reflect its then redemption value.

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of 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


Table of Contents

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   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used in net income per common share - diluted

     26,708         26,655         26,737         26,712   

Earnings per share:

           

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 Company’s consolidated financial statements reflect Bauer’s results of operations from the beginning of business on May 30, 2011 forward.

In July 2012, the Company consummated an agreement to acquire 85% of privately held Lamiflex do Brasil Equipamentos Industrias Ltda. now known as Lamiflex Do Brasil Equipamentos Industriais S.A. This transaction is known as the Lamiflex Acquisition. The Company acquired 85% of the stock of Lamiflex for 17.4 million Reais ($8.6 million), which was subject to a reduction of 2.1 million Reais ($1.1 million) for estimated net debt at closing. The net debt assumed at closing is subject to a final net debt calculation adjustment.

The closing date of the Lamiflex Acquisition was July 11, 2012, and as a result, the Company’s consolidated financial statements reflect Lamiflex’s results of operations from the beginning of business on July 11, 2012 forward.

 

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ALTRA HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Amounts in thousands, unless otherwise noted

 

The Company is in the process of completing its final purchase price allocation. The Company is still finalizing the valuation of customer relationships, trademarks, deferred tax assets and liabilities and fixed assets. The purchase price is subject to change based on the finalization of certain purchase price adjustments. The Company is still evaluating whether the goodwill created in the Lamiflex Acquisition is tax deductible.

The preliminary value of the acquired assets, assumed liabilities and identified intangibles from the acquisition of Lamiflex, as presented below, are based upon the Company’s preliminary estimate of the fair value as of the date of the acquisition. The purchase price allocation was calculated as if the Company had acquired 100% of Lamiflex. The preliminary purchase price allocation as of the acquisition date is as follows:

 

Total Assumed purchase price, excluding acquisition costs of approximately $0.4 million

   $ 8,839   

Less: Redeemable noncontrolling interest

     1,327   
  

 

 

 

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   
  

 

 

 

Total assets acquired

   $ 10,421   

Accounts payable

     537   

Accrued expenses and other current liabilities

     851   

Other liabilities, including long-term debt

     964   
  

 

 

 

Total liabilities assumed

   $ 2,352   

Net assets acquired

     8,069   
  

 

 

 

Excess of purchase price over fair value of net assets acquired

     770   
  

 

 

 

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The Company expects to develop synergies, such as the ability to cross-sell product and to penetrate into certain geographic areas, as a result of the acquisition of Lamiflex.

The Company recorded a redeemable non-controlling interest from its acquisition of an 85% ownership interest of Lamiflex at fair value at the date of acquisition. In connection with the Lamiflex Acquisition, the Company entered into put and call option agreements with the minority shareholders for the potential purchase of the non-controlling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the non-controlling interest is considered redeemable and is classified as temporary equity on the Company’s Condensed Consolidated Balance Sheet.

The estimated amounts recorded as intangible assets consist of the following:

 

Customer relationships, subject to amortization

   $ 5,496   

Trade names and trademarks, not subject to amortization

     360   
  

 

 

 

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.

 

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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.

 

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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   
  

 

 

   

 

 

 

 

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9. Income Taxes

The estimated effective income tax rates recorded for the quarters ended September 29, 2012 and October 1, 2011, were based upon management’s best estimate of the effective tax rate for the entire year.

The 2012 provision for income taxes, as a percentage of income before taxes, was 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
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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     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 issuer’s non-convertible debt borrowing rate, which interest costs are to be recognized in subsequent periods. The note payable principal balance at the date of issuance of $85.0 million was bifurcated into a debt component of $60.5 million and an equity component of $24.5 million. The difference between the note payable principal balance and the value of the debt

 

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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.

 

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The Senior Secured Notes are guaranteed by the Company’s U.S. domestic subsidiaries and are secured by a second priority lien, subject to first priority liens securing the Revolving Credit Agreement, on substantially all of the Company’s assets and those of its domestic subsidiaries. The indenture governing the Senior Secured Notes contains covenants which restrict the Company and its subsidiaries. These restrictions limit or prohibit, among other things, the Company’s ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay cash dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in its subsidiaries; and create liens on their assets. There are no financial covenants associated with the Senior Secured Notes.

Revolving Credit Agreement

Concurrently with the closing of the offering of the Senior Secured Notes, Altra Industrial entered into a new senior secured credit facility (the “Revolving Credit Agreement”). In 2011, Altra Industrial amended the Revolving Credit Agreement to increase the borrowing base to $65.0 million (subject to adjustment pursuant to a borrowing base and subject to increase from time to time in accordance with the terms of the amended credit facility) and to extend the term to October 31, 2016. As part of the amendment, additional financing fees of $0.3 million were capitalized and will be amortized over the life of agreement.

Altra Industrial can borrow up to $52.5 million under the Revolving Credit Agreement without being required to comply with any financial covenants under the agreement. Altra Industrial may use up to $30.0 million of its availability under the Revolving Credit Agreement for standby letters of credit issued on its behalf, the issuance of which will reduce the amount of borrowings that would otherwise be available to Altra Industrial. Altra Industrial may re-borrow any amounts paid to reduce the amount of outstanding borrowings; however, all borrowings under the Revolving Credit Agreement must be repaid in full as of October 31, 2016 or the redemption of the Senior Secured Notes, whichever is earlier.

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 Company’s existing and subsequently acquired or organized domestic subsidiaries that are not Borrowers do and will guarantee (on a senior secured basis) the Revolving Credit Agreement. Obligations of the other Borrowers under the Revolving Credit Agreement and the guarantees are secured by substantially all of Borrowers’ assets and the assets of each of the Company’s existing and subsequently acquired or organized domestic subsidiaries that is a guarantor of the Borrower’s obligations under the Revolving Credit Agreement (with such subsidiaries being referred to as the “U.S. subsidiary guarantors”), including but not limited to: (a) a first-priority pledge of all the capital stock of subsidiaries held by Borrowers or any U.S. subsidiary guarantor (which pledge, in the case of any foreign subsidiary, will be limited to 100% of any non-voting stock and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in and mortgages on substantially all tangible and intangible assets of each Borrower and U.S. subsidiary guarantor, including accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, certain real property, and cash and proceeds of the foregoing (in each case subject to materiality thresholds and other exceptions).

An event of default under the Revolving Credit Agreement would occur in connection with a change of control, among other things, if: (i) Altra Industrial ceases to own or control 100% of each of its borrower subsidiaries, or (ii) a change of control occurs under the Senior Secured Notes, or any other subordinated indebtedness.

An event of default under the Revolving Credit Agreement would also occur if an event of default occurs under the indentures governing the Senior Secured Notes or if there is a default under any other indebtedness of any Borrower involving an aggregate amount of $10.0 million or more and such default: (i) occurs at final maturity of such debt, (ii) allows the lender thereunder to accelerate such debt or (iii) causes such debt to be required to be repaid prior to its stated maturity. An event of default would also occur under the Revolving Credit Agreement if any of the indebtedness under the Revolving Credit Agreement ceases, with limited exception, to be secured by a full lien on the assets of Borrowers and guarantors.

Variable Rate Demand Revenue Bonds

In connection with the acquisition of TB Wood’s, the Company assumed obligations for certain Variable Rate Demand Revenue Bonds outstanding as of the acquisition date. TB Wood’s had assumed obligations for approximately $3.0 million and $2.3 million of Variable Rate Demand Revenue Bonds issued under the authority of the industrial development corporations of the City of San Marcos, Texas and the City of Chattanooga, Tennessee, respectively. The Company sold the Chattanooga facility on April 14, 2011 and redeemed the bonds associated with the facility at the time. The Company redeemed the bonds associated with the San Marcos facility during the quarter ended March 31, 2012. As of September 29, 2012, the Variable Rate Demand Revenue Bonds have been paid in full.

 

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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 Company’s Board of Directors approved the payment of a quarterly cash dividend of $0.05 per share. The dividend of $1.3 million was paid on July 2, 2012 to stockholders of record as of the close of business on June 18, 2012.

On July 24, 2012, the Company’s Board of Directors approved the payment of a quarterly cash dividend of $0.05 per share for the quarter ended September 29, 2012. The dividend of $1.3 million was paid on October 2, 2012 to shareholders of record as of the close of business on September 18, 2012 and was accrued for in the balance sheet at September 29, 2012.

Future declarations of quarterly cash dividends are subject to approval by the Board of Directors and to the Board’s continuing determination that the declaration of dividends are in the best interest of the Company’s stockholders and are in compliance with all laws and agreements of the Company applicable to the declaration and payment of cash dividends.

Stock-Based Compensation

The Company’s Board of Directors established the 2004 Equity Incentive Plan (the “Plan”) that provides for various forms of stock-based compensation to independent directors, officers and senior-level employees of the Company. The restricted shares of common stock issued pursuant to the Plan generally vest ratably over a period ranging from immediately to 5 years, provided that the vesting of the restricted shares may accelerate upon the occurrence of certain liquidity events, if approved by the Board of Directors in connection with the transactions. Common stock awarded under the Plan is generally subject to restrictions on transfer, repurchase rights, and other limitations and rights as set forth in the applicable award agreements. The shares are valued based on the share price on the date of grant.

The Plan permits the Company to grant restricted stock, among other things, to key employees and other persons who make significant contributions to the success of the Company. The restrictions and vesting schedule for restricted stock granted under the Plan are determined by the Personnel and Compensation Committee of the Board of Directors. Compensation expense recorded during the year to date periods ended 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.

 

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The following table sets forth the activity of the Company’s 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 management’s 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 Company’s 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 Company’s products are sold by one global sales force and the Company has one global marketing function. Strategic markets and industries are determined for the entire company and then targeted by the brands. All of the operating segments have common manufacturing and production processes. Each segment includes machine shops which use similar equipment and manufacturing techniques to produce industrial components that transmit and control motion and power. Each of the segments uses common raw materials, such as aluminum, steel and copper. The Company purchases these materials and negotiates procurement contracts using one global purchasing function.

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

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

The Company’s chief operating decision maker is currently re-evaluating how the Company’s business is organized, how financial information is reviewed and, as a result, how many operating segments the Company will have.

 

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Table of Contents

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 Company’s 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 Company’s ability to realize the benefits from an acquisition, could result in the reduction of the value of goodwill that the Company recorded in connection with an acquisition, or could otherwise have a material adverse effect on the Company’s business, financial condition, or operations.

 

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Table of Contents

15. Guarantor Subsidiaries

All of the Company’s direct and indirect 100% owned U.S. domestic subsidiaries are guarantors of the Company’s Senior Secured Notes. The following condensed consolidating financial statements present separately the financial position, results of operations, and cash flows for (a) the Company, as parent, (b) the guarantor subsidiaries of the Company consisting of all of the, directly or indirectly, 100% owned U.S. subsidiaries of the Company, (c) the non-guarantor subsidiaries of the Company consisting of all non-domestic subsidiaries of the Company, and (d) eliminations necessary to arrive at the Company’s information on a consolidated basis. These statements are presented in accordance with the disclosure requirements under the Securities and Exchange Commission’s Regulation S-X, Rule 3-10. Separate financial statements of the guarantor subsidiaries are not presented because their guarantees are full and unconditional and joint and several.

In the preparation of our Form 10-Q for the period ended 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   

 

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Table of Contents
     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   

 

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Table of Contents

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   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

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   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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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   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

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

     —