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AIMC > SEC Filings for AIMC > Form 10-Q on 26-Jul-2013All Recent SEC Filings

Show all filings for ALTRA HOLDINGS, INC.



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company's current estimates, expectations and projections about the Company's future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning the Company's possible future results of operations including revenue, costs of goods sold, gross margin, future profitability, future economic improvement, business and growth strategies, financing plans, the Company's competitive position and the effects of competition, the projected growth of the industries in which we operate, and the Company's ability to consummate strategic acquisitions and other transactions. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "plan," "may," "should," "will," "would," "project," and similar expressions. These forward-looking statements are based upon information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause the Company's actual results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause the Company's actual results to differ materially from the results referred to in the forward-looking statements the Company makes in this report include:

the Company's access to capital, credit ratings, indebtedness, and ability to raise additional capital and operate under the terms of the Company's debt obligations;

the risks associated with our debt;

the effects of intense competition in the markets in which we operate;

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

the Company's ability to obtain or protect intellectual property rights;

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

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

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

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

the Company's ability to control costs;

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

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

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

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

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

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

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

work stoppages and other labor issues;

changes in the Company's pension and retirement liabilities;

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

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

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

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

changes in market conditions in which we operate that would influence the value of the Company's stock;

the effects of changes to critical accounting estimates; changes in volatility of the Company's stock price and the risk of litigation following a decline in the price of the Company's stock;

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the cyclical nature of the markets in which we operate;

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

political and economic conditions nationally, regionally, and in the markets in which we operate;

natural disasters, war, civil unrest, terrorism, fire, floods, tornadoes, earthquakes, hurricanes, or other matters beyond the Company's control;

the risks associated with international operations, including currency risks;

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

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

the counter party credit risk associated with the Company's interest rate swap; and

other factors, risks, and uncertainties referenced in the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

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The following discussion of the financial condition and results of operations of Altra Holdings, Inc. and its subsidiaries should be read together with the audited financial statements of Altra Holdings, Inc. and its subsidiaries and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. Unless the context requires otherwise, the terms "Altra Holdings," "the Company," "we," "us," and "our" refer to Altra Holdings, Inc. and its subsidiaries.

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Altra Holdings, Inc. is the parent company of Altra Industrial Motion, Inc., or Altra Industrial, and owns 100% of Altra Industrial's outstanding capital stock. Altra Industrial, directly or indirectly, owns 100% of the capital stock of 55 of its subsidiaries and 85% of the capital stock of one of its subsidiaries located in Brazil. The following chart illustrates a summary of our corporate structure:

[[Image Removed: LOGO]]

Although we were incorporated in Delaware in 2004, much of our current business has its roots with the prior acquisition by Colfax Corporation, or Colfax, of a series of power transmission businesses. In December 1996, Colfax acquired the electro-mechanical power transmission group of Zurn Technologies, Inc. Colfax subsequently acquired Industrial Clutch Corp. in May 1997, Nuttall Gear Corp. in July 1997 and the Boston Gear and Delroyd Worm Gear brands in August 1997 as part of Colfax's acquisition of Imo Industries, Inc. In February 2000, Colfax acquired Warner Electric, Inc., which sold products under the Warner Electric, Formsprag Clutch, Stieber, and Wichita Clutch brands. Colfax formed Power Transmission Holding LLC, or "PTH", in June 2004 to serve as a holding company for all of these power transmission businesses. Boston Gear was established in 1877, Warner Electric, Inc. in 1927, and Wichita Clutch in 1949.

On November 30, 2004, we acquired our original core business through the acquisition of PTH from Colfax. We refer to this transaction as the PTH Acquisition.

On October 22, 2004, The Kilian Company, or Kilian, a company formed at the direction of Genstar Capital, then the largest stockholder of Altra Holdings, acquired Kilian Manufacturing Corporation from Timken U.S. Corporation. At the completion of the PTH Acquisition, (i) all of the outstanding shares of Kilian capital stock were exchanged for shares of our capital stock and (ii) Kilian and its subsidiaries were transferred to Altra Industrial.

On February 10, 2006, we purchased all of the outstanding share capital of Hay Hall Holdings Limited, or Hay Hall. Hay Hall was a UK-based holding company established in 1996 that was focused primarily on the manufacture of couplings and clutch brakes.

On May 18, 2006, we acquired substantially all of the assets of Bear Linear Inc., or Warner Linear. Warner Linear manufactures high value-added linear actuators which are electromechanical power transmission devices designed to move and position loads linearly for mobile off-highway and industrial applications.

On April 5, 2007, we acquired all of the outstanding shares of TB Wood's Corporation, or TB Wood's. TB Wood's is an established designer, manufacturer and marketer of mechanical and electronic industrial power transmission products with a history dating back to 1857.

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On October 5, 2007, we acquired substantially all of the assets of All Power Transmission Manufacturing, Inc., a manufacturer of universal joints.

On December 31, 2007, we sold the TB Wood's adjustable speed drives business, or Electronics Division. We sold the Electronics Division in order to continue our strategic focus on our core electro-mechanical power transmission business.

On May 29, 2011, we acquired substantially all of the assets and liabilities of Danfoss Bauer GmbH relating to its gearmotor business ("Bauer"). Bauer is a European manufacturer of high-quality gearmotors, offering engineered solutions to a variety of industries, including material handling, metals, food processing and energy. We refer to this transaction as the Bauer Acquisition.

On July 11, 2012, we acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda., now known as Lamiflex Do Brasil Equipamentos Industriais S.A. ("Lamiflex"). Lamiflex is one of the premier Brazilian manufacturer of high-speed disc couplings, providing engineered solutions to a variety of industries, including oil and gas, power generation, metals and mining.

We are a leading global designer, producer and marketer of a wide range of electro-mechanical power transmission and motion control products with a presence in over 70 countries. Our global sales and marketing network includes over 1,000 direct OEM customers and over 3,000 distributor outlets. Our product portfolio includes industrial clutches and brakes, enclosed gear drives, open gearing, couplings, engineered bearing assemblies, linear components, gearmotors, and other related products. Our products serve a wide variety of end markets including energy, general industrial, material handling, mining, transportation and turf and garden. We primarily sell our products to a wide range of OEMs and through long-standing relationships with industrial distributors such as Motion Industries, Applied Industrial Technologies, Kaman Industrial Technologies and W.W. Grainger.

While the power transmission industry has undergone some consolidation, we estimate that in 2012 the top five broad-based electro-mechanical power transmission companies represented approximately 20% of the U.S. power transmission market. The remainder of the power transmission industry remains fragmented with many small and family-owned companies that cater to a specific market niche often due to their narrow product offerings. We believe that consolidation in our industry will continue because of the increasing demand for global distribution channels, broader product mixes and better brand recognition to compete in this industry.

Our products, principal brands and markets and sample applications are set forth below:

  Products                 Principal Brands    Principal Markets     Applications

  Clutches and Brakes     Warner Electric,     Aerospace,          Elevators,
                          Wichita Clutch,      energy, material    forklifts, lawn
                          Formsprag Clutch,    handling, metals,   mowers, oil well
                          Stieber Clutch,      turf and garden,    draw works,
                          Matrix, Inertia      mining              punch presses,
                          Dynamics, Twiflex,                       conveyors
                          Industrial Clutch,
                          Marland Clutch

  Gearing                 Boston Gear,         Food processing,    Conveyors,
                          Nuttall Gear,        material            ethanol mixers,
                          Delroyd, Bauer       handling, metals,   packaging
                          Gear Motor           transportation      machinery, metal

  Engineered Couplings    Ameridrives, Bibby   Energy, metals,     Extruders,
                          Transmissions, TB    plastics,           turbines, steel
                          Wood's, PowerFlex    chemical            strip mills,

  Engineered Bearing      Kilian               Aerospace,          Cargo rollers,
  Assemblies                                   material            seat storage
                                               handling,           systems,
                                               transportation      conveyors

  Power Transmission      Warner Electric,     Material            Conveyors, lawn
  Components              Boston Gear, Huco    handling, metals,   mowers, machine
                          Dynatork, Warner     turf and garden     tools
                          Linear, Matrix, TB

  Engineered Belted       TB Wood's            Aggregate, HVAC,    Pumps, sand and
  Drives                                       material handling   gravel
                                                                   industrial fans

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Our Internet address is By following the link "Investor Relations" and then "SEC filings" on our Internet website, we make available, free of charge, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as soon as reasonably practicable after such forms are filed with or furnished to the Securities and Exchange Commission. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Form 10-Q.

Business Outlook

Our future financial performance depends, in large part, on conditions in the markets that we serve and on the U.S., European and global economies in general. During the remainder of 2013, we expect to continue to focus on our strategic growth and profitability initiatives, such as the acceleration of Lean, the implementation of our new strategic pricing program, the expansion of our presence in emerging geographies, the development of innovative new products and the pursuit of our acquisition strategy. We expect that the results of the second half of 2013 will be in line with the comparable prior year period.

Critical Accounting Policies

The preparation of our condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, revenues and expenses, as well as related disclosure of contingent assets and liabilities. We base our estimates on past experiences and other assumptions we believe to be appropriate, and we evaluate these estimates on an on-going basis. See the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2012.

Goodwill, Intangibles and other long-lived assets.

Second-quarter revenues and net income associated with certain reporting units was deemed to be a triggering event for an evaluation of the recoverability of portions of our goodwill with respect to those reporting units as of June 29, 2013. The Company performed an interim impairment test and determined that there was no impairment of goodwill as of June 29, 2013. The fair value of our reporting units, which includes goodwill, was substantially in excess of their carrying values as of June 29, 2013.

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Results of Operations

                                                                                     Year to
                                                     Quarter                          Dated
                                                      Ended                           Ended
                                            June 29,        June 30,        June 29,        June 30,
                                              2013            2012            2013            2012
Net sales                                   $ 181,095       $ 187,943       $ 366,245       $ 380,328
Cost of sales                                 126,676         131,941         256,327         267,653

Gross profit                                   54,419          56,002         109,918         112,675
Gross profit percentage                          30.0 %          29.8 %          30.0 %          29.6 %
Selling, general and administrative
expenses                                       32,628          31,884          65,070          63,881
Research and development expenses               3,214           2,942           6,148           5,969
Restructuring costs                               238              -              558              -

Income from operations                         18,339          21,176          38,142          42,825
Interest expense, net                           2,658           6,504           5,263          12,278
Other non-operating expense, net                  144           1,207              97           1,432

Income before income taxes                     15,537          13,465          32,782          29,115
Provision for income taxes                      4,861           2,856          10,247           7,990

Net income                                     10,676          10,609          22,535          21,125
Net loss attributable to non-controlling
interest                                           13              -               34              -

Net income attributable to Altra
Holdings, Inc.                              $  10,689       $  10,609       $  22,569       $  21,125

Quarter Ended June 29, 2013 compared with Quarter Ended June 30, 2012

(Amounts in thousands, unless otherwise noted)

Amounts in thousands, except percentage data                    Quarter-Ended
                                               June 29,      June 30,
                                                 2013          2012         Change         %
Net sales                                      $ 181,095     $ 187,943     $ (6,848 )      -3.6 %

The decrease in sales during the quarter ended June 29, 2013 was due to lower sales levels across all operating segments due to weak demand in all geographies. This was partially offset by the positive impact of foreign exchange rate changes of $1.5 million primarily related to the Euro and British Pound Sterling rates compared to 2012 and the inclusion of Lamiflex in the quarter ended June 29, 2013. We expect to see sales for the remainder of 2013 to remain relatively flat when compared to 2012.

Amounts in thousands, except percentage data                     Quarter Ended
                                               June 29,       June 30,
                                                 2013           2012          Change         %

Gross Profit                                   $  54,419      $  56,002      $ (1,583 )      -2.8 %
Gross Profit as a percent of sales                  30.0 %         29.8 %

Gross profit as a percentage of sales improved in the quarter ended June 29, 2013, primarily due to the price increases implemented during the past twelve months, low cost country sourcing, productivity improvements and the benefits of our 2012 restructuring plan. We expect our full year 2013 gross profit as a percentage of sales to continue to show improvement over 2012.

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Amounts in thousands, except percentage data                         Quarter Ended
                                                  June 29,        June 30,
                                                    2013            2012           Change         %

Selling, general and administrative expense
("SG&A")                                          $  32,628       $  31,884       $    744        2.3 %
SG&A as a percent of sales                             18.0 %          17.0 %

The increase in SG&A in the quarter ended June 29, 2013 is due primarily to the inclusion of the expenses of Lamiflex, which was acquired in the quarter ended September 30, 2012.

Amounts in thousands, except percentage data                    Quarter Ended
                                                June 29,       June 30,
                                                  2013           2012         Change        %

Research and development expenses ("R&D")      $    3,214     $    2,942     $    272       9.2 %

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

Amounts in thousands, except percentage data                   Quarter Ended
                                               June 29,       June 30,
                                                 2013           2012         Change       %

Restructuring                                  $     238     $       -      $    238       -

During the quarter ended December 31, 2012, we adopted a restructuring plan (the "2012 Altra Plan") to improve profitability in Europe. These actions include reducing headcount, moving and relocating equipment and limiting discretionary spending. The Company expects to incur additional expenses of between approximately $0.5 to $0.7 million during the remainder of 2013 associated with the 2012 Altra Plan.

Amounts in thousands, except percentage data                      Quarter Ended
                                                June 29,       June 30,
                                                  2013           2012         Change          %

Interest Expense, net                          $    2,658     $    6,504     $ (3,846 )      -59.1 %

Net interest expense decreased substantially in the quarter ended June 29, 2013, due to the Company refinancing its debt at much lower rates than were in effect during the quarter ended June 30, 2012. The Company also had lower outstanding borrowings during the quarter ended June 29, 2013. The Company expects to continue to see savings in interest expense throughout the remainder of 2013, when compared to prior periods.

Amounts in thousands, except percentage data                     Quarter Ended
                                               June 29,       June 30,
                                                 2013           2012         Change          %

Other non-operating expense, net               $     144     $    1,207     $ (1,063 )      -88.1 %

Other non-operating expense (income) in the quarter ended June 30, 2012 related primarily to the settlement of a tax matter with the State of New York for which the Company was entitled to be fully indemnified. The settlement was for less than the indemnification receivable we had recorded, resulting in an expense of $0.9 million. The remainder of other non-operating income in each period relates primarily to changes in foreign currency, primarily the British Pound Sterling and Euro.

Amounts in thousands, except percentage data                           Quarter Ended
                                                    June 29,         June 30,
                                                      2013             2012          Change         %

Provision for income taxes                         $    4,861       $    2,856       $ 2,005        70.2 %
Provision for income taxes as a % of income
before income taxes                                      31.3 %           21.2 %

The provision for income taxes, as a percentage of income before taxes, was higher than that of the quarter ended June 30, 2012 primarily due to the recognition of certain discrete items in 2012. Specifically during the quarter ended June 30, 2012, the Company settled a tax matter with the State of New York for which the Company was entitled to be fully indemnified. Upon completion of the settlement, the Company released its reserve for tax, interest and penalties related to the unrecognized tax benefit of $3.1 million. In addition, the Company recognized $0.4 million in connection with the completion of the 2010 limited scope audit, and the substantial completion of the 2007 audit by the Internal Revenue Service during the quarter ended June 30, 2012.

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