Form 10-Q Altra Industrial Motion For: Mar 31
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Trading Symbol(s) |
Name of each exchange on which registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of April 29, 2022, there were
TABLE OF CONTENTS
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Page # |
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Item 1. |
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1 |
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1 |
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2 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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3 |
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4 |
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5 |
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Notes to Unaudited Condensed Consolidated Interim Financial Statements |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
Item 3. |
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33 |
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Item 4. |
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33 |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 2. |
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35 |
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Item 3. |
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35 |
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Item 4. |
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35 |
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Item 5. |
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35 |
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Item 6. |
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36 |
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38 |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ALTRA INDUSTRIAL MOTION CORP.
Condensed Consolidated Balance Sheets
Amounts in millions, except share amounts
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March 31, 2022 |
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December 31, 2021 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Trade receivables, less allowance for credit losses of $ |
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Inventories |
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Income tax receivable |
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Assets held for sale |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net |
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Deferred income taxes |
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Other non-current assets |
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Operating lease right of use assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued payroll |
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Accruals and other current liabilities |
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Income tax payable |
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Current portion of long-term debt |
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Liabilities held for sale |
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Operating lease liabilities |
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Total current liabilities |
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Long-term debt, net of current portion |
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Deferred income taxes |
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Pension liabilities |
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Long-term taxes payable |
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Other long-term liabilities |
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Operating lease liabilities, net of current portion |
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Stockholders’ equity: |
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Common stock ($ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
1
ALTRA INDUSTRIAL MOTION CORP.
Condensed Consolidated Statements of Operations
Amounts in millions, except per share data
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Quarter Ended |
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March 31, 2022 |
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March 31, 2021 |
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(Unaudited) |
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(Unaudited) |
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Net sales |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative expenses |
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Impairment charges |
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— |
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Research and development expenses |
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Restructuring costs |
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Income from operations |
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Other non-operating (income) and expense: |
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Interest expense, net |
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Other non-operating income, net |
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( |
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( |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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Weighted average shares, basic |
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Weighted average shares, diluted |
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Net income per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Cash dividend declared per share |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
2
ALTRA INDUSTRIAL MOTION CORP.
Condensed Consolidated Statements of Comprehensive Income (Loss)
Amounts in millions
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Quarter Ended |
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March 31, 2022 |
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March 31, 2021 |
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(Unaudited) |
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(Unaudited) |
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Net income |
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$ |
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$ |
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Other comprehensive income: |
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Reclassification of interest rate swap, net of tax |
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— |
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Amortization of actuarial losses, net of tax |
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( |
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— |
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Foreign currency translation adjustment |
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( |
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Total other comprehensive loss: |
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( |
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( |
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Comprehensive income/(loss) |
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$ |
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$ |
( |
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
3
ALTRA INDUSTRIAL MOTION CORP.
Condensed Consolidated Statements of Cash Flows
Amounts in millions
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Quarter Ended |
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March 31, 2022 |
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March 31, 2021 |
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(Unaudited) |
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(Unaudited) |
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Cash flows from operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net operating cash flows: |
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Depreciation |
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Amortization of intangible assets |
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Amortization of deferred financing costs |
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Gain on foreign currency, net |
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( |
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Accretion of debt discount |
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Non-cash amortization of interest rate swap expense |
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— |
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Impairment charges |
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— |
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(Gain)/Loss on disposal and other |
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( |
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Benefit for deferred taxes |
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( |
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— |
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Stock-based compensation |
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Changes in assets and liabilities: |
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Trade receivables, net |
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( |
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( |
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Inventories |
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( |
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( |
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Accounts payable and accrued liabilities |
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( |
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Other current assets and liabilities |
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( |
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Other operating assets and liabilities |
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( |
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JVS transaction costs paid |
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( |
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— |
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Net cash (used in) provided by operating activities |
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( |
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Cash flows from investing activities |
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Purchase of property, plant and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities |
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Payments on Revolving Credit Facility |
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( |
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— |
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Payments on Term Loan B Facility |
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— |
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( |
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Payments on Term Loan A Facility |
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( |
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— |
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Dividend payments |
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( |
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( |
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Net payments on financing leases, mortgages, and other obligations |
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( |
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( |
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Net proceeds from China debt |
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— |
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Shares surrendered for tax withholding |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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( |
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Net change in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Cash paid during the period for: |
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Interest paid on borrowings |
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$ |
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$ |
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Income taxes paid |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
4
ALTRA INDUSTRIAL MOTION CORP.
Condensed Consolidated Statements of Stockholders’ Equity
Amounts in millions
(Unaudited)
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Common |
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Shares |
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Additional |
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Retained |
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Accumulated |
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Total |
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Balance at January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation and vesting |
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— |
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( |
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— |
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— |
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( |
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Net income |
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— |
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— |
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— |
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— |
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Dividends declared, $ |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Total comprehensive loss, net of |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
5
ALTRA INDUSTRIAL MOTION CORP.
Condensed Consolidated Statements of Stockholders’ Equity
Amounts in millions
(Unaudited)
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Common |
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Shares |
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Additional |
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Retained |
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Accumulated |
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Total |
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Balance at January 1, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation and vesting |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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Dividends declared, $ |
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— |
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— |
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— |
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( |
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— |
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( |
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Total comprehensive loss, net of |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
6
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
1. Organization and Nature of Operations
Headquartered in Braintree, Massachusetts, Altra Industrial Motion Corp. (the “Company”, “Altra”, “we”, or “our”) is a leading global designer, producer and marketer of a wide range of electro-mechanical power transmission motion control (“PTMC”) products. The Company brings together strong brands with production facilities in
2.
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States, or GAAP. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 28, 2022. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position and cash flows for the interim periods presented. The results are not necessarily indicative of future results. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.
3. Recent Accounting Standards
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This ASU provides relief from certain accounting consequences that could result from the global markets’ anticipated transition away from the use of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The relief provided by this ASU is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The optional amendments are effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the effect of the adoption of this standard on the Company.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. Under current GAAP, an entity generally recognizes assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU 2021-08 requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to business combinations occurring on or after the effective date of the amendment. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new guidance on the consolidated financial statements.
4. Acquisitions and Divestitures
Nook Industries Acquisition
On
The aggregate purchase price of approximately $
7
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
holdback of $
The fair value of all the acquired identifiable assets and liabilities summarized below are based on preliminary valuations and are subject to change as the Company obtains additional information during the acquisition measurement period. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The goodwill is deductible for income tax purposes. The Company did not record any measurement period adjustments during the quarter ended March 31, 2022. The purchase price allocation as of the acquisition date is as follows:
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At Acquisition Date |
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Total cash consideration |
$ |
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Purchase price holdback |
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Fair value of consideration transferred |
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Recognized identifiable assets acquired and liabilities |
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Cash and cash equivalents |
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Receivables |
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Inventory |
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Prepaids and other current assets |
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Property, plant and equipment |
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Deferred tax asset |
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Other non-current assets |
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Intangibles |
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Accounts payable |
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( |
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Accrued payroll |
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( |
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Accrued expenses and other current liabilities |
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( |
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Other long term liability |
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( |
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Total identifiable net assets acquired |
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Goodwill |
$ |
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Intangible assets acquired consist of: |
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Customer relationships |
$ |
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Trade name |
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Total intangible assets |
$ |
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The following table sets forth the unaudited pro forma results of operations of the Company for the quarter ended March 31, 2021 as if the Company had acquired Nook on January 1, 2021. The pro forma information contains the actual operating results of the Company and the Nook business, adjusted to include the pro forma impact of (i) additional depreciation expense as a result of estimated depreciation based on the fair value of fixed assets; (ii) additional expense as a result of the estimated amortization of identifiable intangible assets; (iii) additional interest expense associated with the borrowings used to finance the acquisition and (iv) inventory fair value adjustment. 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.
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Pro forma (unaudited) |
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Quarter Ended March 31, 2021 |
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Total revenues |
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$ |
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Net income (loss) |
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Basic earnings per share |
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$ |
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Diluted earnings per share |
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$ |
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JVS Divestiture
8
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
In the fourth quarter of 2021, the Company committed to a plan to sell our JVS business within our A&S reporting segment in an effort to exit the heavy-duty trucks and transportation industry. On February 8, 2022, the Company entered into a purchase and sale agreement with Cummins Inc. (the "Buyer") for $
Before measuring the fair value less costs to sell of the disposal group as a whole, the Company first reviewed individual assets and liabilities to determine if any fair value adjustments were required and concluded no individual asset impairments were required. Then, based on the purchase and sale agreement entered into by the Company and the Buyer, the Company determined the fair value of the disposal group to be equal to the selling price, less costs to sell. Based on this review, during the fourth quarter of 2021, the Company recorded a non-cash goodwill impairment charge of $
The assets and liabilities of the JVS business classified as held for sale at March 31, 2022 and December 31, 2021 were as follows:
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|
||
Assets |
|
|
|
|
|
|
||
Current Assets |
|
|
|
|
|
|
||
Trade receivables |
$ |
|
|
$ |
|
|
||
Inventories |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
— |
|
|
|
— |
|
|
Intangible assets, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Impairment on carrying value |
|
( |
) |
(1) |
|
( |
) |
(2) |
Total assets held for sale |
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
|
||
Accounts payable |
$ |
|
|
$ |
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities held for sale |
$ |
|
|
$ |
|
|
||
(1) Includes the effect of approximately $ |
||||||||
(2) Includes the effect of approximately $ |
||||||||
5. Revenue Recognition
We sell our products through
9
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient under Accounting Standards Codification (“ASC”) 606-10-32-18 to not assess whether a contract has a significant financing component. Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment from the Company’s manufacturing site or delivery to the customer’s named location. In determining whether control has transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. In certain circumstances, the Company manufactures customized product without alternative use for its customers, which would generally result in the transfer of control over time. The Company has evaluated the amount of revenue subject to recognition over time and concluded that it is immaterial.
The following table disaggregates our revenue for each reportable segment. The Company believes that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
|
|
Quarter Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Power Transmission Technologies |
|
$ |
|
|
$ |
|
||
Automation & Specialty |
|
|
|
|
|
|
||
Inter-segment eliminations |
|
|
( |
) |
|
|
( |
) |
Total net sales |
|
$ |
|
|
$ |
|
||
Net sales by geographic region based on point of shipment origin are as follows:
|
|
Quarter Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
North America (primarily U.S.) |
|
$ |
|
|
$ |
|
||
Europe excluding Germany |
|
|
|
|
|
|
||
Germany |
|
|
|
|
|
|
||
China |
|
|
|
|
|
|
||
Asia and other excluding China |
|
|
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
||
The payment terms and conditions in our customer contracts vary. In some cases, customers will partially prepay for their goods; in other cases, after appropriate credit evaluations, payment will be due in arrears. In addition, there are constraints that cause variability in the ultimate consideration to be recognized. These constraints typically include early payment discounts, volume rebates, rights of return, surcharges, and other customer considerations.
Payments received from customers are recorded as accounts receivable when an unconditional right to the consideration exists. A contract asset is recognized when the Company satisfies a performance obligation by transferring a promised good to the customer before consideration is due. A contract liability is recognized when consideration is received from a customer prior to the Company satisfying the related performance obligation. Contract assets and contract liabilities are recognized in other current assets and other current liabilities, respectively, in the Company’s consolidated balance sheets.
The Company had inconsequential contract assets for the quarters ended March 31, 2022 and March 31, 2021, respectively.
|
|
Quarter Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Closing balance |
|
|
|
|
|
|
||
Increase |
|
$ |
|
|
$ |
|
||
10
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
In the three-month period ended March 31, 2022, substantially all outstanding revenue has been recognized related to contract liabilities outstanding at January 1, 2022.
6. Fair Value of Financial Instruments
Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents and are classified as Level 1. The carrying values of financial instruments, including accounts receivable, cash equivalents, accounts payable, and other accrued liabilities are carried at cost, which approximates fair value, and are classified as Level 1. Debt under the Credit Agreement (as defined herein) is classified as Level 2 and is comprised of the Term Loan Facility and the Revolving Credit Facility (both as defined herein). As of March 31, 2022, the carrying amount of the Term Loan Facility was $
The Company determines the fair value of financial instruments using quoted market prices whenever available and classifies these investments as Level 1. When quoted market prices are not available for various types of financial instruments (such as derivative instruments), the Company uses standard models with market-based inputs, which take into account the present value of estimated future cash flows and the ability of the Company or the financial counterparty to perform. These investments are classified as Level 2. For cross-currency interest rate swaps and interest rate swaps, the significant inputs to these models are interest rate curves for discounting future cash flows and are adjusted for credit risk. See additional discussion of the Company’s use of financial instruments including cross-currency interest rate swaps and interest rate swaps included in Note 16.
In December 2020, the Company invested $
11
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
7. Changes in Accumulated Other Comprehensive Income/(Loss) by Component
The following is a reconciliation of changes in accumulated other comprehensive income/(loss) by component for the periods presented:
|
|
Pension & Other |
|
|
Cumulative |
|
|
Total |
|
|||
Accumulated other comprehensive income (loss) by component, January 1, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Amortization of actuarial losses, net of tax |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation adjustments, net of tax |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net current-period other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income (loss) by component, March 31, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Gains and |
|
|
Defined |
|
|
Cumulative |
|
|
Total |
|
||||
Accumulated other comprehensive income (loss) by component, January 1, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Reclassification of interest rate swap to income, net of tax |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Foreign currency translation adjustments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net current-period other comprehensive income (loss) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Accumulated other comprehensive income (loss) by component, March 31, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
8. 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 is dilutive.
The following is a reconciliation of basic to diluted net income per share:
|
|
Quarter Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Net income |
|
$ |
|
|
$ |
|
||
Shares used in net income per common share - basic |
|
|
|
|
|
|
||
Effect of dilutive shares |
|
|
|
|
|
|
||
Shares used in net income per common share - diluted |
|
|
|
|
|
|
||
Earnings per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
|
||
Diluted |
|
$ |
|
|
$ |
|
||
12
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
9. Inventories
Inventories at March 31, 2022 and December 31, 2021 consisted of the following:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
10. Goodwill and Intangible Assets
The Company conducts an annual impairment review of goodwill and indefinite-lived intangible assets in the fourth quarter of each year, unless events occur which trigger the need for an interim impairment review. There were no triggering events during the quarter ended March 31, 2022. The 2021 annual goodwill impairment review indicated that the Thomson reporting unit’s fair value exceeded its carrying value by less than
Changes in goodwill from January 1, 2022 through March 31, 2022 were as follows:
|
|
Power |
|
|
Automation |
|
|
Total |
|
|||
Goodwill |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Accumulated impairment loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance January 1, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Impact of changes in foreign currency |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Goodwill balance March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other intangible assets as of March 31, 2022 and December 31, 2021 consisted of the following:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
|
|
Cost |
|
|
Accumulated |
|
|
Net |
|
|
Cost |
|
|
Accumulated |
|
|
Net |
|
||||||
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tradenames and trademarks (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Product technology and patents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
(1) While the majority of the Company's tradenames are considered indefinite lived intangible assets, tradenames acquired through the acquisition of Nook are subject to amortization. The net book value of Nook's tradename was $ |
|
|||||||||||||||||||||||
The Company recorded $
The estimated amortization expense for intangible assets is approximately $
13
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
11.
The contractual warranty period of the Company's products generally ranges from
Changes in the carrying amount of accrued product warranty costs for each of the quarters ended March 31, 2022 and 2021 were as follows:
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Accrued current period warranty expense |
|
|
|
|
|
|
||
Payments and adjustments |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
$ |
|
|
$ |
|
||
12. Debt
Outstanding debt obligations at March 31, 2022 and December 31, 2021 were as follows:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Debt: |
|
|
|
|
|
|
||
Term loan |
|
$ |
|
|
$ |
|
||
Revolver |
|
|
|
|
|
|
||
Notes |
|
|
|
|
|
|
||
Mortgages and other |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
Total gross debt |
|
|
|
|
|
|
||
Less: debt discount and deferred financing |
|
|
( |
) |
|
|
( |
) |
Total debt, net of debt discount and |
|
|
|
|
|
|
||
Less: current portion of long-term debt |
|
|
( |
) |
|
|
( |
) |
Total long-term debt |
|
$ |
|
|
$ |
|
||
2021 Credit Agreement
On November 17, 2021, the Company entered into a new Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for a
The Credit Facilities are guaranteed on a senior secured basis by certain direct and indirect domestic subsidiaries of the Company (each a “Guarantor” and collectively the “Guarantors”; the Guarantors collectively with the Borrowers, the “Loan Parties”).
The stated maturity date of the Credit Facilities is
14
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
Revolving borrowings and issuances of letters of credit under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including the accuracy of representations and warranties and the absence of defaults.
The Credit Agreement contains usual and customary representations and warranties, usual and customary affirmative and negative covenants and restrictions, which among other things, will require the Borrowers to provide certain financial reports to the Lenders, require the Company to maintain certain financial covenants relating to consolidated leverage and interest coverage, and limit the ability of the Company and its subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, purchase or redeem capital stock or debt, make certain investments, sell assets, engage in certain transactions, and effect a consolidation or merger. The obligations of the borrowers of the Credit Facilities under the Credit Agreement may be accelerated upon customary events of default, including non-payment of principal, interest, fees and other amounts, inaccuracy of representations and warranties, violation of covenants, cross default and cross acceleration, voluntary and involuntary bankruptcy or insolvency proceedings, inability to pay debts as they become due, material judgments, ERISA events, actual or asserted invalidity of security documents or guarantees and change in control.
The Company incurred $
As of March 31, 2022, the Company had $
Notes
On October 1, 2018, upon the closing of the combination of the Company with four operating companies from Fortive Corporation’s (“Fortive”) Automation & Specialty platform (excluding Fortive’s Hengstler and Dynapar businesses), the Company assumed $
2018 Credit Agreement
On October 1, 2018, the Company and certain subsidiaries entered into a credit agreement (the “2018 Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative and collateral agent, and a syndicate of lenders, which provided for a term loan in an aggregate principal amount of $
On November 17, 2021, in connection with the new Credit Agreement, the 2018 Credit Agreement was terminated and all outstanding indebtedness for borrowed money thereunder was repaid in full.
Mortgages and Other Agreements
The Company’s subsidiaries in Europe have entered into certain long-term fixed rate term loans that are generally secured by local property, plant and equipment.
15
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
Financing Leases
The Company leases certain equipment under finance lease arrangements, whose obligations are included in both short-term and long-term debt. Finance lease obligations amounted to approximately $
13. Stockholders’ Equity
Common Stock
Effective October 1, 2018, the Company amended its Articles of Incorporation to increase the number of authorized shares of the Company's common stock from
Preferred Stock
On December 20, 2006, the Company amended and restated its certificate of incorporation authorizing
Restricted Common Stock
The 2014 Omnibus Incentive Plan (the “2014 Plan”) was approved by the Company’s stockholders at the Company’s 2014 Annual Meeting of Stockholders. The 2014 Plan provides for various forms of stock-based compensation to our directors, executive personnel and other key employees and consultants. Under the 2014 Plan, the remaining total number of shares of common stock available for delivery pursuant to the grant of awards was
The restricted stock and restricted stock units issued pursuant to the 2014 Plan generally vest ratably over a period ranging from immediately to
The 2014 Plan permits the Company to grant, among other things, restricted stock, restricted stock units, stock options and performance share awards to key employees. Certain awards include vesting based upon achievement of specified performance criteria. Compensation expense recorded (in selling, general and administrative expense) during the quarters ended March 31, 2022 and 2021 was $
16
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
Stock Options
The following table summarizes the stock option activity under the Company’s plan for the quarter ended March 31, 2022:
|
|
Weighted |
|
|
Options |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Outstanding at January 1, 2022 |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at March 31, 2022 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Exercisable at March 31, 2022 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Unvested and expected to vest at March 31, 2022 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Restricted Stock Units
The following table summarizes the Restricted Stock Unit activity under the Company’s plan for the quarter ended March 31, 2022:
|
|
Shares |
|
|
Weighted- |
|
|
Aggregate |
|
|||
Unvested at January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
Vested |
|
|
( |
) |
|
|
|
|
|
|
||
Canceled/Forfeited |
|
|
( |
) |
|
|
|
|
|
|
||
Unvested at March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|||
Performance Share Awards
The following table summarizes the Performance Share Award activity under the Company’s plan for the quarter ended March 31, 2022:
|
|
Shares |
|
|
Weighted- |
|
|
Aggregate |
|
|||
Unvested at January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
Vested |
|
|
( |
) |
|
|
|
|
|
|
||
Unvested at March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|||
See Note 12, Stockholders’ Equity, to the audited consolidated financial statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2021 for further information regarding stock-based compensation.
14. Restructuring Costs
From time to time, the Company has initiated various restructuring programs and incurred severance and other restructuring costs.
During 2017, the Company commenced a restructuring plan (“2017 Altra Plan”) as a result of the Company’s acquisition of Stromag and to rationalize its global renewable energy business. The actions taken pursuant to the 2017 Altra Plan included reducing
17
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
headcount, facility consolidations and the elimination of certain costs. The Company did
During 2019, the Company commenced a restructuring plan (“2019 Altra Plan”) to drive efficiencies, reduce the number of facilities and optimize its operating margin. The Company expects to incur an additional $
The following is a reconciliation of the accrued restructuring costs between January 1, 2022 and March 31, 2022:
|
|
2017 Altra |
|
|
2019 Altra |
|
|
Total All |
|
|||
Balance at January 1, 2022 |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Restructuring expense incurred |
|
|
— |
|
|
|
|
|
|
|
||
Cash payments |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at March 31, 2022 |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
The following is a reconciliation of the accrued restructuring costs between January 1, 2021 and March 31, 2021:
|
|
2017 Altra |
|
|
2019 Altra |
|
|
Total All |
|
|||
Balance at January 1, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Restructuring expense incurred |
|
|
— |
|
|
|
|
|
|
|
||
Cash payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at March 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The following is a reconciliation of restructuring expense by segment for the quarter ended March 31, 2022:
|
|
2017 Altra |
|
|
2019 Altra |
|
|
Total All |
|
|||
Power Transmission Technologies |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Automation & Specialty |
|
|
— |
|
|
|
|
|
|
|
||
Total restructuring expense |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
The following is a reconciliation of restructuring expense by segment for the quarter ended March 31, 2021:
|
|
2017 Altra |
|
|
2019 Altra |
|
|
Total All |
|
|||
Power Transmission Technologies |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Automation & Specialty |
|
|
— |
|
|
|
|
|
|
|
||
Total restructuring expense |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
The total accrued restructuring reserve as of March 31, 2022, relates to severance to be paid to former employees and facility consolidation and relocation costs under the 2019 Altra Plan and is recorded in accruals and other current liabilities on the accompanying unaudited condensed consolidated balance sheet.
18
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
15. Segments, Concentrations and Geographic Information
Segments
The internal reporting structure used by our Chief Operating Decision Maker (“CODM”) to assess performance and allocate resources determines the basis for our reportable operating segments. Our CODM is our Chief Executive Officer, and he evaluates operations and allocates resources based on a measure of income from operations. Our operations are organized in
19
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
Segment financial information and a reconciliation of segment results to unaudited condensed consolidated results are as follows:
|
|
Quarter Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Net Sales: |
|
|
|
|
|
|
||
Power Transmission Technologies |
|
$ |
|
|
$ |
|
||
Automation & Specialty |
|
|
|
|
|
|
||
Inter-segment eliminations |
|
|
( |
) |
|
|
( |
) |
Net sales |
|
$ |
|
|
$ |
|
||
Income from operations: |
|
|
|
|
|
|
||
Segment earnings: |
|
|
|
|
|
|
||
Power Transmission Technologies |
|
$ |
|
|
$ |
|
||
Automation & Specialty (1) |
|
|
|
|
|
|
||
Corporate expenses (2) |
|
|
|
|
|
( |
) |
|
Restructuring costs |
|
|
( |
) |
|
|
( |
) |
Income from operations |
|
$ |
|
|
$ |
|
||
Other non-operating expense: |
|
|
|
|
|
|
||
Net interest expense |
|
|
|
|
|
|
||
Other non-operating income, net |
|
|
( |
) |
|
|
( |
) |
Total non-operating expense |
|
$ |
|
|
$ |
|
||
Income before income taxes |
|
|
|
|
|
|
||
Provision for income taxes |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Selected information by segment (continued):
|
|
Quarter Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Depreciation and amortization: |
|
|
|
|
|
|
||
Power Transmission Technologies |
|
$ |
|
|
$ |
|
||
Automation & Specialty |
|
|
|
|
|
|
||
Corporate |
|
|
|
|
|
|
||
Total depreciation and amortization |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Total assets: |
|
|
|
|
|
|
||
Power Transmission Technologies |
|
$ |
|
|
$ |
|
||
Automation & Specialty |
|
|
|
|
|
|
||
Corporate (3) |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
20
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
Net sales to third parties by geographic region are as follows:
|
|
Net Sales |
|
|||||
|
|
Quarter Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
North America (primarily U.S.) |
|
$ |
|
|
$ |
|
||
Europe excluding Germany |
|
|
|
|
|
|
||
Germany |
|
|
|
|
|
|
||
China |
|
|
|
|
|
|
||
Asia and other excluding China |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Net sales to third parties are attributed to the geographic regions based on the country in which the shipment originates. Amounts attributed to the geographic regions for property, plant and equipment are based on the location of the entity, which holds such assets.
16. Derivative Financial Instruments
The Company may manage changes in market conditions related to interest on debt obligations and foreign currency exposures by entering into derivative instruments, including interest rate and foreign currency swap agreements. All derivative instruments are recognized as either assets or liabilities on the balance sheet at fair value at the end of each period. The Company determines the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various types of financial instruments (such as forwards, options and swaps), the Company uses standard models with market-based inputs, which take into account the present value of estimated future cash flows and the ability of Altra or the financial counterparty to perform. For cross-currency interest rate swaps, the significant inputs are interest rate curves for discounting future cash flows, and exchange rate curves of the foreign currency for translating future cash flows. For interest rate swaps, the significant inputs to these models are interest rate curves for discounting future cash flows that are adjusted for credit risk. Both cross-currency interest rate swaps and interest rate swaps are Level 2 investments. Refer to Note 6 for a description of the fair value levels. For designated hedging relationships, the Company formally documents the hedging relationship consistent with the requirements of ASC 815, Derivatives.
Cross-Currency Interest Rate Swaps
In December 2018, the Company entered into cross-currency swap agreements to hedge its net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. By doing so, the Company synthetically converted a portion of its U.S. dollar-based long-term debt into Euro-denominated long-term debt. At inception, the cross-currency swaps were designated as net investment hedges.
For net investment hedges, changes in the fair value of the effective portion of the derivatives’ gains or losses are reported as foreign currency translation gains or losses in accumulated other comprehensive income (loss) (“AOCIL”). The gains or losses on derivative instruments reported in AOCIL are reclassified to earnings in the period in which earnings are affected by the underlying item, such as a disposal or substantial liquidations of the entities being hedged. During the first quarter of 2020, the Company terminated the cross-currency interest rate swaps. The Company received the cash value of the cross-currency interest rate swaps of approximately $
Interest Rate Swaps
In January 2017, the Company entered into an interest rate swap agreement to fix the variable interest rate payable on a portion of its outstanding borrowings. This interest rate swap matured on
21
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
The interest rate swap agreement was designed to manage exposure to interest rates on the Company’s variable rate indebtedness and was recognized on the balance sheet at fair value. The Company designated this interest rate swap agreement as a cash flow hedge and changes in the fair value of the swap were recognized in other comprehensive income until the hedged items were recognized in earnings.
During 2020, the Company terminated the interest rate swap agreement. The Company paid the cash value of the interest rate swaps of approximately $
17. Commitments and Contingencies
General Litigation
The Company is involved in various pending legal proceedings arising out of the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims, and workers’ compensation claims. 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. 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 unaudited condensed consolidated financial statements.
Our estimates regarding potential losses and materiality are based on our judgment and assessment of the claims utilizing currently available information. Although we will continue to reassess our reserves and estimates based on future developments, our objective assessment of the legal merits of such claims may not always be predictive of the outcome and actual results may vary from our current estimates. We will continue to consider the applicable guidance in ASC 450-20, based on the facts known at the time of our future filings, as it relates to legal contingencies, and will adjust our disclosures as may be required under the guidance.
There were
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.
22
ALTRA INDUSTRIAL MOTION CORP.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in millions, unless otherwise noted
Environmental
There is contamination at some of the Company’s current facilities, primarily related to historical operations at those sites, for which the Company could be liable for the investigation and remediation under certain environmental laws. The potential for contamination also exists at other of the Company’s current or former sites, based on historical uses of those sites. The Company currently is not undertaking any material remediation or investigations and the costs or liability in connection with potential contamination conditions at these facilities cannot be predicted at this time because the potential existence of contamination has not been investigated or not enough is known about the environmental conditions or likely remedial requirements. Currently, other parties with contractual liability are addressing or have plans or obligations to address those contamination conditions that may pose a material risk to human health, safety or the environment. In addition, while the Company attempts to evaluate the risk of liability associated with these facilities at the time the Company acquired them, there may be environmental conditions currently unknown to the Company relating to prior, existing or future sites or operations or those of predecessor companies whose liabilities the Company may have assumed or acquired which could have a material adverse effect on the Company’s business.
The Company is being indemnified, or expects to be indemnified, by third parties subject to certain caps or limitations on the indemnification, for certain environmental costs and liabilities associated with certain owned or operated sites. Accordingly, based on the indemnification and the experience with similar sites of the environmental consultants who the Company has hired, the Company does not expect such costs and liabilities to have a material adverse effect on its business, operations or earnings. The Company cannot assure you, however, that those third parties will in fact satisfy their indemnification obligations. If those third parties become unable to, or otherwise do not, comply with their respective indemnity obligations, or if certain contamination or other liability for which the Company is obligated is not subject to these indemnities, the Company could become subject to significant liabilities.
From time to time, the Company is notified that it is a potentially responsible party and may have liability in connection with off-site disposal facilities. To date, the Company has generally resolved matters involving off-site disposal facilities for a nominal sum but there can be no assurance that the Company will be able to resolve pending or future matters in a similar fashion.
18. Subsequent Events
On April 8, 2022, the Company completed the previously announced sale of all of the issued and outstanding equity interests of the entities which collectively constitute its JVS business segment to Cummins Inc., an Indiana corporation, for $
On
On April 26, 2022, the Company announced that its Board of Directors approved a new share repurchase program authorizing the buyback of up to $
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company’s current estimates, expectations and projections about the Company’s future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning the Company’s possible future results of operations including revenue, costs of goods sold, gross margin, future profitability, future economic improvement, business and growth strategies, financing plans, expected leverage levels, 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. In addition, all statements regarding the anticipated effects of the novel coronavirus, or COVID-19, pandemic and the responses thereto, including the pandemic’s impact on general economic and market conditions, as well as on our business, customers, end markets, results of operations and financial condition and anticipated actions to be taken by management to sustain the Company during the economic uncertainty caused by the pandemic and related governmental and business actions, as well as other statements that are not strictly historic in nature are forward looking. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect” “forecast,” “intend,” “plan,” “may,” “project,” “should,” “will,” “would,” and similar expressions or variations. 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:
24
25
ALL FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS REPORT. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS REPORT OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR ANY PERSON ACTING ON THE COMPANY’S BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION AND IN OUR RISK FACTORS SET FORTH (1) IN THE SECTION TITLED “RISK FACTORS,” SET FORTH IN PART II, ITEM 1A OF THIS QUARTERLY REPORT ON FORM 10-Q; (2) IN PART I, ITEM 1A OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2021, FILED WITH THE SEC ON FEBRUARY 28, 2022; AND (3) IN THE COMPANY’S OTHER SEC FILINGS.
The following discussion of the financial condition and results of operations of Altra Industrial Motion Corp. and its subsidiaries should be read together with (1) the unaudited condensed consolidated financial statements of Altra Industrial Motion Corp. and its subsidiaries and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements of Altra Industrial Motion Corp. and its subsidiaries and the related notes and management’s discussion and analysis of financial conditions and results of operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ materially from the results referred to in the forward-looking statements, see “Forward-Looking Statements” and “Risk Factors” in this Quarterly Report on Form 10-Q and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Unless the context requires otherwise, the terms “Altra,” “Altra Industrial Motion Corp.,” “the Company,” “we,” “us,” and “our” refer to Altra Industrial Motion Corp. and its subsidiaries.
General
We are a leading global designer, producer and marketer of a wide range of electromechanical power transmission motion control (“PTMC”) products. Our technologies are used in various motion related applications and across a wide variety of high-volume manufacturing and non-manufacturing processes in which reliability and precision are critical to avoid costly down time and enhance the overall efficiency of operations.
We market our products under well recognized and established brands, which have been in existence for an average of over 85 years. We serve a diversified group of customers comprised of over 1,000 direct original equipment manufacturers (“OEMs”) including GE, Honeywell and Siemens, and also benefit from established, long-term relationships with leading industrial distributors, including Applied Industrial Technologies, Grainger, Kaman Industrial Technologies and Motion Industries. Many of our customers operate globally across a large number of industries, ranging from transportation, turf and agriculture, energy and mining to factory automation, medical and robotics. Our relationships with these customers often span multiple decades, which we believe reflects the high level of performance, quality and service we deliver, supplemented by the breadth of our offering, vast geographic footprint and our ability to rapidly develop custom solutions for complex customer requirements.
On December 31, 2021, the Company acquired all of the issued and outstanding equity interests of Nook Industries, LLC ("Nook"), a leader in the U.S. engineered linear motion industry. The acquisition expands the Company's current portfolio of linear product offerings. The acquisition is being accounted for as a business combination using the acquisition method of accounting and the results have been consolidated into the Company's Automation & Specialty segment. The aggregate purchase price of approximately $138.5 million, inclusive of certain post-closing adjustments but subject to others, consisted of $125.2 million of cash transferred, net of $5.1 million of cash acquired, and a noncontingent purchase price holdback of $8.2 million. The purchase price holdback was released in January 2022. The Company borrowed $130.0 million under its Revolving Credit Facility (as defined below) in December 2021 to finance the transaction.
On April 8, 2022, the Company completed the previously announced sale of all of the issued and outstanding equity interests of the entities which collectively constitute its Jacobs Vehicle Systems (“JVS”) business segment to Cummins Inc., an Indiana corporation, for $325.0 million in cash subject to customary adjustments. The net cash consideration received was approximately $325.9 million, which remains subject to customary purchase price adjustments.
Our website is www.altramotion.com. By following the link “Investor Relations” and then “SEC Filings” on our website, you can access our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, 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”), which we make available free of charge, as soon as reasonably practicable after such forms are filed with or furnished to the SEC. 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 Quarterly Report on Form 10-Q.
26
Business Outlook
Our future financial performance depends, in large part, on conditions in the markets that we serve and on conditions in the U.S., European, and global economies in general. In the quarter ended March 31, 2022, we experienced strong sales as our team executed very well in spite of continued challenges including supply chain constraints, labor shortages, inflation pressures, and the continued impact of COVID-19. Our pricing initiatives helped improve earnings and our backlog levels remain strong. In April 2022, we also completed the sale of our Jacobs Vehicle Systems business and used the proceeds to pay down approximately $315 million in debt and strengthen our balance sheet.
We will remain focused on leveraging the Altra Business System to drive organic growth initiatives, to manage our portfolio through disciplined mergers and acquisitions, to integrate the Nook business, and to execute on our strategy to position Altra as a premier industrial company.
Critical Accounting Policies
The preparation of our unaudited condensed consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, revenues and expenses, as well as related disclosures 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, 2021. There have been no changes in the identification or application of the Company’s critical accounting policies during the quarter ended March 31, 2022.
Recent Accounting Standards
See Part 1, Notes to Unaudited Condensed Consolidated Interim Financial Statements, Note 3 – Recent Accounting Standards.
Results of Operations
(Amounts in millions, unless otherwise noted)
|
|
Quarter Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Net sales |
|
$ |
511.7 |
|
|
$ |
472.1 |
|
Cost of sales |
|
|
331.4 |
|
|
|
300.4 |
|
Gross profit |
|
|
180.3 |
|
|
|
171.7 |
|
Gross profit percentage |
|
|
35.2 |
% |
|
|
36.4 |
% |
Selling, general and administrative expenses |
|
|
88.6 |
|
|
|
89.8 |
|
Impairment of Goodwill and Intangible Asset |
|
|
6.1 |
|
|
|
— |
|
Research and development expenses |
|
|
17.6 |
|
|
|
15.9 |
|
Restructuring costs |
|
|
0.4 |
|
|
|
0.9 |
|
Income from operations |
|
|
67.6 |
|
|
|
65.1 |
|
Interest expense, net |
|
|
11.3 |
|
|
|
16.9 |
|
Other non-operating income, net |
|
|
(0.1 |
) |
|
|
(1.5 |
) |
Income before income taxes |
|
|
56.4 |
|
|
|
49.7 |
|
Provision for income taxes |
|
|
11.6 |
|
|
|
10.5 |
|
Net income |
|
$ |
44.8 |
|
|
$ |
39.2 |
|
Quarter Ended March 31, 2022 compared with Quarter Ended March 31, 2021
(Amounts in millions, unless otherwise noted)
Amounts in millions, except percentage data |
|
Quarter Ended |
|
|||||||||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
Change |
|
|
% |
|
||||
Net sales |
|
$ |
511.7 |
|
|
$ |
472.1 |
|
|
$ |
39.6 |
|
|
|
8.4 |
% |
Net Sales The increase in net sales during the quarter ended March 31, 2022 when compared to the quarter ended March 31, 2021 was primarily due to strength across most end markets, especially the turf and garden and factory automation end markets as well as the addition of approximately $11.2 million of sales from Nook. Changes in foreign exchange had an unfavorable impact on
27
net sales of $8.7 million for the quarter ended March 31, 2022. Price had a favorable impact on net sales of $17.7 million for the quarter ended March 31, 2022.
Amounts in millions, except percentage data |
|
Quarter Ended |
|
|||||||||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
Change |
|
|
% |
|
||||
Gross profit |
|
$ |
180.3 |
|
|
$ |
171.7 |
|
|
$ |
8.6 |
|
|
|
5.0 |
% |
Gross profit as a percent of sales |
|
|
35.2 |
% |
|
|
36.4 |
% |
|
|
|
|
|
|
||
Gross Profit The decrease in gross profit as a percent of sales during the quarter ended March 31, 2022 when compared to the quarter ended March 31, 2021 was primarily due to increasing costs associated with logistics, supply chain and labor as well as changes in foreign exchange, which had an unfavorable impact of $3.2 million. This decrease was partially offset by price, which had a favorable impact of $17.7 million for the quarter ended March 31, 2022.
Amounts in millions, except percentage data |
|
Quarter Ended |
|
|||||||||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
Change |
|
|
% |
|
||||
Selling, general and administrative expense (“SG&A”) |
|
$ |
88.6 |
|
|
$ |
89.8 |
|
|
$ |
(1.2 |
) |
|
|
(1.3 |
)% |
SG&A as a percent of sales |
|
|
17.3 |
% |
|
|
19.0 |
% |
|
|
|
|
|
|
||
Selling, general and administrative expenses The decrease in SG&A during the quarter ended March 31, 2022 when compared to the quarter ended March 31, 2021 was primarily driven by the decrease in amortization expense as a result of the JVS disposal group being classified as held for sale. Refer to Note 4 for further information on the held for sale classification. This decrease was partially offset due to the inclusion of the SG&A expenses from Nook of $2.8 million as well as changes in foreign exchange, which had an unfavorable impact on SG&A of $2.1 million.
Amounts in millions, except percentage data |
|
Quarter Ended |
|
|||||||||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
Change |
|
|
% |
|
||||
Research and development expenses (“R&D”) |
|
$ |
17.6 |
|
|
$ |
15.9 |
|
|
$ |
1.7 |
|
|
|
10.7 |
% |
Research and development expense The increase in research and development expenses for the quarter ended March 31, 2022 when compared to the quarter ended March 31, 2021 was primarily due to expenses returning that were deferred such as backfilling open positions. Foreign exchange had an unfavorable impact on R&D of $0.2 million. We expect R&D costs to be approximately 2.5% - 3.5% of sales in future periods.
Amounts in millions, except percentage data |
|
Quarter Ended |
|
|||||||||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
Change |
|
|
% |
|
||||
Restructuring costs |
|
$ |
0.4 |
|
|
$ |
0.9 |
|
|
$ |
(0.5 |
) |
|
|
(55.6 |
)% |
Restructuring costs During the quarter ended September 30, 2017, we commenced a restructuring plan (“2017 Altra Plan”) as a result of Altra’s acquisition of Stromag and to rationalize our global renewable energy business. The actions taken pursuant to the 2017 Altra Plan included reducing headcount, facility consolidations and the elimination of certain costs. The total 2017 Altra Plan savings are in line with our expectations. We do not expect to incur any additional material costs as a result of the 2017 Altra Plan.
During 2019, we commenced a restructuring plan (“2019 Altra Plan”) to drive efficiencies, reduce the number of facilities and optimize our operating margin. We expect to incur an additional $1 - $2 million in restructuring expenses under the 2019 Altra Plan over the next two years, primarily related to headcount reductions and plant consolidations. We achieved savings of $0.6 million during the quarter ended March 31, 2022 under the 2019 Altra Plan and estimate additional future savings to be approximately $1 - $2 million over the next two years. The cost savings for the quarter ended March 31, 2022 were recognized as reductions in SG&A and Cost of Sales of approximately $0.4 million and $0.2 million, respectively.
Amounts in millions, except percentage data |
|
Quarter Ended |
|
|||||||||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
Change |
|
|
% |
|
||||
Interest expense, net |
|
$ |
11.3 |
|
|
$ |
16.9 |
|
|
$ |
(5.6 |
) |
|
|
(33.1 |
)% |
28
Interest expense, net The decrease in interest expense during the quarter ended March 31, 2022 when compared to the quarter ended March 31, 2021 was primarily due to the lower average interest rates as a result of our November 2021 refinancing. In addition, interest expense decreased during the quarter ended March 31, 2022 when compared to the quarter ended March 31, 2021 because we recorded $3.1 million of non-cash interest expense related to the termination of the interest rate swap during the quarter ended March 31, 2021. Since the remaining balance of the unrealized loss from the termination of the interest rate swap was reclassified from accumulated other comprehensive income (loss) to interest expense in the fourth quarter of 2021 in connection with the refinancing, no non-cash interest expense related to the termination of the interest rate swap was recorded during the quarter ended March 31, 2022. We expect our interest expense in 2022 to continue to decrease as additional principal payments on our debt are made.
Amounts in millions, except percentage data |
|
Quarter Ended |
|
|||||||||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
Change |
|
|
% |
|
||||
Provision for income taxes |
|
$ |
11.6 |
|
|
$ |
10.5 |
|
|
$ |
1.1 |
|
|
|
10.5 |
% |
Provision for income taxes as a percent of income before |
|
|
20.6 |
% |
|
|
21.1 |
% |
|
|
|
|
|
|
||
Provision for Income Taxes The provision for income tax as a percent of income before income taxes decreased for the quarter ended March 31, 2022 when compared to the quarter ended March 31, 2021 . The decrease in the 2022 provision for income tax as a percent of income before income taxes is mainly due to a net benefit of $2.5 million mainly related to the JVS divestiture recorded in the quarter ended March 31, 2022, partially offset by a higher annual effective tax rate in 2022 compared to 2021.
Segment Performance
(Amounts in millions unless otherwise noted)
|
|
Quarter Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Net Sales: |
|
|
|
|
|
|
||
Power Transmission Technologies |
|
$ |
253.7 |
|
|
$ |
221.0 |
|
Automation & Specialty |
|
|
259.2 |
|
|
|
252.1 |
|
Inter-segment eliminations |
|
|
(1.2 |
) |
|
|
(1.0 |
) |
Net sales |
|
$ |
511.7 |
|
|
$ |
472.1 |
|
Income from operations: |
|
|
|
|
|
|
||
Segment earnings: |
|
|
|
|
|
|
||
Power Transmission Technologies |
|
$ |
32.3 |
|
|
$ |
27.8 |
|
Automation & Specialty |
|
|
35.6 |
|
|
|
41.4 |
|
Corporate expenses (1) |
|
|
0.1 |
|
|
|
(3.2 |
) |
Restructuring costs |
|
|
(0.4 |
) |
|
|
(0.9 |
) |
Income from operations |
|
$ |
67.6 |
|
|
$ |
65.1 |
|
Power Transmission Technologies
Net sales in the Power Transmission Technologies segment were $253.7 million for the quarter ended March 31, 2022. The increase of approximately $32.7 million or 14.8% from the quarter ended March 31, 2021 was primarily due to the broad based strength across most of our end markets, especially material handling, metals and mining, turf and garden and agriculture end markets. In addition, price had a favorable impact on net sales for the quarter ended March 31, 2022 of $11.5 million. The increase in net sales was partially offset by changes in foreign exchange for the quarter ended March 31, 2022, which had an unfavorable impact on net sales of $5.2 million. Income from operations for the quarter ended March 31, 2022 was $32.3 million, an increase of 16.2%, which was primarily driven by the increase in sales and partially offset by increasing costs from logistics, supply chain and labor.
29
Automation & Specialty
Net sales in the Automation & Specialty segment were $259.2 million for the quarter ended March 31, 2022. The increase of approximately $7.1 million, or 2.8% from the quarter ended March 31, 2021 was primarily due to the inclusion of sales from the newly acquired Nook business, which were approximately $11.1 million for the quarter ended March 31, 2022. In addition, the increase was due to continued strength in the factory automation end market, as well as price, which had a favorable impact on net sales of $6.2 million for the quarter ended March 31, 2022. The increase in net sales was partially offset by a decline in the China class 8 heavy duty truck market as well as changes in foreign exchange, which had an unfavorable impact on net sales of $3.5 million for the quarter ended March 31, 2022. Income from operations for the quarter ended March 31, 2022 was $35.6 million, a decrease of 14.0%, which was primarily driven by the asset held for sale impairment charge of $6.1 million recorded at the JVS reporting unit related to the held for sale classification.
Liquidity and Capital Resources
Overview
We finance our capital and working capital requirements through a combination of cash flows from operating activities and borrowings under the Revolving Credit Facility (as defined herein). At March 31, 2022, we had the ability under the Revolving Credit Facility to borrow an additional $395.7 million subject to satisfying customary conditions. We expect that our primary ongoing requirements for cash will be for working capital, debt service, capital expenditures, acquisitions, pensions, other post-employment benefits and dividends.
We believe, based on current and projected levels of cash flows from operating activities, together with our ability to borrow under the Revolving Credit Facility, that we have sufficient liquidity to meet our short-term and long-term needs to make required payments of interest on our debt, to make amortization payments under the Altra Credit Facilities, to fund our operating needs, to fund working capital and capital expenditure requirements and to comply with the financial ratios in our debt agreements.
In the event additional funds are needed for operations, we could attempt to obtain new debt and/or refinance existing debt, or attempt to raise capital in the equity markets. There can be no assurance, however, that additional debt or equity financing will be available on commercially acceptable terms, if at all.
Notes
On September 26, 2018, Stevens Holding Company, Inc., a wholly owned subsidiary of the Company (“Stevens Holding”), announced the pricing of $400.0 million aggregate principal amount of Stevens Holding’s 6.125% senior notes due 2026 (the “Notes”) in a private debt offering pursuant to Rule 144A and Regulation S under the Securities Act of 1933 (the “Private Placement”). On October 1, 2018, the Private Placement closed, and Stevens Holding sold $150.0 million aggregate principal amount of the Notes (the “Primary Notes”) and an unaffiliated selling securityholder sold $250.0 million aggregate principal amount of the Notes (the “Selling Securityholder Notes”). The Notes will mature on October 1, 2026. Interest on the Notes accrues from October 1, 2018, and the first interest payment date on the Notes was April 1, 2019. The Notes may be redeemed at the option of Stevens Holding on or after October 1, 2023, in the manner and at the redemption prices specified in the indenture governing the Notes, plus accrued and unpaid interest thereon, if any, to, but excluding, the date of redemption. The Notes are guaranteed on a senior unsecured basis by Altra and certain of its domestic subsidiaries.
The unaffiliated selling securityholder received the Selling Securityholder Notes from Fortive prior to the closing of the Private Placement in exchange for certain outstanding Fortive debt held or acquired by the unaffiliated selling securityholder. Stevens Holding used the net proceeds of the Primary Notes to fund a dividend payment to Fortive prior to the consummation of the merger that was part of the Fortive Transaction, pursuant to which such merger Stevens Holdings became a wholly-owned subsidiary of the Company, and Stevens Holding did not receive any proceeds from the sale of the Selling Securityholder Notes.
2021 Altra Credit Agreement
On November 17, 2021, the Company entered into a new Credit Agreement (the “Credit Agreement” or the "Altra Credit Agreement") with certain subsidiaries of the Company (together with the Company, the “Borrowers”) , the lenders party to the Credit Agreement from time to time (collectively, the “Lenders”), Bank of Montreal as administrative agent (the “Administrative Agent”), as sustainability structuring agent and collateral agent thereunder, and under the security and guarantee documents for the Lenders, and BMO Capital Markets Corp., Citizens Bank, N.A., JPMorgan Chase Bank, N.A., and Wells Fargo Securities, LLC as joint lead arrangers and joint bookrunners. Pursuant to the Credit Agreement, the Lenders made available to the Borrowers a term loan facility of $400.0 million (the “Term Loan Facility” or "Term Loan" or “Term Loan A”) and a revolving credit facility of $1,000.0 million (the “Revolving Credit Facility” or "Revolver", and together with the Term Loan Facility, the “Credit Facilities”). The aggregate proceeds of the Credit Facilities were used to repay in full and extinguish all outstanding indebtedness for borrowed money under the 2018 Credit Agreement. The amounts available under the Credit Facilities are to be available for general corporate purposes and to
30
repay existing indebtedness. The stated maturity of both of the Credit Facilities is November 17, 2026, and there are scheduled quarterly principal payments due on the outstanding amount of the Term Loan Facility.
The Credit Facilities are guaranteed on a senior secured basis by certain direct and indirect domestic subsidiaries of the Company (each a “Guarantor” and collectively the “Guarantors”; the Guarantors collectively with the Borrowers, the “Loan Parties”).
The amounts available under the Revolving Credit Facility may be drawn upon in accordance with the terms of the Credit Agreement. All amounts outstanding under the Credit Facilities are due on the stated maturity or such earlier time, if any, required under the Credit Agreement. The amounts owed under either of the Credit Facilities may be prepaid at any time, subject to usual notification and breakage payment provisions. Interest on the amounts outstanding under the Credit Facilities is calculated using either a Base Rate or Eurocurrency Rate, plus the applicable margin. The applicable margins for Eurocurrency Loans are between 1.000% to 1.750%, and for Base Rate Loans are between 0.000% and 0.750%. The amounts of the margins are calculated based on the Total Leverage Ratio (as defined in the Credit Agreement). A portion of the Revolving Credit Facility may be used for the issuance of letters of credit, and a portion of the amount of the Revolving Credit Facility is available for borrowings in certain agreed upon foreign currencies. The interest rate on the Credit Facilities was 1.709% at March 31, 2022.
Revolving borrowings and issuances of letters of credit under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including the accuracy of representations and warranties and the absence of defaults.
The Credit Agreement contains usual and customary representations and warranties, usual and customary affirmative and negative covenants and restrictions, which among other things, will require the Borrowers to provide certain financial reports to the Lenders, require the Borrowers to maintain certain financial covenants relating to consolidated leverage and interest coverage, and limit the ability of the Company and its subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, purchase or redeem capital stock or debt, make certain investments, sell assets, engage in certain transactions, and effect a consolidation or merger. The obligations of the borrowers of the Credit Facilities under the Credit Agreement may be accelerated upon customary events of default, including non-payment of principal, interest, fees and other amounts, inaccuracy of representations and warranties, violation of covenants, cross default and cross acceleration, voluntary and involuntary bankruptcy or insolvency proceedings, inability to pay debts as they become due, material judgments, ERISA events, actual or asserted invalidity of security documents or guarantees and change in control.
Pursuant to the Credit Agreement, on November 17, 2021, the Loan Parties and the Administrative Agent entered into a Guarantee and Collateral Agreement (the “Guarantee and Collateral Agreement”), pursuant to which each Loan Party pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all personal property, whether now owned by or owing to, or after acquired by or arising in favor of such Loan Party (including under any trade name or derivations), and whether owned or consigned by or to, or leased from or to, such Loan Party, and regardless of where located, except for specific excluded personal property identified in the Guarantee and Collateral Agreement (collectively, the “Collateral”). Notwithstanding the foregoing, the Collateral does not include, among other items, more than 65% of the capital stock of the first tier foreign subsidiaries of the Company. The Guarantee and Collateral Agreement contains other customary representations, warranties and covenants of the parties.
In connection with the Guarantee and Collateral Agreement, certain of the Loan Parties delivered a Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties.
2018 Altra Credit Agreement
On October 1, 2018, the Company entered into a Credit Agreement (the “2018 Credit Agreement”) with certain subsidiaries of Altra, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and a syndicate of lenders. The 2018 Credit Agreement provided for a seven-year senior secured term loan to the Company in an aggregate principal amount of $1,340.0 million (the “2018 Term Loan Facility”) and a five-year senior secured revolving credit facility available to the Company and certain of its subsidiaries in an aggregate committed principal amount of $300.0 million (the “2018 Revolving Credit Facility” and together with the 2018 Term Loan Facility, the “2018 Credit Facilities”). The initial proceeds of the 2018 Term Loan Facility were used to (i) consummate the Direct Sales, (ii) repay in full and extinguish all outstanding indebtedness for borrowed money under the Company’s previous credit agreement and (iii) pay certain fees, costs, and expenses in connection with the consummation of the Fortive Transaction. Any proceeds of the 2018 Term Loan Facility not so used could be used for general corporate purposes and the proceeds of the 2018 Revolving Credit Facility were used for working capital and general corporate purposes.
On November 17, 2021, in connection with the new Credit Agreement, the 2018 Credit Agreement was terminated and all outstanding indebtedness for borrowed money thereunder was repaid in full.
31
Borrowings
The following is a summary of our borrowings as of March 31, 2022 and March 31, 2021, respectively:
|
|
Amounts in millions |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Debt: |
|
|
|
|
|
|
||
Term loan A |
|
$ |
397.5 |
|
|
$ |
— |
|
Term loan B |
|
|
— |
|
|
|
1,010.0 |
|
Revolver |
|
|
600.0 |
|
|
|
— |
|
Notes |
|
|
400.0 |
|
|
|
400.0 |
|
Mortgages and other |
|
|
8.4 |
|
|
|
12.2 |
|
Finance leases |
|
|
0.1 |
|
|
|
0.2 |
|
Total gross debt |
|
$ |
1,406.0 |
|
|
$ |
1,422.4 |
|
Cash and Cash Equivalents
The following is a summary of our cash balances and cash flows (in millions) as of and for the quarter ended March 31, 2022 and March 31, 2021, respectively:
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
Change |
|
|||
Cash and cash equivalents at the beginning of the period |
|
$ |
246.1 |
|
|
$ |
254.4 |
|
|
$ |
(8.3 |
) |
Net cash (used in) provided by operating activities |
|
|
(24.9 |
) |
|
|
36.2 |
|
|
|
(61.1 |
) |
Net cash used in investing activities |
|
|
(17.8 |
) |
|
|
(9.6 |
) |
|
|
(8.2 |
) |
Net cash used in financing activities |
|
|
(17.1 |
) |
|
|
(27.1 |
) |
|
|
10.0 |
|
Effect of exchange rate changes on cash and |
|
|
(2.6 |
) |
|
|
(4.5 |
) |
|
|
1.9 |
|
Cash and cash equivalents at the end of the period |
|
$ |
183.7 |
|
|
$ |
249.4 |
|
|
$ |
(65.7 |
) |
Cash Flows for 2022
Net cash used in operating activities was approximately $24.9 million for the quarter ended March 31, 2022, an increase of $61.1 million of net cash used as compared to the prior year. The increase in net cash used was primarily due to unfavorable changes in operating assets and liabilities of approximately $56.6 million, which reflect timing difference between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations.
Net cash used in investing activities for the quarter ended March 31, 2022 increased approximately $8.2 million compared to the quarter ended March 31, 2021, primarily due to increased property, plant and equipment purchases.
Net cash used in financing activities for the quarter ended March 31, 2022 as compared to the quarter ended March 31, 2021 decreased by $10.0 million, primarily due decreased debt paydowns of approximately $12.5 million when compared to the quarter ended March 31, 2021.
We intend to use our remaining cash and cash equivalents and cash flow from operations to provide for our working capital needs, to service our debt, including principal payments, for capital expenditures, for pension funding, for other post-retirement benefits funding and to pay dividends to our stockholders. As of March 31, 2022 we have approximately $165.8 million of cash and cash equivalents held by foreign subsidiaries. We believe, based on current and projected levels of cash flows from operating activities, together with our ability to borrow under the Revolving Credit Facility, that we have sufficient liquidity to make required payments of interest on our debt, to make amortization payments under the Credit Facilities, to fund our operating needs, to fund working capital and capital expenditure requirements and to comply with the financial ratios in our debt agreements.
Contractual Obligations
There were no material changes in our contractual obligations during the period ended March 31, 2022.
32
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risk factors such as fluctuating interest rates, changes in foreign currency rates, and changes in commodity prices. During the reporting period, there have been no material changes to the quantitative and qualitative disclosures regarding our market risk set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of March 31, 2022, our management, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of March 31, 2022, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are, from time to time, party to various legal proceedings arising out of our business. During the reporting period, there have been no material changes to the description of legal proceedings set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 1A. Risk Factors
The reader should carefully consider the Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission. Those risk factors described elsewhere in this report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2021 are not the only risks we face, but are considered to be the most material. These risk factors could cause our actual results to differ materially from those stated in forward looking statements contained in this Form 10-Q and elsewhere. All risk factors stated in our Annual Report on Form 10-K for the year ended December 31, 2021 are incorporated herein by reference.
Below are additional risk factors that should be carefully considered by the reader in addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
The ongoing military action between Russia and Ukraine could adversely affect our business, financial condition and operating results.
On February 24, 2022, Russian military forces invaded Ukraine, and sustained conflict and disruption in the region is likely. This conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage.
Russia’s recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military action against Ukraine have led to an unprecedented expansion of sanction programs imposed by the United States, the European Union, the United Kingdom, Canada, Switzerland, Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk People’s Republic, including, among others:
•blocking sanctions against some of the largest state-owned and private Russian financial institutions (and their subsequent removal from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system) and certain Russian businesses, some of which have significant financial and trade ties to the European Union;
•blocking sanctions against Russian and Belarusian individuals, including the Russian President, other politicians and those with government connections or involved in Russian military activities; and
•blocking of Russia’s foreign currency reserves as well as expansion of sectoral sanctions and export and trade restrictions, limitations on investments and access to capital markets and bans on various Russian imports.
The situation is rapidly evolving as a result of the conflict in Ukraine, and the United States, the European Union, the United Kingdom and other countries may implement additional sanctions, export controls or other measures against Russia, Belarus and other countries, regions, officials, individuals or industries in the respective territories. Such sanctions and other measures, as well as the existing and potential further responses from Russia or other countries to such sanctions, tensions and military actions, could adversely affect the global economy and financial markets and could adversely affect our business, financial condition and results of operations.
We are actively monitoring the situation in Ukraine and assessing its impact on our business, including our business partners and customers. We have no way to predict the progress or outcome of the conflict in Ukraine or its impacts in Ukraine, Russia or Belarus as the conflict, and any resulting government reactions, are rapidly developing and beyond our control. The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time. Any of the above mentioned factors could affect our business, financial condition and operating results. Any such disruptions may also magnify the impact of other risks described in our Annual Report on Form 10-K for the year ended December 31, 2021.
New or more stringent government regulations or standards designed to address climate change could increase our operational costs, and severe weather associated with a changing climate could negatively impact our operations and those of our customers and suppliers.
34
We are subject to domestic and foreign regulations and standards governing emissions controls which are, in part, designed to address climate change. Due to increasing global concern over the effects of climate change, new or more stringent regulations and standards may be mandated. In addition, various stakeholders may demand additional controls beyond what is required by such regulations or standards. Such additional regulations, standards and demands may expose us to increased operational costs associated with compliance, data collection and disclosure, and raw material sourcing, our manufacturing operations, and the distribution of our products may be adversely affected. Further, tighter emissions controls as a result of these actions could increase our operational costs and could lead to disruptions in our operations as compliance is attained. Severe weather associated with a changing climate could also negatively impact our facilities, information systems and infrastructure, as well as those of our customers and suppliers. This could disrupt supply, customer demand and negatively affect our ability to fulfill orders, manufacture products and maintain operations. In addition, certain markets and industries which Altra serves may be negatively impacted by global trends and market adjustment in response to a changing climate which could have an adverse impact on our financial performance. There can be no assurance that our efforts to address these regulations, standards, or stakeholder demands will be successful or that any future investments we make in furtherance of achieving climate change targets and goals will meet investor expectations or any regulatory or legal standards regarding sustainability performance. If we fail to sufficiently address applicable regulations, standards and stakeholder demands or fail to achieve or improperly report on our progress toward achieving our goals and commitments to reduce our carbon footprint or address sustainability programs and initiatives, the results could have an adverse impact on our business, results of operations and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Recent Sales of Unregistered Equity Securities
None.
(b) Use of Proceeds
None.
(c) Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
35
Item 6. Exhibits
The following exhibits are filed as part of this report:
Exhibit Number |
|
Description |
|
|
|
3.1(1) |
|
|
|
|
|
3.2(2) |
|
Second Amended and Restated Certificate of Incorporation of the Registrant |
|
|
|
3.3(3) |
|
|
|
|
|
10.1(4) |
|
|
|
|
|
10.2* |
|
|
|
|
|
10.3* |
|
|
|
|
|
10.4* |
|
|
|
|
|
10.5* |
|
|
|
|
|
10.6* |
|
|
|
|
|
10.7* |
|
|
|
|
|
10.8* |
|
|
|
|
|
31.1* |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2* |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1** |
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2** |
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101* |
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Statement of Operations, (ii) the Unaudited Condensed Consolidated Statement of Comprehensive Income (Loss), (iii) the Unaudited Condensed Consolidated Balance Sheet, (iv) the Unaudited Condensed Consolidated Statement of Cash Flows, (v) the Unaudited Consolidated Statement of Stockholders’ Equity and (vi) Notes to Unaudited Condensed Consolidated Interim Financial Statements. |
|
|
|
104 |
|
Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
* Filed herewith.
** This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
(1) Incorporated by reference to Altra Industrial Motion Corp.’s Current Report on Form 8-K, filed with the SEC on October 1, 2018.
(2) Incorporated by reference to Altra Industrial Motion Corp.’s (formerly known as Altra Holdings, Inc.) Amendment No. 4 to Registration Statement on Form S-1/A filed with the SEC on December 4, 2006.
36
(3) Incorporated by reference to Altra Industrial Motion Corp.’s Current Report on Form 8-K, filed with the SEC on October 27, 2008.
(4) Incorporated by reference to Altra Industrial Motion Corp.’s Annual Report on Form 10-K, filed with the SEC on February 28, 2022.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
ALTRA INDUSTRIAL MOTION CORP. |
|
|
|
May 2, 2022 |
By: |
/s/ Carl R. Christenson |
|
Name: |
Carl R. Christenson |
|
Title |
Chairman and Chief Executive Officer |
|
|
(Principal Executive Officer)
|
May 2, 2022 |
By: |
/s/ Todd B. Patriacca |
|
Name: |
Todd B. Patriacca |
|
Title: |
Executive V.P., Chief Financial Officer and Treasurer |
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
38
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