Description of Business and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Basis of Preparation and Description of Business | ' |
|
Basis of Preparation and Description of Business |
|
Headquartered in Braintree, Massachusetts, Altra Industrial Motion Corp. (the “Company”), through its wholly-owned subsidiary Altra Power Transmissions, Inc. (“APT”), is a leading multi-national designer, producer and marketer of a wide range of electro-mechanical power transmission products. The Company brings together strong brands covering over 40 product lines with production facilities in eleven countries. Altra’s leading brands include Ameridrives Couplings, Bauer Gear Motor, Bibby Turboflex, Boston Gear, Delroyd Worm Gear, Formsprag Clutch, Huco, Industrial Clutch, Inertia Dynamics, Kilian Manufacturing, Lamiflex Couplings, Marland Clutch, Matrix, Nuttall Gear, Stieber Clutch, Svendborg Brakes, TB Wood’s, Twiflex, Warner Electric, Warner Linear, and Wichita Clutch. |
|
In November 2013, Altra Holdings, Inc. changed its name to Altra Industrial Motion Corp., and Altra Industrial Motion, Inc., the Company’s wholly owned subsidiary, changed its name to Altra Power Transmission, Inc. |
Principles of Consolidation | ' |
Principles of Consolidation |
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. |
Net Income Per Share | ' |
|
Net Income Per Share |
|
Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common equivalent shares outstanding. Common equivalent shares are included in the per share calculations when the effect of their inclusion would be dilutive. |
|
The following is a reconciliation of basic to diluted net income per share: |
|
|
| | | | | | | | | | | | | | | | |
| | Year Ended December, 31 | | | | | |
| | 2013 | | | 2012 | | | 2011 | | | | | |
Net income attributable to Altra Industrial Motion Corp. | | $ | 40,275 | | | $ | 24,293 | | | $ | 37,675 | | | | | |
Shares used in net income per common share—basic | | | 26,766 | | | | 26,656 | | | | 26,526 | | | | | |
Incremental shares of unvested restricted common stock | | | 75 | | | | 100 | | | | 163 | | | | | |
| | | | | | | | | | | | | | | | |
Shares used in net income per common share—diluted | | | 26,841 | | | | 26,756 | | | | 26,689 | | | | | |
Earnings per share: | | | | | | | | | | | | | | | | |
Basic net income attributable to Altra Industrial Motion Corp. | | $ | 1.5 | | | $ | 0.91 | | | $ | 1.42 | | | | | |
Diluted net income attributable to Altra Industrial Motion Corp. | | $ | 1.5 | | | $ | 0.91 | | | $ | 1.41 | | | | | |
|
The Company excluded 3,137,351 shares in 2013, 3,094,706 shares in 2012 and 784,980 shares in 2011 (amounts not in thousands) related to the Convertible Notes (See Note 9) from the above earnings per share calculation as these shares were anti-dilutive. |
Fair Value of Financial Instruments | ' |
|
Fair Value of Financial Instruments |
|
The carrying values of financial instruments, including accounts receivable, cash equivalents, accounts payable, and other accrued liabilities are carried at cost, which approximates fair value. Debt under the Company’s Credit Agreement with certain financial institutions including, a Term Loan Facility, as defined below, of $163,245,000 (the “Term Loan Facility”) and a Revolving Credit Facility, as defined below, of $200,000,000 approximate the fair values due to the variable rate nature at current market rates. |
|
The carrying amount of the 2.75% Convertible Notes (the “Convertible Notes”) was $85.0 million at December 31, 2013 and 2012. The estimated fair value of the Convertible Notes at December 31, 2013 and 2012 was $116.5 million and $94.3 million, respectively, based on inputs other than quoted prices that are observable for the Convertible Notes (level 2). |
|
Included in cash and cash equivalents as of December 31, 2013 and December 31, 2012 are money market fund investments of $16.6 million and $30.3 million, respectively, which are reported at fair value based on quoted market prices for such investments (level 1). |
|
The estimated fair value of the Company’s interest rate swap agreement with certain financial institutions (“Interest Rate Swap”) at December 31, 2013 was $0.2 million, based on inputs other than quoted prices that are observable for the Interest Rate Swap (level 2). Inputs include present value of fixed and projected floating rate cash flows over the term of the swap contract. There was no Interest Rate Swap at December 31, 2012. |
Use of Estimates | ' |
Use of Estimates |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the financial statements. Actual results could differ from those estimates. |
Non-Controlling Interest | ' |
Non-controlling Interest |
On July 11, 2012, the Company acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda. (“Lamiflex”). |
The Company recorded the redeemable non-controlling interest from its acquisition of an 85% ownership interest of Lamiflex at fair value at the date of acquisition. In connection with this acquisition, the Company entered into put and call option agreements with the minority shareholders for the potential purchase of the non-controlling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the non-controlling interest is considered redeemable and is classified as temporary equity on the Company’s consolidated balance sheet. The non-controlling interest is reviewed at each subsequent reporting period and adjusted, as needed, to reflect its then redemption value. |
Foreign Currency Translation | ' |
Foreign Currency Translation |
Assets and liabilities of subsidiaries operating outside of the United States with a functional currency other than the U.S. Dollar are translated into U.S. Dollars using exchange rates at the end of the respective period. Revenues and expenses are translated at average exchange rates effective during the respective period. |
Foreign currency translation adjustments are included in accumulated other comprehensive income as a separate component of stockholders’ equity. Net foreign currency transaction gains and losses are included in the results of operations in the period incurred and included in other non-operating expense (income), net in the accompanying statements of comprehensive income. |
Trade Receivables | ' |
Trade Receivables |
An allowance for doubtful accounts is recorded for estimated collection losses that will be incurred in the collection of receivables. Estimated losses are based on historical collection experience, as well as a review by management of the status of all receivables. Collection losses have been within the Company’s expectations. |
Inventories | ' |
Inventories |
Inventories are stated at the lower of cost or market using the first-in, first-out (“FIFO”) method for all entities excluding one of the Company’s subsidiaries, TB Wood’s. TB Wood’s inventory is stated at the lower of cost or market, principally using the last-in, first-out (“LIFO”) method. Inventory stated using the LIFO method approximates 7.5% and 10% of total inventory at December 31, 2013 and 2012, respectively. |
The cost of inventories acquired by the Company in its acquisitions reflect their fair values at the date of acquisition as determined by the Company based on the replacement cost of raw materials, the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts, and for work-in-process the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts and costs to complete. |
The Company periodically reviews its quantities of inventories on hand and compares these amounts to the expected usage of each particular product or product line. The Company records a charge to cost of sales for any amounts required to reduce the carrying value of inventories to its estimated net realizable value. |
Property, Plant and Equipment | ' |
Property, Plant and Equipment |
Property, plant and equipment are stated at cost, net of accumulated depreciation. |
Depreciation of property, plant and equipment, including capital leases is provided using the straight-line method over the estimated useful life of the asset, as follows: |
|
| | | | | | | | | | | | | | | | |
Buildings and improvements | | | 15 to 45 years | | | | | | | | | | | | | |
Machinery and equipment | | | 2 to 15 years | | | | | | | | | | | | | |
Capital lease | | | Life of lease | | | | | | | | | | | | | |
Leasehold improvements are depreciated on a straight-line basis over the estimated life of the asset or the life of the lease, if shorter. |
Improvements and replacements are capitalized to the extent that they increase the useful economic life or increase the expected economic benefit of the underlying asset. Repairs and maintenance expenditures are charged to expense as incurred. |
Intangible Assets | ' |
Intangible Assets |
Intangibles represent product technology, patents, tradenames, trademarks and customer relationships. Product technology, patents and customer relationships are amortized on a straight-line basis over 8 to 17 years, which approximates the period of economic benefit. The tradenames and trademarks are considered indefinite-lived assets and are not being amortized. Intangibles are stated at fair value on the date of acquisition. At December 31, 2013 and 2012, intangibles are stated net of accumulated amortization incurred since the date of acquisition and any impairment charges. |
Goodwill | ' |
|
Goodwill |
|
Goodwill represents the excess of the purchase price paid by the Company over the fair value of the net assets acquired in each of the Company’s acquisitions. |
Impairment of Goodwill and Indefinite-Lived Intangible Assets | ' |
|
Impairment of Goodwill and Indefinite-Lived Intangible Assets |
|
The Company conducts an annual impairment review of goodwill and indefinite-lived intangible assets in December of each year, unless events occur which trigger the need for an interim impairment review. |
|
In connection with the Company’s annual impairment review, goodwill is assessed for impairment by comparing the fair value of the reporting unit to the carrying value using a two-step approach. In the first step, the Company estimates future cash flows based upon historical results and current market projections, discounted at a market comparable rate. If the carrying amount of the reporting unit exceeds the estimated fair value, impairment may be present, the Company would then be required to perform a second step in its impairment analysis. In the second step, the Company would evaluate impairment losses based upon the fair value of the underlying assets and liabilities of the reporting unit, including any unrecognized intangible assets, and estimate the implied fair value of the goodwill. An impairment loss is recognized to the extent that a reporting unit’s recorded value of the goodwill asset exceeded its calculated fair value. In addition, to the extent the implied fair value of any indefinite-lived intangible asset is less than the asset’s carrying value, an impairment loss is recognized on those assets. The Company did not identify any impairment of goodwill in 2013, 2012 or 2011. |
|
|
|
For our indefinite-lived intangible assets, mainly trademarks, we estimated the fair value first by estimating the total revenue attributable to the trademarks for each of the reporting units. Second, we estimated an appropriate royalty rate using the return on assets method by estimating the required financial return on our assets, excluding trademarks, less the overall return generated by our total asset base. The return as a percentage of revenue provides an indication of our royalty rate (between 1.0% and 1.5%). We compared the estimated fair value of our trademarks with the carrying value of the trademarks and did not identify any impairment. |
|
Preparation of forecasts of revenue and profitability growth for use in the long-range plan and the discount rate require significant use of judgment. Changes to the discount rate and the forecasted profitability could affect the estimated fair value of one or more of the Company’s reporting units and could result in a goodwill impairment charge in a future period. |
Impairment of Long-Lived Assets Other Than Goodwill and Indefinite-Lived Intangible Assets | ' |
Impairment of Long-Lived Assets Other Than Goodwill and Indefinite-Lived Intangible Assets |
Long-lived assets, including definite-lived intangible assets, are reviewed for impairment when events or circumstances indicate that the carrying amount of a long-lived asset may not be recovered. Long-lived assets are considered to be impaired if the carrying amount of the asset exceeds the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value, and is charged to results of operations at that time. |
The Company did not identify any impairment of long-lived assets in 2013 or 2012. In relation to the sale of the Stratford facility in 2011, the Company identified and recorded an impairment with respect to the facility in the amount of $0.1 million based on their fair market value (Note 4). |
Determining fair values based on discounted cash flows requires management to make significant estimates and assumptions, including forecasting of revenue and profitability growth for use in the long-range plan and estimating appropriate discount rates. Changes to the discount rate and the forecasted profitability could affect the estimated fair value of one or more of the Company’s indefinite-lived intangible assets and could result in an impairment charge in a future period. |
Debt Issuance Costs | ' |
Debt Issuance Costs |
Costs directly related to the issuance of debt are capitalized, included in other non-current assets and amortized using the effective interest method over the term of the related debt obligation. The net carrying value of debt issuance costs was approximately $4.1 million and $4.3 million at December 31, 2013 and 2012, respectively. |
Revenue Recognition | ' |
Revenue Recognition |
Product revenues are recognized, net of sales tax collected, at the time title and risk of loss pass to the customer, which generally occurs upon shipment to the customer. Product return reserves are accrued at the time of sale based on the historical relationship between shipments and returns, and are recorded as a reduction of net sales. |
Certain large distribution customers receive annual volume discounts, which are estimated at the time the sale is recorded based on the estimated annual sales. |
Shipping and Handling Costs | ' |
Shipping and Handling Costs |
Shipping and handling costs associated with sales are classified as a component of cost of sales. |
Warranty Costs | ' |
Warranty Costs |
Estimated expenses related to product warranties are accrued at the time products are sold to customers. Estimates are established using historical information as to the nature, frequency, and average costs of warranty claims. See Note 6 to the consolidated financial statements. |
Self-Insurance | ' |
Self-Insurance |
Certain exposures are self-insured up to pre-determined amounts, above which third-party insurance applies, for medical claims, workers’ compensation, vehicle insurance, product liability costs and general liability exposure. The accompanying balance sheets include reserves for the estimated costs associated with these self-insured risks, based on historic experience factors and management’s estimates for known and anticipated claims. A portion of medical insurance costs are offset by charging employees a premium equivalent to group insurance rates. |
Research and Development | ' |
Research and Development |
Research and development costs are expensed as incurred. |
Advertising | ' |
Advertising |
Advertising costs are charged to selling, general and administrative expenses as incurred and amounted to approximately $2.5 million, $2.1 million and $1.5 million, for the years ended December 31, 2013, 2012, and 2011, respectively. |
Stock-Based Compensation | ' |
Stock-Based Compensation |
The Company established the 2004 Equity Incentive Plan, as amended, that provides for various forms of stock-based compensation to officers, directors, key employees and others who make significant contributions to the success of the Company. The Company recognizes stock based compensation expense on a straight line basis for shares vesting ratably under the plan and uses the graded-vesting method of recognizing stock-based compensation expense for performance share awards based on the probability of the specific performance metrics being achieved over the requisite service period. |
Income Taxes | ' |
Income Taxes |
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company evaluates the realizability of its net deferred tax assets and assesses the need for a valuation allowance on a quarterly basis. The future benefit to be derived from its deferred tax assets is dependent upon the Company’s ability to generate sufficient future taxable income to realize the assets. The Company records a valuation allowance to reduce its net deferred tax assets to the amount that may be more likely than not to be realized. |
To the extent the Company establishes a valuation allowance on net deferred tax assets generated from operations, an expense will be recorded within the provision for income taxes. In periods subsequent to establishing a valuation allowance on net deferred assets from operations, if the Company were to determine that it would be able to realize its net deferred tax assets in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded as a reduction to income tax expense in the period such determination was made. |
We assess our income tax positions and record tax benefits for all years subject to examination, based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, we record the amount that has a greater than 50% likelihood of being realized upon settlement with the taxing authority that has full knowledge of all relevant information. Interest and penalties are accrued, where applicable. If we do not believe that it is more likely than not that a tax benefit will be sustained, no tax benefit is recognized. |
Contingencies Policy | ' |
|
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. |
Changes in Accumulated Other Comprehensive Loss by Component | ' |
|
Changes in Accumulated Other Comprehensive Loss by Component |
|
The following is a reconciliation of changes in Accumulated Other Comprehensive Loss by Component for the periods presented: |
|
|
| | | | | | | | | | | | | | | | |
| | Cash Flow | | | Defined | | | Cumulative | | | Total | |
Hedges | Benefit | Foreign |
| Pension Plans | Currency |
| | Translation |
Accumulated Other Comprehensive Loss by Component, January 1, 2012 | | $ | — | | | $ | (2,485 | ) | | $ | (22,591 | ) | | $ | (25,076 | ) |
Net current-period Other Comprehensive Income Loss | | | — | | | | (2,122 | ) | | | 3,795 | | | | 1,673 | |
| | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss by component, January 1, 2013 | | $ | — | | | $ | (4,607 | ) | | $ | (18,796 | ) | | $ | (23,403 | ) |
| | | | | | | | | | | | | | | | |
Net current-period Other Comprehensive Income | | | 135 | | | | 1,474 | | | | 3,398 | | | | 5,007 | |
| | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Income (Loss) by component, December 31, 2013 | | $ | 135 | | | $ | (3,133 | ) | | $ | (15,398 | ) | | $ | (18,396 | ) |
| | | | | | | | | | | | | | | | |