14. Segments, Concentrations and Geographic Information

Segments

The Company currently operates through three business segments that are aligned with key product types and end markets served:

•

Couplings, Clutches & Brakes.

Couplings are the interface between two shafts, which enable power to be transmitted from one shaft to the other. Clutches in this segment are devices which use mechanical, hydraulic, pneumatic, or friction type connections to facilitate engaging or disengaging two rotating members. Brakes are combinations of interacting parts that work to slow or stop machinery. Products in this segment are generally used in heavy industrial applications and energy markets.

•

Electromagnetic Clutches & Brakes.

Products in this segment include brakes and clutches that are used to electronically slow, stop, engage or disengage equipment utilizing electromagnetic friction type connections. Products in this segment are used in industrial and commercial markets including agricultural machinery, material handling, motion control, and turf & garden.

•

Gearing.

Gears are utilized to reduce the speed and increase the torque of an electric motor or engine to the level required to drive a particular piece of equipment. Gears produced by the Company are primarily utilized in industrial applications.

Segment financial information and a reconciliation of segment results to consolidated results follows:

	Quarters Ended June 30,						Six Months Ended Ended June 30,
	2017			2016			2017			2016
Net Sales:
Couplings, Clutches & Brakes	$	110,969		$	78,157		$	217,201		$	153,780
Electromagnetic Clutches & Brakes		65,281			57,053			129,159			114,402
Gearing		49,149			49,096			96,177			98,015
Inter-segment eliminations		(2,042	)		(1,632	)		(3,745	)		(3,070	)
Net sales	$	223,357		$	182,674		$	438,792		$	363,127
Income from operations:
Segment earnings:
Couplings, Clutches & Brakes	$	12,007		$	7,554		$	20,352		$	13,845
Electromagnetic Clutches & Brakes		8,163			7,068			15,756			13,531
Gearing		6,590			5,867			12,115			11,629
Restructuring		(1,198	)		(1,641	)		(3,096	)		(3,194	)
Corporate expenses (1)		(2,413	)		(2,673	)		(4,316	)		(4,659	)
Income from operations	$	23,149		$	16,175		$	40,811		$	31,152
Other non-operating (income) expense:
Net interest expense	$	2,031		$	2,904		$	3,736		$	5,800
Other non-operating income, net		(136	)		(205	)		(666	)		(483	)
Loss on extinguishment of convertible debt		—			—			1,797			—
		1,895			2,699			4,867			5,317
Income before income taxes		21,254			13,476			35,944			25,835
Provision for income taxes		5,870			4,127			10,234			7,676
Net income	$	15,384		$	9,349		$	25,710		$	18,159

(1)

Certain expenses are maintained at the corporate level and not allocated to the segments. These include various administrative expenses related to corporate headquarters, depreciation on capitalized software costs, non-capitalizable software implementation costs and acquisition related expenses and non-cash partial pension settlements.

Selected information by segment (continued)

	Quarter Ended				Year to Date Period Ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Depreciation and amortization:
Couplings, Clutches & Brakes	$	5,133	$	3,770	$	10,270	$	7,458
Electromagnetic Clutches & Brakes		1,201		1,177		2,416		2,325
Gearing		1,651		1,728		3,301		3,398
Corporate		824		813		1,628		1,568
Total depreciation and amortization	$	8,809	$	7,488	$	17,615	$	14,749

	June 30, 2017		December 31, 2016
Total assets:
Couplings, Clutches & Brakes	$	557,642	$	511,934
Electromagnetic Clutches & Brakes		185,839		169,507
Gearing		137,713		147,829
Corporate (2)		29,893		40,554
Total assets	$	911,087	$	869,824

(2)	Corporate assets are primarily cash and cash equivalents, tax related asset accounts, certain capitalized software costs, property, plant and equipment and deferred financing costs.

Net sales to third parties by geographic region are as follows:

	Net Sales
	Quarter Ended				Year to Date Period Ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
North America (primarily U.S.)	$	115,236	$	104,779	$	230,376	$	216,962
Europe		84,983		59,237		168,275		111,351
Asia and other		23,138		18,658		40,141		34,814
Total	$	223,357	$	182,674	$	438,792	$	363,127

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.

Concentrations

Financial instruments, which are potentially subject to counter party performance and concentrations of credit risk, consist primarily of trade accounts receivable. The Company manages these risks by conducting credit evaluations of customers prior to delivery or commencement of services. When the Company enters into a sales contract, collateral is normally not required from the customer. Payments are typically due within 30 days of billing. An allowance for potential credit losses is maintained, and losses have historically been within management’s expectations. While the Company did not have any customers that represented total sales greater than 10% for each of the quarters ended June 30, 2017 and 2016, the Gearing business had one customer that approximated 12% of total sales for that segment during the quarter ended June 30, 2017.

The Company is also subject to counter party performance risk of loss in the event of non-performance by counterparties to financial instruments, such as cash and investments. Cash and cash equivalents are held by well-established financial institutions and invested in AAA rated mutual funds. The Company is exposed to swap counterparty credit risk with well-established financial institutions.