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 that 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,						Year to Date Ended June 30,
	2018			2017			2018			2017
Net Sales:
Couplings, Clutches & Brakes	$	122,734		$	110,969		$	242,907		$	217,201
Electromagnetic Clutches & Brakes		65,136			65,281			134,243			129,159
Gearing		51,567			49,149			105,452			96,177
Inter-segment eliminations		(2,114	)		(2,042	)		(4,894	)		(3,745	)
Net sales	$	237,323		$	223,357		$	477,708		$	438,792
Income from operations:
Segment earnings:
Couplings, Clutches & Brakes	$	18,740		$	12,007		$	32,160		$	20,352
Electromagnetic Clutches & Brakes		8,076			8,163			16,744			15,756
Gearing		6,399			6,590			12,515			12,115
Corporate expenses (1)		(4,600	)		(1,198	)		(12,181	)		(3,096	)
Restructuring & consolidation costs		(566	)		(2,413	)		(1,509	)		(4,316	)
Income from operations	$	28,049		$	23,149		$	47,729		$	40,811
Other non-operating (income) expense:
Loss on settlement of pension plan	$	—		$	—		$	5,086		$	—
Net interest expense		2,065			2,031			3,899			3,736
Other non-operating (income), net		(282	)		(136	)		(428	)		(666	)
Loss on extinguishment of convertible debt		—			—			—			1,797
	$	1,783		$	1,895		$	8,557		$	4,867
Income before income taxes		26,266			21,254			39,172			35,944
Provision for income taxes		7,259			5,870			11,164			10,234
Net income	$	19,007		$	15,384		$	28,008		$	25,710

(1)

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

Selected information by segment (continued)

	Quarter Ended				Year to Date Ended
	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
Depreciation and amortization:
Couplings, Clutches & Brakes	$	5,505	$	5,133	$	11,230	$	10,270
Electromagnetic Clutches & Brakes		1,005		1,201		1,935		2,416
Gearing		1,897		1,651		3,775		3,301
Corporate		869		824		1,739		1,628
Total depreciation and amortization	$	9,276	$	8,809	$	18,679	$	17,615

					June 30, 2018		June 30, 2017
Total assets:
Couplings, Clutches & Brakes					$	565,603	$	557,642
Electromagnetic Clutches & Brakes						158,325		185,839
Gearing						160,071		137,713
Corporate (2)						22,553		29,893
Total assets					$	906,552	$	911,087

(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 Ended
	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
North America (primarily U.S.)	$	119,023	$	115,236	$	244,716	$	230,376
Europe		91,308		84,983		184,790		168,275
Asia and other		26,992		23,138		48,202		40,141
Total	$	237,323	$	223,357	$	477,708	$	438,792

Net sales to third parties are attributed to the geographic regions based on the country in which the shipment originates.

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. Although the Company did not have any customers that represented total sales greater than 10% in either of the quarters ended June 30, 2018 and 2017, the Gearing business had one customer that approximated 10% of total sales for that segment during the quarter ended June 30, 2018.

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. The Company is also exposed to swap counterparty credit risk with well-established financial institutions.