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						Year to Date Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Net Sales:
Couplings, Clutches & Brakes	$	118,662		$	110,109		$	361,569		$	327,310
Electromagnetic Clutches & Brakes		57,915			58,304			192,158			187,463
Gearing		54,198			48,368			159,650			144,545
Inter-segment eliminations		(2,292	)		(2,158	)		(7,186	)		(5,903	)
Net sales	$	228,483		$	214,623		$	706,191		$	653,415
Income from operations:
Segment earnings:
Couplings, Clutches & Brakes	$	15,639		$	12,679		$	47,799		$	33,031
Electromagnetic Clutches & Brakes		6,490			6,138			23,234			21,894
Gearing		5,881			5,689			18,396			17,804
Corporate expenses (1)		(6,663	)		(680	)		(18,844	)		(3,776	)
Restructuring & consolidation costs		(610	)		(2,553	)		(2,119	)		(6,869	)
Income from operations	$	20,737		$	21,273		$	68,466		$	62,084
Other non-operating (income) expense:
Loss on settlement of pension plan	$	—		$	—		$	5,086		$	—
Net interest expense		1,958			1,811			5,857			5,547
Other non-operating (income), net		644			696			216			30
Loss on extinguishment of convertible debt		—			—			—			1,797
	$	2,602		$	2,507		$	11,159		$	7,374
Income before income taxes		18,135			18,766			57,307			54,710
Provision for income taxes		5,822			5,489			16,986			15,723
Net income	$	12,313		$	13,277		$	40,321		$	38,987

(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
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Depreciation and amortization:
Couplings, Clutches & Brakes	$	5,492	$	5,387	$	16,722	$	15,658
Electromagnetic Clutches & Brakes		1,024		1,274		2,960		3,690
Gearing		1,995		1,776		5,771		5,077
Corporate		841		851		2,578		2,478
Total depreciation and amortization	$	9,352	$	9,288	$	28,031	$	26,903

					September 30, 2018		September 30, 2017
Total assets:
Couplings, Clutches & Brakes					$	565,736	$	570,266
Electromagnetic Clutches & Brakes						156,802		181,766
Gearing						160,363		139,039
Corporate (2)						29,668		34,960
Total assets					$	912,569	$	926,031

(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
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
North America (primarily U.S.)	$	115,133	$	101,569	$	359,849	$	331,945
Europe		90,015		87,866		274,805		256,142
Asia and other		23,335		25,188		71,537		65,328
Total	$	228,483	$	214,623	$	706,191	$	653,415

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 September 30, 2018 and 2017, the Gearing business had one customer that approximated 10% of total sales for that segment during the quarter ended September 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.