UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2017March 31, 2021.
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 file number 0-04041
ALLIED MOTION TECHNOLOGIES INC.INC.
(Exact name of Registrant as Specified in Its Charter)
| | |
Colorado | 84-0518115 | |
(State or other jurisdiction of | | (I.R.S. Employer |
| | |
495 Commerce Drive, Amherst, New York |
| |
| | 14228 |
(716) (716) 242-8634
(Registrant’s Telephone Number, Including Area Code)
(Former Address, if Changed Since Last Report)
Title of each class |
| Trading Symbol | Name of each exchange on which registered | |
Common stock | | AMOT | | NASDAQ |
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 ninety (90) days. Yes x⌧ No o◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x⌧ No o◻
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act. (Check one):
Large accelerated filer | Accelerated filer ⌧ |
| Smaller reporting company ☐ |
|
| Emerging growth |
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. o◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x
⌧
Number of Shares of the only class of Common Stock outstanding: 9,452,96914,703,934 as of November 1, 2017May 5, 2021
ALLIED MOTION TECHNOLOGIES INC.
INDEX
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PART I. FINANCIAL INFORMATION | Page No. | |||||
| | | ||||
Item 1. | Financial Statements |
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| | | ||||
1 | ||||||
| | | ||||
Condensed Consolidated Statements of | 2 | |||||
| | | ||||
Condensed Consolidated Statements of Stockholders’ Equity – Unaudited | 3 | |||||
| | | ||||
Condensed Consolidated Statements of Cash Flows |
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| | | ||||
Notes to Condensed Consolidated Financial Statements - Unaudited |
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23 | ||||||
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23 | ||||||
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23 | ||||||
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| 24 | |||||
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24 | ||||||
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24 |
ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
| | | | | | | |
| | March 31, | | December 31, | | ||
|
| 2021 |
| 2020 |
| ||
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 24,725 | | $ | 23,131 | |
Trade receivables, net of provision for credit losses of $509 and $382 at March 31, 2021 and December 31, 2020, respectively | | | 56,252 | | | 47,377 | |
Inventories | |
| 61,429 | |
| 62,978 | |
Prepaid expenses and other assets | |
| 7,150 | |
| 8,728 | |
Total current assets | |
| 149,556 | |
| 142,214 | |
Property, plant and equipment, net | |
| 54,808 | |
| 55,428 | |
Deferred income taxes | |
| 7,456 | |
| 330 | |
Intangible assets, net | |
| 63,856 | |
| 65,859 | |
Goodwill | |
| 60,902 | |
| 61,860 | |
Right of use assets | | | 18,881 | | | 19,023 | |
Other long-term assets | |
| 4,526 | |
| 4,483 | |
Total Assets | | $ | 359,985 | | $ | 349,197 | |
Liabilities and Stockholders’ Equity | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 32,382 | | $ | 27,668 | |
Accrued liabilities | |
| 23,314 | |
| 24,862 | |
Total current liabilities | |
| 55,696 | |
| 52,530 | |
Long-term debt | |
| 119,882 | |
| 120,079 | |
Deferred income taxes | |
| 4,658 | |
| 4,659 | |
Pension and post-retirement obligations | |
| 5,045 | |
| 5,340 | |
Right of use liabilities | | | 14,895 | | | 14,975 | |
Other long-term liabilities | | | 6,761 | | | 8,558 | |
Total liabilities | |
| 206,937 | |
| 206,141 | |
Stockholders’ Equity: | | | | | | | |
Common stock, 0 par value, authorized 50,000 shares; 14,724 and 14,632 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | |
| 42,936 | |
| 41,278 | |
Preferred stock, par value $1.00 per share, authorized 5,000 shares; 0 shares issued or outstanding | |
| — | |
| — | |
Retained earnings | |
| 116,698 | |
| 105,065 | |
Accumulated other comprehensive loss | |
| (6,586) | |
| (3,287) | |
Total stockholders’ equity | |
| 153,048 | |
| 143,056 | |
Total Liabilities and Stockholders’ Equity | | $ | 359,985 | | $ | 349,197 | |
|
| September 30, |
| December 31, |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 17,600 |
| $ | 15,483 |
|
Trade receivables, net of allowance for doubtful accounts of $379 and $362 at September 30, 2017 and December 31, 2016, respectively |
| 34,493 |
| 26,104 |
| ||
Inventories |
| 32,779 |
| 31,098 |
| ||
Prepaid expenses and other assets |
| 3,096 |
| 3,120 |
| ||
Total current assets |
| 87,968 |
| 75,805 |
| ||
Property, plant and equipment, net |
| 38,157 |
| 37,474 |
| ||
Deferred income taxes |
| 492 |
| 923 |
| ||
Intangible assets, net |
| 32,776 |
| 34,252 |
| ||
Goodwill |
| 29,305 |
| 27,522 |
| ||
Other long term assets |
| 4,343 |
| 3,943 |
| ||
Total assets |
| $ | 193,041 |
| $ | 179,919 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Debt obligations |
| 526 |
| 936 |
| ||
Accounts payable |
| 17,156 |
| 13,204 |
| ||
Accrued liabilities |
| 13,742 |
| 10,678 |
| ||
Total current liabilities |
| 31,424 |
| 24,818 |
| ||
Long-term debt |
| 61,995 |
| 70,483 |
| ||
Deferred income taxes |
| 3,129 |
| 3,266 |
| ||
Pension and post-retirement obligations |
| 4,403 |
| 4,381 |
| ||
Other long term liabilities |
| 5,386 |
| 4,685 |
| ||
Total liabilities |
| 106,337 |
| 107,633 |
| ||
Stockholders’ Equity: |
|
|
|
|
| ||
Common stock, no par value, authorized 50,000 shares; 9,453 and 9,374 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
| 31,244 |
| 29,503 |
| ||
Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding |
| — |
| — |
| ||
Retained earnings |
| 62,033 |
| 54,786 |
| ||
Accumulated other comprehensive loss |
| (6,573 | ) | (12,003 | ) | ||
Total stockholders’ equity |
| 86,704 |
| 72,286 |
| ||
Total Liabilities and Stockholders’ Equity |
| $ | 193,041 |
| $ | 179,919 |
|
See accompanying notes to condensed consolidated financial statements.
1
ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
| | | | | | | |
| | For the three months ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Revenues | | $ | 101,677 | | $ | 92,382 | |
Cost of goods sold | |
| 71,609 | |
| 64,340 | |
Gross profit | |
| 30,068 | |
| 28,042 | |
Operating costs and expenses: | | | | | | | |
Selling | |
| 4,218 | |
| 4,243 | |
General and administrative | |
| 10,748 | |
| 9,162 | |
Engineering and development | |
| 6,959 | |
| 6,234 | |
Business development | |
| 19 | |
| 247 | |
Amortization of intangible assets | |
| 1,512 | |
| 1,441 | |
Total operating costs and expenses | |
| 23,456 | |
| 21,327 | |
Operating income | |
| 6,612 | |
| 6,715 | |
Other expense, net: | | | | | | | |
Interest expense | |
| 861 | |
| 1,054 | |
Other (income) expense, net | |
| (119) | |
| 59 | |
Total other expense, net | |
| 742 | |
| 1,113 | |
Income before income taxes | |
| 5,870 | |
| 5,602 | |
Income tax benefit (provision) | |
| 6,057 | |
| (1,567) | |
Net income | | $ | 11,927 | | $ | 4,035 | |
Basic earnings per share: | | | | | | | |
Earnings per share | | $ | 0.83 | | $ | 0.28 | |
Basic weighted average common shares | |
| 14,306 | |
| 14,180 | |
Diluted earnings per share: | | | | | | | |
Earnings per share | | $ | 0.83 | | $ | 0.28 | |
Diluted weighted average common shares | |
| 14,438 | |
| 14,274 | |
Net income | | $ | 11,927 | | $ | 4,035 | |
Other comprehensive income: | | | | | | | |
Foreign currency translation adjustment | | | (4,007) | | | (2,428) | |
Gain (loss) on derivatives | | | 708 | | | (1,088) | |
Comprehensive income | | $ | 8,628 | | $ | 519 | |
|
| For the three months ended |
| For the nine months ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Revenues |
| $ | 64,968 |
| $ | 61,040 |
| $ | 186,657 |
| $ | 190,550 |
|
Cost of goods sold |
| 45,422 |
| 43,133 |
| 131,529 |
| 134,274 |
| ||||
Gross profit |
| 19,546 |
| 17,907 |
| 55,128 |
| 56,276 |
| ||||
Operating costs and expenses: |
|
|
|
|
|
|
|
|
| ||||
Selling |
| 2,822 |
| 2,431 |
| 8,135 |
| 7,490 |
| ||||
General and administrative |
| 6,255 |
| 5,264 |
| 17,985 |
| 17,551 |
| ||||
Engineering and development |
| 4,389 |
| 3,961 |
| 12,984 |
| 12,185 |
| ||||
Business development |
| — |
| 123 |
| — |
| 341 |
| ||||
Amortization of intangible assets |
| 813 |
| 802 |
| 2,405 |
| 2,409 |
| ||||
Total operating costs and expenses |
| 14,279 |
| 12,581 |
| 41,509 |
| 39,976 |
| ||||
Operating income |
| 5,267 |
| 5,326 |
| 13,619 |
| 16,300 |
| ||||
Other expense (income): |
|
|
|
|
|
|
|
|
| ||||
Interest expense |
| 633 |
| 1,504 |
| 1,797 |
| 4,626 |
| ||||
Other expense, net |
| 65 |
| (75 | ) | 135 |
| (190 | ) | ||||
Total other expense, net |
| 698 |
| 1,429 |
| 1,932 |
| 4,436 |
| ||||
Income before income taxes |
| 4,569 |
| 3,897 |
| 11,687 |
| 11,864 |
| ||||
Provision for income taxes |
| (1,512 | ) | (1,076 | ) | (3,746 | ) | (3,495 | ) | ||||
Net income |
| $ | 3,057 |
| $ | 2,821 |
| $ | 7,941 |
| $ | 8,369 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Earnings per share |
| $ | 0.33 |
| $ | 0.30 |
| $ | 0.87 |
| $ | 0.90 |
|
Basic weighted average common shares |
| 9,173 |
| 9,350 |
| 9,137 |
| 9,325 |
| ||||
Diluted earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Earnings per share |
| $ | 0.33 |
| $ | 0.30 |
| $ | 0.86 |
| $ | 0.90 |
|
Diluted weighted average common shares |
| 9,294 |
| 9,350 |
| 9,265 |
| 9,325 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 3,057 |
| $ | 2,821 |
| $ | 7,941 |
| $ | 8,369 |
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment |
| 1,829 |
| 383 |
| 5,608 |
| 1,346 |
| ||||
Change in accumulated (loss) income on derivatives |
| 45 |
| 66 |
| (178 | ) | (56 | ) | ||||
Comprehensive income (loss) |
| $ | 4,931 |
| $ | 3,270 |
| $ | 13,371 |
| $ | 9,659 |
|
See accompanying notes to condensed consolidated financial statements.
2
ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(In thousands)thousands, except per share data)
(Unaudited)
|
| For the nine months ended |
| ||||
|
| September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Cash Flows From Operating Activities: |
|
|
|
|
| ||
Net income |
| $ | 7,941 |
| $ | 8,369 |
|
Adjustments to reconcile net income to net cash provided by operating activities (net of working capital acquired in 2016): |
|
|
|
|
| ||
Depreciation and amortization |
| 7,590 |
| 7,309 |
| ||
Deferred income taxes |
| (99 | ) | 1,345 |
| ||
Stock compensation expense |
| 1,473 |
| 1,370 |
| ||
Debt issue cost amortization recorded in interest expense |
| 113 |
| — |
| ||
Other |
| (26 | ) | (455 | ) | ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Trade receivables |
| (6,887 | ) | (5,739 | ) | ||
Inventories |
| (379 | ) | 613 |
| ||
Prepaid expenses and other assets |
| 17 |
| 1,252 |
| ||
Accounts payable |
| 3,106 |
| (525 | ) | ||
Accrued liabilities |
| 2,464 |
| (3,574 | ) | ||
Net cash provided by operating activities |
| 15,313 |
| 9,965 |
| ||
|
|
|
|
|
| ||
Cash Flows From Investing Activities: |
|
|
|
|
| ||
Purchase of property and equipment |
| (4,220 | ) | (3,694 | ) | ||
Consideration paid for acquisition, net of cash acquired ($2,329) |
| — |
| (16,049 | ) | ||
Net cash used in investing activities |
| (4,220 | ) | (19,743 | ) | ||
|
|
|
|
|
| ||
Cash Flows From Financing Activities: |
|
|
|
|
| ||
Borrowings on lines-of-credit, net |
| (441 | ) | 6,802 |
| ||
Principal payments of long-term debt |
| (9,114 | ) | (5,625 | ) | ||
Dividends paid to stockholders |
| (709 | ) | (700 | ) | ||
Stock transactions under employee benefit stock plans |
| 355 |
| 268 |
| ||
Net cash (used in) provided by financing activities |
| (9,909 | ) | 745 |
| ||
Effect of foreign exchange rate changes on cash |
| 933 |
| 297 |
| ||
Net increase (decrease) in cash and cash equivalents |
| 2,117 |
| (8,736 | ) | ||
Cash and cash equivalents at beginning of period |
| 15,483 |
| 21,278 |
| ||
Cash and cash equivalents at end of period |
| $ | 17,600 |
| $ | 12,542 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Common Stock |
| | | Accumulated Other Comprehensive Income (Loss) |
| | ||||||||||||||||||
| | | | | | | | | | | | | | | | Foreign | | | | | | | | | ||
| | | | | | Unamortized | | Common Stock | | | | Currency | | Accumulated | | | | Total | ||||||||
| | | | | | Cost of Equity | | and Paid-in | | Retained | | Translation | | income (loss) | | Pension | | Stockholders' | ||||||||
(In thousands except per share data) |
| Shares |
| Amount |
| Awards |
| Capital |
| Earnings |
| Adjustments |
| on derivatives |
| adjustments |
| Equity | ||||||||
Balances, December 31, 2020 |
| 14,632 | | $ | 47,085 | | $ | (5,807) | | $ | 41,278 | | $ | 105,065 | | $ | (216) | | $ | (1,438) | | $ | (1,633) | | $ | 143,056 |
Stock transactions under employee benefit stock plans |
| 32 | |
| 988 | | | | | | 988 | | | | | | | | | | | | | |
| 988 |
Issuance of restricted stock, net of forfeitures |
| 81 | |
| 3,001 | |
| (2,872) | | | 129 | | | | | | | | | | | | | |
| 129 |
Stock-based compensation expense | | | | | | |
| 797 | | | 797 | | | | | | | | | | | | | |
| 797 |
Shares withheld for payment of employee payroll taxes | | (21) | | | (256) | | | | | | (256) | | | | | | | | | | | | | | | (256) |
Comprehensive (loss) income | | | | | | | | | | | | | | | | | (4,007) | | | 929 | | | | | | (3,078) |
Tax effect of derivative transactions | | | | | | | | | | | | | | | | | | | | (221) | | | | | | (221) |
Net income | | | | | | | | | |
| | |
| 11,927 | | | | | | | | | | |
| 11,927 |
Dividends to stockholders - $0.02 | | | | | | | | | | | | | | (294) | | | | | | | | | | | | (294) |
Balances, March 31, 2021 |
| 14,724 | | $ | 50,818 | | $ | (7,882) | | $ | 42,936 | | $ | 116,698 | | $ | (4,223) | | $ | (730) | | $ | (1,633) | | $ | 153,048 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Common Stock |
| | | Accumulated Other Comprehensive Income (Loss) |
| | ||||||||||||||||||
| | | | | | | | | | | | | | | | Foreign | | | | | | | | | ||
| | | | | | Unamortized | | Common Stock | | | | Currency | | Accumulated | | | | Total | ||||||||
| | | | | | Cost of Equity | | and Paid-in | | Retained | | Translation | | income (loss) | | Pension | | Stockholders' | ||||||||
|
| Shares |
| Amount |
| Awards |
| Capital |
| Earnings |
| Adjustments |
| on derivatives |
| adjustments |
| Equity | ||||||||
Balances, December 31, 2019 | | 14,399 | | $ | 41,642 | | $ | (4,506) | | $ | 37,136 | | $ | 92,589 | | $ | (8,626) | | $ | (277) | | $ | (1,628) | | $ | 119,194 |
Stock transactions under employee benefit stock plans |
| 48 | |
| 1,252 | | | | | | 1,252 | | | | | | | | | | | | | |
| 1,252 |
Issuance of restricted stock, net of forfeitures |
| 156 | |
| 3,574 | |
| (3,089) | | | 485 | | | | | | | | | | | | | |
| 485 |
Stock-based compensation expense | | | | | | |
| 789 | | | 789 | | | | | | | | | | | | | |
| 789 |
Shares withheld for payment of employee payroll taxes | | (36) | | | (256) | | | | | | (256) | | | | | | | | | | | | | | | (256) |
Comprehensive loss | | | | | | | | | | | | | | | | | (2,428) | | | (1,432) | | | | | | (3,860) |
Tax effect | | | | | | | | | | | | | | | | | | | | 344 | | | | | | 344 |
Net income | | | | | | | | | |
| | |
| 4,035 | | | | | | | | | | |
| 4,035 |
Dividends to stockholders - $0.02 | | | | | | | | | | | | | | (290) | | | | | | | | | | | | (290) |
Balances, March 31, 2020 |
| 14,567 | | $ | 46,212 | | $ | (6,806) | | $ | 39,406 | | $ | 96,334 | | $ | (11,054) | | $ | (1,365) | | $ | (1,628) | | $ | 121,693 |
See accompanying notes to condensed consolidated financial statements.
3
ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | |
| | For the three months ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Cash Flows From Operating Activities: | | | | | | | |
Net income | | $ | 11,927 | | $ | 4,035 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | | | | | |
Depreciation and amortization | |
| 4,431 | |
| 3,750 | ��� |
Deferred income taxes | |
| (7,029) | |
| (488) | |
Stock-based compensation expense | | | 797 | | | 789 | |
Debt issue cost amortization recorded in interest expense | | | 35 | | | 38 | |
Other | |
| 890 | |
| 72 | |
Changes in operating assets and liabilities, net of acquisition: | | | | | | | |
Trade receivables | |
| (9,912) | |
| (7,463) | |
Inventories | |
| 56 | |
| (3,978) | |
Prepaid expenses and other assets | |
| 1,862 | |
| 275 | |
Accounts payable | |
| 4,994 | |
| 3,043 | |
Accrued liabilities | |
| (2,484) | |
| (3,039) | |
Net cash provided by (used in) operating activities | |
| 5,567 | |
| (2,966) | |
| | | | | | | |
Cash Flows From Investing Activities: | | | | | | | |
Purchase of property and equipment | | | (3,076) | | | (1,696) | |
Consideration paid for acquisitions, net of cash acquired | |
| — | |
| (14,541) | |
Net cash used in investing activities | |
| (3,076) | |
| (16,237) | |
| | | | | | | |
Cash Flows From Financing Activities: | | | | | | | |
Proceeds from issuance of long-term debt | |
| — | |
| 26,979 | |
Payment of debt issuance costs | |
| — | |
| (401) | |
Tax withholdings related to net share settlements of restricted stock | | | (256) | | | (256) | |
Net cash (used in) provided by financing activities | |
| (256) | |
| 26,322 | |
Effect of foreign exchange rate changes on cash | |
| (641) | |
| (152) | |
Net increase in cash and cash equivalents | |
| 1,594 | |
| 6,967 | |
Cash and cash equivalents at beginning of period | |
| 23,131 | |
| 13,416 | |
Cash and cash equivalents at end of period | | $ | 24,725 | | $ | 20,383 | |
| | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | |
Property, plant and equipment purchases in accounts payable or accrued expenses | | $ | 793 | | $ | 540 | |
See accompanying notes to condensed consolidated financial statements.
4
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1. BASIS OF PREPARATION AND PRESENTATION
Allied Motion Technologies Inc. (Allied Motion(“Allied Motion” or the Company)“Company”) is engaged in the business of designing, manufacturing and selling controlled motion control solutions, which include integrated system solutions as well as individual controlled motion control products, to a broad spectrum of customers throughout the world primarily for the commercial motor, industrial motion, automotive control, medical,world. The Company’s target markets include Vehicle, Medical, Aerospace & Defense and aerospace and defense markets.Industrial.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-companyintercompany accounts and transactions have been eliminated in consolidation.
The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of foreign subsidiaries that occur as a result of changes in exchange rates between the foreign subsidiaries’ functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included in accumulated other comprehensive income,loss, a component of stockholders’ equity in the accompanying condensed consolidated balance sheets.statements of stockholders’ equity. Revenue and expense transactions use an average rate prevailing during the month of the related transaction. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of each Technology Unit (“TU”)of the foreign subsidiaries are included in the results of operations as incurred.
The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and include all adjustments which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures herein are adequate to make the information presented not misleading. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year.
The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
It is suggested that the accompanying condensed consolidated financial statements be read in conjunction with the Consolidated Financial Statements and related Notes to such statements included in the Annual Report on Form 10-K for the year ended December 31, 20162020 that was previously filed by the Company.
Error CorrectionStock Split
On March 10, 2021, the Board of Directors approved a 3-for-2 common stock split to be paid in the form of a stock dividend to holders of record on April 16, 2021. The Company’s quarterlyadditional shares were issued on April 30, 2021. In lieu of fractional shares, shareholders received a cash payment based on the closing share price of the common stock on the record date. All share and per share information presented in the condensed consolidated financial statements have been adjusted to reflect the stock split on a retrospective basis for eachall periods presented.
5
The following table illustrates the correction of the error as shown in the statement of operations in Form 10-Q:
Year 2016 |
| First |
| Second |
| Third |
| |||
Net income as reported |
| $ | 2,127 |
| $ | 2,942 |
| $ | 2,520 |
|
Effect on cost of goods sold |
| (228 | ) | (251 | ) | (301 | ) | |||
Net income as revised |
| $ | 2,355 |
| $ | 3,193 |
| $ | 2,821 |
|
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
2. REVENUE RECOGNITION
Performance Obligations
Performance Obligations Satisfied at a Point in Time
The following table illustratesCompany considers control of most products to transfer at a single point in time, generally when the correctionproducts are shipped in accordance with an agreement and/or purchase order. Control is defined as the ability to direct the use of and obtain substantially all of the errorremaining benefits of the product.
The Company satisfies its performance obligations under a contract with a customer by transferring goods and services in exchange for monetary consideration from the customer. The Company considers the customer’s purchase order, and the Company’s corresponding sales order acknowledgment as recordedthe contract with the customer. For some customers, control, and a sale, is transferred at a point in time when the product is delivered to a customer.
Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
Nature of Goods and Services
The Company sells component and integrated controlled motion solutions to end customers and original equipment manufacturers (“OEM’s”) through the Company’s own direct sales force and authorized manufacturers’ representatives and distributors. The Company’s products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gearmotors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active and passive filters for power quality and harmonic issues, and other controlled motion-related products. The Company’s target markets include Vehicle, Medical, Aerospace & Defense and Industrial.
Determining the Transaction Price
The majority of the Company’s contracts have an original duration of less than one year. For these contracts, the Company applies the practical expedient and therefore does not consider the effects of the time value of money. For multiyear contracts, the Company uses judgment to determine whether there is a significant financing component. These contracts are generally those in which the customer has made an up-front payment. Contracts that management determines to include a significant financing component are discounted at the Company’s incremental borrowing rate. The Company incurs interest expense and accrues a contract liability. As the Company satisfies performance obligations and recognizes revenue from these contracts, interest expense is recognized simultaneously. Management does not have any contracts that include a significant financing component as of March 31, 2021.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into geographical regions and target markets. The Company determines 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. As noted below in Note 17, Segment Information, the Company’s business consists of 1 reportable segment. The foreign revenues by geography in the table below are revenues derived from the Company's foreign subsidiaries as detailed in Note 17.
6
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
A disaggregation of revenue by target market and geography is provided below (in thousands).
| | | | | | |
| | Three months ended | ||||
| | March 31, | ||||
Target Market |
| 2021 |
| 2020 | ||
Vehicle | | $ | 34,451 | | $ | 28,055 |
Industrial | |
| 31,303 | |
| 33,351 |
Medical | |
| 23,289 | |
| 14,551 |
Aerospace & Defense | |
| 7,442 | |
| 11,142 |
Other | |
| 5,192 | |
| 5,283 |
Total | | $ | 101,677 | | $ | 92,382 |
| | | | | | | |
| | Three months ended | | ||||
| | March 31, | | ||||
Geography |
| 2021 |
| 2020 | | ||
United States | | $ | 56,642 | | $ | 56,369 | |
Europe | |
| 37,162 | |
| 33,133 | |
Asia-Pacific | |
| 7,873 | |
| 2,880 | |
Total | | $ | 101,677 | | $ | 92,382 | |
Contract Balances
When the timing of the Company’s financial statements duringdelivery of product is different from the fourth quarter 2016:
Year 2016 |
| Fourth |
| |
Net income as recorded |
| $ | 1,489 |
|
Effect on cost of goods sold |
| 780 |
| |
Net income as revised |
| $ | 709 |
|
timing of the payments made by customers, the Company recognizes either a contract asset (performance precedes customer payment) or a contract liability (customer payment precedes performance). Typically, contracts are paid in arrears and are recognized as receivables after the Company considers whether a significant financing component exists.
The third quarteropening and year to date 2016 financial statements presented have been revised to reflect the error correction. The impactclosing balances of the correction on basicCompany’s contract liabilities are as follows (in thousands):
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2021 | | 2020 | ||
Contract liabilities in accrued liabilities | | $ | 801 | | $ | 898 |
Contract liabilities in other long-term liabilities | | | 251 | | | 262 |
| | $ | 1,052 | | $ | 1,160 |
The difference between the opening and fully diluted earningsclosing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment.
Significant Payment Terms
The Company’s contracts with its customers state the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payments are typically due in full within 30-60 days of delivery. Since the customer agrees to a stated rate and price in the contract that do not vary over the contract, the majority of contracts do not contain variable consideration.
Returns, Refunds, and Warranties
In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The Company establishes provisions for estimated returns and warranties. All contracts include a standard warranty clause to guarantee that the product complies with agreed specifications.
7
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share for the third quarter and year to date 2016 was an increase of $0.03 and $0.09, respectively.data)
Reclassifications
Certain items in the prior year’s consolidated financial statements and notes to consolidated financial statements have been reclassified to conform to the 2017 presentation.
2.3. INVENTORIES
Inventories include costs of materials, direct labor and manufacturing overhead, and are stated at the lower of cost (first-in, first-out basis) or net realizable value, as follows (in thousands):
|
| September 30, |
| December 31, |
| ||
Parts and raw materials |
| $ | 23,914 |
| $ | 23,978 |
|
Work-in-progress |
| 7,948 |
| 6,628 |
| ||
Finished goods |
| 5,380 |
| 4,928 |
| ||
|
| 37,242 |
| 35,534 |
| ||
Less reserves |
| (4,463 | ) | (4,436 | ) | ||
Inventories |
| $ | 32,779 |
| $ | 31,098 |
|
| | | | | | | |
|
| March 31, |
| December 31, | | ||
| | 2021 | | 2020 | | ||
Parts and raw materials | | $ | 44,753 | | $ | 44,750 | |
Work-in-process | |
| 5,318 | |
| 6,186 | |
Finished goods | |
| 11,358 | |
| 12,042 | |
| | $ | 61,429 | | $ | 62,978 | |
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is classified as follows (in thousands):
| | | | | | | | |
|
| |
| March 31, |
| December 31, | ||
| | Useful lives | | 2021 | | 2020 | ||
Land | | | | $ | 987 | | $ | 999 |
Building and improvements |
| 5 - 39 years | |
| 14,086 | |
| 14,169 |
Machinery, equipment, tools and dies |
| 3 - 15 years | |
| 79,150 | |
| 79,738 |
Construction work in progress | | | | | 6,235 | | | 6,821 |
Furniture, fixtures and other |
| 3 - 10 years | |
| 18,923 | |
| 16,313 |
| | | |
| 119,381 | |
| 118,040 |
Less accumulated depreciation | | | |
| (64,573) | |
| (62,612) |
Property, plant and equipment, net | | | | $ | 54,808 | | $ | 55,428 |
Depreciation expense was approximately $2,919 and $2,309 for the three months ended March 31, 2021 and 2020, respectively.
5. GOODWILL
The change in the carrying amount of goodwill for the three months ended March 31, 2021 is as follows (in thousands):
| | | |
| March 31, | | |
| | 2021 | |
Beginning balance | $ | 61,860 | |
Effect of foreign currency translation |
| (958) | |
Ending balance | $ | 60,902 | |
3.6. INTANGIBLE ASSETS
Intangible assets on the Company’s condensed consolidated balance sheets consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2021 | | December 31, 2020 | ||||||||||||||
|
| |
| Gross |
| Accumulated |
| Net Book |
| Gross |
| Accumulated |
| Net Book | ||||||
| | Life | | Amount | | amortization | | Value | | Amount | | amortization | | Value | ||||||
Customer lists |
| 8 - 17 years | | $ | 69,405 | | $ | (24,520) | | $ | 44,885 | | $ | 69,833 | | $ | (23,636) | | $ | 46,197 |
Trade name |
| 10 - 19 years | |
| 13,934 | |
| (5,260) | |
| 8,674 | |
| 14,055 | |
| (5,061) | |
| 8,994 |
Design and technologies |
| 10 - 15 years | |
| 15,232 | |
| (4,946) | |
| 10,286 | |
| 15,531 | |
| (4,874) | |
| 10,657 |
Patents | | 17 years | |
| 24 | |
| (13) | |
| 11 | |
| 24 | |
| (13) | |
| 11 |
Total | | | | $ | 98,595 | | $ | (34,739) | | $ | 63,856 | | $ | 99,443 | | $ | (33,584) | | $ | 65,859 |
Amortization expense for intangible assets was $1,512 and $1,441 for the three months ended March 31, 2021 and 2020, respectively.
8
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Estimated future intangible asset amortization expense as of March 31, 2021 is as follows (in thousands):
| | | |
| | Estimated | |
|
| Amortization Expense | |
Remainder of 2021 | | $ | 4,512 |
2022 | |
| 6,065 |
2023 | |
| 6,080 |
2024 | | | 5,751 |
2025 | |
| 5,734 |
2026 | | | 5,722 |
Thereafter | |
| 29,992 |
Total estimated amortization expense | | $ | 63,856 |
7. STOCK-BASED COMPENSATION
Stock Incentive Plans
The Company’s Stock Incentive Plans provide for the granting of stock awards, including restricted stock, stock options and stock appreciation rights, to employees and non-employees, including directors of the Company.
Restricted Stock
For the ninethree months ended September 30, 2017, 105,785March 31, 2021, 94,985 shares of unvested restricted stock were awarded at a weighted average market value of $22.56.$31.63. Of the restricted shares granted, 28,02562,672 shares have performance basedperformance-based vesting conditions. The value of the shares is amortized to compensation expense over the related service period, which is normally three years, or over the estimated performance period. Shares of unvested restricted stock are generally forfeited if a recipient leaves the Company before the vesting date. Shares that are forfeited become available for future awards.
The following is a summary of restricted stock activity for the three-months ended March 31, 2021:
| | |
| | Number of |
| shares | |
Outstanding at beginning of period | 357,342 | |
Awarded | 94,985 | |
Vested | (57,855) | |
Forfeited | (9,620) | |
Outstanding at end of period | 384,852 |
Stock-based compensation expense, net of forfeitures, of $797 and $789 was recorded for the three months ended March 31, 2021 and 2020, respectively.
9
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
The following is a summary of restricted stock activity for the nine months ended September 30, 2017:
| |||
|
| ||
|
| ||
|
|
| |
|
|
| |
|
|
Stock based compensation expense, net of forfeitures of $518 and $395 was recorded for the quarter ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, stock compensation expense, net of forfeitures, of $1,473 and $1,370 was recorded, respectively.
4.8. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
|
| September 30, |
| December 31, |
| ||||||||
| | | | | | | |||||||
| | March 31, | | December 31, | |||||||||
|
| 2021 |
| 2020 | |||||||||
Compensation and fringe benefits |
| $ | 6,471 |
| $ | 7,379 |
| | $ | 9,408 | | $ | 11,184 |
Warranty reserve |
| 924 |
| 830 |
| |
| 2,119 | |
| 1,571 | ||
Income taxes payable |
| 2,470 |
| 183 |
| | | 1,753 | | | 1,459 | ||
Right of use liabilities | | | 4,543 | | | 4,666 | |||||||
Other accrued expenses |
| 3,877 |
| 2,286 |
| |
| 5,491 | |
| 5,982 | ||
|
| $ | 13,742 |
| $ | 10,678 |
| ||||||
| | $ | 23,314 | | $ | 24,862 |
Changes in the Company’s reserve for product warranty claims during 2021 were as follows (in thousands):
| | | |
| March 31, | | |
| 2021 |
| |
Warranty reserve at beginning of the year | $ | 1,571 | |
Provision |
| 608 | |
Warranty expenditures |
| (35) | |
Effect of foreign currency translation |
| (25) | |
Warranty reserve at end of year | $ | 2,119 | |
5.9. DEBT OBLIGATIONS
Debt obligations consisted of the following (in thousands):
|
| September 30, |
| December 31, |
| ||
Current Borrowings |
|
|
|
|
| ||
China Credit Facility (5.0% at September 30, 2017) |
| $ | 526 |
| $ | 936 |
|
Current borrowings |
| $ | 526 |
| $ | 936 |
|
|
|
|
|
|
| ||
Long-term Debt |
|
|
|
|
| ||
Revolving Credit Facility, long term (1) |
| $ | 62,604 |
| $ | 71,203 |
|
Unamortized debt issuance costs |
| (609 | ) | (720 | ) | ||
Long-term debt |
| $ | 61,995 |
| $ | 70,483 |
|
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Long-term Debt | | | | | | |
Revolving Credit Facility, long-term (1) | | $ | 120,424 | | $ | 120,656 |
Unamortized debt issuance costs | | | (542) | | | (577) |
Long-term debt | | $ | 119,882 | | $ | 120,079 |
(1) | The effective rate of the Amended Revolving Facility is 2.49% at March 31, 2021. |
Amended Revolving Credit AgreementFacility
On October 28, 2016, the Company entered into aThe First Amended and Restated Credit Agreement (the “Credit“Amended Credit Agreement”) forincludes a $125,000$225 million revolving credit facility (the “Revolving Credit“Amended Revolving Facility”). The Revolving FacilityAmended Credit Agreement includes (i) a $50,000maximum principal amount of $225 million, (ii) a $75 million accordion amount, and has an initial term(iii) a maturity date of five years. HSBC Bank USA, National Association is the administrative agent, HSBC Securities (USA) Inc. is the sole lead arranger, and KeyBank National Association and Wells Fargo Bank, National Association are co-syndication agents.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
February 2025.
Borrowings under the Amended Revolving Credit Facility are subject to terms defined in the Credit Agreement. Borrowings bear interest at the LIBOR Rate (as defined in the Amended Credit Agreement) plus a margin of 1.00% to 2.25%1.75% or the Prime Rate (as defined in the Amended Credit Agreement) plus a margin of 0% to 1.25%0.75%, in each case depending on the Company’s ratio of total funded indebtedness (as defined in the Amended Credit Agreement) to Consolidated trailing twelve-month EBITDA (the “Total Leverage Ratio”). At September 30, 2017,March 31, 2021, the applicable margin for LIBOR Rate borrowings was 1.75% 1.625% and the applicable margin for Prime Rate borrowings was 0.75%0.625%. In addition, the Company is required to pay a commitment fee of between 0.10% and 0.25%0.225% quarterly (currently 0.175%)(0.20% at March 31, 2021) on the unused portion of the Amended Revolving Credit Facility, also based on the Company’s Total Leverage Ratio.
The Amended Revolving Facility is secured by substantially all of the Company’s non-realty assets and is fully and unconditionally guaranteed by certain of the Company’s subsidiaries.
The Amended Credit Agreement contains certain financial covenants related to minimum interest coverage and total leverage ratio at the end of each quarter. The Amended Credit Agreement also includes other covenants and restrictions, including limits on the amount
10
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
of additional indebtedness, and restrictions on the Company’s ability to merge consolidate or sell all, or substantially all, of its assets. The Company was in compliance with all covenants at September 30, 2017.March 31, 2021.
As of March 31, 2021, the unused Amended Revolving Facility was $104,576. The amount available to borrow may be reduced based upon the Company’s debt and EBITDA levels, which impacts its covenant calculations.
Other
The China Credit Facility provides credit of approximately $1,503$1,526 (Chinese Renminbi (“RMB”10,000) 10,000)(“the China Facility”). The China Facility is a demand revolving facility used for working capital and capital equipment needs at the Company’s China operations. The averageterm is annual and may be cancelled at the bank’s discretion. The interest rate shall be agreed upon by the Lender and the Borrower before the Utilization Date (as defined in the China Facility) and shall be specified in the Utilization Request (as defined in the China Facility). Collateral for the facility is a guarantee issued by the Company. There have been 0 borrowings during the three months ended March 31, 2021 or 2020, respectively, and there is 0 balance for 2017 was $907 (RMB 6,167). At September 30, 2017, there was approximately $977 (RMB 6,500) available underin the facility.China Facility at March 31, 2021 and December 31, 2020.
6.10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain riskrisks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and creditforeign exchange risk primarily by managing the amount, sources and duration of its debt funding andthrough the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investmentsborrowings.
Beginning in the first quarter of 2021, the Company began entering into contracts with 30-day maturities to hedge its short-term balance sheet exposure, primarily intercompany, that are denominated in currencies (Euro, Mexican Peso, New Zealand Dollar, Chinese Renminbi) other than the subsidiary’s functional currency and borrowings.are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in other (income) expense, net in the condensed consolidated statements of income and comprehensive income. To minimize foreign currency exposure, the Company had foreign currency contracts with notional amounts of $8,000 at March 30, 2021. The foreign currency contracts are recorded in the condensed consolidated balance sheets at fair value and resulting gains or losses are recorded in other (income) expense, net in the condensed consolidated statements of income and comprehensive income. During the first quarter of 2021, we recorded a $140 loss on foreign currency contracts which is included in other (income) expense, net and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other (income) expense, net.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During October 2013,In February 2017, the Company entered into two identical3 interest rate swaps with a combined notional amount of $25,000$40,000 that amortize quarterly to a notional of $6,673 at the September 2018 maturity. One of these interest rate swaps is currently active. The Company terminated the other interest rate swap during October 2016 as part of its debt refinancing.mature in February 2022. In February 2017,March 2020, the Company entered into three2 additional interest rate swaps with a combined notional amount of $40,000$20,000 that increases to $60,000 in March 2022 and matures in February 2022.December 2024.
The effective portion of changes in the fair value of interest rate derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Incomeaccumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 20172021 and 2016,2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. There was no hedge ineffectiveness recorded in the Company’s earnings during the quarters ended September 30, 2017 and 2016.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company estimates that an additional $211$860 will be reclassified as an increase to interest expense over the next year.
twelve months. Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.purposes.
11
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
The tablestable below presentpresents the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of September 30, 2017March 31, 2021 and December 31, 20162020 (in thousands):
|
|
|
| Fair Value |
| ||||
Derivative Instruments |
| Balance Sheet Classification |
| September 30, 2017 |
| December 31, 2016 |
| ||
Interest Rate Swaps |
| Other Liabilities |
| $ | 208 |
| $ | 30 |
|
| | | | | | | | | |
| | | | Liability Derivatives | | ||||
| | | | Fair value as of: | | ||||
Derivatives designated as | | Balance Sheet | | March 31, | | December 31, | | ||
hedging instruments |
| Location |
| 2021 |
| 2020 |
| ||
Interest rate products | | Accrued liabilities | | $ | 677 | | $ | — | |
Interest rate products | | Other long-term liabilities | | | 284 | | | 1,889 | |
Foreign currency contracts | | Accrued liabilities | | | 14 | | | — | |
| | | | $ | 975 | | $ | 1,889 | |
The tables below present the effect of cash flow hedge accounting on other comprehensive income (loss) (“OCI”) for the three months ended March 31, 2021 and 2020 (in thousands):
| | | | | | | |
| | Amount of pre-tax gain (loss) recognized | | ||||
| | in OCI on derivatives | | ||||
Derivatives in cash flow hedging relationships | | Three months ended March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Interest rate products | | $ | 704 | | $ | (1,463) | |
| | | | | | | |
| | Amount of pre-tax (loss) gain reclassified | | ||||
| | from accumulated OCI into income | | ||||
Location of (loss) gain reclassified | | Three months ended March 31, | | ||||
from accumulated OCI into income |
| 2021 |
| 2020 | | ||
|
| | |
| | |
|
Interest expense | | $ | (225) | | $ | (31) | |
The table below presents the effect of the Company’s derivative financial instruments on the condensed consolidated statementstatements of income and comprehensive income is as followsfor the three months ended March 31, 2021 and 2020 (in thousands):
|
| Net deferral in OCI of derivatives (effective portion) |
| ||||||||||
|
| For the quarter ended |
| For the nine months ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
Derivative Instruments |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Interest Rate Swaps |
| $ | (34 | ) | $ | 39 |
| $ | (417 | ) | $ | (145 | ) |
| | | | | | | | | |
| | | | Total amounts of income and expense | | ||||
| | | | line items presented that reflect the | | ||||
| | | | effects of cash flow hedges recorded | | ||||
| | | | Three months ended March 31, | | ||||
Derivatives designated as hedging instruments |
| Income Statement Location |
| 2021 |
| 2020 |
| ||
Interest rate products |
| Interest Expense | | $ | 861 | | $ | 1,054 | |
|
| Net reclassification from AOCI into income (effective portion) |
| ||||||||||
|
| For the quarter ended |
| For the nine months ended |
| ||||||||
Statement of earnings |
| September 30, |
| September 30, |
| ||||||||
classification |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Interest expense |
| $ | 79 |
| $ | 27 |
| $ | 239 |
| $ | 89 |
|
12
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of March 31, 2021 and December 31, 2020. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented in the condensed consolidated balance sheets (in thousands).
| | | | | | | | | | | | | | | | | | |
| | | | | Gross amounts | | Net amounts of liabilities | | Gross amounts not offset in the consolidated | |||||||||
As of | | Gross amounts | | offset in the | | presented in the | | balance sheets | ||||||||||
March 31, | | of recognized | | consolidated | | consolidated | | Financial | | Cash collateral | | | | |||||
2021 |
| liabilities |
| balance sheets |
| balance sheets |
| instruments |
| received |
| Net amount | ||||||
Derivatives | | $ | 983 | | $ | 8 | | $ | 975 | | $ | — | | $ | — | | $ | 975 |
| | | | | | | | | | | | | | | | | | |
| | | | | Gross amounts | | Net amounts of liabilities | | Gross amounts not offset in the consolidated | |||||||||
As of | | Gross amounts | | offset in the | | presented in the | | balance sheets | ||||||||||
December 31, | | of recognized | | consolidated | | consolidated | | Financial | | Cash collateral | | | | |||||
2020 |
| liabilities |
| balance sheets |
| balance sheets |
| instruments |
| received |
| Net amount | ||||||
Derivatives | | $ | 1,889 | | $ | — | | $ | 1,889 | | $ | — | | $ | — | | $ | 1,889 |
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
11. FAIR VALUE
Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.
The guidance establishes a framework for measuring fair value which utilizes observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. Preference is given to observable inputs.
These two types of inputs create the following three - level fair value hierarchy:
Level 1: | Quoted prices for identical assets or liabilities in active markets. |
Level 2: | Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model - derived valuations whose inputs or significant value drivers are observable. |
Level 3: | Significant inputs to the valuation model that are unobservable. |
The Company’s financial assets and liabilities include cash and cash equivalents, accounts receivable, debt obligations, accounts payable, and accrued liabilities. The carrying amounts reported in the condensed consolidated balance sheets for these assets and liabilities approximate their fair value because of the immediate or short-term maturities of these financial instruments.
The following tables presents the Company’s financial assets that are accounted for at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, respectively, by level within the fair value hierarchy (in thousands):
| | | | | | | | | |
| | March 31, 2021 | |||||||
|
| Level 1 |
| Level 2 |
| Level 3 | |||
Assets (liabilities) | | | | | | | | | |
Pension plan assets | | $ | 6,685 | | $ | — | | $ | — |
Deferred compensation plan assets | |
| 4,365 | |
| — | |
| — |
Interest rate swaps | |
| — | |
| (961) | |
| — |
Foreign currency hedge contracts | |
| — | |
| (14) | |
| — |
13
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
| | | | | | | | | |
| | December 31, 2020 | |||||||
|
| Level 1 |
| Level 2 |
| Level 3 | |||
Assets (liabilities) | | | | | | | | | |
Pension plan assets | | $ | 6,347 | | $ | — | | $ | — |
Deferred compensation plan assets | |
| 5,386 | |
| — | |
| — |
Interest rate swaps | |
| — | |
| (1,889) | |
| — |
7.12. INCOME TAXES
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws, and foreign tax holidays, settlements with taxing authorities and foreign currency fluctuations.
The Company has net operating loss carryforwards in an international jurisdiction expiring in 2017. The Company evaluates the future realizability of the tax loss and credit carryforwards considering the anticipated future earnings and tax planning strategies in the international jurisdictions.
The effective income tax rate as a percentage of income before income taxes was 33.1%(103.2)% and 27.6% in the third quarter 2017 and 2016, respectively and 32.1% and 29.5%28.0% for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. The 2016 effective tax rates are revised from 29.9% to 27.6% for the third quarter 2016 and from 31.5% to 29.5% for the nine months ended September 30, 2016 to reflect the revised income resulting from the error correction described in Note 1. The effective tax rates includerate is net of a discrete tax (benefit) provisionbenefit of (130.5)% and a discrete tax expense of 0.3%, for the three months ended March 31, 2021 and 2020, respectively. The discrete benefit in the three months ended March 31, 2021 is related primarily to the recognition of net operating loss carryforwards resulting from tax legislation enacted in New Zealand during the period which changes our ability to use the carryforwards in future periods. The discrete tax effect of share-based payment awards as follows:expense for the third quarterthree months ended March 31, 2020 related primarily to share-based payments.
13. LEASES
The Company has operating leases for office space, manufacturing equipment, computer equipment and automobiles. Many leases include one or more options to renew, some of 2017which include options to extend the leases for a net discrete tax benefitlong-term period, and some leases include options to terminate the leases within 30 days. In certain of (0.2%)the Company’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for capital area maintenance, utilities, inflation and/or changes in other indexes.
Short term and variable lease expense were not material in any of the periods presented.
Supplemental cash flow information related to the Company’s operating leases for the third quarter of 2016 a net discrete tax provision 0.2%. For the ninethree months ended September 30, 2017March 31, 2021 and 2016, a net discrete tax benefit of (1.2%) in each period.2020 was as follows (in thousands):
| | | | | | | |
| | March 31, | | ||||
| | 2021 | | 2020 | | ||
Cash paid for amounts included in the measurement of operating leases |
| $ | 1,339 |
| $ | 1,001 |
|
ROU assets obtained in exchange for operating lease obligations | | $ | 1,553 | | $ | 2,710 | |
The effective rate before discrete items varies fromfollowing table presents the statutory rate due to permanent differences in state taxes andmaturity of the difference in US and foreign tax rates and the mixCompany’s operating lease liabilities as of foreign and domestic income.March 31, 2021 (in thousands):
| | | |
Remainder of 2021 |
| $ | 3,773 |
2022 |
| | 4,094 |
2023 | |
| 3,045 |
2024 | |
| 2,368 |
2025 | | | 2,183 |
2026 | | | 1,146 |
Thereafter | |
| 4,327 |
Total undiscounted cash flows | | $ | 20,936 |
Less: present value discount | | | (1,498) |
Total lease liabilities | | $ | 19,438 |
14
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
As of March 31, 2021, the Company had no additional significant operating or finance leases that had not yet commenced.
The Company leases certain facilities from a company for which one of our executive officers is a part owner. In connection with such leases, the Company made payments to the lessor of $0.5 million during the year ended December 31, 2020 and is obligated to make payments of $0.7 million during the year ending December 31, 2021. Future minimum lease payments under the leases as of March 31, 2021 are $8.4 million.
8.14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated Other Comprehensive Income (Loss) (“AOCI”) for the quarterthree months ended September 30, 2017March 31, 2021 and 20162020 is comprised of the following (in thousands):
| | | | | | | | | | | | | | | |
| | | | | | | | | | | Foreign Currency | | | | |
| | Defined Benefit | | | | Tax effect of | | Translation | | | | ||||
|
| Plan Liability |
| Cash Flow Hedges |
| Cash Flow Hedges |
| Adjustment |
| Total | |||||
At December 31, 2020 | | $ | (1,633) | | $ | (1,889) | | $ | 451 | | $ | (216) | | $ | (3,287) |
Unrealized gain on cash flow hedges | | | — | | | 704 | | | (167) | | | — | | | 537 |
Amounts reclassified from AOCI | | | — | | | 225 | | | (54) | | | — | | | 171 |
Foreign currency translation loss | | | — | | | — | | | — | | | (4,007) | | | (4,007) |
At March 31, 2021 | | $ | (1,633) | | $ | (960) | | $ | 230 | | $ | (4,223) | | $ | (6,586) |
|
| Defined Benefit |
| Cash Flow |
| Foreign Currency |
| Total |
| ||||
At June 30, 2017 |
| $ | (822 | ) | $ | (253 | ) | $ | (7,372 | ) | $ | (8,447 | ) |
Unrealized loss on cash flow hedges |
| — |
| (34 | ) | — |
| (34 | ) | ||||
Amounts reclassified from AOCI |
| — |
| 79 |
| — |
| 79 |
| ||||
Foreign currency translation gain |
| — |
| — |
| 1,829 |
| 1,829 |
| ||||
At September 30, 2017 |
| $ | (822 | ) | $ | (208 | ) | $ | (5,543 | ) | $ | (6,573 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | Foreign Currency | | | | |
| | Defined Benefit | | | | Tax effect of | | Translation | | | | ||||
|
| Plan Liability |
| Cash Flow Hedges |
| Cash Flow Hedges |
| Adjustment |
| Total | |||||
At December 31, 2019 | | $ | (1,628) | | $ | (363) | | $ | 86 | | $ | (8,626) | | $ | (10,531) |
Unrealized loss on cash flow hedges | | | — | | | (1,463) | | | 351 | | | — | | | (1,112) |
Amounts reclassified from AOCI | | | — | | | 31 | | | (7) | | | — | | | 24 |
Foreign currency translation loss | | | — | | | — | | | — | | | (2,428) | | | (2,428) |
At March 31, 2020 | | $ | (1,628) | | $ | (1,795) | | $ | 430 | | $ | (11,054) | | $ | (14,047) |
|
| Defined Benefit |
| Cash Flow |
| Foreign Currency |
| Total |
| ||||
At June 30, 2016 |
| $ | (688 | ) | $ | (149 | ) | $ | (8,199 | ) | (9,036 | ) | |
Unrealized loss on cash flow hedges |
| — |
| 39 |
| — |
| 39 |
| ||||
Amounts reclassified from AOCI |
| — |
| 27 |
| — |
| 27 |
| ||||
Foreign currency translation gain |
| — |
| — |
| 383 |
| 383 |
| ||||
At September 30, 2016 |
| $ | (688 | ) | $ | (83 | ) | $ | (7,816 | ) | $ | (8,587 | ) |
Accumulated Other Comprehensive Income for the nine months ended September 30, 2017 and 2016 is comprised of the following (in thousands):
|
| Defined |
| Cash Flow |
| Foreign Currency |
| Total |
| ||||
At December 31, 2016 |
| $ | (822 | ) | $ | (30 | ) | $ | (11,151 | ) | $ | (12,003 | ) |
Unrealized loss on cash flow hedges |
| — |
| (417 | ) | — |
| (417 | ) | ||||
Amounts reclassified from AOCI |
| — |
| 239 |
| — |
| 239 |
| ||||
Foreign currency translation gain |
| — |
| — |
| 5,608 |
| 5,608 |
| ||||
At September 30, 2017 |
| $ | (822 | ) | $ | (208 | ) | $ | (5,543 | ) | $ | (6,573 | ) |
|
| Defined Benefit |
| Cash Flow |
| Foreign Currency |
| Total |
| ||||
At December 31, 2015 |
| $ | (688 | ) | $ | (27 | ) | $ | (9,162 | ) | $ | (9,877 | ) |
Unrealized loss on cash flow hedges |
| — |
| (145 | ) | — |
| (145 | ) | ||||
Amounts reclassified from AOCI |
| — |
| 89 |
| — |
| 89 |
| ||||
Foreign currency translation gain |
| — |
| — |
| 1,346 |
| 1,346 |
| ||||
At September 30, 2016 |
| $ | (688 | ) | $ | (83 | ) | $ | (7,816 | ) | $ | (8,587 | ) |
The realized gainslosses relating to the Company’s interest rate swap hedges were reclassified from accumulated other comprehensive income (loss) and included in interest expense in the Condensed Consolidated Statementscondensed consolidated statements of Operationsincome and Comprehensive Income.comprehensive income.
15. DIVIDENDS PER SHARE
The Company declared a quarterly dividend of $0.02 per share in the three months ended March 31, 2021 and 2020, respectively. Total dividends declared were $294 and $290 in the three months ended March 31, 2021 and 2020, respectively. The declared dividends were paid in April 2021 and 2020, respectively.
16. EARNINGS PER SHARE
Basic and diluted weighted-average shares outstanding are as follows (in thousands):
| | | | | |
| | Three months ended | | ||
| | March 31, | | ||
|
| 2021 |
| 2020 |
|
Basic weighted average shares outstanding |
| 14,306 |
| 14,180 |
|
Dilutive effect of equity awards |
| 132 |
| 94 |
|
Diluted weighted average shares outstanding |
| 14,438 |
| 14,274 |
|
For the three months ended March 31, 2021 and 2020, the anti-dilutive common shares excluded from the calculation of diluted earnings per share were immaterial.
15
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
9.DIVIDENDS PER SHARE
The Company declared a quarterly dividend of $0.025 per share in each of the three quarters of 2017 and 2016. Total year to date dividends declared in 2017 and 2016 were $709 and $708, respectively.
10.EARNINGS PER SHARE
Basic and diluted weighted-average shares outstanding are as follows:
|
| Three months ended September 30, |
| Nine months ended September 30, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
Basic weighted average shares outstanding |
| 9,173 |
| 9,350 |
| 9,137 |
| 9,325 |
|
Dilutive effect of equity awards |
| 121 |
| — |
| 128 |
| — |
|
Diluted weighted average shares outstanding |
| 9,294 |
| 9,350 |
| 9,265 |
| 9,325 |
|
For the three and nine months ended September 30, 2017 there were 2,412 and 6,157 common shares, respectively, subject to equity-based awards excluded from the calculation of diluted earnings per share as they would be anti-dilutive.
11.17. SEGMENT INFORMATION
ASC Topic “Segment Reporting” requires disclosure of operating segments, which as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company operates in one1 segment for the manufacture and marketing of controlled motion control products for original equipment manufacturers and end user and OEM applications. In accordance with the “Segment Reporting” Topic of the ASC, theThe Company’s chief operating decision maker has been identified asis the Chief Executive Officer, and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying condensed consolidated financial statements and within this note.
The Company’s wholly owned foreign subsidiaries, located in The Netherlands, Sweden, Germany, Portugal, China and Mexico are included in the accompanying condensed consolidated financial statements.
Financial information related to the foreign subsidiaries is summarized below (in thousands):
| | | | | | | |
| | Three months ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Revenues derived from foreign subsidiaries | | $ | 45,035 | | $ | 36,013 | |
|
| For the three months ended |
| For the nine months ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Revenues derived from foreign subsidiaries |
| $ | 27,265 |
| $ | 23,218 |
| $ | 77,360 |
| $ | 75,138 |
|
Identifiable foreign assets were $83,502 and $73,378 as of September 30, 2017 and December 31, 2016, respectively.
Revenues derived from foreign subsidiaries and identifiable assets outside of the United States are primarily attributable to Europe.
ALLIED MOTION TECHNOLOGIES INC.Europe and Asia-Pacific.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSIdentifiable foreign assets were $133,775 and $133,466 as of March 31, 2021 and December 31, 2020, respectively.
(In thousands, except per share data)
Sales to customers outside of the United States by all subsidiaries were $30,409$49,655 and $26,670$43,389 during the quarters ended September 30, 2017 and 2016, respectively; and $86,130 and $84,904 for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively.
For third quarter 2017the three months ended March 31, 2021 and 2016,2020, one customer accounted for 18%16% and 24% of revenues, respectively; and for the year to date 2017 and 2016 for 19% and 20%13% of revenues, respectively. As of September 30, 2017March 31, 2021 and December 31, 2020 this customer represented 19% and 22% of trade receivables.
receivables, respectively.
12.18. RECENT ACCOUNTING PRONOUNCEMENTS
Recently adopted accounting pronouncements
In July 2015,December 2019, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU No. 2015-11, “Accounting Standards Update (“ASU”) 2019-12, Simplifying the Measurement of InventoryAccounting for Income Taxes (Topic 740). .” The standard appliessimplifies the accounting for income taxes by removing certain exceptions to inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of the standard at the lower of costgeneral principles in ASC Topic 740, and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendments in ASU 2015-11 more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The standardclarifies existing guidance to improve consistent application. This guidance is effective for fiscal years beginning after December 15, 2016.2020. The Company adopted this ASU 2015-11 effectiveon January 1, 2017 and it had no impact on its consolidated financial statements.
Recently issued accounting pronouncements
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The guidance in ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied2021 on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments affect all companies that must determine whether they have acquired or sold a business. The amendments are intended to help companies and evaluate whether transactions should be accounted forbasis, as acquisitions (or disposals) of assets or businesses. The amendments provide a more robust framework to use in determining when a set of assets and activities is a business. The new standard is effective forthere were no relevant matters impacting the Company beginning on January 1, 2018. The Company does not expectfor which retrospective application was required, and the adoption of this ASU todid not have a material impact on its condensed consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The objective of ASU 2016-15 is to reduce existing diversity in practice by addressing eight specific cash flow issues related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within
ALLIED MOTION TECHNOLOGIES INC.16
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
those fiscal years. Early adoption is permitted. If early adopted, an entity must adopt all the amendments in the same period. The Company is currently evaluating the impactTable of the adoption of ASU 2016-15 on the Company’s financial statements.Contents
In February 2016, the FASB issued ASU 2016-02, which amends the FASB Accounting Standards Codification and creates Topic 842, “Leases.” The new topic supersedes Topic 840, “Leases,” and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2018. ASU 2016-02 mandates a modified retrospective transition method. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” which is a comprehensive new revenue recognition model. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for our interim and annual reporting periods beginning January 1, 2018, and is to be adopted using either a full retrospective or modified retrospective transition method. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We do not plan to early adopt the guidance. We plan to adopt ASU 2014-09 and its amendments on a modified retrospective basis and are continuing to assess all future impacts of the guidance by reviewing our current contracts with customers to identify potential differences that could result from applying the new guidance. Based on our initial review, we expect that the adoption of ASU 2014-09 will not have a material impact on our consolidated financial statements. A significant majority of our revenue is recorded when we invoice customers and is largely aligned with the meeting of identified performance obligations under ASU 2014-09. Although at this time we don’t expect a material change in our revenue recognition, in the remainder of 2017 we expect to continue to evaluate the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements. As we complete our overall assessment, we are evaluating our accounting policies and practices, business processes, systems and controls to determine if changes are necessary to support the new revenue recognition and disclosure requirements. Our assessment will be completed during the year ending December 31, 2017.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
All statements contained herein that are not statements of historical fact constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the word “believe,” “anticipate,” “expect,” “project,” “intend,” “will continue,” “will likely result,” “should” or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from the expected results described in the forward-looking statements. The risks and uncertainties include those associated with: the domestic and foreign general business and economic conditions in the markets we serve, including political and currency risks and adverse changes in local legal and regulatory environments; the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of businesses’ and governments’ responses to the pandemic on our operations and personnel, and on commercial activity and demand across our and our customers’ businesses, and on global supply chains; our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position, the prices of our securities and the achievement of our strategic objectives; the introduction of new technologies and the impact of competitive products; the ability to protect the Company’s intellectual property; our ability to sustain, manage or forecast its growth and product acceptance to accurately align capacity with demand; the continued success of our customers and the ability to realize the full amounts reflected in our order backlog as revenue; the loss of significant customers or the enforceability of the Company’s contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise; our ability to meet the technical specifications of our customers; the performance of subcontractors or suppliers and the continued availability of parts and components; changes in government regulations; the availability of financing and our access to capital markets, borrowings, or financial transactions to hedge certain risks; the ability to attract and retain qualified personnel who can design new applications and products for the motion industry; the ability to implement our corporate strategies designed for growth and improvement in profits including to identify and consummate favorable acquisitions to support external growth and the development of new technologies; the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems; our the ability to control costs, including the establishment and operation of low cost region manufacturing and component sourcing capabilities; and the additional risk factors discussed under “Item 1A. Risk Factors” in Part II of this report and in the Company’s Annual Report in Form 10-K. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-lookingforward- looking statements as a prediction of actual results. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. The Company has no obligation or intent to release publicly any revisions to any forward-looking statements, whether as a result of new information, future events, or otherwise.
New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company’s expectations, beliefs and projections are the and are believed to have a reasonable basis; however, the Company makes no assurance that expectations, beliefs or projections will be achieved.
Overview
We are a global company that designs, manufactures and sells precision and specialty controlled motion control components and systems used in a broad range of industries. Our target markets include Vehicle, Medical, Aerospace & Defense, (A&D), and Industrial/Electronics.Industrial. We are headquartered in Amherst, NY, and have operations in the United States, Canada, Mexico,North America, Europe and Asia.Asia-Pacific. We are known worldwide for our expertise in electro-magnetic, mechanical and electronic motion technology. We sell component and integrated controlled motion control solutions to end customers and original equipment manufacturers (“OEMs”)OEMs through our own direct sales force and authorized manufacturers’ representatives and distributors. Our products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gearmotors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active and passive filters for power quality and harmonic issues, and other motion control-relatedcontrolled motion-related products.
Financial overviewBusiness Environment
The thirdongoing outbreak of the novel strain of Coronavirus (“COVID-19”) will continue to create significant disruptions to the U.S. and global economies and will continue to adversely affect portions of our business, including our supply chain and operations. We have experienced reductions in customer demand in several of our served markets during periods of 2020 and 2021 due to the impact of COVID-19, however we have experienced rebounds in several other served markets, including a record level of total bookings in the
17
first quarter results exceededof 2021. We have been impacted by reduced operational status of our expectationssuppliers which has impacted the predictability of our supply chain. During 2021, we expect the impact of COVID-19 on our operations will continue to challenge many aspects of our business, particularly our supply chain, while providing opportunities in certain markets.
In response to the worldwide outbreak, we have taken and will continue to take proactive, aggressive action to protect the health and safety of our employees, customers, partners, suppliers and communities. We enacted rigorous safety measures in all of our sites, including implementing social distancing protocols, incorporating a work from home environment at certain times for those employees that do not need to be physically present on the manufacturing floor or in a lab to perform their work, suspending travel, implementing temperature checks at the entrances to our facilities, extensively and frequently disinfecting our workspaces and providing masks and other protective equipment to those employees who must be physically present. These measures have been implemented on a worldwide basis and we are continuing to monitor and act in accordance with government authorities requirements or recommendations and evolving best practices.
Our Company provides essential and important products, including those that our customers rely on to address COVID-19. We manufacture and deliver critical motion control components, including electronic drives, motors and control assemblies to manufacturers of medical equipment including respirators, ventilators, infusion pumps, medical fluid pumps and other breathing assist equipment required to care for patients with respiratory issues including COVID-19. We are also a long-term, qualified supplier to leading medical device manufacturers of ventilators and respirators around the world.
Global demand and capacity to produce ventilators increased significantly during portions of 2020, and we are a reliable supplier of the critical motion control components it requires. The Company rapidly deployed resources to increase production capacity to meet the surge in demand that has been experienced for certain types of medical products related to combatting the COVID-19 virus. While the demand for certain items, such as a resultventilators, is returning to normalized levels, we also continue to provide solutions to suppliers of improving economic conditionsother types of medical equipment, including surgical tools and equipment, surgical robots, diagnostic equipment, test equipment, patient mobility and rehabilitation equipment, hospital beds and mobile equipment carts.
Our worldwide locations are considered to be essential suppliers to our customers and therefore most of our locations have remained substantially operational during the outbreak while implementing the enhanced safety procedures.
We have taken actions since the beginning of the pandemic to strengthen our liquidity and financial condition. We renewed and increased demandour revolving credit facility (“Amended Revolving Facility”) to $225 million through February 2025 (refer to Note 9, Debt Obligations from our target markets. We achieved considerable growth withincondensed consolidated financial statements). Through this amendment we lowered our Medicalcost of debt, and Industrial/Electronics markets. We have seen solid demand forsecured more favorable covenants. This liquidity preserves our servo motor products that are used in factory automation solutions. As previously announced in October, 2017, we secured a contract for $6,800 infinancial flexibility during the defense market which is further evidence that our target market strategypandemic and focused selling efforts are beginningsubsequent to yield benefits.
The benefit of improved market conditions, the successful victories with new solutions in more applications and the addition of new customers have led to orders strengthening through the year and our backlog achieving a new record level. We have a
solid pipeline of sales opportunities and are methodically adding new channel partners for our distribution strategy.it. We believe that our cash flows from operations and borrowing capacity are sufficient to support our short and long-term liquidity needs.
To conserve cash and maximize operational efficiency while supporting growth plans, we are executingcontinuing to planalign variable costs with demand, maintaining key engineering capabilities, and believecontrolling discretionary spending. The Company continues to closely monitor events and conditions resulting from COVID-19 and the resulting impact on all forms of incentive compensation.
The extent of the impact of the COVID-19 outbreak on our operational and financial performance will continue to depend on future developments, including the duration and spread of the virus, the potential for additional waves, its impact on our customers and the range of governmental reactions to the pandemic, which cannot be predicted at this time. We will continue to proactively respond to the situation and will take further actions as warranted to alter our business operations as necessary.
Stock Split
On April 30, 2021, we are creatingeffected a strong business foundation upon which3-for-2 stock split. References to grow.
numbers of shares of common stock and per share data have been adjusted to reflect the stock split on a retrospective basis. Refer to Note 1, Basis of Preparation and Presentation in the notes to condensed consolidated financial statements of Part I, Item 1 of this Form 10-Q for further information.
Recent Accounting Pronouncements
Refer to Note 18, Recent Accounting Pronouncements in the notes to condensed consolidated financial statements of Part 1, Item 1 of this Form 10-Q for information regarding recently adopted accounting standards and their potential impact on our financial condition or results of operations.
18
Operating Results
Quarter ended September 30, 2017March 31, 2021 compared to quarter ended September 30, 2016March 31, 2020
|
| For the quarter ended |
| 2017 vs. 2016 |
| |||||||||||||||||||
|
| September 30, |
| Variance |
| |||||||||||||||||||
(in thousands) |
| 2017 |
| 2016 |
| $ |
| % |
| |||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | For the three months ended |
| 2021 vs. 2020 | | |||||||||||||||||||
| | March 31, | | Variance |
| |||||||||||||||||||
(Dollars in thousands, except per share data) |
| 2021 |
| 2020 | | $ |
| % | | |||||||||||||||
Revenues |
| $ | 64,968 |
| $ | 61,040 |
| $ | 3,928 |
| 6 | % | | $ | 101,677 | | $ | 92,382 | | $ | 9,295 | | 10 | % |
Cost of goods sold |
| 45,422 |
| 43,133 |
| 2,289 |
| 5 | % | |
| 71,609 | |
| 64,340 | |
| 7,269 | | 11 | % | |||
Gross profit |
| 19,546 |
| 17,907 |
| 1,639 |
| 9 | % | |
| 30,068 | |
| 28,042 | |
| 2,026 | | 7 | % | |||
Gross margin percentage |
| 30.1 | % | 29.3 | % |
|
|
|
| |
| 29.6 | % |
| 30.4 | % |
|
| |
| | |||
Operating costs and expenses: |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
| | |||
Selling |
| 2,822 |
| 2,431 |
| 391 |
| 16 | % | |
| 4,218 | |
| 4,243 | |
| (25) | | (1) | % | |||
General and administrative |
| 6,255 |
| 5,264 |
| 991 |
| 19 | % | |
| 10,748 | |
| 9,162 | |
| 1,586 | | 17 | % | |||
Engineering and development |
| 4,389 |
| 3,961 |
| 428 |
| 11 | % | |
| 6,959 | |
| 6,234 | |
| 725 | | 12 | % | |||
Business development |
| — |
| 123 |
| (123 | ) | 100 | % | |
| 19 | |
| 247 | |
| (228) | | (92) | % | |||
Amortization of intangible assets |
| 813 |
| 802 |
| 11 |
| 1 | % | |
| 1,512 | |
| 1,441 | |
| 71 | | 5 | % | |||
Total operating costs and expenses |
| 14,279 |
| 12,581 |
| 1,698 |
| 13 | % | |
| 23,456 | |
| 21,327 | |
| 2,129 | | 10 | % | |||
Operating income |
| 5,267 |
| 5,326 |
| (59 | ) | (1 | )% | |
| 6,612 | |
| 6,715 | |
| (103) | | (2) | % | |||
Interest expense |
| 633 |
| 1,504 |
| (871 | ) | (58 | )% | |
| 861 | |
| 1,054 | |
| (193) | | (18) | % | |||
Other income (expense) |
| 65 |
| (75 | ) | 140 |
| (187 | )% | |||||||||||||||
Other (income) expense, net | |
| (119) | |
| 59 | |
| (178) | | (302) | % | ||||||||||||
Total other expense |
| 698 |
| 1,429 |
| (731 | ) | (51 | )% | |
| 742 | |
| 1,113 | |
| (371) | | (33) | % | |||
Income before income taxes |
| 4,569 |
| 3,897 |
| 672 |
| 17 | % | |
| 5,870 | |
| 5,602 | |
| 268 | | 5 | % | |||
Provision for income taxes |
| (1,512 | ) | (1,076 | ) | (436 | ) | 41 | % | |||||||||||||||
Net Income |
| $ | 3,057 |
| $ | 2,821 |
| $ | 236 |
| 8 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income tax benefit (provision) | |
| 6,057 | |
| (1,567) | |
| 7,624 | | (487) | % | ||||||||||||
Net income | | $ | 11,927 | | $ | 4,035 | | $ | 7,892 | | 196 | % | ||||||||||||
| |
|
| |
|
| |
|
| |
| | ||||||||||||
Effective tax rate |
| 33.1 | % | 27.6 | % | 6 | % | 20 | % | |
| (103.2) | % |
| 28.0 | % |
| (131.2) | | (469) | % | |||
Diluted earnings per share |
| $ | 0.33 |
| $ | 0.30 |
| $ | 0.03 |
| 10 | % | | $ | 0.83 | | $ | 0.28 | | $ | 0.55 | | 196 | % |
Bookings |
| $ | 72,964 |
| $ | 59,088 |
| $ | 13,876 |
| 23 | % | | $ | 114,644 | | $ | 92,923 | | $ | 21,721 | | 23 | % |
Backlog |
| $ | 93,547 |
| $ | 77,683 |
| $ | 15,864 |
| 20 | % | | $ | 152,262 | | $ | 133,187 | | $ | 19,075 | | 14 | % |
NET INCOME: Net income increased during the third quarter due to higher volumes driving gross margin improvement and the recognition of continued interest rate savings.
EBITDA AND ADJUSTED EBITDA: EBITDA was $7,832 for the third quarter of 2017 compared to $7,860 for the same quarter last year. Adjusted EBITDA was $8,351 and $8,378 for the third quarter of 2017 and 2016, respectively. EBITDA and adjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, provision for income taxes, and depreciation and amortization. Adjusted EBITDA also excludes stock compensation expense and certain other items. Refer to information included in “Non - GAAP Measures” below for a reconciliation of net income to EBITDA and adjusted EBITDA.
REVENUES: For the quarter, the increase in revenues reflects increasedimproved sales in certain markets we serve, specifically Medical and Vehicle. The addition of Dynamic Controls for a full quarter and the strong demand for medical equipment contributed to the strong Medical market revenues during the quarter. These increases were partially offset by declines primarily in all of our markets except for the VehicleIndustrial and Aerospace & Defense markets.
Sales to U.S. customers were 53%51% of total sales for the first quarter 2021 compared with 56%53% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia. Sales volume increased by 4% for the quarter and there was a 2%Asia-Pacific. The overall increase in salesrevenue was due to a 5.4% volume increase in addition to a 4.6% favorable currency impact. See information included in “Non – GAAP Measures” below for a discussion of the dollar weakening againstnon-GAAP measure and a reconciliation of revenue to revenue excluding foreign currency impacts.
ORDER BOOKINGS AND BACKLOG: We experienced a record level of bookings during the foreign currencies where we do business, primarily the Euro and the Swedish Krona.
ORDER BACKLOG:first quarter of 2021. The increase in bookings in the thirdfirst quarter of 20172021 compared to the thirdfirst quarter of 20162020 is largely due to the increased demand across allincreases in our Medical and Vehicle markets, including a full quarter of our markets outside of Vehicle.bookings from Dynamic Controls. The increase in backlog as of September 30, 2017,March 31, 2021, compared to at September 30, 2016 is attributableMarch 31, 2020 was also related to our strategy in penetrating deeper into specific markets and an increase in long term orders with firm production releases from domestic and European customers.these factors.
GROSS PROFIT AND GROSS MARGIN: Gross margin increased in thirddecreased to 29.6% for the first quarter 2017of 2021, compared to third30.4% for the first quarter 2016of 2020. The decrease in gross margin percentage was largely driven by increased costs resulting from the tight supply chain and the decision to incur incremental costs to ensure on time deliveries to customers. Additionally, we incurred higher than normal warranty costs during the first quarter of 2021 due to a warranty claim during the increased sales volumes.period.
SELLING EXPENSES: Selling expenses increaseddecreased 1% in the thirdfirst quarter of 20172021 compared to the same period of 2016 primarily due2020. The addition of Dynamic Controls for a full quarter was offset by cost control efforts related to increased investment and growth of the One Allied Sales Organization.COVID-19 pandemic, specifically travel restrictions. Selling expenses as a percentage of revenues were 4%4.1% in the thirdfirst quarter of 2017 and 2016.2021 compared to 4.6% for the same period last year.
19
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 19%17% in the thirdfirst quarter 20172021 from the thirdfirst quarter 2016.2020 due to the incremental expenses from Dynamic Controls for a full quarter and costs associated with incentive compensation. As a percentage of revenues, general and administrative expenses increased to 10%were 10.6% for the periodquarter ended September 30, 2017March 31, 2021 compared to 9%9.9% for the same period in 2016. The increase relates largely to increased incentive compensation accruals resulting from an improved level of profitability.2020.
ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by 11%12% in the thirdfirst quarter of 20172021 compared to the same quarter last year. Part of the increase relates to the addition of Dynamic Controls for a full quarter, whose focus is electronics and software engineering. The increase is primarilyalso due to the continued ramp up of development projects to meet the future needs of target markets, primarily at our European locations.as well as supporting growing customer application development needs. As a percentage of revenues, engineering and development expenses were 7%6.8% for the third quarter of 2017 and 2016.
BUSINESS DEVELOPMENT COSTS: The Company did not incur any business development costsended March 31, 2021 compared to 6.7% for the third quarter of 2017. For the same period in 2016, the Company incurred $123 of business development costs partially related to the acquisition of Heidrive GmbH on January 12, 2016.2020.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization expense was flat betweenincreased 5% in the thirdfirst quarter of 20172021 compared to the thirdfirst quarter of 2016.2020 due to the 2021 interim period including a full quarter of amortization of the intangible assets acquired in the acquisition of Dynamic Controls.
INTEREST EXPENSE: Interest expense decreased by $193 in the first quarter 2021 due to lower interest rates compared to the same period in 2020.
INCOME TAXES: The effective income tax rate as a percentage of income before income taxes was 33.1%(103.2)% and 27.6%28.0% in the thirdfirst quarter 20172021 and 2016,2020, respectively. The 2016 effective tax rates are revised from 29.9% to 27.6% for the third quarter 2016 to reflect the revised income resulting from the error correction described in Note 1. The effective tax rates includerate is net of a discrete tax (benefit) provisionbenefit of (130.5)% and a discrete tax expense of 0.3%, for the first quarters of 2021 and 2020, respectively. The discrete benefit in the first quarter of 2021 is primarily related to the recognition of net operating loss carryforwards resulting from tax legislation enacted in New Zealand during the taxperiod.
NET INCOME: Net income increased during the first quarter 2021 compared to the first quarter 2020 reflecting the results of increased revenue, as well as the effect of share-based payment awards as follows: for the third quarter of 2017 a net$7.4 million discrete tax benefit in the current period, partially offset to some extent by increased operating expenses as a result of (0.2%) andthe inclusion of Dynamic Controls for the third quarter of 2016 a net discrete tax provision 0.2%. The effective tax rate differs from the statutory rate primarily due to differences in foreign tax rates. The effective rate is higher for the third quarter 2017 than 2016 due to the mix of income from domestic vs. foreign jurisdictions.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016full quarter.
|
| For the nine months ended |
| 2017 vs. 2016 |
| |||||||
|
| September 30, |
| Variance |
| |||||||
(in thousands) |
| 2017 |
| 2016 |
| $ |
| % |
| |||
Revenues |
| $ | 186,657 |
| $ | 190,550 |
| $ | (3,893 | ) | (2 | )% |
Cost of goods sold |
| 131,529 |
| 134,274 |
| (2,745 | ) | (2 | )% | |||
Gross profit |
| 55,128 |
| 56,276 |
| (1,148 | ) | (2 | )% | |||
Gross margin percentage |
| 29.5 | % | 29.5 | % |
|
|
|
| |||
Operating costs and expenses: |
|
|
|
|
|
|
|
|
| |||
Selling |
| 8,135 |
| 7,490 |
| 645 |
| 9 | % | |||
General and administrative |
| 17,985 |
| 17,551 |
| 434 |
| 2 | % | |||
Engineering and development |
| 12,984 |
| 12,185 |
| 799 |
| 7 | % | |||
Business development |
| — |
| 341 |
| (341 | ) | 100 | % | |||
Amortization of intangible assets |
| 2,405 |
| 2,409 |
| (4 | ) | (0 | )% | |||
Total operating costs and expenses |
| 41,509 |
| 39,976 |
| 1,533 |
| 4 | % | |||
Operating income |
| 13,619 |
| 16,300 |
| (2,681 | ) | (16 | )% | |||
Interest expense |
| 1,797 |
| 4,626 |
| (2,829 | ) | (61 | )% | |||
Other income (expense) |
| 135 |
| (190 | ) | 325 |
| (171 | )% | |||
Total other expense |
| 1,932 |
| 4,436 |
| (2,504 | ) | (56 | )% | |||
Income before income taxes |
| 11,687 |
| 11,864 |
| (177 | ) | (1 | )% | |||
Provision for income taxes |
| (3,746 | ) | (3,495 | ) | (251 | ) | 7 | % | |||
Net Income |
| $ | 7,941 |
| $ | 8,369 |
| $ | (428 | ) | (5 | )% |
|
|
|
|
|
|
|
|
|
| |||
Effective tax rate |
| 32.1 | % | 29.5 | % | 3 | % | 9 | % | |||
Diluted earnings per share |
| $ | 0.86 |
| $ | 0.90 |
| $ | (0.04 | ) | (4 | )% |
Bookings |
| $ | 199,177 |
| $ | 193,826 |
| $ | 5,351 |
| 3 | % |
Backlog |
| $ | 93,547 |
| $ | 77,683 |
| $ | 15,864 |
| 20 | % |
NET INCOME: Net income decreased during 2017 due predominantly to the impact of decreased volumes in our Vehicle market.
EBITDA AND ADJUSTED EBITDA: EBITDA was $21,074$11,162 for 2017the first quarter of 2021 compared to $23,799$10,406 for the same quarter last year. The increase in the first quarter of 2021 compared to the first quarter of 2020 is primarily due to higher gross profit driven by sales growth, partially offset by lower gross margins and increased operating expenses. Adjusted EBITDA was $22,547$11,966 and $24,687$11,534 for 2017the first quarters of 2021 and 2016,2020, respectively. EBITDA and adjustedAdjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, provisionbenefit (provision) for income taxes, and depreciation and amortization. Adjusted EBITDA also excludes stockstock-based compensation expense, foreign currency gain/loss, and certain other items. Refer to information included in “Non - GAAP“Non-GAAP Measures” below for a reconciliation of net income to EBITDA and adjustedAdjusted EBITDA.
REVENUES: For 2017, the decrease in revenues reflects lower sales in our Vehicle market. All other markets that Allied serves have shown increases year over year.
Sales to U.S. customers were 54% of total sales for 2017 compared with 55% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.
ORDER BACKLOG: The increase in orders from year-to-date 2016 to year-to-date 2017 is reflective of the overall increase in demand across our served markets outside of Vehicle. The increase in backlog as of September 30, 2017 compared to at September 30, 2016 is attributable to our strategy in penetrating deeper into specific markets, and an increase in long term orders with firm production releases at both domestic and European customers.
GROSS PROFIT AND MARGIN: Gross profit and margin was flat between 2017 and 2016.
SELLING EXPENSES: Selling expenses increased in 2017 compared to 2016 primarily due to increased investment and focused growth of the One Allied Sales Organization. Selling expenses as a percentage of revenues were consistent at 4% for 2017 and 2016.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 3% in 2017 compared to 2016 largely due to increased incentive compensation expense. As a percentage of revenues, general and administrative expenses increased to 10% for 2017 from 9% in 2016.
ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by 7% in 2017 compared to 2016. The increase is primarily due to the continued ramp up of development projects to meet the future needs of target markets, particularly at our European locations as well as supporting growing customer application development. As a percentage of revenues, engineering and development expenses were 7% for 2017 and 6% for 2016.
BUSINESS DEVELOPMENT COSTS: The Company incurred $341 of business development costs during 2016 related to the acquisition of Heidrive GmbH on January 12, 2016.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization expense was flat in 2017 compared to 2016.
INCOME TAXES: The effective income tax rate as a percentage of income before income taxes was 32.1% and 29.5% for the nine months ended September 30, 2017 and 2016, respectively. The 2016 effective tax rates are revised from 31.5% to 29.5% for the nine months ended September 30, 2016 to reflect the revised income resulting from the error correction described in Note 1. The effective tax rates include a discrete tax (benefit) provision related to the recognition of the tax effect of share-based payment awards. For the nine months ended September 30, 2017 and 2016, there was a net discrete tax benefit of (1.2%) in each period. The effective tax rate differs from the statutory rate primarily due to differences in foreign tax rates. The effective rate is higher for the nine months ended September 30, 2017 than 2016 due to the mix of income from domestic vs. foreign jurisdictions.
Non-GAAP Measures
Revenue excluding foreign currency exchange impacts, EBITDA and Adjusted EBITDA are provided for information purposes only and are not measures of financial performance under GAAP.
The CompanyManagement believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company as distinct from results that include items that are not indicative of ongoing operating results; inresults. In particular, those charges and credits that are not directly related to operating unit performance, and that are not a helpful measure of the performance of our underlying business particularly in light of their unpredictable nature. ThisThese non-GAAP disclosure hasdisclosures have limitations as an analytical tool,tools, should not be viewed as a substitute for revenue and net income determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that the Company’s future results will be unaffected by similar adjustments to net income determined in accordance with GAAP.
The Company believes that revenue excluding foreign currency exchange impacts is a useful measure in analyzing sales results. The Company excludes the effect of currency translation from revenue for this measure because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The portion of revenue attributable to
20
currency translation is calculated as the difference between the current period revenue and the current period revenue after applying foreign exchange rates from the prior period.
The Company believes EBITDA is often a useful measure of a Company’s operating performance and is a significant basis used by the Company’s management to measure the operating performance of the Company’s business because EBITDA excludes charges for depreciation, amortization and interest expense that have resulted from our debt financings, acquisitions, as well as our provision for income tax expense. EBITDA is frequently used as one of the bases for comparing businesses in the Company’s industry.
The Company also believes that Adjusted EBITDA provides helpful information about the operating performance of its business. Adjusted EBITDA excludes stockstock-based compensation expense, as well as certain income or expenses which are not indicative of the ongoing performance of the Company. EBITDA and Adjusted EBITDA do not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.GAAP.
The Company’s calculation of revenues excluding foreign currency exchange impacts for the three months ended March 31, 2021 is as follows (in thousands):
| | | |
| | Three months ended | |
|
| March 31, 2021 | |
Revenue as reported | | $ | 101,677 |
Currency impact (favorable) unfavorable | |
| (4,274) |
Revenue excluding foreign currency exchange impacts | | $ | 97,403 |
The Company’s calculation of EBITDA and Adjusted EBITDA for the quartersthree months ended September 30, 2017March 31, 2021 and 20162020 is as follows (in thousands):
| | | | | | |
|
| Three months ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Net income as reported | | $ | 11,927 | | $ | 4,035 |
Interest expense | |
| 861 | |
| 1,054 |
(Benefit) provision for income tax | |
| (6,057) | |
| 1,567 |
Depreciation and amortization | |
| 4,431 | |
| 3,750 |
EBITDA | |
| 11,162 | |
| 10,406 |
Stock-based compensation expense | |
| 797 | |
| 789 |
Business development costs | |
| 19 | |
| 247 |
Foreign currency (gain) loss | | | (12) | | | 92 |
Adjusted EBITDA | | $ | 11,966 | | $ | 11,534 |
|
| For the three months ended |
| For the nine months ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net income as reported |
| $ | 3,057 |
| $ | 2,821 |
| $ | 7,941 |
| $ | 8,369 |
|
Interest expense |
| 633 |
| 1,504 |
| 1,797 |
| 4,626 |
| ||||
Provision for income tax |
| 1,512 |
| 1,076 |
| 3,746 |
| 3,495 |
| ||||
Depreciation and amortization |
| 2,630 |
| 2,459 |
| 7,590 |
| 7,309 |
| ||||
EBITDA |
| 7,832 |
| 7,860 |
| 21,074 |
| 23,799 |
| ||||
Stock compensation expense |
| 519 |
| 395 |
| 1,473 |
| 1,370 |
| ||||
Business development costs |
| — |
| 123 |
| — |
| 341 |
| ||||
Insurance recoveries |
| — |
| — |
| — |
| (823 | ) | ||||
Adjusted EBITDA |
| $ | 8,351 |
| $ | 8,378 |
| $ | 22,547 |
| $ | 24,687 |
|
Liquidity and Capital Resources
The Company’s liquidity position as measured by cash and cash equivalents increased by $5,060$1,594 to a balance of $17,302$24,725 at September 30, 2017March 31, 2021 from December 31, 2016.2020.
| | | | | | | | | | |
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| | | | | | | 2021 vs. |
| |
| | Three Months Ended | | 2020 | | |||||
| | March 31, | | Variance | | |||||
|
| 2021 |
| 2020 |
| $ |
| |||
Net cash provided by (used in) operating activities | | $ | 5,567 | | $ | (2,966) | | $ | 8,533 | |
Net cash used in investing activities | | | (3,076) |
| | (16,237) | |
| 13,161 | |
Net cash (used in) provided by financing activities | | | (256) |
| | 26,322 | |
| (26,578) | |
Effect of foreign exchange rates on cash | | | (641) |
| | (152) | ��� |
| (489) | |
Net increase in cash and cash equivalents | | $ | 1,594 | | $ | 6,967 | | $ | (5,373) | |
|
| Nine months ended |
| 2017 vs. 2016 |
| |||||
|
| 2017 |
| 2016 |
| $ |
| |||
Net cash provided by (used in) operating activities |
| $ | 15,312 |
| $ | 9,965 |
| $ | 5,347 |
|
Net cash used in investing activities |
| (4,220 | ) | (19,743 | ) | 15,523 |
| |||
Net cash (used in) provided by financing activities |
| (9,908 | ) | 745 |
| (10,653 | ) | |||
Effect of foreign exchange rates on cash |
| 933 |
| 297 |
| 636 |
| |||
Net increase (decrease) in cash and cash equivalents |
| $ | 2,117 |
| $ | (8,736 | ) | $ | 10,853 |
|
The 2017During the three months ended March 31, 2021, the increase in cash provided by operating activities reflects the favorableis primarily due to cash provided from working capital dynamicsactivity in 2021 compared to 2020 and net income adjusted for non-cash items. Working capital activity in the three months ended March 31, 2020, most notably inventory, were impacted by the push out of Allied Motion. During 2016,orders related to the COVID-19 pandemic, building inventory for new product launches and purchasing additional inventory in order to secure supply.
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Cash used in investing activities in the three months ended March 31, 2021 relates entirely to purchases of property and equipment. Purchases of property and equipment were $3,076 during the three months ended March 31, 2021 compared to $1,696 during the three months ended March 31, 2020 reflecting continued commitments to capital expenditure projects supporting growth initiatives. Cash used in investing activities in the prior year period included a $14,541 outflow related to the acquisition of Dynamic Controls. Capital expenditures are expected to be between $12,000 and $15,000 for 2021.
The decrease in cash provided by operating activities was primarily due to the impact of the Heidrive acquisition which created certain working capital needs, primarily related to trade receivables and acquired liabilities.
The significant cash used for investingfinancing activities in 2016the three months ended March 31, 2021 from the three months ended March 31, 2020 reflects the Amended Revolving Facility borrowing for the acquisition of HeidriveDynamic Controls for approximately $26,000 in the first quarter for $16,049 net of cash acquired. For the period ending September 30, 2017, purchases of property and equipment were $4,220 compared to $3,694 for the comparable period of 2016.
The change in cash used in financing activities reflects the 2016 use of the existing foreign revolver of $10,859 (€10,000) to partially finance the Heidrive acquisition. During 2017, payments of $9,114 were made towards the Revolving Credit Facility obligation.2020. At September 30, 2017,March 31, 2021, we had approximately $62,604$120,424 of obligations under the Amended Revolving Credit Facility.
Facility, excluding deferred financing costs.
The Amended Credit Agreement contains certain financial covenants related to minimum interest coverage and total leverage ratio at the end of each quarter. The Amended Credit Agreement also includes other covenants and restrictions, including limits on the amount of additional indebtedness, and restrictions on the ability to merge, consolidate or sell all or substantially all our assets. We were in compliance with all covenants at September 30, 2017.
March 31, 2021.
As of September 30, 2017,March 31, 2021, the unused Amended Revolving Facility was $104,576. The amount available to borrow under themay be lower and may vary from period to period based upon our debt and EBITDA levels, which impacts our covenant calculations. The Amended Credit Agreement was approximately $62,396.
matures in February 2025.
There were approximately $409 (RMB 3,000 RMB) of payments forno borrowings under the China Facility during the year to date 2017. three months ended March 31, 2021 and 2020, respectively.
The balance at September 30, 2017 was $526 (RMB 3,500). At September 30, 2017, there was approximately $977 (RMB 6,500) available under the facility.
During the quarter ended September 30, 2017, the Company paiddeclared dividends of $0.025$0.02 per share. The Company’s working capital, capital expenditureshare during the three months ended March 31, 2021 and dividend requirements are expected2020, respectively.
Although there is ongoing uncertainty related to the anticipated impact of the COVID-19 outbreak on our future results, we believe our diverse markets, and the steps we have taken to strengthen our balance sheet, such as retaining cash to support shorter term needs and extending the maturity of our revolving credit facility in the first quarter of 2020 leaves us well-positioned to manage our business through the crisis as it continues to unfold. We have reviewed numerous potential scenarios in connection with the impact of COVID-19 on our Company. Based on our analysis, we believe our existing balances of cash, the flexibility of our Amended Credit Agreement and our currently anticipated operating cash flows will be funded fromsufficient to meet our cash provided by operations and amounts available underneeds arising in the Credit Agreement.ordinary course of business for the next twelve months.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Foreign Currency
The Company hasWe have foreign operations in The Netherlands, Sweden, Germany, China, Portugal, Canada, Czech Republic, Canada, Mexico, the United Kingdom and Mexico,New Zealand which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in Euros, Swedish Krona, Chinese Yuan Renminbi, Czech Krona, Canadian dollar, and Mexican pesos, British Pound Sterling and New Zealand dollar, respectively. The CompanyWe continuously evaluates itsevaluate our foreign currency risk and will take action from time to time in order to best mitigate these risks. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency exposures would have had an impact of approximately $2,900$4,500 on our thirdfirst quarter 2017 sales and $8,300 on our year to date 20172021 sales. These amounts areThis amount is not indicative of the hypothetical net earnings impact due to partially offsetting impacts on cost of sales and operating expenses in those currencies. The Company estimatesWe estimate that foreign currency exchange rate fluctuations during the three monthsquarter ended September 30, 2017March 31, 2021 increased sales in comparison to the three monthsquarter ended September 30, 2016March 31, 2020 by approximately $1,300. On a year to date basis, we estimate that foreign currency exchange rate fluctuations decreased sales in 2017 compared to 2016 by approximately $500.$4,274.
The Company translatesWe translate all assets and liabilities of itsour foreign operations, where the U.S. dollar is not the functional currency, at the period-end exchange rate and translate sales and expenses at the average exchange rates in effect during the period. The net effect of these translation adjustments is recorded in the Condensed Consolidated Financial Statementscondensed consolidated financial statements as Comprehensive Income.comprehensive income. The translation adjustment was a gainloss of approximately $1,800$4,007 and $400 ina loss of $2,428 for the thirdfirst quarter of 20172021 and 2016, respectively. The translation adjustment was a gain of approximately $5,600 and $1,300 for year to date 2017 and 2016,2020, respectively. Translation adjustments are not adjusted for income taxes as they relate to permanent investments in our foreign subsidiaries. Net foreign currency transaction gains and losses included in other income, net amounted to a loss of $109 and a gain of $5 for the third quarter of 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, a loss of $262 and $20 were recognized in other income, respectively. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency net assets would have had an impact of approximately $7,300$9,900 on our foreign net assets as of September 30, 2017.March 31, 2021. Beginning in the first quarter of 2021, we began entering into contracts to hedge our short-term balance sheet exposure, primarily intercompany, that are denominated in currencies (Euro, Mexican Peso, New Zealand Dollar, Chinese Renminbi) other than the subsidiary’s functional currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in other (income) expense, net in the condensed consolidated statements of
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Interest RatesTable of Contents
Interest ratesincome and comprehensive income. The foreign currency contracts are recorded in the condensed consolidated balance sheets at fair value and resulting gains or losses are recorded in other (income) expense, net in the condensed consolidated statements of income and comprehensive income. During the first quarter of 2021, we recorded a $140 loss on foreign currency contracts which is included in other (income) expense, net and generally offset the gains or losses from the foreign currency adjustments on the Company’sintercompany balances that are also included in other (income) expense, net. Net foreign currency transaction gains and losses included in other expense, net amounted to a gain of $12 and a loss of $92 for the first quarter of 2021 and 2020, respectively.
Interest Rates
Borrowings under the Amended Revolving Facility are based onbear interest at the LIBOR Rate plus a margin of 1.00% to 2.25% (currently 1.75%) (1.625% at March 31, 2021) or the Prime Rate plus a margin of 0% to 1.25% (currently 0.75%) (0.625% at March 31, 2021), in each case depending on the Company’s ratio of total funded indebtedness to Consolidated trailing twelve-month EBITDA. The Company usesWe use interest rate derivatives to add stability to interest expense and to manage itsour exposure to interest rate movements. The CompanyWe primarily usesuse interest rate swaps as part of itsour interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During October 2013, the Company entered into two interest rate swaps with a combined notional of $25,000 (representing 50% of the Term Loan balance at that time) that amortize quarterly to a notional of $6,673 at maturity. The notional amount changes over time as loan payments are made. As a requirement of the debt refinance, one of the swaps was liquidated. In February 2017, the Company entered into three interest rate swaps with a combined notional amount of $40,000 that maturesmature in February 2022. In March 2020, the Company entered into two additional interest rate swaps with a combined notional amount of $20,000 that increases to $60,000 in March 2022 and matures in December 2024.
As of September 30, 2017, the CompanyMarch 31, 2021, we had $62,604$120,424 outstanding under the Amended Revolving Facility (excluding deferred financing fees), of which $45,281$60,000 is currently being hedged. Refer to Note 69, Debt Obligations of the Notes to Condensed Consolidated Financial Statementscondensed consolidated financial statements for additional information about our outstanding debt. A hypothetical one percentage point (100 basis points) change in the Base Rate on the $17,323$60,424 of unhedged floating rate debt outstanding at September 30, 2017March 31, 2021 would not have approximately a material$150 impact on itsour interest expense for the thirdfirst quarter 2017 or nine months ending September 30, 2017, respectively.of 2021.
Item 4. Controls and Procedures
Conclusion regarding the effectiveness of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2017.March 31, 2021. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on management’sthis evaluation, of our disclosure controlsthe Company’s principal executive officer and procedures as of September 30, 2017, our Chief Executive Officer and Chief Financial Officerprincipal financial officer concluded that, as of such date, ourMarch 31, 2021, the Company’s disclosure controls and procedures were effective.
Changes in internal control over financial reporting
The Company is in the process of implementing a financial reporting system, Hyperion Financial Management (HFM), as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation has occurred in phases throughout 2017 and is expected to be completed during the fourth quarter 2017. Currently the Company is utilizing HFM in parallel with its existing financial reporting process until validation and testing is completed.
As part of the HFM implementation, certain changes to our processes and procedures have and will continue to occur. These changes will result in changes to our internal control over financial reporting. While HFM is designed to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolve.
During the quarter ended September 30, 2017,March 31, 2021, there have beenwere no other changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.reporting.
PART II.OTHER INFORMATION
There have been no material changes to the risk factors disclosed in the Company’s Form 10-K for the year ended December 31, 2016,2020, except to the extent factual information disclosed elsewhere in this formForm 10-Q relates to such risk factors. For a full discussion of these risk factors, please refer to “Item 1A. Risk Factors” in the 20162020 Annual Report in Formand 10-K.
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Item 5. Unregistered Sales of Equity Securities and Use of Proceeds
| | | | | | | | | |
|
| |
| | |
| Total Number of Shares |
| Maximum Number of Shares |
| | Number of Shares | | Average Price Paid | | Purchased as Part of Publicly | | that May Yet Be Purchased | |
Period | | Purchased (1) (2) | | per Share (2) | | Announced Plans or Programs | | Under the Plans or Programs | |
01/01/21 to 01/31/21 |
| 4,553 | | $ | 34.63 |
| — |
| — |
02/01/21 to 02/28/21 |
| — | |
| — |
| — |
| — |
03/01/21 to 03/31/21 |
| 16,827 | |
| 34.35 |
| — |
| — |
Total |
| 21,380 | | $ | |
| — |
| — |
(1) | As permitted under the Company’s equity compensation plan, these shares were withheld by the Company to satisfy tax withholding obligations in connection with the vesting of stock. Shares withheld for tax withholding obligations do not affect the total number of shares available for repurchase under any approved common stock repurchase plan. At March 31, 2021, the Company did not have an authorized stock repurchase plan in place. |
(2) | Shares of common stock and related per share amounts give retroactive effect for stock splits. A three-for-two common stock split, effected as a stock dividend, occurred on April 30, 2021. |
None.
(a) Exhibits
(a) | Exhibits | |||
| | | ||
| 10.1 | |||
| | | ||
| 10.2 | |||
| | | ||
| 10.3 | |||
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| 10.4 | |||
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| 10.5 | |||
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31.1 | ||||
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31.2 | ||||
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32.1 |
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32.2 | ||||
| | | ||
101.1 SCH | Inline XBRL Taxonomy Extension Schema Document (filed herewith). | |||
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101.2 CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith). | ||
| | | |
101.3 DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith). | ||
| | | |
| 101.4 LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith). | |
| | | |
| 101.5 PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith). | |
| | | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in exhibits 101.*) (filed herewith). | |
| | |
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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.
DATE: |
| May 5, 2021 | ALLIED MOTION TECHNOLOGIES INC. | |
| ||||
| By: | /s/ Michael R. Leach | ||
| Michael R. Leach | |||
| Chief Financial Officer |
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