What changed in this filing

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Item 1. Business

2022-03-09 compared with 2021-03-10 · 93 added, 55 removed, 107 unchanged (58% of the section changed)

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We are known worldwide for our expertise in electro-magnetic, mechanical and electronic motion technology.

Our products include brush and brushless DC (BLDC) 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, mission critical electro-mechanical automation solutions, advanced linear and rotary motion systems for nano-precision applications, input/output (“I/O”) modules, industrial gateways, and other controlled motion-related products.

Allied Motion was established in 1962 under the laws of Colorado and operates in the United States, Canada, Mexico, Europe and Asia-Pacific.

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IMPACT OF COVID-19

The ongoing global COVID-19 pandemic has resulted, and may continue to result, in significant disruptions to the United States (“U.S.”) and global economies and has, and may continue to, adversely affect our business, including our supply chain and operations.

We have also experienced, and expect to continue to experience, temporary reductions in customer demand in some of our served markets.

During 2020, the impact of social distancing measures, the reduced operational status of our suppliers and reductions in production at certain facilities adversely impacted our operations.

We expect general business uncertainty will continue to negatively impact demand in several of our served markets into 2021.

During 2020, the impact of COVID- 19 on our operations was most pronounced in areas that serve our Vehicle, Industrial and Aerospace & Defense markets.

However, during the last half of 2020, we experienced a solid recovery in our Vehicle market as order activity rebounded.

In response to the worldwide outbreak, we have taken 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, requiring work from home 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.

We implemented these measures on a worldwide basis and are continuing to monitor and act in accordance with government authorities’

requirements and recommendations.

We will continue to act in the best interests of our employees, customers, partners, suppliers and communities.

We responded to the outbreak with a recognition that our Company provides essential and important products, including those that our customers rely on to address this crisis.

We manufacture and deliver critical controlled motion 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 those caused as the result of COVID-19 pandemic.

The outbreak of the novel strain of Coronavirus (“COVID-19”) and the impact of the variants has created significant impacts and disruptions to the U.S.

and global economies and are likely to do so for the foreseeable future.

We expect that COVID-19 will continue to adversely affect portions of our business, including our global supply chain and manufacturing operations.

We experienced reductions in customer demand in certain of our served markets and increases in demand in other of these markets during the periods of 2020 and 2021 due to the impact of COVID-19.

The net result was a record level of total bookings in 2021.

The operational ability of our suppliers to provide the necessary quantity of materials on a timely basis has been reduced, which has impacted the predictability of our global supply chain, and resulted in some increased costs to secure and place materials into production and forced us to delay product shipments.

Throughout 2022, we expect the impact of COVID-19 on our operations will continue to challenge certain aspects of our business, particularly our global supply chain and our ability to hire direct labor.

Certain materials and components used in our products are required and qualified to be sourced from a single or a limited number of suppliers.

Any interruption in the supply from any supplier that serves as a sole source could delay product shipments and have a material adverse effect on our business.

In response to COVID-19, 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 continue to follow rigorous safety

measures in all of our sites, including social distancing protocols, incorporating a work from home model at certain times for those employees that do not need to be physically present to perform their work, limiting 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 have been adjusted prudently as requirements and conditions change.

We will continue to monitor and act in accordance with government authorities requirements or recommendations and evolving best practices.

Our Company provides essential and important products, including some 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 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 in 2020 and we continue to be a reliable supplier of the critical controlled motion components it requires.

The Company has rapidly deployed resources to increase production capacity to meet the surge in demand for certain types of medical products related to combatting the COVID-19 virus.

We also continue to provide solutions to suppliers of other 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 enhanced safety procedures.

Our facility in China was shut down for a small portion of the first quarter of 2020 but since then has continued to be fully operational.

Our facility in Reynosa, Mexico experienced a brief shutdown in the second quarter of 2020 that did not continue into the remainder of the year.

These facilities are currently fully operational.

We have taken actions since the beginning of the COVID-19 pandemic to strengthen our liquidity and financial condition.

In February 2020, we renewed and increased our revolving credit facility (“Amended Revolving Facility”) to $225 million through February 2025 (refer to Note 7, Debt Obligations from our consolidated financial statements).

Global demand and capacity to produce ventilators increased significantly during portions of 2020, and we supplied the critical motion control components for the ventilators.

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 ventilators, has returned to normalized levels in 2021, we continue to provide solutions to suppliers of other 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 throughout 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 our revolving credit facility to $225 million through February 2025 (refer to Note 7, Debt Obligations from our consolidated financial statements).

Through this amendment we lowered our cost of debt, and secured more favorable covenants.

While part of our pre-COVID- 19 planning, this liquidity preserves our financial flexibility during the pandemic.

During 2020, we paid down nearly $17 million of debt while maintaining a robust cash balance to cover our short-term needs.

This liquidity preserves our financial flexibility during the pandemic and subsequent to 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 while supporting growth plans, we continue to align variable costs with demand, maintain key engineering capabilities, restrict hiring activity and wage increases and tightly control discretionary spending.

The Company continues to closely monitor events and conditions resulting from the COVID-19 pandemic and the related impact on all forms of incentive compensation.

The extent of the future impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments on a global scale, including the duration, spread and intensity of the pandemic and the successful distribution and acceptance of vaccines for COVID-19, all of which are uncertain and difficult to predict.

To conserve cash and maximize operational efficiency while supporting growth plans, we continue to align variable costs with demand, maintain and enhance key engineering capabilities, and control discretionary spending.

The Company continues to closely monitor events and conditions resulting from COVID-19.

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 and variants, the potential for additional waves, its impact on our customers, suppliers 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.

Recent Events

The current conflict in Ukraine has created general economic uncertainty with regard to energy prices, interest rates and our supply chain.

We are monitoring the developments as they unfold in order to react accordingly.

The impact of the conflict on our operational and financial performance will depend on future developments that cannot be predicted, the Company does not believe the impacts to be material at this time.

During the last half of 2021, certain regions of China experienced energy shortages which impacted our facilities.

One of our China locations was shut down for one week as a result of the restrictions on energy usage imposed by the Chinese government.

The impact was not material to our results during 2021, however, there continue to be uncertainties related to the energy shortages that may impact us in 2022 and beyond.

We have been able to proactively

mitigate the impact of the restrictions on energy usage to date by managing our scheduling at the impacted facilities.

Twinsburg Consolidation

In September 2021, the Company announced its plans to consolidate its manufacturing facility in Twinsburg, Ohio with its Watertown, New York and Reynosa, Mexico facilities in 2022.

Costs of $545 are included in business development on the consolidated statement of income and comprehensive income for the year ended December 31, 2021 related to the consolidation of the Twinsburg facility.

Total costs of approximately $1,000 are expected to be incurred in connection with this initiative and will include accelerated lease costs, severance and other payroll related costs, legal costs, accelerated depreciation, and costs to relocate inventory and machinery and equipment.

This initiative is expected to be completed during the second quarter of 2022.

On April 30, 2021, we effected a 3-for-2 stock split.

References to 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, Business and Summary of Significant Accounting Policies in the notes the consolidated financial statements contained in Item 8 of this report for further information.

During the second quarter 2021, we were the subject of a cyber security breach.

We discovered the issue soon after the intrusion and implemented our contingency and disaster recovery plans, including engaging legal, security and forensic experts in this field.

We were able to contain the issue and were successful in getting our operations back up and running without a material impact to our results.

We have implemented additional security measures that further safeguard our systems.

No ransom was paid related to this breach.

Spectrum Controls:

On December 30, 2021, we acquired Spectrum Controls, Inc.

(“Spectrum Controls”), a Washington headquartered innovator and manufacturer of I/O and Universal Communications Gateway products.

Spectrum Controls designs and manufactures a wide range of highly sophisticated I/O modules, marquee displays, and industrial gateways for broad industrial controls applications through partnerships with Programmable Logic Controller (“PLC”) manufacturers and distributors.

This acquisition provides us with the opportunity to enhance our position as a value-added solutions supplier to the industrial automation and industrial controls market.

ALIO Industries:

On November 4, 2021, we acquired ALIO Industries (“ALIO”), a Colorado headquartered innovator and manufacturer of advanced linear and rotary motion systems for nano-precision applications .

ALIO designs, engineers, and manufactures nano technology motion systems for state-of-the-art applications in silicon photonics, micro assembly, digital pathology, genome sequencing, laser processing and microelectronics.

ALIO is well recognized for their technology and expertise in nanometer level positioning.

This expertise in high precision positioning and robotic technology solutions will enhance our portfolio of motion solution offerings.

ORMEC Systems Corp.

On November 2, 2021, the Company acquired ORMEC Systems Corp.

(“ORMEC”), a New York headquartered developer and manufacturer of mission critical electro-mechanical automation solutions and motion control products including multi-axis controls, electronic drives and actuators for the automation and aerospace industries.

In addition to its products, ORMEC designs and manufactures complete electro-mechanical and software solutions for custom automation applications.

ORMEC strengthens the Company’s technical expertise and adds a higher level of precision motion control systems and solutions to its offerings.

Dynamic Controls Group :

On March 7, 2020, we acquired Dynamic Controls Group (“Dynamic Controls”), a wholly owned subsidiary of Invacare Corporation, a market-leading designer and manufacturer of equipment for the medical mobility and rehabilitation markets.

Dynamic Controls provides the Company with market leading electronic control solutions and products that further strengthen our medical market position, as well as enable us to further develop higher level solutions with embedded electronics across our other major served markets.

Dynamic Controls provides the Company with market leading electronic control solutions and products that further strengthen our medical market position, as well as enable us to further develop higher

level solutions with embedded electronics across our other major served markets.

The acquisition of Dynamic Controls allows us to build out our ability to leverage controlled motion system solutions in a wide range of markets.

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The platform development emphasizes a combination of technologies to create increased value solutions for customers.

The emphasis on new opportunities has allowed the Company to evolve from being an individual component provider to becoming a solutions provider whereby the new opportunities utilize multiple of the Company’s technologies in a system solution approach.

The emphasis on new opportunities has allowed the Company to evolve from being an individual component provider to becoming a solutions provider emphasizing the utilization of multiple Company technologies in a system solution approach.

The Company believes this approach will allow it to provide increased value to its customers and improved margins for the Company.

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The Company sells its products into a subset of the following broad markets:

electronic power steering and drive-by-wire applications to electrically replace, or provide power-assist to, a variety of mechanical linkages, traction / drive systems and pumps, automated and remotely guided power steering systems, various high performance vehicle applications, actuation systems (e.g., lifts, slide-outs, covers, etc.), HVAC systems, solutions to improve energy efficiency of vehicles while idling and alternative fuel systems such as LPG, fuel cell and hybrid vehicles.

Vehicle types include off- and on-road construction and agricultural equipment;

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surgical robots, prosthetics, electric powered surgical hand pieces, programmable pumps to meter and administer infusions associated with chemotherapy, pain control and antibiotics, nuclear imaging systems, radiology equipment, automated pharmacy dispensing equipment, kidney dialysis equipment, respiratory ventilators, heart pumps, and patient handling equipment (e.g., wheel chairs, scooters, stair lifts, patient lifts, transport tables and hospital beds).

The Company’s sales generated from its March 2020 acquisition of Dynamic Controls are included within this market.

Aerospace & Defense :

inertial guided missiles, mid-range smart munitions systems, weapons systems on armed personnel carriers, unmanned vehicles, security and access control, camera systems, door access control, airport screening and scanning devices.

products are used in factory automation, specialty equipment, material handling equipment, commercial grade floor polishers and cleaners, commercial building equipment such as welders, cable pullers and assembly tools, the handling, inspection, and testing of components and final products such as PCs, high definition printers, tunable lasers and spectrum analyzers for the fiber optic industry, test and processing equipment for the semiconductor manufacturing industry, power quality products to filter distortion caused by variable frequency drives and other power electronic equipment.

OTHER FACTORS IMPACTING OUR OPERATIONS

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We sell our products and solutions globally to a broad spectrum of customers through our own direct sales force and authorized manufacturers’ representatives and distributors.

Our customers include end users and original equipment manufacturers (“OEMs”).

Our customers include end users and original

equipment manufacturers (“OEMs”).

Allied Motion Sales Organization:

The Company’s sales organization continues to evolve with the goal of becoming the best sales and service force in its industry.

The Company’s sales organization is focused on becoming the best sales and service force in its industry.

Through the One Team approach for providing controlled motion solutions and components that best address customers’ needs, the Company has broadened the knowledge and skills of its direct sales force, while creating sales and service support in its Solution Centers.

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Backlog as of December 31, 2021 was $249,927 compared with $141,344 as of December 31, 2020.

The time to convert the majority of backlog to sales is approximately three to six months.

Included in backlog as of December 31, 2021 is $47,934 from the acquisitions completed in the fourth quarter of 2021.

The time to convert the majority of backlog to sales is approximately three to nine months.

Given the short product lead times, we do not believe that the amount of our backlog of orders is a reliable indication of our future sales.

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Major Customer

Sales to one customer were 15% and 16% of total sales in 2020 and 2019, respectively.

Sales to one customer were 15% of total sales in 2021 and 2020.

We believe the diversification of the target markets we serve reduces our exposure to negative developments with any single customer.

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Our competitors include Altra Industrial Motion Corp., Ametek, Inc., Parker Hannifin Corporation and other smaller competitors.

Availability of Parts and Raw Materials

Availability and Prices of Parts and Raw Materials

We purchase critical raw materials from a limited number of suppliers due to the technically challenging requirements of the supplied product and/or the lengthy process required to qualify these materials both internally and with our customers.

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For these critical raw materials, we maintain minimum safety stock levels and partner with suppliers through contract to help ensure the continuity of supply.

As a result of the COVID-19 pandemic, we have faced and are facing increased operational challenges from workplace disruptions and restrictions on the movement of raw materials and goods, both at our own facilities and at our customers and suppliers, leading to increases in prices and freight costs.

As we seek to secure supply during these uncertain times, we have increased the levels of certain inventories to put us in the position to meet the needs of our customers.

As a result of the COVID-19 pandemic and resulting economic and supply chain disruptions, we continue to face upward pricing pressure on parts and raw materials.

has also resulted in increased operational challenges from workplace disruptions and restrictions on the movement of raw materials and goods, both at our own facilities and at our customers and suppliers, leading to increases in prices and freight costs.

As we seek to secure supply during these uncertain times, we have proactively increased the levels of certain inventories to put us in the position to meet the needs of our customers.

Patents, Trademarks, Licenses, Franchises and Concessions

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We consider the component parts of our different product lines to be generally available and current suppliers to be reliable and capable of satisfying anticipated needs under normal conditions.

As discussed herein, as a result of the COVID-19 pandemic, we have experienced increased costs and have purposely increased certain inventories to deal with global supply chain issues.

As discussed herein, as a result of the COVID-19 pandemic and supply chain disruptions, we have experienced increased costs and have purposely increased certain inventories to deal with global supply chain issues.

Engineering and Development Activities

Our engineering and development (E&D) activities are for the development of new products, enhancement of the functionality, effectiveness and reliability of current products, to redesign products to reduce the cost of manufacturing of products or to expand the types of applications for which our products and solutions can be used.

Our engineering and development expenditures for the years ended December 31, 2020 and 2019 were $25,487 and $23,086, respectively, or 7.0% of sales in 2020, and 6.2% of sales in 2019.

The increase was a result of the Dynamic Controls acquisition.

Our engineering and development expenditures for the years ended December 31, 2021 and 2020 were $27,818 and $25,487, respectively, or 7% of sales in 2021 and 2020.

We believe E&D is critical to our success and expect to continue to invest at these levels in the future.

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No significant pollution or other types of hazardous emission result from the Company’s operations and it is not anticipated that our operations will be materially affected by Federal, State or local provisions concerning environmental controls.

Our costs of complying with environmental, health and safety requirements have not been material.

Our costs of complying with environmental, health and safety requirements are not material.

We do not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on our business or markets that we serve, nor on our results of operations, capital expenditures or financial position.

We will continue to monitor emerging developments in this area.

The board of directors provide oversight as part of their environmental, social and governance (“ESG”) initiatives and we will continue to monitor emerging developments and assess our performance in this area.

International Operations

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Of those, approximately 52% are located in North America, 37% are located in Europe and the remainder are located in Asia-Pacific.

As of December 31, 2021, 19% of our total workforce were employed in engineering functions, demonstrating our commitment to invest significantly in engineering resources.

Employee Health and Safety

The Company complies in all respects with the national and local laws of the jurisdictions in which we operate regarding workers safety and health.

The Company strives to continuously improve employee safety and health through consistent

measurement and reporting on progress and leading indicators.

The Company strives to continuously improve employee safety and health through consistent measurement and reporting on progress and leading indicators.

It has programs that emphasize that each employee in the organization is responsible for safety in the workplace.

The Company provides a comprehensive safety program that focuses on a zero-incident mindset by providing ongoing training opportunities and review of safety activities and initiative.

This clearly visible effort encourages employee engagement and active management and leadership involvement.

This highly visible effort encourages employee engagement and active management and leadership involvement.

Human Capital Management

The Company believes that its workforce is one of the Company’s greatest assets, and it has a proactive human capital management and talent development program.

The Compensation Committee recognizes human capital as a key driver of long-term value and is responsible for oversight of the Company’s human capital management and talent development programs.

The Human Capital and Compensation Committee recognizes human capital as a key driver of long-term value and is responsible for oversight of the Company’s human capital management and talent development programs.

● Attraction:

The Company competes within each world-wide market for a finite number of skilled and talented workers.

The Company leverages our broad resources and reputation to deliver an outstanding career experience to its candidates and our employees.

The Company leverages its broad resources and reputation to deliver an outstanding career opportunity and workplace experience to its candidates and employees.

● Engagement:

The Company strives to provide engaging and meaningful career opportunities for its employees, so they can thrive and be satisfied in our technology and innovation-based culture.

The Company strives to provide engaging and meaningful career opportunities for its employees, so they can thrive and be satisfied in its technology and innovation-based culture.

● Development:

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This emphasizes the Company’s key attribute as a compelling place to work and grow at all levels.

The Company supports a workplace that provides an environment of trust, personal and professional development and work-life balance is vital to its successful retention of engaged, top-notch talent.

The Company supports a workplace that provides an environment of trust, personal and professional development and work-life balance which is vital to its successful retention of engaged, top-notch talent.

Diversity and Inclusion

The Company is committed to apply fair labor practices while respecting the national and local laws of the countries and communities where we have operations.

The Company is committed to providing equal opportunity in all aspects of employment.

The Company is also committed to providing equal opportunity in all aspects of employment.

The Company does not engage in or tolerate unlawful conduct, including discrimination, intimidation, or harassment.

The Company strives to establish relationships with key organizations and associations that foster diversity and inclusion initiatives in the communities where it is located.

The Company is committed to identifying a talented and innovative workforce by building a diverse and inclusive pipeline of talent.

The Compensation Committee is responsible for the oversight of the Company’s diversity and inclusion initiatives.

The Company is committed to identifying a talented and innovative workforce through a culture that promotes human equity and emphasizes the benefits of a diverse and inclusive workforce and pipeline of talent.

The Human Capital and Compensation Committee is responsible for the setting the tone at the top and the oversight of the Company’s diversity and inclusion initiatives.

Ethical Business Practices

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business