What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-09 compared with 2021-03-10 · 309 added, 199 removed, 637 unchanged (44% of the section changed)

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2022 expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

In fiscal 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842) , as amended, using the option to not restate comparative periods and apply the standard as of the date of initial application.

Basis for Opinion

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Inventories – Refer to Note 1 to the financial statements

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The valuation of inventory requires the Company to estimate obsolete or excess inventory, as well as inventory that is not of saleable quality.

The Company’s estimate of the appropriate amount of obsolete or excess inventory, as well as inventory that is not of saleable quality, uses certain inputs and involves judgment.

Such inputs include data associated with historic trends, the demand forecast for inventory on-hand which includes customer purchase order data, and item-specific estimates about the timing or level of demand for a specific part.

Inventories at December 31, 2020 totaled $63 million.

We identified the estimate of obsolete or excess inventory, as well as inventory that is not of saleable quality, as a critical audit matter because of the significant amount of judgment required by management when evaluating demand forecasts and assumptions for item-specific estimates about the timing or level of demand for a specific part.

The Company’s estimate of the appropriate amount of obsolete or excess inventory, as well as inventory that is

not of saleable quality, uses certain inputs and involves judgment.

Such inputs include data associated with historic trends, the demand forecast for inventory on-hand which includes customer orders, and item specific estimates about the timing or level of demand for a specific part.

Inventories at December 31, 2021 totaled approximately $89.7 million.

We identified the estimate of obsolete or excess inventory, as well as inventory that is not of saleable quality, as a critical audit matter because of the significant amount of judgment required by management when evaluating the demand forecast for inventory on-hand and assumptions for item specific estimates about the timing or level of demand for a specific part.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the demand forecast for inventory on-hand and item specific estimates about the timing or level of demand for a specific part .

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Our audit procedures related to the valuation of obsolete or excess inventory, as well as inventory that is not of saleable quality, included the following, among others:

● We tested the effectiveness of controls over management’s review of the periodic calculation of the valuation for obsolete or excess inventory, or inventory that is not of saleable quality.

● We tested the effectiveness of controls over management’s review of the periodic calculation of the valuation for obsolete or excess inventory, as well as inventory that is not of saleable quality.

● We tested management’s process for determining the valuation of inventory, including:

o We evaluated the appropriateness of specified inputs supporting management’s estimate, including the historic inventory trends and the demand forecasts.

o We tested the demand forecasts by obtaining documentation to support customer orders, historical and future sales used in the Company’s analysis.

o We tested the demand forecast for inventory on-hand by obtaining documentation to support customer orders, historical and future sales used in the Company’s analysis.

o We evaluated the appropriateness of management’s methodology and assumptions used in developing the estimate, including item specific estimates about the timing or level of demand for a specific part.

o We evaluated management’s ability to accurately estimate obsolete, excess, or inventory that is not of saleable quality by comparing actual results to management’s historical estimates.

o We evaluated inventory write-offs subsequent to December 31, 2020, for indications that the estimate for obsolete, excess, or inventory that is not of saleable quality may be understated.

o We evaluated management’s ability to accurately estimate obsolete or excess inventory, as well as inventory that is not of saleable quality by comparing actual results to management’s historical estimates.

o We evaluated inventory write-offs subsequent to December 31, 2021 for indications that the estimate for obsolete or excess inventory, as well as inventory that is not of saleable quality may be understated.

Acquisitions — Spectrum Controls, Inc.

— Customer Lists Intangible Asset — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company completed the acquisition of Spectrum Controls, Inc.

for approximately $68.7 million on December 30, 2021.

The Company accounted for the acquisition under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including a customer lists intangible asset of approximately $21.0 million.

The fair value determination of the customer lists intangible asset required management to make significant estimates and assumptions related to the selection of the discount rate.

We identified the selection of the discount rate used in the valuation of the customer lists intangible asset as a critical audit matter because of the significant estimates and assumptions used by the Company to determine the fair value of this asset.

Auditing the estimates and assumptions related to the customer lists intangible asset required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s selection of the discount rate for the customer lists intangible asset.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the selection of the discount rate for the customer lists intangible asset included the following, among others:

● We tested the effectiveness of controls over the valuation of the customer lists intangible asset, including management’s selection of the discount rate.

● We performed sensitivity analyses of the significant assumptions used in the valuation model to evaluate the change in fair value resulting from changes in the significant assumptions, including the discount rate.

● With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by:

o Testing the source information underlying the determination of the discount rate and testing the mathematical accuracy of the calculation.

o Developing a range of independent estimates and comparing those to the discount rate selected by management.

o We evaluated the appropriateness and consistency of the Company’s methods and assumptions used to select the discount rate.

/s/ Deloitte & Touche LLP

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Cash and cash equivalents

Trade receivables, net of provision for credit losses of $ 382 and allowance for doubtful accounts of $ 405 at December 31, 2020 and December 31, 2019, respectively

Trade receivables, net of provision for credit losses of $ 506 and $ 382 at December 31, 2021 and December 31, 2020, respectively

Prepaid expenses and other assets

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Interest expense

Other expense (income), net

Other (income) expense, net

Total other expense, net

Income before income taxes

Provision for income taxes

Income tax benefit (provision)

Basic earnings per share:

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Issuance of restricted stock, net of forfeitures

Stock compensation expense

Stock-based compensation expense

Shares withheld for payment of employee payroll taxes

Comprehensive (loss) income

Comprehensive loss

Dividends to stockholders - $ 0.08 per share

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Issuance of restricted stock, net of forfeitures

Stock compensation expense

Stock-based compensation expense

Shares withheld for payment of employee payroll taxes

Comprehensive loss

Comprehensive income (loss)

Dividends to stockholders - $ 0.08 per share

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Issuance of restricted stock, net of forfeitures

Stock compensation expense

Stock-based compensation expense

Shares withheld for payment of employee payroll taxes

Comprehensive income (loss)

Common stock issued in connection with acquisitions (Note 2)

Comprehensive (loss) income

Dividends to stockholders - $ 0.095 per share

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Deferred income taxes

Loss on sale of assets

Provision for doubtful accounts

Provision for excess and obsolete inventory

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Debt issue cost amortization recorded in interest expense

Restricted stock compensation

Changes in operating assets and liabilities, net of acquisition:

Stock-based compensation expense

Changes in operating assets and liabilities, net of acquisitions:

Trade receivables

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Cash Flows From Financing Activities:

Repayments on lines of credit

Principal payments of long-term debt

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Payment of debt issuance costs

Sale of restricted stock

Dividends paid to stockholders

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Effect of foreign exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Income taxes paid

Supplemental non-cash investing and financing activities:

Accrued consideration for acquisitions

Stock issued for acquisitions

Contingent consideration for acquisition

Property, plant and equipment purchases in accounts payable or accrued expenses

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All intercompany accounts and transactions are eliminated in consolidation.

For business combinations, we record net assets acquired and liabilities assumed at their estimated fair values.

For business combinations, net assets acquired and liabilities assumed are recorded at their estimated fair values.

Cash and Cash Equivalents

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Activity in the provision for credit losses for 2021 and 2020 was as follows (in thousands):

December 31, 2020

December 31, 2019

Beginning balance

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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):

December 31, 2020

December 31, 2019

Parts and raw materials

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Intangible Assets

Intangible assets, other than goodwill, are recorded at cost and are amortized over their estimated useful lives using an accelerated or straight-line method which approximates the pattern of expected cash flows over the remaining useful lives of the intangible assets.

Intangible assets, other than goodwill, are initially recorded at fair value and are amortized over their estimated useful lives using an accelerated or straight-line method which approximates the pattern of expected cash flows over the remaining useful lives of the intangible assets.

Impairment of Long-Lived Assets

The Company reviews the carrying values of its long-lived assets, including property, plant and equipment and intangible assets, on an annual basis and whenever events or changes in circumstances indicate that such carrying values may not be recoverable.

Long-lived assets are carried at historical cost if the projected cash flows from their use will recover their carrying amounts on an undiscounted basis and without considering interest.

Long-lived assets are recorded at their carrying amounts if the projected cash flows from their use will recover their carrying amounts on an undiscounted basis and without considering interest.

If projected cash flows are less than their carrying value, the long-lived assets must be reduced to their estimated fair value.

Considerable judgment is required to project such cash flows and, if required, estimate the fair value of the impaired long-lived assets.

The Company did not record any impairment charges for the years ended December 31, 2020, 2019 and 2018.

Judgment is required to project such cash flows and, if required, estimate the fair value of the impaired long-lived assets.

The Company did not record any impairment charges for the years ended December 31, 2021, 2020 or 2019.

Goodwill represents the excess of the purchase price over the fair value of identifiable net tangible and intangible assets acquired in a business combination.

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Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary.

If it is determined, based on qualitative factors, that the fair value of the reporting unit may be more likely than not less than carrying amount, or if significant adverse changes in the Company’s future financial performance occur that could materially impact fair value, a quantitative goodwill impairment test would be required.

Additionally, the Company can

If it is determined, based on qualitative factors, that the fair value of the reporting unit may be more likely than not less than its carrying amount, or if significant adverse changes in the Company’s future financial performance occur that could materially impact fair value, a quantitative goodwill impairment test would be required.

Additionally, the

ALLIED MOTION TECHNOLOGIES INC.

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elect to forgo the qualitative assessment and perform the quantitative test.

Company can elect to forgo the qualitative assessment and perform the quantitative test.

If the qualitative assessment indicates that the quantitative analysis should be performed, or if management elects to bypass a qualitative assessment, the Company then evaluates goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount, including goodwill.

At October 31, 2020, we performed our annual goodwill impairment test and determined, after performing a qualitative test of the reporting unit, that it is more likely than not that the fair value of the reporting unit exceeds its carrying amount.

At October 31, 2021, the Company performed its annual goodwill impairment test and determined, after performing a qualitative test of the reporting unit, that it is more likely than not that the fair value of the reporting unit exceeds its carrying amount.

Accordingly, there was no indication of impairment and the quantitative impairment test was not performed.

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The Company offers warranty coverage for its products.

The length of the warranty period for its products is generally three months to two years and varies significantly based on the product sold.

The length of the warranty period for its products is generally three months to two years and varies based on the product sold.

The Company estimates the costs of repairing products under warranty based on the historical average cost of the repairs.

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Compensation and fringe benefits

Accrued business acquisition consideration (Note 2)

Right of use liabilities

Warranty reserve

Income taxes payable

Right of use liabilities

Other accrued expenses

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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 of the operating locations are included in the results of operations as incurred.

Revenue Recognition

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Engineering and design as well as research and development costs are expensed as incurred.

Basic and Diluted Income per Share

Basic income per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding.

Diluted income per share is determined by dividing the net income by the sum of (1) the weighted average number of common shares outstanding and (2) if not anti-dilutive, the effect of stock awards determined utilizing the treasury stock method.

Basic and Diluted Earning per Share

Basic earnings per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding.

Diluted earnings per share is determined by dividing the net income by the sum of:

(1) the weighted average number of common shares outstanding and (2) if not anti-dilutive, the effect of potential common shares determined utilizing the treasury stock method.

Basic and diluted weighted-average shares outstanding are as follows (in thousands):

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Basic weighted average shares outstanding

Dilutive effect of equity awards

Dilutive effect of potential common shares

Diluted weighted average shares outstanding

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Deferred compensation plan assets

Interest rate swaps

Foreign currency hedge contracts

Interest rate swaps, net

Contingent consideration (Note 2)

December 31, 2020

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Interest rate swaps

The contingent consideration fair value measurement in connection with the acquisition of ALIO Industries (“ALIO”) is based on significant inputs not observable in the market and therefore constitute Level 3 inputs within the fair value hierarchy.

The Company determines the initial fair value of contingent consideration liabilities using a Monte Carlo valuation model, which involves a simulation of future earnings generated during the earn out-period using management’s best estimates, or a probability-weighted discounted cash flow analysis.

Derivative Financial Instruments

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(a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.

Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow

Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as

ALLIED MOTION TECHNOLOGIES INC.

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well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value.

Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

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In addition, the Company records uncertain tax positions in accordance with ASC 740, Income Taxes , ("ASC 740").

ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements.

There were no uncertain tax benefits for the years ended December 31, 2020, 2019 and 2018 and no amounts were recorded for interest and penalties related to unrecognized tax positions for the years ended December 31, 2020, 2019, and 2018.

Pension and Postretirement Welfare Plans

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The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

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

ALLIED MOTION TECHNOLOGIES INC.

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consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

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 additional 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 consolidated financial statements have been adjusted to reflect the stock split on a retrospective basis for all periods presented.

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.

Costs incurred include accelerated lease costs, severance and other payroll related costs, and accelerated depreciation.

Recently adopted accounting pronouncements

In June 2016, FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses.

The new guidance is effective for fiscal years beginning after December 15, 2019.

The Company adopted this ASU on January 1, 2020 applying the modified retrospective approach and the adoption did not have a material impact on its consolidated financial statements.

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.

The Company adopted this standard on January 1, 2020 on a prospective basis and the adoption did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820) , which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers.

The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss).

The ASU is effective for public entities for fiscal years beginning after December 15, 2019.

The Company has not historically had any transfers between Level 1 and Level 2 or assets or liabilities measured at fair value under Level 3.

The Company adopted this ASU on January 1, 2020 on a prospective basis and the adoption did not have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This guidance provides relief for impacted areas as it relates to impending reference rate reform and contains optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other areas or transactions, subject to meeting certain criteria, that are impacted by reference rate reform.

This ASU is effective upon issuance for all entities and elections of certain optional expedients are required to apply the provisions of the guidance.

The Company adopted this ASU effective January 1, 2020 on a prospective basis, and the Company has elected the expedients related to the probability of hedged interest payments, regardless of any expected future modification in terms related to reference rate reform, as well as the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

Should the Company elect further optional expedients as it relates to reference rate reform, disclosure of those elections will be done in the fiscal period in which the elections are made.

The adoption did not have a material impact on its consolidated financial statement s.

Dynamic Controls

On March 7, 2020, the Company acquired 100 % of the issued and outstanding share capital of the 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.

The purchase price was funded using borrowings under the Amended Revolving Facility (Note 7).

The purchase price was subject to adjustments based on a determination of closing net working capital.

In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) .

The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, and clarifies existing guidance to improve consistent application.

This guidance is effective for fiscal years beginning after December 15, 2020.

The Company adopted this ASU on January 1, 2021 on a prospective basis, as there were no relevant matters impacting the Company for which retrospective application was required, and the adoption did not have a material impact on its consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) .

The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value.

The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted.

The Company early adopted this ASU in the fourth quarter of 2021.

The adoption did not have a material impact on its consolidated financial statements.

2021 Acquisitions

Spectrum Controls

On December 30, 2021, the Company acquired Spectrum Controls, Inc.

(“Spectrum Controls”), a Washington headquartered innovator and manufacturer of industrial Input/Output (“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 the Company with the opportunity to enhance its position as a value-added solutions supplier to the industrial automation and industrial controls market.

ALLIED MOTION TECHNOLOGIES INC.

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The purchase price was $ 68,711 , consisting of $ 44,046 paid at closing, $ 26,076 in cash funded through borrowings under the Amended Revolving Facility and $ 17,970 in Company stock ( 502,512 shares at $ 35.76 closing stock price on December 29, 2021).

The remaining $ 24,665 of purchase price represents the acquisition date fair value of two remaining payments of $ 12,500 each to be paid in two equal installments no later than December 31, 2022 and December 31, 2023, respectively, comprised of 50 % cash and 50 % in Company stock.

As of December 31, 2021, $ 12,388 is included in accrued liabilities and $ 12,277 is included in other long-term liabilities on the consolidated balance sheet.

The purchase price allocation is subject to adjustments based on a determination of closing net working capital and certain tax matters.

The Company incurred $ 93 of transaction costs related to the acquisition of Spectrum Controls in 2021, which are included in business development on the consolidated statements of income and comprehensive income.

The preliminary allocation of the purchase price paid for Spectrum Controls is based on estimated fair values of the assets acquired and liabilities assumed of Spectrum Controls as of December 30, 2021 and is as follows (in thousands):

Cash and cash equivalents

Trade receivables

Other assets, net

Property, plant and equipment

Intangible assets

Current liabilities

Net purchase price

The intangible assets acquired consist of customer lists of $ 21,000 , technology of $ 13,500 , and a trade name of $ 300 , which are being amortized over 18 , 10 and 10 years , respectively.

Goodwill generated in the acquisition is related to the assembled workforce, synergies between Allied Motion’s other operations and Spectrum Controls that are expected to occur as a result of the combined engineering knowledge, the ability of each of the operations to integrate each other’s products into more fully integrated system solutions and Allied Motion’s ability to utilize Spectrum Controls’ management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of this acquisition are included in the consolidated financial statements beginning on the date of the acquisition.

Revenue and earnings related to Spectrum Controls included within the consolidated statement of income and comprehensive income for the year ended December 31, 2021 were inconsequential.

The goodwill resulting from the Spectrum Controls acquisition is tax deductible.

On November 2, 2021, the Company acquired 100 % of the outstanding stock of 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.

On November 4, 2021, the Company acquired 100 % of 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

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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 is expected to enhance the Company’s portfolio of motion solution offerings.

The purchase price, collectively, for ORMEC and ALIO was $ 33,458 , comprised of $ 23,333 in cash funded through borrowings under the Amended Revolving Credit Facility, $ 5,526 in Company stock ( 150,038 shares at a weighted average stock price of $ 36.83 ), and the fair value of contingent consideration of $ 4,900 , offset by a $ 301 estimated working capital provision.

These purchase price allocations are subject to adjustments based on a determination of closing net working capital and certain tax matters.

The Company incurred $ 409 of transaction costs related to these acquisitions in 2021, which is included in business development on the consolidated statements of income and comprehensive income.

The preliminary allocation of the purchase price paid is based on estimated fair values of the assets acquired and liabilities assumed as of November 2, 2021 for ORMEC and November 4, 2021 for ALIO and is, collectively, as follows (in thousands):

Cash and cash equivalents

Trade receivables

Other assets, net

Property, plant and equipment

Right of use assets

Intangible assets

Other current liabilities

Deferred revenue

Lease liabilities

Net deferred income tax liabilities

Net purchase price

The intangible assets acquired consist of technology of $ 5,700 , customer lists of $ 4,000 , and trade names of $ 500 , which are being amortized over weighted average useful lives of 11 , 6 and 10 years , respectively.

Goodwill generated in these acquisitions is related to the assembled workforce, synergies with Allied Motion’s other operations that are expected to occur as a result of the combined engineering knowledge, the ability of the operations to integrate products into more fully integrated system solutions and Allied Motion’s ability to utilize ORMEC and ALIO’s management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of these acquisitions are included in the consolidated financial statements beginning on the date of the acquisition.

Revenue included within the consolidated statement of income and comprehensive income for the year ended December 31, 2021, related to ORMEC and ALIO, collectively, was $ 2,063 and earnings were not material.

As of December 31, 2021, the fair value of contingent consideration of $ 4,900 is included in other long-term liabilities on the consolidated balance sheet.

The contingent consideration represents the estimated fair value of the Company’s obligations, under a purchase agreement, to make additional payments if certain earnings goals are met through 2024.

There were no changes to the contingent consideration fair value during 2021.

The goodwill resulting from the ORMEC acquisition is not tax deductible.

The goodwill resulting from the ALIO acquisition is tax deductible.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

2020 Acquisitions

Dynamic Controls

The purchase price was funded using borrowings under the Amended Revolving Facility.

The purchase price was subject to adjustments based on a determination of closing net working capital.

Dynamic Controls brings strong leadership and a very experienced electronics and software engineering design team, providing market leading electronic control solutions and products that will further strengthen the Company’s medical market position, as well as enable it to further develop higher level solutions with embedded electronics across our other major served markets.

The Company incurred $ 473 of transaction costs related to the acquisition of Dynamic Controls in 2020, which are included in business development expenses on the consolidated statements of income and comprehensive income.

The Company accounted for the acquisition pursuant to FASB ASC 805, Business Combinations .

The allocation of the purchase price paid for Dynamic Controls is based on estimated fair values of the assets acquired and liabilities assumed of Dynamic Controls as of March 7, 2020 and is as follows (in thousands):

The Company incurred $ 473 of transaction costs related to the acquisition of Dynamic Controls in 2020, which are included in business development on the consolidated statements of income and comprehensive income.

The allocation of the purchase price paid for Dynamic Controls is based on fair values of the assets acquired and liabilities assumed of Dynamic Controls as of March 7, 2020 and is as follows (in thousands):

Cash and cash equivalents

Accounts receivable

Trade receivables

Other assets, net

11 unchanged sentences

Goodwill generated in the acquisition is related to the assembled workforce, synergies between Allied Motion’s other operations and Dynamic Controls that are expected to occur as a result of the combined engineering knowledge, the ability of each of the operations to integrate each other’s products into more fully integrated system solutions and Allied Motion’s ability to utilize Dynamic Controls’ management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of this acquisition are included in our consolidated financial statements beginning on the date of the acquisition.

The operating results of this acquisition are included in the consolidated financial statements beginning on the date of the acquisition.

Included within the consolidated statement of income and comprehensive income for the year ended December 31, 2020, revenues and earnings related to Dynamic Controls were $ 24,124 and $ 945 , respectively.

2 unchanged sentences

(In thousands, except share and per share data)

The following unaudited pro forma financial information presents the combined results of operations if the Dynamic Controls acquisition had occurred as of January 1, 2019 (in thousands):

For the year ended

Earnings per share - basic

Earnings per share - diluted

The goodwill resulting from the Dynamic Controls acquisition is not tax deductible.

Pro Forma Financial Information

Unaudited pro forma revenue is $ 443,010 and $ 415,577 for 2021 and 2020, respectively.

Unaudited pro forma earnings for 2021 and 2020 is not materially different from reported earnings, primarily due to incremental amortization and interest expense.

The unaudited pro forma financial information represents the combined results of operations if the Dynamic Controls acquisition had occurred as of January 1, 2019 and the ORMEC, ALIO and Spectrum Controls acquisitions had occurred as of January 1, 2020.

The pro forma information includes certain adjustments, including depreciation and amortization expense, interest expense, and certain other adjustments, together with related income tax effects.

The pro forma amounts do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of this acquisition.

The pro forma amounts do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of these acquisitions.

The pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would have been had these transactions actually occurred on the date presented or to project the combined company’s results of operations or financial position for any future period.

The goodwill resulting from the Dynamic Controls acquisition is not tax deductible.

REVENUE RECOGNITION

11 unchanged sentences

The Company’s target markets include Vehicle, Medical, Aerospace & Defense and Industrial.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Determining the Transaction Price

1 unchanged sentence

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.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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.

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(In thousands, except share and per share data)

The difference between the opening and closing 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

15 unchanged sentences

Ending balance

The purchase price allocations for ORMEC, ALIO and Spectrum Controls are not final as of December 31, 2021.

Adjustments to these allocations may result in changes to the amounts recorded for goodwill in future periods.

The purchase price allocation was finalized for the Dynamic Controls acquisition during the fourth quarter of 2020.

10 unchanged sentences

10 - 15 years

Intangible assets resulting from the acquisition of Dynamic Controls were approximately $ 7,800 (Note 2).

The intangible assets acquired consist of customer lists, technology, and a trade name.

Intangible assets resulting from the 2021 acquisitions of ORMEC, ALIO and Spectrum Controls were $ 45,000 (Note 2).

The intangible assets acquired consist of customer lists, technology, and trade names.

Total amortization expense for intangible assets for the years 2021, 2020 and 2019 was $ 6,245 , $ 5,928 and $ 5,718 , respectively.

6 unchanged sentences

As of December 31, 2021, the Company had 1,031,128 shares of common stock available for grant under stock incentive plans.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Restricted Stock

4 unchanged sentences

For the year ended December 31,

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The value at the date of award is amortized to compensation expense over the related service period, which is generally three years for time vested grants.

9 unchanged sentences

Balance, December 31, 2021

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The following is a summary of performance based restricted stock activity during years 2021, 2020 and 2019:

Total performance

Outstanding, December 31, 2018

5 unchanged sentences

Outstanding, December 31, 2021

The performance criteria and forfeitures in the above table did not occur until the Board of Directors approved them during the March 2021, and February 2020 and 2019 meetings.

The performance criteria and forfeitures in the above table did not occur until the Board of Directors approved them during the March 2022, March 2021 and February 2020 meetings.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Share-Based Compensation Expense

Restricted Stock

During 2021, 2020 and 2019 compensation expense net of forfeitures of $ 4,161 , $ 3,550 and $ 3,203 was recorded, respectively.

3 unchanged sentences

employees who work over 1,000 hours per year.

The terms of the ESOP require the Company to make an annual contribution equal to the greater of i) the Board established percentage of pretax income before the contribution ( 5 % in 2020, 2019 and 2018) or ii) the annual interest payable on any loan outstanding to the Company from the ESOP.

The terms of the ESOP require the Company to make an annual contribution equal to the greater of:

i) the Board established percentage of pretax income before the contribution ( 5 % in 2021, 2020 and 2019) or ii) the annual interest payable on any loan outstanding to the Company from the ESOP.

Company contributions to the Plan accrued for 2021, 2020 and 2019, were $ 1,206 , $ 988 and $ 1,189 , respectively.

6 unchanged sentences

Net costs related to this defined contribution plan were $ 1,672 , $ 1,774 and $ 1,362 in 2021, 2020 and 2019, respectively.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

For each of the years ended December 31, 2020 and 2019 a total of $ 0.12 per share on all outstanding shares was declared and paid, respectively.

For the year ended December 31, 2018 a total of $ 0.115 per share on all outstanding shares was declared and paid.

For the years ended December 31, 2021, 2020 and 2019 a total of $ 0.095 , $ 0.08 and $ 0.08 per share on all outstanding shares was declared and paid, respectively.

Total dividends paid for the years ended December 31, 2021, 2020 and 2019 were $ 1,371 , $ 1,160 and $ 1,170 , respectively.

8 unchanged sentences

Amended Revolving Credit Facility

On February 12, 2020, the Company entered into a First Amended and Restated Credit Agreement (the “Amended Credit Agreement”) for a $ 225 million revolving credit facility (the “Amended Revolving Facility”).

The significant changes made to the Company’s prior credit facility by the Amended Credit Agreement include (i) increasing the maximum principal amount from $ 175 million to $ 225 million, (ii) providing for a $ 75 million accordion amount, (iii) decreasing certain interest-rate margins and fees, and (iv) extending the term to February 2025 from the original term of October 2021.

HSBC Bank USA, National Association is the administrative agent, and HSBC Securities (USA) Inc., KeyBank N.A, Wells Fargo Bank, N.A and Citizens Bank, N.A.

are joint lead arrangers.

Borrowings under the Amended Revolving Facility bear interest at the LIBOR Rate (as defined in the Amended Credit Agreement) plus a margin of 1.00 % to 1.75 % or the Prime Rate (as defined in the Amended Credit Agreement) plus a margin of 0 % to 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”).

The First Amended and Restated Credit Agreement (the “Amended Credit Agreement”) includes a $ 225 million revolving credit facility (the “Amended Revolving Facility”).

The Amended Credit Agreement includes:

(i) a maximum principal amount of $ 225 million, (ii) a $ 75 million accordion amount, and (iii) a maturity date of February 2025.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Borrowings under the Amended Revolving Facility bear interest at the LIBOR or EURIBOR Rate (as defined in the Amended Credit Agreement) plus a margin of 1.00 % to 1.75 % or the Prime Rate (as defined in the Amended Credit Agreement) plus a margin of 0 % to 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 December 31, 2021, the applicable margin for LIBOR Rate borrowings was 1.375 % and the applicable margin for Prime Rate borrowings was 0.375 %.

1 unchanged sentence

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 contains certain financial covenants related to minimum interest coverage, Total Leverage Ratio, and non-material subsidiaries assets to consolidated total assets 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 Company’s ability to merge or sell all, or substantially all, of its assets.

Under the provisions of the Amended Credit Agreement, the Company may elect to increase its Leverage Ratio to a 4.0 to 1.0 ratio (a “Leverage Increase”) during the fiscal quarter in which a Material Acquisition (as defined in the Amended Credit Agreement) takes place, and for the next three fiscal quarters.

If the Material Acquisition occurs within the last 45 days of any fiscal quarter, the Leverage Increase is applicable for the following four fiscal quarters.

The Company qualified for, and elected, the Leverage Increase as a result of the Spectrum Controls acquisition.

The Company was in compliance with all covenants at December 31, 2021.

As of December 31, 2021, the unused Amended Revolving Facility was $ 65,605 .

The amount available to borrow may be reduced based upon our debt and EBITDA levels, which impacts our covenant calculations.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The amount available to borrow may be reduced based upon the Company’s debt and EBITDA levels, which impacts its covenant calculations.

The China Credit Facility provides credit of $ 1,574 (Chinese Renminbi 10,000 ) (“the China Facility”).

11 unchanged sentences

The Company manages economic risks, including interest rate, and foreign exchange risk primarily through 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 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 payments principally related to the Company’s borrowings.

Beginning in the first quarter of 2021, the Company began entering into foreign currency 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, Swedish Krona) 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

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

other (income) expense, net in the consolidated statements of income and comprehensive income.

To minimize foreign currency exposure, the Company had foreign currency contracts with notional amounts of $ 13,500 at December 31, 2021.

The foreign currency contracts are recorded in the consolidated balance sheets at fair value and resulting gains or losses are recorded in other (income) expense, net in the consolidated statements of income and comprehensive income.

During the year ended December 31, 2021, the Company had losses of $ 170 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.

6 unchanged sentences

The Company estimates that an additional $ 342 will be reclassified as an increase to interest expense over the next 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.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Additionally, the Company does not use derivatives for trading or speculative purposes.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2021 and 2020 (in thousands):

Asset Derivatives

Fair value as of:

Derivatives designated as

Balance Sheet

hedging instruments

Foreign currency contracts

Prepaid expenses and other assets

Interest rate products

Other long-term assets

Liability Derivatives

4 unchanged sentences

Interest rate products

Accrued liabilities

Interest rate products

Other long-term liabilities

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The table below presents the effect of cash flow hedge accounting on other comprehensive income (loss) (OCI) for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Amount of pre-tax loss recognized in OCI

on derivatives

Amount of pre-tax gain (loss)

recognized in OCI on derivatives

Derivatives in cash flow hedging relationships

1 unchanged sentence

Interest rate products

Amount of pre-tax (loss) gain reclassified

Location of (loss) gain reclassified

Amount of pre-tax (loss) gain reclassified from accumulated OCI into income

from accumulated OCI into income

Year ended December 31,

11 unchanged sentences

The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets (in thousands).

Derivative assets :

Gross amounts

Net amounts of liabilities

Gross amounts not offset in the consolidated

7 unchanged sentences

balance sheets

Derivative liabilities:

Gross amounts

Net amounts of liabilities

of liabilities

Gross amounts not offset in the consolidated

7 unchanged sentences

balance sheets

Gross amounts

of liabilities

Gross amounts not offset in the consolidated

Gross amounts

offset in the

presented in the

balance sheets

of recognized

Cash collateral

balance sheets

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.

5 unchanged sentences

Income before income taxes

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Components of the total provision for income taxes are as follows (in thousands):

Components of the total income tax (benefit) provision are as follows (in thousands):

For the year ended

1 unchanged sentence

Total current provision

Deferred provision

Total deferred provision

Provision for income taxes

The provision for income taxes differs from the amount determined by applying the federal statutory rate as follows:

Deferred (benefit) provision

Total deferred (benefit) provision

Income tax (benefit) provision

The (benefit) provision for income taxes differs from the amount determined by applying the federal statutory rate as follows:

For the year ended

5 unchanged sentences

Section 162(m) compensation

Restricted stock awards

R&D tax credits

Effect of Tax Cuts and Jobs Act

1 unchanged sentence

Tax examinations

Provision for income taxes

Investment tax credits

Net operating loss carryforwards

Unrecognized tax benefits

Income tax (benefit) provision

ALLIED MOTION TECHNOLOGIES INC.

17 unchanged sentences

Noncurrent deferred income tax liabilities

Net deferred tax liability

As of December 31, 2020, the Company has the following gross carryforwards available:

Net deferred tax asset (liability)

As of December 31, 2021, the Company has the following gross carryforwards available (in thousands):

Tax Attribute

12 unchanged sentences

Realization of the Company’s recorded deferred tax assets is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdictions in future years to obtain benefit from the reversal of net deductible temporary differences and from utilization of net operating losses and tax credit carryforwards.

The Company generated excess foreign tax credits in 2017 due to the one-time transition tax required by enactment of the Tax Cuts and Jobs Act in the amount of $ 0.9 million.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

The Company generated excess foreign tax credits in 2017 due to the one-time transition tax required by enactment of the Tax Cuts and Jobs Act in the amount of $ 910 and foreign tax credits were generated in the amount of $ 92 as a result of a dividend paid from Canada.

The Company determined it is more likely than not that it will not realize a tax benefit from these credits.

Additionally, the Company has incurred net operating losses in certain states that it is more likely than not will not be realized.

The tax effect of these losses is $ 0.2 million.

Therefore, the Company recognized a full valuation allowance related to these foreign tax credits and state net operating losses.

The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed.

The Company believes that it is more likely than not that it will realize the benefits of its deferred tax assets, net of valuation allowances as of December 31, 2020.

The Company has incurred net operating losses in certain states with a tax effected benefit of $ 201 that it is more likely than not will not be realized.

Additionally, the Company has carryforwards of net operating losses

ALLIED MOTION TECHNOLOGIES INC.

1 unchanged sentence

(In thousands, except share and per share data)

and tax credits generated in foreign jurisdictions and has determined it is more likely than not it would not realize a tax benefit of $ 1,692 .

The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed.

The Company believes that it is more likely than not that it will realize the benefits of its deferred tax assets, net of valuation allowances as of December 31, 2021.

The Company files income tax returns in various U.S.

2 unchanged sentences

federal and state tax examinations in its major tax jurisdictions for periods before 2018.

With few exceptions, the Company is no longer subject to tax examinations in the foreign jurisdictions for periods prior to 2017.

The Company completed an IRS tax audit for tax year 2017 with no adjustments made to taxable income.

With few exceptions, the Company is no longer subject to tax examinations in the foreign jurisdictions for tax periods prior to 2016.

Due to a New Zealand tax legislation change in 2021 allowing for the use of pre-acquisition net operating loss carryforwards to be utilized on the acquirer's future period tax returns, the Company recognized $ 8,328 of net operating loss carryforwards generated in pre-acquisition periods by the Dynamic Controls New Zealand entities.

The net operating loss carryforwards are now available for use by the Company beginning with the New Zealand tax returns filed for the 2020 tax period.

The Company evaluated the tax legislation and considered the tax periods open for adjustment by the tax authorities which include the 2016-2020 tax years and has determined it is more likely than not it will not realize a benefit on $ 1,125 of the net operating loss carryforwards.

The Company reduced the unrecognized tax benefit in 2021 as a result of the seller filing its 2020 New Zealand tax return and utilizing $ 68 of the net operating loss carryforwards.

The Company will adjust this unrecognized tax benefit in light of changing facts and circumstances and with the lapse of the statute of limitations.

The lapse of the statute of limitations would be recorded as an adjustment to the provision for income taxes in the period of the statute closure.

The summary of changes to the unrecognized tax benefit for the year ended December 31, 2021 is as follows (in thousands):

Beginning balance

Additions from tax legislation changes for net operating loss carryforwards

Reductions related to net operating loss usage on 2020 tax returns

Ending balance

___________________________

(1) No other unrecognized tax benefits were recognized in periods prior to the year ended December 31, 2021 that, if recognized, would reduce the effective tax rate.

It is the Company’s policy to include interest and penalties related to income tax liabilities in income tax expense in the consolidated statements of income and comprehensive income.

In addition, the Company records uncertain tax positions in accordance with ASC 740.

No interest or penalties related to income tax liabilities were recognized for the years ended December 31, 2021, 2020 and 2019.

In general, it is the practice and intention of the Company to reinvest the earnings of its non-domestic subsidiaries in activities outside the United States.

Exceptions may be made on a year-by-year basis to repatriate earnings of certain foreign subsidiaries based on cash needs in the United States.

The Company intends to distribute a portion of these foreign earnings which have been previously taxed in the United States.

As of December 31, 2020, foreign withholding taxes of $ 275 have been provided for unremitted earnings of foreign subsidiaries based on the amounts of anticipated distributions.

The Company does not intend to distribute the remaining previously taxed earnings resulting from the one-time transition tax under the Tax Cuts and Jobs Act, and has not recorded any deferred taxes related to such amounts.

In 2021, the Company distributed a portion of these foreign earnings which have been previously taxed in the United States and remitted $ 236 of foreign withholding taxes.

In 2021, the Company made distributions between its German subsidiaries and remitted $ 1,493 of foreign withholding taxes.

No deferred tax liabilities have been recorded for these distributions as the foreign withholding taxes are refundable on the German income tax return anticipated to be filed in 2022.

No further withholding taxes are anticipated to be paid in future years related to this distribution and it is not anticipated to be remitted to the United States.

The Company does not intend to distribute the remaining previously taxed earnings resulting from the one-time

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

transition tax under the Tax Cuts and Jobs Act or capital in foreign subsidiaries, and has not recorded any deferred taxes related to such amounts.

The remaining excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries is permanently reinvested, and the determination of any deferred tax liability on this amount is not practicable.

It is the Company’s policy to include interest and penalties related to income tax liabilities in income tax expense on the consolidated statements of income and comprehensive income.

In addition, the Company records uncertain tax positions in accordance with ASC 740.

ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements.

The were no uncertain tax benefits for the years ended December 31, 2020, 2019 and 2018 and no amounts were recorded for interest and penalties related to unrecognized tax positions for the years ended December 31, 2020, 2019, and 2018.

The Company has operating leases for office space, manufacturing equipment, computer equipment and automobiles.

The Company has operating leases for office space, manufacturing facilities and equipment, computer equipment and automobiles.

The Company did not have any finance leases in 2021 or 2020.

8 unchanged sentences

Right of use ("ROU") assets obtained in exchange for operating lease obligations

ROU assets recorded upon adoption of ASC 842, Leases

ROU assets obtained in acquisitions (Note 2)

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The following table presents weighted average remaining lease term and discount rates related to the Company’s operating leases as of December 31, 2021 and 2020:

5 unchanged sentences

Total lease liabilities

As of December 31, 2020, the Company had no additional significant operating or finance leases that had not yet commenced.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

As of December 31, 2021, the Company has entered into leases for building renewal and expansion, with future minimum lease payments of $ 13,700 that have not yet commenced.

The Company leases certain facilities from companies for which a member of management is a part owner.

In connection with such leases, the Company made payments to the lessor of $ 700 and $ 500 during the years ended December 31, 2021 and 2020, respectively.

Future minimum lease payments under these leases as of December 31, 2021 are $ 8,200 .

COMMITMENTS AND CONTINGENCIES

Severance Benefit Agreements

As of December 31, 2020, the Company has annually renewable severance benefit agreements with key employees which, among other things, provide inducement to the employees to continue to work for the Company during and after any period of a potential change in control of the Company.

The agreements provide the employees with specified benefits upon the subsequent severance of employment in the event of change in control of the Company and are effective for 24 months thereafter.

As of December 31, 2021, the Company has annually renewable employment agreements with certain of its executive officers.

Among other things, the agreements provide for payments and other benefits if the employee’s employment terminates under certain circumstances, including the employee’s death, disability, voluntary resignation with good reason and involuntary termination without cause, as well as voluntary resignation with good reason and involuntary termination without cause within 90 days prior to or 24 months following a change in control of the Company.

The Company is involved in certain actions that have arisen out of the ordinary course of business.

1 unchanged sentence

DEFERRED COMPENSATION ARRANGEMENTS

The Company has deferred compensation arrangements with certain key members of management.

These arrangements provide the Board and its committees with another mechanism to provide pay for performance based incentive compensation to certain executive participants.

It also allows for the participants to make certain deferrals into the plan.

The Company has a deferred compensation arrangement with its Chief Executive Officer.

This arrangement provides the Board and its committees with another mechanism to provide pay for performance based incentive compensation.

It also allows for the Chief Executive Officer to make certain deferrals into the plan.

The amount of the liability is comprised of liabilities from previous contributions.

Amounts accrued relating to previous periods are $ 5,386 and $ 4,695 as of December 31, 2020 and 2019, respectively, of which $ 4,329 and $ 4,695 are included in other long-term liabilities in the consolidated balance sheets at December 31, 2020 and 2019 and $ 1,057 is included within accrued liabilities as of December 31, 2020, relating to the amounts to be paid in 2021.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Amounts accrued relating to previous periods are $ 4,636 and $ 5,386 as of December 31, 2021 and 2020, respectively, of which $ 4,636 and $ 4,329 are included in other long-term liabilities in the consolidated balance sheets at December 31, 2021 and 2020 and $ 1,057 is included within accrued liabilities as of December 31, 2020, relating to amounts that were paid in 2021.

SEGMENT INFORMATION

5 unchanged sentences

Revenues derived from foreign subsidiaries

Identifiable assets outside of the United States are $ 133,466 and $ 95,777 as of December 31, 2020 and 2019, respectively.

Revenues derived from foreign subsidiaries and identifiable assets outside of the United States are primarily attributable to Europe, China and New Zealand.

Sales to customers outside of the United States by all subsidiaries were $ 171,847 , $ 159,365 and $ 146,835 during 2020, 2019 and 2018, respectively.

For 2020, 2019 and 2018 one customer accounted for 15 %, 16 % and 19 % of revenues, respectively, and as of December 31, 2020 and 2019 for 22 % and 17 % of trade receivables, respectively.

SUBSEQUENT EVENT

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 additional shares are expected to be issued on April 30, 2021.

In lieu of fractional shares, shareholders will receive a cash payment based on the closing share price of the common stock on the record date.

Identifiable foreign fixed assets were $ 32,807 and $ 34,855 as of December 31, 2021 and 2020, respectively.

ALLIED MOTION TECHNOLOGIES INC.

1 unchanged sentence

(In thousands, except share and per share data)

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for each of the four quarters in years 2020 and 2019 is as follows (in thousands, except per share data):

Basic earnings per share

Diluted earnings per share

Basic earnings per share

Diluted earnings per share

The sum of the quarterly net income per share (basic and diluted) may differ from the annual net income per share (basic and diluted) because of differences in the weighted average number of common shares outstanding and the common shares used in the quarterly and annual computations as well as differences in rounding.

Revenues derived from foreign subsidiaries and identifiable assets outside of the United States are primarily attributable to Europe, China, Mexico and New Zealand.

Sales to customers outside of the United States by all subsidiaries were $ 185,288 , $ 171,847 and $ 159,365 during 2021, 2020 and 2019, respectively.

For 2021, 2020 and 2019 one customer accounted for 15 %, 15 % and 16 % of revenues, respectively, and as of December 31, 2021 and 2020 for 10 % and 22 % of trade receivables, respectively.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

1 unchanged sentence

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 8. Financial Statements and Supplementary Data