ALLIENT INC 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the stockholders and the Board of Directors of Allied Motion Technologies Inc. Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Allied Motion Technologies Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. ​ 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. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter ​ 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 Critical Audit Matter Description Inventories are measured on a first-in, first-out basis at the lower of cost or net realizable value. 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 35 Table of Contents 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 . How the Critical Audit Matter Was Addressed in the Audit 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, 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 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 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. 36 Table of Contents 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 ​ Williamsville, New York March 9, 2022 ​ We have served as the Company’s auditor since 2018. ​ 37 Table of Contents ALLIED MOTION TECHNOLOGIES INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 22,463 ​ $ 23,131 Trade receivables, net of provision for credit losses of $ 506 and $ 382 at December 31, 2021 and December 31, 2020, respectively ​ ​ 51,239 ​ ​ 47,377 Inventories ​ 89,733 ​ 62,978 Prepaid expenses and other assets ​ 12,522 ​ 8,728 Total current assets ​ 175,957 ​ 142,214 Property, plant and equipment, net ​ 56,983 ​ 55,428 Deferred income taxes ​ 5,321 ​ 330 Intangible assets, net ​ 103,786 ​ 65,859 Goodwill ​ 106,633 ​ 61,860 Right of use assets ​ ​ 16,983 ​ ​ 19,023 Other long-term assets ​ 5,122 ​ 4,483 Total Assets ​ $ 470,785 ​ $ 349,197 Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 36,714 ​ $ 27,668 Accrued liabilities ​ 41,656 ​ 24,862 Total current liabilities ​ 78,370 ​ 52,530 Long-term debt ​ 158,960 ​ 120,079 Deferred income taxes ​ 5,040 ​ 4,659 Pension and post-retirement obligations ​ 3,932 ​ 5,340 Right of use liabilities ​ ​ 12,792 ​ ​ 14,975 Other long-term liabilities ​ ​ 23,929 ​ ​ 8,558 Total liabilities ​ 283,023 ​ 206,141 Commitments and contingencies (Note 11) ​ ​ ​ ​ ​ ​ Stockholders’ Equity: ​ ​ ​ ​ ​ ​ Common stock, no par value, authorized 50,000 shares; 15,361 and 14,632 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively ​ 68,097 ​ 41,278 Preferred stock, par value $ 1.00 per share, authorized 5,000 shares; no shares issued or outstanding ​ — ​ — Retained earnings ​ 127,757 ​ 105,065 Accumulated other comprehensive loss ​ ( 8,092 ) ​ ( 3,287 ) Total stockholders’ equity ​ 187,762 ​ 143,056 Total Liabilities and Stockholders’ Equity ​ $ 470,785 ​ $ 349,197 ​ See accompanying notes to consolidated financial statements. ​ 38 Table of Contents ALLIED MOTION TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ December 31, ​ December 31, ​ December 31, ​ 2021 2020 2019 Revenues ​ $ 403,516 ​ $ 366,694 ​ $ 371,084 Cost of goods sold ​ 282,460 ​ 258,119 ​ 258,500 Gross profit ​ 121,056 ​ 108,575 ​ 112,584 Operating costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling ​ 17,249 ​ 15,392 ​ 16,536 General and administrative ​ 42,419 ​ 38,301 ​ 37,688 Engineering and development ​ 27,818 ​ 25,487 ​ 23,086 Business development ​ 1,299 ​ 473 ​ 113 Amortization of intangible assets ​ 6,245 ​ 5,928 ​ 5,718 Total operating costs and expenses ​ 95,030 ​ 85,581 ​ 83,141 Operating income ​ 26,026 ​ 22,994 ​ 29,443 Other expense, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense ​ 3,236 ​ 3,716 ​ 5,134 Other (income) expense, net ​ ( 323 ) ​ 502 ​ 468 Total other expense, net ​ 2,913 ​ 4,218 ​ 5,602 Income before income taxes ​ 23,113 ​ 18,776 ​ 23,841 Income tax benefit (provision) ​ 981 ​ ( 5,133 ) ​ ( 6,819 ) Net income ​ $ 24,094 ​ $ 13,643 ​ $ 17,022 Basic earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share ​ $ 1.67 ​ $ 0.96 ​ $ 1.21 Basic weighted average common shares ​ 14,413 ​ 14,243 ​ 14,097 Diluted earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share ​ $ 1.66 ​ $ 0.95 ​ $ 1.20 Diluted weighted average common shares ​ 14,517 ​ 14,333 ​ 14,192 Net income ​ $ 24,094 ​ $ 13,643 ​ $ 17,022 Foreign currency translation adjustment ​ ​ ( 7,193 ) ​ ​ 8,410 ​ ​ ( 680 ) Change in accumulated income (loss) on derivatives ​ ​ 1,618 ​ ​ ( 1,161 ) ​ ​ ( 711 ) Pension adjustments ​ ​ 770 ​ ​ ( 5 ) ​ ​ ( 622 ) Comprehensive income ​ $ 19,289 ​ $ 20,887 ​ $ 15,009 ​ See accompanying notes to consolidated financial statements. ​ 39 Table of Contents ALLIED MOTION TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Accumulated Other Comprehensive Income (Loss) ​ ​ ​ ​ ​ ​ ​ Unamortized ​ ​ ​ Foreign Currency ​ Accumulated ​ ​ ​ Total ​ ​ ​ ​ ​ ​ Cost of Equity ​ Retained ​ Translation ​ income (loss) on ​ Pension ​ Stockholders' (In thousands except per share data) Shares Amount Awards Earnings Adjustments derivatives Adjustments Equity Balances, December 31, 2018 14,228 ​ $ 36,779 ​ $ ( 3,166 ) ​ $ 76,718 ​ $ ( 7,946 ) ​ $ 434 ​ $ ( 1,006 ) ​ $ 101,813 Stock transactions under employee benefit stock plans 40 ​ ​ 1,089 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,089 Issuance of restricted stock, net of forfeitures 161 ​ ​ 4,520 ​ ​ ( 4,191 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 329 Stock-based compensation expense ​ ​ ​ ​ ​ ​ ​ 2,851 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,851 Shares withheld for payment of employee payroll taxes ​ ( 30 ) ​ ​ ( 746 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 746 ) Comprehensive loss ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 680 ) ​ ​ ( 929 ) ​ ​ ( 808 ) ​ ( 2,417 ) Tax effect ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 218 ​ ​ 186 ​ 404 Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 17,022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 17,022 Dividends to stockholders - $ 0.08 per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,151 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,151 ) Balances, December 31, 2019 14,399 ​ ​ 41,642 ​ ​ ( 4,506 ) ​ ​ 92,589 ​ ​ ( 8,626 ) ​ ​ ( 277 ) ​ ​ ( 1,628 ) ​ ​ 119,194 Stock transactions under employee benefit stock plans 48 ​ ​ 1,252 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,252 Issuance of restricted stock, net of forfeitures 231 ​ ​ 5,223 ​ ​ ( 4,851 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 372 Stock-based compensation expense ​ ​ ​ ​ ​ ​ ​ 3,550 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,550 Shares withheld for payment of employee payroll taxes ​ ( 46 ) ​ ​ ( 1,032 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,032 ) Comprehensive income (loss) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 8,410 ​ ​ ( 1,526 ) ​ ​ ( 5 ) ​ 6,879 Tax effect ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 365 ​ ​ ​ ​ 365 Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13,643 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13,643 Dividends to stockholders - $ 0.08 per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,167 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,167 ) Balances, December 31, 2020 14,632 ​ ​ 47,085 ​ ​ ( 5,807 ) ​ ​ 105,065 ​ ​ ( 216 ) ​ ​ ( 1,438 ) ​ ​ ( 1,633 ) ​ ​ 143,056 Stock transactions under employee benefit stock plans 32 ​ ​ 988 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 988 Issuance of restricted stock, net of forfeitures 96 ​ ​ 3,465 ​ ​ ( 3,363 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 102 Stock-based compensation expense ​ ​ ​ ​ ​ ​ ​ 4,161 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4,161 Shares withheld for payment of employee payroll taxes ​ ( 52 ) ​ ​ ( 1,928 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,928 ) Common stock issued in connection with acquisitions (Note 2) 653 ​ ​ 23,496 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 23,496 Comprehensive (loss) income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 7,193 ) ​ ​ 2,110 ​ ​ 997 ​ ( 4,086 ) Tax effect ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 492 ) ​ ​ ( 227 ) ​ ( 719 ) Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 24,094 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 24,094 Dividends to stockholders - $ 0.095 per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,402 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,402 ) Balances, December 31, 2021 15,361 ​ $ 73,106 ​ $ ( 5,009 ) ​ $ 127,757 ​ $ ( 7,409 ) ​ $ 180 ​ $ ( 863 ) ​ $ 187,762 ​ See accompanying notes to consolidated financial statements. ​ 40 Table of Contents ALLIED MOTION TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ December 31, ​ December 31, ​ December 31, ​ 2021 2020 2019 Cash Flows From Operating Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 24,094 ​ $ 13,643 ​ $ 17,022 Adjustments to reconcile net income to net cash provided by operating activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 18,107 ​ 15,985 ​ 14,857 Deferred income taxes ​ ( 6,135 ) ​ ( 519 ) ​ ( 112 ) Provision for excess and obsolete inventory ​ 534 ​ 1,106 ​ 408 Provision for warranty ​ ​ 543 ​ ​ 34 ​ ​ 210 Debt issue cost amortization recorded in interest expense ​ ​ 141 ​ ​ 144 ​ ​ 174 Stock-based compensation expense ​ 4,161 ​ 3,550 ​ 3,203 Other ​ ( 128 ) ​ ( 333 ) ​ 263 Changes in operating assets and liabilities, net of acquisitions: ​ ​ ​ ​ ​ ​ ​ ​ ​ Trade receivables ​ ( 170 ) ​ 2,711 ​ ( 1,456 ) Inventories ​ ( 22,874 ) ​ ( 4,686 ) ​ 70 Prepaid expenses and other assets ​ ( 3,670 ) ​ ( 2,264 ) ​ ( 517 ) Accounts payable ​ 8,293 ​ ( 1,874 ) ​ ( 1,809 ) Accrued liabilities ​ 2,506 ​ ( 2,659 ) ​ 2,217 Net cash provided by operating activities ​ 25,402 ​ 24,838 ​ 34,530 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows From Investing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Consideration paid for acquisitions, net of cash acquired ​ ( 47,254 ) ​ ( 14,728 ) ​ — Purchase of property and equipment ​ ​ ( 13,716 ) ​ ​ ( 9,371 ) ​ ​ ( 14,882 ) Net cash used in investing activities ​ ( 60,970 ) ​ ( 24,099 ) ​ ( 14,882 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows From Financing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Principal payments of long-term debt ​ ​ ( 12,248 ) ​ ​ ( 16,897 ) ​ ​ ( 22,500 ) Proceeds from issuance of long-term debt ​ 51,379 ​ 26,979 ​ 9,639 Payment of debt issuance costs ​ — ​ ( 401 ) ​ — Dividends paid to stockholders ​ ( 1,371 ) ​ ( 1,160 ) ​ ( 1,170 ) Tax withholdings related to net share settlements of restricted stock ​ ​ ( 1,928 ) ​ ​ ( 1,032 ) ​ ​ ( 746 ) Net cash provided by (used in) financing activities ​ 35,832 ​ 7,489 ​ ( 14,777 ) Effect of foreign exchange rate changes on cash ​ ( 932 ) ​ 1,487 ​ ( 128 ) Net (decrease) increase in cash and cash equivalents ​ ( 668 ) ​ 9,715 ​ 4,743 Cash and cash equivalents at beginning of period ​ 23,131 ​ 13,416 ​ 8,673 Cash and cash equivalents at end of period ​ $ 22,463 ​ $ 23,131 ​ $ 13,416 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest paid ​ $ 3,055 ​ $ 3,586 ​ $ 5,342 Income taxes paid ​ $ 3,869 ​ $ 8,563 ​ $ 2,051 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accrued consideration for acquisitions ​ $ 24,364 ​ $ — ​ $ — Stock issued for acquisitions ​ $ 23,496 ​ $ — ​ $ — Contingent consideration for acquisition ​ $ 4,900 ​ $ — ​ $ — Property, plant and equipment purchases in accounts payable or accrued expenses ​ $ 835 ​ $ 596 ​ $ 378 ​ See accompanying notes to consolidated financial statements. ​ ​ 41 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Allied Motion Technologies Inc. (“Allied Motion” or the “Company”) is engaged in the business of designing, manufacturing and selling precision and specialty controlled motion components and systems, which include integrated system solutions as well as individual controlled motion products, to a broad spectrum of customers throughout the world primarily for the vehicle, medical, aerospace and defense, and industrial markets. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. For business combinations, net assets acquired and liabilities assumed are recorded at their estimated fair values. Cash and Cash Equivalents Cash and cash equivalents include instruments which are readily convertible into cash (original maturities of three months or less) and which are not subject to significant risk of changes in interest rates. Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The provision for credit losses is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional provisions in the future. Activity in the provision for credit losses for 2021 and 2020 was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 Beginning balance ​ $ 382 ​ $ 405 Additional reserves ​ 174 ​ 91 Write-offs ​ ( 44 ) ​ ( 123 ) Effect of foreign currency translation ​ ​ ( 6 ) ​ ​ 9 Ending balance ​ $ 506 ​ $ 382 ​ ​ ​ ​ ​ ​ ​ ​ Inventories Inventories include costs of materials, direct labor and manufacturing overhead, and are stated at the lower of cost (first-in, first-out basis) or net realizable value, as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2021 2020 Parts and raw materials ​ $ 65,223 ​ $ 44,750 Work-in-process ​ 9,529 ​ 6,186 Finished goods ​ 14,981 ​ 12,042 ​ ​ $ 89,733 ​ $ 62,978 ​ ​ 42 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Property, Plant and Equipment Property, plant and equipment is classified as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ Useful lives ​ 2021 ​ 2020 Land ​ ​ ​ $ 979 ​ $ 999 Building and improvements 5 - 39 years ​ 14,398 ​ 14,169 Machinery, equipment, tools and dies 3 - 15 years ​ 82,898 ​ 79,738 Construction work in progress ​ ​ ​ ​ 9,582 ​ ​ 6,821 Furniture, fixtures and other 3 - 10 years ​ 21,794 ​ 16,313 ​ ​ ​ ​ 129,651 ​ 118,040 Less accumulated depreciation ​ ​ ​ ( 72,668 ) ​ ( 62,612 ) Property, plant and equipment, net ​ ​ ​ $ 56,983 ​ $ 55,428 ​ Depreciation expense is provided using the straight-line method over the estimated useful lives of the assets. Amortization of building improvements is provided using the straight-line method over the life of the lease term or the life of the asset, whichever is shorter. Maintenance and repair costs are charged to operations as incurred. Major additions and improvements are capitalized. The cost and related accumulated depreciation of retired or sold property are removed from the accounts and the resulting gain or loss, if any, is reflected in earnings. Depreciation expense was $ 11,862 , $ 10,057 and $ 9,139 in 2021, 2020 and 2019, respectively. 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 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. 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 Goodwill represents the excess of the purchase price over the fair value of identifiable net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is reviewed for impairment at least annually or more frequently if impairment indicators arise. The Company has defined one reporting unit that is the same as its operating segment. 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 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 43 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 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, 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. The Company did not record any impairment charges for the years ended December 31, 2021, 2020 or 2019. Other Long-Term Assets Other long-term assets include securities that the Company has purchased with the intent of funding the deferred compensation arrangements for certain executives of the Company. These items are accounted for at fair value on a recurring basis. Any changes in value are included in net income in the Company’s consolidated statements of income and comprehensive income. Warranty 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 based on the product sold. The Company estimates the costs of repairing products under warranty based on the historical average cost of the repairs. The assumptions used to estimate warranty accruals are re-evaluated periodically in light of actual experience and, when appropriate, the accruals are adjusted. Estimated warranty costs are recorded at the time of sale of the related product, and are considered a cost of goods sold. Changes in the Company’s reserve for product warranty claims during 2021, 2020 and 2019 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ December 31, ​ 2021 2020 2019 Warranty reserve at beginning of the year ​ $ 1,571 ​ $ 1,075 ​ $ 971 Warranty reserves acquired ​ 15 ​ 465 ​ — Provision ​ 543 ​ 34 ​ 210 Warranty expenditures ​ ( 204 ) ​ ( 97 ) ​ ( 101 ) Effect of foreign currency translation ​ ( 56 ) ​ 94 ​ ( 5 ) Warranty reserve at end of year ​ $ 1,869 ​ $ 1,571 ​ $ 1,075 ​ Accrued Liabilities Accrued liabilities consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 Compensation and fringe benefits ​ $ 14,666 ​ $ 11,184 Accrued business acquisition consideration (Note 2) ​ ​ 12,388 ​ ​ — Right of use liabilities ​ ​ 4,532 ​ ​ 4,666 Warranty reserve ​ 1,869 ​ 1,571 Income taxes payable ​ ​ 970 ​ ​ 1,459 Other accrued expenses ​ 7,231 ​ 5,982 ​ ​ $ 41,656 ​ $ 24,862 ​ 44 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Foreign Currency Translation The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of foreign subsidiaries that occur as a result of changes in exchange rates between foreign subsidiaries’ functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included in accumulated other comprehensive loss, a component of stockholders’ equity in the accompanying consolidated statements of stockholders’ equity. Revenue and expense transactions use an average rate prevailing during the month of the related transaction. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of each of the operating locations are included in the other (income) expense, net as incurred. Revenue Recognition Refer to Note 3, Revenue Recognition , for description of the Company’s policies regarding revenue recognition. Engineering and Development Costs The Company is engaged in a variety of engineering and design activities as well as basic research and development activities directed to the substantial improvement or new application of the Company’s existing technologies. Engineering and design as well as research and development costs are expensed as incurred. 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 2019 Basic weighted average shares outstanding 14,413 14,243 14,097 Dilutive effect of potential common shares 104 90 95 Diluted weighted average shares outstanding 14,517 14,333 14,192 ​ For 2021, 2020 and 2019, the anti-dilutive common shares excluded from the calculation of diluted income per share were immaterial. Comprehensive Income Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by and distributions to stockholders. Fair Value Accounting Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. 45 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The guidance establishes a framework for measuring fair value, which utilizes observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. Preference is given to observable inputs. These two types of inputs create the following three-level fair value hierarchy: Level 1: Quoted prices for identical assets or liabilities in active markets. Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable. Level 3: Significant inputs to the valuation model that are unobservable. ​ The Company’s financial assets and liabilities include cash and cash equivalents, accounts receivable, debt obligations, accounts payable, and accrued liabilities. The carrying amounts reported in the consolidated balance sheets for these assets approximate fair value because of the immediate or short-term maturities of these financial instruments. The following table presents the Company’s financial assets that are accounted for at fair value on a recurring basis as of December 31, 2021 and 2020, respectively, by level within the fair value hierarchy (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Level 1 Level 2 Level 3 Assets (liabilities) ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension plan assets ​ $ 6,899 ​ $ — ​ $ — Deferred compensation plan assets ​ 4,636 ​ — ​ — Foreign currency hedge contracts ​ — ​ 39 ​ — Interest rate swaps, net ​ — ​ 220 ​ — Contingent consideration (Note 2) ​ — ​ — ​ ( 4,900 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Level 1 Level 2 Level 3 Assets (liabilities) ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension plan assets ​ $ 6,347 ​ $ — ​ $ — Deferred compensation plan assets ​ 5,386 ​ — ​ — Interest rate swaps ​ — ​ ( 1,889 ) ​ — ​ 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") No. 815, Derivatives and Hedging ("ASC 815"), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (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 46 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 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 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. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting. Income Taxes The current provision for income taxes represents actual or estimated amounts payable or refundable on tax return filings each year. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, and for operating loss and tax credit carryforwards. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to the tax provision or benefit in the period of enactment. A valuation allowance may be provided to the extent management deems it is more likely than not that deferred tax assets will not be realized. The ultimate realization of net deferred tax assets is dependent upon the generation of future taxable income, in the appropriate taxing jurisdictions, during the periods in which temporary differences, net operating losses and tax credits become realizable. Management believes that it is more likely than not that the Company will realize the benefits of these temporary differences and operating loss and tax credit carryforwards, net of valuation allowances. 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, Income Taxes , ("ASC 740"). Pension and Postretirement Welfare Plans The Company records the service cost component of net benefit costs in cost of goods sold, selling, and general and administrative expenses. The interest cost component of net benefit costs is recorded in interest expense and the remaining components of net benefit costs, amortization of net losses and expected return on plan assets is recorded in other expense, net. Concentration of Credit Risk Trade receivables subject the Company to the potential for credit risk. To reduce this risk, the Company performs evaluations of its customers’ financial condition and creditworthiness at the time of sale, and updates those evaluations when necessary. See Note 13, Segment Information, for additional information regarding customer concentration. Use of Estimates 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 47 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Stock Split ​ On March 10, 2021, the Board of Directors approved a 3 -for-2 common stock split to be paid in the form of a stock dividend to holders of record on April 16, 2021. The 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 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. ​ 2. ACQUISITIONS 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. 48 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 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 $ 96 Trade receivables ​ ​ 3,612 Inventories ​ ​ 4,127 Other assets, net ​ 560 Property, plant and equipment ​ 278 Intangible assets ​ ​ 34,800 Goodwill ​ 26,453 Current liabilities ​ ​ ( 1,215 ) Net purchase price ​ $ 68,711 ​ 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. ​ ORMEC & ALIO 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 49 Table of Contents 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 $ 2,059 Trade receivables ​ ​ 1,416 Inventories ​ ​ 2,802 Other assets, net ​ 50 Property, plant and equipment ​ 699 Right of use assets ​ ​ 1,005 Intangible assets ​ ​ 10,200 Goodwill ​ 19,978 Other current liabilities ​ ​ ( 1,028 ) Deferred revenue ​ ​ ( 2,063 ) Lease liabilities ​ ​ ( 1,005 ) Net deferred income tax liabilities ​ ​ ( 655 ) Net purchase price ​ $ 33,458 ​ 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. ​ 50 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 2020 Acquisitions 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. 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 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 $ 11,437 Trade receivables ​ ​ 4,129 Inventories ​ ​ 3,329 Other assets, net ​ 769 Property, plant and equipment ​ 1,185 Right of use assets ​ ​ 2,735 Intangible assets ​ ​ 7,800 Goodwill ​ 6,629 Current liabilities ​ ​ ( 7,354 ) Lease liabilities ​ ​ ( 2,739 ) Net deferred income tax liabilities ​ ​ ( 1,755 ) Net purchase price ​ $ 26,165 ​ During the second quarter of 2020, measurement period adjustments primarily related to deferred income taxes and the true-up of closing net working capital were recognized, which resulted in a reduction of goodwill by $ 268 . During the third quarter of 2020, measurement period adjustments related primarily to tax liabilities were recognized, which resulted in an increase of goodwill by $ 77 . The allocation of the purchase price was finalized during the fourth quarter of 2020. The intangible assets acquired consist of customer lists of $ 4,400 , technology of $ 1,900 and a trade name of $ 1,500 , which are being amortized over 16 , 13 and 18 years , respectively. 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 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. 51 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) ​ 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 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. ​ 3. REVENUE RECOGNITION Performance Obligations Performance Obligations Satisfied at a Point in Time The Company considers control of most products to transfer at a single point in time when control is transferred to the customer, generally when the products are shipped in accordance with an agreement and/or purchase order. Control is defined as the ability to direct the use of and obtain substantially all of the remaining benefits of the product. The Company satisfies its performance obligations under a contract with a customer by transferring goods and services in exchange for generally monetary consideration from the customer. The Company considers the customer’s purchase order, and the Company’s corresponding sales order acknowledgment as the contract with the customer. For some customers, control, and a sale, is transferred at a point in time when the product is delivered to a customer. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. Nature of Goods and Services The Company sells component and integrated controlled motion solutions to end customers and original equipment manufacturers (“OEM’s”) through the Company’s own direct sales force and authorized manufacturers’ representatives and distributors. The Company’s products include brushed and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gearmotors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active and passive filters for power quality and harmonic issues, and other controlled motion-related products. The Company’s target markets include Vehicle, Medical, Aerospace & Defense and Industrial. Determining the Transaction Price The majority of the Company’s contracts have an original duration of less than one year. For these contracts, the Company applies the practical expedient and therefore does not consider the effects of the time value of money. For 52 Table of Contents 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. Contracts that management determines to include a significant financing component are discounted at the Company’s incremental borrowing rate. The Company incurs interest expense and accrues a contract liability. As the Company satisfies performance obligations and recognizes revenue from these contracts, interest expense is recognized simultaneously. Management does not have any contracts that include a significant financing component as of December 31, 2021. Disaggregation of Revenue The Company disaggregates revenue from contracts with customers into geographical regions and target markets. The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As noted in Note 13, Segment Information , the Company’s business consists of one reportable segment. ​ The revenues by geography in the table below are revenues derived from the Company’s foreign subsidiaries as provided in Note 13. A reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions is provided in Note 13. The Company’s disaggregated revenues are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, Target Market ​ 2021 2020 2019 Vehicle ​ $ 129,835 ​ $ 110,365 ​ $ 126,811 Industrial ​ 135,440 ​ 114,143 ​ 124,196 Medical ​ 86,129 ​ 83,191 ​ 51,586 Aerospace & Defense ​ 31,746 ​ 39,711 ​ 47,748 Other ​ 20,366 ​ 19,284 ​ 20,743 Total ​ $ 403,516 ​ $ 366,694 ​ $ 371,084 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, Geography ​ 2021 2020 2019 United States ​ $ 239,528 ​ $ 214,203 ​ $ 244,347 Europe ​ 129,414 ​ 126,985 ​ 124,914 Asia-Pacific ​ 34,574 ​ 25,506 ​ 1,823 Total ​ $ 403,516 ​ $ 366,694 ​ $ 371,084 ​ Contract Balances When the timing of the Company’s delivery of product is different from the timing of the payments made by customers, the Company recognizes either a contract asset (performance precedes customer payment) or a contract liability (customer payment precedes performance). Typically, contracts are paid in arrears and are recognized as receivables after the Company considers whether a significant financing component exists. The opening and closing balances of the Company’s contract liability are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2021 ​ 2020 Contract liabilities in accrued liabilities ​ $ 2,425 ​ $ 898 Contract liabilities in other long-term liabilities ​ ​ 242 ​ ​ 262 ​ ​ $ 2,667 ​ $ 1,160 ​ ​ ​ ​ ​ ​ ​ ​ 53 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 as well as balances assumed in acquisitions. Significant Payment Terms The Company’s contracts with its customers state the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payments are typically due in full within 30-60 days of delivery. Since the customer agrees to a stated rate and price in the contract that do not vary over the contract, the majority of contracts do not contain variable consideration. Returns, Refunds, and Warranties In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The Company establishes provisions for estimated returns and warranties. All contracts include a standard warranty clause to guarantee that the product complies with agreed specifications. Practical Expedients Incremental costs of obtaining a contract - the Company elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less . Remaining performance obligations - the Company elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts that are one year or less , as the revenue is expected to be recognized within the next year. Time value of money - the Company elected not to adjust the promised amount of consideration for the effects of the time value of money for contracts in which the anticipated period between when the Company transfers the goods or services to the customer and when the customer pays is equal to one year or less . ​ 4. GOODWILL The change in the carrying amount of goodwill for 2021 and 2020 is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ 2020 ​ Beginning balance $ 61,860 ​ $ 52,935 ​ Goodwill acquired (Note 2) ​ 46,431 ​ ​ 6,629 ​ Effect of foreign currency translation ( 1,658 ) ​ 2,296 ​ Ending balance $ 106,633 ​ $ 61,860 ​ ​ 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. ​ 54 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 5. INTANGIBLE ASSETS Intangible assets on the Company’s consolidated balance sheets consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ December 31, 2020 ​ ​ Gross Accumulated Net Book Gross Accumulated Net Book ​ ​ Life ​ Amount ​ amortization ​ Value ​ Amount ​ amortization ​ Value Customer lists 5 - 18 years ​ $ 94,079 ​ $ ( 27,639 ) ​ $ 66,440 ​ $ 69,833 ​ $ ( 23,636 ) ​ $ 46,197 Trade name 10 - 19 years ​ 14,649 ​ ( 5,927 ) ​ 8,722 ​ 14,055 ​ ( 5,061 ) ​ 8,994 Design and technologies 10 - 15 years ​ 34,241 ​ ( 5,617 ) ​ 28,624 ​ 15,555 ​ ( 4,887 ) ​ 10,668 Total ​ ​ ​ $ 142,969 ​ $ ( 39,183 ) ​ $ 103,786 ​ $ 99,443 ​ $ ( 33,584 ) ​ $ 65,859 ​ 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. Estimated amortization expense for intangible assets is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ Estimated ​ Amortization Expense 2022 ​ $ 9,848 2023 ​ 9,860 2024 ​ 9,532 2025 ​ ​ 9,515 2026 ​ 9,417 Thereafter ​ 55,614 Total estimated amortization expense ​ $ 103,786 ​ ​ 6. STOCK-BASED COMPENSATION PLANS Stock Incentive Plans The Company’s Stock Incentive Plans provide for the granting of stock awards, including stock options, stock appreciation rights, and restricted stock, to employees and non-employees, including directors of the Company. As of December 31, 2021, the Company had 1,031,128 shares of common stock available for grant under stock incentive plans. Restricted Stock The following is a summary of restricted stock grants, fair value and performance based awards: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Awards with ​ Unvested ​ Weighted average performance ​ ​ restricted stock ​ grant date fair ​ vesting For the year ended December 31, awards value requirements 2021 ​ 109,462 ​ $ 32.06 ​ 63,432 2020 ​ 240,656 ​ $ 22.34 ​ 150,605 2019 ​ 164,295 ​ $ 27.97 ​ 115,316 ​ 55 Table of Contents 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. Short-term performance based grants can be achieved over a period of one year, and long-term performance grants can be earned through December 31, 2022. Earned grants are then subject to either a 3 year or 5 year service period. Shares of non-vested restricted stock are forfeited if a recipient leaves the Company before the vesting date. Shares that are forfeited become available for future awards. For performance-based awards, the Company assesses the probability of the achievement of the awards during the year and recognizes expense accordingly. The following is a summary of restricted stock activity during years 2021, 2020 and 2019: ​ ​ ​ ​ ​ ​ Number of ​ shares Balance, December 31, 2018 233,613 Awarded 164,295 Vested ( 113,106 ) Forfeited ( 4,749 ) Balance, December 31, 2019 280,053 Awarded 240,656 Vested ( 159,698 ) Forfeited ( 3,669 ) Balance, December 31, 2020 357,342 Awarded 109,462 Vested ( 162,419 ) Forfeited ( 10,808 ) Balance, December 31, 2021 293,577 ​ The following is a summary of performance based restricted stock activity during years 2021, 2020 and 2019: ​ ​ ​ ​ ​ ​ Performance ​ grants Outstanding, December 31, 2018 ​ — Awarded ​ 115,316 Performance criteria met ​ ( 76,278 ) Forfeited ​ ( 824 ) Outstanding, December 31, 2019 ​ 38,214 Awarded ​ 150,605 Performance criteria met ​ ( 96,576 ) Forfeited ​ ( 3,233 ) Outstanding, December 31, 2020 ​ 89,010 Awarded ​ 63,432 Performance criteria met ​ ( 42,290 ) Forfeited ​ ( 10,229 ) Outstanding, December 31, 2021 ​ 99,923 ​ 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. 56 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Share-Based Compensation Expense During 2021, 2020 and 2019 compensation expense net of forfeitures of $ 4,161 , $ 3,550 and $ 3,203 was recorded, respectively. As of December 31, 2021, there was $ 6,555 of total unrecognized compensation expense related to restricted stock awards, of which approximately $ 5,155 is expected to be recognized in 2022. Employee Stock Ownership Plan The Company sponsors an Employee Stock Ownership Plan (“ESOP”) that covers all non-union U.S. 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 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. These amounts are included in general and administrative costs in the consolidated statements of income and comprehensive income. Defined Contribution Plan The Company sponsors the Allied Motion 401(k) Tax Advantaged Investment Plan (“401(k)”) which covers substantially all its U.S. based employees. The plan provides for the deferral of employee compensation under Section 401(k) and a discretionary Company match. In 2021, 2020 and 2019 this match was 100 % per dollar of the first 3 % of participant deferral and 50 % per dollar of the next 2 % contribution, up to 4 % of a total 5 % participant deferral. Net costs related to this defined contribution plan were $ 1,672 , $ 1,774 and $ 1,362 in 2021, 2020 and 2019, respectively. Dividends 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. Based on the terms of the Company’s Credit Agreement, dividends paid to shareholders are acceptable, subject to the Company’s compliance with the covenants under the Credit Agreement. ​ 7. DEBT OBLIGATIONS Debt obligations consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 Long-term Debt ​ ​ ​ ​ ​ ​ Revolving Credit Facility, long-term (1) ​ $ 159,395 ​ $ 120,656 Unamortized debt issuance costs ​ ​ ( 435 ) ​ ​ ( 577 ) Long-term debt ​ $ 158,960 ​ $ 120,079 (1) The effective rate of the Revolving Credit Facility is 2.41 % at December 31, 2021 including the impact of the Company's interest rate swaps. Amended Revolving Credit Facility 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. 57 Table of Contents 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 %. In addition, the Company is required to pay a commitment fee of between 0.10 % and 0.225 % quarterly ( 0.150 % at December 31, 2021) on the unused portion of the Amended Revolving Facility, also based on the Company’s Total Leverage Ratio. The Amended Revolving Facility is secured by substantially all of the Company’s non-realty assets and is fully and unconditionally guaranteed by certain of the Company’s subsidiaries. The Amended Credit Agreement contains certain financial covenants related to minimum interest coverage, 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 the Company’s debt and EBITDA levels, which impacts its covenant calculations. Other The China Credit Facility provides credit of $ 1,574 (Chinese Renminbi 10,000 ) (“the China Facility”). The China Facility is a demand revolving facility used for working capital and capital equipment needs at the Company’s China operations. The term is annual and may be cancelled at the bank’s discretion. The interest rate shall be agreed upon by the Lender and the Borrower before the Utilization Date (as defined in the China Facility) and shall be specified in the Utilization Request (as defined in the China Facility). Collateral for the facility is a guarantee issued by the Company. There were no borrowings under the China Facility during 2021 or 2020. Deferred Financing Fees Deferred financing costs net of accumulated amortization were $ 435 as of December 31, 2021. These costs will be amortized over the term of the Amended Credit Facility. ​ 8. DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, and foreign exchange risk primarily through the use of derivative financial instruments. 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 58 Table of Contents 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. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In February 2017, the Company entered into three interest rate swaps with a combined notional of $ 40,000 that mature in February 2022. In March 2020, the Company entered into two additional interest rate swaps with a combined notional amount of $ 20,000 that increases to $ 60,000 in March 2022 and matures in December 2024. The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2021 and 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. 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. 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 ​ December 31, hedging instruments Location 2021 2020 Foreign currency contracts ​ Prepaid expenses and other assets ​ $ 39 ​ $ — Interest rate products ​ Other long-term assets ​ ​ 340 ​ ​ — ​ ​ ​ ​ $ 379 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liability Derivatives ​ ​ ​ ​ Fair value as of: Derivatives designated as ​ Balance Sheet ​ December 31, hedging instruments Location 2021 2020 Interest rate products ​ Accrued liabilities ​ $ 120 ​ $ — Interest rate products ​ Other long-term liabilities ​ ​ — ​ ​ 1,889 ​ ​ ​ ​ $ 120 ​ $ 1,889 ​ ​ ​ 59 Table of Contents 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 gain (loss) ​ ​ recognized in OCI on derivatives Derivatives in cash flow hedging relationships ​ Year ended December 31, ​ 2021 2020 Interest rate products ​ $ 1,180 ​ $ ( 2,163 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount of pre-tax (loss) gain reclassified Location of (loss) gain reclassified ​ from accumulated OCI into income from accumulated OCI into income ​ Year ended December 31, ​ 2021 2020 2019 Interest expense ​ $ ( 929 ) ​ $ ( 637 ) ​ $ 113 ​ The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of income and comprehensive income for the years ended December 31, 2021, 2020 and 2019 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total amounts of income and expense line items presented ​ ​ ​ ​ that reflect the effects of cash flow hedges recorded ​ ​ ​ ​ Year ended December 31, Derivatives designated as hedging instruments Income Statement Location 2021 2020 2019 Interest rate products Interest Expense ​ $ 3,236 ​ $ 3,716 ​ $ 5,134 ​ The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of December 31, 2021 and 2020. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets (in thousands). ​ Derivative assets : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net amounts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross amounts ​ of assets ​ Gross amounts not offset in the consolidated As of ​ Gross amounts ​ offset in the ​ presented in the ​ balance sheets December 31, ​ of recognized ​ consolidated ​ consolidated ​ Financial ​ Cash collateral ​ ​ ​ 2021 assets balance sheets balance sheets instruments received Net amount Derivatives ​ $ 387 ​ $ 8 ​ $ 379 ​ $ — ​ $ — ​ $ 379 ​ Derivative liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net amounts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross amounts ​ of liabilities ​ Gross amounts not offset in the consolidated As of ​ Gross amounts ​ offset in the ​ presented in the ​ balance sheets December 31, ​ of recognized ​ consolidated ​ consolidated ​ Financial ​ Cash collateral ​ ​ ​ 2021 liabilities balance sheets balance sheets instruments received Net amount Derivatives ​ $ 120 ​ $ — ​ $ 120 ​ $ — ​ $ — ​ $ 120 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net amounts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross amounts ​ of liabilities ​ Gross amounts not offset in the consolidated As of ​ Gross amounts ​ offset in the ​ presented in the ​ balance sheets December 31, ​ of recognized ​ consolidated ​ consolidated ​ Financial ​ Cash collateral ​ ​ ​ 2020 liabilities balance sheets balance sheets instruments received Net amount Derivatives ​ $ 1,889 ​ $ — ​ $ 1,889 ​ $ — ​ $ — ​ $ 1,889 ​ The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. 60 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 9. INCOME TAXES The provision for income taxes is based on income before income taxes as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ December 31, ​ December 31, ​ December 31, ​ 2021 2020 2019 Domestic ​ $ 10,642 ​ $ 8,478 ​ $ 17,188 Foreign ​ 12,471 ​ 10,298 ​ 6,653 Income before income taxes ​ $ 23,113 ​ $ 18,776 ​ $ 23,841 ​ Components of the total income tax (benefit) provision are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ December 31, ​ December 31, ​ December 31, ​ 2021 2020 2019 Current provision ​ ​ ​ ​ ​ ​ ​ ​ ​ Domestic ​ $ 1,866 ​ $ 2,167 ​ $ 4,313 Foreign ​ 3,288 ​ 3,485 ​ 2,618 Total current provision ​ 5,154 ​ 5,652 ​ 6,931 Deferred (benefit) provision ​ ​ ​ ​ ​ ​ ​ ​ ​ Domestic ​ 649 ​ 288 ​ 199 Foreign ​ ( 6,784 ) ​ ( 807 ) ​ ( 311 ) Total deferred (benefit) provision ​ ( 6,135 ) ​ ( 519 ) ​ ( 112 ) Income tax (benefit) provision ​ $ ( 981 ) ​ $ 5,133 ​ $ 6,819 ​ The (benefit) provision for income taxes differs from the amount determined by applying the federal statutory rate as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ December 31, ​ December 31, ​ December 31, ​ ​ 2021 2020 2019 Tax provision, computed at statutory rate 21.0 % 21.0 % 21.0 % State tax, net of federal impact 2.2 % 4.2 % 4.5 % Change in valuation allowance ​ 7.2 % 0.0 % 0.3 % Effect of foreign tax rate differences 3.9 % 4.3 % 1.5 % Permanent items, other ​ 0.2 % ( 0.2 ) % 1.4 % Section 162(m) compensation ​ 3.0 % 2.2 % 1.1 % R&D tax credits ​ ( 2.8 ) % ( 3.6 ) % ( 2.5 ) % Effect of Tax Cuts and Jobs Act ​ 1.2 % ( 1.3 ) % ( 0.4 ) % Subpart F income ​ ( 1.0 ) % 1.3 % 0.0 % Tax examinations ​ 0.0 % 0.0 % 1.8 % Investment tax credits ​ ( 5.6 ) % 0.0 % 0.0 % Net operating loss carryforwards ​ ( 37.2 ) % 0.0 % 0.0 % Unrecognized tax benefits ​ 4.9 % 0.0 % 0.0 % Other ( 1.2 ) % ( 0.6 ) % ( 0.1 ) % Income tax (benefit) provision ( 4.2 ) % 27.3 % 28.6 % ​ ​ 61 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The tax effects of significant temporary differences and credit and operating loss carryforwards that give rise to the net deferred tax assets and tax liabilities are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 Noncurrent deferred tax assets: ​ ​ ​ ​ ​ ​ Employee benefit plans ​ $ 2,085 ​ $ 2,500 Net operating loss and tax credit carryforwards ​ ​ 9,802 ​ ​ 2,217 Accrued expenses and reserves ​ ​ 915 ​ ​ 969 Other ​ 218 ​ 697 Total noncurrent deferred tax assets ​ 13,020 ​ 6,383 Valuation allowance ​ ( 2,896 ) ​ ( 1,176 ) Net noncurrent deferred tax assets: ​ $ 10,124 ​ $ 5,207 ​ ​ ​ ​ ​ ​ ​ Net noncurrent deferred tax liabilities: ​ ​ ​ ​ ​ ​ Property and equipment ​ $ 3,238 ​ $ 3,448 Goodwill and intangibles ​ ​ 6,484 ​ 5,629 Other ​ ​ 121 ​ ​ 459 Total noncurrent deferred tax liabilities ​ $ 9,843 ​ $ 9,536 ​ ​ ​ ​ ​ ​ ​ Net deferred tax asset/(deferred tax liability) ​ $ 281 ​ $ ( 4,329 ) ​ ​ ​ ​ ​ ​ ​ Presented as follows: ​ ​ ​ ​ ​ ​ Noncurrent deferred income tax assets ​ $ 5,321 ​ $ 330 Noncurrent deferred income tax liabilities ​ ​ ( 5,040 ) ​ ​ ( 4,659 ) Net deferred tax asset (liability) ​ $ 281 ​ $ ( 4,329 ) ​ As of December 31, 2021, the Company has the following gross carryforwards available (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount ​ ​ Jurisdiction ​ Tax Attribute ​ (in thousands) ​ Begin to expire U.S. State ​ Net Operating Losses (1) $ 4,812 2025 ​ International ​ Net Operating Losses (1) $ 1,678 2025 ​ International ​ Net Operating Losses - Unlimited Carryforward (1) $ 22,886 ​ No expiration ​ U.S. Federal ​ Foreign Tax Credits $ 1,003 ​ 2027 ​ International ​ R&D Tax Credits $ 513 ​ 2026 ​ (1) Net operating losses (NOL’s) are presented as pre-tax amounts. ​ 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. 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. 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 62 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. and foreign taxing jurisdictions. With few exceptions, the Company is no longer subject to U.S. 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 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): ​ ​ ​ ​ ​ ​ December 31, ​ 2021 (1) Beginning balance ​ $ — Additions from tax legislation changes for net operating loss carryforwards ​ 1,125 Reductions related to net operating loss usage on 2020 tax returns ​ ( 68 ) Ending balance ​ $ 1,057 ___________________________ ​ ​ ​ (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. 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 63 Table of Contents 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. ​ 10. LEASES 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. Many leases include one or more options to renew, some of which include options to extend the leases for a long-term period, and some leases include options to terminate the leases within 30 days . In certain of the Company's lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for capital area maintenance, utilities, inflation and/or changes in other indexes. For the years ended December 31, 2021 and 2020, the components of operating lease expense were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ December 31, ​ ​ 2021 ​ ​ 2020 Fixed operating lease expense ​ $ 5,105 ​ $ 4,548 Variable operating lease expense ​ $ 707 ​ $ 547 Short-term lease expense ​ $ 237 ​ $ 234 ​ Supplemental cash flow information related to the Company’s operating leases for the years ended December 31, 2021 and 2020 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2021 ​ 2020 Cash paid for amounts included in the measurement of operating leases $ 5,321 ​ $ 4,601 Right of use ("ROU") assets obtained in exchange for operating lease obligations ​ $ 2,482 ​ $ 3,626 ROU assets obtained in acquisitions (Note 2) ​ $ 1,005 ​ $ 2,735 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ 2021 ​ ​ 2020 ​ ​ Weighted average remaining lease term (in years) ​ 6.41 ​ ​ 6.83 ​ ​ Weighted average discount rate ​ 2.28 % ​ 2.25 % ​ ​ The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2021 (in thousands): ​ ​ ​ ​ 2022 $ 4,846 2023 ​ 3,537 2024 ​ 2,690 2025 ​ 2,149 2026 ​ ​ 1,123 Thereafter ​ 4,178 Total undiscounted cash flows ​ $ 18,523 Less: present value discount ​ ​ ( 1,199 ) Total lease liabilities ​ $ 17,324 ​ 64 Table of Contents 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 . ​ 11. COMMITMENTS AND CONTINGENCIES Severance Benefit Agreements 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. ​ Litigation The Company is involved in certain actions that have arisen out of the ordinary course of business. Management believes that resolution of the actions will not have a significant adverse effect on the Company’s consolidated financial statements. ​ 12. DEFERRED COMPENSATION ARRANGEMENTS 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 $ 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. ​ 13. SEGMENT INFORMATION The Company operates in one segment for the manufacture and marketing of controlled motion products for OEM and end user applications. The Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. Financial information related to the foreign subsidiaries is summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2021 2020 2019 Revenues derived from foreign subsidiaries ​ $ 163,988 ​ $ 152,491 ​ $ 126,737 ​ Identifiable foreign fixed assets were $ 32,807 and $ 34,855 as of December 31, 2021 and 2020, respectively. 65 Table of Contents ALLIED MOTION TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 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. ​ ​ ​ ​ ​ ​ ​ 66 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. ​