What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-07 compared with 2022-03-09 · 279 added, 227 removed, 719 unchanged (41% of the section changed)

19 unchanged sentences

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.

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

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

Inventories – Refer to Note 1 to the financial statements

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

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

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

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

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

4 unchanged sentences

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 the design, implementation, and operating 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:

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o We evaluated inventory write-offs subsequent to December 31, 2022 for indications that the estimate for obsolete or excess inventory, as well as inventory that is not of saleable quality may be understated.

Acquisitions — Spectrum Controls, Inc.

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

Critical Audit Matter Description

The Company completed the acquisition of Spectrum Controls, Inc.

for approximately $68.7 million on December 30, 2021.

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

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

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

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

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

How the Critical Audit Matter Was Addressed in the Audit

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

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

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

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

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

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

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

o We evaluated inventory ratios such as days sales of inventory and inventory turnover on a quarter-by-quarter basis.

/s/ Deloitte & Touche LLP

13 unchanged sentences

Intangible assets, net

Right of use assets

Operating lease assets

Other long-term assets

7 unchanged sentences

Pension and post-retirement obligations

Right of use liabilities

Operating lease liabilities

Other long-term liabilities

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Interest expense

Other (income) expense, net

Other expense (income), net

Total other expense, net

Income before income taxes

Income tax benefit (provision)

Income tax (provision) benefit

Basic earnings per share:

4 unchanged sentences

Diluted weighted average common shares

Other comprehensive (loss) income:

Foreign currency translation adjustment

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Issuance of restricted stock, net of forfeitures

Stock-based compensation expense

Stock compensation expense

Shares withheld for payment of employee payroll taxes

Comprehensive loss

Comprehensive (loss) income

Dividends to stockholders - $ 0.08 per share

2 unchanged sentences

Issuance of restricted stock, net of forfeitures

Stock-based compensation expense

Share issuance in connection with acquisitions

Stock compensation expense

Shares withheld for payment of employee payroll taxes

Comprehensive income (loss)

Comprehensive (loss) income

Dividends to stockholders - $ 0.095 per share

2 unchanged sentences

Issuance of restricted stock, net of forfeitures

Stock-based compensation expense

Share issuance in connection with acquisitions

Stock compensation expense

Shares withheld for payment of employee payroll taxes

Common stock issued in connection with acquisitions (Note 2)

Comprehensive (loss) income

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Provision for excess and obsolete inventory

Provision for warranty

Debt issue cost amortization recorded in interest expense

Stock-based compensation expense

Changes in operating assets and liabilities, net of acquisitions:

Debt issue cost amortization recorded in interest expense

Changes in operating assets and liabilities, net of acquisition:

Trade receivables

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Cash Flows From Financing Activities:

Principal payments of long-term debt

Proceeds from issuance of long-term debt

Principal payments of long-term debt and finance lease obligations

Payment of debt issuance costs

1 unchanged sentence

Tax withholdings related to net share settlements of restricted stock

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of foreign exchange rate changes on cash

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

1 unchanged sentence

Supplemental disclosure of cash flow information:

Interest paid

Income taxes paid

Supplemental non-cash investing and financing activities:

Accrued consideration for acquisitions

Stock issued for acquisitions

Contingent consideration for acquisition

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

5 unchanged sentences

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.

(“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 Industrial, Vehicle, Medical, and Aerospace & Defense markets.

Principles of Consolidation

9 unchanged sentences

Activity in the provision for credit losses for 2022 and 2021 was as follows (in thousands):

December 31, 2022

December 31, 2021

Beginning balance

3 unchanged sentences

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, 2022

December 31, 2021

Parts and raw materials

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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.

The Company did not record any goodwill impairment charges for the years ended December 31, 2022, 2021 or 2020.

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.

Other long-term assets include interest rate derivatives that the Company has entered into in response to the variable interest rate exposure on long-term debt, as well as 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.

6 unchanged sentences

Changes in the Company’s reserve for product warranty claims during 2022, 2021 and 2020 were as follows (in thousands):

Warranty reserve at beginning of the year

Beginning balance

Warranty reserves acquired

1 unchanged sentence

Effect of foreign currency translation

Warranty reserve at end of year

Ending balance

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Accrued Liabilities

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Compensation and fringe benefits

Accrued business acquisition consideration (Note 2)

Right of use liabilities

Accrued business acquisition consideration

Warranty reserve

Income taxes payable

Operating lease liabilities - current

Finance lease obligations - current

Deferred revenue

Other accrued expenses

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Foreign Currency Translation

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

Basic and Diluted Earning per Share

Basic and Diluted Earnings 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.

1 unchanged sentence

(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.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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

9 unchanged sentences

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.

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.

9 unchanged sentences

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.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The following table presents the Company’s financial assets that are accounted for at fair value on a recurring basis as of December 31, 2022 and 2021, respectively, by level within the fair value hierarchy (in thousands):

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Interest rate swaps, net

Contingent consideration (Note 2)

Contingent consideration

December 31, 2021

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Deferred compensation plan assets

Interest rate swaps

Foreign currency hedge contracts

Interest rate swaps, net

Contingent consideration

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.

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

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

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.

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

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

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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.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The current provision for income taxes represents actual or estimated amounts payable or refundable on tax return filings each year.

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The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions.

Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the

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.

Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

3 unchanged sentences

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.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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 of $ 913 and $ 545 are included in business development on the consolidated statement of income and comprehensive income for the years ended December 31, 2022 and 2021, respectively, 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.

The consolidation has been completed as of December 31, 2022.

There are no expenses anticipated to be incurred in 2023 nor any associated accrued liabilities as of December 31, 2022.

Accounting pronouncements not yet adopted

In December 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-06, "Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848"

from December 31, 2022 to December 31, 2024, which is superseding the date from ASU No.

2020-04, "Reference Rate Reform (Topic 848):

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

This ASU relates to LIBOR or other referenced rates that will be discontinued due to reference rate reform.

The update provides optional expedients to modify contracts under these referenced rates for all entities.

The standard is optional, effective for any interim reporting period beginning March 12, 2020 through December 31, 2024.

The Company is assessing the impact of adopting the standard on our consolidated financial statements.

On May 30, 2022, the Company acquired 100 % of the direct and indirect legal and beneficial ownership of the shares of FPH Group Inc., a corporation incorporated pursuant to the laws of the Province of Ontario and the membership interests of Transtar International, LLC, a Michigan limited liability company, collectively “FPH”.

FPH is an Ontario, Canada headquartered industry leader in the development of technically advanced, reliable and cost-effective electrical drive systems which provide high torque and precision motion for the defense industry, as well as light weighting technologies for existing and future ground-based vehicles in the defense industry.

FPH provides concept engineering, prototyping, validation, and production.

FPH also develops composites, advanced materials and hybrid products and systems that achieve significant weight reduction and higher strength.

This acquisition provides the Company with a deeper penetration within defense applications including the necessary manufacturing licenses and certifications.

The initial purchase price was $ 42,159 consisting of cash of $ 39,359 funded through borrowings under the Amended Revolving Facility, $ 550 in Company stock ( 22,886 shares at $ 24.01 closing stock price on May 27, 2022), and $ 2,250 in the form of 93,728 exchangeable shares (based on the closing price of an equivalent share of the Company’s common stock) of an indirect wholly-owned subsidiary of the Company, each of which is initially exchangeable into one share of Company common stock, subject to adjustment, in accordance with a Support Agreement entered into concurrently with the closing of the transaction.

Subsequent to the acquisition date, the Company made measurement period adjustments to the initial purchase price allocation due to adjustments to closing working capital and income tax matters which resulted in a decrease of the purchase price of $ 1,119 , a decrease in trade receivables of $ 61 , an increase of deferred income tax liabilities of $ 1,607 , an increase in other current liabilities of $ 621 , and an increase to goodwill of $ 1,170 .

The purchase price allocation is subject to adjustments based on a final determination of certain tax matters.

The Company incurred $ 1,057 of transaction costs related to the acquisition of FPH, which are included in business development on the condensed consolidated statements of income and comprehensive income.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The preliminary allocation of the purchase price paid for FPH is based on estimated fair values of the assets acquired and liabilities assumed of FPH as of May 30, 2022, and is as follows (in thousands):

Cash and cash equivalents

Trade receivables

Other assets, net

Property, plant, and equipment

Right of use assets

Intangible assets

Other current liabilities

Deferred revenue

Lease liabilities

Net deferred income tax liabilities

Net purchase price

The intangible assets acquired consist of customer lists of $ 16,173 , technology of $ 5,731 , and a trade name of $ 707 , which are being amortized over 12 , 10 and 10 years , respectively.

Goodwill generated in the acquisition is related to the assembled workforce, synergies between Allied Motion’s other operations and FPH 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 FPH’s 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 of FPH included within the consolidated statements of income and comprehensive income for the year ended December 31, 2022 was $ 12,113 .

Earnings were $ 607 inclusive of $ 1,426 of intangible amortization in the year ended December 31, 2022.

The goodwill resulting from the FPH acquisition is tax deductible.

ThinGap and Airex

On May 24, 2022, the Company acquired 100 % of the outstanding stock of ThinGap, Inc.

(“ThinGap”), a privately-owned California headquartered developer and manufacturer of high performance, zero clogging slotless motors for use in aerospace, defense, and medical applications that require precise performance in a compact, yet high-torque-to-volume solutions.

ThinGap designs, engineers, and manufactures low profile, brushless DC motor kits and assemblies that utilize a proprietary wave-wound stator architecture and highly optimized rotors.

ThinGap expands the Company’s precision motion capabilities and advances its strategy to provide integrated motion solutions in the robotics, semiconductor, and instrumentation markets.

On June 17, 2022, the Company acquired 100 % of the membership interests of Airex, LLC (“Airex”), a privately-owned New Hampshire headquartered developer of high precision electromagnetic components and solutions for the aerospace and defense, life sciences, semiconductor, and commercial industrial applications .

Airex combines its patented winding technology with robotic manufacturing to produce linear motors – ironless and iron core, rotary motors, voice coils, wound electromagnetic components and sub-components.

Airex expands the Company’s motor offerings as well as enhances its quality systems to support broad mission critical defense programs, as well as other high demanding industries.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The purchase price, collectively, for ThinGap and Airex was $ 16,527 , comprised of $ 8,224 in cash funded through borrowings under the Amended Revolving Credit Facility and $ 8,303 in Company stock ( 376,500 shares, of which 29,631 shares are subject to an indemnification holdback, at a weighted average stock price of $ 22.05 ).

Subsequent to the acquisition dates, the Company made measurement period adjustments to the initial purchase price allocation due to adjustments to closing working capital which resulted in an increase of purchase price of $ 91 , an increase in deferred revenue of $ 181 , and an increase to goodwill of $ 272 .

These purchase price allocations are subject to adjustments based on a final determination of certain tax matters.

The Company incurred $ 257 of transaction costs related to these acquisitions in 2022, which are included in business development on the condensed 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 May 24, 2022 for ThinGap and June 17, 2022 for Airex and is, collectively, as follows:

Cash and cash equivalents

Trade receivables

Other assets, net

Property, plant, and equipment

Right of use assets

Intangible assets

Other current liabilities

Deferred revenue

Lease liabilities

Net deferred income tax liabilities

Net purchase price

The intangible assets acquired consist of customer lists of $ 3,800 , technology of $ 2,000 and trade names of $ 200 , which are being amortized over weighted average useful lives of 10 , 12.5 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 ThinGap and Airex 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 (loss) income for the year ended December 31, 2022, related to ThinGap and Airex, collectively, was $ 4,217 .

Earnings were $ 337 inclusive of $ 653 of intangible amortization for the year ended December 31, 2022, respectively.

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

The goodwill resulting from the Airex acquisition is tax deductible.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

2021 Acquisitions

4 unchanged sentences

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

ALLIED MOTION TECHNOLOGIES INC.

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.

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 January 4, 2023 and January 4, 2024, respectively, comprised of 50 % cash and 50 % in Company stock.

As of December 31, 2022, $ 12,500 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):

On January 4, 2023, the contractual payment of both cash and Company stock was made for the first required deferred acquisition payment.

Subsequent to the acquisition date, the Company made immaterial measurement period adjustments to the initial purchase price allocation due to adjustments to closing working capital.

The allocation of the purchase price is final.

The Company incurred $ 191 and $ 93 of transaction costs related to the acquisition of Spectrum Controls in 2022 and 2021, respectively, which are included in business development on the consolidated statements of income and comprehensive income.

The allocation of the purchase price paid for Spectrum Controls is based on 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

7 unchanged sentences

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.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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

7 unchanged sentences

ALIO designs, engineers, and manufactures nano technology motion systems for state-of-the-art applications in silicon photonics, micro

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

assembly, digital pathology, genome sequencing, laser processing and microelectronics.

2 unchanged sentences

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):

Subsequent to the acquisition dates, the Company made immaterial measurement period adjustments to the initial purchase price allocation due to adjustments to closing working capital.

The allocation of purchase price is final.

The Company incurred $ 130 and $ 409 of transaction costs related to these acquisitions in 2022 and 2021, respectively, which is included in business development on the consolidated statements of income and comprehensive income.

The allocation of the purchase price paid is based on 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

9 unchanged sentences

Net purchase price

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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.

2 unchanged sentences

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 acquisition of ALIO includes contingent consideration initially measured at a fair value of $ 4,900 .

This consideration was reduced by $ 800 during the year ended December 31, 2022, based upon fair valuation of the contingent consideration, and due to an anticipated shift in the timing of the earnings of the acquired entity, largely reflecting supply chain issues experienced within the industry.

Contingent consideration of $ 4,100 is included in other long-term liabilities as of December 31, 2022.

A further explanation of the valuation process is disclosed in Note 1, Business and Summary of Significant Accounting Policies .

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

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

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

The goodwill resulting from the ALIO acquisition is tax deductible.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

2020 Acquisitions

Dynamic Controls

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

Trade receivables

Other assets, net

Property, plant and equipment

Right of use assets

Intangible assets

Current liabilities

Lease liabilities

Net deferred income tax liabilities

Net purchase price

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.

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 following pro forma financial information presents the combined results of operations if the FPH, ThinGap, and Airex acquisitions had occurred as of January 1, 2021 and Spectrum Controls, ORMEC, and ALIO as of January 1, 2020.

Year ended December 31,

Income before income taxes

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

6 unchanged sentences

Control is defined as the ability to direct the use of and obtain substantially all of the remaining benefits of the product.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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.

5 unchanged sentences

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.

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

Determining the Transaction Price

1 unchanged sentence

For these contracts, the Company applies the practical expedient and therefore does not consider the effects of the time value of money.

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.

For multiyear contracts, the Company uses judgment to determine whether there is a significant financing component.

These contracts are generally those in which the customer has made an up-front payment.

13 unchanged sentences

Aerospace & Defense

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Year ended December 31,

United States

North America (primarily U.S.)

Contract Balances

4 unchanged sentences

Contract liabilities in other long-term liabilities

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.

10 unchanged sentences

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.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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 .

2 unchanged sentences

Goodwill acquired (Note 2)

Impact of measurement period adjustments of acquisitions (Note 2)

Effect of foreign currency translation

Ending balance

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

The purchase price allocations for FPH, ThinGap, and Airex are not final as of December 31, 2022.

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.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The purchase price allocation was finalized for ORMEC, ALIO and Spectrum Controls during 2022.

INTANGIBLE ASSETS

6 unchanged sentences

10 - 15 years

Intangible assets resulting from the 2022 acquisitions of FPH, ThinGap, and Airex were $ 28,611 (Note 2).

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

1 unchanged sentence

Total amortization expense for intangible assets for the years 2022, 2021 and 2020 was $ 11,169 , $ 6,245 and $ 5,928 , respectively.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Estimated amortization expense for intangible assets is as follows (in thousands):

11 unchanged sentences

For the year ended December 31,

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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

4 unchanged sentences

For performance-based awards, the Company assesses the probability of the achievement of the awards during the year and recognizes expense accordingly.

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The following is a summary of restricted stock activity during years 2022, 2021 and 2020:

4 unchanged sentences

The following is a summary of performance based restricted stock activity during years 2022, 2021 and 2020:

Total performance

Outstanding, December 31, 2019

5 unchanged sentences

Outstanding, December 31, 2022

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

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The performance criteria and forfeitures in the above table did not occur until the Board of Directors approved them during the March 2023, March 2022 and March 2021 meetings.

Share-Based Compensation Expense

5 unchanged sentences

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.

i) the Board established percentage of pretax income before the contribution ( 5 % in 2022, 2021 and 2020)

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

or ii) the annual interest payable on any loan outstanding to the Company from the ESOP.

Company contributions to the Plan accrued for 2022, 2021 and 2020, were $ 1,248 , $ 1,206 and $ 988 , respectively.

14 unchanged sentences

Unamortized debt issuance costs

Finance lease obligations - noncurrent

Long-term debt

1 unchanged sentence

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.

The Second Amended and Restated Credit Agreement (the “Amended Credit Agreement”), dated as of August 23, 2022, includes a $ 280 million revolving credit facility (the “Amended Revolving Facility”), increased from $ 225 million in the previous credit agreement, under which comparative periods are reported.

Additionally, the referenced index was amended to be the Term Standard Overnight Financing Rate (“SOFR”), whereas the previous credit agreement utilized the London Interbank Offering Rate (LIBOR) as the referenced interest rate.

The Amended Credit Agreement eliminates the previous $ 75 million accordion feature and maintains the original maturity date of February 2025.

Borrowings under the Amended Revolving Facility bear interest at an annual rate equal to the Adjusted SOFR (as defined in the Amended Credit Agreement) which is subject to a floor of 0.00 % plus an appicable rate ranging from 1.00 % to 2.25 % based on the Company’s ratio of total funded indebtedness to consolidated trailing twelve-month EBITDA (the “Total Leverage Ratio”).

At December 31, 2022, the applicable SOFR-based borrowing rate was 1.75 % .

A credit spread adjustment of 0.10 % to 0.275 % is also carried on the Amended Revolving Facility.

In addition, the Company is required to pay a commitment fee of between 0.10 % and 0.275 % annually on the unused portion of the Amended Revolving Facility, also based on the Company’s Total Leverage Ratio.

The Amended Revolving Facility is

ALLIED MOTION TECHNOLOGIES INC.

1 unchanged sentence

(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.

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 includes covenants and restrictions that limit the Company’s ability to incur additional indebtedness, make certain investments, create, incur or assume certain liens, merge, consolidate or sell all or substantially all of its assets and enter into transactions with an affiliate of the Company on other than an arms’ length transaction.

These covenants, which are described more fully in the Amended Credit Agreement, to which reference is made for a complete statement of the covenants, are subject to certain exceptions.

The Amended Credit Agreement contains financial covenants that require that the Company maintain a minimum interest coverage ratio of at least 3.0 to 1.0 at the end of each fiscal quarter.

In addition, the Company’s Leverage Ratio at the end of any fiscal quarter shall not be greater than 4.0 to 1.0 ratio (reduced to 3.5 :1.0 for quarters ending on or after December 31, 2023);

provided that the Company may elect to temporarily increase the Leverage Ratio by 0.5x during the twelve-month period following a material acquisition under the Amended Credit Agreement (“acquisition leverage increase”), subject to certain exceptions.

The Company was in compliance with all covenants at December 31, 2022.

7 unchanged sentences

There were no borrowings under the China Facility during 2022 or 2021.

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.

DERIVATIVE FINANCIAL INSTRUMENTS

2 unchanged sentences

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

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.

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, and Canadian Dollar) other than the subsidiary’s functional currency and are adjusted to current values using period-end exchange rates.

The resulting gains or losses are recorded in other (income) expense, net in the consolidated statements of income and comprehensive income.

To minimize foreign currency exposure, the Company had foreign currency contracts with notional amounts of $ 18,891 at December 31, 2022.

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

During the year ended December 31, 2022, the Company had losses of $ 1,109 on foreign currency contracts which is included in other expense (income), net and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other expense (income), 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.

Interest rate swaps designated as cash flow hedges involve the receipt

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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 matured in February 2022.

In March 2020, the Company entered into two additional interest rate swaps with a combined notional amount of $ 20,000 that increased to $ 60,000 in March 2022 and matures in December 2024.

In March 2022 the Company entered into an additional interest rate swap with a notional amount of $ 40,000 that matures in December 2026.

As of December 31, 2022, the Company holds notional amounts of $ 100,000 in interest rate derivatives.

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 2022 and 2021, 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.

The Company estimates that an additional $ 3,534 will be reclassified as a reduction to interest expense over the next twelve months.

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

14 unchanged sentences

hedging instruments

Interest rate products

Foreign currency contracts

Accrued liabilities

Interest rate products

Other long-term liabilities

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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

Amount of pre-tax gain (loss)

recognized in OCI on derivatives

Accrued liabilities

The table below presents the effect of cash flow hedge accounting on other comprehensive (loss) income (OCI) for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Amount of pre-tax loss recognized in OCI

on derivatives

Derivatives in cash flow hedging relationships

1 unchanged sentence

Interest rate products

Amount of pre-tax (loss) gain reclassified

Location of (loss) gain reclassified

from accumulated OCI into income

Location of gain (loss) reclassified

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

from accumulated OCI into income

1 unchanged sentence

Interest expense

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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, 2022, 2021 and 2020 (in thousands):

20 unchanged sentences

balance sheets

Gross amounts

Gross amounts not offset in the consolidated

Gross amounts

offset in the

presented in the

balance sheets

of recognized

Cash collateral

balance sheets

Derivative liabilities:

28 unchanged sentences

Income before income taxes

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

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

For the year ended

1 unchanged sentence

Total current provision

Deferred (benefit) provision

Deferred provision

Total deferred (benefit) provision

Income tax (benefit) provision

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

Income tax provision (benefit)

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

For the year ended

5 unchanged sentences

Section 162(m) compensation

R&D tax credits

Effect of Tax Cuts and Jobs Act

Subpart F income

Tax examinations

Investment tax credits

1 unchanged sentence

Unrecognized tax benefits

Income tax (benefit) provision

Provision for income taxes

ALLIED MOTION TECHNOLOGIES INC.

6 unchanged sentences

Accrued expenses and reserves

Research and development costs

Total noncurrent deferred tax assets

4 unchanged sentences

Goodwill and intangibles

Interest rate swap derivatives

Total noncurrent deferred tax liabilities

3 unchanged sentences

Noncurrent deferred income tax liabilities

Net deferred tax asset (liability)

Net deferred tax liability

As of December 31, 2022, the Company has the following gross carryforwards available (in thousands):

4 unchanged sentences

International

Net Operating Losses (1)

International

Net Operating Losses - Unlimited Carryforward (1)

3 unchanged sentences

R&D Tax Credits

(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

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

In 2022, noncurrent deferred tax assets includes the effects of capitalization and amortization of R&D expenses as required by the 2017 Tax Cuts and Jobs Act.

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

ALLIED MOTION TECHNOLOGIES INC.

1 unchanged sentence

(In thousands, except share and per share data)

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

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 $ 429 that it is more likely than not will not be realized.

Additionally, the Company has carryforwards of net operating losses and tax credits generated in foreign jurisdictions and has determined it is more likely than not it would not realize a tax benefit of $ 1,600 .

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

4 unchanged sentences

federal and state tax examinations in its major tax jurisdictions for periods before 2019.

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

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

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.

2 unchanged sentences

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 reduced the unrecognized tax benefit in 2022 by $ 19 2 as a result of the lapse in the statute of limitations on the 2016 tax return.

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

4 unchanged sentences

Reductions related to net operating loss usage on 2020 tax returns

Currency Translation

Ending balance

7 unchanged sentences

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

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

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

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

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

ALLIED MOTION TECHNOLOGIES INC.

1 unchanged sentence

(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.

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 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 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.

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.

The Company’s finance lease obligations relate to a manufacturing facility.

As of December 31, 2022, finance lease assets of $ 8,839 are included in property, plant, and equipment , net, finance lease obligations of $ 377 are included in accrued liabilities , and $ 9,019 are included in long-term debt on the consolidated balance sheet.

For the years ended December 31, 2022 and 2021, the components of operating lease expense were as follows (in thousands):

2 unchanged sentences

Short-term lease expense

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):

Supplemental cash flow information related to the Company’s operating and finance leases for the years ended December 31, 2022 and 2021 are as follows (in thousands):

Cash paid for amounts included in the measurement of operating leases

Cash paid for amounts included in the measurement of finance lease obligations

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

ROU assets obtained in acquisitions (Note 2)

ROU assets obtained in acquisitions for operating lease obligations (Note 2)

ROU assets obtained in exchange for finance lease obligations

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The following table presents weighted average remaining lease term and discount rates related to the Company’s operating leases as of December 31, 2022 and 2021:

1 unchanged sentence

Weighted average discount rate

The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2021 (in thousands):

The following table presents the maturity of the Company’s operating and finance lease liabilities as of December 31, 2022 (in thousands):

Operating Leases

Finance Leases

Total undiscounted cash flows

1 unchanged sentence

Total lease liabilities

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

As of December 31, 2022, the Company has entered into leases for building renewal and expansion, with future minimum lease payments of $ 7,999 that have not yet commenced.

13 unchanged sentences

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.

Amounts accrued relating to previous periods are $ 3,870 and $ 4,636 as of

ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

December 31, 2022 and 2021, respectively, which is included in other long-term liabilities in the consolidated balance sheets at December 31, 2022 and 2021.

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 operates in one segment for the manufacture and marketing of controlled motion products and solutions 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.

4 unchanged sentences

Identifiable foreign fixed assets were $ 34,879 and $ 32,807 as of December 31, 2022 and 2021, respectively.

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.

4 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data