UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
1.
|
BASIS OF PREPARATION AND PRESENTATION
|
Allied Motion Technologies Inc. (“Allied Motion”
or the “Company”) is engaged in the business of designing, manufacturing and selling controlled motion solutions, 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, automotive, medical, and aerospace and defense markets.
The accompanying unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
The assets and liabilities of the Company’s foreign subsidiaries
are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of foreign
subsidiaries that occur as a result of changes in exchange rates between foreign subsidiaries’ functional currencies and
the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included in
other comprehensive loss, a component of stockholders’ equity in the accompanying condensed 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 Technology Units (“TUs”) are included in the results of operations as incurred.
The condensed consolidated financial statements included herein
have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”)
and include all adjustments which are, in the opinion of management, necessary for a fair presentation. Certain information and
footnote disclosures normally included in financial statements which are prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.
The Company believes that the disclosures herein are adequate to make the information presented not misleading. The financial data
for the interim periods may not necessarily be indicative of results to be expected for the year.
The preparation of financial statements in accordance with U.S.
GAAP requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts
of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
It is suggested that the accompanying condensed consolidated
financial statements be read in conjunction with the Consolidated Financial Statements and related Notes to such statements included
in the Annual Report on Form 10-K for the year ended December 31, 2019 that was previously filed by the Company.
Dynamic Controls
On March 7, 2020, the Company acquired
100% of the issued and outstanding share capital of the Dynamic Controls Group (“Dynamic Controls”), a wholly owned
subsidiary of Invacare Corporation, a market-leading designer and manufacturer of equipment for the medical mobility and rehabilitation
markets. The purchase price was funded using borrowings under the Amended Revolving Facility (Note 10). The purchase price is 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 $247 of transaction costs related to the
acquisition of Dynamic Controls in the three months ended March 31, 2020, which are included in business development expenses on
the condensed consolidated statements of income and comprehensive income. The Company accounted for the acquisition pursuant to
the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business
Combinations.”
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
The preliminary allocation of the purchase price paid for Dynamic
Controls is based on estimated fair values of the assets acquired and liabilities assumed of Dynamic Controls as of March 7, 2020
is as follows (in thousands):
Cash and cash equivalents
|
|
$
|
11,437
|
|
Accounts receivable
|
|
|
4,129
|
|
Inventory
|
|
|
3,329
|
|
Other assets, net
|
|
|
769
|
|
Property, plant and equipment
|
|
|
1,185
|
|
Right of use assets
|
|
|
2,692
|
|
Intangible assets
|
|
|
7,800
|
|
Goodwill
|
|
|
6,820
|
|
Current liabilities
|
|
|
(7,269
|
)
|
Lease liabilities
|
|
|
(2,707
|
)
|
Net deferred income tax liabilities
|
|
|
(2,207
|
)
|
Total purchase consideration
|
|
$
|
25,978
|
|
The allocation of the purchase price is preliminary as the valuation
of both the tangible and identifiable intangible assets and liabilities is being finalized.
The intangible assets acquired consist of customer lists, technology
and a trade name, 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 our
condensed consolidated financial statements beginning on the date of the acquisition. Included within the condensed consolidated
statement of income and comprehensive income for the three months ended March 31, 2020, revenues related to Dynamic Controls were
$2,500 and earnings related to the operations of Dynamic Controls were $125. Unaudited pro forma revenues, assuming the acquisition
occurred on January 1, 2019, would have been $97,500 and $101,900 for the three months ended March 31, 2020 and 2019, respectively.
Pro forma earnings and diluted earnings per share are not materially different than actual reported results for each of those periods
due to the inclusion of purchase accounting adjustments. The pro forma amounts do not reflect adjustments for anticipated operating
efficiencies that the Company expects to achieve as a result of this acquisition. The pro forma financial information is for informational
purposes only and does not purport to present what the Company’s results would actually have been had these transactions
actually occurred on the date presented or to project the combined company’s results of operations or financial position
for any future period.
The goodwill resulting from the Dynamic Controls acquisition
is not tax deductible.
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 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 we collect concurrent with revenue-producing activities are excluded from revenue.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
Nature of Goods and Services
The Company sells component and integrated controlled motion
solutions to end customers and original equipment manufacturers (“OEM’s”) through the Company’s own direct
sales force and authorized manufacturers’ representatives and distributors. The Company’s products include brush
and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gearmotors,
gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active and passive filters
for power quality and harmonic issues, and other controlled motion-related products. The Company’s target markets include
Vehicle, Medical, Aerospace & Defense and Industrial.
Determining the Transaction Price
The majority of the Company’s contracts have an original
duration of less than one year. For these contracts, the Company applies the practical expedient and therefore does not consider
the effects of the time value of money. For multiyear contracts, the Company uses judgment to determine whether there is a significant
financing component. These contracts are generally those in which the customer has made an up-front payment. Contracts that management
determines to include a significant financing component are discounted at the Company’s incremental borrowing rate. The Company
incurs interest expense and accrues a contract liability. As the Company satisfies performance obligations and recognizes revenue
from these contracts, interest expense is recognized simultaneously. Management does not have any contracts that include a significant
financing component as of March 31, 2020.
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 the Segment Information footnote, 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 18. A reconciliation
of disaggregated revenue to segment revenue as well as revenue by geographical regions is provided in Note 18.
|
|
Three months ended
|
|
|
|
March 31,
|
|
Target Market
|
|
2020
|
|
|
2019
|
|
Vehicle
|
|
$
|
28,055
|
|
|
$
|
33,596
|
|
Industrial
|
|
|
33,351
|
|
|
|
31,311
|
|
Medical
|
|
|
14,551
|
|
|
|
12,410
|
|
Aerospace & Defense
|
|
|
11,142
|
|
|
|
11,253
|
|
Other
|
|
|
5,283
|
|
|
|
5,326
|
|
Total
|
|
$
|
92,382
|
|
|
$
|
93,896
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
Geography
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
56,369
|
|
|
$
|
59,314
|
|
Europe
|
|
|
33,133
|
|
|
|
34,167
|
|
Other
|
|
|
2,880
|
|
|
|
415
|
|
Total
|
|
$
|
92,382
|
|
|
$
|
93,896
|
|
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
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
liabilities are as follows (in thousands):
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Contract liabilities in accrued liabilities
|
|
$
|
481
|
|
|
$
|
454
|
|
Contract liabilities in other long-term liabilities
|
|
|
286
|
|
|
|
-
|
|
|
|
$
|
767
|
|
|
$
|
454
|
|
The difference between the opening and closing balances of the
Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the
customer’s payment.
Significant Payment Terms
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.
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):
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Parts and raw materials
|
|
$
|
39,901
|
|
|
$
|
35,849
|
|
Work-in-process
|
|
|
7,563
|
|
|
|
6,951
|
|
Finished goods
|
|
|
12,626
|
|
|
|
10,585
|
|
|
|
|
60,090
|
|
|
|
53,385
|
|
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
|
5.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment is classified
as follows (in thousands):
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Land
|
|
$
|
972
|
|
|
$
|
977
|
|
Building and improvements
|
|
|
13,502
|
|
|
|
13,366
|
|
Machinery, equipment, tools and dies
|
|
|
75,077
|
|
|
|
73,894
|
|
Furniture, fixtures and other
|
|
|
16,201
|
|
|
|
15,797
|
|
|
|
|
105,752
|
|
|
|
104,034
|
|
Less accumulated depreciation
|
|
|
(52,779
|
)
|
|
|
(51,026
|
)
|
Property, plant and equipment, net
|
|
$
|
52,973
|
|
|
$
|
53,008
|
|
Depreciation expense was approximately $2,309 and $2,227 for
the quarters ended March 31, 2020 and 2019, respectively.
The change in the carrying amount of goodwill for the three
months ended March 31, 2020 and year ended December 31, 2019 is as follows (in thousands):
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Beginning balance
|
|
$
|
52,935
|
|
|
$
|
52,639
|
|
Goodwill acquired (Note 2)
|
|
|
6,820
|
|
|
|
-
|
|
Adjustments to goodwill acquired
|
|
|
-
|
|
|
|
614
|
|
Effect of foreign currency translation
|
|
|
(673
|
)
|
|
|
(318
|
)
|
Ending balance
|
|
$
|
59,082
|
|
|
$
|
52,935
|
|
Intangible assets on the Company’s condensed consolidated
balance sheets consist of the following (in thousands):
|
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Life
|
|
Gross
Amount
|
|
|
Accumulated
amortization
|
|
|
Net
Book
Value
|
|
|
Gross
Amount
|
|
|
Accumulated
amortization
|
|
|
Net
Book
Value
|
|
Customer lists
|
|
8 - 17 years
|
|
$
|
68,342
|
|
|
$
|
(20,258
|
)
|
|
$
|
48,084
|
|
|
$
|
64,314
|
|
|
$
|
(19,311
|
)
|
|
$
|
45,003
|
|
Trade name
|
|
10 - 19 years
|
|
|
13,607
|
|
|
|
(4,314
|
)
|
|
|
9,293
|
|
|
|
12,222
|
|
|
|
(4,114
|
)
|
|
|
8,108
|
|
Design and technologies
|
|
10 - 15 years
|
|
|
14,625
|
|
|
|
(3,727
|
)
|
|
|
10,898
|
|
|
|
12,927
|
|
|
|
(3,554
|
)
|
|
|
9,373
|
|
Patents
|
|
17 years
|
|
|
24
|
|
|
|
(12
|
)
|
|
|
12
|
|
|
|
24
|
|
|
|
(11
|
)
|
|
|
13
|
|
Total
|
|
|
|
$
|
96,598
|
|
|
$
|
(28,311
|
)
|
|
$
|
68,287
|
|
|
$
|
89,487
|
|
|
$
|
(26,990
|
)
|
|
$
|
62,497
|
|
Intangible assets resulting from the acquisition of
Dynamic Controls were approximately $7,800 (Note 2). The intangible assets acquired consist of a customer list, a trade name and
technology.
Amortization expense for intangible assets was $1,441 and $1,432
for the quarters ended March 31, 2020 and 2019, respectively.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
Estimated future intangible asset amortization expense as of
March 31, 2020 is as follows (in thousands):
|
|
Estimated Amortization Expense
|
|
Remainder of 2020
|
|
$
|
4,456
|
|
2021
|
|
|
5,905
|
|
2022
|
|
|
5,948
|
|
2023
|
|
|
5,949
|
|
2024
|
|
|
5,625
|
|
Thereafter
|
|
|
40,404
|
|
Total estimated amortization expense
|
|
$
|
68,287
|
|
|
8.
|
STOCK-BASED COMPENSATION
|
Stock Incentive Plans
The Company’s Stock Incentive Plans
provide for the granting of stock awards, including restricted stock, stock options and stock appreciation rights, to employees
and non-employees, including directors of the Company.
Restricted Stock
For the quarter ended March 31, 2020, 105,864
shares of unvested restricted stock were awarded at a weighted average market value of $34.00. Of the restricted shares granted,
75,592 shares have performance-based vesting conditions. The value of the shares is amortized to compensation expense over the
related service period, which is normally three years, or over the estimated performance period. Shares of unvested restricted
stock are generally forfeited if a recipient leaves the Company before the vesting date. Shares that are forfeited become available
for future awards.
The following is a summary of restricted stock activity for
the quarter ended March 31, 2020:
|
|
Number of shares
|
|
Outstanding at beginning of period
|
|
|
186,702
|
|
Awarded
|
|
|
105,864
|
|
Vested
|
|
|
(62,139
|
)
|
Forfeited
|
|
|
(1,975
|
)
|
Outstanding at end of period
|
|
|
228,452
|
|
Stock based compensation expense, net of forfeitures, of $789
and $674 was recorded for the quarters ended March 31, 2020 and 2019, respectively.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
Accrued liabilities consist of the following
(in thousands):
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Compensation and fringe benefits
|
|
$
|
8,584
|
|
|
$
|
12,967
|
|
Warranty reserve
|
|
|
1,460
|
|
|
|
1,075
|
|
Income taxes payable
|
|
|
3,452
|
|
|
|
2,231
|
|
Right of use liabilities
|
|
|
3,734
|
|
|
|
3,203
|
|
Other accrued expenses
|
|
|
4,794
|
|
|
|
3,525
|
|
|
|
$
|
22,024
|
|
|
$
|
23,001
|
|
Debt obligations consisted of the following (in thousands):
Long-term Debt
|
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Revolving Credit Facility, long-term
|
|
(1)
|
|
$
|
136,927
|
|
|
$
|
110,085
|
|
Unamortized debt issuance costs
|
|
|
|
|
(683
|
)
|
|
|
(320
|
)
|
Long-term debt
|
|
|
|
$
|
136,244
|
|
|
$
|
109,765
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The effective rate of the Revolver is 2.89% at March 31, 2020.
|
|
|
|
|
Amended Revolving Credit Facility
On February 12, 2020, the Company entered into a First Amended
and Restated Credit Agreement (the “Amended Credit Agreement”) for a $225 million revolving credit facility (the “Amended
Revolving Facility”). The significant changes made to the Company’s prior credit facility by the Amended Credit Agreement
include (i) increasing the maximum principal amount from $175 million to $225 million, (ii) providing for a $75 million accordion
amount, (iii) decreasing certain interest-rate margins and fees, and (iv) extending the term to February 2025 from the original
term of October 2021. HSBC Bank USA, National Association is the administrative agent, and HSBC Securities (USA) Inc., KeyBank
National Association, Wells Fargo Bank, National Association and Citizens Bank, N.A. are joint lead arrangers.
Borrowings under the Amended Revolving Facility bear interest
at the LIBOR Rate (as defined in the Amended Credit Agreement) plus a margin of 1.00% to 1.75% or the Prime Rate (as defined in
the Amended Credit Agreement) plus a margin of 0% to 0.75%, in each case depending on the Company’s ratio of total funded
indebtedness (as defined in the Amended Credit Agreement) to Consolidated trailing twelve-month EBITDA (the “Total Leverage
Ratio”). At March 31, 2020, the applicable margin for LIBOR Rate borrowings was 1.5% and the applicable margin for Prime
Rate borrowings was 0.5%. In addition, the Company is required to pay a commitment fee of between 0.10% and 0.225% quarterly (currently
0.175%) 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 and total leverage ratio at the end of each quarter. The Amended Credit Agreement also includes
other covenants and restrictions, including limits on the amount of additional indebtedness, and restrictions on the Company’s
ability to merge or sell all or substantially all of its assets. The Company was in compliance with all covenants at March 31,
2020.
As of March 31, 2020, the unused Amended Revolving Facility
was approximately $88,073. The amount available to borrow may be reduced based upon our debt and EBITDA levels, which impacts
our covenant calculations.
ALLIED
MOTION TECHNOLOGIES INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except per share data)
Other
The China Credit Facility provides credit of approximately $1,411
(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 is 110% of the applicable PBOC Benchmark Lending Rate. Collateral for the facility is a guarantee
issued by the Company. There have been no borrowings during 2020 and there is no balance in the China Facility at March 31, 2020
and December 31, 2019.
|
11.
|
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. Specifically, the Company enters into derivative financial
instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash
amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to
manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related
to the Company’s borrowings.
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 amount 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 2020 and 2019, such derivatives were
used to hedge the variable cash flows associated with existing variable-rate debt.
The Company estimates that an additional $774 will be reclassified
as an increase to interest expense over the next twelve months. Additionally, the Company does not use derivatives for trading
or speculative purposes and currently does not have any derivatives that are not designated as hedges.
The table below presents the fair value of the Company’s
derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of March 31, 2020
and December 31, 2019 (in thousands):
|
|
|
|
Asset
Derivatives
|
|
|
|
|
Liability
Derivatives
|
|
|
|
|
|
Fair
value as of:
|
|
|
|
|
Fair
value as of:
|
|
Derivatives
designated as
hedging instruments
|
|
Balance
Sheet Location
|
|
March
31,
2020
|
|
|
December
31, 2019
|
|
|
Balance
Sheet Location
|
|
March
31,
2020
|
|
|
December
31, 2019
|
|
Interest
rate products
|
|
Other
long-term assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Other
long-term liabilities
|
|
$
|
1,795
|
|
|
$
|
363
|
|
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share
data)
The tables below present the effect of cash flow hedge accounting
on other comprehensive income (loss) (OCI) for the quarters ended March 31, 2020 and 2019 (in thousands):
|
|
Amount of gain (loss) recognized in OCI
on derivative
|
|
Derivatives in cash flow hedging relationships
|
|
Three months
ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Interest rate products
|
|
$
|
(1,112
|
)
|
|
$
|
(210
|
)
|
|
|
Amount of (gain) loss reclassified from
accumulated OCI into income
|
|
Location of (gain) loss reclassified from accumulated OCI into income
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Interest expense
|
|
$
|
31
|
|
|
$
|
(52
|
)
|
The table below presents the effect of the Company’s derivative
financial instruments on the condensed consolidated statements of income and comprehensive income for the three months ended March
31, 2020 and 2019:
|
|
|
|
Total amounts of income and expense line items
presented that reflect the effects of cash flow
hedges recorded
|
|
|
|
Income
Statement
|
|
Three months ended March 31,
|
|
Derivatives
designated as hedging instruments
|
|
Location
|
|
2020
|
|
|
2019
|
|
Interest
rate products
|
|
Interest
Expense
|
|
$
|
1,054
|
|
|
$
|
1,180
|
|
The tables
below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of
March 31, 2020 and December 31, 2019. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure
of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented
in the condensed consolidated balance sheets.
|
|
Gross
|
|
|
Gross amounts
offset in the
|
|
|
Net amounts
of
liabilities presented in
|
|
|
Gross
amounts not offset in the condensed consolidated
balance sheets
|
|
As
of March 31, 2020
|
|
amounts
of
recognized
liabilities
|
|
|
condensed
consolidated
balance sheets
|
|
|
the
condensed
consolidated balance
sheets
|
|
|
Financial
instruments
|
|
|
Cash
collateral
received
|
|
|
Net
amount
|
|
Derivatives
|
|
$
|
1,795
|
|
|
$
|
-
|
|
|
$
|
1,795
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,795
|
|
|
|
Gross
|
|
|
Gross
amounts
offset in the
|
|
|
Net
amounts of
liabilities presented in
|
|
|
Gross
amounts not offset in the condensed consolidated
balance sheets
|
|
As
of December 31, 2019
|
|
amounts
of
recognized
liabilities
|
|
|
condensed
consolidated
balance sheets
|
|
|
the
condensed
consolidated balance
sheets
|
|
|
Financial
instruments
|
|
|
Cash
collateral
received
|
|
|
Net
amount
|
|
Derivatives
|
|
$
|
363
|
|
|
$
|
-
|
|
|
$
|
363
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
363
|
|
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.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
Authoritative guidance defines fair value as the price that
would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants
at the measurement date.
The guidance establishes a framework for measuring fair value
which utilizes observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect the Company’s market assumptions. Preference is given to observable inputs.
These two types of inputs create the following three-level
fair value hierarchy:
|
Level 1:
|
Quoted prices for identical assets or liabilities in active markets.
|
|
Level 2:
|
Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.
|
|
Level 3:
|
Significant inputs to the valuation model that are unobservable.
|
The Company’s financial assets and liabilities include
cash and cash equivalents, accounts receivable, debt obligations, accounts payable, and accrued liabilities. The carrying amounts
reported in the condensed consolidated balance sheets for these assets approximate fair value because of the immediate or short-term
maturities of these financial instruments.
The following tables presents the Company’s financial
assets that are accounted for at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, respectively, by level
within the fair value hierarchy (in thousands):
|
|
March 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets (liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan assets
|
|
$
|
5,002
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Other long-term assets
|
|
|
3,884
|
|
|
|
-
|
|
|
|
-
|
|
Interest rate swaps
|
|
|
-
|
|
|
|
(1,795
|
)
|
|
|
-
|
|
|
|
December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets (liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan assets
|
|
$
|
6,099
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Other long-term assets
|
|
|
4,690
|
|
|
|
-
|
|
|
|
-
|
|
Interest rate swaps
|
|
|
-
|
|
|
|
(363
|
)
|
|
|
-
|
|
The income tax provision for interim periods is determined using
an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant
period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes,
a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including
changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws, settlements with taxing
authorities and foreign currency fluctuations.
The effective income tax rate as a percentage of income before
income taxes was 28.0% and 27.5% in the first quarter 2020 and 2019, respectively. The effective tax rate is net of discrete tax
provision of 0.3% and benefit of (1.8%), rate for the first quarters of 2020 and 2019 respectively, related primarily to the recognition
of excess tax provision and benefit for share-based payment awards.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
The effective rate before discrete items varies from the statutory
rate primarily due to differences in state taxes, the impact of international tax provisions in the US, the difference in foreign
tax rates and the mix of foreign and domestic income. The increase in the effective income tax rate as a percentage of income before
income taxes from first quarter 2019 to 2020 is a result of limited deductibility of Executive Compensation and Global Intangible
Low-Taxed Income, both of which are on-going provisions of the Tax Cuts and Jobs Act that was enacted on December 22, 2017.
The Company has operating leases for office space, manufacturing
equipment, computer equipment and automobiles. Many leases include one or more options to renew, some of 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 components of operating lease expense were as follows (in
thousands):
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
Fixed operating lease expense
|
|
$
|
1,028
|
|
|
$
|
1,016
|
|
Variable operating lease expense
|
|
|
231
|
|
|
|
39
|
|
|
|
$
|
1,259
|
|
|
$
|
1,055
|
|
Supplemental cash flow information related to the Company’s
operating leases for the three-month period ended March 31, 2020 and 2019 was as follows (in thousands):
|
|
For the three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash paid for amounts included in the measurement of operating leases
|
|
$
|
1,001
|
|
|
$
|
1,031
|
|
ROU assets obtained in exchange for operating lease obligations
|
|
$
|
2,710
|
|
|
$
|
122
|
|
ROU assets recorded upon adoption of ASC 842
|
|
$
|
-
|
|
|
$
|
20,344
|
|
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
The following table presents the lease balances within the condensed
consolidated balance sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s
operating leases as of March 31, 2020 and 2019 (in thousands except for the weighted average remaining lease term and weighted
average discount rate):
|
|
|
|
Three months ended
|
|
Lease assets and liabilities
|
|
Classification
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Assets:
|
|
|
|
|
|
|
|
|
Right of use assets
|
|
Other long-term assets
|
|
$
|
18,221
|
|
|
$
|
16,420
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Right of use liabilities, current
|
|
Accrued liabilities
|
|
$
|
3,734
|
|
|
$
|
3,203
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
Right of use liabilities, long-term
|
|
Other long-term liabilities
|
|
|
14,684
|
|
|
|
13,715
|
|
Total ROU lease liabilities
|
|
|
|
$
|
18,418
|
|
|
$
|
16,918
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
7.71
|
|
|
|
8.27
|
|
Weighted average discount rate
|
|
|
|
|
2.80
|
%
|
|
|
2.91
|
%
|
The following table presents the maturity of the Company’s
operating lease liabilities as of March 31, 2020 (in thousands):
Remaining 2020
|
|
$
|
3,078
|
|
2021
|
|
|
3,568
|
|
2022
|
|
|
2,779
|
|
2023
|
|
|
2,425
|
|
2024
|
|
|
2,010
|
|
2025
|
|
|
1,991
|
|
Thereafter
|
|
|
4,333
|
|
Total undiscounted cash flows
|
|
|
20,184
|
|
Less: present value discount
|
|
|
(1,766
|
)
|
Total lease liabilities
|
|
$
|
18,418
|
|
As of March 31, 2020, the Company had no additional significant
operating or finance leases that had not yet commenced.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
|
15.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
Accumulated Other Comprehensive Income (Loss) (“AOCI”)
for the quarters ended March 31, 2020 and 2019 is comprised of the following (in thousands):
|
|
Defined Benefit Plan Liability
|
|
|
Cash Flow Hedges
|
|
|
Foreign Currency Translation Adjustment
|
|
|
Total
|
|
At December 31, 2019
|
|
$
|
(1,628
|
)
|
|
$
|
(277
|
)
|
|
$
|
(8,626
|
)
|
|
$
|
(10,531
|
)
|
Unrealized loss on cash flow hedges
|
|
|
-
|
|
|
|
(1,119
|
)
|
|
|
-
|
|
|
|
(1,119
|
)
|
Amounts reclassified from AOCI
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
|
|
31
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,428
|
)
|
|
|
(2,428
|
)
|
At March 31, 2020
|
|
$
|
(1,628
|
)
|
|
$
|
(1,365
|
)
|
|
$
|
(11,054
|
)
|
|
$
|
(14,047
|
)
|
|
|
Defined Benefit Plan Liability
|
|
|
Cash Flow Hedges
|
|
|
Foreign Currency Translation Adjustment
|
|
|
Total
|
|
At December 31, 2018
|
|
$
|
(1,006
|
)
|
|
$
|
434
|
|
|
$
|
(7,946
|
)
|
|
$
|
(8,518
|
)
|
Unrealized loss on cash flow hedges
|
|
|
-
|
|
|
|
(210
|
)
|
|
|
-
|
|
|
|
(210
|
)
|
Amounts reclassified from AOCI
|
|
|
-
|
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
(52
|
)
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(887
|
)
|
|
|
(887
|
)
|
At March 31, 2019
|
|
$
|
(1,006
|
)
|
|
$
|
172
|
|
|
$
|
(8,833
|
)
|
|
$
|
(9,667
|
)
|
The realized losses relating to the Company’s interest
rate swap hedges were reclassified from accumulated other comprehensive income (loss) and included in interest expense in the Condensed
Consolidated Statements of Operations and Comprehensive Income.
The Company declared a quarterly dividend of $0.03 per share
in the first quarter of 2020 and 2019. Total dividends declared were $290 and $287 in the first quarter of 2020 and 2019, respectively.
The declared dividends were paid in April 2020 and 2019, respectively.
Basic and diluted weighted-average shares outstanding are as
follows:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Basic weighted average shares outstanding
|
|
|
9,453
|
|
|
|
9,340
|
|
Dilutive effect of equity awards
|
|
|
63
|
|
|
|
35
|
|
Diluted weighted average shares outstanding
|
|
|
9,516
|
|
|
|
9,375
|
|
For the three months ended March 31, 2020 and 2019, the anti-dilutive
common shares excluded from the calculation of diluted earnings per share were immaterial.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except per share data)
The Company operates in one segment for the manufacture
and marketing of controlled motion products for original equipment manufacturers 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 in which the entity holds
material assets and reports revenue.
Financial information related to the foreign subsidiaries is
summarized below (in thousands):
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues derived from foreign subsidiaries
|
|
$
|
36,013
|
|
|
$
|
34,579
|
|
Identifiable foreign assets were $123,749 and $95,777 as of
March 31, 2020 and December 31, 2019, respectively.
Revenues derived from foreign subsidiaries and identifiable
assets outside of the United States are primarily attributable to Europe.
Sales to customers outside of the United States by all subsidiaries
were $43,389 and $43,680 during the quarters ended March 31, 2020 and 2019, respectively.
For first quarter 2020 and 2019, one customer accounted for
13% and 16% of revenues, respectively. As of March 31, 2020, and December 31, 2019 this customer represented 13% and 20% of trade
receivables, respectively.
|
19.
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
Recently adopted accounting pronouncements
In June 2016, FASB issued Accounting Standards Update (“ASU”)
2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This
guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical
experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding
significant estimates and judgments used in estimating credit losses. The new guidance is effective for fiscal years beginning
after December 15, 2019. The Company adopted this ASU on January 1, 2020 applying the modified retrospective approach and
the adoption did not have a material impact on its condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles
- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in ASU 2017-04 eliminates the
requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment.
Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting
unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting
unit’s fair value. ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. The Company adopted this standard on January 1, 2020 on a prospective basis and the adoption did not have
a material impact on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement (Topic 820), which modifies the disclosures on fair value measurements by removing the requirement
to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing
of such transfers. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes
in unrealized gains and losses included in other comprehensive income (loss). The ASU is effective for public entities for fiscal
years beginning after December 15, 2019. The Company has not historically had any transfers between Level 1 and Level 2 or
assets or liabilities measured at fair value under Level 3. The Company adopted this ASU on January 1, 2020 on a prospective basis
and the adoption did not have a material impact on its condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides relief
for impacted areas as it relates to impending reference rate reform and contains optional expedients and exceptions for applying
US GAAP to contracts, hedging relationships, and other areas or transactions, subject to meeting certain criteria, that are impacted
by reference rate reform. This ASU is effective upon issuance for all entities and elections of certain optional expedients are
required to apply the provisions of the guidance. The Company adopted this ASU effective January 1, 2020 on a prospective basis,
and at this time the Company is electing the expedient codified in ASC 848-50-25-2 to continue to assert probability of hedged
interest payments, regardless of any expected future modification in terms related to reference rate reform. Should the Company
elect further optional expedients as it relates to reference rate reform, disclosure of those elections will be done in the fiscal
period in which the elections are made. The adoption did not have a material impact on its condensed consolidated financial statements.