ALLIENT INC - Annual Report: 2011 (Form 10-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

Commission file number: 0-04041

ALLIED MOTION TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (303) 799-8520

         Securities registered pursuant to Section 12(b) of the Act: Common Stock, no par value Nasdaq Global Market

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of voting stock held by non-affiliates of the Registrant, computed by reference to the average bid and asked prices of such stock as of the last business day of the Registrant's most recently completed second fiscal quarter was approximately $35,633,000 .

         Number of shares of the only class of Common Stock outstanding: 8,648,746 as of March 9, 2012

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2012 Annual Meeting of Shareholders are incorporated into Part III.

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Item 1.    Business.

        Allied Motion Technologies Inc. (Allied Motion or the Company) was organized under the laws of Colorado in 1962 and operates in the United States, Europe and Asia. Allied Motion utilizes its underlying core "electro-magnetic, mechanical and electronic motion technology/know how" to provide compact, high performance products as solutions in a wide range of motion applications. The Company designs, manufactures and sells motors, electronic motion controls, gearing and optical encoders to a broad spectrum of customers throughout the world. The Company sells components individually and also provides integrated motion control solutions to customers. The Company sells its products through its own direct sales force and manufacturer's reps and distributors. System solutions are provided out of our North American and European Solution Centers. The products are manufactured at the Company's own facilities and at contract manufacturing facilities in China and Eastern Europe, where the Company owns all the capital equipment and tooling and has designed and set-up the manufacturing processes in each facility.

        Examples of the end products using Allied Motion's technology in the medical and health care industries include surgical robots, prosthetics, electric powered surgical hand pieces, programmable pumps to meter and administer infusions associated with chemotherapy, pain control and antibiotics; nuclear imaging systems, automated pharmacy dispensing equipment, kidney dialysis equipment, respiratory ventilators and heart pumps, wheel chairs, scooters, stair lifts, patient lifts, patient handling tables and beds. In electronics, our products are used in the handling, inspection, and testing of components and in the automation and verification of final products such as PC's, game equipment and cell phones. Our motors are used in the HVAC systems of trucks, buses, RV's, boats and off-road construction/farming equipment. These motors operate a variety of actuation systems (e.g., lifts, slide-outs, covers etc.), they provide improved fuel efficiency while the vehicles are idling and are used in drive-by-wire applications to electrically replace or power-assist a variety of mechanical linkages. Our products are also utilized in high performance vehicles, vehicles using alternative fuel systems such as LPG, fuel cell and hybrid vehicles. Our geared motor products are utilized in automated material handling vehicles/robots, commercial grade floor cleaners, commercial building equipment such as welders, cable pullers and assembly tool. Several products are used in a variety of military/defense applications including inertial guided missiles, mid range munitions systems, weapons systems on armed personnel carriers, unmanned vehicles and in security and access control in camera systems, door access control and in airport screening and scanning devices. Other end products utilizing our technology include high definition printers; tunable lasers and spectrum analyzers for the fiber optic industry; processing equipment for the semiconductor industry, as well as ticket and cash dispensing machines (ATM's).

        Allied Motion has Solution Centers in North America and Europe that provide more integrated motion control solutions to our customers. Providing this service using our Technology/Know-How provides our customers with more complete system solution, as opposed to just providing customers with individual components. Many of the system solutions provided to customers include components from our various Technology Units (TUs). Allied Motion is organized into seven Technology Units ("TUs"): Emoteq Corporation (Allied Motion Tulsa—Tulsa, OK), Motor Products Corporation (Allied Motion Owosso—Owosso, MI), Stature Electric, Inc. (Allied Motion Watertown—Watertown, NY), Allied Motion Controls (Allied Motion Amherst—Amherst, New York and Allied Motion Canada—Waterloo, Ontario, Canada), Precision Motor Technology B.V. (Allied Motion Dordrecht—Dordrecht, The Netherlands), Östergrens Elmotor AB (Allied Motion Stockholm—Stockholm, Sweden), and Ostergrens Changzhou (Allied Motion—Changzhou). Allied Motion also has contract production capabilities in Slovakia and China. The Company is currently in the process of setting up a Solution Center in Asia.

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Allied Motion Tulsa

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Designs, manufactures and markets high performance brushless DC motors, including servo motors, frameless motors, torque motors, high speed (60,000 RPM+) slotless motors and high resolution encoders and motor/encoder assemblies. Markets served include medical equipment, semiconductor, industrial, and aerospace and defense.

Allied Motion Owosso

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Designs and manufactures highly engineered fractional horsepower permanent magnet DC and brushless DC motors serving a wide range of original equipment applications.



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The motors are used in mobile HVAC systems, actuation systems, and specialty and general purpose pumps in a variety of markets including trucks, buses, boats, RV's, off-road vehicles, health, fitness, medical and industrial equipment.

Allied Motion Watertown

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Designs and manufacture gearing solutions in both stand-alone and integrated gearing/motor configurations for the commercial and industrial equipment, healthcare, medical and non-automotive transportation markets.



•

The component products are sold primarily to original equipment manufacturers (OEM'S) that use them in their end products.

Allied Motion Controls

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Designs, develops, and manufactures advanced motion control technology including integrated power electronics, digital controls and network communications for motor control and power conversion.



•

Allied Motion Controls has established customers in a wide range of industries and markets.

Allied Motion Dordrecht

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Designs and manufactures fractional horsepower brushless DC motors with or without integrated electronics and coreless DC motors.



•

The products are used in a wide variety of medical, industrial and commercial aviation applications, such as dialysis equipment, industrial ink jet printers, cash dispensers, bar code readers, laser scanning equipment, fuel injection systems, HVAC actuators, waste water treatment, dosing systems for the pharmaceutical industry, textile manufacturing and document handling equipment.

Allied Motion Stockholm—

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Designs and manufactures motor drive electronics and integrates them with motors, gearing and feedback devices which are sold as systems.



•

Products are sold to OEM customers throughout Europe and are used in a wide variety of industrial, commercial and medical applications, including emerging "Green Technology" alternative energy and electric vehicle applications, leading-edge medical instrumentation and test equipment applications and other industrial and commercial applications to improve the efficiency/performance of the OEM's products.

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        All statements contained herein that are not statements of historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the word "believe," "anticipate," "expect," "project," "intend," "will continue," "will likely result," "should" or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results of the Company to differ materially from the forward-looking statements. The risks and uncertainties include those associated with the present economic circumstances in the United States and throughout Europe, general business and economic conditions in the Company's motion markets, introduction of new technologies, products and competitors, the ability to protect the Company's intellectual property, the ability of the Company to sustain, manage or forecast its growth and product acceptance, success of new corporation strategies and implementation of defined critical issues designed for growth and improvement in profits, the continued success of the Company's customers to allow the Company to realize revenues from its order backlog and to support the Company's expected delivery schedules, the continued viability of the Company's customers and their ability to adapt to changing technology and product demand, the loss of significant customers or enforceability of the Company's contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise, the ability of the Company to meet the technical specifications of its customers, the continued availability of parts and components, increased competition and changes in competitor responses to the Company's products and services, changes in government regulations, availability of financing, the ability of the Company's lenders and financial institutions to provide additional funds if needed for operations or for making future acquisitions or the ability of the Company to obtain alternate financing if present sources of financing are terminated, the ability to attract and retain qualified personnel who can design new applications and products for the motion industry, the ability of the Company to identify and consummate favorable acquisitions to support external growth and new technology, the ability of the Company to successfully integrate an acquired business into the Company's business model without substantial costs, delays, or problems, the ability of the Company to establish low cost region manufacturing and component sourcing capabilities, and the ability of the Company to control costs, including relocation costs, for the purpose of improving profitability. The Company's ability to compete in this market depends upon its capacity to anticipate the need for new products, and to continue to design and market those products to meet customers' needs in a competitive world. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements as a prediction of actual results. The Company has no obligation or intent to release publicly any revisions to any forward looking statements, whether as a result of new information, future events, or otherwise.

        New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company's expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis; however, the Company makes no assurance that expectations, beliefs or projections will be achieved.

Product Distribution

        The Company maintains a direct sales force. In addition to its own marketing and sales force, the Company has independent sales representatives, agents and distributors to sell its various product lines in certain markets.

Competition

        The Company faces competition in all of its markets, although the number of competitors varies depending upon the product. The Company believes there are numerous competitors in the motion

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control market. Competition involves primarily product performance and price, although service and warranty are also important.

Availability of Raw Materials

        All parts and materials used by the Company are in adequate supply. No significant parts or materials are acquired from a single source or for which an alternate source is not also available.

Patents, Trademarks, Licenses, Franchises and Concessions

        The Company holds several patents and trademarks regarding components used by the various subsidiaries and has several patents pending on new products recently developed, which are considered to be of major significance.

Working Capital Items

        The Company currently maintains inventory levels adequate for its short-term needs based upon present levels of production. The Company considers the component parts of its different product lines to be readily available and current suppliers to be reliable and capable of satisfying anticipated needs.

Sales to Large Customers

        During years 2011 and 2010, no single customer accounted for more than 10% of total revenues.

Sales Backlog

        The Company's backlog at December 31, 2011 consisted of sales orders totaling approximately $44,005,000 while backlog at December 31, 2010 was $37,856,000. In our commercial motors markets, the Company continues to serve customers requesting shipments on a "pull system" whereby the Company agrees to maintain available inventory that the customer "pulls" or takes delivery as they need the products. At the time the customer pulls the product, the Company records the sale. There can be no assurance that the Company's backlog will be converted into revenue.

Engineering and Development Activities

        The Company's expenditures on engineering and development for the years ended December 31, 2011 and 2010 were $5,983,000 and $4,044,000, respectively. Of these expenditures, no material amounts were charged directly to customers, although the Company does charge some customers non-recurring engineering (NRE) charges for custom engineering that is required to develop products that meet the customer's specification.

Environmental Issues

        No significant pollution or other types of hazardous emission result from the Company's operations and it is not anticipated that the Company's operations will be materially affected by Federal, State or local provisions concerning environmental controls. The Company's costs of complying with environmental, health and safety requirements have not been material.

        The Company does not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on the Company's business or markets that it serves, nor on the Company's results of operations, capital expenditures or financial position. The Company will continue to monitor emerging developments in this area.

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Foreign Operations

        The information required by this item is set forth in Note 10 of the Notes to Consolidated Financial Statements contained herein.

Employees

        At December 31, 2011 the Company had approximately 476 full-time employees.

Available Information

        The Company maintains a website at www.alliedmotion.com. The Company makes available, free of charge on or through its website, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after it electronically files or furnishes such materials to the SEC.

        The Company has adopted a Code of Ethics for its chief executive officer, president and senior financial officers regarding their obligations in the conduct of Company affairs. The Company has also adopted a Code of Ethics and Business Conduct that is applicable to all directors, officers and employees. The Codes are available on the Company's website. The Company intends to disclose on its website any amendment to, or waiver of, the Codes that would otherwise be required to be disclosed under the rules of the SEC and the Nasdaq Global Market. A copy of both Codes is also available in print to any stockholder upon written request addressed to Allied Motion Technologies Inc., 23 Inverness Way East, Suite 150, Englewood, CO 80112-5711, Attention: Secretary.

Item 2.    Properties.

        As of December 31, 2011, the Company occupies facilities as follows:

        The Company's management believes the above-described facilities are adequate to meet the Company's current and foreseeable needs. Most of the manufacturing facilities described above are operating at less than full capacity.

Item 3.    Legal Proceedings.

        The Company is involved in certain actions that have arisen out of the ordinary course of business. Management believes that resolution of the actions will not have a significant adverse effect on the Company's consolidated financial position or results of operations.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        Allied Motion's common stock is traded on the Nasdaq Global Market System and trades under the symbol AMOT. The number of holders of record as reported by the Company's transfer agent of the Company's common stock as of the close of business on March 9, 2011 was 531. The following table sets forth, for the periods indicated, the high and low prices of the Company's common stock as reported by Nasdaq, and the per share dividends paid by the Company during each quarter.

Equity Compensation Plan Information

        The following table shows the equity compensation plan information of the Company at December 31, 2011:

Item 6.    Selected Financial Data.

        The following tables summarize data from the Company's financial statements for the fiscal years 2007 through 2011; the Company's complete annual financial statements and notes thereto for the current fiscal year appear in Item 8 herein.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview of 2011

        For the year 2011, we achieved record sales, record orders, record profits, record cash-flow and we ended the year with a record backlog.

        Sales to our medical, vehicle, industrial and electronics markets were up in 2011 while aerospace and defense was flat. In 2011, orders were $117 million, up from $92 million in 2010. Year ended Backlog was $44 million compared to $38 million at the end of 2010.

        Net income and earnings per share for 2011 were record highs, as we continued to place a lot of emphasis on providing more value added motion control solutions to our customers and we continued to market our electronic motion control capabilities.

        From a Cash Flow perspective, we improved our cash net of debt position by $6.3 million. We began 2011 with cash net of debt of $2.7 million and ended the year with $9 million in cash net of debt. We also instituted a quarterly dividend program in the third quarter of 2011, and in 2012 we announced a 25% increase in our dividends per share to $.025 per share in a recent press release.

Our Strategy

        As this record year was coming to a close, we felt it was important to capitalize on our positive momentum and to update the long term strategy for Allied Motion. In December 2011, we brought our global team together and focused on a "One Company—One Team" approach to update and create the Strategic Plan for the next three to five years. Reviewing the aggressive Goals and Objectives established by our team, we believe it clearly indicates that our team is ready and willing to take Allied Motion to higher levels in the future. Our global team updated our long term strategy and established new long term goals and objectives and developed the Critical Issue Plan to achieve these goals. The execution of this plan will further establish Allied Motion as a leader in its selected target market segments.

        Our strong financial condition, combined with Allied Systematic Tools (AST) to continuously improve Quality, Delivery, Cost and focus on the creation of Innovative "Motion Solutions That Change the Game" and create value for our customers, allow us to have a positive outlook for the continued long term growth of our Company.

Outlook for 2012

        For 2012, we've built our plans with the expectation that Europe would exhibit minimal growth, North America modest growth and Asia would have the highest levels of growth. We also feel that China will continue to lead world-wide growth although we expect their costs will continue to rise relatively quickly. Therefore, these factors lead us to a strategy that builds upon our proven technical expertise and treats the region as an important growth market and not just a low cost labor source in the future.

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        We expect that internal Cash Flow from our operations will continue to fund our growth opportunities, both internal and external, and our dividend program will continue. We are confident that our cash flows can support our growth initiatives and also reward our shareholders at the same time.

        We will emphasize Gross Margin improvement. Gross Margin improvement requires cost reduction, new products emphasizing more complete Motion Control systems and a support structure trained to sell, apply and service our products and customers. We made good progress in 2011 and these initiatives will continue in 2012.

        Electronic Motion Control brought new growth opportunities and added value in several new applications in 2011 and we expect more of the same in 2012. We made two acquisitions in 2010 that brought more Electronic Motion Control capabilities and we will continue to invest aggressively in this area.

        Our One Team Sales Force developed nicely in North America and Europe, and we will begin establishing the same capability in Asia. Our Solution Centers differentiate us from our competition and will become functional in North America and Europe and the foundation will be established in Asia in 2012. Together with our One Team Sales Force, the Solution Center is the glue that allows us to function and act as One Company, a common request from our customers.

        Our platform based Product Line approach whereby we preplan what products are required by our served market segments, provides us the capability to quickly deliver prototypes, be first in with application solutions and secure new design-in wins. While it is relatively simple to achieve this on an independent component level basis, a coordinated effort to tie all of our technologies together as systems is where the real opportunity lies and that will be our emphasis.

        Further development and promotion of our parent brand, Allied Motion, will continue in 2012. A Global structure has been defined and we will use that to our advantage in the marketplace.

        We also plan to take our commitment to AST to a new level in 2012 as we invest in additional resources as part of our Operational Excellence Team to continuously build and utilize AST to improve efficiencies and eliminate waste throughout our Company.

        We believe the strategy we have developed for the Company will accomplish our long term goals of increasing shareholder value through the continued strengthening of the foundation necessary to achieve growth in sales and profitability.

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Operating Results

Year 2011 compared to 2010

        NET INCOME:    The Company achieved record net income for the year ended December 31, 2011 of $6,967,000 or $.81 per diluted share compared to a previous record of $3,585,000 or $0.45 per diluted share for 2010. The 2011 results include a $1.1 million adjustment to the earnout that was part of the Östergrens acquisition in 2010. Excluding the earnout adjustment of $1.1 million, the Company achieved a 64% increase in net income, or $0.68 per diluted share. This year's results include the results from Östergrens, which was acquired in December 2010 and AM Canada which was acquired on June 3, 2010.

        EBITDA and ADJUSTED EBITDA:    EBITDA was $11,774,000 and $6,984,000 for 2011 and 2010, respectively. Adjusted EBITDA was $11,376,000 for 2011 compared to $7,776,000 for 2010. EBITDA and Adjusted EBITDA, are non-GAAP measurements. EBITDA consists of income before interest expense, provision for income taxes, depreciation and amortization. Adjusted EBITDA is before stock compensation expense, as well as other nonrecurring items, such as adjustments to the earnout related to the Östergrens acquisition, acquisition transaction costs, inefficiencies from the relocation of the encoder operations, and net insurance recoveries. See information included in "Non-GAAP Measures" below for a reconciliation of net income to EBITDA and Adjusted EBITDA.

        REVENUES:    Revenues were $110,941,000 in 2011 compared to $80,591,000 in 2010. Of this 38% increase, revenues from existing businesses increased 11% and incremental revenues achieved by the two companies acquired in 2010 contributed 27% of the increase. The 38% increase in sales from last year was the result of an increase in sales in virtually all of our major industry sectors except Aerospace and Defense which was flat for the year. 54% of our sales for the year were to US customers with the balance of our sales to customers primarily in Europe, Canada and Asia. Sales to our US customers

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increased 25% and sales to customers outside of the US were up 57% for the year. Of the 38% increase in revenues, 36% was due to an increase in sales volume for the year and 2% was due to a favorable currency change.

        BACKLOG:    The Company's backlog at December 31, 2011 consisted of sales orders totaling approximately $44,005,000 while backlog at December 31, 2010 was $37,856,000 reflecting a 16% increase from the end of 2010.

        Backlog may fluctuate up or down throughout the year for various reasons, not limited to the following: customer order patterns, annual versus intermittent orders, and long-term recurring product versus new product orders.

        GROSS MARGIN:    Gross margin as a percentage of revenues was 30% and 28% for 2011 and 2010, respectively. This 2% improvement in gross margin was primarily due to the Company's continuous efforts in reducing costs and selling more value added systems solutions and custom engineered products that typically have higher margins.

        SELLING EXPENSES:    Selling expenses were $5,626,000 and $3,872,000 in 2011 and 2010, respectively. The 45% increase is primarily due to an increase in the Company's sales force as a result of the acquisition of Östergrens, which was completed in the fourth quarter of 2010.

        GENERAL AND ADMINISTRATIVE EXPENSES:    General and administrative expenses were $12,639,000 in 2011 and $9,938,000 for 2010. The 27% increase is primarily a result of additional general and administrative costs as a result of the acquisitions of AM Canada and Östergrens, which were made in the second and fourth quarters of 2010, respectively, as well as increased compensation expense, which includes incentive bonuses, partially offset by reduced acquisition related expenses.

        ENGINEERING AND DEVELOPMENT EXPENSES:    Engineering and development expenses were $5,983,000 and $4,044,000 for 2011 and 2010, respectively. The 48% increase is primarily a result of the increased engineering staff from the acquisitions of AM Canada and Östergrens, which were made in the second and fourth quarters of 2010, respectively.

        AMORTIZATION OF INTANGIBLE ASSETS:    Amortization of intangible assets expense was $732,000 and $551,000 in 2011 and 2010, respectively. The 33% increase is the result of the additional intangible amortization from the Östergrens acquisition, partially offset, by certain intangible assets that became fully amortized in 2010.

        NET INSURANCE RECOVERIES:    Net insurance recoveries were $685,000 for 2010. The recoveries in 2010 represent the final settlement for the business interruption insurance claim which resulted from the fire at the Company's COPI facility in the fourth quarter of 2008.

        INCOME TAXES:    Provision for income taxes was $2,552,000 and $1,581,000 for 2011 and 2010, respectively.

        The effective income tax rate as a percentage of income before income taxes was 27% and 31% in 2011 and 2010, respectively. The effective tax rate for 2011 and 2010 is lower than the statutory rate primarily due to differences in state and foreign tax rates, as well as permanent differences, which were primarily the result of the adjustment to contingent consideration.

Non-GAAP Measures

        EBITDA and Adjusted EBITDA are provided for information purposes only and are not measures of financial performance under generally accepted accounting principles.

        The Company believes EBITDA is often a useful measure of a Company's operating performance and is a significant basis used by the Company's management to measure the operating performance of the Company's business because EBITDA excludes charges for depreciation, amortization and interest

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expense that have resulted from our debt financings, as well as our provision for income tax expense. EBITDA is frequently used as one of the bases for comparing businesses in the Company's industry.

        The Company also believes that Adjusted EBITDA provides helpful information about the operating performance of its business. Adjusted EBITDA excludes stock compensation expense, as well as certain non-recurring items. Nonrecurring items are either income or expenses which do not occur regularly as part of the normal activities of the Company. The Company considers these items to be of significance in nature and/or size, and accordingly, has excluded these items from Adjusted EBITDA. Adjusted EBITDA in 2011 excludes the earnout adjustment related to the acquisition of Östergrens, while Adjusted EBITDA in 2010 excludes transaction costs of $447,000 that were incurred in conjunction with the acquisitions of Östergrens and Agile Systems (now known as Allied Motion Canada), insurance recoveries of $685,000, and $232,000 of expenses due to inefficiencies from the relocation of the Company's encoder operation.

        EBITDA and Adjusted EBITDA do not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.

        The Company's calculation of EBITDA and Adjusted EBITDA for 2011 and 2010 is as follows (in thousands):

Liquidity and Capital Resources

        The Company's liquidity position as measured by cash and cash equivalents increased $5,602,000 during 2011 to a balance of $9,155,000 at December 31, 2011. The increase in cash in 2011 compares to a decrease of $917,000 in 2010. The 2010 decrease is primarily a result of the two acquisitions completed by the Company in 2010, which were accomplished primarily with cash on hand.

        During 2011, operations provided $8,881,000 in cash compared to $7,168,000 provided for 2010. The increase in cash provided from operations of $1,713,000 is primarily due to higher net income. In addition, net working capital has increased as a result of the Company's growth and higher order intake in 2011 compared to 2010. Also, the increase in the accrual for employee incentive bonus programs were higher in 2011 compared to 2010 as a result of the increased growth and profitability of the Company.

        Net cash used in investing activities was $2,181,000 and $8,317,000 for 2011 and 2010, respectively. Purchases of property and equipment were $1,849,000 and $1,213,000 in 2011 and 2010, respectively.

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Cash paid in 2010 for the acquisitions of Agile Systems Inc., now known as Allied Motion Canada, and Östergrens, net of cash acquired, was $7,104,000.

        Net cash used in financing activities of $838,000, as opposed to cash provided in financing activities of $513,000 for 2010. Cash used in 2011 was the result of $667,000 in payments against existing lines of credit, dividends paid to shareholders of $333,000, and $162,000 of cash proceeds primarily due to the exercise of stock options.

        At December 31, 2011, the Company had $157,000 in debt obligations.

        The average outstanding borrowings for 2011 were $465,000. As of December 31, 2011, the amount available to borrow under the Company's various lines-of-credit was approximately $8.4 million.

        The Company's Credit Agreement, as amended, is used for borrowing needs that may occur in the United States and Europe. The Credit Agreement provides revolving credit up to $4 million and €3 million. Borrowings under the revolver incur interest of LIBOR plus 1.5%. Overnight borrowings incur interest at PRIME plus 0.50%. The unused portion of the revolver is charged a commitment fee of .375% per annum. The Credit Agreement contains certain financial covenants related to maximum leverage, minimum fixed charge coverage and minimum tangible net worth of the Company. The Credit Agreement expires on October 26, 2013.

        Effective July 1, 2011, the Company obtained a Credit Line Facility in China providing credit of approximately $700,000 (RMB 4,500,000) to provide financing availability for working capital needs for the Company's subsidiaries in China. There is approximately $550,000 (RMB 3,500,000) available under the facility at December 31, 2011.

        The Company has bank overdraft facilities with foreign banks in Europe. The facilities had no outstanding balance as of December 31, 2011. The amount available under the overdraft facilities was approximately $700,000 (€ 300,000 and 2,100,000 SEK).

        As part of the Company's quarterly cash dividend program, the Board of Directors declared a dividend and increased the amount from $0.02 to $0.025 per share payable on March 12, 2012 to shareholders of record on March 2, 2012.

        The measurement period for the earnout related to the Östergrens acquisition ended December 31, 2011 and the amount owed to the sellers of Östergrens has been finalized. The Company will pay the remaining contingent consideration related to the Östergrens acquisition of approximately 9,052,000 SEK ($1,313,000 measured in U.S. dollars as of December 31, 2011) in the first quarter of 2012 from cash on hand.

        The Company's working capital, capital expenditure and dividend requirements are expected to be funded from cash provided by operations and amounts available under the Company's credit facilities.

Price Levels and the Impact of Inflation

        The effect of inflation on the Company's costs of production has been minimized through production efficiencies, lower costs of materials and surcharges passed on to customers. The Company anticipates that these factors will continue to minimize the effects of any foreseeable inflation and other price pressures from the industries in which it operates. As the Company's manufacturing activities mainly utilize semi-skilled labor, which is relatively plentiful in the areas surrounding the Company's production facilities, the Company does not anticipate substantial inflation-related increases in the wages of the majority of its employees.

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Recent Accounting Pronouncements

Pronouncements Implemented

        In January 2010, the FASB issued Accounting Standards Update ("ASU") 2010-06, "Improving Disclosures About Fair Value Measurements." ASU 2010-06 requires the separate disclosure of significant transfers into and out of the Level 1 and Level 2 categories; requires fair value measurement disclosures for each class of assets and liabilities; and requires disclosures about valuation techniques and inputs used in Level 2 and Level 3 fair value measurements. These disclosure requirements became effective at the beginning of 2010. In addition, effective in fiscal years beginning after December 15, 2010, ASU 2010-06 also requires Level 3 disclosures of activity on a gross rather than a net basis. The Company's adoption of ASU No. 2010-06 had no material impact on our consolidated financial condition or results of operations.

        In December 2010, the FASB issued ASU 2010-28, "When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts." ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, Step 2 of the goodwill impairment test is required if it is more likely than not that a goodwill impairment exists, after considering whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective prospectively for fiscal years and interim periods beginning after December 15, 2011. The Company's adoption of ASU No. 2010-28 had no impact on our consolidated financial condition or results of operations.

        In September 2011, the FASB issued ASU No. 2011-08, "Intangibles—Goodwill and Other (ASC 350): Testing Goodwill for Impairment," which specifies that an entity has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. An entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. ASU No. 2011-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company's adoption of ASU No. 2011-08 had no impact on our consolidated financial condition and results of operations.

Pronouncements not yet implemented

        In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (ASC 220): Presentation of Comprehensive Income," which specifies that an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This amendment also requires an entity to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income. In December 2011, the FASB issued ASU No. 2011-12 to defer the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income. ASU No. 2011-05 and 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The adoption of ASU No. 2011-05 and 2011-12 will not have an impact on our consolidated financial condition and results of operations.

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Item 8.    Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Allied Motion Technologies Inc.
Denver, Colorado

        We have audited the accompanying consolidated balance sheets of Allied Motion Technologies Inc. and subsidiaries (the "Company") as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' investment and comprehensive income and cash flows for the years then ended. The Company's management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Audits include examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allied Motion Technologies Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Ehrhardt Keefe Steiner & Hottman PC

March 12, 2012
Denver, Colorado

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ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

See accompanying notes to consolidated financial statements.

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ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

See accompanying notes to consolidated financial statements.

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ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
AND COMPREHENSIVE INCOME

(In thousands)

See accompanying notes to consolidated financial statements.

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ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

See accompanying notes to consolidated financial statements.

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ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

        Allied Motion Technologies Inc. (Allied Motion or the Company) is engaged in the business of designing, manufacturing and selling motion control solutions, which include integrated system solutions as well as individual motion control products, to a broad spectrum of customers throughout the world primarily for the commercial motor, industrial motion control, medical, and aerospace and defense markets.

Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents

        Cash and cash equivalents include instruments which are readily convertible into cash (original maturities of three months or less) and which are not subject to significant risk of changes in interest rates. Cash flows from foreign currency transactions are translated using an average rate.

Accounts Receivable

        Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future.

        Activity in the allowance for doubtful accounts for 2011 and 2010 was as follows (in thousands):

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ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Inventories

        Inventories include costs of materials, direct labor and manufacturing overhead, and are stated at the lower of cost (first-in, first-out basis) or market, as follows (in thousands):

        The Company recorded provisions for excess and obsolete inventories of approximately $77,000 and $201,000, for 2011 and 2010, respectively.

Property, Plant and Equipment

        Property, plant and equipment is classified as follows (in thousands):

        Depreciation expense is provided using the straight-line method over the estimated useful lives of the assets. Amortization of building improvements is provided using the straight-line method over the life of the lease term or the life of the assets, whichever is shorter. Maintenance and repair costs are charged to operations as incurred. Major additions and improvements are capitalized. The cost and related accumulated depreciation of retired or sold property are removed from the accounts and the resulting gain or loss, if any, is reflected in earnings.

        Depreciation expense was approximately $1,439,000 and $1,264,000 in 2011 and 2010, respectively.

Intangible Assets

        Intangible assets, other than goodwill, are recorded at cost and are amortized over their estimated useful lives using the straight-line method.

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ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of Long-Lived Assets

        The Company reviews the carrying values of its long-lived assets, including property, plant and equipment and intangible assets, whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Long-lived assets are carried at historical cost if the projected cash flows from their use will recover their carrying amounts on an undiscounted basis and without considering interest. If projected cash flows are less than their carrying value, the long-lived assets must be reduced to their estimated fair value. Considerable judgment is required to project such cash flows and, if required, estimate the fair value of the impaired long-lived asset.

Goodwill

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

        The Company adopted FASB Accounting Standards Update ("ASU") No. 2011-08, "Intangibles—Goodwill and Other (ASC 350): Testing Goodwill for Impairment" in 2011, which specifies that an entity has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Under this new guidance, the Company assesses qualitative factors at least annually, or more frequently, if events or changes in circumstances indicate that the carrying value of the reporting unit is less than its carrying amount.

        Based on the qualitative assessment, if the Company determines it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company will calculate the fair value of the reporting unit. The Company estimates the fair value of the goodwill based on a discounted cash flow model using business plans and projections as the basis for expected future cash flows. The fair value estimate is based upon level three inputs from ASC Topic "Fair Value Measurements and Disclosures", as unobservable inputs in which there is little or no market data, which required the Company to develop its own assumptions.

Warranty

        The Company offers warranty coverage for its products for periods ranging from 12 to 18 months after shipment, with the majority of its products for 12 months. The Company estimates the costs of repairing products under warranty based on the historical average cost of the repairs. The assumptions used to estimate warranty accruals are reevaluated periodically in light of actual experience and, when appropriate, the accruals are adjusted. Estimated warranty costs are recorded at the time of sale of the related product, and are considered a cost of sale. Accrued warranty costs were $372,000 and $341,000 as of December 31, 2011 and 2010, respectively.

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ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Changes in the Company's reserve for product warranty claims during 2011 and 2010, were as follows (in thousands):

Accrued Liabilities

        Accrued liabilities consist of the following (in thousands):

Foreign Currency Translation

        The assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of foreign subsidiaries that occur as a result of changes in exchange rates between foreign subsidiaries' functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included in other comprehensive income, a component of stockholders' investment in the accompanying consolidated statement of stockholders' investment and comprehensive income. 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 Technology Unit ("TU") are included in the results of operations as incurred.

Engineering and Development Costs

        Engineering and development costs are expensed as incurred.

Revenue Recognition

        The Company recognizes revenue when products are shipped or delivered (shipping terms may be either FOB shipping point or destination) and title has passed to the customer, persuasive evidence of an arrangement exists, the selling price is fixed or determinable, and collectability is reasonably assured.

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ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basic and Diluted Income per Share from Continuing Operations

        Basic income per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding. Diluted income per share is determined by dividing the net income by the sum of (1) the weighted average number of common shares outstanding and (2) if not anti-dilutive, the effect of stock awards determined utilizing the treasury stock method. The dilutive effect of outstanding awards was 139,000 and 147,000 for the years 2011 and 2010, respectively. Stock awards to purchase 0 and 589,000 shares of common stock, were excluded from the calculation of diluted income per share for years 2011 and 2010, respectively, since the results would have been anti-dilutive.

Comprehensive Income

        Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by and distributions to stockholders.

Fair Value Accounting

        Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

        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:

        The Company's financial assets and liabilities, other than the pension plan assets, include cash and cash equivalents, accounts receivable, debt obligations, accounts payable, and accrued liabilities. The carrying amounts reported in the consolidated balance sheets for these assets approximate fair value because of the immediate or short-term maturities of these financial instruments.

        The following table presents the Company's financial assets and liabilities that are accounted for at fair value on a recurring basis as of December 31, 2011and December 31, 2010, respectively, by level within the fair value hierarchy (in '000s):

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ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)