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AMOT > SEC Filings for AMOT > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for ALLIED MOTION TECHNOLOGIES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ALLIED MOTION TECHNOLOGIES INC


14-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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.

Overview

Allied Motion has developed a long term corporate strategy with its sole focus in the motion control industry. 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. The products are manufactured at the Company's own facilities in North America, Europe and China, and at contract


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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., patient and wheelchair lifts, RV slide-outs, truck bed 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 (ATMs).

Allied Motion has established Solution Centers in North America and Europe to provide applications support and first point of contact for customers requiring motion control solutions. The application engineers draw upon the Technology/Know-How from all Allied Motion companies to provide the best solution for the customer, which may be a single component or a solution that utilizes several components to create an integrated solution from our various Technology Units ("TUs"). Allied Motion is currently in the process of renaming it's TU's to incorporate the Allied Motion name first, followed by the city the Units are managed from, to replace the previous company names in parenthesis below. The list is as follows:

†          Allied Motion Tulsa - Tulsa, Oklahoma (Emoteq Corporation)

†          Allied Motion Owosso - Owosso, Michigan (Motor Products Corporation)

†          Allied Motion Watertown - Watertown, New York (Stature
Electric, Inc.)

†          Allied Motion Amherst -  Amherst, New York and Waterloo, Ontario,
Canada (Allied Motion Amherst and Allied Motion Canada)

†          Allied Motion Dordrecht - Dordrecht, The Netherlands (Precision Motor
Technology B.V.)

†          Allied Motion Stockholm  - Stockholm, Sweden and Ferndown, UK
(Östergrens Elmotor AB)

†          Allied Motion Changzhou - Changzhou, China (Östergrens 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.

3rd Quarter Overview

In the third quarter of 2012, diluted earnings per share of $0.15 was down $0.03 per share, or 17% when compared to the third quarter of 2011, and net income of $1,321,000 was down 15% when compared to the 3rd quarter of 2011 . Revenues were down 11% when compared to the third quarter of last year. Three percent of the 11 percent decrease is due to the strengthening of the dollar against the Euro and Swedish Krona when compared to the third quarter of 2011. All markets were down in the third quarter when compared against the same quarter of last year.


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Orders for the quarter ended September 30, 2012 were $20.2 million compared to $34.4 million in the same quarter of last year, down 41%. Backlog at September 30, 2012 was $33.2 million, reflecting a 20% decrease over the backlog at the same time last year. Backlog is down 25% from the end of 2011. Backlog from quarter to quarter can fluctuate significantly based on customers' order patterns and the timing of placement of long-term blanket orders. Although a softening in the marketplace has occurred, we believe that the markets we serve are recognizing the value of the Company's motion solutions, and we continue to pursue opportunities that will increase the Company's revenues and profitability.

We continued our quarterly cash dividend program, with the Board of Directors declaring another $0.025 per share dividend for shareholders payable on November 23, 2012 to shareholders of record on November 12, 2012, totaling to $0.10 per share year to date through the October 2012 dividend. We believe that our cash flows can support our growth initiatives and reward our shareholders at the same time.

Strategy

Allied Motion Business Concept: Allied Motion leverages its superior expertise in electro-magnetic, mechanical and electronic motion technology/know-how to provide solutions with the most compact, differentiated products or systems that "change the game" and add value to our customers' products. Utilizing Allied's "One Team" Organization, our intent is to be the motion solutions leader in our selected target market segments and to focus on geographic markets where our local support provides an additional competitive advantage. We will enhance our competitive position through the creation of an Operational Excellence Team to lead the implementation of Allied Systematic Tools (AST) and drive continuous improvement in quality, cost, delivery and growth throughout the company.

Further development and promotion of our parent brand, Allied Motion, will continue in the future and a Global structure has been defined and is currently being implemented. An example of the Global structure is the One Team Sales Force which has developed well in North America and Europe, and we are currently establishing the same capability in Asia. Our Solution Centers differentiate us from our competition and will become functional in North America and Europe in 2012 and the foundation will be also established in Asia in 2012. Together with our One Team Sales Force, the Solution Center is the glue that allows Allied Motion to function and act as One Company, a common request from our customers.

Our platform based Product Line approach, which is where 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.

An emphasis is placed on Gross Margin improvement which requires cost reduction, new products emphasizing more complete Motion Control solutions and a support structure trained to sell, apply and service our products and customers. In order to provide additional solution capabilities, additional Electronic Motion Control product offerings are required and the company continues to add new capabilities and make investments in this area.

We also plan to take our commitment to "Allied Systematic Tools", or AST, to a new level this year 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



Quarter Ended September 30, 2012 compared to Quarter Ended September 30, 2011



                                         For the three months ended
                                                  June 30,                    Increase (decrease)
(in thousands)                             2012              2011               $               %
Revenues                              $       24,316    $       27,331    $       (3,015 )        (11 )%
Cost of products sold                         17,217            19,118            (1,901 )        (10 )%
Gross margin                                   7,099             8,213            (1,114 )        (14 )%
Gross margin percentage                           29 %              30 %               -            -

Operating costs and expenses:
Selling                                        1,143             1,320              (177 )        (13 )%
General and administrative                     2,474             3,030              (556 )        (18 )%
Engineering and development                    1,454             1,417                37            3 %
Amortization of intangible assets                126               185               (59 )        (32 )%
Total operating costs and expenses             5,197             5,952              (755 )        (13 )%
Operating income                               1,902             2,261              (359 )        (16 )%
Interest expense                                   2                21               (19 )
Other (income), net                              (42 )              78              (120 )
Income before income taxes                     1,942             2,162              (220 )        (10 )%
Provision for income taxes                      (621 )            (605 )              16            3 %
Net income                            $        1,321    $        1,557    $         (236 )        (15 )%

NET INCOME The Company reported net income of $1,321,000, or $0.15 per diluted share for the quarter ended September 30, 2012, compared to $1,557,000, or $0.18 per diluted share for the same quarter last year.

EBITDA AND ADJUSTED EBITDA EBITDA was $2,325,000 for the third quarter of 2012 compared to $2,722,000 for the same quarter last year. Adjusted EBITDA was $2,485,000 and $2,913,000 for the third quarter of 2012 and 2011, respectively. EBITDA and adjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, provision for income taxes, and depreciation and amortization. Adjusted EBITDA excludes stock compensation expense and certain nonrecurring items. See information included in "Non - GAAP Measures" below for a reconciliation of net income to EBITDA and adjusted EBITDA.

REVENUES Revenues were $24,316,000 for the quarter ended September 30, 2012 compared to $27,331,000 for the quarter ended September 30, 2011, an 11% decrease. The 11% decrease in revenues is due to lower sales in almost all markets with the exception of our vehicle market which experienced flat sales for the quarter against the same period of the prior year.

Sales to U.S. customers accounted for 58% and 56% of our sales in the quarter ended September 30, 2012 and 2011, respectively, with the balance to customers primarily in Europe, Sweden, Asia and Canada. Of the 11% decrease in sales, 8% is due to lower volumes, and 3% due to the Euro and Swedish Krona weakening against the dollar.

ORDER BACKLOG At September 30, 2012, order backlog was approximately $33.2 million, which is down 20% from the same time last year, and down 25% from the backlog at December 31, 2011.


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GROSS MARGINS Gross margin as a percentage of revenues was 29% and 30% for the quarters ended September 30, 2012 and 2011, respectively. Gross Margins are down 1% from last year primarily due to lower fixed overhead absorption based on the lower sales in the third quarter of 2012 compared the third quarter of 2011.

SELLING EXPENSES Selling expenses were $1,143,000 compared to $1,320,000 for the quarters ended September 30, 2012 and 2011, respectively. The 13% decrease is primarily due to a decrease in the Company's sales force in Europe and in sales incentive compensation when compared to the same quarter of last year.

GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses were $2,474,000 in the quarter ended September 30, 2012 compared to $3,030,000 in the quarter ended September 30, 2011. The 18% decrease is primarily a result of lower compensation expense, which includes incentive bonuses.

ENGINEERING AND DEVELOPMENT EXPENSES Engineering and development expenses were $1,454,000 in the third quarter of 2012 and $1,417,000 in the same quarter last year.

AMORTIZATION OF INTANGIBLE ASSETS Amortization of intangible assets expense was $126,000 in the quarter ended September 30, 2012 and $185,000 in the same quarter last year. The 32% decrease is primarily due to certain intangible assets becoming fully amortized in the third quarter of 2012.

INCOME TAXES Provision for income taxes was $621,000 and $605,000 for the quarters ended September 30, 2012 and 2011, respectively. The effective rate used to record income taxes is based on projected results for the fiscal year. The effective income tax rate as a percentage of income before income taxes was 32% and 28% for the quarters ended September 30, 2012 and 2011, respectively. The effective tax rate is lower than the statutory rate primarily due to differences in state and foreign tax rates. The effective rate is higher than the same quarter of last year primarily due to changes in the income mix by jurisdiction.


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Nine Months Ended September 30, 2012 compared to Nine Months Ended September 30, 2011

                                       For the nine months ended
                                             September 30,                 Increase (decrease)
(in thousands)                           2012             2011               $                %
Revenues                             $      77,999    $      82,917    $      (4,918 )           (6 )%
Cost of products sold                       55,112           57,955           (2,843 )           (5 )%
Gross margin                                22,887           24,962           (2,075 )           (8 )%
Gross margin percentage                         29 %             30 %              -             (1 )%

Operating costs and expenses:
Selling                                      3,798            4,271             (473 )          (11 )%
General and administrative                   8,305            9,390           (1,085 )          (12 )%
Engineering and development                  4,570            4,501               69              2 %
Amortization of intangible assets              466              552              (86 )          (16 )%
Total operating expenses                    17,139           18,714           (1,575 )           (8 )%
Operating income                             5,748            6,248             (500 ))          (8 )%
Interest expense                                12               68              (56 )
Other (income) expense , net                  (338 )             56             (394 )
Income before income taxes                   6,074            6,124              (50 )           (1 )%
Provision for income taxes                  (1,778 )         (1,873 )            (95 )           (5 )%
Net income                           $       4,296    $       4,251    $          45              1 %

NET INCOME The Company reported net income of $4,296,000 or $0.50 per diluted share for the nine months ended September 30, 2012, compared to $4,251,000 or $0.50 per diluted share for the nine months ended September 30, 2011.

EBITDA AND ADJUSTED EBITDA EBITDA was $7,447,000 for the nine months ended September 30, 2012 compared to a $7,823,000 for the same period last year. Adjusted EBITDA was $7,830,000 and $8,337,000 for the nine months ended September 30, 2012 and 2011, respectively. EBITDA and Adjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, provision for income taxes, and depreciation and amortization. Adjusted EBITDA excludes stock compensation expense and certain nonrecurring items. See information included in "Non - GAAP Measures" below for a reconciliation of net income to EBITDA and Adjusted EBITDA.

REVENUES Revenues were $77,999,000 for the nine months ended September 30, 2012 compared to $82,917,000 for the nine months ended September 30, 2011. The 6% decrease in revenues reflects lower sales into the industrial, distribution and aerospace and defense markets, partially offset by increased sales into the medical and vehicle markets, with other markets remaining flat against the same period of the prior year.

Sales to U.S. customers accounted for 56% and 53% of our sales in the first nine months of 2012 and 2011, respectively, with the balance to customers primarily in Europe, Sweden, Asia and Canada. Of the 6% decrease in sales, 3% is due to the weakening of the Euro and the Swedish Krona against the dollar and 3.0% is due to lower volumes.

GROSS MARGINS Gross margin as a percentage of revenues was 29% and 30% for the nine months ended September 30, 2012 and 2011, respectively. Gross Margins are down from last year primarily due to lower fixed overhead absorption based on the lower sales in the first nine months of 2012 compared to the same period last year.


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SELLING EXPENSES Selling expenses were $3,798,000 and $4,271,000 for the nine months ended September 30, 2012 and 2011 respectively. The 11% decrease is primarily due to a decrease in the Company's sales force in Europe and in sales incentive compensation when compared to the same quarter of last year.

GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses were $8,305,000 for the nine months ended September 30, 2012 compared to $9,390,000 for the nine months ended September 30, 2011. The 12% decrease is primarily a result of lower compensation expense, which includes incentive bonuses.

ENGINEERING AND DEVELOPMENT EXPENSES Engineering and development expenses were $4,570,000 for the nine months ended September 30, 2012 and $4,501,000 for the same period last year.

AMORTIZATION OF INTANGIBLE ASSETS Amortization of intangible assets was $466,000 for the nine months ended September 30, 2012 and $552,000 for the same period last year. The 16% decrease is the result of certain intangible assets becoming fully amortized in the third quarter of 2012.

OTHER INCOME, NET Other income was $338,000 for the nine months ended September 30, 2012. The income reported is primarily due to payment received from a former landlord for early termination of the Company's building lease in Sweden, net of moving expenses.

INCOME TAXES Provision for income taxes was $1,778,000 and $1,873,000 for the nine months ended September 30, 2012 and 2011, respectively. The effective rate used to record income taxes is based on projected results for the fiscal year. The effective income tax rate as a percentage of income before income taxes was 29% and 31% for the nine months ended September 30, 2012 and 2011, respectively. The effective tax rate is lower than the statutory rate primarily due to differences in state and foreign tax rates. The effective rate is lower over the same period of last year primarily due to change in the income mix by jurisdiction.

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 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. For the quarter ended September 30, 2012, there are no nonrecurring items. For the nine months ended September 30, 2012, a charge of $238,000 in the first quarter to replace an incorrect electronic component, and the income from a former landlord in the second quarter of $301,000, are excluded from Adjusted EBITDA.

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.


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The Company's calculation of EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2012 and 2011 is as follows (in thousands):

                                    For the three months        For the nine months
                                    ended September 30,         ended September 30,
                                    2012           2011          2012          2011
Net income                       $     1,321    $     1,557   $     4,296    $  4,251
Interest expense                           2             21            12          68
. . .
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