10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2018

Commission File Number 0-04041

ALLIED MOTION TECHNOLOGIES INC.

(Exact name of Registrant as Specified in Its Charter)

Colorado
(State or other jurisdiction of
incorporation or organization) 84-0518115
(I.R.S. Employer
Identification No.)

495 Commerce Drive, Amherst, New York
(Address of principal executive offices) 14228
(Zip Code)

(716) 242-8634

(Registrant’s Telephone Number, Including Area Code)

(Former Address, if Changed Since Last Report)

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 ninety (90) days.  Yes x  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 x  No o

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

Large accelerated filer o Accelerated filer x Non-accelerated filer o
(Do not check if a
smaller reporting
company) Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

Number of Shares of the only class of Common Stock outstanding:  9,475,078 as of August 1, 2018

ALLIED MOTION TECHNOLOGIES INC.

INDEX

			Page No.
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets — Unaudited	1
		Condensed Consolidated Statements of Operations and Comprehensive Income — Unaudited	2
		Condensed Consolidated Statements of Cash Flows — Unaudited	3
		Notes to Condensed Consolidated Financial Statements - Unaudited	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	25
PART II.OTHER INFORMATION
	Item 1A.	Risk Factors	25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
	Item 5.	Other Information	26
	Item 6.	Exhibits	26

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

	June 30,  2018			December 31,  2017
Assets
Current assets:
Cash and cash equivalents	$	15,329		$	15,590
Trade receivables, net of allowance for doubtful accounts of $487 and $341 at June 30, 2018 and December 31, 2017, respectively	41,267			31,822
Inventories	41,098			32,568
Prepaid expenses and other assets	3,590			3,460
Total current assets	101,284			83,440
Property, plant and equipment, net	40,115			38,403
Deferred income taxes	53			14
Intangible assets, net	33,828			32,073
Goodwill	35,121			29,531
Other long term assets	4,789			4,461
Total assets	$	215,190		$	187,922
Liabilities and Stockholders’ Equity
Current liabilities:
Debt obligations	453			461
Accounts payable	22,426			15,351
Accrued liabilities	15,030			14,270
Total current liabilities	37,909			30,082
Long-term debt	64,485			52,694
Deferred income taxes	3,305			3,609
Pension and post-retirement obligations	4,705			4,667
Other long term liabilities	9,261			9,523
Total liabilities	119,665			100,575
Stockholders’ Equity:
Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding	—			—
Common stock, no par value, authorized 50,000 shares; 9,475 and 9,427 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively	32,315			31,051
Retained earnings	69,790			61,882
Accumulated other comprehensive loss	(6,580		)	(5,586		)
Total stockholders’ equity	95,525			87,347
Total Liabilities and Stockholders’ Equity	$	215,190		$	187,922

See accompanying notes to condensed consolidated financial statements.

1

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share data)

(Unaudited)

	For the three months ended						For the six months ended
	June 30,						June 30,
	2018			2017			2018			2017
Revenues	$	79,981		$	60,335		$	156,557		$	121,689
Cost of goods sold	56,464			42,454			110,486			86,107
Gross profit	23,517			17,881			46,071			35,582
Operating costs and expenses:
Selling	2,943			2,710			5,640			5,313
General and administrative	8,336			5,981			15,792			11,730
Engineering and development	4,963			4,404			9,918			8,595
Business development	165			—			316			—
Amortization of intangible assets	878			799			1,762			1,592
Total operating costs and expenses	17,285			13,894			33,428			27,230
Operating income	6,232			3,987			12,643			8,352
Other expense (income):
Interest expense	602			641			1,216			1,164
Other (income) expense, net	(200		)	80			(94		)	70
Total other expense, net	402			721			1,122			1,234
Income before income taxes	5,830			3,266			11,521			7,118
Provision for income taxes	(1,599		)	(1,039		)	(3,092		)	(2,234		)
Net income	$	4,231		$	2,227		$	8,429		$	4,884
Basic earnings per share:
Earnings per share	$	0.46		$	0.24		$	0.91		$	0.54
Basic weighted average common shares	9,268			9,165			9,241			9,120
Diluted earnings per share:
Earnings per share	$	0.45		$	0.24		$	0.90		$	0.53
Diluted weighted average common shares	9,356			9,265			9,321			9,250
Net income	$	4,231		$	2,227		$	8,429		$	4,884
Foreign currency translation adjustment	(3,532		)	3,105			(1,845		)	3,779
Change in accumulated income (loss) on derivatives	247			(137		)	851			(223		)
Comprehensive income	$	946		$	5,195		$	7,435		$	8,440

See accompanying notes to condensed consolidated financial statements.

2

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the six months ended
	June 30,
	2018			2017
Cash Flows From Operating Activities:
Net income	$	8,429		$	4,884
Adjustments to reconcile net income to net cash provided by operating activities (net of working capital acquired in 2018):
Depreciation and amortization	5,622			4,960
Deferred income taxes	(282		)	14
Stock compensation expense	1,094			954
Debt issue cost amortization recorded in interest expense	74			99
Other	133			(40		)
Changes in operating assets and liabilities:
Trade receivables	(7,639		)	(4,442		)
Inventories	(6,840		)	529
Prepaid expenses and other assets	(504		)	93
Accounts payable	5,788			(360		)
Accrued liabilities	1,511			692
Net cash provided by operating activities	7,386			7,383
Cash Flows From Investing Activities:
Purchase of property and equipment	(5,555		)	(2,677		)
Cash paid for acquisition, net of cash acquired	(13,312		)	—
Net cash used in investing activities	(18,867		)	(2,677		)
Cash Flows From Financing Activities:
Borrowings on lines-of-credit, net	14,252			—
Principal payments of long-term debt	(2,500		)	(6,000		)
Dividends paid to stockholders	(522		)	(473		)
Stock transactions under employee benefit stock plans	261			355
Net cash provided by (used in) financing activities	11,491			(6,118		)
Effect of foreign exchange rate changes on cash	(271		)	662
Net decrease in cash and cash equivalents	(261		)	(750		)
Cash and cash equivalents at beginning of period	15,590			15,483
Cash and cash equivalents at end of period	$	15,329		$	14,733

See accompanying notes to condensed consolidated financial statements.

3

ALLIED MOTION TECHNOLOGIES INC.

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 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, automotive control, 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 significant inter-company 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 accumulated other comprehensive income, a component of stockholders’ equity in the accompanying condensed consolidated balance sheets.  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 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 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, 2017 that was previously filed by the Company.

Reclassifications

Certain items in the prior year’s consolidated financial statements and notes to consolidated financial statements have been reclassified to conform to the 2018 presentation.

2.BUSINESS COMBINATION

As part of the growth strategy of the Company, on January 19, 2018, the Company purchased substantially all of the operating assets associated with the original equipment steering business of Maval Industries, LLC (“Maval”) for $13,312 in cash. Consistent with the Company’s strategy to provide higher level system solutions, the addition of the Maval OE steering (“Maval OE Steering”) product line enables Allied to provide a fully integrated steering system solution to its customers.

The Company is currently in a transition services agreement with Maval and is completing the production carve-out/separation of the businesses. Once the carve-out is complete, the business will be located entirely within its own dedicated facility in Twinsburg, OH.

4

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

The following table represents the preliminary purchase price allocation and summarizes the aggregate estimated fair value of the assets acquired:

	January 19,
	2018
Intangible assets	$	3,700
Goodwill	5,995
Assets acquired (net of liabilities assumed)	3,617
Fair value of net assets acquired	$	13,312

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.  None of the goodwill recognized is deductible for income tax purposes. The purchase price allocation is subject to further adjustment to reflect, among other things, any adjustments in accordance with the Purchase Agreement and finalization of the opening balance sheet, including adjustments for final valuations, including intangible assets.

3.REVENUE RECOGNITION

Performance Obligations

Performance Obligations Satisfied at a Point in Time

The Company’s standard delivery method is “free on board” shipping point. Consequently, 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 purchase order.

The Company satisfies its performance obligations under a contract with a customer by transferring goods and services in exchange for consideration from 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.

Performance Obligations Satisfied Over Time

The Company has certain contracts that have performance obligations that are satisfied over periods exceeding one year.  Determining a measure of progress requires management to make judgments that affect the timing of revenue recognized.

For a contract satisfied over time, revenue is recognized similarly to contracts satisfied at a point in time.  The Company transfers control and recognizes a sale when the Company ships the product from a manufacturing facility to a customer.  The only difference is that the shipments are not completed within a one-year timeframe.  The revenue recognized for the contracts satisfied over time were immaterial for the quarter and six months ended June 30, 2018.

The Company has determined that the above methods provide a faithful depiction of the transfer of goods to the customer.

Nature of Goods and Services

The Company sells component and integrated motion control 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, and other motion control-related products. The Company’s target markets include Vehicle, Medical, Aerospace & Defense and Electronics/Industrial.

5

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

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 accretes a contract liability. As the Company satisfies performance obligations and recognizes revenue from these contracts, interest expense is recognized simultaneously.  The Company does not have any contracts that include a significant financing component as of June 30, 2018.

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. A reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions is provided in Note 16, Segment Information.  The geography table below represents revenue by shipped from location.

	Three months ended		Six months ended
Target Market	June 30, 2018		June 30, 2018
Vehicle	$	31,193	$	63,354
Industrial/Electronics	28,073		51,965
Medical	9,838		20,482
Aerospace & Defense	8,558		16,369
Other	2,319		4,387
Total	$	79,981	$	156,557

	Three months ended		Six months ended
Geography	June 30, 2018		June 30, 2018
United States	$	46,484	$	90,654
Europe	32,947		64,779
Asia	550		1,124
Total	$	79,981	$	156,557

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 receivables, contract asset, and contract liability are as follows:

	Receivables		Contract Asset		Contract  Liability
Balance as of March 31, 2018	$	—	$	—	$	702
Balance as of June 30, 2018	—		—		623
Increase/(decrease)	$	—	$	—	$	(79	)

6

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

The difference between the opening and closing balances of the Company’s contract assets and 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.

Practical Expedients

Incremental costs of obtaining a contract - the Company elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less.

Remaining performance obligations - Company elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts that are one year or less, as the revenue is expected to be recognized within the next year.

The time value of money -  the Company elected not to adjust the promised amount of consideration for the effects of the time value of money for contracts in which the anticipated period between when the Company transfers the goods or services to the customer and when the customer pays is equal to one year or less.

4.INVENTORIES

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

	June 30,  2018			December 31,  2017
Parts and raw materials	$	29,962		$	24,910
Work-in-process	6,916			5,984
Finished goods	8,552			6,075
	45,430			36,969
Less reserves	(4,332		)	(4,401		)
Inventories	$	41,098		$	32,568

7

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):

	June 30,  2018			December 31,  2017
Land	$	986		$	993
Building and improvements	11,003			10,678
Machinery, equipment, tools and dies	53,028			49,083
Furniture, fixtures and other	13,835			12,931
	78,852			73,685
Less accumulated depreciation	(38,737		)	(35,282		)
Property, plant and equipment, net	$	40,115		$	38,403

Depreciation expense was approximately $1,953 and $1,711 for the quarters ended June 30, 2018 and 2017, respectively.   For the six months ended June 30, 2018 and 2017, depreciation expense was approximately $3,860 and $3,368, respectively.

6.GOODWILL

The change in the carrying amount of goodwill for the three months ended June 30, 2018 and year ended December 31, 2017 is as follows (in thousands):

	June 30,			December 31,
	2018			2017
Beginning balance	$	29,531		$	27,522
Goodwill acquired (Note 2)	5,995			—
Effect of foreign currency translation	(405		)	2,009
Ending balance	$	35,121		$	29,531

7.INTANGIBLE ASSETS

Intangible assets on the Company’s condensed consolidated balance sheets consist of the following (in thousands):

		June 30, 2018							December 31, 2017
	Life	Gross  Amount		Accumulated  amortization			Net Book  Value		Gross  Amount		Accumulated  amortization			Net Book  Value
Customer lists	8 - 17 years	$	42,200	$	(13,982	)	$	28,218	$	38,659	$	(12,721	)	$	25,938
Trade name	10 - 12 years	6,178		(3,042		)	3,136		6,213		(2,798		)	3,415
Design and technologies	10-12 years	5,024		(2,565		)	2,459		5,147		(2,443		)	2,704
Patents	17 years	24		(9		)	15		24		(8		)	16
Total		$	53,426	$	(19,598	)	$	33,828	$	50,043	$	(17,970	)	$	32,073

Intangible assets resulting from the acquisition of the Maval OE Steering business were approximately $3,700 (Note 2).  The intangible assets acquired consist of customer lists (the valuation and useful life of which have not been finalized).

Amortization expense for intangible assets was $878 and $799 for the quarters ending June 30, 2018 and 2017, respectively.  For the six months ended June 30, 2018 and 2017, amortization expense was $1,762 and $1,592, respectively.

8

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 June 30, 2018 is as follows (in thousands):

	Estimated  Amortization  Expense
Remainder of 2018	$	1,747
2019	3,493
2020	3,493
2021	3,234
2022	3,234
2023	3,152
Thereafter	15,475
Total estimated amortization expense	$	33,828

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 six months ended June 30, 2018, 56,499 shares of unvested restricted stock were awarded at a weighted average market value of $33.84.  Of the restricted shares granted, 30,603 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 six months ended June 30, 2018:

	Number of  shares
Outstanding at beginning of period	221,968
Awarded	56,499
Vested	(56,681	)
Forfeited	(18,417	)
Outstanding at end of period	203,369

Stock based compensation expense, net of forfeitures of $598 and $488 was recorded for the quarter ended June 30, 2018 and 2017, respectively.  For the six months ended June 30, 2018 and 2017, stock compensation expense, net of forfeitures, of $1,094 and $954 was recorded, respectively.

9

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

9.ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

	June 30, 2018		December 31, 2017
Compensation and fringe benefits	$	8,168	$	7,459
Warranty reserve	822		922
Income taxes payable	1,969		2,397
Other accrued expenses	4,071		3,492
	$	15,030	$	14,270

10.DEBT OBLIGATIONS

Debt obligations consisted of the following (in thousands):

	June 30, 2018			December 31, 2017
Current Borrowings
China Credit Facility (4.7% at June 30, 2018)	$	453		$	461
Current borrowings	$	453		$	461
Long-term Debt
Revolving Credit Facility, long term (1)	$	64,982		$	53,266
Unamortized debt issuance costs	(497		)	(572		)
Long-term debt	$	64,485		$	52,694

(1)  The effective rate of the Revolver is 3.4% at June 30, 2018.

Credit Agreement

On October 28, 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) for a $125,000 revolving credit facility (the “Revolving Credit Facility”). The Revolving Facility includes a $50,000 accordion amount and has an initial term of five years.

Borrowings under the Revolving Credit Facility are subject to terms defined in the Credit Agreement.  Borrowings bear interest at the LIBOR Rate plus a margin of 1.00% to 2.25% or the Prime Rate plus a margin of 0% to 1.25%, in each case depending on the Company’s ratio of total funded indebtedness to Consolidated EBITDA (the “Total Leverage Ratio”). At June 30, 2018, the applicable margin for LIBOR Rate borrowings was 1.50% 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 0.25% quarterly (currently 0.15%) on the unused portion of the Revolving Credit Facility, also based on the Company’s Total Leverage Ratio.

The Credit Agreement contains certain financial covenants related to minimum interest coverage and total leverage ratio at the end of each quarter.  The 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, consolidate or sell all or substantially all of its assets.  The Company was in compliance with all covenants at June 30, 2018.

Other

The China Facility provides credit of approximately $1,511 (Chinese Renminbi (“RMB”) 10,000).  The China Facility is used for working capital and capital equipment needs at the Company’s China operations.  The average balance for 2018 was $471 (RMB 3,000).  At June 30, 2018, there was approximately $1,058 (RMB 7,000) available under the facility.

10

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

11.DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risk 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, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and 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 receipt or 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 receipts and its known or expected cash payments principally related to the Company’s investments and 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. During October 2013, the Company entered into two identical interest rate swaps with a combined notional of $25,000 that amortize quarterly to a notional of $6,673 at the September 2018 maturity.  One of these interest rate swaps is currently active.  The Company terminated the other interest rate swap during October 2016 as part of its debt refinancing.  In February 2017, the Company entered into three interest rate swaps with a combined notional of $40,000 that matures in February 2022.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  During 2018 and 2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.  There was no hedge ineffectiveness recorded in the Company’s earnings during the quarters ended June 30, 2018 and 2017.

During 2018, the Company estimates that an additional $168 will be reclassified as a decrease to interest expense. 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 June 30, 2018 and December 31, 2017 (in thousands):

		Asset Derivatives					Liabilty Derivatives
Derivatives designated	Balance	Fair value as of:					Fair value as of:
as hedging instruments	Sheet Location	June 30, 2018		December 31, 2017		Balance Sheet Location	June 30, 2018		December 31, 2017
Interest rate products	Other assets	$	1,047	$	196	Other liabilities	$	—	$	—

The table below presents the effect of cash flow hedge accounting on accumulated other comprehensive income (OCI) for the quarters ended June 30, 2018 and 2017 (in thousands):

	Amount of gain (loss) recognized in OCI on derivative					Amount of gain (loss) recognized in OCI on derivative
Derivatives in cash flow	Three months ended June 30,					Six months ended June 30,
hedging relationships	2018		2017			2018		2017
Interest rate products	$	247	$	(249	)	$	815	$	(383	)

11

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

Location of gain (loss) reclassified from accumulated	Amount of gain (loss) reclassified from accumulated OCI into income (effective portion)					Amount of gain (loss) reclassified from accumulated OCI into income (effective portion)
	Three months ended June 30,					Six months ended June 30,
OCI into income	2018		2017			2018			2017
Interest expense	$	—	$	(48	)	$	(36	)	$	(112	)

The table below presents the effect of the Company’s derivative financial instruments on the condensed consolidated statement of income and comprehensive income for the three and six months ended June 30, 2018 and 2017:

Derivatives designated as hedging instruments	Balance Sheet Location	Total amounts of income and expense line items presented that reflect the effects of cash flow hedges recorded				Total amounts of income and expense line items presented that reflect the effects of cash flow hedges recorded
		Three months ended June 30,				Six months ended June 30,
		2018		2017		2018		2017
Interest rate products	Other assets	$	602	$	641	$	1,216	$	1,164

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of June 30, 2018 and December 31, 2017. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the condensed consolidated balance sheets.

			Gross amounts		Net amounts of
As of June 30, 2018	Gross amounts of recognized assets		offset in the condensed consolidated balance sheets		assets presented in the condensed consolidated balance sheets		Gross amounts not offset in the condensed consolidated balance sheets
							Financial instruments		Cash collateral received		Net amount
Derivatives	$	1,047	$	—	$	1,047	$	—	$	—	$	1,047

			Gross amounts		Net amounts of
As of December 31, 2017	Gross amounts of recognized assets		offset in the condensed consolidated balance sheets		assets presented in the condensed consolidated balance sheets		Gross amounts not offset in the condensed consolidated balance sheets
							Financial instruments		Cash collateral received		Net amount
Derivatives	$	196	$	—	$	196	$	—	$	—	$	196

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.

12.INCOME TAXES

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 27.4% and 31.8% in the second quarter 2018 and 2017, respectively. The effective tax rate is net of a discrete tax benefit of (0.5%) and (1.5%) for the second

12

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

quarters of 2018 and 2017, respectively, related primarily to the recognition of excess tax benefits for share-based payment awards.   For the six months ended June 30, 2018 and 2017, the effective income tax rate as a percentage of income before income taxes was 26.8% and 31.4%, respectively.  For the six-month periods ending June 30, 2018 and 2017, the effective rate is net of a discrete tax benefit of (1.4%) and (1.9%), respectively, related primarily to the recognition of excess tax benefits for share-based payment awards.

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 US and foreign tax rates and the mix of foreign and domestic income.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The provision of the Act reduces the US federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act. The Company is applying the guidance in SAB 118 when accounting for the enactment-date effects of the Act.  At June 30, 2018, the Company has not completed the accounting for all of the tax effects of the Act; however, in certain cases, as described below, aspects of the accounting are complete. Additionally, the Company has made a reasonable estimate of other effects. In other cases, the Company has not been able to make a reasonable estimate and continue to account for those items based on existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. As further discussed below, during the six-month period ended June 30, 2018, the Company did not recognize any adjustments to the provisional amounts recorded at December 31, 2017. In all cases, the Company will continue to make and refine our calculations as additional analysis is completed. Estimates may also be affected as we gain a more thorough understanding of the tax law. These changes could be material to income tax expense.

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The provisional amount of $(7) was recorded as of December 31, 2017 related to the remeasurement of certain deferred tax balances. Upon further analyses of certain aspects of the Act and refinement of the calculations during the six months ended June 30, 2018, we have not adjusted the provisional amount. The Company considers the enactment-date remeasurement of all other deferred tax assets and liabilities to be complete.

The one-time transition tax is based on total post-1986 earnings and profits (E&P) which had been previously deferred from US income taxes under previous US law. The Company recorded a provisional amount for the one-time transition tax liability for foreign subsidiaries, resulting in a transition tax liability of $3,140 being recorded at December 31, 2017. Upon further analyses of certain aspects of the Act and refinement of calculations for foreign subsidiaries during the three and six months ended June 30, 2018, we have not changed the provisional amount. The Company will continue to refine the E&P analysis and our calculations of the one-time transition tax, which could affect the measurement of this liability. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations outside the United States.

The Act subjects a US shareholder to tax on Global Intangible Low Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet determined our accounting policy. At June 30, 2018, the Company has included GILTI related to current-year operations only in our annual effective tax rate and has not provided additional GILTI on deferred items.

Refer to Note 17 — Recent Accounting Pronouncements for discussion of ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

13

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

13.ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated Other Comprehensive Income for the quarter ended June 30, 2018 and 2017 is comprised of the following (in thousands):

	Defined Benefit  Plan Liability			Cash Flow  Hedges		Foreign Currency  Translation  Adjustment			Total
At March 31, 2018	$	(945	)	$	800	$	(3,150	)	$	(3,295	)
Unrealized gain on cash flow hedges	—			247		—			247
Amounts reclassified from AOCI	—			—		—			—
Foreign currency translation loss	—			—		(3,532		)	(3,532		)
At June 30, 2018	$	(945	)	$	1,047	$	(6,682	)	$	(6,580	)

	Defined Benefit  Plan Liability			Cash Flow  Hedges			Foreign Currency  Translation  Adjustment			Total
At March 31, 2017	$	(822	)	$	(116	)	$	(10,477	)	(11,415		)
Unrealized loss on cash flow hedges	—			(249		)	—			(249		)
Amounts reclassified from AOCI	—			112			—			112
Foreign currency translation gain	—			—			3,105			3,105
At June 30, 2017	$	(822	)	$	(253	)	$	(7,372	)	$	(8,447	)

Accumulated Other Comprehensive Income for the six months ended June 30, 2018 and 2017 is comprised of the following (in thousands):

	Defined Benefit  Plan Liability			Cash Flow  Hedges		Foreign Currency  Translation  Adjustment			Total
At December 31, 2017	$	(945	)	$	196	$	(4,837	)	$	(5,586	)
Unrealized gain on cash flow hedges	—			815		—			815
Amounts reclassified from AOCI	—			36		—			36
Foreign currency translation loss	—			—		(1,845		)	(1,845		)
At June 30, 2018	$	(945	)	$	1,047	$	(6,682	)	$	(6,580	)

	Defined Benefit  Plan Liability			Cash Flow  Hedges			Foreign Currency  Translation  Adjustment			Total
At December 31, 2016	$	(822	)	$	(30	)	$	(11,151	)	$	(12,003	)
Unrealized loss on cash flow hedges	—			(383		)	—			(383		)
Amounts reclassified from AOCI	—			160			—			160
Foreign currency translation gain	—			—			3,779			3,779
At June 30, 2017	$	(822	)	$	(253	)	$	(7,372	)	$	(8,447	)

The realized gains relating to the Company’s interest rate swap hedges were reclassified from accumulated other comprehensive income and included in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.

14

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

14.DIVIDENDS PER SHARE

The Company declared a quarterly dividend of $0.025 per share in the first quarter of 2018 and $0.030 per share in the second quarter of 2018.  Dividends declared for the first and second quarters of 2017 were at $0.025 per share.  Total dividends declared in the first six months of 2018 and 2017 were $520 and $473, respectively.

15.EARNINGS PER SHARE

Basic and diluted weighted-average shares outstanding are as follows:

	Three months ended June 30,		Six months ended June 30,
	2018	2017	2018	2017
Basic weighted average shares outstanding	9,268	9,165	9,241	9,120
Dilutive effect of equity awards	88	100	80	130
Diluted weighted average shares outstanding	9,356	9,265	9,321	9,250

For the three and six months ended June 30, 2018 there were 87,203 and 80,671 common shares, respectively, subject to equity-based awards excluded from the calculation of diluted earnings per share as they would be anti-dilutive.

16.SEGMENT INFORMATION

ASC Topic “Segment Reporting” requires disclosure of operating segments, which as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company operates in one segment for the manufacture and marketing of motion control products for original equipment manufacturers and end user applications.  In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.  Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue.  All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes.  Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying condensed consolidated financial statements and within this note.

The Company’s wholly owned foreign subsidiaries, located in The Netherlands, Sweden, Germany, Portugal, China and Mexico are included in the accompanying condensed consolidated financial statements.

Financial information related to the foreign subsidiaries is summarized below (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenues derived from foreign subsidiaries	$	33,497	$	24,810	$	65,903	$	50,095

Identifiable foreign assets were $87,451 and $84,652 as of June 30, 2018 and December 31, 2017, respectively.

Revenues derived from foreign subsidiaries and identifiable assets outside of the United States are primarily attributable to Europe.

15

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

Sales to customers outside of the United States by all subsidiaries were $38,395 and $27,550 during the quarters ended June 30, 2018 and 2017, respectively; and $74,74,698 and $55,721 for the six months ended June 30, 2018 and 2017, respectively.

For second quarter 2018 and 2017, one customer accounted for 20% and 18% of revenues, respectively; and for the year to date 2018 and 2017 for 20% and 19% of revenues, respectively. As of June 30, 2018, and December 31, 2017 this customer represented 21% and 15% of trade receivables, respectively.

17.RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” which is a comprehensive new revenue recognition model. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The Company adopted ASU 2014-09 and its amendments on a modified retrospective basis effective January 1, 2018. The adoption of ASU 2014-09 did not have a material impact on its consolidated financial statements. A significant majority of the Company’s revenue is recorded when it invoices customers and is largely aligned with the meeting of identified performance obligations under ASU 2014-09.  There is no material change in the Company’s revenue recognition after the implementation of the standard.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The Company early adopted ASU 2017-12 in the first quarter of 2018.  The implementation did not impact its consolidated financial statements other than requiring enhanced disclosures.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments affect all companies that must determine whether they have acquired or sold a business. The amendments are intended to help companies and evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide a more robust framework to use in determining when a set of assets and activities is a business. The new standard is effective for the Company beginning on January 1, 2018. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The objective of ASU 2016-15 is to reduce existing diversity in practice by addressing eight specific cash flow issues related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for the Company beginning on January 1, 2018. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

Recently issued accounting pronouncements

In February 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718).”  The objective of ASU 2018-7 is to expand the scope of the employee share-based payments guidance, which currently only includes share-based payments issued to employees, to also include share-based payments issued to nonemployees for goods and services. This guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect this guidance to have a material impact on its consolidated financial statements

In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, to address a specific consequence of the Tax Cuts and Jobs Act (the “Act”) by allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Act’s reduction of the U.S. federal corporate income tax rate. The ASU is effective for all entities for annual periods

16

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

beginning after December 15, 2018, with early adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. Management has not yet completed its assessment of the impact of the ASU on the Company’s 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, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance.

In June 2016, the FASB issued 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. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, which amends the FASB Accounting Standards Codification and creates Topic 842, “Leases.” The new topic supersedes Topic 840, “Leases,” and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2018. ASU 2016-02 mandates a modified retrospective transition method. The Company is currently evaluating its leasing arrangements and determining what requirements will be necessary to implement the new standard. Based on the results of the assessment, the Company will refine its internal policy to include criteria for evaluating the impact of the new standard and also implement appropriate refinements to business processes, systems and controls to support the requirements of this new standard in the second half of 2018. The Company continues to evaluate the impact this guidance will have on its consolidated financial statements.

17

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 to differ materially from the expected results described in the forward-looking statements. The risks and uncertainties include those associated with: the domestic and foreign general business and economic conditions in the markets we serve, including political and currency risks and adverse changes in local legal and regulatory environments; the introduction of new technologies and the impact of competitive products; the ability to protect the Company’s intellectual property; our ability to sustain, manage or forecast its growth and product acceptance to accurately align capacity with demand; the continued success of our customers and the ability to realize the full amounts reflected in our order backlog as revenue; the loss of significant customers or the enforceability of the Company’s contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise; our ability to meet the technical specifications of our customers; the performance of subcontractors or suppliers and the continued availability of parts and components; changes in government regulations; the availability of financing and our access to capital markets, borrowings, or financial transactions to hedge certain risks; the ability to attract and retain qualified personnel who can design new applications and products for the motion industry; the ability to implement our corporate strategies designed for growth and improvement in profits including to identify and consummate favorable acquisitions to support external growth and the development of new technologies; the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems; our the ability to control costs, including the establishment and operation of low cost region manufacturing and component sourcing capabilities; and the additional risk factors discussed under “Item 1A. Risk Factors” in Part II of this report and in the Company’s Annual Report in Form 10-K. 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. Any forward-looking statement speaks only as of the date on which it is made.  New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. 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 believed to have a reasonable basis; however, the Company makes no assurance that expectations, beliefs or projections will be achieved.

Overview

We are a global company that designs, manufactures and sells precision and specialty motion control components and systems used in a broad range of industries. Our target markets include Vehicle, Medical, Aerospace & Defense, Electronics and Industrial. We are headquartered in Amherst, NY, and have operations in the United States, Canada, Mexico, Europe and Asia. We are known worldwide for our expertise in electro-magnetic, mechanical and electronic motion technology. We sell component and integrated motion control solutions to end customers and original equipment manufacturers (“OEMs”) through our own direct sales force and authorized manufacturers’ representatives and distributors. Our 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, and other motion control-related products.

Financial overview

Significantly higher revenues, reflecting growth across all the Company’s served markets led to leveraging of costs and expansion of margins.  Excluding the favorable effects of foreign currency exchange (FX), second quarter revenue was $77,724, up 29%.  For the six months ended June 30, 2018, excluding the favorable effects of FX, revenue was $150,267, up 24%.

We remain focused on executing our strategy for growth while streamlining the organization and emphasizing continuous improvement in quality, delivery, cost and innovation as we drive the One Allied approach and expand our value proposition for our customers. Solid strides continue to be made with our multi-product, fully integrated solutions that are leading to increased business.  Also, we continue to build a pipeline of exciting market-based application opportunities.  Sales cycles

18

are long and the time from being selected for the solution development to full rate production can be longer, yet we believe we are building a scalable foundation which can deliver strong returns on those investments.

Operating Results

Quarter ended June 30, 2018 compared to quarter ended June 30, 2017

	For the quarter ended							2018 vs. 2017
	June 30,							Variance
(in thousands)	2018			2017				$				%
Revenues	$	79,981		$		60,335		$		19,646		33	%
Cost of goods sold	56,464			42,454				14,010				33	%
Gross profit	23,517			17,881				5,636				32	%
Gross margin percentage	29.4		%	29.6			%
Operating costs and expenses:
Selling	2,943			2,710				233				9	%
General and administrative	8,336			5,981				2,355				39	%
Engineering and development	4,963			4,404				559				13	%
Business development	165			—				165				100	%
Amortization of intangible assets	878			799				79				10	%
Total operating costs and expenses	17,285			13,894				3,391				24	%
Operating income	6,232			3,987				2,245				56	%
Interest expense	602			641				(39			)	(6	)%
Other (income) expense	(200		)	80				(280			)	(350	)%
Total other expense	402			721				(319			)	(44	)%
Income before income taxes	5,830			3,266				2,564				79	%
Provision for income taxes	(1,599		)	(1,039			)	(560			)	54	%
Net Income	$	4,231		$	2,227			$	2,004			90		%
Effective tax rate	27.4		%	31.8			%	(4			)%	(14	)%
Diluted earnings per share	$	0.45		$	0.24			$	0.21			88		%
Bookings	$	86,238		$	65,754			$	20,484			31		%
Backlog	$	111,170		$	85,250			$	25,920			30		%

NET INCOME:  Net income increased during the second quarter due to a significant increase in revenues and the leveraging of fixed cost compared to the second quarter of 2017. The increase in revenue was partially offset by higher operating expenses, mainly additional incentive compensation expense and investments in E&D and the One Allied organizational buildout in support of our aggressive growth strategy.

EBITDA AND ADJUSTED EBITDA:  EBITDA was $9,263 for the second quarter of 2018 compared to $6,417 for the same quarter last year.  Adjusted EBITDA was $10,026 and $6,905 for the second quarter of 2018 and 2017, 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 also excludes stock compensation expense and certain other items.  Refer to information included in “Non - GAAP Measures” below for a reconciliation of net income to EBITDA and adjusted EBITDA.

REVENUES:  For the quarter, the increase in revenues reflects increased sales in all our served markets as well as the contribution from the acquisition made in January 2018.

19

Sales to U.S. customers were 52% of total sales for the quarter compared with 54% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.  The overall increase in revenue was due to a 29% volume increase and a 4% favorable currency impact.

ORDER BOOKINGS AND BACKLOG:  The increase in bookings in the second quarter of 2018 compared to the second quarter of 2017 is largely due to organic growth across all of the major markets served by the company. The acquisition of the Maval OE Steering business during the first quarter 2018 continues to contribute to the increased bookings. The increase of backlog as of June 30, 2018, compared to at June 30, 2017 was attributable to the same factors.

GROSS MARGIN:  Gross margin decreased 20 basis points to 29.4% for the second quarter of 2018 compared to 29.6% for the same quarter last year.  This is due to the dilutive impact of the acquisition of the Maval OE Steering business offset by the increased leveraging of fixed manufacturing costs across higher volume.

SELLING EXPENSES:  Selling expenses increased in the second quarter of 2018 compared to the same period of 2017 primarily due to increased investment and growth of the One Allied Sales Organization.  Selling expenses as a percentage of revenues were 3.7% in the second quarter of 2018 compared to 4.5% for the same period last year.

GENERAL AND ADMINISTRATIVE EXPENSES:  General and administrative expenses increased by 39% in the second quarter 2018 from the second quarter 2017 largely due to higher stock compensation expense and incentive compensation expense associated with improved performance. As a percentage of revenues, general and administrative expenses remained constant near 10% for the period ended June 30, 2018 compared to the same period in 2017.

ENGINEERING AND DEVELOPMENT EXPENSES:  Engineering and development expenses increased by 13% in the second quarter of 2018 compared to the same quarter last year, however decreased as a percentage of sales.  The increase is primarily due to the continued ramp up of development projects to meet the future needs of customers and target markets. As a percentage of revenues, engineering and development expenses were 6% and 7% for the second quarter of 2018 and 2017, respectively.

BUSINESS DEVELOPMENT COSTS: The Company incurred $165 of business development costs related to the acquisition of Maval OE Steering business and activity associated with other M&A opportunities. The Company did not incur any business development costs for the second quarter of 2017.

AMORTIZATION OF INTANGIBLE ASSETS:  Amortization expense increased 10% to $878 in the second quarter of 2018 compared to the second quarter of 2017 due to the increase in intangible assets from the acquisition of the Maval OE Steering business.

INCOME TAXES:  The effective income tax rate as a percentage of income before income taxes was 27.4% and 31.8% in the second quarter 2018 and 2017, respectively.  The effective tax rate for the second quarters of 2018 and 2017 is net of a discrete tax benefit of (0.5%) and (1.5%), respectively, related primarily to the recognition of excess tax benefits for share-based payment awards.  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 US and foreign tax rates and the mix of foreign and domestic income.

20

Six months ended June 30, 2018 compared to six months ended June 30, 2017

	For the six months ended						2018 vs. 2017
	June 30,						Variance
(in thousands)	2018			2017			$				%
Revenues	$	156,557		$	121,689		$	34,868			29	%
Cost of goods sold	110,486			86,107			24,379				28	%
Gross profit	46,071			35,582			10,489				29	%
Gross margin percentage	29.4		%	29.2		%
Operating costs and expenses:
Selling	5,640			5,313			327				6	%
General and administrative	15,792			11,730			4,062				35	%
Engineering and development	9,918			8,595			1,323				15	%
Business development	316			—			316				100	%
Amortization of intangible assets	1,762			1,592			170				11	%
Total operating costs and expenses	33,428			27,230			6,198				23	%
Operating income	12,643			8,352			4,291				51	%
Interest expense	1,216			1,164			52				4	%
Other (income) expense	(94		)	70			(164			)	(234	)%
Total other expense	1,122			1,234			(112			)	(9	)%
Income before income taxes	11,521			7,118			4,403				62	%
Provision for income taxes	(3,092		)	(2,234		)	(858			)	38	%
Net Income	$	8,429		$	4,884		$		3,545		73	%
Effective tax rate	26.8		%	31.4		%	(5			)%	(14	)%
Diluted earnings per share	$	0.90		$	0.53		$		0.37		70	%
Bookings	$	166,937		$	126,213		$		40,724		32	%
Backlog	$	111,170		$	85,250		$		25,920		30	%

NET INCOME:  Net income increased during 2018 reflecting a significant increase in revenues and the leveraging of fixed cost compared to the first two quarters of 2018.

EBITDA AND ADJUSTED EBITDA:  EBITDA was $18,359 for 2018 compared to $13,242 last year.  Adjusted EBITDA was $19,769 and $14,196 for 2018 and 2017, 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 also excludes stock compensation expense and certain other items.  Refer to information included in “Non - GAAP Measures” below for a reconciliation of net income to EBITDA and adjusted EBITDA.

REVENUES:  For 2018, the increase in revenues reflects increased sales in all our served markets.

Sales to U.S. customers were 52% of total sales for 2017 compared with 54% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.  Sales volume increased by 24% for the six months ended June 30, 2018, and there was a 5% favorable currency impact.

ORDER BOOKINGS AND BACKLOG:  The increase in orders in 2018 compared to 2017 is largely due to organic growth across all the major markets served by the company, along with the acquisition of the Maval OE Steering business. The increase in backlog in 2018 compared to 2017 was attributable to the same factors.

GROSS MARGIN:  Gross margin increased 20 basis points to 29.4% in 2018 compared to 29.2% in 2017. This is due to the leveraging of fixed manufacturing costs across the increased volume along with favorable product mix dynamics.

21

SELLING EXPENSES:  Selling expenses increased in 2018 compared to 2017 primarily due to increased investment in and focused growth of the One Allied Sales Organization.  Selling expenses as a percentage of revenues were consistent near 4% for 2018 and 2017.

GENERAL AND ADMINISTRATIVE EXPENSES:  General and administrative expenses increased by 35% in 2018 compared to 2017 largely due to increased headcount in support of our growth strategy and incentive compensation expense associated with improved performance. As a percentage of revenues, general and administrative expenses were 10% for 2018 and 2017.

ENGINEERING AND DEVELOPMENT EXPENSES:  Engineering and development expenses increased by 15% in 2018 compared to 2017.   The increase is primarily due to the continued ramp up of development projects to meet the future needs of target markets, particularly at our European locations as well as supporting growing customer application development needs.  As a percentage of revenues, engineering and development expenses were 6% for 2018, down from 7% for 2017.

BUSINESS DEVELOPMENT COSTS:  The Company incurred $316 of business development costs related to the acquisition of Maval OE Steering business and activity associated with other M&A opportunities for 2018.

AMORTIZATION OF INTANGIBLE ASSETS:  Amortization expense increased 11% in 2018 compared to 2017 due to the increase in intangible assets from the acquisition of the Maval OE Steering business.

INCOME TAXES:  The effective income tax rate as a percentage of income before income taxes was 26.8% and 31.4% for the six months ended June 30, 2018 and 2017, respectively.  The effective tax rate is net of a discrete tax benefit of (1.4%) and (1.9%), respectively, related primarily to the recognition of excess tax benefits for share-based payment awards.  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 US and foreign tax rates and the mix of foreign and domestic income.

Non-GAAP Measures

EBITDA and Adjusted EBITDA are provided for information purposes only and are not measures of financial performance under GAAP.

Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information in evaluating the operating results of the Company as distinct from results that include items that are not indicative of ongoing operating results; in particular, those charges and credits that are not directly related to operating unit performance, and that are not a helpful measure of the performance of our underlying business particularly in light of their unpredictable nature.  This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for net income determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.  In addition, supplemental presentation should not be construed as an inference that the Company’s future results will be unaffected by similar adjustments to net income determined in accordance with GAAP.

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 income or expenses which are not indicative of the ongoing performance of the Company.  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.

22

The Company’s calculation of EBITDA and Adjusted EBITDA for the quarters ended June 30, 2018 and 2017 is as follows (in thousands):

	For the three months ended				For the six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income as reported	$	4,231	$	2,227	$	8,429	$	4,884
Interest expense	602		641		1,216		1,164
Provision for income tax	1,599		1,039		3,092		2,234
Depreciation and amortization	2,831		2,510		5,622		4,960
EBITDA	9,263		6,417		18,359		13,242
Stock compensation expense	598		488		1,094		954
Business development costs	165		—		316		—
Adjusted EBITDA	$	10,026	$	6,905	$	19,769	$	14,196

Liquidity and Capital Resources

The Company’s liquidity position as measured by cash and cash equivalents decreased by $261 to a balance of $15,329 at June 30, 2018 from December 31, 2017.

	Six months ended
	June 30,						2018 vs. 2017
	2018			2017			$
Net cash provided by operating activities	$	7,386		$	7,383		$	3
Net cash used in investing activities	(18,867		)	(2,677		)	(16,190		)
Net cash provided by (used in) financing activities	11,491			(6,118		)	17,609
Effect of foreign exchange rates on cash	(271		)	662			(933		)
Net decrease in cash and cash equivalents	$	(261	)	$	(750	)	$	489

Operating cash flow is flat for the six months ended June 30, 2018 compared to 2017.  The increase in net income in 2018 is offset by increases in working capital needs due to the Maval OE Steering business acquisition and Company growth.

The significant cash used in investing activities in 2018 reflects the acquisition the Maval OE Steering business during the quarter.  Also during the six months ended June 30, 2018, purchases of property and equipment were $5,555 compared to $2,677 for the six months ended June 30, 2017.  Capital expenditures are expected to increase throughout 2018 to support our new contract wins along with our continued IT infrastructure enhancements. The Company expects to invest between $13 million and $16 million in capital expenditures during 2018.

The change in cash used in financing activities reflects the 2018 use of the revolver to partially finance the acquisition of the Maval OE Steering business.  During the second quarter 2018, we utilized our foreign revolver to make a $1,500 capital investment into our Changzhou operation to fund expansion and future capital spending in support of recently announced contract wins.  During the six months ended June 30, 2018, we made payments of $2,500 for our Revolving Facility obligation compared to $6,000 for the same period in 2017.  At June 30, 2018, we had $64,982 of obligations under the Revolving Facility.

The Credit Agreement contains certain financial covenants related to minimum interest coverage and total leverage ratio at the end of each quarter.  The Credit Agreement also includes other covenants and restrictions, including limits on the amount of additional indebtedness, and restrictions on the ability to merge, consolidate or sell all or substantially all our assets.  We were in compliance with all covenants at June 30, 2018.

As of June 30, 2018, the amount available to borrow under the Credit Agreement was approximately $60,018.

There were no additional borrowings for the China Facility balance for during the six months ended June 30, 2018 from December 31, 2017.  The balance at June 30, 2018 was $453 (RMB 3,000), and the available borrowings were approximately $1,058 (RMB 7,000).

23

The Company declared dividends of $0.025 per share during the first quarter 2018 and $0.030 per share during the second quarter 2018.  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 Credit Agreement.

Item 3.  Qualitative and Quantitative Disclosures about Market Risk

Foreign Currency

We have foreign operations in The Netherlands, Sweden, Germany, China, Portugal, Canada and Mexico, which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in Euros, Swedish Krona, Chinese Renminbi, Canadian dollar and Mexican pesos, respectively.  We continuously evaluate our foreign currency risk and will take action from time to time in order to best mitigate these risks.  A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency exposures would have had an impact of approximately $3,350 on our second quarter 2018 sales and $6,590 on our sales for the six months ended June 30, 2018.  This amount is not indicative of the hypothetical net earnings impact due to partially offsetting impacts on cost of sales and operating expenses in those currencies.  We estimate that foreign currency exchange rate fluctuations during the quarter ended June 30, 2018 increased sales in comparison to quarter ended June 30, 2017 by approximately $2,300.  For the six months ended June 30, 2018 we estimate that foreign currency exchange rate fluctuations increased sales by $6,300 compared to the six months ended June 30, 2017.

We translate all assets and liabilities of our foreign operations, where the U.S. dollar is not the functional currency, at the period-end exchange rate and translate sales and expenses at the average exchange rates in effect during the period.  The net effect of these translation adjustments is recorded in the Condensed Consolidated Financial Statements as Comprehensive Income.  The translation adjustment was a loss of approximately $3,500 and a gain of approximately $3,100 for the second quarter of 2018 and 2017, respectively.  For the six months ended June 30, 2018 and 2017, the translation adjustment was a loss of approximately $1,800 and a gain of approximately $3,800, respectively. Translation adjustments are not adjusted for income taxes as they relate to permanent investments in our foreign subsidiaries.  Net foreign currency transaction gains and losses included in other income, net amounted to a gain of $294 and a loss of $87 for the second quarter of 2018 and 2017, respectively.  For the six months ended June 30, 2018 and 2017, net foreign currency transaction gains and losses included in other income, net were a gain of $156 and a loss of $153, respectively.  A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency net assets would have had an impact of approximately $7,470 on our foreign net assets as of June 30, 2018.

Interest Rates

Interest rates on our Revolving Facility are based on the LIBOR plus a margin of 1.00% to 2.25% (currently 1.50%) or the Prime Rate plus a margin of 0% to 1.25% (currently 0.50%), in each case depending on the Company’s ratio of total funded indebtedness to Consolidated EBITDA. We use interest rate derivatives to add stability to interest expense and to manage our exposure to interest rate movements. We primarily use interest rate swaps as part of our 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. During October 2013, the Company entered into two interest rate swaps with a combined notional of $25,000 (representing 50% of the Term Loan balance at that time) that amortize quarterly to a notional of $6,673 at maturity. The notional amount changes over time as loan payments are made. As a requirement of the debt refinance, one of the swaps was liquidated.   In February 2017, we entered into three interest rate swaps with a combined notional of $40,000 that matures in February 2022.

As of June 30, 2018, we had $64,982 outstanding under the Revolving Facility, of which $43,337 is currently being hedged.  Refer to Note 10 of the Notes to Condensed Consolidated Financial Statements for additional information about our outstanding debt.  A hypothetical one percentage point (100 basis points) change in the Base Rate on the $21,645 of unhedged floating rate debt outstanding at June 30, 2018 would have an impact of approximately $54 on our interest expense for the second quarter 2018 and $108 on our interest expense for the six months ended June 30, 2018.

24

Item 4.  Controls and Procedures

Conclusion regarding the effectiveness of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2018. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on management’s evaluation of our disclosure controls and procedures as of June 30, 2018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting

During the quarter ended June 30, 2018, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Note regarding acquisition

In making our assessment of the Company’s internal control over financial reporting as of June 30, 2018, we have excluded the operations of the Maval OE Steering business. We are currently assessing the control environment of this acquired business. Our consolidated financial statements reflect the Maval OE Steering business results of operations from January 19, 2018

PART II.            OTHER INFORMATION

Item 1A.  RISK FACTORS

There have been no material changes to the risk factors disclosed in the Company’s Form 10-K for the year ended December 31, 2017, except to the extent factual information disclosed elsewhere in this form 10-Q relates to such risk factors.  For a full discussion of these risk factors, please refer to “Item 1A. Risk Factors” in the 2017 Annual Report in Form 10-K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Period	Number of  Shares  Purchased		Average Price  Paid per Share		Total Number of Shares  Purchased as Part of  Publicly Announced  Plans or Programs	Maximum Number of  Shares that May Yet Be  Purchased Under the  Plans or Programs
04/01/18 to 04/30/18	15,563	(1)	$	37.82	—	—
05/01/18 to 05/31/18	—		—		—	—
06/01/18 to 06/30/18	—		—		—	—
Total	15,563		$	37.82	—	—

(1)          As permitted under the Company’s equity compensation plan, these shares were withheld by the Company to satisfy tax withholding obligations for employees in connection with the vesting of stock.  Shares withheld for tax withholding obligations do not affect the total number of shares available for repurchase under any approved common stock repurchase plan.  At June 30, 2018, the Company did not have an authorized stock repurchase plan in place.

25

Item 5.  Other Information

None.

Item 6. Exhibits

(a)Exhibits

31.1Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101The following materials from Allied Motion Technologies Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations and comprehensive income, (iii) condensed consolidated statements of cash flows and (iv) the notes to the consolidated financial statements.

26

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE:	August 1, 2018	ALLIED MOTION TECHNOLOGIES INC.
		By:	/s/ Michael R. Leach
		Michael R. Leach
		Chief Financial Officer

27

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Richard S. Warzala, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Allied Motion Technologies Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:      August 1, 2018	/s/ Richard S. Warzala
	Richard S. Warzala
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Michael R. Leach, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Allied Motion Technologies Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:August 1, 2018	/s/ Michael R. Leach
	Michael R. Leach
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification of Periodic Financial Reports

Pursuant to 18 U.S.C. Section 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Allied Motion Technologies Inc. (the “Company”) certifies to his knowledge that:

(1)The Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2018 fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2)The information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:      August 1, 2018	/s/ Richard S. Warzala
	Richard S. Warzala
	Chief Executive Officer

EX-32.2

EXHIBIT 32.2

Certification of Periodic Financial Reports

Pursuant to 18 U.S.C. Section 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Allied Motion Technologies Inc. (the “Company”) certifies to his knowledge that:

(1)The Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2018 fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2)The information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:      August 1, 2018	/s/ Michael R. Leach
	Michael R. Leach
	Chief Financial Officer

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 01, 2018
Document and Entity Information
Entity Registrant Name	ALLIED MOTION TECHNOLOGIES INC
Entity Central Index Key	0000046129
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		9,475,078
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 15,329	$ 15,590
Trade receivables, net of allowance for doubtful accounts of $487 and $341 at June 30, 2018 and December 31, 2017, respectively	41,267	31,822
Inventories	41,098	32,568
Prepaid expenses and other assets	3,590	3,460
Total current assets	101,284	83,440
Property, plant and equipment, net	40,115	38,403
Deferred income taxes	53	14
Intangible assets, net	33,828	32,073
Goodwill	35,121	29,531
Other long term assets	4,789	4,461
Total assets	215,190	187,922
Current liabilities:
Debt obligations	453	461
Accounts payable	22,426	15,351
Accrued liabilities	15,030	14,270
Total current liabilities	37,909	30,082
Long-term debt	64,485	52,694
Deferred income taxes	3,305	3,609
Pension and post-retirement obligations	4,705	4,667
Other long term liabilities	9,261	9,523
Total liabilities	119,665	100,575
Stockholders' Equity:
Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding
Common stock, no par value, authorized 50,000 shares; 9,475 and 9,427 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively	32,315	31,051
Retained earnings	69,790	61,882
Accumulated other comprehensive loss	(6,580)	(5,586)
Total stockholders' equity	95,525	87,347
Total Liabilities and Stockholders' Equity	$ 215,190	$ 187,922

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
CONDENSED CONSOLIDATED BALANCE SHEETS
Trade receivables, allowance for doubtful accounts (in dollars)	$ 487	$ 341
Preferred stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred stock, authorized shares	5,000	5,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, authorized shares	50,000	50,000
Common stock, shares issued	9,475	9,427
Common stock, shares outstanding	9,475	9,427

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Revenues	$ 79,981	$ 60,335	$ 156,557	$ 121,689
Cost of goods sold	56,464	42,454	110,486	86,107
Gross profit	23,517	17,881	46,071	35,582
Operating costs and expenses:
Selling	2,943	2,710	5,640	5,313
General and administrative	8,336	5,981	15,792	11,730
Engineering and development	4,963	4,404	9,918	8,595
Business development	165		316
Amortization of intangible assets	878	799	1,762	1,592
Total operating costs and expenses	17,285	13,894	33,428	27,230
Operating income	6,232	3,987	12,643	8,352
Other expense (income):
Interest expense	602	641	1,216	1,164
Other (income) expense, net	(200)	80	(94)	70
Total other expense, net	402	721	1,122	1,234
Income before income taxes	5,830	3,266	11,521	7,118
Provision for income taxes	(1,599)	(1,039)	(3,092)	(2,234)
Net income	$ 4,231	$ 2,227	$ 8,429	$ 4,884
Basic earnings per share:
Earnings per share (in dollars per share)	$ 0.46	$ 0.24	$ 0.91	$ 0.54
Basic weighted average common shares (in shares)	9,268	9,165	9,241	9,120
Diluted earnings per share:
Earnings per share (in dollars per share)	$ 0.45	$ 0.24	$ 0.90	$ 0.53
Diluted weighted average common shares (in shares)	9,356	9,265	9,321	9,250
Net income	$ 4,231	$ 2,227	$ 8,429	$ 4,884
Other comprehensive income:
Foreign currency translation adjustment	(3,532)	3,105	(1,845)	3,779
Change in accumulated income (loss) on derivatives	247	(137)	851	(223)
Comprehensive income	$ 946	$ 5,195	$ 7,435	$ 8,440

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash Flows From Operating Activities:
Net income	$ 8,429	$ 4,884
Adjustments to reconcile net income to net cash provided by operating activities (net of working capital acquired in 2018):
Depreciation and amortization	5,622	4,960
Deferred income taxes	(282)	14
Stock compensation expense	1,094	954
Debt issue cost amortization recorded in interest expense	74	99
Other	133	(40)
Changes in operating assets and liabilities:
Trade receivables	(7,639)	(4,442)
Inventories	(6,840)	529
Prepaid expenses and other assets	(504)	93
Accounts payable	5,788	(360)
Accrued liabilities	1,511	692
Net cash provided by operating activities	7,386	7,383
Cash Flows From Investing Activities:
Purchase of property and equipment	(5,555)	(2,677)
Cash paid for acquisition, net of cash acquired	(13,312)
Net cash used in investing activities	(18,867)	(2,677)
Cash Flows From Financing Activities:
Borrowings on lines-of-credit, net	14,252
Principal payments of long-term debt	(2,500)	(6,000)
Dividends paid to stockholders	(522)	(473)
Stock transactions under employee benefit stock plans	261	355
Net cash provided by (used in) financing activities	11,491	(6,118)
Effect of foreign exchange rate changes on cash	(271)	662
Net decrease in cash and cash equivalents	(261)	(750)
Cash and cash equivalents at beginning of period	15,590	15,483
Cash and cash equivalents at end of period	$ 15,329	$ 14,733

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BASIS OF PREPARATION AND PRESENTATION

6 Months Ended

Jun. 30, 2018

BASIS OF PREPARATION AND PRESENTATION

BASIS OF PREPARATION AND PRESENTATION

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 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, automotive control, 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 significant inter-company 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 accumulated other comprehensive income, a component of stockholders’ equity in the accompanying condensed consolidated balance sheets.  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 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 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, 2017 that was previously filed by the Company.

Reclassifications

Certain items in the prior year’s consolidated financial statements and notes to consolidated financial statements have been reclassified to conform to the 2018 presentation.

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BUSINESS COMBINATION

6 Months Ended

Jun. 30, 2018

BUSINESS COMBINATION

BUSINESS COMBINATION

2.BUSINESS COMBINATION

As part of the growth strategy of the Company, on January 19, 2018, the Company purchased substantially all of the operating assets associated with the original equipment steering business of Maval Industries, LLC (“Maval”) for $13,312 in cash. Consistent with the Company’s strategy to provide higher level system solutions, the addition of the Maval OE steering (“Maval OE Steering”) product line enables Allied to provide a fully integrated steering system solution to its customers.

The Company is currently in a transition services agreement with Maval and is completing the production carve-out/separation of the businesses. Once the carve-out is complete, the business will be located entirely within its own dedicated facility in Twinsburg, OH.

The following table represents the preliminary purchase price allocation and summarizes the aggregate estimated fair value of the assets acquired:

	January 19,
	2018
Intangible assets	$	3,700
Goodwill	5,995
Assets acquired (net of liabilities assumed)	3,617
Fair value of net assets acquired	$	13,312

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.  None of the goodwill recognized is deductible for income tax purposes. The purchase price allocation is subject to further adjustment to reflect, among other things, any adjustments in accordance with the Purchase Agreement and finalization of the opening balance sheet, including adjustments for final valuations, including intangible assets.

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REVENUE RECOGNITION

6 Months Ended

Jun. 30, 2018

REVENUE RECOGNITION

REVENUE RECOGNITION

3.REVENUE RECOGNITION

Performance Obligations

Performance Obligations Satisfied at a Point in Time

The Company’s standard delivery method is “free on board” shipping point. Consequently, 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 purchase order.

The Company satisfies its performance obligations under a contract with a customer by transferring goods and services in exchange for consideration from 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.

Performance Obligations Satisfied Over Time

The Company has certain contracts that have performance obligations that are satisfied over periods exceeding one year.  Determining a measure of progress requires management to make judgments that affect the timing of revenue recognized.

For a contract satisfied over time, revenue is recognized similarly to contracts satisfied at a point in time.  The Company transfers control and recognizes a sale when the Company ships the product from a manufacturing facility to a customer.  The only difference is that the shipments are not completed within a one-year timeframe.  The revenue recognized for the contracts satisfied over time were immaterial for the quarter and six months ended June 30, 2018.

The Company has determined that the above methods provide a faithful depiction of the transfer of goods to the customer.

Nature of Goods and Services

The Company sells component and integrated motion control 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, and other motion control-related products. The Company’s target markets include Vehicle, Medical, Aerospace & Defense and Electronics/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 accretes a contract liability. As the Company satisfies performance obligations and recognizes revenue from these contracts, interest expense is recognized simultaneously.  The Company does not have any contracts that include a significant financing component as of June 30, 2018.

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. A reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions is provided in Note 16, Segment Information.  The geography table below represents revenue by shipped from location.

	Three months ended		Six months ended
Target Market	June 30, 2018		June 30, 2018
Vehicle	$	31,193	$	63,354
Industrial/Electronics	28,073		51,965
Medical	9,838		20,482
Aerospace & Defense	8,558		16,369
Other	2,319		4,387
Total	$	79,981	$	156,557

	Three months ended		Six months ended
Geography	June 30, 2018		June 30, 2018
United States	$	46,484	$	90,654
Europe	32,947		64,779
Asia	550		1,124
Total	$	79,981	$	156,557

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 receivables, contract asset, and contract liability are as follows:

	Receivables		Contract Asset		Contract  Liability
Balance as of March 31, 2018	$	—	$	—	$	702
Balance as of June 30, 2018	—		—		623
Increase/(decrease)	$	—	$	—	$	(79	)

The difference between the opening and closing balances of the Company’s contract assets and 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.

Practical Expedients

Incremental costs of obtaining a contract - the Company elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less.

Remaining performance obligations - Company elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts that are one year or less, as the revenue is expected to be recognized within the next year.

The time value of money -  the Company elected not to adjust the promised amount of consideration for the effects of the time value of money for contracts in which the anticipated period between when the Company transfers the goods or services to the customer and when the customer pays is equal to one year or less.

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INVENTORIES

6 Months Ended

Jun. 30, 2018

INVENTORIES

INVENTORIES

4.INVENTORIES

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

	June 30,  2018			December 31,  2017
Parts and raw materials	$	29,962		$	24,910
Work-in-process	6,916			5,984
Finished goods	8,552			6,075
	45,430			36,969
Less reserves	(4,332		)	(4,401		)
Inventories	$	41,098		$	32,568

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PROPERTY, PLANT AND EQUIPMENT

6 Months Ended

Jun. 30, 2018

PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT

5.PROPERTY, PLANT AND EQUIPMENT

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

	June 30,  2018			December 31,  2017
Land	$	986		$	993
Building and improvements	11,003			10,678
Machinery, equipment, tools and dies	53,028			49,083
Furniture, fixtures and other	13,835			12,931
	78,852			73,685
Less accumulated depreciation	(38,737		)	(35,282		)
Property, plant and equipment, net	$	40,115		$	38,403

Depreciation expense was approximately $1,953 and $1,711 for the quarters ended June 30, 2018 and 2017, respectively.   For the six months ended June 30, 2018 and 2017, depreciation expense was approximately $3,860 and $3,368, respectively.

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GOODWILL

6 Months Ended

Jun. 30, 2018

GOODWILL

GOODWILL

6.GOODWILL

The change in the carrying amount of goodwill for the three months ended June 30, 2018 and year ended December 31, 2017 is as follows (in thousands):

	June 30,			December 31,
	2018			2017
Beginning balance	$	29,531		$	27,522
Goodwill acquired (Note 2)	5,995			—
Effect of foreign currency translation	(405		)	2,009
Ending balance	$	35,121		$	29,531

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INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2018

INTANGIBLE ASSETS

INTANGIBLE ASSETS

7.INTANGIBLE ASSETS

Intangible assets on the Company’s condensed consolidated balance sheets consist of the following (in thousands):

		June 30, 2018							December 31, 2017
	Life	Gross  Amount		Accumulated  amortization			Net Book  Value		Gross  Amount		Accumulated  amortization			Net Book  Value
Customer lists	8 - 17 years	$	42,200	$	(13,982	)	$	28,218	$	38,659	$	(12,721	)	$	25,938
Trade name	10 - 12 years	6,178		(3,042		)	3,136		6,213		(2,798		)	3,415
Design and technologies	10-12 years	5,024		(2,565		)	2,459		5,147		(2,443		)	2,704
Patents	17 years	24		(9		)	15		24		(8		)	16
Total		$	53,426	$	(19,598	)	$	33,828	$	50,043	$	(17,970	)	$	32,073

Intangible assets resulting from the acquisition of the Maval OE Steering business were approximately $3,700 (Note 2).  The intangible assets acquired consist of customer lists (the valuation and useful life of which have not been finalized).

Amortization expense for intangible assets was $878 and $799 for the quarters ending June 30, 2018 and 2017, respectively.  For the six months ended June 30, 2018 and 2017, amortization expense was $1,762 and $1,592, respectively.

Estimated future intangible asset amortization expense as of June 30, 2018 is as follows (in thousands):

	Estimated  Amortization  Expense
Remainder of 2018	$	1,747
2019	3,493
2020	3,493
2021	3,234
2022	3,234
2023	3,152
Thereafter	15,475
Total estimated amortization expense	$	33,828

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2018

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

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 six months ended June 30, 2018, 56,499 shares of unvested restricted stock were awarded at a weighted average market value of $33.84.  Of the restricted shares granted, 30,603 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 six months ended June 30, 2018:

	Number of  shares
Outstanding at beginning of period	221,968
Awarded	56,499
Vested	(56,681	)
Forfeited	(18,417	)
Outstanding at end of period	203,369

Stock based compensation expense, net of forfeitures of $598 and $488 was recorded for the quarter ended June 30, 2018 and 2017, respectively.  For the six months ended June 30, 2018 and 2017, stock compensation expense, net of forfeitures, of $1,094 and $954 was recorded, respectively.

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ACCRUED LIABILITIES

6 Months Ended

Jun. 30, 2018

ACCRUED LIABILITIES

ACCRUED LIABILITIES

9.ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

	June 30, 2018		December 31, 2017
Compensation and fringe benefits	$	8,168	$	7,459
Warranty reserve	822		922
Income taxes payable	1,969		2,397
Other accrued expenses	4,071		3,492
	$	15,030	$	14,270

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DEBT OBLIGATIONS

6 Months Ended

Jun. 30, 2018

DEBT OBLIGATIONS

DEBT OBLIGATIONS

10.DEBT OBLIGATIONS

Debt obligations consisted of the following (in thousands):

	June 30, 2018			December 31, 2017
Current Borrowings
China Credit Facility (4.7% at June 30, 2018)	$	453		$	461
Current borrowings	$	453		$	461
Long-term Debt
Revolving Credit Facility, long term (1)	$	64,982		$	53,266
Unamortized debt issuance costs	(497		)	(572		)
Long-term debt	$	64,485		$	52,694

(1)  The effective rate of the Revolver is 3.4% at June 30, 2018.

Credit Agreement

On October 28, 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) for a $125,000 revolving credit facility (the “Revolving Credit Facility”). The Revolving Facility includes a $50,000 accordion amount and has an initial term of five years.

Borrowings under the Revolving Credit Facility are subject to terms defined in the Credit Agreement.  Borrowings bear interest at the LIBOR Rate plus a margin of 1.00% to 2.25% or the Prime Rate plus a margin of 0% to 1.25%, in each case depending on the Company’s ratio of total funded indebtedness to Consolidated EBITDA (the “Total Leverage Ratio”). At June 30, 2018, the applicable margin for LIBOR Rate borrowings was 1.50% 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 0.25% quarterly (currently 0.15%) on the unused portion of the Revolving Credit Facility, also based on the Company’s Total Leverage Ratio.

The Credit Agreement contains certain financial covenants related to minimum interest coverage and total leverage ratio at the end of each quarter.  The 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, consolidate or sell all or substantially all of its assets.  The Company was in compliance with all covenants at June 30, 2018.

Other

The China Facility provides credit of approximately $1,511 (Chinese Renminbi (“RMB”) 10,000).  The China Facility is used for working capital and capital equipment needs at the Company’s China operations.  The average balance for 2018 was $471 (RMB 3,000).  At June 30, 2018, there was approximately $1,058 (RMB 7,000) available under the facility.

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DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2018

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

11.DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risk 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, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and 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 receipt or 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 receipts and its known or expected cash payments principally related to the Company’s investments and 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. During October 2013, the Company entered into two identical interest rate swaps with a combined notional of $25,000 that amortize quarterly to a notional of $6,673 at the September 2018 maturity.  One of these interest rate swaps is currently active.  The Company terminated the other interest rate swap during October 2016 as part of its debt refinancing.  In February 2017, the Company entered into three interest rate swaps with a combined notional of $40,000 that matures in February 2022.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  During 2018 and 2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.  There was no hedge ineffectiveness recorded in the Company’s earnings during the quarters ended June 30, 2018 and 2017.

During 2018, the Company estimates that an additional $168 will be reclassified as a decrease to interest expense. 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 June 30, 2018 and December 31, 2017 (in thousands):

		Asset Derivatives					Liabilty Derivatives
Derivatives designated	Balance	Fair value as of:					Fair value as of:
as hedging instruments	Sheet Location	June 30, 2018		December 31, 2017		Balance Sheet Location	June 30, 2018		December 31, 2017
Interest rate products	Other assets	$	1,047	$	196	Other liabilities	$	—	$	—

The table below presents the effect of cash flow hedge accounting on accumulated other comprehensive income (OCI) for the quarters ended June 30, 2018 and 2017 (in thousands):

	Amount of gain (loss) recognized in OCI on derivative					Amount of gain (loss) recognized in OCI on derivative
Derivatives in cash flow	Three months ended June 30,					Six months ended June 30,
hedging relationships	2018		2017			2018		2017
Interest rate products	$	247	$	(249	)	$	815	$	(383	)

Location of gain (loss) reclassified from accumulated	Amount of gain (loss) reclassified from accumulated OCI into income (effective portion)					Amount of gain (loss) reclassified from accumulated OCI into income (effective portion)
	Three months ended June 30,					Six months ended June 30,
OCI into income	2018		2017			2018			2017
Interest expense	$	—	$	(48	)	$	(36	)	$	(112	)

The table below presents the effect of the Company’s derivative financial instruments on the condensed consolidated statement of income and comprehensive income for the three and six months ended June 30, 2018 and 2017:

Derivatives designated as hedging instruments	Balance Sheet Location	Total amounts of income and expense line items presented that reflect the effects of cash flow hedges recorded				Total amounts of income and expense line items presented that reflect the effects of cash flow hedges recorded
		Three months ended June 30,				Six months ended June 30,
		2018		2017		2018		2017
Interest rate products	Other assets	$	602	$	641	$	1,216	$	1,164

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of June 30, 2018 and December 31, 2017. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the condensed consolidated balance sheets.

			Gross amounts		Net amounts of
As of June 30, 2018	Gross amounts of recognized assets		offset in the condensed consolidated balance sheets		assets presented in the condensed consolidated balance sheets		Gross amounts not offset in the condensed consolidated balance sheets
							Financial instruments		Cash collateral received		Net amount
Derivatives	$	1,047	$	—	$	1,047	$	—	$	—	$	1,047

			Gross amounts		Net amounts of
As of December 31, 2017	Gross amounts of recognized assets		offset in the condensed consolidated balance sheets		assets presented in the condensed consolidated balance sheets		Gross amounts not offset in the condensed consolidated balance sheets
							Financial instruments		Cash collateral received		Net amount
Derivatives	$	196	$	—	$	196	$	—	$	—	$	196

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.

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INCOME TAXES

6 Months Ended

Jun. 30, 2018

INCOME TAXES

INCOME TAXES

12.INCOME TAXES

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 27.4% and 31.8% in the second quarter 2018 and 2017, respectively. The effective tax rate is net of a discrete tax benefit of (0.5%) and (1.5%) for the second quarters of 2018 and 2017, respectively, related primarily to the recognition of excess tax benefits for share-based payment awards.   For the six months ended June 30, 2018 and 2017, the effective income tax rate as a percentage of income before income taxes was 26.8% and 31.4%, respectively.  For the six-month periods ending June 30, 2018 and 2017, the effective rate is net of a discrete tax benefit of (1.4%) and (1.9%), respectively, related primarily to the recognition of excess tax benefits for share-based payment awards.

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 US and foreign tax rates and the mix of foreign and domestic income.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The provision of the Act reduces the US federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act. The Company is applying the guidance in SAB 118 when accounting for the enactment-date effects of the Act.  At June 30, 2018, the Company has not completed the accounting for all of the tax effects of the Act; however, in certain cases, as described below, aspects of the accounting are complete. Additionally, the Company has made a reasonable estimate of other effects. In other cases, the Company has not been able to make a reasonable estimate and continue to account for those items based on existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. As further discussed below, during the six-month period ended June 30, 2018, the Company did not recognize any adjustments to the provisional amounts recorded at December 31, 2017. In all cases, the Company will continue to make and refine our calculations as additional analysis is completed. Estimates may also be affected as we gain a more thorough understanding of the tax law. These changes could be material to income tax expense.

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The provisional amount of $(7) was recorded as of December 31, 2017 related to the remeasurement of certain deferred tax balances. Upon further analyses of certain aspects of the Act and refinement of the calculations during the six months ended June 30, 2018, we have not adjusted the provisional amount. The Company considers the enactment-date remeasurement of all other deferred tax assets and liabilities to be complete.

The one-time transition tax is based on total post-1986 earnings and profits (E&P) which had been previously deferred from US income taxes under previous US law. The Company recorded a provisional amount for the one-time transition tax liability for foreign subsidiaries, resulting in a transition tax liability of $3,140 being recorded at December 31, 2017. Upon further analyses of certain aspects of the Act and refinement of calculations for foreign subsidiaries during the three and six months ended June 30, 2018, we have not changed the provisional amount. The Company will continue to refine the E&P analysis and our calculations of the one-time transition tax, which could affect the measurement of this liability. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations outside the United States.

The Act subjects a US shareholder to tax on Global Intangible Low Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet determined our accounting policy. At June 30, 2018, the Company has included GILTI related to current-year operations only in our annual effective tax rate and has not provided additional GILTI on deferred items.

Refer to Note 17 — Recent Accounting Pronouncements for discussion of ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

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ACCUMULATED OTHER COMPREHENSIVE INCOME

6 Months Ended

Jun. 30, 2018

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE INCOME

13.ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated Other Comprehensive Income for the quarter ended June 30, 2018 and 2017 is comprised of the following (in thousands):

	Defined Benefit  Plan Liability			Cash Flow  Hedges		Foreign Currency  Translation  Adjustment			Total
At March 31, 2018	$	(945	)	$	800	$	(3,150	)	$	(3,295	)
Unrealized gain on cash flow hedges	—			247		—			247
Amounts reclassified from AOCI	—			—		—			—
Foreign currency translation loss	—			—		(3,532		)	(3,532		)
At June 30, 2018	$	(945	)	$	1,047	$	(6,682	)	$	(6,580	)

	Defined Benefit  Plan Liability			Cash Flow  Hedges			Foreign Currency  Translation  Adjustment			Total
At March 31, 2017	$	(822	)	$	(116	)	$	(10,477	)	(11,415		)
Unrealized loss on cash flow hedges	—			(249		)	—			(249		)
Amounts reclassified from AOCI	—			112			—			112
Foreign currency translation gain	—			—			3,105			3,105
At June 30, 2017	$	(822	)	$	(253	)	$	(7,372	)	$	(8,447	)

Accumulated Other Comprehensive Income for the six months ended June 30, 2018 and 2017 is comprised of the following (in thousands):

	Defined Benefit  Plan Liability			Cash Flow  Hedges		Foreign Currency  Translation  Adjustment			Total
At December 31, 2017	$	(945	)	$	196	$	(4,837	)	$	(5,586	)
Unrealized gain on cash flow hedges	—			815		—			815
Amounts reclassified from AOCI	—			36		—			36
Foreign currency translation loss	—			—		(1,845		)	(1,845		)
At June 30, 2018	$	(945	)	$	1,047	$	(6,682	)	$	(6,580	)

	Defined Benefit  Plan Liability			Cash Flow  Hedges			Foreign Currency  Translation  Adjustment			Total
At December 31, 2016	$	(822	)	$	(30	)	$	(11,151	)	$	(12,003	)
Unrealized loss on cash flow hedges	—			(383		)	—			(383		)
Amounts reclassified from AOCI	—			160			—			160
Foreign currency translation gain	—			—			3,779			3,779
At June 30, 2017	$	(822	)	$	(253	)	$	(7,372	)	$	(8,447	)

The realized gains relating to the Company’s interest rate swap hedges were reclassified from accumulated other comprehensive income and included in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.

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DIVIDENDS PER SHARE

6 Months Ended

Jun. 30, 2018

DIVIDENDS PER SHARE

DIVIDENDS PER SHARE

14.DIVIDENDS PER SHARE

The Company declared a quarterly dividend of $0.025 per share in the first quarter of 2018 and $0.030 per share in the second quarter of 2018.  Dividends declared for the first and second quarters of 2017 were at $0.025 per share.  Total dividends declared in the first six months of 2018 and 2017 were $520 and $473, respectively.

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EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2018

EARNINGS PER SHARE

EARNINGS PER SHARE

15.EARNINGS PER SHARE

Basic and diluted weighted-average shares outstanding are as follows:

	Three months ended June 30,		Six months ended June 30,
	2018	2017	2018	2017
Basic weighted average shares outstanding	9,268	9,165	9,241	9,120
Dilutive effect of equity awards	88	100	80	130
Diluted weighted average shares outstanding	9,356	9,265	9,321	9,250

For the three and six months ended June 30, 2018 there were 87,203 and 80,671 common shares, respectively, subject to equity-based awards excluded from the calculation of diluted earnings per share as they would be anti-dilutive.

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SEGMENT INFORMATION

6 Months Ended

Jun. 30, 2018

SEGMENT INFORMATION

SEGMENT INFORMATION

16.SEGMENT INFORMATION

ASC Topic “Segment Reporting” requires disclosure of operating segments, which as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company operates in one segment for the manufacture and marketing of motion control products for original equipment manufacturers and end user applications.  In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.  Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue.  All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes.  Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying condensed consolidated financial statements and within this note.

The Company’s wholly owned foreign subsidiaries, located in The Netherlands, Sweden, Germany, Portugal, China and Mexico are included in the accompanying condensed consolidated financial statements.

Financial information related to the foreign subsidiaries is summarized below (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenues derived from foreign subsidiaries	$	33,497	$	24,810	$	65,903	$	50,095

Identifiable foreign assets were $87,451 and $84,652 as of June 30, 2018 and December 31, 2017, 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 $38,395 and $27,550 during the quarters ended June 30, 2018 and 2017, respectively; and $74,74,698 and $55,721 for the six months ended June 30, 2018 and 2017, respectively.

For second quarter 2018 and 2017, one customer accounted for 20% and 18% of revenues, respectively; and for the year to date 2018 and 2017 for 20% and 19% of revenues, respectively. As of June 30, 2018, and December 31, 2017 this customer represented 21% and 15% of trade receivables, respectively.

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RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2018

RECENT ACCOUNTING PRONOUNCEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

17.RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” which is a comprehensive new revenue recognition model. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The Company adopted ASU 2014-09 and its amendments on a modified retrospective basis effective January 1, 2018. The adoption of ASU 2014-09 did not have a material impact on its consolidated financial statements. A significant majority of the Company’s revenue is recorded when it invoices customers and is largely aligned with the meeting of identified performance obligations under ASU 2014-09.  There is no material change in the Company’s revenue recognition after the implementation of the standard.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The Company early adopted ASU 2017-12 in the first quarter of 2018.  The implementation did not impact its consolidated financial statements other than requiring enhanced disclosures.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments affect all companies that must determine whether they have acquired or sold a business. The amendments are intended to help companies and evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide a more robust framework to use in determining when a set of assets and activities is a business. The new standard is effective for the Company beginning on January 1, 2018. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The objective of ASU 2016-15 is to reduce existing diversity in practice by addressing eight specific cash flow issues related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for the Company beginning on January 1, 2018. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

Recently issued accounting pronouncements

In February 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718).”  The objective of ASU 2018-7 is to expand the scope of the employee share-based payments guidance, which currently only includes share-based payments issued to employees, to also include share-based payments issued to nonemployees for goods and services. This guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect this guidance to have a material impact on its consolidated financial statements

In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, to address a specific consequence of the Tax Cuts and Jobs Act (the “Act”) by allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Act’s reduction of the U.S. federal corporate income tax rate. The ASU is effective for all entities for annual periods beginning after December 15, 2018, with early adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. Management has not yet completed its assessment of the impact of the ASU on the Company’s 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, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance.

In June 2016, the FASB issued 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. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, which amends the FASB Accounting Standards Codification and creates Topic 842, “Leases.” The new topic supersedes Topic 840, “Leases,” and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2018. ASU 2016-02 mandates a modified retrospective transition method. The Company is currently evaluating its leasing arrangements and determining what requirements will be necessary to implement the new standard. Based on the results of the assessment, the Company will refine its internal policy to include criteria for evaluating the impact of the new standard and also implement appropriate refinements to business processes, systems and controls to support the requirements of this new standard in the second half of 2018. The Company continues to evaluate the impact this guidance will have on its consolidated financial statements.

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BASIS OF PREPARATION AND PRESENTATION (Policies)

6 Months Ended

Jun. 30, 2018

BASIS OF PREPARATION AND PRESENTATION

Reclassifications

Reclassifications

Certain items in the prior year’s consolidated financial statements and notes to consolidated financial statements have been reclassified to conform to the 2018 presentation.

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BUSINESS COMBINATION (Tables)

6 Months Ended

Jun. 30, 2018

BUSINESS COMBINATION

Schedule of purchase price allocation and estimated fair value of the assets acquired

	January 19,
	2018
Intangible assets	$	3,700
Goodwill	5,995
Assets acquired (net of liabilities assumed)	3,617
Fair value of net assets acquired	$	13,312

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REVENUE RECOGNITION (Tables)

6 Months Ended

Jun. 30, 2018

REVENUE RECOGNITION

Schedule of reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions

	Three months ended		Six months ended
Target Market	June 30, 2018		June 30, 2018
Vehicle	$	31,193	$	63,354
Industrial/Electronics	28,073		51,965
Medical	9,838		20,482
Aerospace & Defense	8,558		16,369
Other	2,319		4,387
Total	$	79,981	$	156,557

	Three months ended		Six months ended
Geography	June 30, 2018		June 30, 2018
United States	$	46,484	$	90,654
Europe	32,947		64,779
Asia	550		1,124
Total	$	79,981	$	156,557

Schedule of opening and closing balances of the Company's receivables, contract asset, and contract liability

	Receivables		Contract Asset		Contract  Liability
Balance as of March 31, 2018	$	—	$	—	$	702
Balance as of June 30, 2018	—		—		623
Increase/(decrease)	$	—	$	—	$	(79	)

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INVENTORIES (Tables)

6 Months Ended

Jun. 30, 2018

INVENTORIES

Schedule of inventories including costs of materials, direct labor and manufacturing overhead, and stated at the lower of cost (first-in, first-out basis) or net realizable value

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):

	June 30,  2018			December 31,  2017
Parts and raw materials	$	29,962		$	24,910
Work-in-process	6,916			5,984
Finished goods	8,552			6,075
	45,430			36,969
Less reserves	(4,332		)	(4,401		)
Inventories	$	41,098		$	32,568

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PROPERTY, PLANT AND EQUIPMENT (Tables)

6 Months Ended

Jun. 30, 2018

PROPERTY, PLANT AND EQUIPMENT

Schedule of classification of property, plant and equipment

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

	June 30,  2018			December 31,  2017
Land	$	986		$	993
Building and improvements	11,003			10,678
Machinery, equipment, tools and dies	53,028			49,083
Furniture, fixtures and other	13,835			12,931
	78,852			73,685
Less accumulated depreciation	(38,737		)	(35,282		)
Property, plant and equipment, net	$	40,115		$	38,403

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GOODWILL (Tables)

6 Months Ended

Jun. 30, 2018

GOODWILL

Schedule of change in the carrying amount of goodwill

The change in the carrying amount of goodwill for the three months ended June 30, 2018 and year ended December 31, 2017 is as follows (in thousands):

	June 30,			December 31,
	2018			2017
Beginning balance	$	29,531		$	27,522
Goodwill acquired (Note 2)	5,995			—
Effect of foreign currency translation	(405		)	2,009
Ending balance	$	35,121		$	29,531

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INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2018

INTANGIBLE ASSETS

Schedule of intangible assets

Intangible assets on the Company’s condensed consolidated balance sheets consist of the following (in thousands):

		June 30, 2018							December 31, 2017
	Life	Gross  Amount		Accumulated  amortization			Net Book  Value		Gross  Amount		Accumulated  amortization			Net Book  Value
Customer lists	8 - 17 years	$	42,200	$	(13,982	)	$	28,218	$	38,659	$	(12,721	)	$	25,938
Trade name	10 - 12 years	6,178		(3,042		)	3,136		6,213		(2,798		)	3,415
Design and technologies	10-12 years	5,024		(2,565		)	2,459		5,147		(2,443		)	2,704
Patents	17 years	24		(9		)	15		24		(8		)	16
Total		$	53,426	$	(19,598	)	$	33,828	$	50,043	$	(17,970	)	$	32,073

Schedule of estimated amortization expense for intangible assets

Estimated future intangible asset amortization expense as of June 30, 2018 is as follows (in thousands):

	Estimated  Amortization  Expense
Remainder of 2018	$	1,747
2019	3,493
2020	3,493
2021	3,234
2022	3,234
2023	3,152
Thereafter	15,475
Total estimated amortization expense	$	33,828

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STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2018

STOCK-BASED COMPENSATION

Summary of restricted stock activity

The following is a summary of restricted stock activity for the six months ended June 30, 2018:

	Number of  shares
Outstanding at beginning of period	221,968
Awarded	56,499
Vested	(56,681	)
Forfeited	(18,417	)
Outstanding at end of period	203,369

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ACCRUED LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2018

ACCRUED LIABILITIES

Schedule of accrued liabilities

Accrued liabilities consist of the following (in thousands):

	June 30, 2018		December 31, 2017
Compensation and fringe benefits	$	8,168	$	7,459
Warranty reserve	822		922
Income taxes payable	1,969		2,397
Other accrued expenses	4,071		3,492
	$	15,030	$	14,270

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DEBT OBLIGATIONS (Tables)

6 Months Ended

Jun. 30, 2018

DEBT OBLIGATIONS

Schedule of debt obligations

Debt obligations consisted of the following (in thousands):

	June 30, 2018			December 31, 2017
Current Borrowings
China Credit Facility (4.7% at June 30, 2018)	$	453		$	461
Current borrowings	$	453		$	461
Long-term Debt
Revolving Credit Facility, long term (1)	$	64,982		$	53,266
Unamortized debt issuance costs	(497		)	(572		)
Long-term debt	$	64,485		$	52,694

(1)  The effective rate of the Revolver is 3.4% at June 30, 2018.

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2018

DERIVATIVE FINANCIAL INSTRUMENTS

Schedule fair value of the Company's derivative financial instruments as well as classification on the condensed consolidated balance sheets

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 June 30, 2018 and December 31, 2017 (in thousands):

		Asset Derivatives					Liabilty Derivatives
Derivatives designated	Balance	Fair value as of:					Fair value as of:
as hedging instruments	Sheet Location	June 30, 2018		December 31, 2017		Balance Sheet Location	June 30, 2018		December 31, 2017
Interest rate products	Other assets	$	1,047	$	196	Other liabilities	$	—	$	—

Schedule of effect of cash flow hedge accounting on accumulated other comprehensive income (OCI)

The table below presents the effect of cash flow hedge accounting on accumulated other comprehensive income (OCI) for the quarters ended June 30, 2018 and 2017 (in thousands):

	Amount of gain (loss) recognized in OCI on derivative					Amount of gain (loss) recognized in OCI on derivative
Derivatives in cash flow	Three months ended June 30,					Six months ended June 30,
hedging relationships	2018		2017			2018		2017
Interest rate products	$	247	$	(249	)	$	815	$	(383	)

Location of gain (loss) reclassified from accumulated	Amount of gain (loss) reclassified from accumulated OCI into income (effective portion)					Amount of gain (loss) reclassified from accumulated OCI into income (effective portion)
	Three months ended June 30,					Six months ended June 30,
OCI into income	2018		2017			2018			2017
Interest expense	$	—	$	(48	)	$	(36	)	$	(112	)

Schedule of effect of the Company's derivative financial instruments on the condensed consolidated statement of income and comprehensive income

Derivatives designated as hedging instruments	Balance Sheet Location	Total amounts of income and expense line items presented that reflect the effects of cash flow hedges recorded				Total amounts of income and expense line items presented that reflect the effects of cash flow hedges recorded
		Three months ended June 30,				Six months ended June 30,
		2018		2017		2018		2017
Interest rate products	Other assets	$	602	$	641	$	1,216	$	1,164

Schedule of fair value provides the location that derivative assets and liabilities

			Gross amounts		Net amounts of
As of June 30, 2018	Gross amounts of recognized assets		offset in the condensed consolidated balance sheets		assets presented in the condensed consolidated balance sheets		Gross amounts not offset in the condensed consolidated balance sheets
							Financial instruments		Cash collateral received		Net amount
Derivatives	$	1,047	$	—	$	1,047	$	—	$	—	$	1,047

			Gross amounts		Net amounts of
As of December 31, 2017	Gross amounts of recognized assets		offset in the condensed consolidated balance sheets		assets presented in the condensed consolidated balance sheets		Gross amounts not offset in the condensed consolidated balance sheets
							Financial instruments		Cash collateral received		Net amount
Derivatives	$	196	$	—	$	196	$	—	$	—	$	196

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

6 Months Ended

Jun. 30, 2018

ACCUMULATED OTHER COMPREHENSIVE INCOME

Schedule of accumulated other comprehensive income

Accumulated Other Comprehensive Income for the quarter ended June 30, 2018 and 2017 is comprised of the following (in thousands):

	Defined Benefit  Plan Liability			Cash Flow  Hedges		Foreign Currency  Translation  Adjustment			Total
At March 31, 2018	$	(945	)	$	800	$	(3,150	)	$	(3,295	)
Unrealized gain on cash flow hedges	—			247		—			247
Amounts reclassified from AOCI	—			—		—			—
Foreign currency translation loss	—			—		(3,532		)	(3,532		)
At June 30, 2018	$	(945	)	$	1,047	$	(6,682	)	$	(6,580	)

	Defined Benefit  Plan Liability			Cash Flow  Hedges			Foreign Currency  Translation  Adjustment			Total
At March 31, 2017	$	(822	)	$	(116	)	$	(10,477	)	(11,415		)
Unrealized loss on cash flow hedges	—			(249		)	—			(249		)
Amounts reclassified from AOCI	—			112			—			112
Foreign currency translation gain	—			—			3,105			3,105
At June 30, 2017	$	(822	)	$	(253	)	$	(7,372	)	$	(8,447	)

Accumulated Other Comprehensive Income for the six months ended June 30, 2018 and 2017 is comprised of the following (in thousands):

	Defined Benefit  Plan Liability			Cash Flow  Hedges		Foreign Currency  Translation  Adjustment			Total
At December 31, 2017	$	(945	)	$	196	$	(4,837	)	$	(5,586	)
Unrealized gain on cash flow hedges	—			815		—			815
Amounts reclassified from AOCI	—			36		—			36
Foreign currency translation loss	—			—		(1,845		)	(1,845		)
At June 30, 2018	$	(945	)	$	1,047	$	(6,682	)	$	(6,580	)

	Defined Benefit  Plan Liability			Cash Flow  Hedges			Foreign Currency  Translation  Adjustment			Total
At December 31, 2016	$	(822	)	$	(30	)	$	(11,151	)	$	(12,003	)
Unrealized loss on cash flow hedges	—			(383		)	—			(383		)
Amounts reclassified from AOCI	—			160			—			160
Foreign currency translation gain	—			—			3,779			3,779
At June 30, 2017	$	(822	)	$	(253	)	$	(7,372	)	$	(8,447	)

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2018

EARNINGS PER SHARE

Schedule of basic and diluted weighted-average shares outstanding

	Three months ended June 30,		Six months ended June 30,
	2018	2017	2018	2017
Basic weighted average shares outstanding	9,268	9,165	9,241	9,120
Dilutive effect of equity awards	88	100	80	130
Diluted weighted average shares outstanding	9,356	9,265	9,321	9,250

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SEGMENT INFORMATION (Tables)

6 Months Ended

Jun. 30, 2018

SEGMENT INFORMATION

Schedule of financial information related to the foreign subsidiaries

Financial information related to the foreign subsidiaries is summarized below (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenues derived from foreign subsidiaries	$	33,497	$	24,810	$	65,903	$	50,095

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BUSINESS COMBINATION (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Jan. 19, 2018	Dec. 31, 2017	Dec. 31, 2016
BUSINESS COMBINATION
Intangible assets		$ 3,700
Goodwill	$ 35,121	5,995	$ 29,531	$ 27,522
Assets acquired (net of liabilities assumed)		3,617
Fair value of net assets acquired		13,312
Tax deductible amount		$ 0

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REVENUE RECOGNITION (Details)	6 Months Ended
	Jun. 30, 2018
REVENUE RECOGNITION
Performance obligations that are satisfied over periods exceeding	1 year

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REVENUE RECOGNITION - Disaggregation of Revenue (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) segment	Jun. 30, 2017 USD ($)
Reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions
Number of reportable segment | segment			1
Disaggregation of revenue	$ 79,981	$ 60,335	$ 156,557	$ 121,689
United States
Reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions
Disaggregation of revenue	46,484		90,654
Europe
Reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions
Disaggregation of revenue	32,947		64,779
Asia
Reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions
Disaggregation of revenue	550		1,124
Vehicle
Reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions
Disaggregation of revenue	31,193		63,354
Industrial/Electronics
Reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions
Disaggregation of revenue	28,073		51,965
Medical
Reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions
Disaggregation of revenue	9,838		20,482
Aerospace & Defense
Reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions
Disaggregation of revenue	8,558		16,369
Other
Reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions
Disaggregation of revenue	$ 2,319		$ 4,387

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REVENUE RECOGNITION - Contract Balances (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Mar. 31, 2018
REVENUE RECOGNITION
Contract Liability	$ 623	$ 702
Increase (Decrease) in contract liability	$ (79)

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INVENTORIES (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
INVENTORIES
Parts and raw materials	$ 29,962	$ 24,910
Work-in-process	6,916	5,984
Finished goods	8,552	6,075
Inventory, gross	45,430	36,969
Less reserves	(4,332)	(4,401)
Inventories	$ 41,098	$ 32,568

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PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Property, plant and equipment
Property, plant and equipment, gross	$ 78,852		$ 78,852		$ 73,685
Less accumulated depreciation	(38,737)		(38,737)		(35,282)
Property, plant and equipment, net	40,115		40,115		38,403
Depreciation expense	1,953	$ 1,711	3,860	$ 3,368
Land
Property, plant and equipment
Property, plant and equipment, gross	986		986		993
Building and improvements
Property, plant and equipment
Property, plant and equipment, gross	11,003		11,003		10,678
Machinery, equipment, tools and dies
Property, plant and equipment
Property, plant and equipment, gross	53,028		53,028		49,083
Furniture, fixtures and other
Property, plant and equipment
Property, plant and equipment, gross	$ 13,835		$ 13,835		$ 12,931

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GOODWILL (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Change in goodwill
Beginning balance	$ 29,531	$ 27,522
Goodwill acquired (Note 2)	5,995
Effect of foreign currency translation	(405)	2,009
Ending balance	$ 35,121	$ 29,531

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INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jan. 19, 2018	Dec. 31, 2017
Intangible assets subject to amortization
Gross Amount	$ 53,426		$ 53,426			$ 50,043
Accumulated amortization	(19,598)		(19,598)			(17,970)
Net Book Value	33,828		33,828			32,073
Intangible assets resulting from acquisition					$ 3,700
Amortization expense for intangible assets	878	$ 799	1,762	$ 1,592
Estimated amortization expense
Remainder of 2018	1,747		1,747
2019	3,493		3,493
2020	3,493		3,493
2021	3,234		3,234
2022	3,234		3,234
2023	3,152		3,152
Thereafter	15,475		15,475
Total estimated amortization expense	33,828		33,828
Customer lists
Intangible assets subject to amortization
Gross Amount	42,200		42,200			38,659
Accumulated amortization	(13,982)		(13,982)			(12,721)
Net Book Value	28,218		$ 28,218			25,938
Customer lists | Minimum
Intangible assets subject to amortization
Estimated Life			8 years
Customer lists | Maximum
Intangible assets subject to amortization
Estimated Life			17 years
Trade name
Intangible assets subject to amortization
Gross Amount	6,178		$ 6,178			6,213
Accumulated amortization	(3,042)		(3,042)			(2,798)
Net Book Value	3,136		$ 3,136			3,415
Trade name | Minimum
Intangible assets subject to amortization
Estimated Life			10 years
Trade name | Maximum
Intangible assets subject to amortization
Estimated Life			12 years
Design and technologies
Intangible assets subject to amortization
Gross Amount	5,024		$ 5,024			5,147
Accumulated amortization	(2,565)		(2,565)			(2,443)
Net Book Value	2,459		$ 2,459			2,704
Design and technologies | Minimum
Intangible assets subject to amortization
Estimated Life			10 years
Design and technologies | Maximum
Intangible assets subject to amortization
Estimated Life			12 years
Patents
Intangible assets subject to amortization
Gross Amount	24		$ 24			24
Accumulated amortization	(9)		(9)			(8)
Net Book Value	$ 15		$ 15			$ 16
Estimated Life			17 years

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STOCK-BASED COMPENSATION (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Additional disclosures
Compensation expense, net of forfeitures			$ 1,094	$ 954
Restricted Stock
STOCK-BASED COMPENSATION
Weighted average market value (in dollars per share)			$ 33.84
Service period over which value of the shares is amortized to compensation expense			3 years
Number of Nonvested Restricted Shares
Outstanding at beginning of period (in shares)			221,968
Awarded (in shares)			56,499
Vested (in shares)			(56,681)
Forfeited (in shares)			(18,417)
Outstanding at end of period (in shares)	203,369		203,369
Additional disclosures
Compensation expense, net of forfeitures	$ 598	$ 488	$ 1,094	$ 954
Restricted Stock | Performance based vesting
Number of Nonvested Restricted Shares
Awarded (in shares)			30,603

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ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
ACCRUED LIABILITIES
Compensation and fringe benefits	$ 8,168	$ 7,459
Warranty reserve	822	922
Income taxes payable	1,969	2,397
Other accrued expenses	4,071	3,492
Accrued liabilities	$ 15,030	$ 14,270

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DEBT OBLIGATIONS (Details) ¥ in Thousands, $ in Thousands		6 Months Ended
	Oct. 28, 2016 USD ($)	Jun. 30, 2018 CNY (¥)	Jun. 30, 2018 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Debt Obligations
Current borrowings				$ 453	$ 461
Long-term debt				64,485	52,694
Unamortized debt issuance costs				(497)	(572)
Revolving Credit Facility
Debt Obligations
Long-term debt				$ 64,982	53,266
Maximum borrowing capacity	$ 125,000
Commitment fees on unused portion of the Revolving credit facility ( as a percent)		0.15%	0.15%
Revolving Credit Facility | Minimum
Debt Obligations
Commitment fees on unused portion of the Revolving credit facility ( as a percent)		0.10%	0.10%
Revolving Credit Facility | Maximum
Debt Obligations
Commitment fees on unused portion of the Revolving credit facility ( as a percent)		0.25%	0.25%
Revolving Credit Facility | LIBOR
Debt Obligations
Applicable margin (as a percent)		1.50%	1.50%
Revolving Credit Facility | LIBOR | Minimum
Debt Obligations
Applicable margin (as a percent)	1.00%
Revolving Credit Facility | LIBOR | Maximum
Debt Obligations
Applicable margin (as a percent)	2.25%
Revolving Credit Facility | Prime Rate
Debt Obligations
Applicable margin (as a percent)		0.50%	0.50%
Revolving Credit Facility | Prime Rate | Minimum
Debt Obligations
Applicable margin (as a percent)	0.00%
Revolving Credit Facility | Prime Rate | Maximum
Debt Obligations
Applicable margin (as a percent)	1.25%
Term Loan
Debt Obligations
Effective rate (as a percent)		3.40%		3.40%
Maximum borrowing capacity	$ 50,000
Debt instrument term	5 years
China Credit Facility
Debt Obligations
Current borrowings				$ 453	$ 461
Interest rate (as a percent)		(4.70%)		(4.70%)
Maximum borrowing capacity		¥ 10,000		$ 1,511
Average outstanding borrowings		3,000	$ 471
Available borrowing capacity		¥ 7,000		$ 1,058

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DERIVATIVE FINANCIAL INSTRUMENTS (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Feb. 28, 2017 USD ($) derivative	Oct. 31, 2013 USD ($) derivative
Interest Rate Swaps
Derivative financial instruments
Number of derivative instruments | derivative						3	2
Notional amount of interest rate swap derivatives							$ 25,000
Notional amount of interest rate swap derivatives at maturity						$ 40,000	$ 6,673
Hedge ineffectiveness recorded in earnings	$ 0	$ 0
Estimated amount to be reclassified as an increase to interest expense			$ (168)
Derivatives in cash flow hedging relationships | Interest rate products
Effect of derivative financial instruments on the condensed consolidated statement of income and comprehensive income
Amount of gain (loss) recognized in OCI on derivative	247	(249)	815	$ (383)
Amount of gain (loss) reclassified from accumulated OCI into income (effective portion)		(48)	(36)	(112)
Derivatives designated as hedging instruments | Interest rate products
Effect of derivative financial instruments on the condensed consolidated statement of income and comprehensive income
Total amounts of income and expense line items presented that reflect the effects of cash flow hedges recorded	602	$ 641	1,216	$ 1,164
Derivatives designated as hedging instruments | Interest rate products | Other Assets
Derivative financial instruments
Fair value of derivative Asset	$ 1,047		$ 1,047		$ 196

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DERIVATIVE FINANCIAL INSTRUMENTS - Effects of offsetting (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Gross amounts offset in the condensed consolidated balance sheets
Gross amounts of recognized assets	$ 1,047	$ 196
Net amounts of assets presented in the condensed consolidated balance sheets	1,047	196
Gross amounts not offset in the condensed consolidated balance sheets
Net amount	$ 1,047	$ 196

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Effective income tax rate
Effective income tax rate (as a percent)	27.40%	31.80%	26.80%	31.40%
Excess discreate tax (benefit) provision on share-based payment awards (as a percent)	0.50%	1.50%	1.40%	1.90%
US federal corporate tax rate (as a percent)			21.00%		35.00%
Provisional amount related to the remeasurement of deferred tax balance					$ (7)
Transition tax liability for foreign subsidiaries, resulting in a transition tax liability					$ 3,140
Deferred Income Tax Benefit From Foreign Operating Losses And Tax Credit Carryforwards	$ 0		$ 0

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Accumulated Other Comprehensive Income
Balances			$ 87,347
Balances	$ 95,525		95,525
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income
Balances	(3,295)	$ (11,415)	(5,586)	$ (12,003)
Unrealized gain (loss) on cash flow hedges	247	(249)	815	(383)
Amounts reclassified from AOCI		112	36	160
Foreign currency translation (loss) gain	(3,532)	3,105	(1,845)	3,779
Balances	(6,580)	(8,447)	(6,580)	(8,447)
Defined Benefit Plan Liability
Accumulated Other Comprehensive Income
Balances	(945)	(822)	(945)	(822)
Balances	(945)	(822)	(945)	(822)
Cash Flow Hedges
Accumulated Other Comprehensive Income
Balances	800	(116)	196	(30)
Unrealized gain (loss) on cash flow hedges	247	(249)	815	(383)
Amounts reclassified from AOCI		112	36	160
Balances	1,047	(253)	1,047	(253)
Foreign Currency Translation Adjustments
Accumulated Other Comprehensive Income
Balances	(3,150)	(10,477)	(4,837)	(11,151)
Foreign currency translation (loss) gain	(3,532)	3,105	(1,845)	3,779
Balances	$ (6,682)	$ (7,372)	$ (6,682)	$ (7,372)

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DIVIDENDS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2017	Mar. 31, 2017	Jun. 30, 2018	Jun. 30, 2017
DIVIDENDS PER SHARE
Dividends declared (in dollars per share)	$ 0.030	$ 0.025	$ 0.025	$ 0.025
Total dividends declared					$ 520	$ 473

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EARNINGS PER SHARE (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Basic and diluted weighted-average shares outstanding
Basic weighted average shares outstanding (in shares)	9,268	9,165	9,241	9,120
Dilutive effect of equity awards (in shares)	88	100	80	130
Diluted weighted average shares outstanding (in shares)	9,356	9,265	9,321	9,250
Equity-based awards excluded from the calculation of diluted earnings per share (in shares)	87,203		80,671

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SEGMENT INFORMATION (Details) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) segment	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Segment information
Number of operating segments | segment			1
Identifiable assets	$ 215,190		$ 215,190		$ 187,922
Total Revenue
Segment information
Percentage of concentration risk	20.00%	18.00%	20.00%	19.00%
Trade receivables
Segment information
Percentage of concentration risk			21.00%		15.00%
Outside the United States
Segment information
Revenues derived from foreign subsidiaries	$ 38,395	$ 27,550	$ 7,474,698	$ 55,721
Wholly owned foreign subsidiaries
Segment information
Revenues derived from foreign subsidiaries	33,497	$ 24,810	65,903	$ 50,095
Identifiable assets	$ 87,451		$ 87,451		$ 84,652