Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Amounts presented in Item 7 are in thousands, except per share data.
Overview
We are a global company that designs, manufactures, and sells precision and specialty-controlled motion products and solutions used in a broad range of industries. Our target markets include Industrial, Vehicle, Medical, and Aerospace & Defense (A&D). We are headquartered in Amherst, NY, and have operations in the United States, Canada, Mexico, Europe, and Asia-Pacific. We are known worldwide for our expertise in electro-magnetic, mechanical, and electronic motion technology. We sell component and integrated controlled motion solutions to end customers and OEMs through our own direct sales force and authorized manufacturers’ representatives and distributors. Our products include nano precision positioning systems, servo control systems, motion controllers, digital servo amplifiers and drives, brushless servo, torque, and coreless motors, brush motors, integrated motor-drives, gear motors, gearing, incremental and absolute optical encoders, active (electronic) and passive (magnetic) filters for power quality and harmonic issues, Industrial safety rated input/output Modules, Universal Industrial Communications Gateways, light-weighting technologies, and other controlled motion-related products.
Financial Overview
Highlights for our fiscal year ended December 31, 2025, include:
Revenue was $554,478 for 2025 compared with $529,968 in 2024. Strong results in the Industrial market was driven by increased demand in power quality solutions supporting data center infrastructure. This is partially offset by decreases in Vehicle due to reduced demand in power sports and truck applications. Sales to U.S. customers were 55% of total sales for each of 2025 and 2024, with the balance of sales to customers primarily in Europe, Canada and Asia-Pacific.
Gross profit was $181,709 for 2025, a 10% increase from $165,691 in 2024. As a percentage of revenue, gross margin increased 150 basis points to 32.8% in 2025 from 31.3% in 2024. G ross profit and gross margin percentage were impacted favorably by higher sales volume, improved product mix, and operational improvements driven by our Simplify to Accelerate NOW strategy.
Operating income was $43,985 for 2025 compared with $30,038 for 2024, or 7.9% and 5.7% of revenue in 2025 and 2024, respectively.
Net income was $22,034 for 2025, or $1.32 per diluted share, compared with $13,166, or $0.79 per diluted share, for 2024. Net income was 70% higher in 2025 compared to 2024, and earnings per diluted share increased by 70% as compared to 2024.
Bookings were $550,864 for 2025 compared with $480,031 for 2024, an increase of 15%. Increases in bookings are primarily due to increasing demand at certain customers, primarily power quality solutions supporting data center infrastructure throughout 2025. Backlog as of December 31, 2025 was $232,925, an increase of 1% from $230,788 at year end 2024.
Debt of $180,389, net of cash of $40,705, decreased by $48,391 to $139,684 at December 31, 2025 from debt of $224,177, net of cash of $36,102 of $188,075 at December 31, 2024, primarily as a result of payments made on debt from cash flows generated by operations.
We declared and paid a dividend of $0.03 in each quarter of 2025 and 2024, pursuant to our quarterly dividend program. Dividends to shareholders for 2025 and 2024 were each $0.12 per share. The dividend payout ratio was 9% and 15% for 2025 and 2024, respectively when compared with the diluted earnings per share of $1.32 and $0.79, respectively.
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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 Allient 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 are long and the time from being selected for the solution development to full rate production can be longer, yet we believe we continue to build a scalable foundation which can deliver strong returns on those investments.
Our Strategy
Our growth strategy is focused on becoming a leading global controlled motion solution provider in our selected target markets by further developing our products and services platform to utilize multiple Allient technologies which create increased value solutions for our customers. Our strategy further defines Allient as being a “technology/know-how” driven company and to be successful, we continue to invest in our areas of excellence.
We have set growth targets for our Company and we will focus and align our resources to meet those targets. First and foremost, we invest in our people as we believe that attracting and retaining the right people is the most important element in our strategy. We will continue to invest significantly in applied and design engineering resources.
Our strategic focus is addressing the critical issues that we believe are necessary to meet the stated long-term goals and objectives of the Company. The majority of the critical issues are focused on growth and profitability initiatives for the Company.
One of these initiatives includes product line platform development and rationalization to meet the emerging needs of our target markets. Our platform development emphasizes a combination of our technologies to create increased value solutions for our customers while seeking operating efficiencies. The emphasis on new opportunities has evolved from being an individual component provider to becoming a solutions provider whereby the new opportunities utilize multiple Allient technologies in a system solution approach. We believe this approach will allow us to provide increased value to our customers and improved margins for our Company and are demonstrated in our acquisitions completed in previous years. Our strong financial condition, along with AST continuous improvement initiatives in quality, delivery, and cost allow us to have a positive outlook for the continued long-term growth of our Company.
Outlook for 2026
In 2025, we successfully executed on our strategic initiatives, delivering improved margins, stronger cash flow, and enhanced balance sheet flexibility. Strength in industrial automation and power quality solutions supporting data center infrastructure, combined with the disciplined execution of structural cost and margin improvements from our Simplify to Accelerate NOW program, have yielded durable margin expansion.
Allient is an applied technology/know-how company, and to grow, we will continue to invest in the technical resources to ensure we can execute on our mantra to “ create game changing solutions that adds tangible value for our customers ”.
As we look into 2026, while we remain mindful of macroeconomics variability in certain end markets, our diversified portfolio, improved cost structure and enhanced financial flexibility support disciplined growth and long-term value creation.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”). We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates and judgments upon historical experience and other factors that are believed to be reasonable under the circumstances. Changes in estimates or assumptions could result in a material adjustment to the consolidated financial statements.
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We have identified several critical accounting estimates. An accounting estimate is considered critical if both: (a) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (b) the impact of changes in the estimates and assumptions would have a material effect on the consolidated financial statements. This listing is not a comprehensive list of all of our accounting policies. For further information regarding the application of these and other accounting policies, See Note 1, Business and Summary of Significant Accounting Policies of the notes to consolidated financial statements contained in Item 8 of this report for additional information.
The Company’s critical accounting policies and estimates include:
Revenue Recognition
The Company considers control of most products to transfer at a single point in time when control is transferred to the customer, generally when the products are shipped in accordance with an agreement and/or purchase order. Control is defined as the ability to direct the use of and obtain substantially all of the remaining benefits of the product. The Company satisfies its performance obligations under a contract with a customer by transferring goods and services generally in exchange for monetary consideration from the customer. The Company considers the customer’s purchase order, and the Company’s corresponding sales order acknowledgment as the contract with the customer. In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The Company establishes provisions for estimated returns and warranties. All contracts include a standard warranty clause to guarantee that the product complies with agreed specifications.
Inventories
Inventories are measured on a first-in, first-out basis at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory costing requires complex calculations that include assumptions for overhead absorption, scrap, sample calculations, manufacturing yield estimates, costs to sell, and the determination of which costs may be capitalized. The Company’s estimate of the appropriate amount of obsolete or excess inventory, as well as inventory that is not of saleable quality, uses certain inputs and involves judgment. Such inputs include data associated with historic trends, the demand forecast for inventory on-hand which includes customer orders, and item specific estimates about the timing or level of demand for a specific part.
Historically, our inventory adjustment has been adequate to cover our losses. However, variations in methods or assumptions could have a material impact on our results. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory write-downs or expense a greater amount of overhead costs, which would negatively impact our net income. As of December 31, 2025, we have $109,198 of inventory recorded on our consolidated balance sheet, representing approximately 19% of total assets. A 1% write-down of our inventory would decrease our 2025 net income by approximately $850, or $0.05 per diluted share.
Evaluation of Goodwill for impairment
We test the reporting unit’s goodwill for impairment as of October 31st of each fiscal year and between annual tests if an event occurs or circumstances change that may indicate that the fair value of the reporting unit is below its carrying value. In conducting this annual impairment test, we may first perform a qualitative assessment of whether it is more-likely-than not that the reporting unit’s fair value is less than its carrying value. If we determine that it is not more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, no further goodwill impairment testing is required. If it is more-likely-than-not that the reporting unit’s fair value is less than its carrying value, or if we elect not to perform a qualitative assessment of a reporting unit, a quantitative analysis is performed, in which the fair value of the reporting unit is compared to its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized equal to the excess, limited to the amount of goodwill allocated to that reporting unit.
We performed a qualitative assessment of our single reporting unit as of October 31, 2025. As part of this analysis, we evaluated factors including, but not limited to, our market capitalization and stock price performance, macro-economic conditions, market and industry conditions, cost factors, the competitive environment, and the operational stability and
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overall financial performance of our reporting unit. The assessment indicated that it was more-likely-than-not that the fair value of our reporting unit exceeded its carrying amount, and as such, a quantitative assessment was not performed.
We do not believe that our reporting unit is at risk for impairment. However, changes to the factors considered above could affect the estimated fair value of our reporting unit and could result in a goodwill impairment charge in a future period. As of December 31, 2025, we have $134,332 of goodwill recorded on our consolidated balance sheet, representing approximately 23% of total assets. A 1% write-down of our goodwill would decrease our 2025 net income by approximately $1,000, or $0.06 per diluted share.
Business Combinations
The Company allocates the purchase price of an acquired company, including when applicable, the acquisition date fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Estimating fair values requires significant judgments, estimates and assumptions, including but not limited to: discount rates, future cash flows and the economic lives of trade names, technology, customer relationships, and property, plant and equipment. These estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
Impact of Recently Issued Accounting Pronouncements
In the normal course of business, we evaluate all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), Securities and Exchange Commission (“SEC”), Emerging Issues Task Force (“EITF”) or other authoritative accounting bodies to determine the potential impact they may have on our consolidated financial statements. See Note 1, Business and Summary of Significant Accounting Policies of the notes to consolidated financial statements contained in Item 8 of this report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations.
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Operating Results
The following discussion is a comparison between fiscal year 2025 and fiscal year 2024 results. For a discussion of our results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which was filed with the SEC on March 5, 2025.
Year 2025 compared to 2024
For the year ended
December 31,
Variance
(Dollars in thousands, except per share data)
Revenues
Cost of goods sold
Gross profit
Gross margin percentage
Operating costs and expenses:
Selling
General and administrative
Engineering and development
Acquisition and integration-related costs
Restructuring and business realignment costs
Amortization of intangible assets
Total operating costs and expenses
Operating income
Interest expense
Other expense (income), net
Total other expense, net
Income before income taxes
Income tax provision
Net income
Effective tax rate
Diluted earnings per share
Bookings
Backlog
REVENUES: The increase in revenues for 2025 reflects increases within certain target markets, most significantly in Industrial and Aerospace and Defense. Increases in revenues compared to the prior year period are largely impacted by increased demand in power quality solutions supporting data center infrastructure . Our sales for 2025 were comprised of 55% to U.S. customers and 45% to customers primarily in Europe, Canada and Asia-Pacific. The overall increase in revenue was primarily due to a 3.5% volume increase and a favorable 1.2% foreign currency impact. See information included in “Non – GAAP Measures” below for a discussion of the non-GAAP measure and reconciliation of revenue to revenue excluding foreign currency impacts.
ORDER BOOKINGS AND BACKLOG: The 15% increase in orders in 2025 compared to 2024 is due to an 13.4% increase in volume and a favorable 1.3% foreign currency impact. Increases in bookings are primarily due to increasing demand at certain customers, primarily power quality solutions supporting data center infrastructure throughout 2025.
GROSS PROFIT AND GROSS MARGIN: Gross margins increased to 32.8% for 2025, compared to 31.3% for 2024. Gross profit and gross margin percentage were impacted favorably by higher sales volume, improved product mix, and operational improvements driven by our Simplify to Accelerate NOW strategy.
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SELLING EXPENSES: Selling expenses decreased 3% during 2025 compared to 2024 primarily due to the mix of sales with commissions. Selling expenses as a percentage of revenues were 4% and 5% during 2025 and 2024, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 4% during 2025 compared to 2024 due to high er incentive compensation, offset partially by cost reduction actions taken reflecting our Simplify to Accelerate NOW strategy . As a percentage of revenues, general and administrative expenses were 10% and 11% in 2025 and 2024, respectively.
ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses decreased by 2% in 2025 compared to 2024. The decrease reflects the cost reduction actions taken as part of our Simplify to Accelerate NOW strategy . As a percentage of revenues, engineering and development expenses were 7% and 8% for the years ended December 31, 2025 and 2024, respectively.
ACQUISITION AND INTEGRATION-RELATED COSTS: Acquisition and integration-related costs were not significant in the current and prior year period.
RESTRUCTURING AND BUSINESS REALIGNMENT COSTS: Restructuring and business realignment costs increased in the year ended December 31, 2025 compared to 2024 reflecting costs primarily associated with the transfer of assembly operations from our Dothan, Alabama facility in 2025 and timing of other Simplify to Accelerate NOW actions as compared with the prior year.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization of intangible assets remained flat in 2025 compared to 2024.
INTEREST EXPENSE: Interest expense decreased by 1% in 2025 compared to 2024 primarily due to lower average debt balances, offset partially by higher interest rates, which are mitigated in part by the impact of interest rate swaps.
INCOME TAXES: For 2025 and 2024, the effective income tax rate was 23.3% and 21.9%, respectively. The effective rate differs from the statutory rate primarily due to state income taxes, the impact of foreign tax provisions in the U.S., foreign tax rate differences, section 162(m) compensation limits, the benefit of Research and Development tax credits and incentives and withholding taxes on foreign distributions. The effective tax rate for 2025 was higher than the effective tax rate for 2024 primarily due to increases due to impacts of section 162(m) compensation limits, withholding taxes on foreign distributions, and the impact of the mix of foreign and domestic income, partially offset by increases in certain credits and incentives and the realization of certain deferred income tax assets that had been reserved in prior years.
NET INCOME AND ADJUSTED NET INCOME: Net income increased during 2025 compared to 2024, primarily due to operating income increases, reflecting increased revenues and higher gross margin, offset partially by increases in operating expenses.
Adjusted net income for the years ended December 31, 2025 and 2024 was $36,274 and $24,679, respectively. Adjusted diluted earnings per share for 2025 and 2024 were $2.17 and $1.49, respectively. Adjusted net income and adjusted diluted earnings per share are non-GAAP measures. See information included in “Non–GAAP Measures” below for a discussion of the non-GAAP measure and reconciliation of net income to Adjusted net income and diluted earnings per share to Adjusted diluted earnings per share.
EBITDA AND ADJUSTED EBITDA: EBITDA was $67,316 for 2025 compared to $56,045 for 2024. Adjusted EBITDA was $76,865 and $62,525 for 2025 and 2024, respectively. EBITDA and Adjusted EBITDA are non-GAAP measures. EBITDA consists of income before interest expense, provision for income taxes, and depreciation and amortization. Adjusted EBITDA also excludes stock-based compensation expense, foreign currency gain/loss and certain other items. Refer to information included in “Non-GAAP Measures” below for a discussion of the non-GAAP measure and a reconciliation of net income to EBITDA and Adjusted EBITDA.
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Non-GAAP Measures
Organic growth, EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted diluted earnings per share 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 to investors and other users of our financial statements 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. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for revenue and 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, the 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. Organic revenue is reported revenues adjusted for the impact of foreign currency and the revenue contribution from acquisitions.
The Company believes that revenue excluding foreign currency exchange impacts is a useful measure in analyzing sales results. The Company excludes the effect of currency translation from revenue for this measure because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The portion of revenue attributable to currency translation is calculated as the difference between the current period revenue and the current period revenue after applying foreign exchange rates from the prior period.
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, acquisitions, 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-based compensation expense, as well as acquisition and integration-related costs, restructuring and business realignment costs, foreign currency gains/losses on short-term assets and liabilities, and other items that are not indicative of the Company’s core operating performance. 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 GAAP.
Management uses Adjusted net income and Adjusted diluted earnings per share to assess the Company’s consolidated financial and operating performance. Adjusted net income and Adjusted diluted earnings per share are provided for informational purposes only and are not a measure of financial performance under GAAP. These measures help management make decisions that are expected to facilitate meeting current financial goals as well as achieving optimal financial performance. Adjusted net income provides management with a measure of financial performance of the Company based on operational factors as it removes the impact of certain non-routine items from the Company’s operating results. Adjusted diluted earnings per share provides management with an indication of how Adjusted net income would be reflected on a per share basis for comparison to the GAAP diluted earnings per share measure. Adjusted net income is a key metric used by senior management and the Company’s Board of Directors to review the consolidated financial performance of the business. This measure adjusts net income determined in accordance with GAAP to reflect changes in financial results associated with the highlighted expense and income items. Organic growth is reported revenues adjusted for the impact of foreign currency and the revenue contribution from acquisitions.
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The Company’s calculation of revenue excluding foreign currency exchange impacts for the year ended December 31, 2025 is as follows:
Year ended
December 31, 2025
Revenue as reported
Foreign currency impact - (favorable) / unfavorable
Revenue excluding foreign currency exchange impacts
The Company’s calculation of organic growth for 2025 is as follows:
Year ended
December 31, 2025
Revenue change over prior year
Less: Impact of acquisitions and foreign currency
Organic growth
The Company’s calculation of EBITDA and Adjusted EBITDA for 2025 and 2024 is as follows (in thousands):
Year ended
December 31,
Net income as reported
Interest expense
Provision for income tax
Depreciation and amortization
EBITDA
Stock-based compensation expense
Acquisition and integration-related costs
Restructuring and business realignment costs
Foreign currency loss (gain)
Adjusted EBITDA
The Company’s calculation of Adjusted net income and Adjusted diluted earnings per share for years ended December 31, 2025 and 2024 is as follows (in thousands, except per share data):
For the year ended
December 31,
Per diluted
Per diluted
share
share
Net income as reported
Non-GAAP adjustments, net of tax (1)
Amortization of intangible assets – net
Foreign currency loss (gain) – net
Acquisition and integration-related costs – net
Restructuring and business realignment costs – net
Non-GAAP adjusted net income and adjusted diluted earnings per share
Applies a blended federal, state, and foreign tax rate of approximately 23% in 2025 and 2024 applicable to the non-GAAP adjustments.
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Liquidity and Capital Resources
The Company’s liquidity position as measured by cash and cash equivalents increased by $4,603 to a balance of $40,705 at December 31, 2025 from 2024.
Year Ended December 31,
(in thousands):
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of foreign exchange rates on cash
Net increase in cash and cash equivalents
Of the $40,705 cash and cash equivalents on hand at December 31, 2025, $36,662 was located at our foreign subsidiaries and may be subject to withholding tax if repatriated to the U.S.
During 2025, the cash provided by operating activities increased from 2024 primarily due to increases in cash due to an increase in net income, as well as changes in accounts payable, and accrued liabilities, offset partially by decreases in cash due to changes in accounts receivable and inventory.
The cash used in investing activities in 2025 decreased as compared with 2024 due to $20,000 in cash paid for the acquisition of SNC in 2024, as well as a decrease in capital expenditures of $2,496. The Company expects 2026 capital expenditures to be approximately $10,000 to $12,000.
Cash used in financing activities in 2025 as compared to cash used in financing activities in 2024 reflects the borrowings of $20,000 from the Amended Revolving Facility to fund the SNC acquisition and the $50,000 of fixed-rate Notes issued in March 2024 that were used to pay down the Revolving Facility. Debt repayments, excluding the pay down on the Revolving Facility of $50,000 from the Notes issuance, of $44,448 and $18,433 were made during 2025 and 2024, respectively. At December 31, 2025, the Company had $124,962 of obligations under the Amended Revolving Facility, excluding deferred financing costs and $50,000 for the Notes issued in March 2024 .
The Amended Credit Agreement includes covenants and restrictions that limit the Company’s ability to incur additional indebtedness, make certain investments, create, incur or assume certain liens, merge, consolidate or sell all or substantially all of its assets and enter into transactions with an affiliate of the Company on other than an arms’ length transaction. These covenants, which are described more fully in the Amended Credit Agreement, to which reference is made for a complete statement of the covenants, are subject to certain exceptions. Financial covenants under the 2024 Credit and Note Payable Agreements require the Company to maintain a minimum interest coverage ratio of at least 3.0:1.0 at the end of each fiscal quarter. In addition, the Company’s Leverage Ratio at the end of any fiscal quarter shall not be greater than 4.25:1.0 through December 31, 2024 or greater than 3.75 to 1.0 as of the end of any fiscal quarter thereafter; provided that the Company may elect to temporarily increase the Leverage Ratio by 0.5:1.0 following a material acquisition under the 2024 Credit and Note Payable Agreements. The 2024 Credit and Note Payable Agreements also include covenants and restrictions that limit the Company’s ability to incur additional indebtedness, merge, consolidate or sell all or substantially all of its assets and enter into transactions with an affiliate of the Company on other than an arms’ length transaction. These covenants, which are described more fully in the 2024 Credit and Note Payable Agreements, to which reference is made for a complete statement of the covenants, are subject to certain exceptions. The Company was in compliance with all covenants at December 31, 2025 as well as at each quarter end during 2025.
As of December 31, 2025, the unused Amended Revolving Facility was $155,038. Additionally, the Company has a $150,000 fixed-rate private shelf facility, under which $50,000 of borrowings are outstanding at December 31, 2025. The amount available to borrow may be lower and may vary from period to period based upon our debt and EBITDA levels, which impacts our covenant calculations. The Amended Credit Agreement matures in March 2029.
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On October 22, 2024, the Company entered into a Second Amendment to the Third Amended and Restated Credit Agreement and a Second Amendment to the Note Purchase and Private Shelf Agreement (collectively, the “October 2024 Credit and Note Payable Amendments”). These amendments include provisions to increase the maximum Leverage Ratio to 4.5:1.0 for the quarters ending March 31, 2025 and June 30, 2025, 4.0:1.0 for the quarter ending September 30, 2025, and returning to 3.75:1.0 for the quarter ending December 31, 2025 and thereafter. From January 1, 2025 through September 30, 2025, borrowings under the Revolving Facility bore interest at Term SOFR plus a margin of 2.50% and a commitment fee of 0.325% on the unused portion of the Revolving Facility. Also, from October 1, 2024 through September 30, 2025, the Series A Notes bore interest at 6.46%.
The Company declared dividends, in total, of $0.12 per share during 2025 and 2024. 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 Amended Credit Agreement (refer to Note 7, Debt Obligations , of the notes to consolidated financial statements for definition and terms).
We believe our diverse markets, our strong market position in many of our businesses, and the steps we have taken to strengthen our balance sheet, such as retaining cash to support shorter term needs and amending our revolving credit facility leaves us well-positioned to manage our business. We continually assess our liquidity and cash positions taking geopolitical and other uncertainties into consideration. Based on our analysis, we believe our existing balances of cash, our currently anticipated operating cash flows, and our available financing under agreements in place will be more than sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
Foreign Currency
We have international operations in The Netherlands, Sweden, Germany, China, Portugal, Canada, Czech Republic, Mexico, the United Kingdom and New Zealand which expose us to foreign currency exchange rate fluctuations due to transactions denominated in Euros, Swedish Krona, Chinese Renminbi, Canadian dollar, Czech Krona, Mexican pesos, British Pound Sterling, and New Zealand dollar, respectively. We continuously evaluate our foreign currency risk and we 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 $24,126 on our 2025 sales. 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 increased sales in 2025 compared to 2024 by approximately $6,481.
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 consolidated financial statements as comprehensive income (loss). The translation adjustment was a gain of $14,759 and a loss of $12,033 for the years ended December 31, 2025 and 2024, respectively. Translation adjustments are not adjusted for income taxes as they relate to permanent investments in our foreign subsidiaries. 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 $16,373 on our foreign net assets as of December 31, 2025.
We have contracts to hedge our short-term balance sheet exposure, primarily intercompany, that are denominated in currencies (Euro, Mexican Peso, Canadian Dollar, New Zealand Dollar, Chinese Renminbi, Swedish Krona) other than the subsidiary’s functional currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in other expense (income), net in the consolidated statements of income and comprehensive income. To minimize foreign currency exposure, the Company had foreign currency contracts with notional amounts of $26,033 and $30,945 at December 31, 2025 and 2024, respectively. The foreign currency contracts are recorded in the consolidated balance sheets at fair value and resulting gains or losses are recorded in other expense (income), net in the consolidated statements of income and comprehensive income. During the years ended December 31, 2025 and 2024, we recorded a gain of $481 and a loss of $1,749, respectively, which is included in other expense (income), net and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also
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included in other expense (income), net. Net foreign currency transaction gains and losses included in total other expense (income), net amounted to a loss of $2,078 and a gain of $85 in 2025 and 2024, respectively.
Interest Rates
The Series A Notes under our 2024 Note Payable Agreement will bear interest at a fixed rate 5.96% and will mature on March 21, 2031. Interest on the Notes will be payable quarterly on the 21st day of March, June, September and December in each year, commencing on June 21, 2024. As amended on October 22, 2024, the Series A Notes bore interest at 6.46% from October 1, 2024 through September 30, 2025. Interest will be computed on the basis of a 360-day year composed of twelve 30-day months.
Interest rates on our Credit Facility are based on Term SOFR plus a margin of 1.25% to 2.50% (1.75% at December 31, 2025), depending on the Company’s ratio of total funded indebtedness to consolidated EBITDA. As amended on October 22, 2024, borrowings under the Credit Facility bore interest at Term SOFR plus a margin of 2.50% from January 1, 2025 through September 30, 2025. 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. In March 2020, the Company entered into two interest rate swaps with a combined notional amount of $20,000 that increased to $60,000 in March 2022 and matured in December 2024. In March 2022 the Company entered into an additional interest rate swap with a notional amount of $40,000 that matures in December 2026. In September 2024, the Company entered into an additional interest rate swap with a notional amount of $50,000 that matures in September 2027.
As of December 31, 2025, we had $124,962 outstanding under the Amended Revolving Facility (excluding deferred financing fees), of which $90,000 is currently being hedged. Refer to Note 7, Debt Obligations , of the notes to 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 $34,962 of unhedged floating rate debt outstanding at December 31, 2025 would have an impact of approximately $350 on our interest expense for 2025.
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