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Table of Contents

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, 2020.

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________________to _________________________

Commission file number 0-04041

ALLIED MOTION TECHNOLOGIES INC.

(Exact name of Registrant as Specified in Its Charter)

Colorado

    

84-0518115

(State or other jurisdiction of incorporation or organization)

(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)

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Common stock

AMOT

NASDAQ

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    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes    No  

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.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

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.  

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

Number of Shares of the only class of Common Stock outstanding: 9,744,312 as of August 1, 2020

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

INDEX

PART I. FINANCIAL INFORMATION

Page No.

Item 1.

Financial Statements

 

Condensed Consolidated Balance Sheets – Unaudited

1

Condensed Consolidated Statements of Income and Comprehensive Income – Unaudited

2

Condensed Consolidated Statements of Stockholders’ Equity – Unaudited

3

Condensed Consolidated Statements of Cash Flows – Unaudited

4

Notes to Condensed Consolidated Financial Statements - Unaudited

5

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

PART II. OTHER INFORMATION

28

Item 1A.

Risk Factors

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

June 30, 

December 31, 

    

2020

    

2019

    

Assets

Current assets:

Cash and cash equivalents

$

19,019

$

13,416

Trade receivables, net of provision for credit losses of $605 and allowance for doubtful accounts of $405 at June 30, 2020 and December 31, 2019, respectively

49,595

44,429

Inventories

 

61,453

 

53,385

Prepaid expenses and other assets

 

3,699

 

4,413

Total current assets

 

133,766

 

115,643

Property, plant and equipment, net

 

53,465

 

53,008

Deferred income taxes

 

846

 

490

Intangible assets, net

 

67,378

 

62,497

Goodwill

 

59,501

 

52,935

Right of use assets

18,987

16,420

Other long-term assets

 

4,556

 

4,835

Total Assets

$

338,499

$

305,828

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

27,453

$

23,640

Accrued liabilities

 

22,210

 

23,001

Total current liabilities

 

49,663

 

46,641

Long-term debt

 

128,452

 

109,765

Deferred income taxes

 

4,649

 

3,399

Pension and post-retirement obligations

 

5,205

 

5,139

Right of use liabilities

15,471

13,715

Other long-term liabilities

8,779

7,975

Total liabilities

 

212,219

 

186,634

Stockholders’ Equity:

Common stock, no par value, authorized 50,000 shares; 9,744 and 9,599 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

39,786

 

37,136

Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding

 

 

Retained earnings

 

98,938

 

92,589

Accumulated other comprehensive loss

 

(12,444)

 

(10,531)

Total stockholders’ equity

 

126,280

 

119,194

Total Liabilities and Stockholders’ Equity

$

338,499

$

305,828

See accompanying notes to condensed consolidated financial statements.

1

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands, except per share data)

(Unaudited)

For the three months ended

For the six months ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

    

Revenues

$

86,661

$

92,630

$

179,043

$

186,526

Cost of goods sold

 

60,201

 

64,208

 

124,541

 

130,442

Gross profit

 

26,460

 

28,422

 

54,502

 

56,084

Operating costs and expenses:

Selling

 

3,842

 

4,136

 

8,085

 

8,229

General and administrative

 

9,710

 

9,569

 

18,872

 

18,519

Engineering and development

 

6,197

 

5,676

 

12,431

 

11,483

Business development

 

177

 

3

 

424

 

56

Amortization of intangible assets

 

1,483

 

1,430

 

2,924

 

2,862

Total operating costs and expenses

 

21,409

 

20,814

 

42,736

 

41,149

Operating income

 

5,051

 

7,608

 

11,766

 

14,935

Other expense (income):

Interest expense

 

901

 

1,435

 

1,955

 

2,615

Other expense (income), net

 

17

 

(1)

 

76

 

(19)

Total other expense, net

 

918

 

1,434

 

2,031

 

2,596

Income before income taxes

 

4,133

 

6,174

 

9,735

 

12,339

Provision for income taxes

 

(1,237)

 

(1,729)

 

(2,804)

 

(3,424)

Net income

$

2,896

$

4,445

$

6,931

$

8,915

Basic earnings per share:

Earnings per share

$

0.30

$

0.47

$

0.73

$

0.95

Basic weighted average common shares

 

9,509

 

9,408

 

9,474

 

9,378

Diluted earnings per share:

Earnings per share

$

0.30

$

0.47

$

0.73

$

0.95

Diluted weighted average common shares

 

9,536

 

9,456

 

9,518

 

9,419

Net income

$

2,896

$

4,445

$

6,931

$

8,915

Foreign currency translation adjustment

1,932

548

(496)

(339)

Loss on derivatives

(329)

(436)

(1,417)

(698)

Comprehensive income

$

4,499

$

4,557

$

5,018

$

7,878

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share data)

(Unaudited)

  

Common Stock

  

  

Accumulated

Unamortized

Common Stock

Other

Total

Cost of Equity

and Paid-in

Retained

Comprehensive

Stockholders'

(In thousands except per share data)

    

Shares

    

Amount

    

Awards

    

Capital

    

Earnings

    

Loss

    

Equity

Balances, December 31, 2019

 

9,599

$

41,642

$

(4,506)

$

37,136

$

92,589

$

(10,531)

$

119,194

Stock transactions under employee benefit stock plans

 

32

 

1,252

1,252

 

1,252

Issuance of restricted stock, net of forfeitures

 

104

 

3,574

 

(3,089)

485

 

485

Stock compensation expense

 

789

789

 

789

Shares withheld for payment of employee payroll taxes

(24)

(256)

(256)

(256)

Foreign currency translation adjustments

(2,428)

(2,428)

Accumulated income (loss) on derivatives

(1,432)

(1,432)

Tax effect of derivative transactions

344

344

Net income

 

 

4,035

 

4,035

Dividends to stockholders - $0.03

(290)

(290)

Balances, March 31, 2020

 

9,711

46,212

(6,806)

39,406

96,334

(14,047)

121,693

Issuance of restricted stock, net of forfeitures

 

38

 

1,222

 

(1,222)

 

Stock compensation expense

 

921

921

 

921

Shares withheld for payment of employee payroll taxes

(5)

(541)

(541)

(541)

Foreign currency translation adjustments

1,932

1,932

Accumulated income (loss) on derivatives

(433)

(433)

Tax effect of derivative transactions

104

104

Net income

 

 

2,896

 

2,896

Dividends to stockholders - $0.03

(292)

(292)

Balances, June 30, 2020

 

9,744

$

46,893

$

(7,107)

$

39,786

$

98,938

$

(12,444)

$

126,280

Common Stock

Accumulated

Unamortized

Common Stock

Other

Total

Cost of Equity

and Paid-in

Retained

Comprehensive

Stockholders'

    

Shares

    

Amount

    

Awards

    

Capital

    

Earnings

    

Loss

    

Equity

Balances, December 31, 2018

9,485

$

36,779

$

(3,166)

$

33,613

$

76,718

$

(8,518)

$

101,813

Stock transactions under employee benefit stock plans

 

27

 

1,088

1,088

 

1,088

Issuance of restricted stock, net of forfeitures

 

96

 

4,059

 

(3,729)

330

 

330

Stock compensation expense

 

596

596

 

596

Shares withheld for payment of employee payroll taxes

(1)

(63)

(63)

(63)

Foreign currency translation adjustments

(887)

(887)

Accumulated income (loss) on derivatives

(343)

(343)

Tax effect of derivative transactions

81

81

Net income

 

 

4,470

 

4,470

Dividends to stockholders - $0.03

(287)

(287)

Balances, March 31, 2019

 

9,607

$

41,863

$

(6,299)

$

35,564

$

80,901

$

(9,667)

$

106,798

Issuance of restricted stock, net of forfeitures

 

11

 

416

 

(416)

 

Stock compensation expense

780

780

780

Shares withheld for payment of employee payroll taxes

(18)

(647)

(647)

(647)

Foreign currency translation adjustments

548

548

Accumulated income (loss) on derivatives

(564)

(564)

Tax effect of derivative transactions

128

128

Net income

 

 

4,445

 

4,445

Dividends to stockholders - $0.03

(288)

(288)

Balances, June 30, 2019

 

9,600

$

41,632

$

(5,935)

$

35,697

$

85,058

$

(9,555)

$

111,200

See accompanying notes to condensed consolidated financial statements.

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ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

For the six months ended

June 30, 

    

2020

    

2019

    

Cash Flows From Operating Activities:

Net income

$

6,931

$

8,915

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

 

7,627

 

7,327

Deferred income taxes

 

(841)

 

(491)

Stock based compensation expense

1,720

1,540

Debt issue cost amortization recorded in interest expense

73

87

Other

 

885

 

(166)

Changes in operating assets and liabilities, net of acquisition:

Trade receivables

 

(1,178)

 

(8,692)

Inventories

 

(5,193)

 

1,973

Prepaid expenses and other assets

 

1,472

 

(289)

Accounts payable

 

(1,627)

 

(795)

Accrued liabilities

 

(3,270)

 

(557)

Net cash provided by operating activities

 

6,599

 

8,852

Cash Flows From Investing Activities:

Purchase of property and equipment

(3,614)

(6,401)

Cash paid for acquisitions, net of cash acquired

(14,728)

Net cash used in investing activities

 

(18,342)

 

(6,401)

Cash Flows From Financing Activities:

Borrowings on long term debt

26,979

7,695

Principal payments of long-term debt

(7,937)

(7,000)

Payment of debt issuance costs

 

(401)

 

Dividends paid to stockholders

 

(569)

 

(605)

Stock transactions under employee benefit stock plans

 

(797)

 

(710)

Net cash provided by (used in) financing activities

 

17,275

 

(620)

Effect of foreign exchange rate changes on cash

 

71

 

(41)

Net increase in cash and cash equivalents

 

5,603

 

1,790

Cash and cash equivalents at beginning of period

 

13,416

 

8,673

Cash and cash equivalents at end of period

$

19,019

$

10,463

See accompanying notes to condensed consolidated financial statements.

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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 controlled motion solutions, which include integrated system solutions as well as individual controlled motion products, to a broad spectrum of customers throughout the world. The Company’s target markets include Vehicle, Medical, Aerospace & Defense and Industrial.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of foreign subsidiaries that occur as a result of changes in exchange rates between foreign subsidiaries’ functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included in other comprehensive loss, a component of stockholders’ equity in the accompanying condensed consolidated statements of stockholders’ equity. Revenue and expense transactions use an average rate prevailing during the month of the related transaction. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of each of the Technology Units (“TUs”) are included in the results of operations as incurred.

The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and include all adjustments which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures herein are adequate to make the information presented not misleading. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year.

The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

It is suggested that the accompanying condensed consolidated financial statements be read in conjunction with the Consolidated Financial Statements and related Notes to such statements included in the Annual Report on Form 10-K for the year ended December 31, 2019 that was previously filed by the Company.

2.    ACQUISITIONS

Dynamic Controls

On March 7, 2020, the Company acquired 100% of the issued and outstanding share capital of the Dynamic Controls Group (“Dynamic Controls”), a wholly owned subsidiary of Invacare Corporation, a market-leading designer and manufacturer of equipment for the medical mobility and rehabilitation markets. The purchase price was funded using borrowings under the Amended Revolving Facility (Note 10). The purchase price was subject to adjustments based on a determination of closing net working capital.

Dynamic Controls brings strong leadership and a very experienced electronics and software engineering design team, providing market leading electronic control solutions and products that will further strengthen the Company’s medical market position, as well as enable it to further develop higher level solutions with embedded electronics across our other major served markets.

The Company incurred $177 and $424 of transaction costs related to the acquisition of Dynamic Controls in the three and six months ended June 30, 2020, which are included in business development expenses on the condensed consolidated statements of income and

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ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

comprehensive income. The Company accounted for the acquisition pursuant to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations.”

The preliminary allocation of the purchase price paid for Dynamic Controls is based on estimated fair values of the assets acquired and liabilities assumed of Dynamic Controls as of March 7, 2020 is as follows (in thousands):

Cash and cash equivalents

    

$

11,437

Accounts receivable

4,129

Inventory

3,329

Other assets, net

 

769

Property, plant and equipment

 

1,185

Right of use assets

2,735

Intangible assets

7,800

Goodwill

 

6,552

Current liabilities

(7,277)

Lease liabilities

(2,739)

Net deferred income tax liabilities

(1,755)

Net purchase price

$

26,165

During the three months ended June 30, 2020, measurement period adjustments primarily related to deferred income taxes and the true-up of closing net working capital were recognized, which resulted in a reduction of goodwill by $268. The allocation of the purchase price is preliminary as the valuation of both the tangible and identifiable intangible assets and liabilities is being finalized.

The intangible assets acquired consist of customer lists, technology and a trade name, which are being amortized over 16, 13 and 18 years, respectively. Goodwill generated in the acquisition is related to the assembled workforce, synergies between Allied Motion’s other operations and Dynamic Controls that are expected to occur as a result of the combined engineering knowledge, the ability of each of the operations to integrate each other’s products into more fully integrated system solutions and Allied Motion’s ability to utilize Dynamic Controls’ management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of this acquisition are included in our condensed consolidated financial statements beginning on the date of the acquisition. Included within the condensed consolidated statements of income and comprehensive income for the three and six months ended June 30, 2020, revenues related to Dynamic Controls were $9,913 and $12,415 respectively, and earnings related to the operations of Dynamic Controls were $1,048 and $1,172 respectively. Unaudited pro forma revenues, assuming the acquisition occurred on January 1, 2019, would have been $99,997 for the three months ended June 30, 2019 and $184,205 and $201,914 for the six months ended June 30, 2020 and 2019, respectively. Pro forma earnings and diluted earnings per share would have been $734, or $0.08 per share, lower than actual reported results in the three months ended June 30, 2019 and $956, or $0.10 per share, lower than actual reported results in the six months ended June 30, 2019. Pro forma earnings and diluted earnings per share for the six months ended June 30, 2020 would have been $654, or $0.07 per share, higher than actual reported results. The pro forma information includes certain adjustments, including depreciation and amortization expense, interest expense, and certain other adjustments, together with related income tax effects. The pro forma amounts do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of this acquisition. The pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would have been had these transactions actually occurred on the date presented or to project the combined company’s results of operations or financial position for any future period.

The goodwill resulting from the Dynamic Controls acquisition is not tax deductible.

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ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

3.    REVENUE RECOGNITION

Performance Obligations

Performance Obligations Satisfied at a Point in Time

The Company considers control of most products to transfer at a single point in time when control is transferred to the customer, generally when the products are shipped in accordance with an agreement and/or purchase order. Control is defined as the ability to direct the use of and obtain substantially all of the remaining benefits of the product.

The Company satisfies its performance obligations under a contract with a customer by transferring goods and services in exchange for monetary consideration from the customer. The Company considers the customer’s purchase order, and the Company’s corresponding sales order acknowledgment as the contract with the customer. For some customers, control, and a sale, is transferred at a point in time when the product is delivered to a customer.

Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

Nature of Goods and Services

The Company sells component and integrated controlled motion solutions to end customers and original equipment manufacturers (“OEM’s”) through the Company’s own direct sales force and authorized manufacturers’ representatives and distributors. The Company’s products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gearmotors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active and passive filters for power quality and harmonic issues, and other controlled motion-related products. The Company’s target markets include Vehicle, Medical, Aerospace & Defense and Industrial. 

Determining the Transaction Price

The majority of the Company’s contracts have an original duration of less than one year. For these contracts, the Company applies the practical expedient and therefore does not consider the effects of the time value of money. For multiyear contracts, the Company uses judgment to determine whether there is a significant financing component. These contracts are generally those in which the customer has made an up-front payment. Contracts that management determines to include a significant financing component are discounted at the Company’s incremental borrowing rate. The Company incurs interest expense and accrues a contract liability. As the Company satisfies performance obligations and recognizes revenue from these contracts, interest expense is recognized simultaneously. Management does not have any contracts that include a significant financing component as of June 30, 2020.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into geographical regions and target markets. The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As noted in the Segment Information footnote, the Company’s business consists of one reportable segment. The foreign revenues by geography in the table below are revenues derived from the Company's foreign subsidiaries as provided in Note 18.

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ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

A reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions is provided in Note 18 (in thousands).

Three months ended

Six months ended

June 30, 

June 30, 

Target Market

    

2020

    

2019

    

2020

    

2019

Vehicle

$

18,584

$

30,778

$

46,639

$

64,374

Industrial

 

28,223

 

32,194

 

61,574

 

63,505

Medical

 

24,261

 

12,219

 

38,812

 

24,629

Aerospace & Defense

 

10,516

 

12,143

 

21,658

 

23,397

Other

 

5,077

 

5,296

 

10,360

 

10,621

Total

$

86,661

$

92,630

$

179,043

$

186,526

Three months ended

Six months ended

June 30, 

June 30, 

Geography

    

2020

    

2019

    

2020

    

2019

United States

$

47,311

$

62,645

$

103,680

$

121,957

Europe

 

29,012

 

29,390

 

62,145

 

63,561

Other

 

10,338

 

595

 

13,218

 

1,008

Total

$

86,661

$

92,630

$

179,043

$

186,526

Contract Balances

When the timing of the Company’s delivery of product is different from the timing of the payments made by customers, the Company recognizes either a contract asset (performance precedes customer payment) or a contract liability (customer payment precedes performance). Typically, contracts are paid in arrears and are recognized as receivables after the Company considers whether a significant financing component exists.

The opening and closing balances of the Company’s contract liabilities are as follows (in thousands):

    

June 30, 

    

December 31, 

2020

2019

Contract liabilities in accrued liabilities

$

344

$

454

Contract liabilities in other long-term liabilities

284

$

628

$

454

The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment.

Significant Payment Terms

The Company’s contracts with its customers state the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payments are typically due in full within 30-60 days of delivery. Since the customer agrees to a stated rate and price in the contract that do not vary over the contract, the majority of contracts do not contain variable consideration.

Returns, Refunds, and Warranties

In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The Company establishes provisions for estimated returns and warranties. All contracts include a standard warranty clause to guarantee that the product complies with agreed specifications.

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ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

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, 

    

December 31, 

2020

2019

Parts and raw materials

$

42,886

$

35,849

Work-in-process

 

7,107

 

6,951

Finished goods

 

11,460

 

10,585

61,453

53,385

5.    PROPERTY, PLANT AND EQUIPMENT

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

    

June 30, 

    

December 31, 

2020

2019

Land

$

976

$

977

Building and improvements

 

 

13,604

 

13,366

Machinery, equipment, tools and dies

 

 

77,565

 

73,894

Furniture, fixtures and other

 

 

16,832

 

15,797

 

108,977

 

104,034

Less accumulated depreciation

 

(55,512)

 

(51,026)

Property, plant and equipment, net

$

53,465

$

53,008

Depreciation expense was approximately $2,394 and $2,238 for the quarters ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, depreciation expense was $4,703 and $4,465, respectively.

6.    GOODWILL

The change in the carrying amount of goodwill for the six months ended is as follows (in thousands):

Beginning balance

$

52,935

Goodwill acquired (Note 2)

 

6,552

Effect of foreign currency translation

 

14

Ending balance

$

59,501

7.    INTANGIBLE ASSETS

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

June 30, 2020

December 31, 2019

    

    

Gross

    

Accumulated

    

Net Book

    

Gross

    

Accumulated

    

Net Book

Life

Amount

amortization

Value

Amount

amortization

Value

Customer lists

 

8 - 17 years

$

68,698

$

(21,315)

$

47,383

$

64,314

$

(19,311)

$

45,003

Trade name

 

10 - 19 years

 

13,733

 

(4,549)

 

9,184

 

12,222

 

(4,114)

 

8,108

Design and technologies

 

10 - 15 years

 

14,836

 

(4,037)

 

10,799

 

12,927

 

(3,554)

 

9,373

Patents

17 years

 

24

 

(12)

 

12

 

24

 

(11)

 

13

Total

$

97,291

$

(29,913)

$

67,378

$

89,487

$

(26,990)

$

62,497

Intangible assets resulting from the acquisition of Dynamic Controls were $7,800 (Note 2). The intangible assets acquired consist of a customer list, a trade name and technology.

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ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

Amortization expense for intangible assets was $1,483 and $1,430 for the quarters ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, amortization expense was $