Table of Contents

Table of Contents

Disclosure Regarding Forward-Looking Statements

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 I of this report. 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 the and are believed to have a reasonable basis; however, the Company makes no assurance that expectations, beliefs or projections will be achieved.

PART I

All dollar amounts are in thousands except share and per share amounts.

Item 1. Business.

Description of the Business

Allied Motion Technologies Inc. (“Allied Motion” or the “Company” or “we” or “our”) is a global company that designs, manufactures and sells precision and specialty controlled motion control components and systems used in a broad range of industries.  Our target markets include Vehicle, Medical, Aerospace & Defense (A&D), and Industrial/Electronics.Industrial. We are headquartered in Amherst, NY, and have global operations inand sell to markets across the United States, Canada, Mexico,South America, 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 (BLDC) 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 motion control-relatedcontrolled motion-related products.

Our

The Company’s growth strategy is focused on becoming the controlled motion solution leader in ourits selected target markets by leveraging our “technology/know how” to develop integrated precision motion solutions.  Our intent isfurther developing its products and services platform to utilize multiple Allied Motion technologies/productstechnologies to “changecreate increased value solutions for its customers.  Our strategy further defines Allied Motion as being a “technology/know-how” driven company and to be successful, the game” by enhancing and optimizing the operation, performance and efficiencyCompany continues to invest in its areas of our

customers’ products and manufacturing equipment.  Our goal is to grow sales with a larger base of customers, new applications and technologies, and increased market share globally and within our targeted markets.excellence.

Growth targets have been set for the Company and it will align and focus its resources to meet those targets.  First and foremost, the Company invests in its people as it believes that attracting and retaining the right people is the most important element in the strategy.  The Company will continue to invest in applied and design engineering resources which can be leveraged across the entire Allied organization.

The Company’s strategic focus is addressing the critical issues that it believes are necessary to meet the stated long-term goals and objectives.  The majority of the critical issues are focused on growth initiatives for the Company.

One of the Company’s growth initiatives includes product line platform development to meet the emerging needs of its selected target markets.  The platform development emphasizes a combination of technologies to create increased value solutions for customers.  The emphasis with new opportunities has evolved from being an individual component provider to becoming a solutions provider whereby the new opportunities utilize multiple Company technologies in a system solution approach.  The Company believes this approach will allow it to provide increased value to its customers and improved margins for the Company.  Its strong financial condition, along with Allied Systematic Tools (“AST”) continuous improvement initiatives in quality, delivery, and cost allow for a positive outlook for the continued long-term growth of the Company.

We design and develop our products within our Technology Centers and can manufacture these products in various facilities located in the United States, Canada, Mexico, Europe and Asia.  We also operate Allied Motion Solution CentersCenters that apply all Allied Motion products to create integrated controlled motion control solutions for our customers.  We sell our products and solutions globally to a broad spectrum of customers through our own direct sales force and authorized manufacturers’ representatives and distributors.  Our customers include end users and original equipment manufacturers (“OEMs”).

Allied Motion was established in 1962 under the laws of Colorado and operates in the United States, Canada, Mexico, Europe and Asia.  We are headquartered in Amherst, New York and the mailing address of our corporate headquarters is 495 Commerce Drive, Suite 3, Amherst, New York 14228.  The telephone number at this location is (716) 242-8634.  Our website is www.alliedmotion.com.  We trade under the ticker symbol “AMOT” on the NASDAQ exchange.

Markets and Applications

OurThe Company sells its products and solutions are applied broadly to supportinto a wide rangesubset of applications several served markets.  Examples of applications in these markets that use Allied Motion components and systems include the following:following broad markets:

Vehicle: electronic power steering and drive-by-wire applications to electrically replace, or provide power-assist to a variety of mechanical linkages, traction / drive systems and pumps, automated and remotely guided power steering systems, various high performance vehicle applications, actuation systems (e.g., lifts, slide-outs, covers, etc.), HVAC systems, solutions to improve energy efficiency of vehicles while idling and alternative fuel systems such as LPG, fuel cell and hybrid vehicles. Vehicle types include off- and on-road construction and agricultural equipment; trucks, buses, boats, utility, recreational (e.g., RVs, ATVs (all-terrain vehicles)), specialty automotive, automated and remotely guided vehicles, etc.vehicles).

Medical:Medical: surgical robots, prosthetics, electric powered surgical hand pieces, programmable pumps to meter and administer infusions associated with chemotherapy, pain control and antibiotics, nuclear imaging systems, radiology equipment, automated pharmacy dispensing equipment, kidney dialysis equipment, respiratory ventilators, heart pumps, and patient handling equipment (e.g., wheel chairs, scooters, stair lifts, patient lifts, transport tables and hospital beds, etc.)beds).

Aerospace & Defense: inertial guided missiles, mid-range smart munitions systems, weapons systems on armed personnel carriers, unmanned vehicles, security and access control, camera systems, door access control, airport screening and scanning devices, etc.devices.

Electronics/Industrial: products are used in factory automation, specialty equipment, material handling equipment, commercial grade floor polishers and cleaners, commercial building equipment such as welders, cable pullers and assembly tools, the handling, inspection, and testing of components and final products such as PCs, gaming equipment and cell phones, high definition printers, tunable lasers and spectrum analyzers for the fiber optic industry, test and processing equipment for the semiconductor manufacturing industry, factory automation, specialty equipment, material handling equipment, commercial grade floor polisherspower quality products to filter distortion caused by variable frequency drives and cleaners, commercial building equipment such as welders, cable pullers and assembly tools, etc.other power electronic equipment.

Organization Structure

Organization Structure

Allied Motion’s “One Team”Allied” approach to the market is realized through the close collaboration of our Sales Organization, Solution Centers, Technology Centers and Production Centers all working together to provide innovative controlled motion solutions and create value for our customers.

Allied Motion Sales Organization:  Our The Company’s sales organization is evolvingcontinues to evolve with the goal of becoming the best sales and service force in ourits industry.  Through our “One Team”the One Team approach for providing controlled motion control solutions and components that best address our customers’ needs, we are broadeningthe Company is continuing to broaden the knowledge and skills of ourits direct sales force, while creating sales and service support in ourits Solution Centers.  This enables the entire sales organization to be capable of globally selling globally all products designed, developed and produced by Allied Motion. Currently, ourThe Company’s primary channels to market include ourthe direct sales force and external authorized Sales Representatives, Agents and Distributors that provide field coverage in Asia, Europe, Canada, Israel and the Americas.  While the majority of ourthe Company’s sales are directly to OEMs, we areit is working to expand ourits market reach through Distribution channels. The Company completed the acquisition of TCI, LLC (“TCI”) during the fourth quarter 2018. The acquisition of TCI has enabled the Company to expand its distribution capability.

Allied Motion Solution Centers:  Allied Motion has Solution Centers in China, Europe and North America that enable the design and sale of individual component products as well as integrated controlled motion control systems that utilize multiple Allied Motion products.  In addition to providing sales and applications support, the solution center function may include final assembly, integration and test,tests as required to support customers within their geographic region.

ChinaAsian Solution Center — Changzhou, China

European Solution Center — Stockholm, SwedenCenters:

North American Solution Center -— Amherst, New York, USA

Allied Motion Technology Centers: Allied has Technology Centers in China, Europe and North America that design, develop and support the various products and systems offered by Allied Motion with a focus on specific technologies/products in each individual location.

North American Motors:  During 2017, weThe Company has consolidated all motor design, development and support activities in North America under the umbrella of North American Motors which includes: Dayton, OH:  automotive brushless DC motors, power steering solutions and special purpose motors. Owosso, MI:  fractional horsepower permanent magnet DC and brushless DC motors serving a wide range of original equipment applications. Tulsa, OK: high performance brushless DC motors, including servo motors, frameless motors, torque motors, high speed (60,000 RPM+) slotless motors, high resolution encoders and motor/encoder assemblies.Motors. The locations include:

North American Mechatronics:Mechatronics:Under the umbrella of North American Mechatronics, the company designs gearing, mechanical and electronic products and solutions to combine with motor solutions for a wide range of market based and custom engineered solutions. The locations under the umbrella include:Watertown, NY: gearing solutions in both stand-alone and integrated gearing/motor configurations.  Amherst, NY and Oakville, Ontario:  advanced electronic motion control products and custom solutions including integrated power electronics, digital controls and network communications for motor control and power conversion to support Allied Motion’s broad range of motors.

Dordrecht, Netherlands:Netherlands:Designs and develops fractional horsepower BLDC outer rotor motors and traditional BLDC motor part sets with or without integrated electronics and coreless DC motors.

Kelheim,Germany:Germany:Designs and develops high performance and highly configurable synchronous BLDC servo motor solutions and asynchronous BLDC motors for a wide variety of demanding motion applications. Additionally, trolleys for use in medical environments are designed and produced for customer specific applications.

Stockholm, Sweden and Ferndown, UK::Designs and develops high performance electronic controls and platform based integrated steering system solutions for market specific vehicle solutions that may utilize the various technologies and products developed by other Allied Motion locations.

TCI, Germantown WI: Designs and manufactures active (electronic) and passive (magnetic) products to monitor and resolve power quality and harmonic distortion issues associated with industrial power conversion.

Allied Motion Production Centers: Allied has designated low cost/high volume Production Centers in China, Europe and North America that provide additionaldedicated manufacturing capabilities for the various products and systems offered by Allied Motion with a focus on specific technologies/products in each individual location. In certain cases, products may be produced in multiple locations to better serve our customers within the geographic region in which they are located. Locations include:

Changzhou, China

Mrakov, Czech Republic

Porto, Portugal

Reynosa, Mexico

Dothan, Alabama, USA

Segment Information

We operate in one segment for the design and manufacture of motion control products, marketed to original equipment manufacturers and end users.  Segment information, including sales from external customers, assets by segment, and long-lived assets by geographic area, as set forth in Note 11, Segment Information, of the notes to the consolidated financial statements is contained in Item 8 of this report.

Global Electronics Team (GET):Allied has consolidated its worldwide electronics engineering function under the leadership of one individual, effectively leveraging and utilizing all our international electronics development resources. Acquiring or hiring additional electrical engineering talent to build a global team has been a critical part of the One Allied strategy to support the growth of custom solution-based products delivered to our customers and served markets. Due to the high acquisition multiples associated with acquiring such talent, the organization was focused on hiring talent in 2019 and growing this function organically. Locations include:

Competitive Environment

Our products and solutions are sold into athe global market with a large and diverse group of competitors that vary by product, geography, industry and application.  We believe the controlled motion control market is highly fragmented with many competitors, some of which are substantially larger and have greater resources than Allied Motion.  We believe our competitive advantages include our electro-magnetic, mechanical and electronic controlled motion control expertise, the breadth of our motor technologies and of our ability to integrate these technologies with our encoders, gearing, power electronics, digital control technologies and network/feedback communications capabilities, as well as our global presence.  Unlike many of our competitors, we are unique in our ability to provide custom-engineered controlled motion control solutions that integrate the products we manufacture such as embedded or external electrical control solutions with our motors.  We compete on technological capabilities, quality, reliability, service responsiveness, delivery speed and price.  Our competitors include Altra Industrial Motion Corp., Ametek, Fortive Corporation,Inc., Parker Hannifin Corporation and other smaller competitors.

Availability of Parts and Raw Materials

All parts andWe purchase critical raw materials used byfrom a limited number of suppliers due to the Company aretechnically challenging requirements of the supplied product and/or the lengthy process required to qualify these materials both internally and with our customers. We cannot quickly establish additional or replacement suppliers for these materials in adequate supply.  No significant parts orsome cases because of these rigid requirements. For these critical raw materials, are acquired from a single sourcewe maintain minimum safety stock levels and partner with suppliers through contract to help ensure the continuity of supply. Historically, we have not experienced any significant interruptions or for which an alternate source is not also available.delays in obtaining critical raw materials.

Patents, Trademarks, Licenses, Franchises and Concessions

We hold a number of patents and trademarks for components manufactured by our various subsidiaries, and we have several patents pending on new products recently developed, which are considered to be of major significance.

Working Capital Items

We currently maintain inventory levels adequate for our short-term needs based upon present levels of production.  We consider the component parts of our different product lines to be readilygenerally available and current suppliers to be reliable and capable of satisfying anticipated needs.

Major Customers

During 2017, 20162019, 2018 and 2015,2017, the Company’s total annual revenues increased significantly as a result of both sales to customers of businesses acquired by the Company during that period and from increased sales to a number of existing customers of the Company, with five customers accounting for approximately 33%30% of the Company’s total revenue during 2017, 35%2019, 34% during 20162018 and 40%33% during 2015.2017.

Sales Backlog

Backlog as of December 31, 20172019 was $100,708$124,950 compared with $78,602$131,997 as of December 31, 2016.2018.  The time to convert the majority of backlog to sales is approximately three to foursix months.  Given the short product lead times, we do not believe that the amount of our backlog of orders is a reliable indication of our future sales.  We may on occasion receive multi-year orders from customers for product to be delivered on demand over that time frame.  There can beis no assurance that the Company’s backlog from these customers will be converted into revenue.

Engineering and Development Activities

Our engineering and development (E&D) activities are for the development of new products, enhancement of the functionality, effectiveness and reliability of current products, to redesign products to reduce the cost of manufacturing of products or to expand the types of applications for which our products and solutions can be used.  Our expenditures on engineering and development expenditures for the years ended December 31, 2017,20162019, 2018 and 20152017 were $17,542, $16,170,$23,086, $19,913, and $14,229,$17,542, respectively, or 7%

6.2% of sales in in 2017 and 2016, and 6%2019, 6.4% of sales in 2015.2018, and 7.0% of sales in 2017.  We believe E&D is critical to our success and expect to continue to invest at least at these levels in the future.  Of these expenditures, no material amounts were charged directly to customers, although we do record non-recurring engineering charges to certain customers for custom engineering required to develop products that meet the customer’s specifications.

Environmental Issues

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

We do not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on our business or markets that we serve, nor on our results of operations, capital expenditures or financial position.  We will continue to monitor emerging developments in this area.

International Operations

Our operations outside the United States are conducted through wholly-owned foreign subsidiaries and are located primarily in Europe and Asia.  Our international operations are subject to the usual risks inherent in international trade, including currency fluctuations, local government contracting regulations, local governmental restrictions on foreign investment and repatriation of profits, exchange controls, regulation of the import and distribution of foreign goods, as well as changing economic and social conditions in countries in which our operations are conducted.  The information required by this item is set forth in Note 11,13, Segment Information, of the notes to consolidated financial statements contained in Item 8 of this report.

Employees

At December 31, 2017,2019, we employed approximately 1,2501,700 full-time employees worldwide. Of those, approximately 48%54% are located in North America 47%and 42% are located in Europe and the balance are located in China and the rest of the world.Europe.

Available Information

The Company maintains a website at www.alliedmotion.com.  We make available, free of charge on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.

We have adopted a Code of Ethics for our chief executive officer and president and senior financial officers regarding their obligations in the conduct of Company affairs.  We have also adoptedhave a Code of Ethics and Business Conduct that is applicable to all directors, officers and employees.  The Codes are available on our website.  We intend to disclose on our website any amendment to, or waiver of, the Codes that would otherwise be required to be disclosed under the rules of the SEC and the Nasdaq Global Market.  A copy of both Codes is also available in print to any stockholder upon written request addressed to Allied Motion Technologies Inc., 495 Commerce Drive, Suite 3, Amherst, NY 14228-2313, Attention: Secretary.Secretary.

Item 1A. Risk Factors

In the ordinary course of our business, we face various strategic, operating, compliance and financial risks.  These risks could have a material impact on our business, reputation, financial condition or results of operations.  Our most significant risks are set forth below and elsewhere in this Report.  These risk factors should be considered in addition to our cautionary comments concerning forward-looking statements in this Report, including statements related to markets for our products and trends in our business that involve a number of risks and uncertainties.

Our global sales and operations, including the U.S., are subject to a variety of economic, market and financial risks and costs that could affect our profitability and operating results could fluctuate significantly.results.

We do business around the world and are continuing our strategy of global expansion.  Our quarterlyinternational sales are primarily to customers in Europe, Canada and annual operating resultsAsia.  In addition, our manufacturing operations, suppliers and employees are affected by a wide varietylocated in many places around the world.  The future success of factors that could materially adversely affect revenues and profitability, including:  the timing of customer orders and the deferral or cancellation of orders previously received, the level of orders received which can be shipped in a quarter, fulfilling backlog on a timely basis, competitive

pressures on selling prices, changes in the mix of products sold, the timing of investments in engineering and development, development of and response to new technologies, and delays in new product qualifications.

As a result of the foregoing and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business financial condition, operating results and stock price.

Our growth could suffer if the markets into which we sell our products and services decline, do not grow as anticipated or experience cyclicality.

Our growth depends in large part on the growth of the markets which we serve.  Any decline or lower than expected growth in our served markets could diminish demand for our productssales in non-U.S. markets.  Our global operations are subject to numerous financial, legal and services, which would adversely affect our financial statements.  Certainoperating risks, such as political and economic instability; imposition of our businesses operate in industries that may experience periodic, cyclical downturns.  Demand for our products and services is also sensitive to changes in customer order patterns, which may be affected by announced price changes, changes in incentive programs, new product introductions and customer inventory levels.  Any of these factors could adversely affect our growth and results of operations in any given period.

We could experience a failure of a key information technology system, processtrade or site or a breach of information security,foreign exchange restrictions, including a cybersecurity breach or failure of one or more key information technology systems, networks, processes, associated sites or service providers.

We rely extensively on information technology (“IT”) systems for the storage, processing, and transmission of our electronic, business-related, information assets used in or necessary to conduct business.  We leverage our internal information technology infrastructures, and those of our business partners, to enable, sustain, and support our global business activities. In addition, we rely on networks and services, including internet sites, data hosting and processing facilities and tools and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist in conducting our business. The data we store and process may include customer payment information, personal information concerning our employees, confidential financial information, and other types of sensitive business-related information. In limited instances, we may also come into possession of information related to patients of our physician customers. Numerous and evolving cybersecurity threats pose potential risks to the security of our IT systems, networks and services, as well as the confidentiality, availability and integrity of our data. In addition, the laws and regulations governing security of data on IT systems and otherwise held by companies is evolving, and adding another layer of complexity in the form of new requirements. We have made, and continue to make investments, seeking to address these threats, including monitoring of networks and systems, hiring of experts, employee training and security policies for employees and third-party providers. The techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures. While the breaches of our IT systems to date have not been material to our business or results of operations, the costs of attempting to protect IT systems and data may increase, and there can be no assurance that these added security efforts will prevent all breaches of our IT systems or thefts of our data. If our IT systems are damaged or cease to function properly, the networks or service providers we rely upon fail to function properly, or we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder information due to any number of causes ranging from catastrophic events or power outages to improper data handling or security breaches and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to potential disruption in operations, loss of customers, reputational, competitive and business harm as well as significant costs from remediation, litigation and regulatory actions.

Our business operations may be adversely affected by new software implementations.

We are committed to a multi-year enterprise resource planning system implementation along with the standardization of our business systems.  This endeavor will occupy additional resources, diverting attention from other operational activities, and may cause our information systems to not perform as expected.  While we expect to invest significant resources throughout the planning and project management process, unanticipated delays could occur.

If we do not respond to changes in technology, our products may become obsolete and we may experience a loss of customers and lower revenues.

We sell our products to customers in several industries that experience rapid technological changes, new product introductions and evolving industry standards.  Without the timely introduction of new products and enhancements, our products and services will likely become technologically obsolete over time and we may lose a significant number of our customers.  Our

product development efforts may be affected by a number of factors, including our ability to anticipate customer needs, allocate our research and development funding, innovate and develop new products, differentiate our offerings and commercialize new technologies, secure intellectual propertyU.S.; trade protection for our product and manufacture products in a cost-effective manner.  We would be harmed if we did not meet customer requirements and expectations.  Our inability, for technological or other reasons, to successfully develop and introduce new and innovative products could result in a loss of customers and lower revenues.

We face competition that could harm our business and we may be unable to compete successfully against new entrants and established companies with greater resources.

Competition in connection with the manufacturing of our products may intensify in the future.  The market for our technologies is competitive and subject to rapid technological change.  We compete globally on the basis of product performance, customer service, availability, reliability, productivity and price.  Our competitors may be larger and may have greater financial, operational, economies of scale, personnel, sales, technical and marketing resources than us.  Certain of our competitors also may pursue aggressive pricing or product strategies that may cause us to reduce the prices we charge for our original equipment and aftermarket products and services or lose sales.  These actions may lead to reduced revenues, lower margins and/or a decline in market share, any of which may adversely affect our business, financial condition and results of operations.

We intend to develop new products and expand into new markets, which may not be successful and could harm our operating results.

We intend to expand into new markets and develop new and modified products based on our existing technologies and engineering capabilities, including the continued expansion of our Motion Control Systems.  These efforts have required and will continue to require us to make substantial investments, including significant research, development and engineering expenditures and capital expenditures for new, expanded or improved manufacturing facilities.  Specific risks in connection with expanding into new products and markets include: longer product development cycles, the inability to transfer our quality standards and technology into new products, and the failure of our customers to accept the new or modified products.

We may experience difficulties that could delay or prevent the successful development of new products or product enhancements under new and existing contracts, and new products or product enhancements may not be accepted by our customers. In addition, the development expenses we incur may exceed our cost estimates, and new products we develop may not generate sales sufficient to offset our costs. If any of these events occur, our sales and profits could be adversely affected.

Our competitiveness depends on successfully executing our growth initiatives and our globalization strategies.

We continue to invest in initiatives to support future growth,measures such as the creationimposition of an effective corporate structure, implementationor increase in tariffs and other trade barriers, including in the U.S.; unexpected changes in regulatory requirements, including in the U.S., prevalence of our enterprise resource planning system, launchcorruption in certain countries; enforcement of a new integrated website, implementation of a structured approach to identify target markets,contract and the expansion of our Allied Systematic Tools.  The failure to achieve our objectives on these initiatives could have an adverse effect on our operating resultsintellectual property rights and financial condition.  Our globalization strategy includes localization of our productscompliance with existing and services to be closer to our customersfuture laws, regulations and identified growth opportunities.  Localization of our products and services includes expanding our capabilities, including supply chain and sourcing activities, product design, manufacturing, engineering, marketing and sales and support.  These activities expose us to risks,policies, including those related to politicaltariffs, investments, taxation, trade controls, product content and economic uncertainties, transportation delays, labor market disruptionsperformance, employment and challenges to protect our intellectual property.repatriation of earnings.  In addition, we are affected by changes in foreign currency exchange rates, inflation rates and interest rates.

We depend heavily on a limited numberAdditionally, in December 2019, an outbreak of customers, and if we lose any of them or they reduce their business with us, we would lose a substantial portion of our revenues.

A significant portion of our revenues and trade receivables are concentrated with a small group of customers.  These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on contractual terms, often resultingthe coronavirus occurred in the allocation of risk to us as the supplier.  Our ability to maintain strong relationships with our principal customers is essential to our future performance.  If we lose a key customer, if any of our key customers reduce their orders of our products or require us to reduce our prices before we are able to reduce costs, if a customer is acquired by one of our competitors or if a key customer suffers financial hardship, our operating results would likely be harmed.

Our inability to adequately enforce and protect our intellectual property or defend against assertions of infringement could prevent or restrict our ability to compete.

We rely on patents, trademarks and proprietary knowledge and technology, both internally developed and acquired, in order to maintain a competitive advantage.  Our inability to defend against the unauthorized use of these rights and assets could have an adverse effect on our results of operations and financial condition.  Litigation may be necessary to protect our intellectual property rights or defend against claims of infringement.  This litigation could result in significant costs and divert our management’s focus away from operations.

Increased healthcare, pensionChina and other costs under the Company’s benefit plans could adversely affect the Company’s financial condition andjurisdictions.The extent to which coronavirus impacts our results of operations.

We provide health benefits to many of its employees and the costs to provide such benefits continue to increase annually.  The amount of any increase or decrease in the cost of Company-sponsored health plans will depend on a number of different factors including new governmental regulations mandating types of coveragefuture developments, which are highly uncertain and reporting and other requirements.

We also sponsor defined benefit pension, defined contribution pension, and other postretirement benefit plans.  Our costs to provide such benefits generally continue to increase annually.  We use actuarial valuations to determine the Company’s benefit obligations for certain benefit plans, which require the use of significant estimates,cannot currently be predicted, including the discount rate, expected long-term rateseverity of return on plan assets, mortality ratesthe outbreak and the rates of increase in compensation and health care costs.  Changesresponsive actions taken to these significant estimatescontain it or treat its impact.A prolonged outbreak could increase the cost of these plans, which could also have a material adverse effect on the Company’s financial condition and results of operations.

If we are unable to attract and retain qualified personnel, our ability to operate and grow our company will be in jeopardy.

We are required to hire and retain skilled employees at all levels of our operations in a market where such qualified employees are in high demand and are subject to receiving competing offers.  We believe that there is, and will continue to be, competition for qualified personnel in our industry, and there is no assurance that we will be able to attract or retain the personnel necessary for the management and development of our business.  The inability to attract or retain employees currently or in the future may have a material adverse effect on our business.

Our future success depends in part on the continued service of our engineering and technical personnel and our ability to identify, hire and retain personnel.

Our success will depend in large part upon our ability to attract, train, retain and motivate highly skilled employees.  There is currently aggressive competition for employees who have experience in technology and engineering.  We may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development and growth of our business or to replace personnel who may leave our employ in the future.  The failure to retain and recruit key technical personnel could cause additional expense, potentially reduce the efficiency ofinterrupt our operations and could harm our business.

We rely on suppliers to provide equipment, components and services, which creates certain risks and uncertainties that may adversely affect our business.

Our business requires that we buy equipment, components and services.  Our reliance on suppliers involves certain risks, including poor quality or an insecure supply chain, which could adversely affect the reliability and reputationoperations of our products; changes in the cost of these purchases due to inflation, exchange rates, or other factors; shortages of components, commodities or other materials, which could adversely affect our manufacturing efficienciescustomers and ability to make timely delivery.

Any of these uncertainties could adversely affect our profitability and ability to compete.  The effect of unavailability or delivery delays would be more severe if associated with our higher volume and more profitable products.  Even where substitute sources of supply are available, qualifying the alternate suppliers and establishing reliable supplies could cost more or could result in delays and a loss of sales.

Our operating results depend in part on our ability to contain or reduce costs.  There is substantial price competition in our industry, and our success and profitability will depend on our ability to maintain a competitive cost and price structure.

Our efforts to maintain and improve profitability depend in part on our ability to reduce the costs of materials, components, supplies and labor, including establishing production capabilities at our low cost regional subcontractors.  While the failure of any single cost containment effort by itself would most likely not significantly impact our results, we cannot give any assurances that we will be successful in implementing cost reductions and maintaining a competitive cost structure.

There is substantial price competition in our industry, and our success and profitability will depend on our ability to maintain a competitive cost and price structure.  We may have to reduce prices in the future to remain competitive.  Also, our future profitability will depend in part upon our ability to continue to improve our manufacturing efficiencies and maintain a cost structure that will enable us to offer competitive prices.  Our inability to maintain a competitive cost structuresuppliers. These risks could have a material adverse effect on our business, financial condition and results of operations.operations, or financial condition.

Our profitsForeign currency exchange rates may decline ifadversely affect our financial results.

Sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S. dollar and may adversely affect our financial results.  Increased strength of the U.S. dollar increases the effective price of raw materials continuesour products sold in U.S. dollars into other countries, which may require us to rise andlower our prices or adversely affect sales to the extent we cannot recoverdo not increase local currency prices.  Decreased strength of the increases from our customers.

We use various raw materials, such as copper, steel and zinc, in our manufacturing operations.  The prices of these raw materials have been subject to volatility.  As a result of price increases, we have generally implemented price surcharges to our customers; however, we may be unable to collect surcharges without suffering reductions in unit volume, revenue and operating income.  There can be no assurance that we will be able to fully recover the price increases through surcharges in a timely manner.  We are also subject to risks associated with U.S. and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other charges or restrictions on imports, whichdollar could adversely affect the cost of materials, products and services we purchase from non-U.S. denominated locations.  Sales and expenses of our non-U.S. businesses are also translated into U.S. dollars for reporting purposes and the strengthening or weakening of the U.S. dollar could result in unfavorable translation effects.  The Company also faces exchange rate risk from its investments in subsidiaries owned and operated in foreign countries.

Our international operations expose us to legal and our ability to import products at current or increased levels. We cannot predict whether additional U.S. and foreign customs quotas, duties, tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased, or other restrictionsregulatory risks, which could have a material effect on our imports will be imposed upon the importation of our products in the future or adversely modified, or what effect such actions would have on our costs of operations.business.

We face the challenge of accurately aligning our capacity with our demand.

We have experienced capacity constraintsOur profitability and longer lead times for certain products in times of growing demand while we have also experienced idle capacity as economies slow or demand for certain products decline.  Accurately forecasting our expected volumes and appropriately adjusting our capacity have been,international operations are, and will continue to be, important factorssubject to risks relating to changes in determiningforeign legal and regulatory requirements.  In addition, our resultsinternational operations are governed by various U.S. laws and regulations, including Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act and other foreign anti-bribery laws. The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign government officials for the purpose of operations.  We cannot guarantee thatobtaining or retaining business. Other countries in which we will be ableoperate also have anti-bribery laws, some of which prohibit improper payments to increase manufacturing capacitygovernment and non-government persons and entities.  Any alleged or actual violations of these regulations may subject us to a level that meets demand for our products, which could prevent us from meeting increased customer demandgovernment scrutiny, severe criminal or civil sanctions and other liabilities and could harmnegatively affect our business.  However,business, reputation, operating results and financial condition.

We are required to comply with various import laws and export control and economic sanctions laws, which may affect our transactions with certain customers, business partners and other persons and dealings between our employees and subsidiaries.  In certain circumstances, export control and economic sanctions regulations or embargos may prohibit the export of certain products, services and technologies.  In other circumstances, we may be required to obtain an export license before exporting the controlled item.  Compliance with the various import laws that apply to our businesses can restrict our access to, and increase the cost of obtaining, certain products and at times can interrupt our supply of imported inventory. In addition to government regulations regarding sale and export, we are subject to other regulations regarding our products.  For example, the U.S. Securities and Exchange Commission has adopted disclosure rules for companies that use conflict minerals in their products, with substantial supply chain verification requirements in the event that the materials come from, or could have come from, the Democratic Republic of the Congo or adjoining countries.  These rules and verification requirements impose additional costs on us and on our suppliers, and may limit the sources or increase the cost of materials used in our products.  Further, if we overestimate our demand and overbuild our capacity, we may have significantly underutilized assets and we may experience reduced margins.  If we do not accurately align our manufacturing capabilities with demand it could have a material adverse effect on our results of operations.

The manufacture of many of our products is a highly exacting and complex process, and if we directly or indirectly encounter problems manufacturing products, our reputation, business and financial statements could suffer.

The manufacture of many of our products is an exacting and complex process.  Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failureare unable to follow specific protocols and procedures, problems with raw materials, natural disasters and environmental factors, and if not discovered before the product is released to market could result in recalls and product liability exposure.  Because of the time required to develop and maintain manufacturing facilities, an alternative manufacturer may not be available on a timely basis to replace such production capacity.  Any of these manufacturing problems could result in significant costs and liability, as well as negative publicity and damage to our reputationcertify that could reduce demand for our products.

Quality problems with our products could harm our reputation, erode our competitive advantage and could result in warranty claims and additional costs.

Quality is important to us and our customers, and our products are held to high qualityconflict free, we may face challenges with our customers that could place us at a competitive disadvantage, and performance standards.  In the event our products fail to meet these standards, our reputation could be harmed, which could damage our competitive advantage, causing us to lose customers and resulting in lower revenues.  We generally allow customers to return defective or damaged products for credit, replacement or exchange.  We generally warrant that our products will meet customer specifications and will be free from defects in materials and workmanship.  We reserve for our exposure to warranty claims based upon recent historical experience and other specific information as it becomes available.  However, these reserves may not be adequate to

cover future warranty claims and additional warranty costs or inventory write-offs may be incurred which could harm our operating results.harmed.

We may explore additional acquisitions that complement, enhance or expand our business.  We may not be able to complete these transactions, and, if completed, we may experience operational and financial risks in connection with our acquisitions that may materially adversely affect our business, financial condition and operating results.

Our future growth may be a function, inAcquisitions are part of acquisitions.our strategic growth plans.  We may have difficulty finding these opportunities, or if we do identify these opportunities, we may not be able to complete the transactions for various reasons including a failure to secure financing.

To the extent that we are able to complete the transactions, we will face the operational and financial risks commonly encountered with an acquisition strategy.  These risks include the challenge of integrating acquired businesses while managing the ongoing operations of each business, the challenge of combining the business cultures of each company, and the need to retain key personnel of our existing business and the acquired business.  The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the acquired business and our existing business.  Members of our senior management may be required to devote considerable amounts of time to the integration process, which will decrease the time they will have to manage our businesses, service existing customers, attract new customers and develop new products.  If our senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could be adversely affected.

Future acquisitions couldThe indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result in debt, dilution,we may face unexpected liabilities.

Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities increased interest expense, restructuring charges and amortization expenses related to intangible assets.the operation of the company before we acquired it. In addition, any acquired business, technology, servicemost of these agreements, however, the liability of the former owners is limited, and certain former owners may be unable to meet their indemnification responsibilities. We cannot assure that these indemnification provisions will protect us fully or product could under-perform relative to our expectationsat all, and the priceas a result we may face unexpected liabilities that we paid for it, or not perform in accordance with our anticipated timetable.

Our international sales and operations are subject to a variety of economic, market and financial risks and costs that could affect our profitability and operating results.

We do business around the world and are continuing our strategy of global expansion.  Our international sales are primarily to customers in Europe, Canada and Asia.  In addition, our manufacturing operations, suppliers and employees are located in many places around the world.  The future success of our business depends in large part on growth in our sales in non-U.S. markets.  Our global operations are subject to numerous financial, legal and operating risks, such as political and economic instability; imposition of trade or foreign exchange restrictions, including in the U.S.; trade protection measures such as the imposition of or increase in tariffs and other trade barriers, including in the U.S.; unexpected changes in regulatory requirements, including in the U.S., prevalence of corruption in certain countries; enforcement of contract and intellectual property rights and compliance with existing and future laws, regulations and policies, including those related to tariffs, investments, taxation, trade controls, product content and performance, employment and repatriation of earnings.  In addition, we are affected by changes in foreign currency exchange rates, inflation rates and interest rates.

Foreign currency exchange rates may adversely affect our financial statements.results.

SalesOur inability to adequately enforce and purchasesprotect our intellectual property or defend against assertions of infringement could prevent or restrict our ability to compete.

We rely on patents, trademarks and proprietary knowledge and technology, both internally developed and acquired, in currencies other thanorder to maintain a competitive advantage.  Our inability to defend against the U.S. dollar expose usunauthorized use of these rights and assets could have an adverse effect on our results of operations and financial condition.  Litigation may be necessary to fluctuations in foreign currencies relative to the U.S. dollar and may adversely affectprotect our financial statements.  Increased strengthintellectual property rights or defend against claims of the U.S. dollar increases the effective price of our products sold in U.S. dollars into other countries, which may require us to lower our prices or adversely affect sales to the extent we do not increase local currency prices.  Decreased strength of the U.S. dollar could adversely affect the cost of materials, products and services we purchase from non-U.S. denominated locations.  Sales and expenses of our non-U.S. businesses are also translated into U.S. dollars for reporting purposes and the strengthening or weakening of the U.S. dollarinfringement.  This litigation could result in unfavorable translation effects.  The Company also faces exchange rate risksignificant costs and divert our management’s focus away from its investments in subsidiaries owned and operated in foreign countries.operations.

Our international operations expose us to legal and regulatory risks, which could have a material effect on our business.

Our profitability and international operations are, and will continue to be, subject to risks relating to changes in foreign legal and regulatory requirements.  In addition, our international operations are governed by various U.S. laws and regulations, including Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act and other foreign anti-bribery laws. The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. Other countries in which we operate also have anti-bribery laws, some of which

prohibit improper payments to government and non-government persons and entities.  Any alleged or actual violations of these regulations may subject us to government scrutiny, severe criminal or civil sanctions and other liabilities and could negatively affect our business, reputation, operating results and financial condition.

We are required to comply with various import laws and export control and economic sanctions laws, which may affect our transactions with certain customers, business partners and other persons and dealings between our employees and subsidiaries.  In certain circumstances, export control and economic sanctions regulations or embargos may prohibit the export of certain products, services and technologies.  In other circumstances, we may be required to obtain an export license before exporting the controlled item.  Compliance with the various import laws that apply to our businesses can restrict our access to, and increase the cost of obtaining, certain products and at times can interrupt our supply of imported inventory.

In addition to government regulations regarding sale and export, we are subject to other regulations regarding our products.  For example, the U.S. Securities and Exchange Commission has adopted disclosure rules for companies that use conflict minerals in their products, with substantial supply chain verification requirements in the event that the materials come from, or could have come from, the Democratic Republic of the Congo or adjoining countries.  These rules and verification requirements impose additional costs on us and on our suppliers, and may limit the sources or increase the cost of materials used in our products.  Further, if we are unable to certify that our products are conflict free, we may face challenges with our customers that could place us at a competitive disadvantage, and our reputation may be harmed.

Our indebtedness may limit our operations and our use of our cash flow, and any failure to comply with the covenants that apply to our indebtedness could adversely affect our liquidity and financial statements.results.

Our ability to service our indebtedness depends on our financial performance, which is affected by prevailing economic conditions and financial, business, regulatory and other factors.  Some of these factors are beyond our control.  Our debt level and related debt service obligations can have negative consequences, including requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes such as acquisitions and capital investment; reducing our flexibility in planning for or reacting to changes in our business and market conditions; and exposing us to interest rate risk since a portion of our debt obligations are at variable rates. In addition, certain of our indebtedness will have significant outstanding principal balances on their maturity dates, commonly known as “balloonballoon payments.”  Therefore, we will likely need to refinance at least a portion of our outstanding debt as it matures.  We may incur significantly more debt in the future, particularly to finance acquisitions, and there can be no assurance that our cost of funding will not substantially increase.

Our existing credit agreements contain, and any future debt agreements we may enter into may contain, certain financial tests and other covenants that limit our ability to incur indebtedness, acquire other businesses and impose various other restrictions.  If we breach any of the covenants and do not obtain a waiver from the lenders, the outstanding indebtedness could be declared immediately due and payable.  If we are unable to obtain sufficient capital in the future, we may have to curtail our capital expenditures and other expenses.  Any such actions could have a material adverse effect on our business, financial condition, results of operations and liquidity.

Economic and credit market uncertainty could interrupt our access to capital markets, borrowings, or financial transactions to hedge certain risks, which could adversely affect our financial condition.

To date, we have been able to access debt and equity financing that has allowed us to make investments in growth opportunities and fund working capital requirements.  In addition, we enter into financial transactions to hedge certain risks, including foreign exchange and interest rate risk.  Our continued access to capital markets, the stability of our lenders and their willingness to support our needs, and the stability of the parties to our financial transactions that hedge risks are essential for us to meet our current and long-term obligations, fund operations, and fund our strategic initiatives.  An interruption in our access to external financing or financial transactions to hedge risk could affect our business prospects and financial condition.

We may never realizeOur growth could suffer if the full valuemarkets into which we sell our products and services decline.

Our growth depends in part on the growth of the markets which we serve.  Any decline or lower than expected growth in our served markets could diminish demand for our products and services, which would adversely affect our financial results.  Certain of our intangible assets,businesses operate in industries that may experience periodic, cyclical downturns.  Demand for our products and services is also sensitive to changes in customer order patterns, which represent a significant portion of our total assets.

These intangible assets consist primarily of goodwill, customer lists, trade names and patented technology arising from our acquisitions.  Goodwill is not amortized, but is tested annually or upon the occurrence of certain events which indicate that the assets may be impaired.  Definite lived intangible assets are amortized over their estimated useful livesaffected by announced price changes, changes in incentive programs, new product introductions and are tested for impairment upon the occurrencecustomer inventory levels.  Any of certain events which indicate that the assets may be impaired.  We may not receive the recorded value forthese factors could adversely affect our intangible assets if we sell or liquidate our business or assets.  In addition, intangible assets with definite

lives will continue to be amortized.  Amortization expenses relating to these intangible assets will continue to reduce our future earnings.growth and results of operations in any given period.

FailureWe could experience a failure of our internal control over financial reporting could limit our ability to report our financial results accurately and timelya key information technology system, process or prevent fraud.site or a breach of information security, including a cybersecurity breach or failure of one or more key information technology systems, networks, processes, associated sites or service providers.

We believe that effective internal controls arerely extensively on information technology (“IT”) systems for the storage, processing, and transmission of our electronic, business-related information assets used in or necessary to provide reliable financial reportsconduct business.  We leverage our internal information technology infrastructures, and those of our business partners, to enable, sustain, and support our global business activities. In addition, we rely on networks and services, including internet sites, data hosting and processing facilities and tools and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist in conducting our business. The data we store, and process may include customer payment information, personal information concerning our employees, confidential financial information, and other types of sensitive business-related information. Numerous and evolving cybersecurity threats pose potential risks to the effective preventionsecurity of fraud.our IT systems, networks and services, as well as the confidentiality, availability and integrity of our data. In addition, the laws and regulations governing security of data on IT systems is evolving, and adding another layer of complexity in the form of new requirements. We have made, and continue to make investments, seeking to address these threats, including monitoring of networks and systems, hiring of experts, employee training and security policies for employees and third-party providers.

The techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures. While the breaches of our IT systems to date have not been material to our business or results of operations, the costs of attempting to protect IT systems and data may increase, and there can be no assurance that these added security efforts will prevent all breaches of our IT systems or thefts of our data. If our IT systems are damaged or cease to function properly, the networks or service providers we rely upon fail to function properly, or we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder information due to any number of causes ranging from catastrophic events or power outages to improper data handling or security breaches and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to potential disruption in operations, loss of customers, reputational, competitive and business harm as well as significant costs from remediation, litigation and regulatory actions.

We are also subject to an increasing number of evolving data privacy and security laws and regulations. Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs. The European Union’s implementation of the General Data Protection Regulation in 2018 and their pending ePrivacy Regulation could disrupt our ability to sell products and solutions or use and transfer data because such activities may not be in compliance with applicable laws.

We rely on suppliers to provide equipment, components and services, which creates certain risks and uncertainties that may adversely affect our business.

Our business requires that we buy equipment, components and services from third parties.  Our reliance on suppliers involves certain risks, including poor quality or an insecure supply chain, which could adversely affect the reliability and reputation of our products; changes in the cost of these purchases due to inflation, exchange rates, or other factors; shortages of components, commodities or other materials, which could adversely affect our manufacturing efficiencies and ability to make timely delivery.

Any of these uncertainties could adversely affect our profitability and ability to compete.  The effect of unavailability or delivery delays would be more severe if associated with our higher volume and more profitable products.  Even where substitute sources of supply are available, qualifying the alternate suppliers and establishing reliable supplies could cost more or could result in delays and a loss of sales.

Certain materials and components used in our products are required and qualified to be sourced from a single or a limited number of suppliers. As such, some materials and components could become in short supply resulting in limited availability and/or increased costs. Additionally, we may elect to develop relationships with a single or limited number of suppliers for materials and components that are otherwise generally available, because some customers require extensive certification of suppliers which is a considerable and time consuming undertaking.  Although we believe that alternative suppliers are available to supply materials and components to replace those currently used, doing so may require redesign work and would require having those new sources qualified by our customers prior to making use of those new alternatives. Any interruption in the supply from any supplier that serves as a sole source could delay product shipments and have a material adverse effect on our business, financial condition and results of operations.

We intend to develop new products and expand into new markets, which may not be successful and could harm our operating results.

We intend to expand into new markets and develop new and modified products based on our existing technologies and engineering capabilities, including the continued expansion of our controlled motion systems and integrated electronics.  These efforts have required and will continue to require us to make substantial investments, including significant research, development and engineering expenditures and capital expenditures for new, expanded or improved manufacturing facilities.  Specific risks in connection with expanding into new products and markets include longer product development cycles, the inability to transfer our quality standards and technology into new products, and the failure of our customers to accept the new or modified products.

We may experience difficulties that could delay or prevent the successful development of new products or product enhancements under new and existing contracts, and new products or product enhancements may not be accepted by our customers. In addition, the development expenses we incur may exceed our cost estimates, and new products we develop may not generate sales sufficient to offset our costs. If any of these events occur, our sales and profits could be adversely affected.

Our profits may decline if the price of raw materials rise and we cannot recover the increases from our customers.

We use various raw materials, such as copper, steel, zinc and rare earth magnets, in our manufacturing operations.  The prices of these raw materials have been subject to volatility.  As a result of price increases, we have generally implemented price surcharges to our customers; however, we may be unable to detectcollect surcharges without suffering reductions in unit volume, revenue and operating income.  There can be no assurance that we will be able to fully recover the price increases through surcharges in a timely manner.  We are also subject to risks associated with U.S. and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or correct any issuestaxes, and other charges or restrictions on imports, which could adversely affect our operations and our ability to import products at current or increased levels. We cannot predict whether additional U.S. and foreign customs quotas, duties, tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased, or other restrictions on our imports will be imposed upon the importation of our products in the designfuture or operating effectivenessadversely modified, or what effect such actions would have on our costs of internal controls over financial reporting or fail to prevent fraud, current and potential customers and shareholders could lose confidence in our financial reporting, whichoperations.

We face competition that could harm our business and we may be unable to compete successfully against new entrants and established companies with greater resources.

Competition in connection with the trading pricemanufacturing of our stock.products may intensify in the future.  The market for our technologies is competitive and subject to rapid technological change.  We compete globally on the basis of product performance, customer service, availability, reliability, productivity and price.  Our competitors may be larger and may have greater financial, operational, economies of scale, personnel, sales, technical and marketing resources than us.  Certain of our competitors also may pursue aggressive pricing or product strategies that may cause us to reduce the prices we charge for our original equipment and aftermarket products and services or lose sales.  These actions may lead to reduced revenues, lower margins and/or a decline in market share, any of which may adversely affect our business, financial condition and results of operations.

Unforeseen exposure to additional income tax liabilities may affect our operating results.

Our distribution of taxable income is subject to domestic tax and, as a result of our significant manufacturing and sales presence in foreign countries, foreign tax.  Our effective tax rate may be affected by shifts in our mix of earnings in countries with varying statutory tax rates, changes in reinvested foreign earnings, alterations to tax regulations or interpretations and outcomes of any audits performed on previous tax returns.

We are subject to a variety of litigation and other legal and regulatory proceedings in the course of our business that could adversely affect our financial statements.results.

We are subject to a variety of litigation and other legal and regulatory proceedings incidental to our business, including claims for damages arising out of the use of products or services and claims relating to intellectual property, matters, employment, matters, tax, matters, commercial disputes, competition, and sales and trading practices, environmental, matters, personal injury, insurance coverage, and acquisition, matters, as well as regulatory investigations or enforcement.  We may also become subject to lawsuits as a result of past or future acquisitions or as a result ofincluding liabilities retained from, or representations, warranties or indemnities provided in connection with divested businesses.these acquisitions.  These lawsuits may include claims for compensatory damages, punitive and consequential damages and/or injunctive relief.  The defense of these lawsuits may divert our management’s attention, we may incur significant expenses in defending these lawsuits and we may be required to pay damage awards or settlements or become subject to equitable remedies that could adversely affect our operations and financial statements.results.  Moreover, any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us against such losses.  We estimate loss contingencies and establish reserves based on our assessment where liability is deemed probable and reasonably estimable given the facts and circumstances known to us at a particular point in time.  Subsequent developments may affect our assessment and estimates of the loss contingencies recorded as liabilities.  We cannot guarantee that our liabilities in connection with litigation and other legal and regulatory proceedings will not exceed our estimates or adversely affect our financial statementsresults and reputation.

Unforeseen exposure to additional income tax liabilities may negatively affect our operating results.

Our distribution of taxable income is subject to domestic tax and, as a result of our significant manufacturing and sales presence in foreign countries, foreign tax.  Our effective tax rate may be affected by shifts in our mix of earnings in countries with varying statutory tax rates, changes in reinvested foreign earnings, alterations to tax regulations or interpretations and outcomes of any audits performed on previous tax returns.

Our business is subject to environmental regulations that could be costly to comply with.negatively affect our operating results.

Federal, state and local regulations impose various environmental controls on the manufacturing, transportation, storage, use and disposal of batteries and hazardous chemicals and other materials used in, and hazardous waste produced by the manufacturing of our products.  Conditions relating to our historical operations may require expenditures for clean-up in the future and changes in environmental laws and regulations may impose costly compliance requirements on us or otherwise subject us to future liabilities.  Additional or modified regulations relating to the manufacture, transportation, storage, use and disposal of materials used to manufacture our products or restricting disposal or transportation of our products may be imposed that may result in higher costs or lower operating results.  In addition, we cannot predict the effectaffect that additional or modified environmental regulations may have on us or our customers.

Quality problems with our products could harm our reputation, erode our competitive advantage and could result in warranty claims and additional costs.

Quality is important to us and our customers, and our products are held to high quality and performance standards.  In the event our products fail to meet these standards, our reputation could be harmed, which could damage our competitive advantage, causing us to lose customers and resulting in lower revenues.  We generally allow customers to return defective or damaged products for credit, replacement, repair or exchange.  We generally warrant that our products will meet customer specifications and will be free from defects in materials and workmanship.  We reserve for our exposure to warranty claims based upon recent historical experience and other specific information as it becomes available.  However, these reserves may not be adequate to cover future warranty claims and additional warranty costs or inventory write-offs may be incurred which could harm our operating results.

If we are unable to attract and retain qualified personnel, our ability to operate and grow our company will be in jeopardy.

We are required to hire and retain skilled employees at all levels of our operations in a market where such qualified employees are in high demand and are subject to receiving competing offers.  We believe that there is, and will continue to be, competition for qualified personnel in our industry, and there is no assurance that we will be able to attract or retain the personnel necessary for the management and development of our business.  The inability to attract or retain employees currently or in the future may have a material adverse effect on our business.

Our future success depends in part on the continued service of our engineering and technical personnel and our ability to identify, hire and retain personnel.

Our success will depend in large part upon our ability to attract, train, retain and motivate highly skilled employees.  There is currently aggressive competition for employees who have experience in technology and engineering.  We may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development and growth of our business or to replace personnel who may leave our employ in the future.  The failure to retain and recruit key technical personnel could cause additional expense, potentially reduce the efficiency of our operations and could harm our business.

Our operating results could fluctuate significantly.

Our quarterly and annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability, including:  the timing of customer orders and the deferral or cancellation of orders previously received, the level of orders received which can be shipped in a quarter, fulfilling backlog on a timely basis, competitive pressures on selling prices, changes in the mix of products sold, the timing of investments in engineering and development, development of and response to new technologies, and delays in new product qualifications.

As a result of the foregoing and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price.

We may never realize the full value of our substantial intangible assets.

These intangible assets consist primarily of goodwill, customer lists, trade names and patented technology arising from our acquisitions.  Goodwill is not amortized; it is tested annually or upon the occurrence of certain events which indicate that the assets may be impaired.  Definite lived intangible assets are amortized over their estimated useful lives and are tested for impairment upon the occurrence of certain events which indicate that the assets may be impaired.  We may not receive the recorded value for our intangible assets if we sell or liquidate our business or assets.  In addition, intangible assets with definite lives will continue to be amortized.  Amortization expenses relating to these intangible assets will continue to reduce our future earnings.

We face the potential harms of natural disasters, pandemics, acts of war, terrorism, international conflicts or other disruptions to our operations.

Natural disasters, pandemics, acts or threats of war or terrorism, international conflicts, political instability, and the actions taken by governments could cause damage to or disrupt our business operations, our suppliers or our customers, and could create economic instability.  Although it is not possible to predict such events or their consequences, these events could decrease demand for our products or make it difficult or impossible for us to deliver products.

Increased healthcare, pension and other costs under the Company’s benefit plans could adversely affect the Company’s financial condition and results of operations.

We provide health benefits to many of our employees and the costs to provide such benefits continue to increase annually.  The amount of any increase or decrease in the cost of Company-sponsored health plans will depend on a number of different factors including new governmental regulations mandating types of coverage and reporting and other requirements.

We also sponsor defined benefit pension, defined contribution pension, and other postretirement benefit plans.  Our costs to provide such benefits generally continue to increase annually.  We use actuarial valuations to determine the Company’s benefit obligations for certain benefit plans, which require the use of significant estimates, including the discount rate, expected long-term rate of return on plan assets, mortality rates and the rates of increase in compensation and health care costs.  Changes to these significant estimates could increase the cost of these plans, which could also have a material adverse effect on the Company’s financial condition and results of operations.

Failure of our internal control over financial reporting could limit our ability to report our financial results accurately and timely or prevent fraud.

We believe that effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud.  If we are unable to detect or correct any issues in the design or operating effectiveness of internal controls over financial reporting or fail to prevent fraud, current and potential customers and shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our stock.

Our operating results depend in part on our ability to contain or reduce costs.  There is substantial price competition in our industry, and our success and profitability will depend on our ability to maintain a competitive cost and price structure.

Our efforts to maintain and improve profitability depend in part on our ability to reduce the costs of materials, components, supplies and labor, including establishing production capabilities at our low cost regional subcontractors.  While the failure of any single cost containment effort by itself would most likely not significantly impact our results, we cannot give any assurances that we will be successful in implementing cost reductions and maintaining a competitive cost structure.

There is substantial price competition in our industry, and our success and profitability will depend on our ability to maintain a competitive cost and price structure.  We may have to reduce prices in the future to remain competitive.  Also, our future profitability will depend in part upon our ability to continue to improve our manufacturing efficiencies and maintain a cost structure that will enable us to offer competitive prices.  Our inability to maintain a competitive cost structure could have a material adverse effect on our business, financial condition and results of operations.

We depend heavily upon a limited number of customers, and if we lose any of them or they reduce their business with us, we would lose a substantial portion of our revenues.

A significant portion of our revenues and trade receivables are concentrated with a small group of customers.  These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on contractual terms, often resulting in the allocation of risk to us as the supplier.  Our ability to maintain strong relationships with our principal customers is essential to our future performance.  If we lose a key customer, if any of our key customers reduce their orders of our products or require us to reduce our prices before we are able to reduce costs, if a customer is acquired by one of our competitors or if a key customer suffers financial hardship, our operating results would likely be harmed as well as the collectability of accounts receivable.

If we do not respond to changes in technology, our products may become obsolete and we may experience a loss of customers and lower revenues.

We sell our products to customers in several industries that experience rapid technological changes, new product introductions and evolving industry standards.  Without the timely introduction of new products and enhancements, our products and services will likely become technologically obsolete over time and we may lose a significant number of our customers.  Our product development efforts may be affected by a number of factors, including our ability to anticipate customer needs, allocate our research and development funding, innovate and develop new products, differentiate our offerings and commercialize new technologies, secure intellectual property protection for our products and manufacture products in a cost-effective manner.  We would be harmed if we did not meet customer requirements and expectations.  Our inability, for technological or other reasons, to successfully develop and introduce new and innovative products could result in a loss of customers and lower revenues.

Our competitiveness depends on successfully executing our growth initiatives and our globalization strategies.

We continue to invest in initiatives to support future growth, such as the creation of an effective corporate structure, implementation of our enterprise resource planning system, launch of a new integrated website, implementation of a structured approach to identify target markets, and the expansion of our AST (continuous improvement initiatives in quality, delivery, and cost).  The failure to achieve our objectives on these initiatives could have an adverse effect on our operating results and financial condition.  Our globalization strategy includes localization of our products and services to be closer to our customers and identified growth opportunities.  Localization of our products and services includes expanding our capabilities, including supply chain and sourcing activities, product design, manufacturing, engineering, marketing and sales and support.  These activities expose us to risks, including those related to political and economic uncertainties, transportation delays, labor market disruptions and challenges to protect our intellectual property.

We face the challenge of accurately aligning our capacity with our demand.

We have experienced capacity constraints and longer lead times for certain products in times of growing demand while we have also experienced idle capacity as economies slow or demand for certain products decline.  Accurately forecasting our expected volumes and appropriately adjusting our capacity have been, and will continue to be, important factors in determining our results of operations.  We cannot guarantee that we will be able to increase manufacturing capacity to a level that meets demand for our products, which could prevent us from meeting increased customer demand and could harm our business.  However, if we overestimate our demand and overbuild our capacity, we may have significantly underutilized assets and we may experience reduced margins.  If we do not accurately align our manufacturing capabilities with demand it could have a material adverse effect on our results of operations.

The manufacture of many of our products is a highly exacting and complex process, and if we directly or indirectly encounter problems manufacturing products, our reputation, business and financial results could suffer.

The manufacture of many of our products is an exacting and complex process.  Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, natural disasters and environmental factors, and if not discovered before the product is released to market could result in recalls and product liability exposure.  Because of the time required to develop and maintain manufacturing facilities, an alternative manufacturer may not be available on a timely basis to replace such production capacity.  Any of these manufacturing problems could result in significant costs and liability, as well as negative publicity and damage to our reputation that could reduce demand for our products.

Item 1B.  Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

As of December 31, 2017,2019, the Company occupies facilities as follows:

The Company’s management believes the above-described facilities are adequate to meet the Company’s current and foreseeable needs. MostOperating leases for the Company’s properties expire at various times through 2033. Upon the expiration of the manufacturing facilities described above are operatingCompany’s current leases, management believes that the Company will be able to secure renewal terms or enter into leases for alterative locations at less than full capacity.market terms.

Item 3. Legal Proceedings.

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

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

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

Allied Motion’s common stock is listed on the Nasdaq Global Market System and trades under the symbol AMOT. The number of holders of record as reported by the Company’s transfer agent of the Company’s common stock as of the close of business on March 12, 201811, 2020 was 293.  The following table sets forth, for the periods indicated, the high and low prices of the Company’s common stock as reported by Nasdaq, and the per share dividends paid by the Company during each quarter.237.

One of these growth initiatives includes product line platform development to meet the emerging needs of our selected target markets.  Our platform development emphasizes a combination of our technologies to create increased value solutions for our customers.  The emphasis with new opportunities has evolved from being an individual component provider to becoming a solutions provider whereby the new opportunities utilize multiple of Allied Motion 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.  Our strong financial condition, along with Allied Systematic Tools (“AST”)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 20182020

In 2018,2020, we will continue to focus on leveraging our resources to expand our business in our served markets.  With strong cash flows and an improved debt position, we will continue to evaluate and pursue strategic acquisitions to enhance our growth opportunities in the future.   In addition, we will continue to execute the ongoing critical issues as defined by our updated strategy, developed in 2017.  The critical issues from that strategy include:

1)             Creating an effective corporate structure to leverage the resources and capabilities of the combined entity.

2)             Continue implementing our new ERP system to provide the infrastructure necessary to support the planned growth of the Company.  We estimate the ERP system implementation to be largely completed during 2018.

3)             Plan and implement a structured approach to identify the requirements of our target markets and to create and implement solutions to ensure we meet the requirements of those markets.

4)             Through the continued enhancement and development of our Operational Effectiveness Team, implement AST to drive continuous improvement in all areas of our business.

Allied Motion is an applied technology/know-how motion company, and to grow, we will continue to invest in the technical resources to ensure we can move forward with our mantra to “create controlled motion solutions that change the game” and to meet the emerging needs of our customers in our served market segments.  In support of our sales efforts, we have three Solution Centers (United States, Europe and Asia) that are providing the support required to sell multi-technology solutions.  We have announced a number of new multi-product controlled motion control solution wins that will becontinue ramping up during 20182020 and have a very active pipeline of new opportunities where our integrated solution capability has provided us with a competitive advantage.  We anticipate that our investment in these key resources will helpcontinue to drive our growth now and in the future and we plan to continue investing in these resources during 2018.future.  We further expect this shift from a component supplier to a more complete solutions provider, along with the application of AST, to drive margin improvement.cost reduction.

Our global production footprint provides us with the opportunity to be a good value proposition andadded supplier for global companies who require support around the world.  We will continue to evaluate and find areas to leverage our current manufacturing and sales footprint to drive sales and improve efficiencies.

Further developmentCritical Accounting Estimates

Management’s discussion and promotionanalysis 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 parent brand, Allied Motion, will continueconsolidated 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 2018.  A global structure has been definedestimates or assumptions could result in a material adjustment to the consolidated financial statements.

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 we intend to use that to our advantagejudgment involved, and (b) the impact of changes in the marketplace.

Critical Accounting Policies

The Company has prepared itsestimates and assumptions would have a material effect on the consolidated financial statements in conformity withstatements. This listing is not a comprehensive list of all of our accounting principles generally accepted in the United States, and these statements necessarily include some amounts that are based on informed judgments and estimates of management.  The Company’s significant accounting policies are discussed in Note 1 of Item 8, Financial Statements and

Supplementary Data of this report.  The policies are reviewed on a regular basis.  The Company’s critical accounting policies are subject to judgments and uncertainties which affectpolicies. For further information regarding the application of such policies.  The Company uses historical experiencethese and all available information to make these judgments and estimates.  As discussed below the Company’s financial position or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies.  In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.

The Company’s criticalother accounting policies, include:

Revenue Recognition

The Company derives revenues from the sale of products and services.  See Note 1,“Business and Summary of Significant Accounting Policies — Revenue Recognition”of the notes to the Company’s consolidated financial statements contained in Item 8 of this report for a description of the Company’s revenue recognition policies.  Although most of the Company’s sales agreements contain standard terms and conditions, certain agreements contain non-standard terms and conditions.  As a result, judgment is sometimes required to determine the appropriate accounting.  If the Company’s judgments regarding revenue recognition prove incorrect, the Company’s revenues in particular periods may be adversely affected.additional information.

See Note 1, “Business and Summary of Significant Accounting Policies — Recently Issued Accounting Pronouncements” to theThe Company’s consolidated financial statements for a description of the new revenue standard, ASU 2014-09, “Revenue from Contracts with Customers” that will be effective for interim and annual reporting periods beginning January 1, 2018.critical accounting estimates include:

Allowance for Doubtful AccountsRevenue Recognition

The Company maintains allowancesconsiders 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 doubtful accountsmonetary 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 losses resulting fromreturns and warranties. All contracts include a standard warranty clause to guarantee that the inabilityproduct complies with agreed specifications.

At December 31, 2019 and 2018, the accrual for future warranty obligations was $1,075 and $971, respectively. The Company’s expense (income) for warranty obligations was $210 in 2019, ($13) in 2018, and $234 in 2017, respectively. The length of its customersthe warranty period for the Company’s products is generally three months to make required payments.  The allowance istwo years and varies significantly based on the product sold. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty expenses. If actual future sales returns and allowances are higher than the Company’s historical experience, and judgments based on current economic and customer specific factors.  Significant judgments are made by management in connection with establishing the Company’s customers’ ability to pay at the time of shipment.  Despite this assessment, from time to time, the Company’s customers are unable to meet their payment obligations.  The Company continues to monitor customers’ credit worthiness, and use judgment in establishing the estimated amounts of customer receivables whichadditional accruals may not be collected.  A significant change in the liquidity or financial position of the Company’s customers could have a material adverse impact on the collectability of accounts receivable and future operating results.

See Note 1, “Business and Summary of Significant Accounting Policies — Accounts Receivable,” of our consolidated financial statements for information regarding trade accounts receivable and the allowance for doubtful accounts.required.

Inventory ValuationInventories

Inventories include material, direct labor and related manufacturing overhead, and are statedmeasured on a first-in, first-out basis at the lower of cost or net realizable value. Net realizable value determined on a first-in, first-out basis.  We recordis 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 valuation of inventory when we take delivery and titlerequires us to the product according to the terms of each supply agreement.  The Company monitors and forecasts expected inventory needs based on sales forecasts.  Inventory is written down or written off when it becomesestimate obsolete or when it is deemed excess.  These determinations involve the exercise of significant judgment by management.  If actual market conditions are significantly different from those projected by management, the recorded reserve may be adjusted, and such adjustments may have a significant impact on the Company’s results of operations.  Demand for the Company’s products can fluctuate significantly, and in the past the Company has recorded substantial charges forexcess inventory, obsolescence.

See Note 1, “Business and Summary of Significant Accounting Policies - Inventories,” of our consolidated financial statements for information regarding inventory valuation as well as excess and obsolete inventory provisions.that is not of saleable quality.

Income Taxes

The Tax CutsHistorically, 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 Jobs Act of 2017 was enacted in the United States on December 22, 2017.   The provisions of the Act significantly revise the U.S. corporate income tax rules and requires companieswe fail to reduce manufacturing output accordingly, we could be required to record additional inventory write-down or expense a one-time transition tax on earningsgreater amount of certain foreign subsidiaries that were previously tax deferred and reduces the US federal corporate tax rate from 35% to 21%.overhead costs, which would negatively impact our net income. As of December 31, 2017, the Company has not fully completed the accounting for the tax effects2019, we have $53,385 of enactmentinventory recorded on our consolidated balance sheet, representing approximately 17% of the Act, however a reasonable estimatetotal assets. A 1% write-down of the tax effects has been recorded in 2017.   The amounts are provisional and subject to

change as the determination of the impact of theour inventory would decrease our 2019 net income tax effects will require additional analysis of historical records, annual data, further interpretation of regulatory guidance that may be issued and actions the Company may take as a result of the Act.by approximately $381, or $0.04 per diluted share.

The Company records deferred tax assetsValuation of Goodwill and liabilities for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts recorded in the consolidated financial statements, and for operating loss and tax credit carryforwards.

Realization of the recorded deferred tax assets is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdiction in future years to obtain benefit from the reversal of net deductible temporary differences and from tax credit and operating loss carryforwards.Other Long-Lived Assets

We regularly assessmake assumptions in establishing the carrying value, fair value and, if applicable, the estimated lives of our abilitygoodwill, intangible and other long-lived assets. Goodwill and intangible assets determined to realize our deferred tax assets.  Assessmentshave an indefinite useful life are not amortized. Instead, these assets are evaluated for impairment on an annual basis and whenever events or business conditions change that could indicate that the asset is impaired. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable.

Evaluation of goodwill for impairment

We test the reporting unit’s goodwill for impairment as of October 31^st of each fiscal year and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the realizationreporting unit below its carrying value. In conducting this annual impairment testing, we may first perform a qualitative assessment of deferred tax assets requirewhether it is more-likely-than-not that management consider all available evidence, both positive and negative, and make significant judgments about manya reporting unit’s fair value is less than its carrying value. If not, 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 net book value. If the net book value 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, 2019. 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 amountcompetitive environment, and likelihoodthe operational stability and overall financial performance of future taxable income.  A valuation allowance is provided to the extentour reporting unit. The assessment indicated that management deems it was more likely than not that the net deferred tax assets will not be realized.  The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed.

See Note 1, “Business and Summary of Significant Accounting Policies — Income Taxes,”fair value of our consolidated financial statements for information on howreporting unit exceeded its respective carrying value. Additionally, other positive indicators considered since the last quantitative assessment were the achievement of substantially higher revenue during 2019, along with continued expected growth during 2020. As a result, we record current and deferred income taxes, valuation allowances and the realization of uncertain tax positions.

See Note 8, “Income Taxes,” of our consolidated financial statements for information regarding income tax expense as well as the valuation of our deferred income taxes.

Goodwill

As of December 31, 2017, we had $29,531 of goodwill related to various business acquisitions.  We perform impairment tests on goodwill on an annual basis during the fourth quarter of each fiscal year, or on an interim basis if events or circumstances indicateconcluded that it is more likely than not that impairment has occurred.  Goodwill is potentially impaired if the carrying value of the reporting unit that contains the goodwill exceeds its estimated fair value.

Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary.  If it is determined, based on qualitative factors,was more-likely-than-not that the fair value of the reporting unit may be more likely than not less thanexceeded its carrying amount, or if significant adverse changes in the Company’s future financial performance occur that could materially impact fair value, and as such, a quantitative goodwill impairment test would beassessment was not required.

TheWe 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 is generally determined usingand could result in a combination of an income approach, which estimates fair value based upon future discounted cash flows and a market approach which uses published market prices for analysis.  We completed our annual goodwill impairment testcharge in the fourth quartera future period. We may be unaware of 2017 and concluded noone or more significant factors that, if we had been aware of, would cause our conclusion to change, which could result in a goodwill impairment charge in a future period. As of December 31, 2019, we have $52,935 of goodwill exists, asrecorded on our consolidated balance sheet, representing approximately 17% of total assets. A 1% write-down of our goodwill reporting unit had a calculated fair value in excess of carrying value of greater than 25%.

Although goodwill is not currently impaired, there can be no assurance that future impairments will not occur.  Significant negative industrywould decrease our 2019 net income approximately $378, or economic trends, disruptions to our business, failure to achieve the revenue and cost synergies expected from our acquisitions, or other unexpected significant changes in the use of certain assets could all have a negative effect on fair values in the future.

See Note 1, “Business and Summary of Significant Accounting Policies — Goodwill,” of our consolidated financial statements for information on how we record goodwill and impairment charges.

See Note 3, “Goodwill,” of our consolidated financial statements for information regarding the carrying values of our goodwill.$0.04 per diluted share.

Stock-based Compensation

We measure compensation cost arising fromCompensation expense for time-based restricted stock units are measured at the grant of share-based payments to employees at fair valuedate and recognize such costrecognized ratably over the period during which the employee is required to provide service in exchange for the award, usually the vesting period. Total stock-based compensation expense recognized duringWe determine the years ended December 31, 2017, 2016,fair value of time-based and 2015 was $2,026, $1,893 and $1,744, respectively.

For awards with service conditions, we recognize compensation cost on a straight-line basis over the requisite service/vesting period once the awards have been earned.  For awards with performance conditions, accruals of compensation cost are madeperformance-based restricted stock units based on the probable outcomeclosing market price of our common stock on the grant date. The recognition of compensation expense associated with performance-based restricted stock units requires judgment in assessing the probability of meeting the performance goals, as well as defined criteria for assessing achievement of the performance-related goals. For purposes of measuring compensation expense, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. The performance shares begin vesting only upon the achievement of the performance conditions.criteria. The achievement of the performance goals can impact the valuation and associated expense of the restricted stock units.

The assumptions used in calculatingaccounting for the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.  As a result, if circumstances change and we use different assumptions, our stock-based compensation expense could be materially different in the future.  See Note 5, “Stock-Based Compensation Plans,” of our consolidated financial statements for further information regarding our Stock Incentive plans.

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.

Operating Results

Year 2017The following discussion is a comparison between fiscal year 2019 and fiscal year 2018 results. For a discussion of our results of operations for the year ended December 31, 2018 compared to 2016the year ended December 31, 2017, 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, 2018, which was filed with the SEC on March 13, 2019.

Year 2019 compared to 2018

REVENUES: During 2019, we experienced growth in all of our served markets. Organic growth accounted for 9% of the 19% increase in sales in 2019 with the remainder due to acquisitions. Our sales for 2019 were comprised of 57% to US customers and 43% to customers primarily in Europe, Canada and Asia. The overall increase in revenue was primarily due to increased volume. The increase in revenue was 22% when excluding foreign currency impacts from both 2019 and 2018. 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 BACKLOG: The increase in orders in 2019 compared to 2018 is due to significant organic growth across all of the major markets served by the company, further enhanced by the TCI acquisition. The reduction in backlog is largely due to the timing of certain longer-term orders being placed in Q4 2018 not occurring in 2019 due to the term of those orders.

GROSS PROFIT AND GROSS MARGIN: The 23% increase in gross profit was largely due to increased volume attributable to growth in our served markets. The 90 basis point improvement in gross margin was due to the leveraging of fixed manufacturing costs along with beneficial product mix and improved operating efficiencies.

SELLING EXPENSES: Selling expenses increased in 2019 compared to 2018 primarily due to increased investment in and focused growth of the One Allied Sales Organization including the addition of the TCI sales organization.  Selling expenses as a percentage of revenues were 4% for 2019 and 4% for 2018. We anticipate that the higher level of selling expenses as a percentage of revenues will continue in the future.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased in 2019 from 2018 largely due to higher incentive compensation resulting from strong financial performance, as well as the TCI acquisition.  As a percentage of revenues, general and administrative expenses were 10% for 2019 and 2018.

ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by 16% in 2019 compared to 2018.  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, the addition of TCI, as well as supporting growing customer application development needs.  As a percentage of revenues, engineering and development expenses were 6% for 2019 and 2018.

BUSINESS DEVELOPMENT COSTS: The Company incurred $113 of business development costs during 2019 related potential new business opportunities. The Company incurred $762 of business development costs during 2018 related to the acquisitions of Maval OE Steering and TCI.

INTEREST EXPENSE: Interest expense increased by 90% in 2019 compared to 2018 due to the increased borrowings in 2018 related to the acquisition of TCI.

AMORTIZATION OF INTANGIBLE ASSETS: Amortization of intangible assets increased 56% in 2019 compared to 2018, from $3,655 to $5,718 related to the increased intangible assets from the TCI acquisition.

INCOME TAXES:  The effective income tax rate as a percentage of income before income taxes was 28.6% and 23.0% for the year ended December 31, 2019 and 2018, respectively.  For the year ended December 31, 2019, the effective tax rate includes a discrete tax provision of 1.8% related to settlement of a tax audit in a foreign jurisdiction. For the year ended December 31, 2019 and 2018, the effective rate is net of a discrete tax benefit of (0.1%) and (2.3%), 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.Refer to Note 9 of theNotes to Consolidated Financial Statementsfor a reconciliation of statutory rates to tax provision rates.

NET INCOME AND ADJUSTED NET INCOME: Net income decreasedincreased during 2019 reflecting a significant increase in 2017 primarily as the result of fourth quarter adjustments to the provision forrevenues and improved operating performance, offset by higher interest expense and income taxes of $3,133 resulting from the enactment of the Tax Cuts and Jobs Act.taxes.

Adjusted net income for the yearyears ended December 31, 2017, was $11,316.2019, and 2018 were $17,920 and $16,276, respectively. Adjusted diluted earnings per share for 2017 was $1.22.2019 and 2018 were $1.89 and $1.74, respectively. Adjusted net income and adjusted diluted earnings per share are non-GAAP measurements.measures. Adjusted net income for 20172019 excludes $3,133the third quarter 2019 non-income based tax assessment of $384 and the income tax charge of $433 related to a tax assessment in a foreign jurisdiction. Adjusted net income for 2019 excludes $113 ($81 net of tax) and for 2018 excludes $762 ($586 net of tax) of business development costs. Adjusted net income for 2018 also excludes $235 of tax provisionbenefit resulting from the Tax Cuts and Jobs Act and $213 ($145 net of tax) of business development costs.  2016 excludes $428 ($291 net of tax) of business development costs and $823 ($560 net of tax) of income from insurance recoveries related to a fire at one of our international locations.Act. 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.income and earnings per share to Adjusted earnings per share.

EBITDA AND ADJUSTED EBITDA: EBITDA was $28,884$43,832 for 20172019 compared to $29,001$34,958 for 2016.2018. Adjusted EBITDA was $31,123$47,532 and $30,499$38,363 for 20172019 and 2016,2018, respectively. EBITDA and adjusted EBITDA are non-GAAP measurements.measures. 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: During 2017, we experienced growth in all of our markets except for vehicle.  Our sales for 2017 were comprised of 53% to US customers and 47% to customers primarily in Europe, Canada and Asia.  The overall increase in revenue was due to a 1% volume increase and a 1% favorable currency impact.

ORDER BACKLOG:  The increase in bookings in 2017 compared to 2016 is largely due to new business opportunities in both our US and foreign locations along with increased activity from existing customers.  There are increases in orders for all of our markets.

GROSS MARGIN:  The 4% increase in gross margin was largely due to increased volume attributable to market growth.

SELLING EXPENSES:  Selling expenses increased in 2017 compared to 2016 primarily due to the continued investment in our One Allied sales organization to support future growth.  Selling expenses as a percentage of revenues were 4% for 2017 and 2016.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased in 2017 from 2016 largely due to higher incentive compensation.  As a percentage of revenues, general and administrative expenses were 10% for 2017 and 2016.

ENGINEERING AND DEVELOPMENT EXPENSES:  Engineering and development expenses increased by 8.5% in 2017 compared to 2016.  The increase is primarily due to the continuation of a significant development project to meet the future needs of a target market for Allied Motion.  As a percentage of revenues, engineering and development expenses were 7% for both 2017 and 2016.

BUSINESS DEVELOPMENT COSTS:  The Company incurred $213 of business development costs during 2017 to evaluate new business opportunities.  In 2016, $428 of business development costs were related to the acquisition of Heidrive and consulting expenses to evaluate new business opportunities.

AMORTIZATION OF INTANGIBLE ASSETS:  Amortization of intangible assets were consistent year over year.

INCOME TAXES:  The effective income tax rate as a percentage of income before income taxes was 50.2% and 29.1% in 2017 and 2016, respectively.  The effective tax rate in 2017 was significantly impacted by the enactmentdiscussion of the Tax Cutsnon-GAAP measure and Jobs Act of 2017.  Excluding the impacts due to the Act, the effective tax rate for 2017 was 30.8%, which is lower than the statutory rate primarily due to differences in foreign tax rates and the effect of recording excess tax benefits related to share based payment awards as a discrete item. (See Note 7, “Income Taxes,” from our consolidated financial statements for a reconciliation of the effective tax rate including the impacts of the Tax Cuts and Jobs Act).

Operating Results

Year 2016 compared to 2015

NET INCOME AND ADJUSTED NET INCOME:  Net income decreased during 2016 reflecting operating expense increases that outpaced the increase in sales.  The increase in expenses was largely attributable to Heidrive, and also included increased development costs, SG&A expenses and additional organizational enhancements.

Adjusted net income for the year ended December 31, 2016, was $8,809.  Adjusted diluted earnings per share for 2016 was $0.97.  Adjusted net income and adjusted diluted earnings per share are non-GAAP measurements.  Adjusted net income for 2016 excludes $428 ($291 net of tax) and for 2015 excludes $569 ($387 net of tax) of business development costs.  Adjusted net income for 2016 also excluded $823 ($560 net of tax) of income from insurance recoveries related to a fire at one of our international locations.  See information included in “Non — GAAP Measures” below for a reconciliation of net income to Adjusted net income.

EBITDA AND ADJUSTED EBITDA: EBITDA was $29,001 for 2016 compared to $28,910 for 2015.  Adjusted EBITDA was $30,499 and $31,223 for 2016 and 2015, 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 adjustedAdjusted EBITDA.

REVENUES: During 2016, we experienced growth in all of our markets except for vehicle.  The 6% increase in sales in 2016 was largely due to the addition of Heidrive.  Our sales for 2016 were comprised of 54% to US customers and 46% to customersNon-GAAP Measures

primarily in Europe, Canada and Asia.  The overall increase in revenue was due to increased volume, fluctuations in

Revenue excluding foreign currency were not a factor.

ORDER BACKLOG:  The increase in bookings in 2016 compared to 2015 was largely due to addition of Heidrive.  There were increases in orders for most of our markets outside of vehicle.  There was a decline in orders and backlog reflecting the weakness in our vehicle market caused by generally soft industrial market conditions, a slowdown in the European auto market and product end-of-life wind-downs.

GROSS MARGIN:  The 6% increase in gross profit was largely due to increased volume attributable to market growth.  Gross profit was revised in the fourth quarter of 2016 related to the correction of accounting for certain intercompany sales.

SELLING EXPENSES:  Selling expenses increased in 2016 compared to 2015 primarily due to the acquisition of Heidrive and continued investment in our One Allied sales organization to support future growth.  Selling expenses as a percentage of revenues were 4% for 2016 and 2015.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased in 2016 from 2015 largely due to the acquisition of Heidrive.  G&A expenses were partially offset by insurance recoveries related to a fire at one of our international locations.  As a percentage of revenues, general and administrative expenses was 10% for 2016 and 2015.

ENGINEERING AND DEVELOPMENT EXPENSES:  Engineering and development expenses increased by 14% in 2016 compared to 2015.  The increase was primarily due to the acquisition of Heidrive and the continuation of a significant development project to meet the future needs of a target market for Allied Motion.  As a percentage of revenues, engineering and development expenses were 6% for both 2016 and 2015.

BUSINESS DEVELOPMENT COSTS:  The Company incurred $428 of business development costs during 2016 related to the acquisition of Heidrive on January 12, 2016 and consulting expenses to evaluate new business opportunities.

AMORTIZATION OF INTANGIBLE ASSETS:  Amortization of intangible assets increased in 2016 compared to 2015 due to the amortization of Heidrive intangible assets.

INCOME TAXES: The effective income tax rate as a percentage of income before income taxes was 29.1% and 28.2% in 2016 and 2015, respectively. The effective tax rate for 2016 was lower than the statutory rate primarily due to differences in foreign tax rates and the effect of recording excess tax benefits related to share based payment awards as a discrete item, in accordance with ASU 2016-09 which was adopted during 2016. The effective tax rate for 2015 was lower than the statutory rate primarily due to differences in foreign tax rates and changes in our valuation allowance on foreign net operating losses. The effective rate for 2016 is higher than 2015 primarily related to an increase in the valuation allowance due to an increase in the estimate of net operating losses that will expire unused, offset by the discrete item related to excess tax benefits from share based payment awards.

The Company adopted ASU 2016-09 prospectively and ASU 2015-17 retrospectively as of January 1, 2016. These pronouncements impacted the accounting and disclosure for income taxes (See Note 1, “Business and Summary of Significant Accounting Policies,” — recently adopted accounting pronouncements from our consolidated financial statements).

Non-GAAP Measures

exchange impacts, 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. ThisThese non-GAAP disclosure hashave limitations as an analytical tool,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, 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 that revenue excluding foreign currency exchange impacts is a useful measure in analyzing organic 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 the 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.

The Company’s calculation of revenues excluding foreign currency exchange impacts for 2019 and 2018 is as follows:

The Company’s calculation of EBITDA and Adjusted EBITDA for 2017, 20162019 and 20152018 is as follows (in thousands):follows: