v3.20.2

Summary of Significant Accounting Policies and Other Information | 9 Months Ended
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Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Summary of Significant Accounting Policies and Other Information | Summary of Significant Accounting Policies and Other Information Nature of Business Operations Power Solutions International, Inc. (“Power Solutions,” “PSI” or “the Company”), a Delaware corporation, is a global producer and distributor of a broad range of high-performance, certified, low-emission power systems, including alternative-fueled power systems for original equipment manufacturers (“OEMs”) of off-highway industrial equipment and certain on-road vehicles and large custom-engineered integrated electrical power generation systems. The Company’s customers include large, industry-leading and multinational organizations. The Company’s products and services are sold predominantly to customers throughout North America as well as to customers located throughout the Pacific Rim and Europe. The Company’s power systems are highly engineered, comprehensive systems which, through the Company’s technologically sophisticated development and manufacturing processes, including its in-house design, prototyping, testing and engineering capabilities and its analysis and determination of the specific components to be integrated into a given power system (driven in large part by emission standards and cost considerations), allow the Company to provide its customers with power systems customized to meet specific OEM application requirements, other technical customers’ specifications, and requirements imposed by environmental regulatory bodies. The Company’s power system configurations range from a basic engine integrated with appropriate fuel system components to completely packaged power systems that include any combination of cooling systems, electronic systems, air intake systems, fuel systems, housings, power takeoff systems, exhaust systems, hydraulic systems, enclosures, brackets, hoses, tubes and other assembled componentry. The Company also designs and manufactures large, custom-engineered integrated electrical power generation systems for both standby and prime power applications. The Company purchases engines from third-party suppliers and produces internally designed engines, all of which are then integrated into its power systems. Of the other components that the Company integrates into its power systems, a substantial portion consist of internally designed components and components for which it coordinates significant design efforts with third-party suppliers, with the remainder consisting largely of parts that are sourced off-the-shelf from third-party suppliers. Some of the key components (including purchased engines) embody proprietary intellectual property of the Company’s suppliers. As a result of its design and manufacturing capabilities, the Company is able to provide its customers with a power system that can be incorporated into a customer’s specified application. In addition to the certified products described above, the Company sells diesel, gasoline and non-certified power systems and aftermarket components. Stock Ownership and Control Weichai America Corp., a wholly-owned subsidiary of Weichai Power Co., Ltd. (HK2338, SZ000338) (herein collectively referred to as “Weichai”), currently owns a majority of the outstanding shares of the Company’s Common Stock. As a result, Weichai is able to exercise control over Company matters including those requiring stockholders’ approval, including the election of the directors, amendments to the Company’s Charter and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of the Company and could deter or prevent actions that may be favored by other stockholders. Weichai currently has three representatives on the Company’s Board of Directors (the “Board”). Under the Investor Rights Agreement (the “Rights Agreement”) between Weichai and the Company, since Weichai became the majority owner of the Company’s outstanding shares of Common Stock, the Company became required to appoint to the Board an additional individual designated by Weichai, or such additional number of individuals so that Weichai designees constitute the majority of the directors serving on the Board. As of the date of this filing, Weichai has nominated an additional representative to stand for election to the Board at the Company’s upcoming Annual Meeting of Stockholders on December 15, 2020. According to the Rights Agreement, during any period when the Company is a “controlled company” within the meaning of the NASDAQ Stock Market (“NASDAQ”) Listing Rules, it will take such measures as to avail itself of the “controlled company” exemptions available under Rule 5615 of the NASDAQ Listing Rules of Rules 5605(b), (d) and (e). Going Concern Considerations In April 2020, the Company closed on its new senior secured revolving credit facility pursuant to that certain credit agreement, dated as of March 27, 2020, between the Company and Standard Chartered Bank (“Standard Chartered”), as administrative agent (the “Credit Agreement”). The Credit Agreement, which allows the Company to borrow up to $130.0 million, matures on March 26, 2021 with an optional 60-day extension, subject to certain conditions and payment of a 0.25% extension fee. See Note 6. Debt for further information regarding the terms and conditions of the Credit Agreement. The Credit Agreement includes financial covenants which were effective for the Company beginning with the six months ended June 30, 2020. The financial covenants include an interest coverage ratio and a minimum threshold for earnings before interest, taxes, depreciation and amortization (“EBITDA”) as further defined in the Credit Agreement. For the six months ended June 30, 2020 and the nine months ended September 30, 2020, the Company did not meet the defined minimum EBITDA requirement. A breach of the financial covenants under the Credit Agreement constitutes an event of default and, if not cured or waived, could result in the obligations under the Credit Agreement being accelerated. Accordingly, the Company is currently in discussions with Standard Chartered to seek appropriate waivers and amendments to cure its financial covenant breach and amend its financial covenants. Significant uncertainties exist about the Company’s ability to refinance, extend, or repay its outstanding indebtedness, maintain sufficient liquidity to fund its business activities, obtain a waiver or satisfactory amendment in connection with the financial covenant breach, and maintain compliance with the covenants and other requirements under the Credit Agreement in the future. Based on the Company’s current forecasts, without additional financing, the Company anticipates that it will not have sufficient cash and cash equivalents to repay the Credit Agreement by March 26, 2021. Management plans to seek an extension and/or replacement of the Credit Agreement or additional liquidity from its current or other lenders before March 26, 2021. There can be no assurance that the Company’s management will be able to obtain waivers or satisfactory amendments to its financial covenants or successfully complete an extension of the Credit Agreement or obtain new financing on acceptable terms when required or if at all. The consolidated financial statements included in this Quarterly Report do not include any adjustments that might result from the outcome of the Company’s efforts to address these issues. Furthermore, if the Company cannot raise capital on acceptable terms, it may not, among other things, be able to do the following: •continue to expand the Company’s research and product investments and sales and marketing organization; •continue to fund and expand operations both organically and through acquisitions; and •respond to competitive pressures or unanticipated working capital requirements. Additionally, as discussed further below, in January 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally. In March 2020, the WHO classified the COVID-19 outbreak as a global pandemic (the “COVID-19 pandemic”), based on the rapid increase in exposure globally. The potential impact of future disruptions to the Company, continued economic uncertainty, and continued depressed crude oil prices and low rig count levels may have a material adverse impact on the results of operations, financial position, and liquidity of the Company. The Company’s management has concluded that, due to uncertainties surrounding the Company’s future ability to refinance, extend, or repay its outstanding indebtedness, maintain sufficient liquidity to fund its business activities, obtain a cure or waiver of its financial covenant breach, and maintain compliance with the covenants and other requirements under the Credit Agreement in the future, substantial doubt exists as to its ability to continue as a going concern within one year after the date that these financial statements are issued. The Company’s plans to alleviate the substantial doubt about its ability to continue as a going concern may not be successful, and it may be forced to limit its business activities or be unable to continue as a going concern, which would have a material adverse effect on its results of operations and financial condition. The consolidated financial statements included herein have been prepared assuming that the Company will continue as a going concern and contemplating the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company’s ability to continue as a going concern is dependent on generating profitable operating results, having sufficient liquidity, obtaining a cure or waiver in connection with the financial covenant breach, maintaining compliance with the covenants and other requirements under the Credit Agreement in the future, and extending, refinancing or repaying the indebtedness outstanding under the Credit Agreement. Recent COVID-19 Outbreak and Oil and Gas Market Price Volatility As a result of the COVID-19 pandemic, the global economy has experienced substantial turmoil including impacts from the world financial markets which have experienced a period of significant volatility and overall declines. In addition, due to unprecedented decreases in demand, an oil price war, and economic uncertainty resulting from the COVID-19 pandemic, crude oil prices have declined considerably as compared to prices at the end of 2019. A significant portion of the Company’s sales and profitability is derived from the sale of products that are used within the oil and gas industry. While the Company has yet to experience significant supply chain interruptions or material cancellations of orders, the Company has seen a decline in orders and lower volumes compared to the prior year. The potential impact of future disruptions, continued economic uncertainty, and continued depressed crude oil prices and low rig count levels may have a significant adverse impact on the timing of delivery of customer orders and the levels of future customer orders. Accordingly, these adverse impacts may significantly impact the Company’s future results of operations, financial position, and liquidity. The Company performs its annual goodwill impairment test as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company considered the significant changes in the market due to the COVID-19 pandemic and the oil and gas market price volatility in performing its assessment of whether an interim impairment review was required for any reporting units and determined that a triggering event had occurred for both reporting units as of March 31, 2020. The Company considered both qualitative and quantitative factors in its assessment including the significant amount of headroom resulting from the prior fiscal year’s impairment test and potential changes in key assumptions, including discount rates, expected profitability and long-term growth rates, used in the last fiscal year’s impairment analysis that may have been impacted by the recent market conditions and economic events. Based on this interim assessment, the Company concluded that goodwill was not impaired as of March 31, 2020. It is reasonably possible that potential adverse impacts of the factors noted above could result in the recognition of material impairments of goodwill and other long-lived assets or other related charges in future periods as the extent and duration of the impact of the COVID-19 pandemic and resulting effect on the Company’s operations continues to evolve and remains uncertain. The Company has initiated certain contingency actions as a result of the significant negative impacts of these factors. During the nine months ended September 30, 2020, the Company has taken actions to continue to improve its manufacturing operations which includes making reductions in its production facility workforce to align with current volume trends. In addition, the Company implemented various temporary cost reduction measures, including reduced pay for salaried employees, suspension of the 401(k) match program, and deferred spending on certain R&D programs, among others. The measures with regard to pay for employees and the Company’s 401(k) plan match will run through December 31, 2020. The Company plans to reinstate full pay for employees and 401(k) matching effective January 1, 2021. The Company continues to review operating expenses as part of the contingency planning process. Basis of Presentation and Consolidation The Company is filing this Form 10-Q for the three and nine months ended September 30, 2020, which contains unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2020 and 2019. The consolidated financial statements include the accounts of Power Solutions International, Inc. and its wholly-owned subsidiaries and majority-owned subsidiaries in which the Company exercises control. The foregoing financial information was prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. All intercompany balances and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying consolidated financial statements should be read in conjunction with, and have been prepared in accordance with accounting policies reflected in, the consolidated financial statements and related notes, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“the 2019 Annual Report”). The Company’s significant accounting policies are described in the aforementioned 2019 Annual Report. Included below are certain updates to those policies. The accompanying interim financial information is unaudited; however, the Company believes the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP. Operating results for interim periods are not necessarily indicative of annual operating results. The Company operates as one business and geographic operating segment. Operating segments are defined as components of a business that can earn revenue and incur expenses for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker (“CODM”). The Company’s CODM is its principal executive officer, who decides how to allocate resources and assess performance. A single management team reports to the CODM, who manages the entire business. The Company’s CODM reviews consolidated statements of operations to make decisions, allocate resources and assess performance, and the CODM does not evaluate the profit or loss from any separate geography or product line. Immaterial Revision to Prior Period Financial Statements During the third quarter of 2020, the Company determined that, in certain prior periods, treasury stock had not been relieved at the appropriate share prices when restricted shares were issued under the Company’s incentive compensation plan (refer to Item 8. Note 13. Stock-Based Compensation in the 2019 Annual Report for further discussion of the Company’s incentive compensation plan). The Company assessed the materiality of the issue considering both qualitative and quantitative factors and determined the adjustments were immaterial. The Company has decided to correct the prior year presentation to provide comparability to the 2020 financial statements. The adjustments had no impact on total assets, total liabilities or total stockholders’ equity, the Consolidated Statements of Operations, or the Consolidated Statements of Cash Flows. Consolidated Balance Sheet The effects of the adjustments on the line items within the Company’s Consolidated Balance Sheet at December 31, 2019 are as follows:
(in thousands) |  | December 31, 2019 (As Previously Reported) |  | Adjustment |  | December 31, 2019 (As Revised)
Additional paid-in capital |  | $ | 165,527 |  |  | $ | (8,800) |  |  | $ | 156,727 |
Treasury stock |  | $ | (10,141) |  |  | $ | 8,800 |  |  | $ | (1,341) |
Consolidated Statements of Stockholders’ Equity (unaudited) The effects of the adjustments on the line items within the Company’s Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2019 are as follows:
(in thousands) |  | Additional Paid-in Capital |  | Treasury Stock
|  | As previously reported |  | Adjustment |  | As revised |  | As previously reported |  | Adjustment |  | As revised
Year ended December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2018 |  | $ | 126,412 |  |  | $ | (6,688) |  |  | $ | 119,724 |  |  | $ | (9,849) |  |  | $ | 6,688 |  |  | $ | (3,161) |
Stock-based compensation expense * |  | 1,540 |  |  | (2,112) |  |  | (572) |  |  | (292) |  |  | 2,112 |  |  | 1,820 |
Balance at December 31, 2019 |  | $ | 165,527 |  |  | $ | (8,800) |  |  | $ | 156,727 |  |  | $ | (10,141) |  |  | $ | 8,800 |  |  | $ | (1,341) |
*There was no impact to total stock-based compensation expense as a result of the adjustment. The effects of the adjustments on the line items within the Company’s Consolidated Statement of Stockholders’ Equity (unaudited) for the three month periods ended June 30, 2020, March 31, 2020, and September 30, 2019, the six month period ended June 30, 2020, and the nine month period ended September 30, 2019, respectively, are as follows:
(in thousands) |  | Additional Paid-in Capital |  | Treasury Stock
|  | As previously reported |  | Adjustment |  | As revised |  | As previously reported |  | Adjustment |  | As revised
Three months ended June 30, 2020 (unaudited) |  |  |  |  |  |  |  |  |  |  |  |
Balance at March 31, 2020 |  | $ | 165,691 |  |  | $ | (8,800) |  |  | $ | 156,891 |  |  | $ | (10,149) |  |  | $ | 8,800 |  |  | $ | (1,349) |
Balance at June 30, 2020 |  | $ | 165,852 |  |  | $ | (8,800) |  |  | $ | 157,052 |  |  | $ | (10,154) |  |  | $ | 8,800 |  |  | $ | (1,354) |
Three months ended March 31, 2020 (unaudited) |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2019 |  | $ | 165,527 |  |  | $ | (8,800) |  |  | $ | 156,727 |  |  | $ | (10,141) |  |  | $ | 8,800 |  |  | $ | (1,341) |
Balance at March 31, 2020 |  | $ | 165,691 |  |  | $ | (8,800) |  |  | $ | 156,891 |  |  | $ | (10,149) |  |  | $ | 8,800 |  |  | $ | (1,349) |
Three months ended September 30, 2019 (unaudited) |  |  |  |  |  |  |  |  |  |  |  |
Balance at June 30, 2019 |  | $ | 165,437 |  |  | $ | (6,907) |  |  | $ | 158,530 |  |  | $ | (10,325) |  |  | $ | 6,907 |  |  | $ | (3,418) |
Stock-based compensation expense * |  | (14) |  |  | (1,893) |  |  | (1,907) |  |  | 187 |  |  | 1,893 |  |  | 2,080 |
Balance at September 30, 2019 |  | $ | 165,380 |  |  | $ | (8,800) |  |  | $ | 156,580 |  |  | $ | (10,138) |  |  | $ | 8,800 |  |  | $ | (1,338) |
Six months ended June 30, 2020 (unaudited) |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2019 |  | $ | 165,527 |  |  | $ | (8,800) |  |  | $ | 156,727 |  |  | $ | (10,141) |  |  | $ | 8,800 |  |  | $ | (1,341) |
Balance at June 30, 2020 |  | $ | 165,852 |  |  | $ | (8,800) |  |  | $ | 157,052 |  |  | $ | (10,154) |  |  | $ | 8,800 |  |  | $ | (1,354) |
Nine months ended September 30, 2019 (unaudited) |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2018 |  | $ | 126,412 |  |  | $ | (6,688) |  |  | $ | 119,724 |  |  | $ | (9,849) |  |  | $ | 6,688 |  |  | $ | (3,161) |
Stock-based compensation expense * |  | 1,390 |  |  | (2,112) |  |  | (722) |  |  | (289) |  |  | 2,112 |  |  | 1,823 |
Balance at September 30, 2019 |  | $ | 165,380 |  |  | $ | (8,800) |  |  | $ | 156,580 |  |  | $ | (10,138) |  |  | $ | 8,800 |  |  | $ | (1,338) |
*There was no impact to total stock-based compensation expense as a result of the adjustment. Reclassifications Certain amounts presented in the prior-period Consolidated Statements of Stockholders’ Equity have been reclassified between Stock-based compensation expense and Common stock issued for stock-based awards, net to conform to the current period financial statement presentation. These reclassifications had no effect on previously reported total stockholders’ equity, the Consolidated Balance Sheet, Consolidated Statements of Operations or Consolidated statements of Cash Flow. Concentrations The following table presents customers individually accounting for more than 10% of the Company’s net sales:
|  | For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Customer A |  | 17 | % |  | 15 | % |  | 10 | % |  | 12 | %
Customer B |  | 11 | % |  | 11 | % |  | 14 | % |  | 15 | %
Customer C |  | 11 | % |  | ** |  | 11 | % |  | **
Customer D |  | ** |  | 11 | % |  | ** |  | **
Customer E |  | ** |  | 11 | % |  | ** |  | **
The following table presents customers individually accounting for more than 10% of the Company’s accounts receivable:
|  | As of September 30, 2020 |  | As of December 31, 2019
Customer A |  | ** |  | 49 | %
Customer B |  | 16 | % |  | **
Customer C |  | 18 | % |  | **
The following table presents suppliers individually accounting for more than 10% of the Company’s purchases:
|  | For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Supplier A |  | 38 | % |  | 29 | % |  | 25 | % |  | 20 | %
Supplier B |  | ** |  | 12 | % |  | ** |  | 12 | %
**Less than 10% of the total Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions include the valuation of allowances for uncollectible receivables, inventory reserves, warranty reserves, stock-based compensation, evaluation of goodwill, other intangibles, plant and equipment for impairment, and determination of useful lives of long-lived assets. Actual results could materially differ from those estimates. Research and Development Research and development (“R&D”) expenses are expensed when incurred. R&D expenses consist primarily of wages, materials, testing and consulting related to the development of new engines, parts and applications. These costs were $6.2 million and $5.9 million for the three months ended September 30, 2020 and 2019, respectively. These costs were $18.2 million and $17.4 million for the nine months ended September 30, 2020 and 2019, respectively. Restricted Cash In April 2020, the Company entered into the Credit Agreement with Standard Chartered and extinguished the prior credit agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) as discussed further in Note 6. Debt. While the revolving credit facility with Wells Fargo was extinguished, Wells Fargo continues to perform other services for the Company including issuing letters of credit. Wells Fargo required the Company to have cash collateral to support the letters of credit and other s ervices provided. As discussed in Note 9. Commitments and Contingencies, the Company had outstanding letters of credit of $2.8 million and restricted cash of $3.3 million at September 30, 2020. Inventories The Company’s inventories consist primarily of engines and parts. Engines are valued at the lower of cost plus estimated freight-in or net realizable value. Parts are valued at the lower of cost or net realizable value. Net realizable value approximates replacement cost. Cost is principally determined using the first-in, first-out method and includes material, labor and manufacturing overhead. It is the Company’s policy to review inventories on a continuing basis for obsolete, excess and slow-moving items and to record valuation adjustments for such items in order to eliminate non-recoverable costs from inventory. Valuation adjustments are recorded in an inventory reserve account and reduce the cost basis of the inventory in the period in which the reduced valuation is determined. Inventory reserves are established based on quantities on hand, usage and sales history, customer orders, projected demand and utilization within a current or future power system. Specific analysis of individual items or groups of items is performed based on these same criteria, as well as on changes in market conditions or any other identified conditions. Inventories consisted of the following:
(in thousands) Inventories |  | As of September 30, 2020 |  | As of December 31, 2019
Raw materials |  | $ | 104,286 |  |  | $ | 90,677 |
Work in process |  | 5,014 |  |  | 2,007 |
Finished goods |  | 22,751 |  |  | 19,119 |
Total inventories |  | 132,051 |  |  | 111,803 |
Inventory allowance |  | (3,224) |  |  | (2,964) |
Inventories, net |  | $ | 128,827 |  |  | $ | 108,839 |
Activity in the Company’s inventory allowance was as follows:
(in thousands) |  | For the Nine Months Ended September 30,
Inventory Allowance |  | 2020 |  | 2019
Balance at beginning of period |  | $ | 2,964 |  |  | $ | 5,730 |
Charged to expense |  | 1,272 |  |  | 560 |
Write-offs |  | (1,012) |  |  | (2,027) |
Balance at end of period |  | $ | 3,224 |  |  | $ | 4,263 |
Other Accrued Liabilities Other accrued liabilities consisted of the following:
(in thousands) Other Accrued Liabilities |  | As of September 30, 2020 |  | As of December 31, 2019
Accrued product warranty |  | $ | 16,210 |  |  | $ | 17,142 |
Litigation reserves * |  | 2,535 |  |  | 5,020 |
Contract liabilities |  | 52,502 |  |  | 26,898 |
Accrued compensation and benefits |  | 1,978 |  |  | 6,599 |
Operating lease liabilities |  | 3,802 |  |  | 3,789 |
Accrued interest expense |  | 917 |  |  | 1,087 |
Other |  | 5,105 |  |  | 5,495 |
Total |  | $ | 83,049 |  |  | $ | 66,030 |
*As of September 30, 2020 litigation reserves primarily consisted of reserves related to the settlement of the SEC and USAO investigations that were resolved in September 2020 and other matters. As of December 31, 2019, litigation reserves primarily consisted of reserves related to the settlement of the SEC and USAO investigations and the Federal Derivative Litigation. The Company concluded that insurance recovery was probable related to $0.2 million and $1.9 million of the litigation reserves as of September 30, 2020 and December 31, 2019, respectively, and recognized full recovery of the reserved amounts in Prepaid expenses and other current assets. See Note 9. Commitments and Contingencies for additional information. Warranty Costs The Company offers a standard limited warranty on the workmanship of its products that in most cases covers defects for a defined period. Warranties for certified emission products are mandated by the U.S. Environmental Protection Agency (the “EPA”) and/or the California Air Resources Board (the “CARB”) and are longer than the Company’s standard warranty on certain emission related products. The Company’s products also carry limited warranties from suppliers. The Company’s warranties generally apply to engines fully manufactured by the Company and to the modifications the Company makes to supplier base products. Costs related to supplier warranty claims are generally borne by the supplier and passed through to the end customer. Warranty estimates are based on historical experience and represent the projected cost associated with the product. A liability and related expense are recognized at the time products are sold. The Company adjusts estimates when it is determined that actual costs may differ from initial or previous estimates. A ccrued product warranty activities are presented below:
(in thousands) |  |  |  | For the Nine Months Ended September 30,
Accrued Product Warranty |  |  |  |  |  | 2020 |  | 2019
Balance at beginning of period |  |  |  |  |  | $ | 25,501 |  |  | $ | 23,102 |
Current year provision * |  |  |  |  |  | 13,949 |  |  | 7,706 |
Changes in estimates for preexisting warranties ** |  |  |  |  |  | 8,756 |  |  | 2,730 |
Payments made during the period |  |  |  |  |  | (15,357) |  |  | (7,244) |
Balance at end of period |  |  |  |  |  | 32,849 |  |  | 26,294 |
Less: Current portion |  |  |  |  |  | 16,210 |  |  | 14,677 |
Noncurrent accrued product warranty |  |  |  |  |  | $ | 16,639 |  |  | $ | 11,617 |
*Warranty costs, net of supplier recoveries, were $18.2 million and $7.4 million for the nine months ended September 30, 2020 and 2019, respectively. Supplier recoveries were $4.6 million and $3.0 million for the nine months ended September 30, 2020 and 2019, respectively. **Change in estimates for preexisting warranties reflect changes in the Company’s estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historical and expected trends. The Company’s warranty liability is generally affected by failure rates, repair costs and the timing of failures. Future events and circumstances related to these factors could materially change the estimates and require adjustments to the warranty liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. The Company recorded a benefit for changes in estimates of preexisting warranties of $1.2 million, or $0.05 per diluted share, for the three months ended September 30, 2020, and charges of $8.8 million, or $0.38 per diluted share, for the nine months ended September 30, 2020. The Company recorded charges for changes in estimates of preexisting warranties of $2.7 million, or $0.13 per diluted share, for the nine months ended September 30, 2019. Recently Issued Accounting Pronouncements – Adopted In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This guidance requires the use of existing accounting guidance applicable to software developed for internal use to be applied to cloud computing service contracts’ implementation costs. The costs capitalized would be amortized over the life of the agreement, including renewal option periods likely to be used. The Company adopted the standard effective January 1, 2020 on a prospective basis. There was no impact on the Company’s financial statements including the related notes as a result of adopting the guidance. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which both reduces and expands selected disclosure requirements. The principal changes expected to impact the Company’s disclosure are requirements to disclose the range and weighted average of each of the significant unobservable items and the way the weighted average of a range is calculated for items in the “table of significant unobservable inputs.” The guidance also requires disclosure of changes in unrealized gains and losses in other comprehensive income and removes requirements regarding, among other items, disclosure of the valuation process for Level 3 measurements. The Company adopted the guidance on January 1, 2020. There was no impact on the Company’s financial statements including the related notes as a result of adopting the guidance. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, which eliminated the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The Company adopted the guidance on January 1, 2020 on a prospective basis. There was no impact on the Company’s financial statements including the related notes as a result of adopting the guidance. Recently Issued Accounting Pronouncements – Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which applies primarily to the Company’s accounts receivable impairment loss allowances. The guidance provides a revised model whereby the current expected credit losses are used to compute impairment of financial instruments. The new model requires evaluation of historical experience and various current and expected factors, which may affect the estimated amount of losses and requires determination of whether the affected financial instruments should be grouped in units of account. The guidance, as originally issued, was effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates of these standards for certain entities. Based on the guidance, the effective date of ASU 2016-13 is deferred for the Company until fiscal year 2023. The Company currently plans to adopt the guidance on January 1, 2023 when it becomes effective. The Company is continuing to assess the impact of the standard on its financial statements.

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- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -URI http://asc.fasb.org/topic&trid=2122149 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 + Details
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