What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-05 · 148 added, 375 removed, 527 unchanged (50% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Assets (in thousands, except share and per share data)

17 unchanged sentences

Property, plant and equipment, net 232,648 223,340

Intangible assets, net 97 272

Goodwill 3,229 3,229

Goodwill and intangible assets, net 3,229 3,267

Right of use assets 1,522 1,571

3 unchanged sentences

Current liabilities:

Revolving credit facility $ — $ —

Accounts payable $ 17,615 $ 12,447

7 unchanged sentences

Preferred stock, $ .001 par value, 5,000,000 shares authorized, no shares issued

Common stock, $ .004 par value, 100,000,000 shares authorized, 52,264,801 and 52,078,515 issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Common stock, $ .004 par value, 100,000,000 shares authorized, 52,423,579 and 52,224,767 issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 10,957 5,161

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands, except share and per share data)

3 unchanged sentences

Selling, general and administrative expenses 14,696 15,214

Loss (gain) on disposal of assets 1 6 ( 61 ) 296

(Gain) loss on disposal of assets — ( 62 )

Income from operations 18,461 27,795

7 unchanged sentences

Diluted $ 0.30 $ 0.41

Cash dividends declared per common share:

$ — $ — $ 0.19 $ 0.16

Weighted average shares outstanding:

4 unchanged sentences

Consolidated Statements of Stockholders' Equity

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Common Stock Paid-in Retained

7 unchanged sentences

Stock repurchased and retired ( 87 ) ( 1 ) ( 6,401 ) — ( 6,402 )

Dividends — — — ( 9,910 ) ( 9,910 )

Balances at September 30, 2020 52,265 $ 209 $ 8,175 $ 336,508 $ 344,892

Three Months Ended September 30, 2020

Common Stock Paid-in Retained

Shares Amount Capital Earnings Total

(in thousands)

Balances at June 30, 2020 52,234 $ 209 $ 6,451 $ 316,035 $ 322,695

Net income — — — 20,460 20,460

Stock options exercised and restricted 126 — 4,346 — 4,346

stock awards granted

Share-based compensation — — 2,852 — 2,852

Stock repurchased and retired ( 95 ) — ( 5,474 ) — ( 5,474 )

Dividends — — — 13 13

Balances at September 30, 2020 52,265 $ 209 $ 8,175 $ 336,508 $ 344,892

Nine Months Ended September 30, 2019

Balances at March 31, 2021 52,424 $ 210 $ 10,957 $ 361,871 $ 373,038

Three Months Ended March 31, 2020

Common Stock Paid-in Retained

7 unchanged sentences

Stock repurchased and retired ( 247 ) ( 1 ) ( 10,478 ) ( 2,039 ) ( 12,518 )

Dividends — — — ( 8,303 ) ( 8,303 )

Balances at September 30, 2019 52,119 $ 209 $ 4,676 $ 277,370 $ 282,255

Three Months Ended September 30, 2019

Common Stock Paid-in Retained

Shares Amount Capital Earnings Total

(in thousands)

Balances at June 30, 2019 52,118 $ 209 $ 4,299 $ 263,003 $ 267,511

Net income — — — 14,290 14,290

Stock options exercised and restricted 110 — 3,598 — 3,598

stock awards granted

Share-based compensation — — 2,068 — 2,068

Stock repurchased and retired ( 109 ) — ( 5,289 ) — ( 5,289 )

Dividends — — — 77 77

Balances at September 30, 2019 52,119 $ 209 $ 4,676 $ 277,370 $ 282,255

Balances at March 31, 2020 52,044 $ 208 $ — $ 306,115 $ 306,323

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

Nine Months Ended

September 30,

Three Months Ended

Operating Activities (in thousands)

3 unchanged sentences

Amortization of debt issuance cost 10 10

Provision for credit losses on accounts receivable, net of adjustments 193 91

(Recovery of) provision for credit losses on accounts receivable, net of adjustments ( 13 ) 294

Provision for excess and obsolete inventories ( 194 ) ( 274 )

1 unchanged sentence

(Gain) loss on disposition of assets — ( 62 )

Foreign currency transaction loss (gain) 18 ( 17 )

Foreign currency transaction (gain) loss ( 8 ) 51

Interest income on note receivable ( 6 ) ( 6 )

12 unchanged sentences

Proceeds from sale of property, plant and equipment — 61

Investment in certificates of deposits — ( 6,000 )

Maturities of certificates of deposits — 6,000

Principal payments from note receivable 14 12

4 unchanged sentences

Employee taxes paid by withholding shares ( 1,217 ) ( 953 )

Cash dividends paid to stockholders ( 9,910 ) ( 8,303 )

Net cash used in financing activities ( 13,911 ) ( 13,480 )

Net cash provided by (used in) financing activities 3,036 ( 8,021 )

Net increase in cash, cash equivalents and restricted cash 15,484 7,772

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Actual results could differ materially from those estimates.

Impact of February 2021 Weather

In February 2021, record-breaking winter storms affected Oklahoma and Texas, causing sustained below freezing temperatures, hazardous driving conditions, rolling blackouts, water main breaks, and a host of other weather related issues.

In addition to significant absenteeism as a result of employees being unable to travel to and from work due to inadequate transportation and/or hazardous road conditions, the Company made the decision to shutdown the Tulsa, OK and Longview, TX plants for several days.

This decision was based on the expected employee absenteeism as well as the expected rolling blackouts caused by the increased demand on the electrical and natural gas power grids.

Although we had several lost production days in mid-February 2021, we do not believe that the impact of this weather event will have a material adverse effect on the results of our operations, financial position and cash flows as of and for the year ended December 31, 2021.

Impact of COVID-19 Pandemic

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Our manufacturing operations are considered a critical infrastructure industry, as defined by the U.S.

Department of Homeland Security, as such, the decrees issued by national, state, and local governments in response to the COVID-19 pandemic have had minimal impact on our operations except for higher employee absenteeism in our manufacturing facilities.

We had continuous operations during the nine months ended September 30, 2020.

We had continuous operations during the three months ended March 31, 2021, except for the weather related shut-down in February 2021.

For the most part, our workers are able to socially distance themselves during the manufacturing process.

Additional precautions have been taken to social distance workers that work in close environments.

The Company utilizes sanitation stations, requires the use of a facial covering when unable to socially distance, performs daily temperature scanning, and performs additional cleaning and sanitation throughout the day and deep cleaning overnight.

The Company did see significant employee absenteeism in the latter part of June 2020.

These unexpected employee absences resulted in reduced shipments and longer lead times in the second quarter 2020.

During the third quarter 2020, employee attendance levels were stronger than previously anticipated.

Additionally, our work force has adapted well to school and childcare related issues.

The magnitude of the impact of COVID-19 remains unpredictable and we, therefore, continue to anticipate potential supply chain disruptions, increased employee absenteeism and additional health and safety costs related to the COVID-19 pandemic that could unfavorably impact our business.

Although these disruptions and costs are expected to be temporary, there is significant uncertainty around the duration and overall impact to our business operations.

The Company utilizes sanitation stations, requires the use of a facial covering when unable to socially distance, and performs additional cleaning and sanitation throughout the day and deep cleaning overnight.

The magnitude of the impact of COVID-19 remains unpredictable and we, therefore, continue to anticipate potential supply chain disruptions, some employee absenteeism, and additional health and safety costs related to the COVID-19 pandemic that could unfavorably impact our business.

Although these disruptions and costs are expected to be temporary, there is uncertainty around the duration and overall impact to our business operations.

The Company experienced some slower demand in late 2020, that is beginning to rebound.

As COVID-19 restrictions are lessened in 2021, we are seeing increases in our order intake and minimal disruption to our operations.

We have seen increases in some of our raw material prices which appear to be an indirect result of COVID-19, and have put in place price increases in our products and work to make strategic purchases of materials at lower prices when possible.

We do not believe that the impact of the COVID-19 pandemic will have a material adverse effect on the results of our operations, financial position and cash flows as of and for the year ended December 31, 2021.

However, we are monitoring the progression of the pandemic and its potential effect on our financial position, results of operations and cash flows.

However, we are continually monitoring the progression of the COVID-19 pandemic and its potential effect on our financial position, results of operations, and cash flows.

Accounting Policies

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In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy.

The lowest level input that is significant to a fair value measurement determines the applicable level in the fair value hierarchy.

The lowest level input that is significant to a fair value measurement determines the applicable level in the fair

value hierarchy.

Assessing the significance of a particular input to a fair value measurement requires judgment, considering factors specific to the asset or liability.

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Our intangible assets include various trademarks, service marks and technical knowledge acquired in our February 2018 business combination.

We amortize our intangible assets on a straight-line basis over the estimated useful lives of the assets.

We amortized our intangible assets on a straight-line basis over the estimated useful lives of the assets.

We evaluate the carrying value of our amortizable intangible assets for potential impairment when events and circumstances warrant such a review.

As of March 31, 2021, our intangible assets were fully amortized.

As of December 31, 2020, our intangible assets, net of amortization, were approximately $ 38.0 thousand.

The amount of amortization was $ 38.0 thousand and $ 59.0 thousand for the three months ended March 31, 2021 and 2020, respectively.

Goodwill represents the excess of the consideration paid for the acquired businesses, in our February 2018 business combination, over the fair value of the individual assets acquired, net of liabilities assumed.

Goodwill at September 30, 2020 is deductible for income tax purposes.

Goodwill at March 31, 2021 is deductible for income tax purposes.

Goodwill is not amortized, but instead is evaluated for impairment at least annually.

We perform our annual assessment of impairment during the fourth quarter of our fiscal year, and more frequently if circumstances warrant.

As of March 31, 2021 and December 31, 2020, our goodwill was approximately $ 3.2 million.

Recent Accounting Pronouncements

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We consider the applicability and impact of all ASUs.

ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements and notes thereto.

In December 2019, the FASB issued ASU 2019-12, Income Taxes:

Simplifying the Accounting for Income Taxes .

The ASU includes simplification of accounting for income taxes for franchise taxes, step up in tax basis for goodwill as part of a business combination and interim reporting of enacted changes in tax laws.

The ASU is effective for the Company beginning after December 15, 2020.

We do not expect ASU 2019-12 will have a material effect on our consolidated financial statements and notes thereto.

ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements and notes thereto.

Revenue Recognition

Disaggregated net sales by major source:

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

(in thousands)

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Disaggregated units sold by major source:

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

Rooftop units 2,959 4,061

3 unchanged sentences

Water source heat pumps 1,624 1,617

7,352 5,808 20,302 20,044

The Company recognizes revenue, presented net of sales tax, when it satisfies the performance obligation in its contracts.

16 unchanged sentences

The total order price includes our minimum sales price and an additional amount which may include both the Representatives’ fee and amounts due for additional products and services required by the customer.

The Company is considered the principal for the equipment we design and manufacture and records that revenue gross.

The Company is considered the principal for the equipment we design and manufacture and records that revenue.

The Company has no control over the Third Party Products to the end customer and the Company is under no obligation related to the Third Party Products.

1 unchanged sentence

The Representatives’ fee and Third Party Products amounts (“Due to Representatives”) are paid only after all amounts associated with the order are collected from the customer.

The amount of payments to our Representatives were $ 11.5 million and $ 12.7 million for the three months ended September 30, 2020 and 2019, respectively.

The amount of payments to our Representatives were $ 39.0 million and $ 34.4 million for the nine months ended September 30, 2020 and 2019, respectively.

The amount of payments to our Representatives were $ 11.0 million and $ 12.6 million for the three months ended March 31, 2021 and 2020, respectively.

The Company also sells extended warranties on parts for various lengths of time ranging from six months to 10 years.

Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.

We adopted ASU No.

2016-02, Leases (Topic 842) , as amended, as of January 1, 2019, using the transition method, which becomes effective upon the date of adoption.

The transition method allows entities to initially apply the new leases standard at the adoption date (January 1, 2019) and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

We have also elected the short-term lease measurement and recognition exemption which does not require balance sheet presentation for

short-term leases.

The Company historically does not enter into numerous or material lease agreements to support its manufacturing operations.

Furthermore, any lease agreements entered into are usually less than a year and for leases on non material assets such as warehouse vehicles and office equipment.

Adoption of the new standard resulted in the recording of additional lease right of use assets and lease liabilities of approximately $ 1.8 million as of January 1, 2019, which mostly relates to the multi-year facility lease assumed in our February 2018 business combination.

The cumulative-effect adjustment to the opening balance was immaterial to the consolidated financial statements as a whole.

The standard did not materially impact our consolidated net earnings or cash flows.

As of September 30, 2020, our right of use assets and lease liabilities are approximately $ 1.6 million.

Accounts Receivable

Accounts receivable and the related allowance for credit losses are as follows:

September 30,

2021 December 31, 2020

3 unchanged sentences

$ 52,579 $ 47,387

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

Allowance for credit losses:

1 unchanged sentence

Balance, beginning of period $ 506 $ 353

Provisions (recoveries) for expected credit 117 ( 37 ) 193 91

(Recoveries) provisions for expected credit ( 13 ) 294

losses, net of adjustments

Accounts receivable written off, net of recoveries

— ( 2 ) — ( 2 )

Balance, end of period $ 493 $ 647

3 unchanged sentences

The components of inventories and related changes in the allowance for excess and obsolete inventories account are as follows:

September 30,

2021 December 31, 2020

6 unchanged sentences

$ 84,040 $ 82,219

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

Allowance for excess and obsolete inventories:

1 unchanged sentence

Balance, beginning of period $ 3,261 $ 2,644

Provisions (recoveries) for excess and 1,969 ( 150 ) 1,776 1,003

(Recoveries) provisions for excess and ( 194 ) ( 274 )

obsolete inventories

1 unchanged sentence

Balance, end of period $ 2,304 $ 2,365

Intangible Assets

Our intangible assets consist of the following:

September 30,

2020 December 31, 2019

(in thousands)

Intellectual property $ 700 $ 700

Accumulated amortization ( 603 ) ( 428 )

Total, net $ 97 $ 272

Amortization expense recorded in cost of sales is as follows:

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

(in thousands)

Amortization expense $ 58 $ 58 $ 175 $ 175

Supplemental Cash Flow Information

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

Supplemental disclosures:

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Changes in the warranty accrual are as follows:

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

Warranty accrual:

8 unchanged sentences

Accrued liabilities were comprised of the following:

September 30,

2021 December 31, 2020

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Revolving Credit Facility

Our revolving credit facility, as amended, ("BOK Revolver") provides for maximum borrowings of $ 30.0 million, which is provided by BOKF, NA dba Bank of Oklahoma (“Bank of Oklahoma”).

Our revolving credit facility, as amended, provides for maximum borrowings of $ 30.0 million.

Under the line of credit, there is one standby letter of credit totaling $ 1.8 million.

Borrowings available under the revolving credit facility at September 30, 2020 were $ 28.3 million.

Borrowings available under the revolving credit facility at March 31, 2021 were $ 28.2 million.

Interest on borrowings is payable monthly at LIBOR plus 2.0 %.

No fees are associated with the unused portion of the committed amount.

We had no outstanding balance under the revolving credit facility at September 30, 2020 and December 31, 2019.

We had no outstanding balance under the revolving credit facility at March 31, 2021 and December 31, 2020.

The revolving credit facility expires on July 26, 2021.

As of September 30, 2020, we were in compliance with our financial covenants.

The Company expects to renew the facility with similar terms.

As of March 31, 2021, we were in compliance with our financial covenants.

These covenants require that we meet certain parameters related to our tangible net worth and total liabilities to tangible net worth ratio.

At September 30, 2020, our tangible net worth was $ 344.9 million and met the requirement of being at or above $ 175.0 million.

At March 31, 2021, our tangible net worth was $ 373.0 million and met the requirement of being at or above $ 175.0 million.

Our total liabilities to tangible net worth ratio was 0.3 to 1, and met the requirement of not being above 2 to 1.

The provision (benefit) for income taxes consists of the following:

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

(in thousands)

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The reconciliation of the Federal statutory income tax rate to the effective income tax rate is as follows:

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

Federal statutory rate 21.0 % 21.0 %

State income taxes, net of Federal benefit 7.5 5.2

Amended Oklahoma tax returns — ( 4.5 ) — ( 2.0 )

Excess tax benefits ( 15.8 ) ( 3.8 )

2 unchanged sentences

Effective tax rate 11.4 % 21.5 %

During the three months ended September 2019, upon completion of the Company's 2018 tax return, the Company recorded an additional benefit due to higher than expected research and development credit of $ 0.6 million.

Historically, the Company has taken advantage of the Oklahoma Investment/New Jobs Credit ("OK Credit").

This OK Credit allows the Company to take a credit equal to 1 % of eligible investments each year for five years , beginning with the year of investment.

The Company determined it could take advantage of an additional 1 % tax credit for years in which the Company's location was deemed to be within an enterprise zone.

The additional OK Credit for being in an enterprise zone, or otherwise allowable under Oklahoma law resulted in a benefit of $ 0.3 million for 2018 and $ 0.9 million for our 2015, 2016 and 2017 amended returns, combined.

During the three months ended March 31, 2021, the Company recorded an excess tax benefit of $ 2.9 million as compared to $ 1.1 million during the same period in 2020, an increase of 173 % The increase was primarily due to timing of stock option exercises as a result of our high stock price during the three months ended March 31, 2021.

We earn investment tax credits from the state of Oklahoma’s manufacturing property investment program.

We use the flow-through method to account for investment tax credits earned on eligible tangible asset expenditures.

Under this method, the investment tax credits are recognized as a reduction to our Oklahoma income tax expense in the year they are used.

As of March 31, 2021, we have investment tax credit carryforwards of approximately $ 2.8 million.

These credits have estimated expirations from the year 2036 through 2040.

The Company's estimated annual 2021 effective tax rate, excluding discrete events, is approximately 27 %.

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income tax examinations for the tax years 2016 to present.

In addition, we are subject to state and local income tax examinations for the tax years 2015 to present.

In addition, we are subject to

state and local income tax examinations for the tax years 2016 to present.

The Company continues to evaluate its need to file returns in various state jurisdictions.

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The adjustment is the difference between depreciation or repair deductions claimed versus depreciation or repair deductions that could have been claimed by the end of the prior tax year and does not require amending any prior year tax returns.

The Company completed the prior year adjustment and the current-year catch up with the 2019 tax return as filed in the fourth quarter of 2020 resulting in a increase to our deferred tax liability of $ 4.7 million.

For tax years 2020 and forward, the Company includes this treatment for our qualified property placed in service.

American Rescue Plan Act

On March 11, 2021, the American Rescue Plan Act (the “ARM”) was enacted and signed into law.

The ARM is an economic stimulus package in response to the COVID-19 pandemic, which contains tax provisions that are not expected to have a material impact to our consolidated financial statements.

In accordance with accounting standards for income taxes, the impact of this new tax legislation was taken into account in our first quarter of 2021, the period in which it was enacted.

Share-Based Compensation

On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan (“LTIP”) which provided an additional 3.3 million shares that could be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units and performance awards, in addition to the shares from the previous plan, the 1992 Plan.

Since inception of the LTIP, non-qualified stock options and restricted stock awards have been granted with a five year vesting schedule.

Under the LTIP, the exercise price of shares granted could not be less than 100 % of the fair market value at the date of the grant.

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The Committee may delegate certain duties to one or more officers of the Company as provided in the 2016 Plan.

The total pre-tax compensation cost related to unvested stock options not yet recognized as of September 30, 2020 is $ 23.4 million and is expected to be recognized over a weighted average period of 3.1 years.

The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the nine months ended September 30, 2020 and 2019 using a Black Scholes-Merton Model:

Nine months ended

September 30, 2020 September 30, 2019

Directors and Officers:

The total pre-tax compensation cost related to unvested stock options not yet recognized as of March 31, 2021 is $ 24.8 million and is expected to be recognized over a weighted average period of approximately 2.9 years.

The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the three months ended March 31, 2021 and 2020 using a Black Scholes-Merton Model:

Three months ended

March 31, 2021 March 31, 2020

Directors and SLT 1 :

Expected dividend rate $ 0.38 $ 0.32

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Expected life (in years) 3.0 5.0

1 Senior Leadership Team ("SLT") consist of officers and key members of management.

The expected term of the options is based on evaluations of historical and expected future employee exercise behavior.

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Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date.

The following is a summary of stock options vested and exercisable as of September 30, 2020:

The following is a summary of stock options vested and exercisable as of March 31, 2021:

Prices Number

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Total 1,192,683 6.78 $ 35.82 $ 40,779

The following is a summary of stock options vested and exercisable as of September 30, 2019:

The following is a summary of stock options vested and exercisable as of March 31, 2020:

Prices Number

15 unchanged sentences

( 37,573 ) 42.39

Outstanding at September 30, 2020

Outstanding at March 31, 2021

3,786,044 $ 42.35

Exercisable at September 30, 2020

Exercisable at March 31, 2021

1,192,683 $ 35.82

The total intrinsic value of options exercised during the nine months ended September 30, 2020 and 2019 was $ 12.1 million and $ 7.0 million, respectively.

The cash received from options exercised during the nine months ended September 30, 2020 and 2019 was $ 18.5 million and $ 11.3 million, respectively.

The total intrinsic value of options exercised during the three months ended March 31, 2021 and 2020 was $ 10.7 million and $ 3.9 million, respectively.

The cash received from options exercised during the three months ended March 31, 2021 and 2020 was $ 9.4 million and $ 4.5 million, respectively.

The impact of these cash receipts is included in financing activities in the accompanying Consolidated Statements of Cash Flows.

Performance Awards

We have awarded performance restricted stock units ("PSUs") to certain key officers and employees under our 2016 Plan.

Unlike our restricted stock awards, these PSUs are not considered legally outstanding and do not accrue dividends during the vesting period.

These PSUs vest based on the level of achievement with respect to the Company's three year total shareholder return ("TSR") benchmarked against similar companies included in the capital goods sector of the S&P SmallCap 600 Index.

The TSR measurement period is the three years ended December 31, 2023.

At the end of the measurement period, each award will be converted into common stock at 0 % to 200 % of the PSUs held, depending on overall TSR as compared to the S&P SmallCap 600 Index benchmark companies.

The total pre-tax compensation cost related to unvested PSUs not yet recognized as of March 31, 2021 is $ 1.5 million and is expected to be recognized over a weighted average period of approximately 2.8 years.

The following weighted average assumptions were used to determine the fair value of the PSUs granted on the original grant date for expense recognition purposes for PSUs granted during the three months ended March 31, 2021 using a Monte Carlo Model:

Three months ended

March 31, 2021

Expected dividend rate $ 0.38

Expected volatility 39.10 %

Risk-free interest rate 0.28 %

Expected life (in years) 2.81

The expected term of the PSUs is based on the remaining performance period ending December 31, 2023.

The risk-free interest rate is based on the U.S.

Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date.

Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date.

A summary of the unvested PSUs is as follows:

Shares Weighted

Unvested at December 31, 2020

Unvested at March 31, 2021

17,154 $ 87.78

Restricted Stock

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common stock on the respective grant dates, reduced for the present value of dividends.

At September 30, 2020, unrecognized compensation cost related to unvested restricted stock awards was approximately $ 5.3 million, which is expected to be recognized over a weighted average period of 2.9 years.

At March 31, 2021, unrecognized compensation cost related to unvested restricted stock awards was approximately $ 5.4 million, which is expected to be recognized over a weighted average period of approximately 2.7 years.

A summary of the unvested restricted stock awards is as follows:

Restricted Stock Shares Weighted

Shares Weighted

Unvested at December 31, 2020

2 unchanged sentences

( 3,035 ) 42.28

Unvested at September 30, 2020

Unvested at March 31, 2021

182,516 $ 43.00

1 unchanged sentence

A summary of share-based compensation is as follows:

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

Grant date fair value of awards during the period:

1 unchanged sentence

Options $ 6,513 $ 10,905

Performance awards 1,506 —

Restricted stock 1,400 2,510

2 unchanged sentences

Options $ 2,163 $ 1,632

Performance awards 41 —

Restricted stock 557 719

4 unchanged sentences

Total $ 2,910 $ 1,065

Share-based compensation expense is recognized on a straight-line basis over the service period of the related share-based compensation award.

Stock options and restricted stock awards, granted to employees, vest at a rate of 20% per year.

Share-based compensation expense is recognized on a straight-line basis over the service period of the related stock options and restricted stock awards.

Historically, stock options and restricted stock awards, granted to employees, vest at a rate of 20 % per year.

Restricted stock awards granted to directors historically vest one-third each year or, if granted on or after May 2019, vest over the shorter of directors' remaining elected term or one-third each year.

As of March 2021, all new grants of stock options and restricted stock awards, granted to employees, vest at a rate of 33.3 % per year.

Forfeitures are accounted for as they occur.

Historically, if the employee or director is retirement eligible (as defined by the applicable LTIP or 2016 Plan) or becomes retirement eligible during service period of the related share-based compensation award, the service period (and compensation expense recognition) is the lesser of 1) the grant date, if retirement eligible on grant date, or 2) the period between grant date and retirement eligible date.

All share-based compensation awards granted on or after March 1, 2020 to retirement eligible employees or directors contain a one -year employment requirement (minimum service period) or the entire award is forfeited.

Historically, if the employee or director is retirement eligible (as defined by the applicable LTIP or 2016 Plan) or becomes retirement eligible during service period of the related stock options and restricted stock award, the service period (and compensation expense recognition) is the lesser of 1) the grant date, if retirement eligible on grant date, or 2) the period between grant date and retirement eligible date.

All stock options and restricted stock awards granted on or after March 1, 2020 to retirement eligible employees or directors contain a one -year employment requirement (minimum service period) or the entire award is forfeited.

Share-based compensation expense is recognized on a straight-line basis over the service period of the performance awards.

The performance awards cliff vest at the end of the performance period.

The performance awards are subject to several service conditions and market conditions, as defined by the performance restricted stock unit agreement, which allows the holder to retain a pro-rata amount of awards as a result of certain termination conditions, retirement, change in common control or death.

Forfeitures are accounted for as they occur.

Employee Benefits

6 unchanged sentences

Administrative expenses are paid for by Plan participants.

The Company paid no administrative expenses during the three and nine months ended September 30, 2020 and 2019.

The Company paid no administrative expenses during the three months ended March 31, 2021 and 2020.

The Company matches 175 % up to 6 % of employee contributions of eligible compensation.

Additionally, Plan participant forfeitures are used to reduce the cost of the Company contributions.

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

(in thousands)

Contributions made to the defined contribution plan $ 2,242 $ 1,820 $ 6,791 $ 5,270

Contributions, net of forfeitures, made to the defined contribution plan $ 2,280 $ 2,450

Profit Sharing Bonus Plan

We maintain a discretionary profit sharing bonus plan under which approximately 10 % of pre-tax profit is paid to eligible employees on a quarterly basis in order to reward employee productivity.

Eligible employees are regular full-time employees who are actively employed and working on the first and last days of the calendar quarter and who were employed full-time for at least three full months prior to the beginning of the calendar quarter, excluding the Company's senior leadership team.

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

(in thousands)

6 unchanged sentences

In addition, the Company matches 175 % of a participating employee's allowed contributions to a qualified health saving account to assist employees with our health insurance plan deductibles.

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

(in thousands)

6 unchanged sentences

The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

(in thousands, except share and per share data)

17 unchanged sentences

Our open market repurchase programs are as follows:

Agreement Execution Date Authorized Repurchase $ Expiration Date

Effective Date Authorized Repurchase $ Expiration Date

May 16, 2018 1

14 unchanged sentences

Our repurchase activity is as follows:

Nine Months Ended

September 30, 2020 September 30, 2019

Three Months Ended

March 31, 2021 March 31, 2020

(in thousands, except share and per share data)

5 unchanged sentences

Our repurchase activity since Company inception, including our current authorized stock repurchase programs, are as follows:

Inception to September 30, 2020

Inception to March 31, 2021

(in thousands, except share and per share data)

4 unchanged sentences

14,204,438 $ 246,946 $ 17.39

Subsequent to September 30, 2020 and through November 3, 2020, the Company repurchased 52,646 shares for $ 3.3 million from our 401(k) savings and investment plan.

Subsequent to March 31, 2021 and through May 3, 2021, the Company repurchased 13,337 shares for $ 0.9 million from our 401(k) savings and investment plan.

At the discretion of the Board, we pay semi-annual cash dividends.

4 unchanged sentences

November 10, 2020 November 27, 2020 December 18, 2020 $ 0.19

May 15, 2020 June 3, 2020 July 1, 2020 $ 0.19

New Markets Tax Credit

23 unchanged sentences

These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption.

We had no material contractual purchase obligations as of September 30, 2020.

We had no material contractual purchase obligations as of March 31, 2021.

Related Parties

1 unchanged sentence

The Company sometimes makes sales to the Executive Chairman for parts.

Additionally, the Company sells units to an entity owned by a member of the CEO's immediate family.

Additionally, the Company sells units to an entity owned by a member of the CEO/President's immediate family.

This entity is also one of the Company’s Representatives and as such, the Company makes payments to the entity for third party products.

All related party transactions are made on standard Company terms.

The following is a summary of transactions and balance with affiliates:

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

(in thousands)

1 unchanged sentence

Payments to affiliates 73 59

September 30,

2021 December 31,

9 unchanged sentences

As such, this information is not included below.

Three Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three Months Ended

2021 March 31,

(in thousands)

11 unchanged sentences

Net gross profit $ 33,157 $ 42,947

Error Correction

We have corrected herein our consolidated financial statements as of September 30, 2019 and for the three and nine months ended September 30, 2019, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections .

Error Correction Background

During the preparation of the 2019 Annual Report on Form 10-K (filed on February 27, 2020) the Company noted errors in previously issued financial statements relating to share-based compensation expense for stock options and restricted stock awards held by retirement eligible employees and directors.

As defined by our Long-Term Incentive Plans (Note 12), stock options and restricted stock awards are fully vested when an active employee or director meets certain retirement eligibility requirements.

We have corrected the previously issued 2019 financial statements to recognize all share-based compensation, related to retirement eligible employees or directors, by the earlier of the grant date (if retirement eligible on grant date) or ratably from grant date to retirement eligible date.

The corrected financial statements also include corrections for the tax effect of the share-based compensation corrections as well as the corrections' impact on our prior periods' employees profit sharing bonus plan (Note 13).

Description of Tables

The following tables represent our corrected consolidated statements of income and statements of stockholders' equity for the three and nine months ended September 30, 2019 and statements of cash flows for the nine months ended September 30, 2019, as well as our corrected consolidated balance sheet data at September 30, 2019.

The values as previously reported for September 30, 2019 were derived from our Quarterly Report on Form 10-Q for the three and nine month ended September 30, 2019 filed on October 31, 2019.

Consolidated Statements of Income

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019

Previously Reported Corrections As Corrected Previously Reported Corrections As Corrected

(in thousands, except share and per share data)

Net sales $ 113,500 $ — $ 113,500 $ 346,759 $ — $ 346,759

Cost of sales 86,115 ( 25 ) (a) 86,090 263,406 309 (a) 263,715

Gross profit 27,385 25 27,410 83,353 ( 309 ) 83,044

Selling, general and administrative expenses 12,994 ( 620 ) (b) 12,374 37,476 1,487 (b) 38,963

Loss (gain) on disposal of assets 6 — 6 296 — 296

Income from operations 14,385 645 15,030 45,581 ( 1,796 ) 43,785

Interest income, net 9 — 9 49 — 49

Other (expense) income, net ( 7 ) — ( 7 ) ( 16 ) — ( 16 )

Income before taxes 14,387 645 15,032 45,614 ( 1,796 ) 43,818

Income tax provision 560 182 (c) 742 7,924 ( 544 ) (c) 7,380

Net income $ 13,827 $ 463 $ 14,290 $ 37,690 $ ( 1,252 ) $ 36,438

Earnings per share:

Basic $ 0.27 $ — $ 0.27 $ 0.72 $ ( 0.02 ) $ 0.70

Diluted $ 0.26 $ — $ 0.26 $ 0.72 $ ( 0.03 ) $ 0.69

Cash dividends declared per common share:

$ — $ — $ — $ 0.16 $ — $ 0.16

Weighted average shares outstanding:

Basic 52,111,444 — 52,111,444 52,086,209 — 52,086,209

Diluted 52,722,127 — 52,722,127 52,624,583 — 52,624,583

Balance Sheet Data (at end of period):

Current assets $ 170,536 $ ( 252 ) (c) $ 170,284

Total assets 352,152 ( 252 ) (c) 351,900

Current liabilities 53,882 ( 779 ) (d) 53,103

Deferred income taxes 15,034 ( 2,161 ) (c) 12,873

Total stockholders' equity $ 279,567 $ 2,688 (e) $ 282,255

(a) The share-based compensation correction to cost of sales for the three and nine months ended September 30, 2019 was approximately $ 0.1 million and $ 0.3 million, respectively.

(b) The share-based compensation correction to selling, general and administrative expenses for the three and nine months ended September 30, 2019 was approximately $ 0.7 million and $ 1.7 million, respectively.

Included in the correction to selling, general and administrative expenses is a correction to our employee profit sharing bonus plan (Note 13) of approximately $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2019, respectively.

(c) The corrections to income tax receivable and deferred tax liability are the tax effect of the share-based compensation correction.

(d) This is the cumulative reduction of our employee profit sharing bonus plan (Note 13) liability as a result of the share-based compensation correction.

The prior period costs were recovered through our estimated 2019 fourth quarter payment which was paid in early 2020.

(e) This is the cumulative effect on stockholders' equity as a result of the share-based compensation correction.

See table below for a description of the changes in stockholders' equity in the consolidated statements of stockholders' equity for the three and nine months ended September 30, 2019, respectively.

Consolidated Statements of Stockholders’ Equity

Nine Months Ended September 30, 2019

Common Stock Paid-in Retained

Shares Amount Capital Earnings Total

As Previously Reported (in thousands)

Balances at December 31, 2018 51,991 $ 208 $ — $ 247,291 $ 247,499

Net income — — — 37,690 37,690

Stock options exercised and restricted 494 2 11,281 — 11,283

stock awards granted

Share-based compensation — — 7,858 — 7,858

Stock repurchased and retired ( 366 ) ( 1 ) ( 16,459 ) — ( 16,460 )

Dividends — — — ( 8,303 ) ( 8,303 )

Balances at September 30, 2019 52,119 209 2,680 276,678 279,567

Correction Impacts

Balances at December 31, 2018 — — — 1,944 1,944

Net income — — — ( 1,252 ) ( 1,252 )

Stock options exercised and restricted — — — — —

stock awards granted

Share-based compensation — — 1,996 — 1,996

Stock repurchased and retired — — — — —

Dividends — — — — —

Balances at September 30, 2019 — — 1,996 692 2,688

Balances at December 31, 2018 51,991 $ 208 $ — $ 249,235 $ 249,443

Net income — — — 36,438 36,438

Stock options exercised and restricted 494 2 11,281 — 11,283

stock awards granted

Share-based compensation — — 9,854 — 9,854

Stock repurchased and retired ( 366 ) ( 1 ) ( 16,459 ) — ( 16,460 )

Dividends — — — ( 8,303 ) ( 8,303 )

Balances at September 30, 2019 52,119 $ 209 $ 4,676 $ 277,370 $ 282,255

See descriptions of changes to net income in the consolidated statement of income for the nine months ended September 30, 2019 in the table above.

Consolidated Statements of Stockholders’ Equity

Three Months Ended September 30, 2019

Common Stock Paid-in Retained

Shares Amount Capital Earnings Total

As Previously Reported (in thousands)

Balances at June 30, 2019 52,118 $ 209 $ 1,586 $ 262,774 $ 264,569

Net income — — — 13,827 13,827

Stock options exercised and restricted 110 — 3,598 — 3,598

stock awards granted

Share-based compensation — — 2,785 — 2,785

Stock repurchased and retired ( 109 ) — ( 5,289 ) — ( 5,289 )

Dividends — — — 77 77

Balances at September 30, 2019 52,119 209 2,680 276,678 279,567

Correction Impacts

Balances at June 30, 2019 — — 2,713 229 2,942

Net income — — — 463 463

Stock options exercised and restricted — — — — —

stock awards granted

Share-based compensation — — ( 717 ) — ( 717 )

Stock repurchased and retired — — — — —

Dividends — — — — —

Balances at September 30, 2019 — — 1,996 692 2,688

Balances at June 30, 2019 52,118 $ 209 $ 4,299 $ 263,003 $ 267,511

Net income — — — 14,290 14,290

Stock options exercised and restricted 110 — 3,598 — 3,598

stock awards granted

Share-based compensation — — 2,068 — 2,068

Stock repurchased and retired ( 109 ) — ( 5,289 ) — ( 5,289 )

Dividends — — — 77 77

Balances at September 30, 2019 52,119 $ 209 $ 4,676 $ 277,370 $ 282,255

See descriptions of changes to net income in the consolidated statement of income for the three months ended September 30, 2019 in the table above.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2019

Previously Reported Corrections As Corrected

Operating Activities (in thousands)

Net income $ 37,690 $ ( 1,252 ) $ 36,438

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

Depreciation and amortization 17,627 — 17,627

Provision for credit losses on accounts receivable, net of adjustments 91 — 91

Provision for excess and obsolete inventories 1,003 — 1,003

Share-based compensation 7,858 1,996 9,854

Loss (gain) on disposition of assets 296 — 296

Foreign currency transaction (gain) loss ( 17 ) — ( 17 )

Interest income on note receivable ( 19 ) — ( 19 )

Deferred income taxes 4,208 ( 594 ) 3,614

Changes in assets and liabilities:

Accounts receivable ( 2,096 ) — ( 2,096 )

Income taxes 2,234 49 2,283

Inventories ( 4,014 ) — ( 4,014 )

Prepaid expenses and other ( 513 ) — ( 513 )

Accounts payable 782 — 782

Deferred revenue 263 — 263

Accrued liabilities and donations 5,190 ( 199 ) 4,991

Net cash provided by operating activities 70,583 — 70,583

Investing Activities

Capital expenditures ( 30,831 ) — ( 30,831 )

Proceeds from sale of property, plant and equipment 68 — 68

Investment in certificates of deposits ( 6,000 ) — ( 6,000 )

Maturities of certificates of deposits 6,000 — 6,000

Principal payments from note receivable 39 — 39

Net cash used in investing activities ( 30,724 ) — ( 30,724 )

Financing Activities

Stock options exercised 11,283 — 11,283

Repurchase of stock ( 15,437 ) — ( 15,437 )

Employee taxes paid by withholding shares ( 1,023 ) — ( 1,023 )

Cash dividends paid to stockholders ( 8,303 ) — ( 8,303 )

Net cash used in financing activities ( 13,480 ) — ( 13,480 )

Net increase in cash and cash equivalents 26,379 — 26,379

Cash and cash equivalents, beginning of year 1,994 — 1,994

Cash and cash equivalents, end of year $ 28,373 $ — $ 28,373

See descriptions of changes to net income and the balance sheet in the tables above.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements