Washington, D.C. 20549
Commission File No. 001-33861
MOTORCAR PARTS OF AMERICA, INC.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
Reporting Comprehensive Income
In February 2018, the FASB issued guidance that permits, but does not require, companies to reclassify the stranded tax effects of the Tax Reform Act on items within accumulated other comprehensive income to retained earnings. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
3. Revenue Recognition
Update to Significant Accounting Policies
Revenue Recognition
Upon the adoption of ASC 606, the Company revised its accounting policy on revenue recognition from the policy provided in the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended March 31, 2018. The revised accounting policy for revenue recognition is provided below.
Through the Company’s agreements with customers, the Company now has a single performance obligation, to fulfill customer orders for automotive goods. Revenue is recognized when obligations under the terms of a contract with its customers are satisfied; generally, this occurs with the transfer of control of its manufactured, remanufactured, or distributed products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Revenue is recognized net of all anticipated returns, including Used Core returns under the core exchange program, marketing allowances, volume discounts, and other forms of variable consideration.
For products shipped free-on-board (“FOB”) shipping point, revenue is recognized on the date of shipment. For products shipped FOB destination, revenues are recognized on the estimated or actual date of delivery. The Company includes shipping and handling charges in the gross invoice price to customers and classify the total amount as revenue. All shipping and handling costs are expensed as incurred and included in cost of sales.
The Company now has a single performance obligation, however, the price of a finished remanufactured product sold to customers is generally comprised of separately invoiced amounts for the Remanufactured Core included in the product (“Remanufactured Core value”) and the unit value. The unit value is recorded as revenue based on the Company’s then current price list, net of applicable discounts and allowances. The Remanufactured Core value is recorded as a net revenue based upon the estimate of Used Cores that will not be returned by the customer for credit. This net core revenue estimate is based on contractual arrangements with customers and business practices. A significant portion of the remanufactured automotive parts sold to customers are replaced by similar Used Cores sent back for credit by customers under the core exchange program (as described in further detail below). The number of Used Cores sent back under the core exchange program is generally limited to the number of similar Remanufactured Cores previously shipped to each customer.
Revenue Recognition — Core Exchange Program
Full price Remanufactured Cores: When remanufactured products are shipped, certain customers are invoiced for the Remanufactured Core portion of the product at the full Remanufactured Core sales price. For these Remanufactured Cores, revenue is only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange program. The remainder of the full price Remanufactured Core portion invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as the Company expects these Remanufactured Cores to be returned for credit under its core exchange program.
Nominal price Remanufactured Cores: Certain other customers are invoiced for the Remanufactured Core portion of the product shipped at a nominal (generally $0.01 or less) Remanufactured Core price. For these nominal Remanufactured Cores, revenue is only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange program. Revenue amounts are calculated based on contractually agreed upon pricing for these Remanufactured Cores for which the customers are not returning similar Used Cores. The remainder of the nominal price Remanufactured Core portion invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as the Company expects these Remanufactured Cores to be returned for credit under its core exchange program.
Revenue Recognition; General Right of Return
Customers are allowed to return goods that their end-user customers have returned to them, whether or not the returned item is defective (warranty returns). In addition, under the terms of certain agreements and industry practice, customers from time to time are allowed stock adjustments when their inventory of certain product lines exceeds the anticipated sales to end-user customers (stock adjustment returns). Customers have various contractual rights for stock adjustment returns, which are typically less than 5% of units sold. In some instances, a higher level of returns is allowed in connection with significant restocking orders. In addition, customers are allowed to return goods that their end-user consumers have returned to them. The aggregate returns are generally limited to less than 20% of unit sales.
The allowance for warranty returns is established based on a historical analysis of the level of this type of return as a percentage of total unit sales. Stock adjustment returns do not occur at any specific time during the year, and the expected level of these returns cannot be reasonably estimated based on a historical analysis. The allowance for stock adjustment returns is based on specific customer inventory levels, inventory movements, and information on the estimated timing of stock adjustment returns provided by customers. The return rate for stock adjustments is calculated based on expected returns within the normal operating cycle, which is generally one year.
The unit value of the warranty and stock adjustment returns are treated as reductions of revenue based on the estimations made at the time of the sale. The Remanufactured Core value of warranty and stock adjustment returns are provided for as indicated in the paragraph “Revenue Recognition – Core Exchange Program”.
Contract Assets
Contract assets represents the core portion of the finished goods shipped to the Company’s customers. These assets are valued at average historical purchase prices determined based on actual purchases of inventory on hand.
Remanufactured Cores held at customers’ locations as a part of the finished goods sold to the customer are classified as long-term contract assets. For these Remanufactured Cores, the Company expects the finished good containing the Remanufactured Core to be returned under the Company’s general right of return policy or a similar Used Core to be returned to the Company by the customer, under the Company’s core exchange program in each case, for credit. The Remanufactured Core portion of stock adjustment returns and the Used Cores returned by consumers to the Company’s customers but not yet returned to the Company are classified as short-term contract assets until the Company physically receives them during its normal operating cycle, which is generally one year.
In addition, long-term contract assets include long-term core inventory deposits. The long-term core inventory deposits represent the cost of Remanufactured Cores the Company has purchased from customers, which are held by the customers and remain on the customers’ premises. The costs of these Remanufactured Cores were established at the time of the transaction based on the then current cost. The selling value of these Remanufactured Cores was established based on agreed upon amounts with these customers. The Company expects to realize the selling value and the related cost of these Remanufactured Cores should its relationship with a customer end, a possibility that the Company considers remote based on existing long-term customer agreements and historical experience.
Contract Liability
Contract liability consists of: (i) customer allowances earned, (ii) accrued core payments, and (iii) customer core returns accruals.
Customer allowances earned includes all marketing allowances provided to customers. Such allowances include sales incentives and concessions. Voluntary marketing allowances related to a single exchange of product are recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered. Other marketing allowances, which may only be applied against future purchases, are recorded as a reduction to revenues in accordance with a schedule set forth in the relevant contract. Sales incentive amounts are recorded based on the value of the incentive provided. Customer allowances earned are considered to be short-term contract liabilities.
Accrued core payments represent the full Remanufactured Core sales price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises. At the same time, the long-term contract assets are recorded for the Remanufactured Cores purchased at its cost, determined as noted under the caption “Inventory”. The difference between the full Remanufactured Core sales price of Remanufactured Cores and its related cost is treated as sales allowance reducing revenue when the purchases are made. The selling value and the related cost of these Remanufactured Cores will be realized when the Company’s relationship with a customer end, a possibility that the Company considers remote based on existing long-term customer agreements and historical experience. The payments made to customers for purchases of Remanufactured Cores within the Company’s normal operating cycle, which is generally one year, are considered short-term contract liabilities.
Customer core returns accruals represents the full and nominally priced Remanufactured Cores shipped to the Company’s customers. When the Company ships the product, it recognizes an obligation to accept a similar Used Core sent back under the core exchange program based upon the Remanufactured Core price agreed upon by the Company and its customer. The Contract liability related to Used Cores returned by consumers to the Company’s customers but not yet returned to the Company are classified as short-term contract liabilities until the Company physically receives these Used Cores as they are expected to be returned during the Company’s normal operating cycle, which is generally one year.
Inventory
Inventory is comprised of (i) Used Core and component raw materials, (ii) work-in-process, (iii) remanufactured finished goods, and (iv) purchased finished goods.
Inventory is stated at the lower of cost or net realizable value. The cost of inventory is evaluated at least quarterly during the fiscal year and adjusted as necessary to reflect current lower of cost or net realizable value levels. These adjustments are determined for individual items of inventory within each of the classifications of inventory as follows:
Component raw materials are recorded at average cost, which is based on the actual purchase price of raw materials on hand. This average cost is used in the inventory costing process and is the basis for allocation of materials to finished goods during the production process.
Used Core raw materials are recorded at average historical purchase prices determined based on actual purchases of inventory on hand. The purchase price for core buy-backs made from the Company’s customers are deemed the same as the purchase price of Used Cores for which sufficient recent purchases have occurred. The average purchase prices of Used Cores for more recent automobile models are retained as the cost for these Used Cores in subsequent periods even as the source of these Used Cores shifts to the core exchange program. The Company purchases Used Cores from core brokers to supplement its yield rates and the under return by consumers. In the absence of sufficient recent purchases, the Company uses the net selling price its customers have agreed to pay for Used Cores that are not returned to the Company under the Company’s core exchange program to assess whether Used Core cost exceeds Used Core net realizable value on a customer by customer basis.
Work-in-process is in various stages of production and is valued at the average cost of materials issued to open work orders. Historically, work-in-process inventory has not been material compared to the total inventory balance.
The cost of remanufactured finished goods includes the average cost of Used Core and component raw materials and allocations of labor and variable and fixed overhead costs. The allocations of labor and variable and fixed overhead costs are determined based on the average actual use of the production facilities over the prior twelve months which approximates normal capacity. This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production. In addition, the Company excludes certain unallocated overhead such as severance costs, duplicative facility overhead costs, start-up costs, training, and spoilage from the calculation and expenses these unallocated overhead as period costs. The cost of purchased finished goods inventory approximates average historical purchase prices paid, and an allocation of fixed overhead costs.
The Company records an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory. The Company periodically reviews inventory to identify excess quantities and part numbers that are experiencing a reduction in demand. Any part numbers with quantities identified during this process are reserved for at rates based upon management’s judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part. The Company had recorded reserves for excess and obsolete inventory of $8,606,000 at June 30, 2018 and $6,682,000 at March 31, 2018. The quantity thresholds and reserve rates are subjective and are based on management’s judgment and knowledge of current and projected industry demand. The reserve estimates may, therefore, be revised if there are changes in the overall market for the Company’s products or market changes that in management’s judgment, impact its ability to sell or liquidate potentially excess or obsolete inventory.
The Company records vendor discounts as a reduction of inventories that are recognized as a reduction to cost of sales as the inventories are sold.
Inventory Unreturned
Inventory unreturned represents the Company’s estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that the Company expects to be returned, under its general right of return policy, after the balance sheet date. Inventory unreturned includes only the added unit value of a finished good. The return rate is calculated based on expected returns within the normal operating cycle, which is generally one year. As such, the related amounts are classified in current assets. Inventory unreturned is valued in the same manner as the Company’s finished goods inventory.
Impact of the Adoption of the New Accounting Standard
As a result of the adoption of ASC 606 and the resultant changes in Company policy noted above, the effect of the adoption on the consolidated statements of operations was an increase to the Company’s previously reported retained earnings as of April 1, 2016 by approximately $345,000, net of tax. The effects of adoption were also a decrease to previously reported revenues for the year ended March 31, 2017 of $824,000 and an increase to previously reported revenues for the year ended March 31, 2018 of $557,000. The revenue changes were accompanied by related changes to cost of goods sold - a decrease to previously reported cost of goods sold for the year ended March 31, 2017 of $758,000, and an increase to previously reported cost of goods sold for the year ended March 31, 2018 of $66,000.
The primary result of the adoption effects upon the financial statement was due to an acceleration of revenue recognition for Remanufactured Cores not expected to be returned to the Company upon the initial recognition of revenue. Prior to adopting ASU 2014-09, the Company had delayed recognizing revenue for sales of cores not expected to be replaced by a similar Used Core sent back under the core exchange program until it believed all of the following criteria were met:
| · | The Company has a signed agreement with the customer covering the nominally priced Remanufactured Cores not expected to be replaced by a similar Used Core sent back under the core exchange program. This agreement must specify the number of Remanufactured Cores its customer will pay cash for in lieu of sending back a similar Used Core and the basis on which the nominally priced Remanufactured Cores are to be valued (normally the average price per Remanufactured Core stipulated in the agreement). |
| · | The contractual date for reconciling the Company’s records and customer’s records of the number of nominally priced Remanufactured Cores not expected to be replaced by a similar Used Core sent back under the core exchange program must be in the current or a prior period. |
| · | The reconciliation of the nominally priced Remanufactured Cores must be completed and agreed to by the customer. |
| · | The amount must be billed to the customer. |
In order to properly determine the transaction price related to the Company’s sales contracts, the Company has also analyzed its various forms of consideration paid to its vendors, including up-front payments for future contracts. Based on the analysis performed, the Company identified no changes to its legacy accounting practices as a result of the adoption of ASU 2014-09 to account for up-front payments to the Company’s vendors. Accordingly, if the Company expects to generate future revenues associated with an up-front payment, then an asset is recognized and amortized over the appropriate period of time as a reduction of revenue. If the Company does not expect to generate additional revenue, then the up-front payment is recognized in the consolidated statements of operations when payment occurs as a reduction of revenue.
Similarly, the Company has analyzed discounts and promotions offered to customers. In reviewing these discounts, the Company assessed whether any discounts were offered incremental to the range of discounts typically given for its goods to specific customer classes. In performing this analysis, the Company determined that there are no incremental discounts offered to customers and as such, its discounts do not represent a material right to the Company’s customers. As such, the Company will account for these discounts as variable consideration, as a reduction of revenue in the consolidated statements of operations when the product, the discount is applicable to, is sold.
The adoption of the new revenue recognition standard impacted the previously reported consolidated statement of operations for the three months ended June 30, 2017 as follows:
| | | Three Months Ended June 30, 2017 | |
| | | As Previously Reported | | | Adoption of ASU 2014-09 | | | As Adjusted | |
| Net sales | | $ | 95,063,000 | | | $ | 456,000 | | | $ | 95,519,000 | |
| Cost of goods sold | | | 69,224,000 | | | | (381,000 | ) | | | 68,843,000 | |
| Gross profit | | | 25,839,000 | | | | 837,000 | | | | 26,676,000 | |
| Operating expenses: | | | | | | | | | | | | |
| General and administrative | | | 6,187,000 | | | | - | | | | 6,187,000 | |
| Sales and marketing | | | 3,394,000 | | | | - | | | | 3,394,000 | |
| Research and development | | | 1,002,000 | | | | - | | | | 1,002,000 | |
| Total operating expenses | | | 10,583,000 | | | | - | | | | 10,583,000 | |
| Operating income | | | 15,256,000 | | | | 837,000 | | | | 16,093,000 | |
| Interest expense, net | | | 3,314,000 | | | | - | | | | 3,314,000 | |
| Income before income tax expense | | | 11,942,000 | | | | 837,000 | | | | 12,779,000 | |
| Income tax expense | | | 4,316,000 | | | | 312,000 | | | | 4,628,000 | |
| Net income | | $ | 7,626,000 | | | $ | 525,000 | | | $ | 8,151,000 | |
| Basic net income per share | | $ | 0.41 | | | $ | 0.03 | | | $ | 0.44 | |
| Diluted net income per share | | $ | 0.39 | | | $ | 0.03 | | | $ | 0.42 | |
Also as a result of the adoption of ASC 606 and the resultant changes in Company policy noted above, the effect of the adoption on the consolidated balance sheets was to create contract asset and contract liability accounts to reflect those balance sheet items being impacted by the new revenue recognition requirements. The main drivers of the reclassifications were (i) the need to accommodate the aggregation of Remanufactured Core and Unit portion of the product sales under one single performance obligation and (ii) the creation of contract asset and contract liability accounts to appropriately segregate those balance sheet items related to the ongoing transactions under the Company’s customer contracts.
Detailed impacts on specific consolidated balance sheet account can be found in the individual footnotes covering the separate line items on the face of the consolidated balance sheet.
The adoption of the new revenue recognition standard impacted the previously reported consolidated balance sheet at March 31, 2018 as follows:
| | | March 31, 2018 | |
| | | As Previously Reported | | | Adoption of ASU 2014-09 | | | As Adjusted | |
| ASSETS | | | | | | | | | |
| Current assets: | | | | | | | | | |
| Cash and cash equivalents | | $ | 13,049,000 | | | $ | - | | | $ | 13,049,000 | |
| Short-term investments | | | 2,828,000 | | | | - | | | | 2,828,000 | |
| Accounts receivable — net | | | 15,738,000 | | | | 47,436,000 | | | | 63,174,000 | |
| Inventory— net | | | 76,275,000 | | | | 84,935,000 | | | | 161,210,000 | |
| Inventory unreturned | | | 7,508,000 | | | | - | | | | 7,508,000 | |
| Contract assets | | | - | | | | 15,614,000 | | | | 15,614,000 | |
| Income tax receivable | | | 7,796,000 | | | | - | | | | 7,796,000 | |
| Prepaid expenses and other current assets | | | 11,491,000 | | | | - | | | | 11,491,000 | |
| Total current assets | | | 134,685,000 | | | | 147,985,000 | | | | 282,670,000 | |
| Plant and equipment — net | | | 28,322,000 | | | | - | | | | 28,322,000 | |
| Long-term core inventory — net | | | 301,656,000 | | | | (301,656,000 | ) | | | - | |
| Long-term core inventory deposits | | | 5,569,000 | | | | (5,569,000 | ) | | | - | |
| Long-term deferred income taxes | | | 10,556,000 | | | | (239,000 | ) | | | 10,317,000 | |
| Long-term contract assets | | | - | | | | 205,998,000 | | | | 205,998,000 | |
| Goodwill | | | 2,551,000 | | | | - | | | | 2,551,000 | |
| Intangible assets — net | | | 3,766,000 | | | | - | | | | 3,766,000 | |
| Other assets | | | 7,392,000 | | | | - | | | | 7,392,000 | |
| TOTAL ASSETS | | $ | 494,497,000 | | | $ | 46,519,000 | | | $ | 541,016,000 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | | |
| Accounts payable | | $ | 73,273,000 | | | $ | - | | | $ | 73,273,000 | |
| Accrued liabilities | | | 11,799,000 | | | | - | | | | 11,799,000 | |
| Customer finished goods returns accrual | | | 17,805,000 | | | | - | | | | 17,805,000 | |
| Accrued core payment | | | 16,536,000 | | | | (16,536,000 | ) | | | - | |
| Contract liabilities | | | - | | | | 32,603,000 | | | | 32,603,000 | |
| Revolving loan | | | 54,000,000 | | | | - | | | | 54,000,000 | |
| Other current liabilities | | | 4,471,000 | | | | - | | | | 4,471,000 | |
| Current portion of term loan | | | 3,068,000 | | | | - | | | | 3,068,000 | |
| Total current liabilities | | | 180,952,000 | | | | 16,067,000 | | | | 197,019,000 | |
| Term loan, less current portion | | | 13,913,000 | | | | - | | | | 13,913,000 | |
| Long-term accrued core payment | | | 18,473,000 | | | | (18,473,000 | ) | | | - | |
| Long-term deferred income taxes | | | 226,000 | | | | - | | | | 226,000 | |
| Long-term contract liabilities | | | - | | | | 48,183,000 | | | | 48,183,000 | |
| Other liabilities | | | 5,957,000 | | | | - | | | | 5,957,000 | |
| Total liabilities | | | 219,521,000 | | | | 45,777,000 | | | | 265,298,000 | |
| Commitments and contingencies | | | | | | | | | | | | |
| Shareholders’ equity: | | | | | | | | | | | | |
| Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issued | | | - | | | | - | | | | - | |
| Series A junior participating preferred stock; par value $.01 per share, 20,000 shares authorized; none issued | | | - | | | | - | | | | - | |
| Common stock; par value $.01 per share, 50,000,000 shares authorized; 18,893,102 shares issued and outstanding at March 31, 2018 | | | 189,000 | | | | - | | | | 189,000 | |
| Additional paid-in capital | | | 213,609,000 | | | | - | | | | 213,609,000 | |
| Retained earnings | | | 66,606,000 | | | | 742,000 | | | | 67,348,000 | |
| Accumulated other comprehensive loss | | | (5,428,000 | ) | | | - | | | | (5,428,000 | ) |
| Total shareholders’ equity | | | 274,976,000 | | | | 742,000 | | | | 275,718,000 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 494,497,000 | | | $ | 46,519,000 | | | $ | 541,016,000 | |
The adoption of the new revenue recognition standard impacted the previously reported statement of cash flows for the three months ended June 30, 2017 as follows:
| | | Three Months Ended June 30, 2017 | |
| Cash flows from operating activities: | | As Previously Reported | | | Adoption of ASU 2014-09 | | | As Adjusted | |
| Net income | | $ | 7,626,000 | | | $ | 525,000 | | | $ | 8,151,000 | |
| Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | | | | | | |
| Depreciation | | | 894,000 | | | | - | | | | 894,000 | |
| Amortization of intangible assets | | | 145,000 | | | | - | | | | 145,000 | |
| Amortization and write-off of debt issuance costs | | | 213,000 | | | | - | | | | 213,000 | |
| Amortization of interest on accrued core payments | | | 143,000 | | | | - | | | | 143,000 | |
| Gain due to change in fair value of the warrant liability | | | (1,293,000 | ) | | | - | | | | (1,293,000 | ) |
| Net provision for inventory reserves | | | 1,286,000 | | | | - | | | | 1,286,000 | |
| Net provision for customer payment discrepancies | | | 284,000 | | | | - | | | | 284,000 | |
| Net recovery of doubtful accounts | | | (9,000 | ) | | | - | | | | (9,000 | ) |
| Deferred income taxes | | | (103,000 | ) | | | 312,000 | | | | 209,000 | |
| Share-based compensation expense | | | 834,000 | | | | - | | | | 834,000 | |
| Loss on disposal of plant and equipment | | | 6,000 | | | | - | | | | 6,000 | |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | | | | | | | | |
| Accounts receivable | | | 16,038,000 | | | | (6,705,000 | ) | | | 9,333,000 | |
| Inventory | | | (14,942,000 | ) | | | (3,552,000 | ) | | | (18,494,000 | ) |
| Inventory unreturned | | | (120,000 | ) | | | - | | | | (120,000 | ) |
| Income tax receivable | | | 1,686,000 | | | | - | | | | 1,686,000 | |
| Prepaid expenses and other current assets | | | (1,265,000 | ) | | | - | | | | (1,265,000 | ) |
| Other assets | | | 608,000 | | | | - | | | | 608,000 | |
| Accounts payable and accrued liabilities | | | (5,254,000 | ) | | | - | | | | (5,254,000 | ) |
| Customer finished goods returns accrual | | | (3,790,000 | ) | | | - | | | | (3,790,000 | ) |
| Long-term core inventory | | | (2,878,000 | ) | | | 2,878,000 | | | | - | |
| Contract assets, net | | | - | | | | 293,000 | | | | 293,000 | |
| Contract liabilities, net | | | - | | | | 3,172,000 | | | | 3,172,000 | |
| Accrued core payments | | | (3,077,000 | ) | | | 3,077,000 | | | | - | |
| Other liabilities | | | 2,324,000 | | | | - | | | | 2,324,000 | |
| Net cash used in operating activities | | | (644,000 | ) | | | - | | | | (644,000 | ) |
| Cash flows from investing activities: | | | | | | | | | | | | |
| Purchase of plant and equipment | | | (597,000 | ) | | | - | | | | (597,000 | ) |
| Change in short-term investments | | | (173,000 | ) | | | - | | | | (173,000 | ) |
| Net cash used in investing activities | | | (770,000 | ) | | | - | | | | (770,000 | ) |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Borrowings under revolving loan | | | 17,000,000 | | | | - | | | | 17,000,000 | |
| Repayments of revolving loan | | | (13,000,000 | ) | | | - | | | | (13,000,000 | ) |
| Repayments of term loan | | | (782,000 | ) | | | - | | | | (782,000 | ) |
| Payments for debt issuance costs | | | (398,000 | ) | | | - | | | | (398,000 | ) |
| Payments on capital lease obligations | | | (190,000 | ) | | | - | | | | (190,000 | ) |
| Exercise of stock options | | | 295,000 | | | | - | | | | 295,000 | |
| Cash used to net share settle equity awards | | | (488,000 | ) | | | - | | | | (488,000 | ) |
| Repurchase of common stock, including fees | | | (1,979,000 | ) | | | - | | | | (1,979,000 | ) |
| Net cash provided by financing activities | | | 458,000 | | | | - | | | | 458,000 | |
| Effect of exchange rate changes on cash and cash equivalents | | | 47,000 | | | | - | | | | 47,000 | |
| Net decrease in cash and cash equivalents | | | (909,000 | ) | | | - | | | | (909,000 | ) |
| Cash and cash equivalents — Beginning of period | | | 9,029,000 | | | | - | | | | 9,029,000 | |
| Cash and cash equivalents — End of period | | $ | 8,120,000 | | | $ | - | | | $ | 8,120,000 | |
4. Goodwill and Intangible Assets
Goodwill
The following summarizes the changes in the Company’s goodwill:
| | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | |
| Balance at beginning of period | | $ | 2,551,000 | | | $ | 2,551,000 | |
| Goodwill acquired | | | - | | | | - | |
| Translation adjustment | | | - | | | | - | |
| Impairment | | | - | | | | - | |
| Balance at end of period | | $ | 2,551,000 | | | $ | 2,551,000 | |
3. Intangible Assets
The following is a summary of acquired intangible assets subject to amortization:
| | | | June 30, 2018 | | | March 31, 2018 | |
| | June 30, 2019 | | | March 31, 2019 | |
| | Weighted Average Amortization Period | | Gross Carrying Value | | | Accumulated Amortization | | | Gross Carrying Value | | | Accumulated Amortization | | Weighted Average Amortization Period | | Gross Carrying Value | | | Accumulated Amortization | | | Gross Carrying Value | | | Accumulated Amortization | |
| Intangible assets subject to amortization | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Trademarks | 9 years | | $ | 882,000 | | | $ | 353,000 | | | $ | 885,000 | | | $ | 316,000 | | 9 years | | $ | 1,014,000 | | | $ | 527,000 | | | $ | 1,007,000 | | | $ | 464,000 | |
| Customer relationships | 13 years | | | 5,900,000 | | | | 3,066,000 | | | | 5,900,000 | | | | 2,937,000 | | 11 years | | 8,668,000 | | | 3,764,000 | | | 8,610,000 | | | 3,547,000 | |
| Order backlog | | 6 months | | 332,000 | | | 332,000 | | | 325,000 | | | 180,000 | |
| Developed technology | 3 years | | | 294,000 | | | | 90,000 | | | | 301,000 | | | | 67,000 | | 5 years | | | 3,054,000 | | | | 480,000 | | | | 2,991,000 | | | | 311,000 | |
| Total | | | $ | 7,076,000 | | | $ | 3,509,000 | | | $ | 7,086,000 | | | $ | 3,320,000 | | | | $ | 13,068,000 | | | $ | 5,103,000 | | | $ | 12,933,000 | | | $ | 4,502,000 | |
Amortization expense for acquired intangible assets is as follows:
| | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | |
| | | | | | | |
| Amortization expense | | $ | 192,000 | | | $ | 145,000 | |
|
| Three Months Ended June 30, |
|
| 2019 | | | 2018 |
| | | | | | | |
Amortization expense | | $ | 577,000 | | | $ | 192,000 | |
The estimated future amortization expense for acquired intangible assets is as follows:
Year Ending March 31, | | | | | | |
| 2019 - remaining nine months | | $ | 575,000 | | |
| 2020 | | | 708,000 | | |
| 2020 - remaining nine months | | | $ | 1,223,000 | |
| 2021 | | | 613,000 | | | 1,554,000 | |
| 2022 | | | 580,000 | | | 1,512,000 | |
| 2023 | | | 580,000 | | | 1,477,000 | |
| 2024 | | | 1,098,000 | |
| Thereafter | | | 511,000 | | | | 1,101,000 | |
| Total | | $ | 3,567,000 | | | $ | 7,965,000 | |
5.4. Accounts Receivable — Net
The adoption of the new revenue recognition standard (see Note 3) impacted the previously reported accounts receivable-net, at March 31, 2018 as follows:
| | | March 31, 2018 | |
| | | As Previously Reported | | | Adoption of ASU 2014-09 | | | | As Adjusted | |
| Accounts receivable — trade | | $ | 83,700,000 | | | $ | - | | | | $ | 83,700,000 | |
| Allowance for bad debts | | | (4,142,000 | ) | | | - | | | | | (4,142,000 | ) |
| Customer allowances earned | | | (11,370,000 | ) | | | 11,370,000 | (1 | ) | | | - | |
| Customer payment discrepancies | | | (1,110,000 | ) | | | - | | | | | (1,110,000 | ) |
| Customer returns RGA issued | | | (15,274,000 | ) | | | - | | | | | (15,274,000 | ) |
| Customer core returns accruals | | | (36,066,000 | ) | | | 36,066,000 | (2 | ) | | | - | |
| Less: total accounts receivable offset accounts | | | (67,962,000 | ) | | | 47,436,000 | | | | | (20,526,000 | ) |
| Total accounts receivable — net | | $ | 15,738,000 | | | $ | 47,436,000 | | | | $ | 63,174,000 | |
| | | | | | | | | | | | | | |
| (1) | Customer allowances earned have been reclassified to contract liabilities in the consolidated balance sheet at March 31, 2018. |
| (2) | Customer core returns accruals of $4,697,000 have been reclassified to contract liabilities and customer core returns accruals of $31,369,000 have been reclassified to long-term contract liabilities in the consolidated balance sheet at March 31, 2018. |
Included in accountsAccounts receivable — net are significantincludes offset accounts related to customer payment discrepancies, returned goods authorizations (“RGA”) issued for in-transit unit returns, and potential bad debts.
Accounts receivable — net is comprised of the following:
| | | June 30, 2018 | | | March 31, 2018 | |
| Accounts receivable — trade | | $ | 61,605,000 | | | $ | 83,700,000 | |
| Allowance for bad debts | | | (4,119,000 | ) | | | (4,142,000 | ) |
| Customer payment discrepancies | | | (552,000 | ) | | | (1,110,000 | ) |
| Customer returns RGA issued | | | (16,424,000 | ) | | | (15,274,000 | ) |
| Less: total accounts receivable offset accounts | | | (21,095,000 | ) | | | (20,526,000 | ) |
| Total accounts receivable — net | | $ | 40,510,000 | | | $ | 63,174,000 | |
Warranty Returns
| | | June 30, 2019 | | | March 31, 2019 | |
| Accounts receivable — trade | | $ | 62,727,000 | | | $ | 75,847,000 | |
| Allowance for bad debts | | | (4,069,000 | ) | | | (4,100,000 | ) |
| Customer payment discrepancies | | | (1,278,000 | ) | | | (854,000 | ) |
| Customer returns RGA issued | | | (12,338,000 | ) | | | (14,878,000 | ) |
| Less: total accounts receivable offset accounts | | | (17,685,000 | ) | | | (19,832,000 | ) |
| Total accounts receivable — net | | $ | 45,042,000 | | | $ | 56,015,000 | |
The Company allows its customers to return goods that their customers have returned to them, whether or not the returned item is defective (“warranty returns”). The Company accrues an estimate of its exposure to warranty returns based on a historical analysis of the level of this type of return as a percentage of total unit sales. Amounts charged to expense for these warranty returns are considered in arriving at the Company’s net sales. At June 30, 2018 and March 31, 2018, the Company’s total warranty return accrual was $14,543,000 and $16,646,000, respectively, of which $7,648,000 and $7,204,000, respectively, was included in the customer returns RGA issued balance in the above table for expected credits to be issued against accounts receivable and $6,895,000 and $9,442,000, respectively, was included in the customer finished goods returns accrual in the consolidated balance sheets for estimated future warranty returns.The following summarizes the changes in the Company’s warranty return accrual:
| | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | |
| Balance at beginning of period | | $ | 16,646,000 | | | $ | 14,286,000 | |
| Charged to expense/additions | | | 23,893,000 | | | | 22,206,000 | |
| Amounts processed | | | (25,996,000 | ) | | | (23,643,000 | ) |
| Balance at end of period | | $ | 14,543,000 | | | $ | 12,849,000 | |
6.5. Inventory
The adoption of the new revenue recognition standard (see Note 3) impacted the previously reported inventory at March 31, 2018 as follows:
| | | March 31, 2018 | |
| | | As Previously | | | Adoption of | | | | | |
| | | Reported | | | ASU 2014-09 | | | | As Adjusted | |
| Inventory | | | | | | | | | | |
| Raw materials | | $ | 25,805,000 | | | $ | 51,330,000 | | | (1 | ) | $ | 77,135,000 | |
| Work-in-process | | | 635,000 | | | | 1,948,000 | | | (1 | ) | | 2,583,000 | |
| Finished goods | | | 53,973,000 | | | | 34,201,000 | | | (2 | ) | | 88,174,000 | |
| | | | 80,413,000 | | | | 87,479,000 | | | | | | 167,892,000 | |
| Less allowance for excess and obsolete inventory | | | (4,138,000 | ) | | | (2,544,000 | ) | | (3 | ) | | (6,682,000 | ) |
| Total | | $ | 76,275,000 | | | $ | 84,935,000 | | | | | $ | 161,210,000 | |
| | | | | | | | | | | | | | | |
| Inventory unreturned | | $ | 7,508,000 | | | $ | - | | | | | $ | 7,508,000 | |
| Long-term core inventory | | | | | | | | | | | | | | |
| Used cores held at the Company’s facilities | | $ | 53,278,000 | | | $ | (53,278,000 | ) | | (1 | ) | $ | - | |
| Used cores expected to be returned by customers | | | 12,970,000 | | | | (12,970,000 | ) | | (4 | ) | | - | |
| Remanufactured cores held in finished goods | | | 34,201,000 | | | | (34,201,000 | ) | | (2 | ) | | - | |
| Remanufactured cores held at customers’ locations | | | 203,751,000 | | | | (203,751,000 | ) | | (5 | ) | | - | |
| | | | 304,200,000 | | | | (304,200,000 | ) | | | | | - | |
| Less allowance for excess and obsolete inventory | | | (2,544,000 | ) | | | 2,544,000 | | | (3 | ) | | - | |
| Total | | $ | 301,656,000 | | | $ | (301,656,000 | ) | | | | $ | - | |
| | | | | | | | | | | | | | | |
| Long-term core inventory deposits | | $ | 5,569,000 | | | $ | (5,569,000 | ) | | (6 | ) | $ | - | |
| (1) | Used cores held at the Company’s facilities of $53,278,000 have been reclassified to raw materials and work-in-process in the consolidated balance sheet at March 31, 2018. |
| (2) | Remanufactured Cores held in finished goods of $34,201,000 have been reclassified to finished goods in the consolidated balance sheet at March 31, 2018. |
| (3) | The allowance for excess and obsolete inventory of $2,544,000 previously included in long-term core inventory has been reclassified to inventory—Inventory–net in the consolidated balance sheet at March 31, 2018. |
| (4) | Used cores expected to be returned by customers of $12,970,000 have been reclassified to contract assets in the consolidated balance sheet at March 31, 2018. |
| (5) | Remanufactured cores held at customers’ locations of $203,751,000 have been reclassified to current and long-term contract assets in the consolidated balance sheet at March 31, 2018. |
| (6) | Long-term core inventory deposits of $5,569,000 have been reclassified to long-term contract assets in the consolidated balance sheet at March 31, 2018. |
Inventory is comprised of the following:
| | | June 30, 2018 | | | March 31, 2018 | | | June 30, 2019 | | | March 31, 2019 | |
| Inventory | | | | | | | |
| Inventory - net | | | | | | | |
| Raw materials | | $ | 84,869,000 | | | $ | 77,135,000 | | | $ | 101,544,000 | | | $ | 95,757,000 | |
| Work-in-process | | | 4,294,000 | | | | 2,583,000 | | | 4,593,000 | | | 3,502,000 | |
| Finished goods | | | 106,785,000 | | | | 88,174,000 | | | | 168,992,000 | | | | 146,366,000 | |
| | | | 195,948,000 | | | | 167,892,000 | | | 275,129,000 | | | 245,625,000 | |
| Less allowance for excess and obsolete inventory | | | (8,606,000 | ) | | | (6,682,000 | ) | | | (13,013,000 | ) | | | (11,899,000 | ) |
| Total inventory - net | | $ | 187,342,000 | | | $ | 161,210,000 | | | $ | 262,116,000 | | | $ | 233,726,000 | |
| Inventory unreturned | | $ | 8,315,000 | | | $ | 7,508,000 | | | $ | 8,349,000 | | | $ | 8,469,000 | |
7.6. Contract Assets
Contract assets (see Note 3) are comprised of the following:
| | | June 30, 2018 | | | March 31, 2018 | | | June 30, 2019 | | | March 31, 2019 | |
| Short-term contract assets | | | | | | | | | | | | |
| Cores expected to be returned by customers | | $ | 16,542,000 | | | $ | 15,614,000 | | | $ | 13,410,000 | | | $ | 14,671,000 | |
| Upfront payments to customers | | | 3,106,000 | | | 3,101,000 | |
| Core premiums paid to customers | | | | 4,397,000 | | | | 4,411,000 | |
| | | | $ | 20,913,000 | | | $ | 22,183,000 | |
| | | | | | | | | | | | | | | |
| Long-term contract assets | | | | | | | | | | | | | | |
| Remanufactured cores held at customers’ locations | | $ | 202,223,000 | | | $ | 200,429,000 | | |
| Remanufactured cores held at customers' locations | | | $ | 189,505,000 | | | $ | 196,914,000 | |
| Upfront payments to customers | | | 2,007,000 | | | 2,775,000 | |
| Core premiums paid to customers | | | 15,557,000 | | | 16,618,000 | |
| Long-term core inventory deposits | | | 5,569,000 | | | | 5,569,000 | | | | 5,569,000 | | | | 5,569,000 | |
| | | $ | 207,792,000 | | | $ | 205,998,000 | | | $ | 212,638,000 | | | $ | 221,876,000 | |
| Total contract assets | | $ | 224,334,000 | | | $ | 221,612,000 | | | $ | 233,551,000 | | | $ | 244,059,000 | |
8.7. Significant Customer and Other Information
Significant Customer Concentrations
The Company’s largest customers accounted for the following total percentage of net sales:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
| Sales | | 2018 | | | 2017 | | |
| | | | 2019 | | | 2018 | |
| Net sales | | | | | | | |
| Customer A | | | 37 | % | | | 40 | % | | 38 | % | | 37 | % |
| Customer B | | | 22 | % | | | 25 | % | | 23 | % | | 22 | % |
| Customer C | | | 26 | % | | | 16 | % | | 20 | % | | 25 | % |
| Customer D | | | 3 | % | | | 8 | % | |
The Company’s largest customers accounted for the following total percentage of accounts receivable—receivable – trade:
| | | | June 30, 2019 | | | March 31, 2019 | |
| Accounts receivable - trade | | June 30, 2018 | | | March 31, 2018 | | | | | | | |
| Customer A | | | 33 | % | | | 36 | % | | 31 | % | | 34 | % |
| Customer B | | | 21 | % | | | 16 | % | | 22 | % | | 18 | % |
| Customer C | | | 13 | % | | | 22 | % | | 9 | % | | 16 | % |
| Customer D | | | 7 | % | | | 5 | % | |
Geographic and Product Information
The Company’s products are predominantly sold in the U.S. and accounted for the following total percentage of net sales:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | | | 2019 | | | 2018 | |
| Rotating electrical products | | | 77 | % | | | 78 | % | | 75 | % | | 77 | % |
| Wheel hub products | | | 18 | % | | | 18 | % | | 18 | % | | 18 | % |
| Brake master cylinders products | | | 3 | % | | | 3 | % | | 2 | % | | 3 | % |
| Other products | | | 2 | % | | | 1 | % | | | 5 | % | | | 2 | % |
| | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
Significant Supplier Concentrations
The Company had no suppliers that accounted for more than 10% of inventory purchases for the three months ended June 30, 20182019 and 2017.2018.
9.8. Debt
The Company wasis party to a $145,000,000$230,000,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $120,000,000 revolving loan facility, subject to borrowing base restrictions and a $15,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $25,000,000 term loan facility (the “Term Loans”). The loans under the Credit Facility were scheduled to mature on June 3, 2020. In connection with the Credit Facility, the lenders were granted a security interest in substantially all of the assets of the Company. The Credit Facility permitted the payment of up to $15,000,000 of dividends per calendar year, subject to a minimum availability threshold and pro forma compliance with financial covenants. The Term Loans required quarterly principal payments of $781,250. The interest rate on the Company’s Term Loans and Revolving Facility was 4.42% and 4.52%, respectively, as of March 31, 2018.
In June 2018, the Company entered into an amendment and restatement of the Credit Facility (as so amended and restated, the “Amended Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $200,000,000 revolving loan facility, subject to borrowing base restrictions, a $20,000,000 sublimit for borrowings by Canadian borrowers, and a $15,000,000 sublimit for letters of credit (the “Amended Revolving“Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Amended Term“Term Loans”). The loans under the Amended Credit Facility mature on June 5, 2023. The Amended Credit Facility permits the payment of up to $20,000,000 of dividends and share repurchases per fiscal year, subject to a minimum availability threshold and pro forma compliance with financial covenants. In connection with the Amended Credit Facility, the lenders were grantedhave a security interest in substantially all of the assets of the Company.
In June 2019, the Company entered into a second amendment to the Credit Facility (the “Second Amendment”). The Second Amendment, among other things, (i) increased the total size of the Revolving Facility to $238,620,000, (ii) modified the fixed charge coverage ratio financial covenant, (iii) modified the definition of “Consolidated EBITDA”, (iv) modified the borrowing base definition to, among other things, include brake-related products as eligible inventory, (v) increased the letter of credit sublimit to $20,000,000, (vi) increased the Canadian revolving sublimit and swing line sublimit to $24,000,000, (vii) increased the swing line sublimit to $23,862,000, (viii) permitted up to $5,000,000 of sale and lease back transactions per fiscal year, (ix) increased the permitted amount of certain capital expenditures, (x) increased the permitted amount of operating lease obligations per fiscal year, and (xi) increased certain other covenant-related baskets. The Company wrote-off $303,000 of previously capitalized debt issuance costs and capitalized $1,722,000$889,000 of new debt issuance costs in connection with the Amended Credit Facility.Second Amendment.
The Amended Term Loans requiredrequire quarterly principal payments of $937,500 beginning October 1, 2018. The Amended Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or 1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on the Company’s Amended Term Loans and Amended Revolving Facility was 4.75%5.19% and 4.81%5.16%, respectively, as of June 30, 2018.2019 and 5.24% as of March 31, 2019.
The Amended Credit Facility, among other things, requires the Company to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. The Company was in compliance with all financial covenants as of June 30, 2018.2019.
In addition to other covenants, the Amended Credit Facility places limits on the Company’s ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem or repurchase capital stock, alter the business conducted by the Company and its subsidiaries, transact with affiliates, prepay, redeem or purchase subordinated debt, and amend or otherwise alter debt agreements.
The following summarizes information about the Company’s term loansTerm Loans at:
| | | June 30, 2018 | | | March 31, 2018 | | | June 30, 2019 | | | March 31, 2019 | |
| Principal amount of term loan | | $ | 30,000,000 | | | $ | 17,188,000 | | | $ | 27,187,000 | | | $ | 28,125,000 | |
| Unamortized financing fees | | | (297,000 | ) | | | (207,000 | ) | | | (291,000 | ) | | | (253,000 | ) |
| Net carrying amount of term loan | | | 29,703,000 | | | | 16,981,000 | | | 26,896,000 | | | 27,872,000 | |
| Less current portion of term loan | | | (2,749,000 | ) | | | (3,068,000 | ) | | | (3,678,000 | ) | | | (3,685,000 | ) |
| Long-term portion of term loan | | $ | 26,954,000 | | | $ | 13,913,000 | | | $ | 23,218,000 | | | $ | 24,187,000 | |
Future repayments of the Company’s Amended Term Loans are as follows:
Year Ending March 31, | | | | | | |
| 2019 - remaining nine months | | | 1,875,000 | | |
| 2020 | | | 3,750,000 | | |
| 2020 - remaining nine months | | | 2,812,000 | |
| 2021 | | | 3,750,000 | | | 3,750,000 | |
| 2022 | | | 3,750,000 | | | 3,750,000 | |
| 2023 | | | 3,750,000 | | | 3,750,000 | |
| Thereafter | | | 13,125,000 | | |
| 2024 | | | | 13,125,000 | |
| Total payments | | $ | 30,000,000 | | | $ | 27,187,000 | |
The Company had $45,406,000$135,400,000 and $54,000,000$110,400,000 outstanding under the revolving facilityRevolving Facility at June 30, 20182019 and March 31, 2018,2019, respectively. In addition, $734,000$4,039,000 was reservedoutstanding for letters of credit at June 30, 2018.2019. At June 30, 2018, subject to2019, after certain contractual adjustments, $128,694,000$72,400,000 was available under the Amended Revolving Facility.
9. Contract Liabilities
Contract liabilities (see Note 3) are comprised of the following:
| | | June 30, 2018 | | | March 31, 2018 | | | June 30, 2019 | | | March 31, 2019 | |
| Short-term contract liabilities | | | | | | | | | | �� | | |
| Customer allowances earned | | $ | 7,409,000 | | | $ | 11,370,000 | | | $ | 15,698,000 | | | $ | 12,755,000 | |
| Customer core returns accruals | | | 4,154,000 | | | | 4,697,000 | | | 3,958,000 | | | 3,933,000 | |
| Customer deposits | | | 1,839,000 | | | 2,674,000 | |
| Accrued core payment, net | | | 20,520,000 | | | | 16,536,000 | | | | 9,147,000 | | | | 11,237,000 | |
| | | $ | 32,083,000 | | | $ | 32,603,000 | | | $ | 30,642,000 | | | $ | 30,599,000 | |
| | | | | | | | | | | | | | | |
| Long-term contract liabilities | | | | | | | | | | | | | | |
| Customer core returns accruals | | $ | 29,035,000 | | | $ | 29,710,000 | | | $ | 25,643,000 | | | $ | 25,722,000 | |
| Accrued core payment, net | | | 16,631,000 | | | | 18,473,000 | | | | 13,516,000 | | | | 15,167,000 | |
| | | $ | 45,666,000 | | | $ | 48,183,000 | | | $ | 39,159,000 | | | $ | 40,889,000 | |
| Total contract liabilities | | $ | 77,749,000 | | | $ | 80,786,000 | | | $ | 69,801,000 | | | $ | 71,488,000 | |
10. Leases
The Company leases various facilities in North America and Asia under operating leases expiring through December 2032. Non-cancelable minimum lease payments for the two new buildings with 15-year terms in Mexico, which were executed at March 31, 2019, but had not yet commenced at June 30, 2019 were $25,542,000. The Company also has finance leases for certain office and manufacturing equipment, which generally range from three to five years.
The Company determines if an arrangement contains a lease at inception. Lease assets and lease liabilities are recorded based on the present value of lease payments over the lease term, which includes the minimum unconditional term of the lease. Certain of the Company’s leases include options to extend the leases for up to five years. When the Company has the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that it will exercise the option, the option is considered in determining the classification and measurement of the lease. The lease assets are recorded net of any lease incentives received. Lease assets are tested for impairment in the same manner as long-lived assets used in operations.
As the rate implicit for each of its leases is not readily determinable, the Company uses its incremental borrowing rate, based on the information available at the lease commencement date, for each of its leases in determining the present value of its expected lease payments. The Company’s incremental borrowing rate is determined by analyzing and combining an applicable risk-free rate, a financial spread adjustment and any lease specific adjustment. Certain leases contain provisions for property-related costs that are variable in nature for which the Company is responsible, including common area maintenance and other property operating services, which are expensed as incurred and not included in the determination of lease assets and lease liabilities. These costs are calculated based on a variety of factors including property values, tax and utility rates, property services fees, and other factors. The Company records rent expense for operating leases, some of which have escalating rent payments, on a straight-line basis over the lease term.
Balance sheet information for leases is as follows:
| | | | June 30, 2019 | |
| Leases | Classification | | | |
| Assets: | | | | |
| Operating | Operating lease assets | | $ | 50,103,000 | |
| Finance | Plant and equipment | | | 5,206,000 | |
| Total leased assets | | | $ | 55,309,000 | |
| | | | | | |
| Liabilities: | | | | | |
| Current | | | | | |
| Operating | Operating lease liabilities | | $ | 3,976,000 | |
| Finance | Other current liabilities | | | 1,855,000 | |
| Long-term | | | | | |
| Operating | Long-term operating lease liabilities | | | 48,155,000 | |
| Finance | Other liabilities | | | 3,325,000 | |
| Total lease liabilities | | | $ | 57,311,000 | |
Lease cost recognized in the consolidated statement of operations is as follows:
| | | Three Months Ended June 30, | |
| | | 2019 | |
| Lease cost | | | |
| Operating lease cost | | $ | 1,898,000 | |
| Short-term lease cost | | | 403,000 | |
| Variable lease cost | | | 130,000 | |
| Finance lease cost: | | | | |
| Amortization of finance lease assets | | | 358,000 | |
| Interest on finance lease liabilities | | | 68,000 | |
| Total lease cost | | $ | 2,857,000 | |
Maturities of lease commitments at June 30, 2019 were as follows:
| Maturity of lease liabilities | | Operating Leases | | | Finance Leases | | | Total | |
| 2020 - remaining nine months | | $ | 5,217,000 | | | $ | 1,611,000 | | | $ | 6,828,000 | |
| 2021 | | | 6,258,000 | | | | 1,700,000 | | | | 7,958,000 | |
| 2022 | | | 5,895,000 | | | | 1,367,000 | | | | 7,262,000 | |
| 2023 | | | 4,913,000 | | | | 789,000 | | | | 5,702,000 | |
| 2024 | | | 4,861,000 | | | | 130,000 | | | | 4,991,000 | |
| Thereafter | | | 47,262,000 | | | | - | | | | 47,262,000 | |
| Total lease payments | | $ | 74,406,000 | | | $ | 5,597,000 | | | $ | 80,003,000 | |
| Less amount representing interest | | | (22,275,000 | ) | | | (417,000 | ) | | | (22,692,000 | ) |
| Present value of lease liabilities | | $ | 52,131,000 | | | $ | 5,180,000 | | | $ | 57,311,000 | |
Other information about leases is as follows:
| | Three Months Ended June 30, | |
| | 2019 | |
| Lease term and discount rate | | | |
| Weighted-average remaining lease term (years): | | | |
| Finance leases | | | 3.1 | |
| Operating leases | | | 12.4 | |
| Weighted-average discount rate: | | | | |
| Finance leases | | | 5.0 | % |
| Operating leases | | | 5.6 | % |
11. Accounts Receivable Discount Programs
The Company uses receivable discount programs with certain customers and their respective banks. Under these programs, the Company may sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. These discount arrangements allow the Company to accelerate receipt of payment on customers’ receivables.
The following is a summary of the Company’s accounts receivable discount programs:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | | | 2019 | | | 2018 | |
| Receivables discounted | | $ | 86,785,000 | | | $ | 86,520,000 | | | $ | 96,854,000 | | | $ | 86,785,000 | |
| Weighted average days | | | 334 | | | | 342 | | | 346 | | | 334 | |
| Annualized weighted average discount rate | | | 4.1 | % | | | 3.1 | % | | 3.9 | % | | 4.1 | % |
| Amount of discount as interest expense | | $ | 3,324,000 | | | $ | 2,522,000 | | |
| Amount of discount recognized as interest expense | | | $ | 3,649,000 | | | $ | 3,324,000 | |
12. Net (Loss) IncomeLoss Per Share
Basic net (loss) incomeloss per share is computed by dividing net (loss) incomeloss by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) incomeloss per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and warrants, which would result in the issuance of incremental shares of common stock.
The following presents a reconciliation of basic and diluted net (loss) incomeloss per share:
| | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | |
| | | | | | | |
| Net (loss) income | | $ | (5,014,000 | ) | | $ | 8,151,000 | |
| Basic shares | | | 18,895,847 | | | | 18,655,304 | |
| Effect of potentially dilutive securities | | | - | | | | 766,048 | |
| Diluted shares | | | 18,895,847 | | | | 19,421,352 | |
| Net (loss) income per share: | | | | | | | | |
| | | | | | | | | |
| Basic net (loss) income per share | | $ | (0.27 | ) | | $ | 0.44 | |
| | | | | | | | | |
| Diluted net (loss) income per share | | $ | (0.27 | ) | | $ | 0.42 | |
| | Three Months Ended June 30, | |
| | | 2019 | | | 2018 | |
| | | | | | | |
| Net loss | | $ | (6,151,000 | ) | | $ | (5,495,000 | ) |
| Basic shares | | | 18,822,178 | | | | 18,895,847 | |
| Effect of potentially dilutive securities | | | - | | | | - | |
| Diluted shares | | | 18,822,178 | | | | 18,895,847 | |
| Net loss per share: | | | | | | | | |
| Basic net loss per share | | $ | (0.33 | ) | | $ | (0.29 | ) |
| Diluted net loss per share | | $ | (0.33 | ) | | $ | (0.29 | ) |
Potential common shares that would have the effect of dilutive options excludes (i) 1,380,598 shares subject to options with exercise prices ranging from $4.17 to $34.17increasing diluted net income per share foror decreasing diluted net loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted net loss per share. For the three months ended June 30, 2019 and 2018, there were 1,520,811 and (ii) 111,1721,380,598, respectively, of potential common shares subject to options with exercise prices ranging from $30.31 to $34.17not included in the calculation of diluted net loss per share for the three months ended June, 30, 2017, which werebecause their effect was anti-dilutive.
13. Income Taxes
The Company recorded an income tax benefit of $1,278,000,$1,730,000, or an effective tax rate of 20.3%22.0%, and $1,447,000, or an effective tax rate of 20.8%, for the three months ended June 30, 2019 and 2018, compared to incomerespectively. The estimated effective tax expense rate for the three months ended June 30, 2017 of $4,628,000, orentire year is based on current estimates and any changes to those estimates in future periods could result in an effective tax rate of 36.2%. On December 22, 2017,that is materially different from the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted into law, which changed various corporate income tax provisions within the existing Internal Revenue Code. The Tax Reform Act, among other things, lowered the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.
U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result, the Company recorded provisional amounts due to the revaluation of deferred tax assets and liabilities and the transition tax on deemed repatriation of accumulated foreign income during fiscal 2018. Both of these tax charges represent provisional amounts and the Company’s current best estimates. Any adjustments recorded to the provisional amounts will be included as an adjustment to tax expense. The provisional amounts incorporate assumptions made based upon the Company’s current interpretation of the Tax Reform Act and may change as the Company receives additional clarification and implementation guidance.estimate.
The Company is not underremains subject to examination in any jurisdiction andfor the fiscal years endedbeginning with March 31, 2018, 2017, 2016, and 2015 remain subject to examination.2016. The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months.
14. Financial Risk Management and Derivatives
Purchases and expenses denominated in currencies other than the U.S. dollar, which are primarily related to the Company’s overseas facilities, overseas, expose the Company to market risk from material movements in foreign exchange rates between the U.S. dollar and the foreign currencies. The Company’s primary risk exposure is from fluctuations in the value of the Mexican peso and to a lesser extent the Chinese yuan. To mitigate these risks, the Company enters into forward foreign currency exchange contracts to exchange U.S. dollars for these foreign currencies. The extent to which forward foreign currency exchange contracts are used is modified periodically in response to the Company’s estimate of market conditions and the terms and length of anticipated requirements.
The Company enters into forward foreign currency exchange contracts in order to reduce the impact of foreign currency fluctuations and not to engage in currency speculation. The use of derivative financial instruments allows the Company to reduce its exposure to the risk that the eventual cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in exchange rates between the U.S. dollar and the foreign currencies. The Company does not hold or issue financial instruments for trading purposes. The forward foreign currency exchange contracts are designated for forecasted expenditure requirements to fund foreign operations.
The Company had forward foreign currency exchange contracts with a U.S. dollar equivalent notional value of $32,016,000$35,021,000 and $31,304,000$32,524,000 at June 30, 20182019 and March 31, 2018,2019, respectively. These contracts generally have a term of one year or less, at rates agreed at the inception of the contracts. The counterparty to this derivative transaction is a major financial institution with investment grade credit rating; however, the Company is exposed to credit risk with this institution. The credit risk is limited to the potential unrealized gains (which offset currency fluctuations adverse to the Company) in any such contract should this counterparty fail to perform as contracted. Any changes in the fair values of forward foreign currency exchange contracts are reflected in current period earnings and accounted for as an increase or offset to general and administrative expenses.
The following shows the effect of the Company’s derivative instruments on itsthe consolidated statements of operations:
| | | Gain (Loss) Recognized within General and Administrative Expenses | | |
Derivatives Not Designated as Hedging Instruments | | | Gain (Loss) Recognized within General and Administrative Expenses | |
| Three Months Ended June 30, | |
| | Three Months Ended June 30, | | |
| | 2018 | | | 2017 | | 2019 | | | 2018 | |
| Forward foreign currency exchange contracts | | $ | (2,666,000 | ) | | $ | 1,052,000 | | | $ | 35,000 | | | $ | (2,666,000 | ) |
The fair value of the forward foreign currency exchange contracts of $1,487,000 is included in other current liabilities in the consolidated balance sheets at June 30, 2018. The fair value of the forward foreign currency exchange contracts of $1,179,000 is$242,000 and $207,000 are included in prepaid and other current assets in the consolidated balance sheets at June 30, 2019 and March 31, 2019, respectively. The changes in the fair values of forward foreign currency exchange contracts are included in other liabilities in the consolidated statements of cash flows for the three months ended June 30, 2019 and 2018.
15. Fair Value Measurements
The following summarizes the Company’s financial assets and liabilities measured at fair value, by level within the fair value hierarchy:
| | | June 30, 2018 | | | March 31, 2018 | | | June 30, 2019 | | | March 31, 2019 | |
| | | | | | Fair Value Measurements Using Inputs Considered as | | | | | | Fair Value Measurements Using Inputs Considered as | | | | | | Fair Value Measurements Using Inputs Considered as | | | | | | Fair Value Measurements Using Inputs Considered as | |
| | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short-term investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mutual funds | | $ | 3,053,000 | | | $ | 3,053,000 | | | | - | | | | - | | | $ | 2,828,000 | | | $ | 2,828,000 | | | | - | | | | - | | | $ | 2,074,000 | | | $ | 2,074,000 | | | - | | | - | | | $ | 3,273,000 | | | $ | 3,273,000 | | | - | | | - | |
| Prepaid expenses and other current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Forward foreign currency exchange contracts | | | - | | | | - | | | | - | | | | - | | | | 1,179,000 | | | | - | | | $ | 1,179,000 | | | | - | | | 242,000 | | | - | | | $ | 242,000 | | | - | | | 207,000 | | | - | | | $ | 207,000 | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accrued liabilities | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short-term contingent consideration | | | 2,982,000 | | | - | | | - | | | $ | 2,982,000 | | | 2,816,000 | | | - | | | - | | | $ | 2,816,000 | |
| Other current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Forward foreign currency exchange contracts | | | 1,487,000 | | | | - | | | $ | 1,487,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | |
| Deferred compensation | | | 3,053,000 | | | | 3,053,000 | | | | - | | | | - | | | | 2,828,000 | | | | 2,828,000 | | | | - | | | | - | | | 2,074,000 | | | 2,074,000 | | | - | | | - | | | 3,273,000 | | | 3,273,000 | | | - | | | - | |
| Other liabilities | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term contingent consideration | | | 1,988,000 | | | - | | | - | | | 1,988,000 | | | 1,905,000 | | | - | | | - | | | 1,905,000 | |
Short-term Investments and Deferred Compensation
The Company’s short-term investments, which fund its deferred compensation liabilities, consist of investments in mutual funds. These investments are classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.
Forward Foreign Currency Exchange Contracts
The forward foreign currency exchange contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. During the three months ended June 30, 2019 and 2018, a gain of $35,000 and 2017, a loss of $2,666,000, and a gain of $1,052,000, respectively, waswere recorded in general and administrative expenses due to the change in the value of the forward foreign currency exchange contracts.
Contingent Consideration
In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from Mechanical Power Conversion, LLC (“E&M”). In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $5,200,000 over the next 2-3 years.
In January 2019, the Company completed the acquisition of all the equity interests of Dixie Electric, Ltd (“Dixie”). In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of Dixie up to $1,130,000 over the next two years.
The Company’s contingent consideration is recorded in accrued expenses and other liabilities in its consolidated balance sheets at June 30, 2019 and March 31, 2019, and is a Level 3 liability measured at fair value.
E&M Research and Development (“R&D”) Event Milestone
The fair value of the two-year R&D event milestone based on technology development and transfer was $2,230,000 at June 30, 2019 determined using a probability weighted method with the following assumptions commensurate with the term of the contingent consideration: (i) a risk-free interest rate ranging from 1.84% to 2.06%, (ii) counter party risk discount rate ranging from 5.84% to 6.06%, and (iii) total probability of 90% to 100%. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.
E&M Gross Profit Earn-out Consideration
The fair value of the three-year gross profit earn-out consideration was $1,770,000 at June 30, 2019 determined using a Monte Carlo Simulation Model. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.
The assumptions used to determine the fair value is as follows:
| | June 30, 2019 | |
| Risk free interest rate | | | 1.75 | % |
| Counter party rate | | | 5.75 | % |
| Expected volatility | | | 30.00 | % |
| Weighted average cost of capital | | | 16.00 | % |
Dixie Revenue Earn-out Consideration
The fair value of the two-year revenue earn-out consideration was $970,000 at June 30, 2019 determined using a Monte Carlo Simulation Model.
The assumptions used to determine the fair value is as follows:
| | June 30, 2019 | |
Risk free interest rate | | | 1.83 | % |
Counter party rate | | | 4.00 | % |
Revenue volatility
| | | 9.00
| %
|
Revenue discount rate
| | | 6.00
| %
|
Weighted average cost of capital
| | | 15.00
| %
|
Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.
The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:
|
| Three Months Ended June 30, |
|
| 2019 |
Contingent Consideration |
| Beginning balance | | $ | 4,721,000 | |
| Newly issued | | | - | |
| Changes in revaluations of contingent consideration included in earnings | | | 249,000 | |
| Exercises/settlements (1) | | | - | |
| Net transfers in (out) of Level 3 | | | - | |
| Ending balance | | $ | 4,970,000 | |
During the three months ended June 30, 2018,2019, the Company had no other significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these instruments. The carrying amounts of the revolving loan, term loan and other long-term liabilities approximate their fair value based on the variable nature of interest rates and current rates for instruments with similar characteristics.
16. Share-based Payments
Stock Options
The Company granteddid not grant any options to purchase 241,800 and 163,100 shares of common stock during the three months ended June 30, 2018 and 2017, respectively.2019. The Company granted options to purchase 241,800 shares of common stock during the three months ended June 30, 2018. The cost associated with stock options is estimated using the Black-Scholes option-pricing model. This model requires the input of subjective assumptions including the expected volatility of the underlying stock and the expected holding period of the option. These subjective assumptions are based on both historical and other information. Changes in the values assumed and used in the model can materially affect the estimate of fair value.
The following assumptions were used to derive the weighted average fair value of the stock options granted:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | | | 2019 | | | 2018 | |
| Weighted average risk free interest rate | | | 2.82 | % | | | 1.90 | % | | - | % | | 2.82 | % |
| Weighted average expected holding period (years) | | | 5.95 | | | | 5.82 | | | - | | | 5.95 | |
| Weighted average expected volatility | | | 43.98 | % | | | 47.36 | % | | - | % | | 43.98 | % |
| Weighted average expected dividend yield | | | - | | | | - | | | - | | | - | |
| Weighted average fair value of options granted | | $ | 8.70 | | | $ | 12.69 | | | $ | - | | | $ | 8.70 | |
The following is a summary of stock option transactions:
| | | Number of Shares | | | Weighted Average Exercise Price | | | Number of Shares | | | Weighted Average Exercise Price | |
| Outstanding at March 31, 2018 | | | 1,143,298 | | | $ | 16.97 | | |
| Outstanding at March 31, 2019 | | | 1,337,165 | | | $ | 17.58 | |
| Granted | | | 241,800 | | | $ | 19.00 | | | - | | | $ | - | |
| Exercised | | | - | | | $ | - | | | - | | | $ | - | |
| Forfeited | | | (4,500 | ) | | $ | 28.58 | | | | (1,000 | ) | | $ | 19.00 | |
| Outstanding at June 30, 2018 | | | 1,380,598 | | | $ | 17.29 | | |
| Outstanding at June 30, 2019 | | | | 1,336,165 | | | $ | 17.58 | |
At June 30, 2018,2019, options to purchase 450,765230,921 shares of common stock were unvested at the weighted average exercise price of $23.31.$21.22.
At June 30, 2018,2019, there was $4,343,000$2,144,000 of total unrecognized compensation expense related to unvested stock option awards. The compensationCompensation expense is expectedrelated to unvested stock option awards will be recognized over a weighted average vesting period of approximately 2.31.7 years.
Restricted Stock Units (“RSUs”and Restricted Stock (collectively “RSUs”)
The Company did not grant any shares of RSUs during the three months ended June 30, 2019. During the three months ended June 30, 2018, and 2017, the Company granted 78,400 and 60,000 shares of RSUs respectively, with an estimated grant date fair value of $1,490,000, and $1,644,000, respectively, which was based on the closing market price on the grant date.
The following is a summary of non-vested RSUs:
| | | Number of Shares | | | Weighted Average Grant Date Fair Value | | | Number of Shares | | | Weighted Average Grant Date Fair Value | |
| Outstanding at March 31, 2018 | | | 133,828 | | | $ | 28.37 | | |
| Outstanding at March 31, 2019 | | | 243,134 | | | $ | 21.75 | |
| Granted | | | 78,400 | | | $ | 19.00 | | | - | | | $ | - | |
| Vested | | | (33,366 | ) | | $ | 27.88 | | | (58,488 | ) | | $ | 23.99 | |
| Forfeited | | | (1,434 | ) | | $ | 28.37 | | | | - | | | $ | - | |
| Outstanding at June 30, 2018 | | | 177,428 | | | $ | 24.32 | | |
| Outstanding at June 30, 2019 | | | | 184,646 | | | $ | 21.05 | |
At June 30, 2018,2019, there was $3,652,000$2,107,000 of unrecognized compensation expense related to these awards, which will be recognized over the remaining vesting period of approximately 2.21.7 years.
1717. Accumulated Other Comprehensive Income (Loss)Loss
The following summarizes changes in accumulated other comprehensive income (loss):loss:
| | | Three Months Ended June 30, 2018 | | | Three Months Ended June 30, 2017 | |
| | | Unrealized Gain on Short-Term Investments | | | Foreign Currency Translation | | | Total | | | Unrealized Gain on Short-Term Investments | | | Foreign Currency Translation | | | Total | |
| Balance at March 31, 2018 and 2017 | | $ | 746,000 | | | $ | (6,174,000 | ) | | $ | (5,428,000 | ) | | $ | 528,000 | | | $ | (7,969,000 | ) | | $ | (7,441,000 | ) |
| Cumulative-effect adjustment [see Note 2] | | | (746,000 | ) | | | - | | | | (746,000 | ) | | | - | | | | - | | | | - | |
| Balance at April 1, 2018 and 2017 | | $ | - | | | $ | (6,174,000 | ) | | $ | (6,174,000 | ) | | $ | 528,000 | | | $ | (7,969,000 | ) | | $ | (7,441,000 | ) |
| Other comprehensive (loss) income, net of tax | | | - | | | | (715,000 | ) | | | (715,000 | ) | | | 56,000 | | | | 229,000 | | | | 285,000 | |
| Amounts reclassified from accumulated other comprehensive loss, net of tax | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Balance at June 30, 2018 and 2017 | | $ | - | | | $ | (6,889,000 | ) | | $ | (6,889,000 | ) | | $ | 584,000 | | | $ | (7,740,000 | ) | | $ | (7,156,000 | ) |
| | | Three Months Ended June 30, 2019 | | | Three Months Ended June 30, 2018 | |
| | | Unrealized Gain on Short-Term Investments | | | Foreign Currency Translation | | | Total | | | Unrealized Gain on Short-Term Investments | | | Foreign Currency Translation | | | Total | |
| Balance at March 31, 2019 and 2018 | | $ | - | | | $ | (6,887,000 | ) | | $ | (6,887,000 | ) | | $ | 746,000 | | | $ | (6,174,000 | ) | | $ | (5,428,000 | ) |
| Cumulative-effect adjustment | | | - | | | | - | | | | - | | | | (746,000 | ) | | | - | | | | (746,000 | ) |
| Balance at April 1, 2019 and 2018 | | $ | - | | | $ | (6,887,000 | ) | | $ | (6,887,000 | ) | | $ | - | | | $ | (6,174,000 | ) | | $ | (6,174,000 | ) |
| Other comprehensive income (loss), net of tax | | | - | | | | 599,000 | | | | 599,000 | | | | - | | | | (715,000 | ) | | | (715,000 | ) |
| Amounts reclassified from accumulated other comprehensive loss, net of tax | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Balance at June 30, 2019 and 2018 | | $ | - | | | $ | (6,288,000 | ) | | $ | (6,288,000 | ) | | $ | - | | | $ | (6,889,000 | ) | | $ | (6,889,000 | ) |
18. Subsequent EventCommitments and Contingencies
Share Repurchase ProgramWarranty Returns
On August 6, 2018,The Company allows its customers to return goods that their customers have returned to them, whether or not the returned item is defective (“warranty returns”). The Company accrues an estimate of its exposure to warranty returns based on a historical analysis of the level of this type of return as a percentage of total unit sales. Amounts charged to expense for these warranty returns are considered in arriving at the Company’s boardnet sales.
The following summarizes the changes in the warranty return accrual:
| | Three Months Ended June 30, | |
| | | 2019 | | | 2018 | |
| Balance at beginning of period | | $ | 19,475,000 | | | $ | 16,646,000 | |
| Charged to expense/additions | | | 23,185,000 | | | | 23,893,000 | |
| Amounts processed | | | (26,842,000 | ) | | | (25,996,000 | ) |
| Balance at end of period | | $ | 15,818,000 | | | $ | 14,543,000 | |
Contingencies
The Company is subject to various lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of directors increasedand administrative proceedings regarding the share repurchase program authorizationCompany’s business. Following an audit in fiscal 2019, the U.S. Customs and Border Protection stated that it believed that the Company owed additional duties of approximately $17 million from $20,000,0002011 through mid-2018 relating to $37,000,000 of its common stock.products that it imported from Mexico. The Company’s share repurchase programCompany does not obligatebelieve that this amount is correct and believes that it has numerous defenses and intends to acquire any specific number of sharesdispute this amount vigorously. The Company cannot assure that the U.S. Customs and shares may be repurchasedBorder Protection will agree or that it will not need to accrue or pay additional amounts in privately negotiated and/or open market transactions.the future.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis presents factors that Motorcar Parts of America, Inc. and its subsidiaries (“our,” “we” or “us”) believe are relevant to an assessment and understanding of our consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with our March 31, 20182019 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on June 14, 2018.28, 2019.
Disclosure Regarding Private Securities Litigation Reform Act of 1995
This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our future performance that involve risks and uncertainties. Various factors could cause actual results to differ materially from those expressed or implied by such statements. These factors include, but are not limited to: concentration of sales to a small number of customers; changes in the financial condition of or our relationship with any of our major customers; increases in the average accounts receivable collection period; the loss of sales to customers; delays in payments by customers; the increasing customer pressure for lower prices and more favorable payment and other terms; lower revenues than anticipated from new and existing contracts; the increasing demands on our working capital; the significant strain on working capital associated with large inventory purchases from customers; any meaningful difference between expected production needs and ultimate sales to our customers; investments in operational changes or acquisitions; our ability to obtain any additional financing we may seek or require; our ability to maintain positive cash flows from operations; potential future changes in our previously reported results as a result of the identification and correction of errors in our accounting policies or procedures or the potential material weaknesses in our internal controls over financial reporting; our failure to meet the financial covenants or the other obligations set forth in our credit agreement and the lenders’ refusal to waive any such defaults; increases in interest rates; the impact of high gasoline prices; consumer preferences and general economic conditions; increased competition in the automotive parts industry including increased competition from Chinese and other offshore manufacturers; difficulty in obtaining Used Cores and component parts or increases in the costs of those parts; political, criminal or economic instability in any of the foreign countries where we conduct operations; currency exchange fluctuations; potential tariffs, unforeseen increases in operating costs; risks associated with cyber-attacks; risks associated with conflict minerals; the impact of new accounting pronouncements and tax laws including the U.S. Tax Cuts and Jobs Act, and interpretations thereof; uncertainties affecting our ability to estimate our tax rate and other factors discussed herein and in our other filings with the Securities and Exchange Commission (the “SEC”). These and other risks and uncertainties may cause our actual results to differ materially and adversely from those expected in any forward-looking statements. Readers are directed to risks and uncertainties identified below under “Risk Factors” included in our Annual Report on Form 10-K filed with the SEC on June 14, 2018 and elsewhere in this report for additional detail regarding factors that may cause actual results to be different than those expressed in our forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Management Overview
We arehave been focused on implementing a leading manufacturer, remanufacturer, and distributor ofmulti-pronged platform for growth within the non-discretionary automotive aftermarket automotive and light truck applications. We also, to a lesser extent, are a manufacturer, remanufacturer, and distributor of heavy duty truck and industrial and agricultural application parts. Thesefor the replacement parts are sold for use on vehicles after initial vehicle purchase. These automotive parts are sold to automotive retail chain stores and warehouse distributors throughout North America and to major automobile manufacturers for both their aftermarket programs and warranty replacement programs (“OES”). Our products include (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake master cylinders, and (iv) other products which include turbochargers, brake power boosters, and diagnostic equipment.testing industry, through organic growth and acquisitions. Our investments in infrastructure and human resources, including the consolidation of our distribution in Mexico and the significant expansion of manufacturing capacity, are expected to be transformative and scalable. As a result, ofgross profit and net income continues to be impacted, and our future performance and opportunities should be considered with these factors in mind.
New products introduced through our growth strategies noted above include: (i) turbochargers through an acquisition in July 2017, our business also now includes developing2016; (ii) brake power boosters in August 2016; (iii) the design and sellingmanufacture of diagnostics systems for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles. through an acquisition in July 2017; (iv) the design and manufacture of advanced power emulators (AC and DC) and custom power electronic products for the automotive and aerospace industries through an acquisition in December 2018; and (v) alternators and starters for medium truck, farm, and marine applications through an acquisition in January 2019.
The automotive and light truck parts aftermarket is divided into two markets. The first is the do-it-yourself (“DIY”) market, which is generally serviced by the large retail chain outlets. Consumers who purchase parts from the DIY channel generally install parts into their vehicles themselves. In most cases, this is a less expensive alternative than having the repair performed by a professional installer. The second is the professional installer market, commonly known as the do-it-for-me (“DIFM”) market. The traditional warehouse distributors, the dealer networks, and the commercial divisions of retail chains service this market. Generally, the consumer in this channel is a professional parts installer. Our products are distributed to both the DIY and DIFM markets.
The heavy duty truck, industrial and agricultural aftermarket has some overlap with the automotive aftermarket as discussed above, but also has specialty distribution channels through the OES channel and auto-electric distributor channels.
In addition, we are now in the business of diagnostic equipment for alternators, starters, belt-starter generators (stop start and hybrid technology), and electric power trains for electric vehicles. The smallest but fastest growing segment of the global market for diagnostics is the electric vehicle market.
Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), for segment reporting, we have identified our chief executive officer as our chief operating decision maker (“CODM”), have reviewed the documents used by the CODM, and understand how such documents are used by the CODM to make financial and operating decisions. We have determined through this review process that due to recent acquisitions, our business comprises three separate operating segments. Two of the operating segments meet all of the aggregation criteria, and are aggregated. The remaining operating segment does not meet the quantitative thresholds for individual disclosure. Since this immaterial operating segment meets the aggregation criteria of ASC 280, we have onecombined our operating segments into a single reportable segment for purposes of recording and reporting our financial results.segment.
Results of Operations for the Three Months Ended June 30, 20182019 and 20172018
The following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein.
The following summarizes certain key operating data:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | | | 2019 | | | 2018 | |
| Gross profit percentage | | | 18.6 | % | | | 27.9 | % | | 16.1 | % | | 17.8 | % |
| Cash flow used in operations | | $ | (924,000 | ) | | $ | (644,000 | ) | | $ | (18,379,000 | ) | | $ | (924,000 | ) |
| Finished goods turnover (annualized) (1) | | | 3.1 | | | | 3.2 | | | 2.3 | | | 3.1 | |
| (1) | Annualized finished goods turnover for the fiscal quarter is calculated by multiplying cost of goods sold for the quarter by 4 and dividing the result by the average between beginning and ending finished goods inventory values, for the fiscal quarter. With the adoption of ASC 606, our inventory nowwhich includes all on-hand core inventory.inventory, for the fiscal quarter. We believe this provides a useful measure of our ability to turn our inventory into revenues. |
Net Sales and Gross Profit
The following summarizes net sales and gross profit:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | | | 2019 | | | 2018 | |
| Net sales | | $ | 92,565,000 | | | $ | 95,519,000 | | | $ | 109,148,000 | | | $ | 91,668,000 | |
| Cost of goods sold | | | 75,314,000 | | | | 68,843,000 | | | 91,565,000 | | | 75,316,000 | |
| Gross profit | | | 17,251,000 | | | | 26,676,000 | | | 17,583,000 | | | 16,352,000 | |
| Gross profit percentage | | | 18.6 | % | | | 27.9 | % | | 16.1 | % | | 17.8 | % |
Net Sales. Our net sales for the three months ended June 30, 2018 decreased2019 increased by $2,954,000,$17,480,000, or 3.1%19.1%, to $92,565,000$109,148,000 compared to net sales for the three months ended June 30, 20172018 of $95,519,000. Our$91,668,000, reflecting continued growth for our rotating electrical products, wheel hub products, brake power booster products, and diagnostic equipment. In addition, our net sales were positively impacted by sales of diagnostics equipment, which resulted from our July 2017 acquisition. We have experienced year-over-year market share growth$5,258,000 in all of our product lines. However, sales for the quarter were soft due to lower replenishment orders in lineconnection with overall weak industry sales in the early part of the quarter. In addition, we had numerous customer allowances related to new business and increased stock adjustment accruals related to commitments for future update orders. These allowances and return accruals were a reduction to our recognized sales. We believe that these factors were temporary and, in fact, we experienced a recovery inacquisitions completed during the latter part of the quarter.fiscal 2019.
Gross Profit. Our gross profit percentage was 18.6%$17,583,000, or 16.1% of net sales for the three months ended June 30, 20182019 compared to 27.9%$16,352,000 or 17.8% of net sales for the three months ended June 30, 2017. 2018. The gross profit was impacted by a non-cash quarterly revaluation write-down of $4,564,000 compared to $2,626,000 for the three months ended June 30, 2019 and 2018, respectively, for remanufactured cores held at customers’ locations, which are included in contract assets.
In addition, gross profit for the three months ended June 30, 2019 was further impacted by (i) transition expenses of $1,354,000 in connection with the expansion of our operations in Mexico, (ii) $1,108,000 of amortization of core buy-back premiums paid to customers related to new business, (iii) net tariff costs of $1,067,000 paid for products sold before price increases were effective, (iv) cost of $426,000 in connection with the cancellation of a customer contract, and (v) $100,000 of stock adjustment costs related to new business.
Gross profit for the three months ended June 30, 2018 was impacted by $1,207,000 for customer allowances related to new business and(i) transition expenses of $1,755,000 in connection with the expansion of our operations in Mexico. Gross margins were additionally impacted by (i) timingMexico, (ii) $1,175,000 of customer shipments, (ii) higher freight costs comparedallowances related to the prior year,new business, and (iii) stock adjustment accruals, and (iv) lower absorption$967,000 of overhead costs.
In addition, our gross profit was further impacted by the loweramortization of cost or net realizable value revaluation for remanufactured cores held at customers’ locations of $2,624,000 for the three months ended June 30, 2018 and $1,350,000 for the three months ended June 30, 2017.core buy-back premiums paid to customers related to new business.
Operating Expenses
The following summarizes operating expenses:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | | | 2019 | | | 2018 | |
| General and administrative | | $ | 12,340,000 | | | $ | 6,187,000 | | | $ | 12,000,000 | | | $ | 12,091,000 | |
| Sales and marketing | | | 4,392,000 | | | | 3,394,000 | | | 4,919,000 | | | 4,392,000 | |
| Research and development | | | 1,736,000 | | | | 1,002,000 | | | 2,372,000 | | | 1,736,000 | |
| | | | | | | | | | |
| Percent of net sales | | | | | | | | | | | | | | |
| | | | | | | | | | |
| General and administrative | | | 13.3 | % | | | 6.5 | % | | 11.0 | % | | 13.2 | % |
| Sales and marketing | | | 4.7 | % | | | 3.6 | % | | 4.5 | % | | 4.8 | % |
| Research and development | | | 1.9 | % | | | 1.0 | % | | 2.2 | % | | 1.9 | % |
General and Administrative. Our general and administrative expenses for the three months ended June 30, 20182019 were $12,340,000,$12,000,000, which represents an increasea decrease of $6,153,000,$91,000, or 99.5%0.8%, from general and administrative expenses for the three months ended June 30, 20172018 of $6,187,000.$12,091,000. This increasedecrease was primarily due to (i) a comparative increase in expenses of $3,718,000 due$35,000 gain compared to a loss of $2,666,000 recorded due to the change in the fair value of the forward foreign currency exchange contracts forduring the three months ended June 30, 2019 and 2018, compared torespectively and (ii) a gain of $1,052,000 recorded for$502,000 due to the remeasurement of foreign currency-denominated lease liabilities during the three months ended June 30, 2017, (ii) $567,0002019. These decreases were partially offset by (i) $1,233,000 of increased professional services, for transactions during the quarter relating to expansion and fees related to the adoption of ASC 606, (iii) $401,000(ii) $783,000 of general and administrative expenses attributable to our July 2017 D&V acquisition, andfiscal 2019 acquisitions, (iii) $385,000 of increased amortization of intangible assets in connection with our fiscal 2019 acquisitions, (iv) $180,000$327,000 of increased general and administrative expenses primarily at our Mexicooffshore locations to support our growth initiatives. In addition, the three months ended June 30, 2017 included a gain of $1,293,000 recorded dueinitiatives, and (v) $287,000 for personnel to the change in the fair value of the warrant liability, which was settled on September 8, 2017.support our growth initiatives.
Sales and Marketing. Our sales and marketing expenses for the three months ended June 30, 20182019 increased $998,000,$527,000, or 29.4%12.0%, to $4,392,000$4,919,000 from $3,394,000$4,392,000 for the three months ended June 30, 2017. The increase was2018 primarily due primarily to (i) $490,000 of sales and marketing expenses attributable to our July 2017 D&V acquisition, (ii) $248,000 for personnel added to support our growth initiatives, and $233,000 of increased trade shows.fiscal 2019 acquisitions.
Research and Development. Our research and development expenses increased by $734,000,$636,000, or 73.3%36.3%, to $2,372,000 for the three months ended June 30, 2019 from $1,736,000 for the three months ended June 30, 2018 from $1,002,000 for the three months ended June 30, 2017.2018. The increase was due primarily to (i) $390,000$368,000 for personnel to support our growth initiatives, (ii) $212,000 of research and development expenses attributable to our July 2017 D&V acquisition, (ii) $257,000 for personnel addedfiscal 2019 acquisitions, and (iii) $43,000 of increased outside services to support our growth initiatives, and (iii) $136,000 of increased supplies.initiatives.
Interest Expense
Interest Expense, net. Our interest expense, net for the three months ended June 30, 20182019 increased $1,761,000,$1,098,000, or 53.1%21.6%, to $5,075,000$6,173,000 from $3,314,000$5,075,000 for the three months ended June 30, 2017.2018. The increase in interest expense was due primarily to a (i) higher discount rate on our accounts receivable discount programs, (ii) the write-off of $303,000 of previously capitalized debt issuance costsincreased average outstanding borrowings in connection with the amendment to our credit facility, (iii) increased average outstanding borrowingsgrowth initiatives and as we build our inventory levels to support anticipated higher sales and (iv) higher interest rates on(ii) an increase in the utilization of our average outstanding borrowings.accounts receivable discount programs.
Provision for Income Taxes
Income Tax. We recorded an income tax benefit of $1,278,000,$1,730,000, or an effective tax rate of 20.3%22.0%, and $1,447,000, or an effective tax rate of 20.8%, for the three months ended June 30, 2019 and 2018, compared to incomerespectively. The estimated effective tax expense rate for the three months ended June 30, 2017 of $4,628,000, orentire year is based on current estimates and any changes to those estimates in future periods could result in an effective tax rate of 36.2%. On December 22, 2017,that is materially different from the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted into law, which changed various corporate income tax provisions within the existing Internal Revenue Code. The Tax Reform Act, among other things, lowered the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.current estimate.
Liquidity and Capital Resources
Overview
We had working capital (current assets minus current liabilities) of $91,742,000$69,069,000 and $85,651,000,$73,528,000, a ratio of current assets to current liabilities of 1.5:1.2:1.0 and 1.4:1.3:1.0, at June 30, 20182019 and March 31, 2018,2019, respectively. The increasedecrease in working capital was due primarily to the build-up ofincreased borrowing under our inventory to support anticipated higher sales.credit facility.
We generated cash during the three months ended June 30, 20182019 from the use of receivable discount programs with certain of our major customers and their respective banks, as well as from our credit facility. The cash generated from these activities was primarily used primarilyfor our growth initiatives and to build our inventory levels to support anticipated higher sales.
In June 2018,2019, we entered into an amended and restateda second amendment to the credit facility, consisting of a $200,000,000which, among other things, increased our revolving loan facility and a $30,000,000 term loan facility, maturing in June 2023.from $200,000,000 to $238,620,000.
We believe our cash and cash equivalents, short-term investments, use of receivable discount programs, amounts available under our credit facility, and other sources are sufficient to satisfy our expected future working capital needs, repayment of the current portion of our term loans, and lease and capital expenditure obligations over the next 12 months.
32Share Repurchase Program
TableAs of ContentsJune 30, 2019, $15,692,000 of the $37,000,000 authorized share repurchase program had been utilized and $21,308,000 remained available to repurchase shares, subject to the limit in our credit facility. Our credit facility permits the payment of up to $20,000,000 of dividends and share repurchases per fiscal year, subject to a minimum availability threshold and pro forma compliance with financial covenants. We retired the 675,561 shares repurchased under this program through June 30, 2019. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.
Cash Flows
The following summarizes cash flows as reflected in the consolidated statements of cash flows:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | | | 2019 | | | 2018 | |
| Cash provided by (used in): | | | | | | | | | | | | |
| Operating activities | | $ | (924,000 | ) | | $ | (644,000 | ) | | $ | (18,379,000 | ) | | $ | (924,000 | ) |
| Investing activities | | | (1,701,000 | ) | | | (770,000 | ) | | (2,668,000 | ) | | (1,701,000 | ) |
| Financing activities | | | 1,955,000 | | | | 458,000 | | | 22,328,000 | | | 1,955,000 | |
| Effect of exchange rates on cash and cash equivalents | | | (137,000 | ) | | | 47,000 | | | | 15,000 | | | | (137,000 | ) |
| Net decrease in cash and cash equivalents | | $ | (807,000 | ) | | $ | (909,000 | ) | |
| Net increase (decrease) in cash and cash equivalents | | | $ | 1,296,000 | | | $ | (807,000 | ) |
| | | | | | | | | | | | | | | |
| Additional selected cash flow data: | | | | | | | | | | | | | | |
| Depreciation and amortization | | $ | 1,586,000 | | | $ | 1,039,000 | | | $ | 2,379,000 | | | $ | 1,586,000 | |
| Capital expenditures | | | 1,546,000 | | | | 597,000 | | | 3,976,000 | | | 1,546,000 | |
Net cash used in operating activities was $924,000$18,379,000 and $644,000$924,000 during the three months ended June 30, 2019 and 2018, and 2017, respectively. The significant changes in ourOur operating activities continue to be significantly impacted by our growth initiatives, including our product line expansion. Operating activities for the three months ended June 30, 2019 include (i) expenses incurred in connection with the expansion of our Mexico operations, (ii) the build-up of inventory to support anticipated higher sales, (iii) payments made to customers for core buy-backs made in connection with new business expansion, and (iv) a less significant decrease in accounts receivable during the three months ended June 30, 20182019 as compared to the three months ended June 30, 2017 were due primarily to (i) an increase in accounts payable during the three months ended June 30, 2018 compared to a decrease during the three months ended June 30, 2017, (ii) decreased operating results (net income plus net add-back for non-cash transactions in earnings), (iii) the build-up of our inventory to support anticipated higher sales, and (iv) increased remanufactured core purchases, including accrued core payments to certain of our major customers of $4,551,000 during the three months ended June 30, 2018.
Net cash used in investing activities was $1,701,000$2,668,000 and $770,000$1,701,000 during the three months ended June 30, 2019 and 2018, respectively, due primarily to increased purchases of equipment for our current operations and 2017, respectively. The significant changethe expansion of our operations in our investing activitiesMexico. This increase was partially offset by the redemption of short-term investments during the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 was due primarily to increased capital expenditures.2019.
Net cash provided by financing activities was $1,955,000$22,328,000 and $458,000$1,955,000 during the three months ended June 30, 2019 and 2018, and 2017, respectively. The significant change in our financing activities during the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 wasrespectively, due mainly to decreased cash used to repurchase shares of our common stockincreased net borrowings under our share repurchase program.credit facility.
Capital Resources
Credit Facility
We wereare a party to a $145,000,000$230,000,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $120,000,000 revolving loan facility, subject to borrowing base restrictions and a $15,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $25,000,000 term loan facility (the “Term Loans”). The loans under the Credit Facility were scheduled to mature on June 3, 2020. In connection with the Credit Facility, the lenders were granted a security interest in substantially all of our assets. Our Credit Facility permitted the payment of up to $15,000,000 of dividends per calendar year, subject to a minimum availability threshold and pro forma compliance with financial covenants. The Term Loans required quarterly principal payments of $781,250. The interest rate on the Company’s Term Loans and Revolving Facility was 4.42% and 4.52%, respectively, as of March 31, 2018.
In June 2018, we entered into an amendment and restatement of the Credit Facility (as so amended and restated, the “Amended Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $200,000,000 revolving loan facility, subject to borrowing base restrictions, a $20,000,000 sublimit for borrowings by Canadian borrowers, and a $15,000,000 sublimit for letters of credit (the “Amended Revolving“Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Amended Term“Term Loans”). The loans under the Amended Credit Facility mature on June 5, 2023. The Amended Credit Facility permits the payment of up to $20,000,000 of dividends and share repurchases per fiscal year, subject to a minimum availability threshold and pro forma compliance with financial covenants. In connection with the Amended Credit Facility, the lenders were grantedhave a security interest in substantially all of our assets.
In June 2019, we entered into a second amendment to the Credit Facility (the “Second Amendment”). The Second Amendment, among other things, (i) increased the total size of the Revolving Facility to $238,620,000, (ii) modified the fixed charge coverage ratio financial covenant, (iii) modified the definition of “Consolidated EBITDA”, (iv) modified the borrowing base definition to, among other things, include brake-related products as eligible inventory, (v) increased the letter of credit sublimit to $20,000,000, (vi) increased the Canadian revolving sublimit and swing line sublimit to $24,000,000, (vii) increased the swing line sublimit to $23,862,000, (viii) permitted up to $5,000,000 of sale and lease back transactions per fiscal year, (ix) increased the permitted amount of certain capital expenditures, (x) increased the permitted amount of operating lease obligations per fiscal year, and (xi) increased certain other covenant-related baskets. We wrote-off $303,000 of previously capitalized debt issuance costs and capitalized $1,722,000$889,000 of new debt issuance costs in connection with the Amended Credit Facility.Second Amendment.
The Amended Term Loans requiredrequire quarterly principal payments of $937,500 beginning October 1, 2018. The Amended Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or 1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on our Amended Term Loans and Amended Revolving Facility was 4.75%5.19% and 4.81%5.16%, respectively, as of June 30, 2018.2019 and 5.24% as of March 31, 2019.
The Amended Credit Facility, among other things, requires us to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all financial covenants as of June 30, 2018.2019.
The following summarizes the financial covenants required under the Amended Credit Facility:
| | | Calculation as of
June 30, 2018 | | | Financial covenants required under the Amended Credit Facility | | | Calculation as of June 30, 2019 | | | Financial covenants required under the Credit Facility | |
| Maximum senior leverage ratio | | | 1.04 | | | | 3.00 | | | 2.36 | | | 3.00 | |
| Minimum fixed charge coverage ratio | | | 1.28 | | | | 1.10 | | | 1.34 | | | 1.10 | |
In addition to other covenants, the Amended Credit Facility places limits on our ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem or repurchase capital stock, alter the business conducted by us and our subsidiaries, transact with affiliates, prepay, redeem or purchase subordinated debt, and amend or otherwise alter debt agreements.
We had $45,406,000$135,400,000 and $54,000,000$110,400,000 outstanding under the revolving facilityRevolving Facility at June 30, 20182019 and March 31, 2018,2019, respectively. In addition, $734,000$4,039,000 was reservedoutstanding for letters of credit at June 30, 2018.2019. At June 30, 2018, subject to2019, after certain contractual adjustments, $128,694,000$72,400,000 was available under the Amended Revolving Facility.
Receivable Discount Programs
We use receivable discount programs with certain customers and their respective banks. Under these programs, we have options to sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. These discount arrangements allowsallow us to accelerate receipt of payment on customers’ receivables. While these arrangements have reduced our working capital needs, there can be no assurance that these programs will continue in the future. Interest expense resulting from these programs would increase if interest rates rise, if utilization of these discounting arrangements expands, if customers extend their payment to us, or if the discount period is extended to reflect more favorable payment terms to customers.
The following is a summary of the receivable discount programs:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
| | | 2018 | | | 2017 | | | 2019 | | | 2018 | |
| Receivables discounted | | $ | 86,785,000 | | | $ | 86,520,000 | | | $ | 96,854,000 | | | $ | 86,785,000 | |
| Weighted average days | | | 334 | | | | 342 | | | 346 | | | 334 | |
| Annualized weighted average discount rate | | | 4.1 | % | | | 3.1 | % | | 3.9 | % | | 4.1 | % |
| Amount of discount as interest expense | | $ | 3,324,000 | | | $ | 2,522,000 | | |
Amount of discount recognized as interest expense | | | $ | 3,649,000 | | | $ | 3,324,000 | |
Off-Balance Sheet Arrangements
At June 30, 2018,2019, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually narrow or limited purposes.
Capital Expenditures and Commitments
Capital Expenditures
Our total capital expenditures, including capitalfinance leases, were $1,546,000$4,653,000 and $643,000$1,546,000 for the three months ended June 30, 20182019 and 2017,2018, respectively. These capital expenditures primarily include the purchase of equipment for our current operations and the expansion of our operations in Mexico. We expect to investincur approximately $17,000,000 in fiscal 2019 to support$7,000,000 of capital expenditures for our growth initiativescurrent operations and approximately $18,000,000 for continued expansion of our operations in Mexico.Mexico during fiscal 2020. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.
Subsequent Event
28
Share Repurchase Program
Litigation
There have been no material changes to our litigation matters that are presented in our Annual Report on Form 10-K for the year ended March 31, 2018,2019, which was filed on June 14, 2018.28, 2019.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates that are presented in our Annual Report on Form 10-K for the year ended March 31, 2018,2019, which was filed on June 14, 2018,28, 2019, except as discussed below.
New Accounting Pronouncements Recently Adopted
Revenue Recognition
Effective April 1, 2018, we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, (“ASC 606”) using the full retrospective transition method. Under this method, we revised our consolidated financial statements for the years ended March 31, 2017 and 2018, and applicable interim periods within the fiscal year ended March 31, 2018, as if ASC 606 had been effective for those periods. Periods prior to the fiscal year ended March 31, 2017 were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605, Revenue Recognition. ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are distinct performance obligations. See Note 3, Revenue Recognition, for additional discussion of the adoption of ASC Topic 606 and the impact on our financial statements.
Financial Instruments
In January 2016, the FASB issued guidance that amends the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We applied the amendments in the new guidance by means of a cumulative-effect adjustment of $746,000, net of tax, to the opening balance of retained earnings on April 1, 2018. Short-term investments are recorded at fair value with $69,000 of unrealized gain now recorded as a component of general and administrative expense.
Modifications to Share-Based Payment Awards
In May 2017, the FASB issued guidance to provide clarity and reduce (i) the diversity in practice and (ii) the cost and complexity when applying the accounting guidance for equity-based compensation to a change to the terms or conditions of a share-based payment award. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. This guidance should be applied prospectively to an award modified on or after that adoption date. The adoption of this guidance did not have any impact on our consolidated financial statements.
Business Combinations
In January 2017, the FASB issued guidance which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. A reporting entity should apply the amendment prospectively. The adoption of this guidance did not have any impact on our consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
Leases
In February 2016, the FASB issued new guidance that requires balance sheet recognition of a right-of-uselease asset and lease liability by lessees for operating leases.all leases, other than leases with a term of 12 months or less if the short-term lease exclusion expedient is elected. The new guidance also requires new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new guidance requires a modified retrospective approach with optional practical expedients. We will adoptThe FASB provided entities with an additional transition method, which allows an entity to apply this guidance as of the beginning of the period of adoption instead of the beginning of the earliest comparative period presented in the first quarterentity’s financial statements. We adopted this guidance on April 1, 2019 using the additional transition method. We also elected certain practical expedients permitted under the transition guidance, including the package of fiscal 2020. We have developedpractical expedients, which allowed us not to reassess lease classification for leases that commenced prior to the adoption date. In addition, we elected to exempt leases with an implementation planinitial term of 12 months or less from balance sheet recognition and, are currently gathering datafor all classes of assets, combining non-lease components with lease components.
Upon adoption, we recorded operating lease liabilities of $53,043,000 and corresponding operating lease assets of $50,773,000. The difference between the operating lease assets and liabilities recognized on our consolidated balance sheet primarily related to further assessaccrued rent on existing leases that were offset against the impactoperating lease asset upon adoption. There was an immaterial reclassification of non-lease components to finance lease assets and finance lease liabilities upon adoption due to our election to combine non-lease components with lease components. The adoption of the ASUnew guidance did not have any impact on our rent expense and consolidated statement of cash flows. However, we have material nonfunctional currency leases that could have a material impact on our consolidated statements of operations. As required for other monetary liabilities, lessees shall remeasure a foreign currency-denominated lease liability using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates, which are not affected by subsequent changes in the exchange rates. We recorded a gain of $502,000 in general and administrative expenses in connection with the remeasurement of foreign currency-denominated lease liabilities during the three months ended June 30, 2019. See Note 10 for additional discussion of the adoption of ASC 842 and the impact on our financial statements. The adoption is anticipated to have a significant increase to our long-term assets and liabilities on the consolidated balance sheets.
Goodwill Impairment
New Accounting Pronouncements Not Yet Adopted
Measurement of Credit Losses on Financial Instruments
In January 2017,June 2016, the FASB issued an accounting pronouncement related to the measurement of credit losses on financial instruments. This pronouncement, along with a subsequent ASU issued to clarify certain provisions of the new guidance, which simplifieschanges the testimpairment model for goodwill impairment. This standard eliminates Step 2 frommost financial assets and will require the goodwill impairment test, instead requiringuse of an entity“expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to recognizeestimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a goodwill impairment charge fornet presentation of the amount by whichexpected to be collected on the goodwill carrying amount exceeds the reporting unit’s fair value.financial asset. This guidancepronouncement is effective for fiscal years, and for interim and annual goodwill impairment tests inperiods within those fiscal years, beginning after December 15, 2019 with early adoption permitted. This guidance must be applied on a prospective basis. 2019. We are currently evaluating the impact the provisions ofplan to adopt this guidance will have onpronouncement for our consolidated financial statements.
Derivatives and Hedging
In August 2017, the FASB issued guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The new guidance is effective for fiscal yearsyear beginning after December 15, 2018, including interim periods within those fiscal years; the guidance allows for early adoption in any interim period after issuance of the update.April 1, 2020. We are currently evaluating the impact this guidance will have on our consolidated financial statements.statements, as well as any impacts on our business processes, systems and internal controls.
Reporting Comprehensive Income29
Fair Value Measurements
In FebruaryAugust 2018, the FASB issued guidance that permits, but does not require, companies to reclassify, which changes the stranded tax effects of the Tax Reform Act on items within accumulated other comprehensive income to retained earnings. This ASUdisclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2018, including, and for interim periods within those fiscal years.years, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There have been no material changes in market risk from the information provided in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K as of March 31, 2018,2019, which was filed with the SEC on June 14, 2018.28, 2019.
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated toOur management, including our chief executive officer, chief financial officer, and chief accounting officer, as appropriate to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of management, including our chief executive officer, chief financial officer,Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and chief accounting officer, we have conducted an evaluation ofChief Accounting Officer (“CAO”), evaluated the effectiveness of our disclosure controls and procedures as(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). under the Securities Exchange Act of 1934, as amended) as of June 30, 2019. Based on this evaluation, our chief executive officer, chief financial officer,CEO, CFO and chief accounting officerCAO concluded that MPA’sour disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2018.2019 as a result of the material weakness described in our Annual Report on Form 10-K and below.
A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As disclosed in more detail in Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, we identified the following material weakness in internal control over financial reporting:
| (1) | We did not perform a sufficient review of certain accounting policies and lacked oversight of the compliance with those policies, which resulted in inconsistent application, inadequate analysis and deficient documentation to support the financial statement presentation and disclosures over certain accounts, including inventory. |
| (2) | Our lack of sufficient technical accounting resources resulted in inadequate oversight of process level controls of one of our subsidiaries. |
Management’s Remediation Efforts
We have designed and begun to implement several steps, as further described below, to remediate the material weakness described in this Item 4 and enhance our overall control environment.
| 1. | Management plans to hire and has hired additional finance and accounting personnel with the requisite experience and skill levels, supplemented by third-party technical accounting resources, sufficient to enable the proper and timely review of accounting analyses and memos in various technical areas. |
| 2. | Management will continue to formalize the assessment and documentation of the Company’s accounting and financial reporting policies and procedures and enhance controls over the monitoring of compliance with those accounting policies and procedures. |
| 3. | Management will enhance the accounting and internal control training program provided to staff of new and existing subsidiaries. Management will enhance its internal control processes to continuously monitor the subsidiaries’ compliance with and documentation of the Company’s accounting and financial reporting policies and procedures, including internal control over financial reporting. |
| 4. | Management has enhanced and will continue to enhance the risk assessment process and design of internal control over financial reporting at its subsidiary. |
The actions that we are taking are subject to ongoing review by our management, including our CEO, CFO and CAO, as well as Audit Committee oversight. Management expects the remediation plan to extend over multiple financial reporting periods throughout fiscal year 2020. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal year 2020.
While the foregoing measures are intended to effectively remediate the material weakness described in this Item 4, it is possible that additional remediation steps will be necessary. As such, as we continue to evaluate and implement our plan to remediate the material weakness, management may decide to take additional measures to address the material weakness or modify the remediation steps described above. Until the material weakness is remediated, we plan to continue to perform additional analyses and other procedures to help ensure that our consolidated financial statements are prepared in accordance with GAAP.
Inherent Limitations Over Internalon Effectiveness of Controls
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, applying certain estimates and judgments as required.
Internal control over financial reporting includes those policies and procedures that:
1. | 1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; |
2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. |
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
ThereWe are taking actions to remediate the material weakness relating to our internal controls over financial reporting, as described above. Additionally, during the quarter ended June 30, 2019, the Company adopted a comprehensive new lease standard which superseded previous lease guidance and, as a result, changes were made to related business processes and control activities in order to monitor and maintain appropriate controls over financial reporting. Except as discussed above, there have been no changes in MPA’sour internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the first quarterthree months ended June 30, 20182019 that have materially affected, or are reasonably likely to materially affect, MPA’sour internal control over financial reporting.
PART II — OTHER INFORMATION
There have been no material changes to our litigation matters that are presented in our Annual Report on Form 10-K for the year ended March 31, 2018,2019, which was filed on June 14, 2018.28, 2019.
There have been no material changes in the risk factors set forth in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018,2019, filed on June 14, 2018.28, 2019.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Limitation on Payment of Dividends and Share Repurchases
The Amended Credit Facility permits the payment of up to $20,000,000 of dividends and share repurchases per fiscal year, subject to a minimum availability threshold and pro forma compliance with financial covenants.
Purchases of Equity Securities by the Issuer
Shares repurchased during the three months ended June 30, 20182019 were as follows:
| Periods | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) | | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Approximate
Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| April 1 - April 30, 2018: | | | | | | | | | | | | | |
| April 1 - April 30, 2019: | | | | | | | | | | | | | |
| Open market and privately negotiated purchases | | | - | | | $ | - | | | | - | | | $ | 8,370,000 | | | - | | | $ | - | | | - | | | $ | 21,308,000 | |
| May 1 - May 31, 2018: | | | | | | | | | | | | | | | | | |
| May 1 - May 31, 2019: | | | | | | | | | | | | | |
| Open market and privately negotiated purchases | | | - | | | $ | - | | | | - | | | | 8,370,000 | | | - | | | $ | - | | | - | | | 21,308,000 | |
| June 1 - June 30, 2018: | | | | | | | | | | | | | | | | | |
| June 1 - June 30, 2019: | | | | | | | | | | | | | |
| Open market and privately negotiated purchases | | | - | | | $ | - | | | | - | | | | 8,370,000 | | | | - | | | $ | - | | | | - | | | | 21,308,000 | |
| Total | | | 0 | | | | | | | | 0 | | | $ | 8,370,000 | | | | 0 | | | | | | | 0 | | | $ | 21,308,000 | |
| (1) | As of June 30, 2018, $11,630,0002019, $15,692,000 of the $20,000,000$37,000,000 authorized share repurchase program had been utilized and $8,370,000$21,308,000 remained available to repurchase shares, under the authorized share repurchase program, subject to the limit in our credit facility. We did not make any share repurchases during the three months ended June 30, 2018.Credit Facility. We retired the 511,746675,561 shares repurchased under this program through June 30, 2018. On August 6, 2018, our board of directors increased the share repurchase program authorization from $20,000,000 to $37,000,000 of our common stock.2019. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions. |
None.
Number
| | Description of Exhibit
| | Method of Filing |
| | | |
|
| 3.1 | | Certificate of Incorporation of the Company | | Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 declared effective on March 22, 1994 (the “1994 Registration Statement”). |
| | | | | |
| 3.2 | | Amendment to Certificate of Incorporation of the Company | | Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No. 33-97498) declared effective on November 14, 1995. |
| | | | | |
| | Amendment to Certificate of Incorporation of the Company | | Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997. |
| | | | | |
| | Amendment to Certificate of Incorporation of the Company | | Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the “1998 Form 10-K”). |
| | | | | |
| | Amendment to Certificate of Incorporation of the Company | | Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003. |
| | | | | |
| | Amended and Restated By-Laws of Motorcar Parts of America, Inc. | | Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on August 24, 2010. |
| | | | | |
| | Certificate of Amendment of the Certificate of Incorporation of the Company | | Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on April 17, 2014. |
| | | | | |
| | Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on June 9, 2016 | | Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 14, 2016. |
| | | | | |
| | Amendment to the Amended and Restated By-Laws of the Company | | Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 22, 2017. |
| | | | | |
| | 2003 Long Term Incentive Plan | | Incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed with the SEC on April 2, 2004. |
| | | | | |
| | 2004 Non-Employee Director Stock Option Plan | | Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting. |
| | | | | |
| | 2010 Incentive Award Plan | | Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on December 15, 2010. |
| | | | | |
| | Amended and Restated 2010 Incentive Award Plan | | Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 5, 2013. |
| Number | | Description of Exhibit
| | Method of Filing |
| | | |
|
| | Second Amended and Restated 2010 Incentive Award Plan | | Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 3, 2014. |
| | | | | |
| | 2014 Non-Employee Director Incentive Award Plan | | Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on March 3, 2014. |
| | | | | |
| | Third Amended and Restated 2010 Incentive Award Plan | | Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on November 20, 2017. |
| | | | |
| | Amended and Restated Credit Facility, dated as of June 5, 2018, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National Association, as administrative agent | | Filed herewith. |
| | | | | |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | | Filed herewith. |
| | | | | |
| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | | Filed herewith. |
| | | | | |
| | Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | | Filed herewith. |
| | | | | |
| | Certifications of Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | | Filed herewith. |
| | | | | |
| 101.INS | | XBRL Instance Document | | |
| | | | | |
| 101.SCM | | XBRL Taxonomy Extension Schema Document | | |
| | | | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | |
| | | | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | |
| | | | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | |
| | | | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | |
* | Portions of this exhibit have been omitted pursuant to a confidential treatment request submitted separately to the SEC pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | MOTORCAR PARTS OF AMERICA, INC. |
| | | |
Dated: August 9, 20182019 | By: | /s/ David Lee |
| | | David Lee |
| | | Chief Financial Officer |
| | | |
Dated: August 9, 20182019 | By: | /s/ Kevin Daly |
| | | Kevin Daly |
| | | Chief Accounting Officer |