What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 135 added, 69 removed, 174 unchanged (54% of the section changed)

17 unchanged sentences

the significant strain on working capital associated with large inventory purchases from customers;

lower efficiency or production due to stay at home orders issued by governments due to COVID-19 concerns;

lower efficiency or production due to stay at home orders or other restrictions issued by governments due to COVID-19 concerns;

any meaningful difference between expected production needs and ultimate sales to our customers;

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Impact of the Novel Coronavirus (“COVID-19”)

The recent outbreak of the COVID-19 pandemic has spread globally and created significant volatility, uncertainty and economic disruption in many countries, including the countries in which we operate.

The outbreak of the COVID-19 pandemic has spread globally and created significant volatility, uncertainty and economic disruption in many countries, including the countries in which we operate.

National, state and local governments in these countries have implemented a variety of measures in response to the COVID-19 pandemic that have the effect of restricting or limiting, among other activities, the operations of certain businesses.

We experienced a significant reduction in customer demand for our products during April 2020, but sales have substantially recovered;

at this time, we are unable to predict accurately the ultimate long-term impact that COVID-19 will have on our business and financial condition.

While the near-term outook appears positive, any additional government shut-downs would negatively impact our business and financial condition.

We experienced a significant reduction in customer demand for our products during April 2020, but sales have subsequently recovered.

However, at this time, we are unable to predict accurately the ultimate long-term impact that COVID-19 will have on our business and financial condition.

While the near-term outlook appears positive, any additional government shutdowns or the duration of a “second wave” or additional spikes could negatively impact our business and financial condition.

There have been no serious outbreaks in any of our production facilities;

If there was a serious outbreak in any of our production facilities, our production capabilities would be negativey impacted.

however, a serious outbreak could affect our production capabilities.

Our business has continued to operate as we have been declared an essential business;

however, we have experienced disruption in our global supply chain as a result of the ongoing impact of COVID-19 at all of our facilities as well as our supply partners.

In addition, we experienced inefficiencies at our Mexico and Asian production and distribution facilities due to a shutdown for a brief period.

The implementation of additional personnel safety measures, required throughout our production facilities, negatively affects our production efficiencies.

however, we have experienced some disruption in our global supply chain as a result of the ongoing impact of COVID-19.

In addition, we experienced inefficiencies in our operations due to the implementation of additional personnel safety measures throughout our facilities, which negatively affects our operating efficiencies.

These personnel safety measures included adding an additional shift in conjunction with reducing the number of hours in the existing shift, greater spacing (less personnel) in production areas and sanitizing procedures between shifts.

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We also implemented safe work practices across all of our facilities, including work from home rules, staggered shifts, Plexiglas barriers, and many other safety precautions.

Our employees have embraced the challenges of working remotely, continuing to operate effectively through constant communication with team members.

Our employees have embraced the challenges of working remotely, continuing to operate through constant communication with team members.

Enhanced levels of communication at all levels within the organization are critical to address the ever-changing landscape brought on by COVID-19, especially with most of our office staff continuing to work from home.

Such efforts have included, weekly board check-in meetings, daily executive committee meetings, as needed, and regular town hall style communications with all employees.

Such efforts have included, board check-in meetings and executive committee meetings, as needed, and regular town hall style communications with all employees.

To date, we have incurred increased costs as a result of COVID-19, including increased employee costs, such as expanded benefits and frontline incentives, and other operating costs, such as costs associated with the provision of personal protective equipment, which have negatively impacted our profitability.

These expanded benefits, supply costs and other COVID-19 related costs resulted in approximately $2,295,000 of total expense included in cost of goods sold and operating expenses in the condensed consolidated statements of operations for the three months ended June 30, 2020.

We have received approximately $365,000 in payments from the Canadian Government under the Canadian Emergency Wage Subsidy program and our Asian subsidiaries have received approximately $93,000 from their local government assistance programs.

These payments are included in cost of goods sold and operating expenses in the condensed consolidated statements of operations for the three months ended June 30, 2020.

In addition, we deferred the employer’s share of social security taxes of $369,000, which is included in other liabilities in the condensed consolidated balance sheet at June 30, 2020.

Due to the seriousness of the COVID-19 pandemic and the unknown impact at the time on our business, we conserved cash wherever practicable.

During the three and six months ended September 30, 2020, these expanded benefits, supply costs and other COVID-19 related costs resulted in $2,048,000 and $4,343,000, respectively, of total expense included in cost of goods sold and operating expenses in the condensed consolidated statements of income.

During the three and six months ended September 30, 2020, we received $484,000 and $849,000, respectively, in payments from the Canadian Government under the Canadian Emergency Wage Subsidy program and our Asian subsidiaries received $44,000 and $137,000, respectively, from their local government assistance programs.

These payments are included in cost of goods sold and operating expenses in the condensed consolidated statements of income.

In addition, we deferred the employer’s share of social security taxes of $812,000, which is included in other liabilities in the condensed consolidated balance sheet at September 30, 2020.

Due to the seriousness of the COVID-19 pandemic and the unknown impact at this time on our business, we conserved cash wherever practicable.

We implemented furloughs, layoffs, and salary reductions.

Salary decreases affected 175 employees, ranging from 5% - 50% of base pay.

Salaries for all affected employees were reinstated at various dates through September 30, 2020.

In addition, we implemented a worldwide travel ban and controls on all other expenses, including a freeze on hiring and salary increases.

Results of Operations for the Three Months Ended June 30, 2020 and 2019

Results of Operations for the Three Months Ended September 30, 2020 and 2019

The following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein.

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Three Months Ended

September 30,

Gross profit percentage

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Three Months Ended

September 30,

Cost of goods sold

Gross profit percentage

Our net sales for the three months ended June 30, 2020 decreased by $13,792,000, or 12.6%, to $95,356,000 compared with net sales for the three months ended June 30, 2019 of $109,148,000.

This decrease in our net sales was due primarily to the negative economic effects of the COVID-19 pandemic partially offset by the expansion of our automotive aftermarket brake-related product offerings introduced in the later part of fiscal 2020, which contributed net sales of $2,925,000 during the three months ended June 30, 2020.

Our net sales for the three months ended September 30, 2020 increased by $4,356,000, or 2.9%, to $154,730,000 compared with net sales for the three months ended September 30, 2019 of $150,374,000.

Net sales for the three months ended September 30, 2020 include $12,779,000 in core revenue due to a realignment of inventory at two customer distribution centers with expected future sales benefits as product mix changes.

Net sales were negatively impacted due to challenges related to the COVID-19 pandemic.

Gross Profit.

Our gross profit was $13,387,000, or 14.0% of net sales for the three months ended June 30, 2020 compared with $17,583,000, or 16.1% of net sales for the three months ended June 30, 2019.

Our gross profit was $39,726,000, or 25.7% of net sales, for the three months ended September 30, 2020 compared with $36,573,000, or 24.3% of net sales, for the three months ended September 30, 2019.

Our gross profit was negatively impacted by $1,533,000, or 1.0%, due to COVID-19 related costs.

The gross profit was impacted by a non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value and resulted in a write-down of $1,384,000 compared with $4,564,000 for the three months ended June 30, 2020 and 2019, respectively.

Our gross profit for the three months ended June 30, 2020 and 2019 was also impacted by:

(i) transition expenses in connection with the expansion of our operations in Mexico of $3,301,000 and $1,354,000, respectively, (ii) amortization of core premiums paid to customers related to new business of $1,223,000 and $1,108,000, respectively, and (iii) return accruals related to new business of $307,000 and $100,000, respectively.

In addition, gross profit for the three months ended June 30, 2019 was further impacted by (i) net tariff costs of $1,067,000 not passed through to customers, and (ii) costs of $426,000 in connection with the cancellation of a customer contract.

The gross profit was also impacted by (i) a $2,847,000 benefit for revised tariff costs during the three months ended September 30, 2020 and (ii) non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value and gain due to realignment of inventory at two customer distribution centers, which resulted in a net gain of $3,499,000 during the three months ended September 30, 2020 compared with a write-down of $2,908,000 for the three months ended September 30, 2019.

Our gross profit for the three months ended September 30, 2020 and 2019 was also impacted by:

(i) transition expenses in connection with the expansion of our operations in Mexico of $4,054,000 and $2,327,000, respectively, and (ii) amortization of core premiums paid to customers related to new business of $1,518,000 and $1,109,000, respectively.

In addition, gross profit for the three months ended September 30, 2019 was impacted by cost recovery of $293,000 in connection with the cancellation of a customer contract, and customer allowances related to new business of $242,000.

Operating Expenses

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Three Months Ended

September 30,

General and administrative

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Research and development

Foreign exchange impact of lease liabilities and forward contracts

Percent of net sales

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Research and development

Foreign exchange impact of lease liabilities and forward contracts

General and Administrative.

Our general and administrative expenses for the three months ended June 30, 2020 were $6,870,000, which represents a decrease of $5,130,000, or 42.8%, from general and administrative expenses for the three months ended June 30, 2019 of $12,000,000.

This decrease was due to (i) a non-cash gain of $2,832,000 compared with a non-cash gain $35,000 recorded due to the change in the fair value of the forward foreign currency exchange contracts during the three months ended June 30, 2020 and 2019, respectively, (ii) a non-cash gain of $1,985,000 compared with a non-cash gain of $502,000 recorded due to the remeasurement of foreign currency-denominated lease liabilities during the three months ended June 30, 2020 and 2019, respectively, and (iii) $910,000 from decreased professional services.

Our general and administrative expenses for the three months ended September 30, 2020 were $12,518,000, which represents an increase of $35,000, or 0.3%, from general and administrative expenses for the three months ended September 30, 2019 of $12,483,000.

The increase in general and administrative expense was from expanded benefits, supply costs and other COVID-19 related costs, which were partially offset by $323,000 in decreased professional services and $196,000 in decreased travel.

Sales and Marketing .

Our sales and marketing expenses for the three months June 30, 2020 decreased $719,000, or 14.6%, to $4,200,000 from $4,919,000 for the three months ended June 30, 2019 primarily due to our cost-cutting measures in connection with COVID-19.

Our sales and marketing expenses for the three months September 30, 2020 decreased $1,122,000, or 20.6%, to $4,326,000 from $5,448,000 for the three months ended September 30, 2019 primarily due to our cost-cutting measures in connection with COVID-19.

These decreases in sales and marketing expense were as follows:

(i) $408,000 from decreased travel, (ii) $157,000 from decreased marketing expense in connection with new business, (iii) $125,000 from decreased employee-related expenses.

(i) $390,000 from decreased travel, (ii) $279,000 of decreased advertising and marketing expense, (iii) $277,000 from decreased employee-related expenses, and (iv) $91,000 of decreased trade shows expense.

Research and Development .

Our research and development expenses decreased by $430,000, or 18.1%, to $1,942,000 for the three months ended June 30, 2020 from $2,372,000 for the three months ended June 30, 2019 primarily due to our cost-cutting measures in connection with COVID-19.

These decreases in research and development were as follows:

(i) $181,000 from decreased supplies and (ii) $165,000 from decreased employee-related expenses.

Our research and development expenses decreased by $176,000, or 8.2%, to $1,972,000 for the three months ended September 30, 2020 from $2,148,000 for the three months ended September 30, 2019 primarily due to our cost-cutting measures in connection with COVID-19.

Foreign Exchange Impact of Lease Liabilities and Forward Contracts .

The remeasurement of our foreign currency-denominated lease liabilities resulted in a non-cash gain of $1,618,000 and a non-cash loss $1,139,000 for the three months ended September 30, 2020 and 2019, respectively, due to movements in foreign exchange rates.

In addition, the forward foreign currency exchange contracts resulted in a non-cash gain of $2,367,000 and a non-cash loss $663,000 for the three months ended September 30, 2020 and 2019, respectively, due to the changes in their fair values.

Interest Expense

Interest Expense, net.

Our interest expense, net for the three months ended June 30, 2020 decreased $1,764,000, or 28.6%, to $4,409,000 from $6,173,000 for the three months ended June 30, 2019, primarily due to lower interest rates.

Our interest expense, net for the three months ended September 30, 2020 decreased $2,909,000, or 44.6%, to $3,614,000 from $6,523,000 for the three months ended September 30, 2019, primarily due to lower interest rates and lower average outstanding balances under our credit facility.

Provision for Income Taxes

We recorded an income tax benefit of $1,022,000, or an effective tax rate of 25.3%, and an income tax benefit of $1,730,000, or an effective tax rate of 22.0%, for the three months ended June 30, 2020 and 2019, respectively.

The effective tax rate for the three months ended June 30, 2020, was primarily impacted by non-deductible executive compensation under Internal Revenue Code Section 162(m) and foreign income taxed at rates that are different from the federal statutory rate.

We recorded income tax expense of $6,097,000, or an effective tax rate of 28.6%, and $1,980,000, or an effective tax rate of 24.2%, for the three months ended September 30, 2020 and 2019, respectively.

The effective tax rate for the three months September 30, 2020, was primarily impacted by non-deductible executive compensation under Internal Revenue Code Section 162(m) and foreign income taxed at rates that are different from the federal statutory rate.

Results of Operations for the Six Months Ended September 30, 2020 and 2019

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:

Six Months Ended

September 30,

Gross profit percentage

Cash flow provided by (used in) operations

Finished goods turnover (annualized) (1)

Annualized finished goods turnover for the period is calculated by multiplying cost of goods sold for the period by 2 and dividing the result by the average between beginning and ending finished goods inventory values, which includes all on-hand core inventory, for the period.

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:

Six Months Ended

September 30,

Cost of goods sold

Gross profit percentage

Our net sales for the six months ended September 30, 2020 decreased by $9,436,000, or 3.6%, to $250,086,000 compared with net sales for the six months ended September 30, 2019 of $259,522,000.

Our net sales were negatively impacted due to challenges related to the COVID-19 pandemic partially offset by $12,779,000 in core revenue due to a realignment of inventory at two customer distribution centers with expected future sales benefits as product mix changes.

Gross Profit.

Our gross profit was $53,113,000, or 21.2% of net sales, for the six months ended September 30, 2020 compared with $54,156,000, or 20.9% of net sales, for the six months ended September 30, 2019.

Our gross profit was negatively impacted by $3,373,000, or 1.3%, due to COVID-19 related costs.

The gross profit was also impacted by (i) a $2,847,000 benefit for revised tariff costs during the six months ended September 30, 2020 and (ii) non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value and gain due to realignment of inventory at two customer distribution centers, which resulted in a net gain of $2,115,000 during the six months ended September 30, 2020 compared with a write-down of $7,472,000 for the six months ended September 30, 2019.

Our gross profit for the six months ended September 30, 2020 and 2019 was also impacted by:

(i) transition expenses in connection with the expansion of our operations in Mexico of $7,355,000 and $3,681,000, respectively, (ii) amortization of core premiums paid to customers related to new business of $2,741,000 and $2,217,000, respectively, and (iii) customer allowances and return accruals related to new business of $307,000 and $342,000, respectively .

In addition, gross profit for the six months ended September 30, 2019 was impacted by net tariff costs of $1,067,000 not passed through to customers, and cost of $133,000 in connection with the cancellation of a customer contract.

Operating Expenses

The following summarizes operating expenses:

Six Months Ended

September 30,

General and administrative

Sales and marketing

Research and development

Foreign exchange impact of lease liabilities and forward contracts

Percent of net sales

General and administrative

Sales and marketing

Research and development

Foreign exchange impact of lease liabilities and forward contracts

General and Administrative.

Our general and administrative expenses for the six months ended September 30, 2020 were $24,205,000, which represents a decrease of $815,000, or 3.3%, from general and administrative expenses for the six months ended September 30, 2019 of $25,020,000.

This decrease in general and administrative expense was due to $1,233,000 in decreased professional services and $372,000 in decreased travel.

This decrease was partially offset by expanded benefits, supply costs and other COVID-19 related costs.

Sales and Marketing .

Our sales and marketing expenses for the six months September 30, 2020 decreased $1,841,000, or 17.8%, to $8,526,000 from $10,367,000 for the six months ended September 30, 2019 primarily due to our cost-cutting measures in connection with COVID-19.

These decreases in sales and marketing expense were as follows:

(i) $798,000 from decreased travel, (ii) $559,000 from decreased advertising and marketing expense, (iii) $401,000 from decreased employee-related expenses, and (iv) $170,000 of decreased trade shows expense.

Research and Development .

Our research and development expenses decreased by $606,000, or 13.4%, to $3,914,000 for the six months ended September 30, 2020 from $4,520,000 for the six months ended September 30, 2019 primarily due to our cost-cutting measures in connection with COVID-19.

This decrease in research and development was due to $403,000 of decreased employee-related expenses and $88,000 of decreased expense for our sample library.

Foreign Exchange Impact of Lease Liabilities and Forward Contracts .

The remeasurement of our foreign currency denominated lease liabilities resulted in a non-cash gain of $3,603,000 and a non-cash loss $637,000 for the six months ended September 30, 2020 and 2019, respectively, due to movements in foreign exchange rates.

In addition, the forward foreign currency exchange contracts resulted in a non-cash gain of $5,199,000 and a non-cash loss $628,000 for the six months ended September 30, 2020 and 2019, respectively, due primarily to the changes in their fair values.

Interest Expense

Interest Expense, net.

Our interest expense, net for the six months ended September 30, 2020 decreased $4,673,000, or 36.8%, to $8,023,000 from $12,696,000 for the six months ended September 30, 2019, primarily due to lower interest rates and lower average outstanding balances under our credit facility.

Provision for Income Taxes

We recorded income tax expense of $5,075,000, or an effective tax rate of 29.4%, and $250,000, or an effective tax rate of 86.8%, for the six months ended September 30, 2020 and 2019, respectively.

The effective tax rate for the six months ended September 30, 2020, was primarily impacted by non-deductible executive compensation under Internal Revenue Code Section 162(m) and foreign income taxed at rates that are different from the federal statutory rate.

Liquidity and Capital Resources

We had working capital (current assets minus current liabilities) of $87,410,000 and $90,624,000, a ratio of current assets to current liabilities of 1.3:1.0 at June 30, 2020 and March 31, 2020, respectively.

We generated cash during the three months ended June 30, 2020 from operations and the use of receivable discount programs.

We had working capital (current assets minus current liabilities) of $94,174,000 and $90,624,000, a ratio of current assets to current liabilities of 1.3:1.0 at September 30, 2020 and March 31, 2020, respectively.

We generated cash during the six months ended September 30, 2020 from operations and the use of receivable discount programs.

As we manage through the impacts of the COVID-19 pandemic, we have access to our existing cash, as well as our available credit facilities to meet short-term liquidity needs.

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Share Repurchase Program

As of June 30, 2020, $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, 2020.

As of September 30, 2020, $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 currently permits the payment of up to $30,000,000 of dividends and share repurchases for this fiscal year, subject to pro forma compliance with financial covenants.

We retired the 675,561 shares repurchased under this program through September 30, 2020.

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.

The following summarizes cash flows as reflected in the condensed consolidated statements of cash flows:

Three Months Ended

Six Months Ended

September 30,

Cash flows provided by (used in):

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Effect of exchange rates on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Additional selected cash flow data:

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Capital expenditures

Net cash provided by operating activities was $22,388,000 during the three months ended June 30, 2020 compared with net cash used in operating activities of $18,379,000 during the three months ended June 30, 2019.

The significant change in our operating activities was due to increased collections of accounts receivable and a less significant increase in our inventory as we continue to manage our inventory levels during the three months ended June 30, 2020.

Net cash used in investing activities was $3,038,000 and $2,668,000 during the three months ended June 30, 2020 and 2019, respectively, due primarily to decreased purchases of plant and equipment for our current operations and the expansion of our operations in Mexico.

In addition, we generated cash from the redemption of short-term investments during the three months ended June 30, 2019.

Net cash used in financing activities was $41,674,000 during the three months ended June 30, 2020 compared with net cash provided by financing activities $22,328,000 during the three months ended June 30, 2019.

The significant change in our financing activities was due mainly to repayments under our credit facility during the three months ended June 30, 2020 compared with borrowing under our credit facility during the three months ended June 30, 2019.

Net cash provided by operating activities was $39,330,000 during the six months ended September 30, 2020 compared with net cash used in operating activities of $26,736,000 during the six months ended September 30, 2019.

The significant change in our operating activities for the current year was due to increased operating results (net income plus the net add-back for non-cash transactions in earnings) and an increase in average days outstanding of accounts payable balances.

In addition, our prior year operating activities were significantly impacted by our growth initiatives, including our new expanded footprint and product lines.

Net cash used in investing activities was $7,002,000 and $5,701,000 during the six months ended September 30, 2020 and 2019, respectively, due to the redemption of short-term investments during the prior year.

Net cash used in financing activities was $61,312,000 during the six months ended September 30, 2020 compared with net cash provided by financing activities $29,059,000 during the six months ended September 30, 2019.

The significant change in our financing activities was due to reducing our outstanding debt by $59,875,000 during the six months ended September 30, 2020 compared with borrowing to support our growth initiatives, including the expansion of our operations in Mexico and our product line expansion during the six months ended September 30, 2019.

Capital Resources

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The loans under the Credit Facility mature on June 5, 2023.

The 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.

The Credit Facility currently permits the payment of up to $30,000,000 of dividends and share repurchases for this fiscal year, subject to pro forma compliance with financial covenants.

In connection with the Credit Facility, the lenders have a security interest in substantially all of our assets.

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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 Term Loans and Revolving Facility was 2.93% and 2.94%, at June 30, 2020, respectively, and 4.34% and 3.64% at March 31, 2020, respectively.

The interest rate on our Term Loans and Revolving Facility was 2.91%, at September 30, 2020, and 4.34% and 3.64%, respectively at March 31, 2020.

The 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, 2020.

We were in compliance with all financial covenants as of September 30, 2020.

The following summarizes the financial covenants required under the Credit Facility:

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Calculation as of

June 30, 2020

September 30, 2020

Maximum senior leverage ratio

Minimum fixed charge coverage ratio

While we made payments to our Revolving Facility of $40,000,000, in light of COVID-19, we elected not to further pay down our Revolving Facility and accumulated cash of $27,464,000 as of June 30, 2020.

Our credit arrangement only allows up to $6,000,000 of credit for cash when computing the senior leverage ratio.

If we had paid down the Revolving Facility with cash on hand, our senior leverage ratio would have been 1.62.

We had cash of $20,887,000 at September 30, 2020 and paid down our outstanding debt by $59,875,000 during the six months ended September 30, 2020.

However, t he Credit Facility only allows up to $6,000,000 of credit for cash when computing the senior leverage ratio .

Our senior leverage ratio would have been 1.43 had we paid down the Revolving Facility with cash on hand.

In addition to other covenants, the 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 $112,000,000 and $152,000,000 outstanding under the Revolving Facility at June 30, 2020 and March 31, 2020, respectively.

In addition, $5,679,000 was outstanding for letters of credit at June 30, 2020.

At June 30, 2020, after certain contractual adjustments, $85,097,000 was available under the Revolving Facility.

We had $94,000,000 and $152,000,000 outstanding under the Revolving Facility at September 30, 2020 and March 31, 2020, respectively.

In addition, $5,963,000 was outstanding for letters of credit at September 30, 2020.

At September 30, 2020, after certain contractual adjustments, $97,046,000 was available under the Revolving Facility.

Receivable Discount Programs

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The following is a summary of the receivable discount programs:

Three Months Ended

Six Months Ended

September 30,

Receivables discounted

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Off-Balance Sheet Arrangements

At June 30, 2020, 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.

At September 30, 2020, 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 finance leases and non-cash capital expenditures were $5,088,000 and $4,653,000 for the three months ended June 30, 2020 and 2019, respectively.

Our total capital expenditures, including finance leases and non-cash capital expenditures were $8,798,000 and $9,251,000 for the six months ended September 30, 2020 and 2019, 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 incur approximately $6,300,000 of capital expenditures for our current operations and approximately $11,000,000 for continued expansion of our operations in Mexico during fiscal 2021.

We expect to incur approximately $4,900,000 of capital expenditures for our current operations and approximately $12,400,000 for continued expansion of our operations in Mexico for the full fiscal year 2021.

We have used and expect to continue using our working capital and other available capital resources to fund these capital expenditures.

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In June 2016, the FASB issued an accounting pronouncement related to the measurement of credit losses on financial instruments.

This pronouncement, along with a subsequent Accounting Standards Updates (“ASU”) issued to clarify certain provisions of the new guidance, changes the impairment model for most financial assets and requires the use of an “expected loss” model for instruments measured at amortized cost.

This pronouncement, along with a subsequent Accounting Standards Updates (“ASU”) issued to clarify certain provisions of the new guidance, changed the impairment model for most financial assets and requires the use of an “expected loss” model for instruments measured at amortized cost.

Under this model, entities will be required to estimate 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 net presentation of the amount expected to be collected on the financial asset.

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The net amount of accounts receivable and corresponding allowance for credit losses are presented separately in the condensed consolidated balance sheets.

We maintain an allowances for credit losses resulting from the expected failure or inability of our customers to make required payments.

We recogniz the allowance for credit losses at inception and reassess quarterly based on the asset’s expected collectability.

We maintain an allowance for credit losses resulting from the expected failure or inability of our customers to make required payments.

We recognize the allowance for credit losses at inception and reassess quarterly based on the asset’s expected collectability.

The allowance is based on multiple factors including historical experience with bad debts, the credit quality of the customer base, the aging of such receivables and current macroeconomic conditions, such as COVID-19, as well as expectations of conditions in the future, if applicable.

Our allowance for credit losses is based on the assessment of the collectability of assets pooled together with similar risk characteristics.

We pool our receivables based on the shared risk characteristics of our customers.

We record a provision for expected credit losses using a loss-rate method based on the ratio of our historical write-offs to our average trade accounts receivable.

2 unchanged sentences

Fair Value Measurements

In August 2018, the FASB issued guidance, which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

In August 2018, the FASB issued guidance, which changed the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 measurements, and the narrative description of measurement uncertainty should be applied prospectively only for the most recent interim or annual period presented in the initial year of adoption.

All other amendments should be applied retrospectively applied to all periods presented upon their effective date.

The adoption of this guidance on April 1, 2020 modified certain of our disclosures for our Level 3 fair value measurements but did not have an impact on our condensed consolidated financial statements.

The adoption of this guidance on April 1, 2020 modified certain of our disclosures for our Level 3 fair value measurements but did not have an impact on our consolidated financial statements.

Reference Rate Reform

4 unchanged sentences

We will apply these amendments prospectively.

The adoption of this guidance on April 1, 2020 did not have an impact on our condensed consolidated financial statements for the three months ended June 30, 2020.

The adoption of this guidance on April 1, 2020 did not have an impact on our condensed consolidated financial statements for the three and six months ended September 30, 2020.

New Accounting Pronouncements Not Yet Adopted

2 unchanged sentences

Early adoption is permitted.

We are currently evaluating the impact this guidance will have on our condensed consolidated financial statements.

We are currently evaluating the impact this guidance will have on our consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis