What changed in this filing

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Item 1. Financial Statements

2021-02-09 compared with 2020-11-09 · 92 added, 113 removed, 481 unchanged (30% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

September 30, 2020

December 31, 2020

March 31, 2020

35 unchanged sentences

par value $ 0.01 per share, 50,000,000 shares authorized;

19,026,587 and 18,969,380 shares issued and outstanding at September 30, 2020 and March 31, 2020, respectively

19,056,292 and 18,969,380 shares issued and outstanding at December 31, 2020 and March 31, 2020, respectively

Additional paid-in capital

8 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

September 30,

Nine Months Ended

Cost of goods sold

17 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

September 30,

Other comprehensive (loss) income, net of tax:

Foreign currency translation (loss) gain

Total other comprehensive (loss) income, net of tax

Nine Months Ended

Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss)

Total other comprehensive income (loss), net of tax

Comprehensive income

4 unchanged sentences

Comprehensive

Income (Loss)

Balance at March 31, 2020

9 unchanged sentences

Balance at September 30, 2020

Compensation recognized under employee stock plans

Exercise of stock options

Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes

Foreign currency translation

Balance at December 31, 2020

Comprehensive

10 unchanged sentences

Balance at September 30, 2019

Compensation recognized under employee stock plans

Exercise of stock options

Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes

Foreign currency translation

Balance at December 31, 2019

The accompanying notes to condensed consolidated financial statements are an integral part hereof.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended

September 30,

Nine Months Ended

Cash flows from operating activities:

52 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2020

December 31, 2020

Company Background and Organization

4 unchanged sentences

The Company’s products include (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters, and brake master cylinders, and (iv) diagnostics and other products, which include diagnostics systems, advanced power emulators used for the development of electric vehicles and aerospace applications, and custom power electronic products for quality control in the development and production of electric vehicles and turbochargers.

The Company primarily ships its products from its facilities and various third -party warehouse distribution centers in North America, including the Company’s 410,000 square foot distribution center in Tijuana, Mexico.

Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for segment reporting, the Company has identified its chief operating decision maker (“CODM”), reviewed the documents used by the CODM, and understands how such documents are used by the CODM to make financial and operating decisions.

16 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three and six months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2021.

Operating results for the three and nine months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2021.

This report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2020, which are included in the Company’s Annual Report on Form 10 -K filed with the Securities and Exchange Commission (“SEC”) on June 15, 2020 .

11 unchanged sentences

Subsequent to April 1, 2020, accounts receivable are recorded at amortized cost less an allowance for credit losses that are not expected to be recovered.

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

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

The Company maintains allowances for credit losses resulting from the expected failure or inability of its customers to make required payments.

16 unchanged sentences

The Company will apply these amendments prospectively.

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

The adoption of this guidance on April 1, 2020 did not have an impact on the Company’s condensed consolidated financial statements for the three and nine months ended December 31, 2020 .

New Accounting Pronouncements Not Yet Adopted

14 unchanged sentences

Accounts receivable — net is comprised of the following:

September 30, 2020

December 31, 2020

March 31, 2020

5 unchanged sentences

The following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present the net amount expected to be collected.

During the six months ended September 30, 2020, the Company wrote off amounts previously fully reserved for in connection the bankruptcy filing of one of its customers in fiscal 2016.

Six Months Ended

September 30, 2020

During the nine months ended December 31, 2020, the Company wrote off amounts previously fully reserved for in connection the bankruptcy filing of one of its customers.

Nine Months Ended

December 31, 2020

Balance at beginning of period

3 unchanged sentences

Inventory is comprised of the following:

September 30, 2020

December 31, 2020

March 31, 2020

7 unchanged sentences

Contract Assets

During the three and six months ended September 30, 2020, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $ 892,000 and $ 2,276,000 , respectively.

During the three and nine months ended December 31, 2020, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $ 1,304,000 and $ 3,580,000 , respectively.

Contract assets are comprised of the following:

September 30, 2020

December 31, 2020

March 31, 2020

14 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

Nine Months Ended

The largest customers accounted for the following percentage of accounts receivable – trade:

September 30, 2020

December 31, 2020

March 31, 2020

4 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

Nine Months Ended

Rotating electrical products

3 unchanged sentences

Significant Supplier Concentrations

The Company had no suppliers that accounted for more than 10% of inventory purchases for the three and six months ended September 30, 2020 and 2019.

The Company had no suppliers that accounted for more than 10% of inventory purchases for the three and nine months ended December 31, 2020 and 2019.

The Company is party to a $ 268,620,000 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 $ 238,620,000 revolving loan facility, subject to borrowing base restrictions, a $ 24,000,000 sublimit for borrowings by Canadian borrowers, and a $ 20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $ 30,000,000 term loan facility (the “Term Loans”).

5 unchanged sentences

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 Term Loans and Revolving Facility was 2.91 % at S eptember 30, 2020 , and 4.34 % and 3.64 % , respectively, at March 31, 2020 .

The interest rate on the Company’s Term Loans and Revolving Facility was 2.91 % and 2.90 %, respectively, at December 31, 2020 , and 4.34 % and 3.64 % , respectively, at March 31, 2020 .

The 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 at S eptember 30, 2020.

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

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

The Company was in compliance with all financial covenants at December 31 , 2020.

The Company had cash of $ 12,800,000 at December 31, 2020 and paid down its outstanding debt by $ 95,813,000 during the nine months ended December 31, 2020.

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

In addition to other covenants, the 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 Term Loans:

September 30, 2020

December 31, 2020

March 31, 2020

Principal amount of term loan

Principal amount of Term Loans

Unamortized financing fees

Net carrying amount of term loan

Less current portion of term loan

Long-term portion of term loan

Net carrying amount of Term Loans

Less current portion of Term Loans

Long-term portion of Term Loans

Future repayments of the Term Loans are as follows:

Year Ending March 31,

2021 - remaining six months

2021 - remaining three months

Total payments

The Company had $ 94,000,000 and $ 152,000,000 outstanding under the Revolving Facility at S eptember 30, 2020 and March 31, 2020 , respectively.

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

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

The Company had $ 59,000,000 and $ 152,000,000 outstanding under the Revolving Facility at December 31 , 2020 and March 31, 2020 , respectively.

In addition, $ 5,937,000 was outstanding for letters of credit at December 31 , 2020 .

At December 31 , 2020 , after certain contractual adjustments, $ 127,236,000 was available under the Revolving Facility.

Contract Liabilities

Contract liabilities are comprised of the following:

September 30, 2020

December 31, 2020

March 31, 2020

15 unchanged sentences

As required for other monetary liabilities, lessees remeasure foreign currency-denominated lease liabilities using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates and are not affected by subsequent changes in the exchange rates.

The Company recorded a gain of $ 1,618,000 and a loss of $ 1,139,000 in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of income in connection with the remeasurement of foreign currency-denominated lease liabilities during the three months ended September 30, 2020 and 2019, respectively.

The Company recorded a gain of $ 3,603,000 and a loss of $ 637,000 in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of income in connection with the remeasurement of foreign currency-denominated lease liabilities during the six months ended September 30, 2020 and 2019, respectively .

In connection with the remeasurement of these leases, the Company recorded gains of $ 8,638,000 and $ 2,128,000 during the three months ended December 31, 2020 and 2019, respectively, and $ 12,241,000 and $ 1,491,000 during the nine months ended December 31, 2020 and 2019, respectively.

These gains are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of income.

Balance sheet information for leases is as follows:

September 30, 2020

March 31, 2020

Classification

December 31, 2020

March 31, 2020

Operating lease assets

8 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

September 30,

Nine Months Ended

Operating lease cost

5 unchanged sentences

Total lease cost

Maturities of lease commitments at September 30, 2020 were as follows:

Maturities of lease commitments at December 31, 2020 were as follows:

Maturity of lease liabilities

1 unchanged sentence

Finance Leases

2021 - remaining six months

2021 - remaining three months

Total lease payments

2 unchanged sentences

Other information about leases is as follows:

September 30, 2020

December 31, 2020

Lease term and discount rate

10 unchanged sentences

The following is a summary of accounts receivable discount programs:

Six Months Ended

September 30,

Nine Months Ended

Receivables discounted

7 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

September 30,

Nine Months Ended

Effect of potentially dilutive securities

4 unchanged sentences

Potential common shares that would have the effect of increasing diluted net income per share or decreasing diluted net loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted net income per share.

For the three months ended September 30, 2020 and 2019, there were 1,500,066 and 1,221,744 respectively, of potential common shares not included in the calculation of diluted net income per share because their effect was anti-dilutive.

For the six months ended September 30, 2020 and 2019, there were 1,500,066 and 1,166,432 , respectively, of potential common shares not included in the calculation of diluted net income per share because their effect was anti-dilutive.

The Company 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 Company 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 rates for the three and six months ended September 30, 2020, were 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.

For the three months ended December 31, 2020 and 2019, there were 1,319,937 and 1,047,224 , respectively, of potential common shares not included in the calculation of diluted net income per share because their effect was anti-dilutive.

For the nine months ended December 31, 2020 and 2019, there were 1,328,437 and 1,031,624 , respectively, of potential common shares not included in the calculation of diluted net income per share because their effect was anti-dilutive .

The Company recorded income tax expense of $ 3,373,000 , or an effective tax rate of 28.5 % , and $ 1,502,000 , or an effective tax rate of 63.5 % , for the three months ended December 31, 2020 and 2019, respectively.

The Company recorded income tax expense of $ 8,448,000 , or an effective tax rate of 29.0 % , and $ 1,752,000 , or an effective tax rate of 66.0 % , for the nine months ended December 31, 2020 and 2019, respectively.

The effective tax rates for the three and nine months ended December 31, 2020, were primarily impacted by foreign income taxed at rates that are different from the federal statutory rate and non-deductible executive compensation under Internal Revenue Code Section 162(m) .

The Company continues to record a valuation allowance against its foreign deferred tax assets as a result of its non-U.S.

8 unchanged sentences

In evaluating the Company’s ability to recover deferred tax assets within the jurisdiction in which they arise, the Company considers all available positive and negative evidence.

At September 30, 2020, the Company is not under examination in any jurisdiction and the years ended March 31, 2016 through 2020 remain subject to examination.

At December 31 , 2020, the Company is not under examination in any jurisdiction and the years ended March 31, 2016 through 2020 remain subject to examination.

The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months.

13 unchanged sentences

The Company had forward foreign currency exchange contracts with a U.S.

dollar equivalent notional value of $ 35,305,000 and $ 42,052,000 at September 30, 2020 and March 31, 2020, respectively.

dollar equivalent notional value of $ 37,601,000 and $ 42,052,000 at December 31 , 2020 and March 31, 2020, respectively.

These contracts generally have a term of one year or less, at rates agreed at the inception of the contracts.

4 unchanged sentences

The following shows the effect of derivative instruments on the condensed consolidated statements of income:

Gain (Loss) Recognized as Foreign Exchange Impact of Lease Liabilities

Gain Recognized as Foreign Exchange Impact of Lease Liabilities

and Forward Contracts

1 unchanged sentence

Three Months Ended

September 30,

Six Months Ended

September 30,

Nine Months Ended

Hedging Instruments

Forward foreign currency exchange contracts

The fair value of the forward foreign currency exchange contracts of $ 1,085,000 and $ 6,284,000 is included in other current liabilities in the condensed consolidated balance sheets at September 30, 2020 and March 31, 2020, respectively.

The changes in the fair values of forward foreign currency exchange contracts are included in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of cash flows for the six months ended September 30, 2020 and 2019.

The fair value of the forward foreign currency exchange contracts of $ 2,732,000 is included in prepaid and other current assets in the condensed consolidated balance sheet at December 31, 2020.

The fair value of the forward foreign currency exchange contracts of $ 6,284,000 is included in other current liabilities in the condensed consolidated balance sheet at March 31, 2020.

The changes in the fair values of forward foreign currency exchange contracts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of cash flows for the nine months ended December 31, 2020 and 2019 .

Fair Value Measurements

The following summarizes financial assets and liabilities measured at fair value, by level within the fair value hierarchy:

September 30, 2020

December 31, 2020

March 31, 2020

4 unchanged sentences

Short-term investments

Accrued liabilities

Prepaid expenses and other current assets

Forward foreign currency exchange contracts

Accounts payable and accrued liabilities

Short-term contingent consideration

12 unchanged sentences

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 a three-year period.

In January 2019, the Company completed the acquisition of all the equity interests of 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 a two-year period.

The Company’s contingent consideration is recorded in accrued expenses and other liabilities in its condensed consolidated balance sheets at September 30, 2020 and March 31, 2020, 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 $ 1,220,000 and $ 1,130,000 at September 30, 2020 and March 31, 2020, respectively, determined using a probability weighted discounted cash flow method with the following assumptions commensurate with the term of the contingent consideration.

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:

September 30, 2020

Risk free interest rate

Counter party rate

In connection with the Company’s E&M acquisition in December 2018, it had a two-year R&D event milestone based on technology development and transfer.

At December 31, 2020, the milestone was achieved and, as a result, the Company will pay $ 1,250,000 to the former owners of E&M during the fourth fiscal quarter ending March 31, 2021.

E&M Gross Profit Earn-out Consideration

The fair value of the three-year gross profit earn-out consideration was $ 1,360,000 and $ 1,230,000 at September 30, 2020 and March 31, 2020, respectively, determined using a Monte Carlo Simulation Model.

The fair value of the three-year gross profit earn-out consideration was $ 1,350,000 and $ 1,230,000 at December 31, 2020 and March 31, 2020, respectively, 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:

September 30, 2020

December 31, 2020

Risk free interest rate

3 unchanged sentences

The range for expected volatility was 44 % to 50 % and the range for the weighted average cost of capital was 13.5 % to 15.5 %.

Dixie Revenue Earn-out Consideration

The fair value of the two-year revenue earn-out consideration was $ 8,000 and $ 293,000 at September 30, 2020 and March 31, 2020, respectively, determined using a Monte Carlo Simulation Model.

The assumptions used to determine the fair value is as follows:

September 30, 2020

Risk free interest rate

Counter party rate

Revenue volatility (1)

Revenue discount rate (1)

Asset volatility (1)

The range for revenue volatility was 3.5 % to 5.5 %, 1.5 % to 2.5 % for the revenue discount rate, and 25 % to 35 % for asset volatility.

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.

In January 2019, the Company completed the acquisition of all the equity interests of Dixie.

In connection with this acquisition, the Company was contingently obligated to make additional payments to the former owners of Dixie up to $ 1,130,000 over a two-year period and will pay approximately $ 8,000 during the fourth fiscal quarter ending March 31, 2021, as settlement of this obligation.

The Company’s contingent consideration is recorded in accounts payable and accrued liabilities and other liabilities in its condensed consolidated balance sheets at December 31, 2020 and March 31, 2020, and is a Level 3 liability measured at fair value.

The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:

Three Months Ended

September 30,

Six Months Ended

September 30,

Nine Months Ended

Contingent Consideration

2 unchanged sentences

Ending balance

During the three and six months ended September 30, 2020, the Company had no other significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

During the three and nine months ended December 31, 2020, 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.

2 unchanged sentences

Stock Options

The Company granted options to purchase 345,423 and 300,039 shares of common stock during the six months ended September 30, 2020 and 2019, respectively.

The Company granted options to purchase 345,423 and 302,539 shares of common stock during the nine months ended December 31, 2020 and 2019, respectively.

The cost associated with stock options is estimated using the Black-Scholes option-pricing model.

3 unchanged sentences

The following assumptions were used to derive the weighted average fair value of the stock options granted:

Six Months Ended

September 30,

Nine Months Ended

Weighted average risk free interest rate

7 unchanged sentences

Outstanding at March 31, 2020

Outstanding at September 30, 2020

At September 30, 2020, options to purchase 616,682 shares of common stock were unvested at a weighted average exercise price of $ 17.13 .

At September 30, 2020, there was $ 3,893,000 of total unrecognized compensation expense related to unvested stock option awards.

Outstanding at December 31, 2020

At December 31, 2020, options to purchase 606,910 shares of common stock were unvested at a weighted average exercise price of $ 17.11 .

At December 31, 2020, there was $ 3,293,000 of total unrecognized compensation expense related to unvested stock option awards.

Compensation expense related to unvested stock option awards will be recognized over a weighted average vesting period of approximately 1.9 years.

Restricted Stock Units and Restricted Stock (collectively “RSUs”)

During the six months ended September 30, 2020 and 2019, the Company granted 212,293 and 79,851 shares of RSUs, respectively, with an estimated grant date fair value of $ 3,503,000 and $ 1,591,000 , respectively, based on the closing market price on the grant date.

During the nine months ended December 31 , 2020 and 2019, the Company granted 251,801 and 113,483 shares of RSUs, respectively, with an estimated grant date fair value of $ 4,150,000 and $ 2,112,000 , respectively, based on the closing market price on the grant date.

The following is a summary of non-vested RSUs:

2 unchanged sentences

Outstanding at March 31, 2020

Outstanding at September 30, 2020

At September 30, 2020, there was $ 4,932,000 of unrecognized compensation expense related to these awards, which will be recognized over the remaining vesting period of approximately 1.7 years.

Outstanding at December 31, 2020

At December 31, 2020, there was $ 4,589,000 of unrecognized compensation expense related to these awards, which will be recognized over the remaining vesting period of approximately 1.7 years.

Commitments and Contingencies

5 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

September 30,

Nine Months Ended

Balance at beginning of period

11 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements