What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-09 compared with 2020-11-09 · 88 added, 94 removed, 215 unchanged (46% of the section changed)

50 unchanged sentences

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 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.

We experienced a significant reduction in customer demand for our products during April 2020.

Although the demand for our products has substantially recovered, we continue to experience disruptions with worldwide supply chain and logistics services .

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 the “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;

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

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.

however, 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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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.

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 September 30, 2020 and 2019

During the three and nine months ended December 31, 2020, these expanded benefits, supply costs and other COVID-19 related costs resulted in $1,610,000 and $5,953,000, respectively, of total expense included in cost of goods sold and operating expenses in the condensed consolidated statements of income.

During the three and nine months ended December 31, 2020, we received $281,000 and $1,130,000, respectively, in payments from the Canadian Government under the Canadian Emergency Wage Subsidy program and our Asian subsidiaries received $24,000 and $161,000, respectively, from their local government assistance programs.

These payments are recorded as a reduction of 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 $1,170,000, of which $585,000 is included in accounts payable and accrued liabilities and $585,000 is included in other liabilities in the condensed consolidated balance sheet at December 31, 2020.

Due to the seriousness of the COVID-19 pandemic and the unknown future impact on our business, we conserved liquidity wherever practicable, implemented a worldwide travel ban, and put additional controls on all expenses.

Initially, we implemented furloughs, layoffs, and salary reductions, which were reinstated as of September 30, 2020.

Results of Operations for the Three Months Ended December 31, 2020 and 2019

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

1 unchanged sentence

Three Months Ended

September 30,

Gross profit percentage

Cash flow provided by (used in) operations

Cash flow provided by operations

Finished goods turnover (annualized) (1)

4 unchanged sentences

Three Months Ended

September 30,

Cost of goods sold

Gross profit percentage

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.

Our net sales for the three months ended December 31, 2020 decreased by $3,006,000, or 2.4%, to $122,568,000 compared with net sales for the three months ended December 31, 2019 of $125,574,000.

Sales for the quarter were impacted by a number of factors related to the global COVID-19 pandemic, including disruptions with worldwide supply chain and logistics services— resulting in order delays of approximately $17,000,000, which are expected to be realized between the current fiscal fourth quarter and the first quarter of the new fiscal year.

Gross Profit.

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 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:

Our gross profit was $24,241,000, or 19.8% of net sales, for the three months ended December 31, 2020 compared with $27,661,000, or 22.0% of net sales, for the three months ended December 31, 2019.

Our gross profit was impacted by the global COVID-19 pandemic, including disruptions with worldwide supply chain, logistics services, and related higher freight costs.

Additionally, our gross profit was further impacted by $1,052,000, or 0.9%, due to COVID-19 related costs for wages and personal protective equipment.

Our gross profit for the three months ended December 31, 2020 and 2019 was also impacted by:

(i) transition expenses in connection with the expansion of our operations in Mexico of $4,217,000 and $2,148,000, respectively, and (ii) amortization of core premiums paid to customers related to new business of $1,528,000 and $1,326,000, 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.

In addition, gross profit was positively impacted by (i) 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 $1,304,000 compared with $2,395,000 for the three months ended December 31, 2020 and 2019, respectively, and (ii) a $688,000 benefit for revised tariff costs during the three months ended December 31, 2020.

Our prior year gross profit was impacted by customer allowances related to new business of $777,000.

Operating Expenses

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Three Months Ended

September 30,

General and administrative

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General and Administrative.

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.

Our general and administrative expenses for the three months ended December 31, 2020 were $14,005,000, which represents a decrease of $385,000, or 2.7%, from the three months ended December 31, 2019 of $14,390,000.

The decrease in general and administrative expense was primarily due to (i) $1,070,000 of decreased professional services, (ii) $569,000 of increased gain resulting from foreign currency transactions, (iii) $290,000 of decreased expense due to changes in revaluations of contingent consideration, and (iv) $253,000 of decreased travel.

These decreases in general and administrative expenses were partially offset by expenses resulting from our expansion in Mexico and other COVID-19 related costs, such as supply costs and expanded benefits to employees.

Sales and Marketing .

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) $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.

Our sales and marketing expenses for the three months ended December 31, 2020 were $4,698,000, which represents a decrease of $925,000, or 16.5%, from the three months ended December 31, 2019 of $5,623,000.

The decrease in sales and marketing expense was primarily due to our cost-cutting measures in response to COVID-19.

These decreases in sales and marketing expense were primarily due to (i) $348,000 from decreased travel and (ii) $552,000 of decreased trade shows expense.

Research and Development .

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.

Our research and development expenses for the three months ended December 31, 2020 were $2,100,000, which represents a decrease of $74,000, or 3.4%, from the three months ended December 31, 2019 of $2,174,000.

The decrease in research and development expense was primarily due to our cost-cutting measures in response to 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.

The remeasurement of our foreign currency-denominated lease liabilities resulted in non-cash gains of $8,638,000 and $2,128,000 for the three months ended December 31, 2020 and 2019, respectively, due to movements in foreign exchange rates.

In addition, the forward foreign currency exchange contracts resulted in non-cash gains of $3,817,000 and $1,644,000 for the three months ended December 31, 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 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.

Our interest expense, net for the three months ended December 31, 2020 was $4,051,000, which represents a decrease of $2,828,000, or 41.1%, from the three months ended December 31, 2019 of $6,879,000.

The decrease in interest expense was 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 $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

We 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 effective tax rate for the three months ended December 31, 2020, was 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).

Results of Operations for the Nine Months Ended December 31, 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

Nine Months Ended

Cash flow provided by (used in) operations

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The following summarizes net sales and gross profit:

Six Months Ended

September 30,

Nine Months Ended

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.

Our net sales for the nine months ended December 31, 2020 decreased by $12,442,000, or 3.2%, to $372,654,000 compared with net sales for the nine months ended December 31, 2019 of $385,096,000.

Sales for the period were impacted by a number of factors related to the global COVID-19 pandemic, including disruptions with worldwide supply chain and logistics services— resulting in order delays of approximately $17,000,000, which are expected to be realized between the current fiscal fourth quarter and the first quarter of the new fiscal year.

In addition, our sales for the nine months ended December 31, 2020 included $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.

Our gross profit was $77,354,000, or 20.8% of net sales, for the nine months ended December 31, 2020 compared with $81,817,000, or 21.2% of net sales, for the nine months ended December 31, 2019.

Our gross profit was impacted by the global COVID-19 pandemic, including disruptions with worldwide supply chain, logistics services, and related higher freight costs.

Additionally, our gross profit was further impacted by $4,425,000, or 1.2%, due to COVID-19 related costs for wages and personal protective equipment.

Our gross profit for the nine months ended December 31, 2020 and 2019 was also impacted by:

(i) transition expenses in connection with the expansion of our operations in Mexico of $11,572,000 and $5,829,000, respectively and (ii) amortization of core premiums paid to customers related to new business of $4,269,000 and $3,543,000.

In addition, gross profit was impacted by (i) a $3,535,000 benefit for revised tariff costs for the nine months ended December 31, 2020, (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 $811,000 during the nine months ended December 31, 2020 compared with a write-down of $9,867,000 for the nine months ended December 31, 2019, and (iii) customer allowances and return accruals related to new business of $307,000 and $1,119,000 for the nine months ended December 31, 2020 and 2019, respectively.

Our prior year gross profit 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,

Nine Months Ended

General and administrative

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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.

Our general and administrative expenses for the nine months ended December 31, 2020 were $38,210,000, which represents a decrease of $1,200,000, or 3.0%, from the nine months ended December 31, 2019 of $39,410,000.

The decrease in general and administrative expense was primarily due to (i) $2,303,000 of decreased professional services, (ii) $841,000 of increased gain resulting from foreign currency transactions, (iii) $625,000 of decreased travel, and (iv) $485,000 of decreased expense due to changes in revaluations of contingent consideration.

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.

Our sales and marketing expenses for the nine months ended December 31, 2020 were $13,224,000, which represents a decrease of $2,766,000, or 17.3%, from the nine months ended December 31, 2019 of $15,990,000.

The decrease in sales and marketing expense was primarily due to our cost-cutting measures in response to COVID-19.

These decreases in sales and marketing expense were primarily due to (i) $1,146,000 from decreased travel, (ii) $722,000 of decreased trade shows expense, (iii) $616,000 from decreased advertising and marketing expense, and (iv) $415,000 from decreased employee-related expenses.

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.

Our research and development expenses for the nine months ended December 31, 2020 were $6,014,000, which represents a decrease of $680,000, or 10.2%, from the nine months ended December 31, 2019 of $6,694,000.

The decrease in research and development expense was primarily due to our cost-cutting measures in response to COVID-19.

These decreases in research and development were primarily due to (i) $441,000 of decreased employee-related expenses, (ii) $101,000 of decreased travel, and (iii) $81,000 of decreased outside services.

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.

The remeasurement of our foreign currency denominated lease liabilities resulted in non-cash gains of $12,241,000 and $1,491,000 for the nine months ended December 31, 2020 and 2019, respectively, due to movements in foreign exchange rates.

In addition, the forward foreign currency exchange contracts resulted in non-cash gains of $9,016,000 and $1,016,000 for the nine months ended December 31, 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.

Our interest expense, net for the nine months ended December 31, 2020 was $12,074,000, which represents a decrease of $7,501,000, or 38.3%, from the nine months ended December 31, 2019 of $19,575,000.

This decrease in interest expense was 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.

We 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 rate for the nine months ended December 31, 2020, was 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).

Liquidity and Capital Resources

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.

We had working capital (current assets minus current liabilities) of $96,282,000 and $90,624,000, a ratio of current assets to current liabilities of 1.3:1.0 at December 31, 2020 and March 31, 2020, respectively.

We generated cash during the nine months ended December 31, 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 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.

As of December 31, 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.

We retired the 675,561 shares repurchased under this program through December 31, 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:

Six Months Ended

September 30,

Nine Months Ended

Cash flows provided by (used in):

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Capital expenditures

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.

Net cash provided by operating activities was $72,484,000 during the nine months ended December 31, 2020 compared with net cash used in operating activities of $4,410,000 during the nine months ended December 31, 2019.

The significant change in our operating activities for the current year was due to (i) increased collections of accounts receivable, (ii) the buildup of our inventory to meet anticipated future demand and associated increase in our accounts payable balances, and (iii) increased operating results (net income plus the net add-back for non-cash transactions in earnings).

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.

Net cash used in investing activities was $12,295,000 and $9,650,000 during the nine months ended December 31, 2020 and 2019, respectively, due to the redemption of short-term investments during the prior year and increased capital expenditures.

Net cash used in financing activities was $97,734,000 during the nine months ended December 31, 2020 compared with net cash provided by financing activities $13,546,000 during the nine months ended December 31, 2019.

The significant change in our financing activities resulted from the pay down of our debt by $95,813,000 during the nine months ended December 31, 2020 compared with borrowing to support our growth initiatives, including the expansion of our operations in Mexico and our product line expansion during the nine months ended December 31, 2019.

Capital Resources

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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 2.91%, at September 30, 2020, and 4.34% and 3.64%, respectively at March 31, 2020.

The interest rate on our 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 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 September 30, 2020.

We were in compliance with all financial covenants as of December 31, 2020.

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

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Calculation as of

September 30, 2020

December 31, 2020

Maximum senior leverage ratio

Minimum fixed charge coverage ratio

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 .

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

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

Our senior leverage ratio would have been 1.12 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 $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.

We 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.

Receivable Discount Programs

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The following is a summary of the receivable discount programs:

Six Months Ended

September 30,

Nine Months Ended

Receivables discounted

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Off-Balance Sheet Arrangements

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.

At December 31, 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 $8,798,000 and $9,251,000 for the six months ended September 30, 2020 and 2019, respectively.

Our total capital expenditures, including finance leases and non-cash capital expenditures were $14,223,000 and $13,231,000 for the nine months ended December 31, 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.

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The net amount of accounts receivable and corresponding allowance for doubtful accounts were presented in the condensed consolidated balance sheets.

We maintain an allowance for uncollectible accounts receivable for estimated losses resulting from the failure or inability of its customers to make required payments.

We maintain an allowance for uncollectible accounts receivable for estimated losses resulting from the failure or inability of our customers to make required payments.

Furthermore, receivable balances were assessed quarterly for impairment and an allowance was recorded if the receivable was considered impaired.

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.

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

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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 and six months ended September 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 nine months ended December 31, 2020.

New Accounting Pronouncements Not Yet Adopted

7 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 2. Management’s Discussion and Analysis