What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-06-14 compared with 2020-06-15 · 293 added, 454 removed, 209 unchanged (78% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements, including, without limitation, our expectations and statements regarding our outlook and future revenues, expenses, results of operations, liquidity, plans, strategies and objectives of

management and any assumptions underlying any of the foregoing.

Our actual results may differ significantly from those projected in the forward-looking statements.

Our forward-looking statements and factors that might cause future actual results to

differ materially from our recent results or those projected in the forward-looking statements include, but are not limited to, those discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” of this

Annual Report on Form 10-K.

Our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include, but are not limited to, those discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” of this Annual Report on Form 10-K.

Except as required by law, we assume no obligation to update the forward-looking statements or our risk factors for any reason.

Management Overview

We have been focused on implementing a multi-pronged platform for growth within the non-discretionary automotive aftermarket for the replacement parts and diagnostic testing industry, through organic growth and acquisitions.

Our investments in

infrastructure and human resources, including the consolidation of our distribution center in Mexico and the significant expansion of manufacturing capacity, are expected to be transformative and scalable.

As a result, gross profit and net income have

been impacted, and our future performance and opportunities should be considered with these factors in mind.

New products introduced through our growth strategies noted above include:

(i) turbochargers through an acquisition in July 2016;

(ii) brake power boosters in August 2016;

(iii) the design and manufacture

of diagnostics systems for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles through an acquisition in July 2017;

(iv) the design

and manufacture of advanced power emulators (AC and DC) and custom power electronic products for the automotive and aerospace industries through an acquisition in December 2018;

(v) alternators and starters for medium and heavy duty trucks, industrial

equipment, farm and agriculture, transit and emergency service vehicles, and marine applications through an acquisition in January 2019;

and (vi) the addition of brake calipers in August 2019.

We have a multi-pronged platform for growth within the non-discretionary automotive aftermarket for the replacement parts and test solutions and diagnostic equipment industry, through organic growth and acquisitions.

Our investments in infrastructure and human resources, including the opening of our new 410,000 square foot distribution center, the realignment of our production sites, and the significant expansion of manufacturing capacity for multiple product lines, continues to be transformative and scalable.

New products introduced through our growth strategies include:

(i) the addition of brake calipers in August 2019;

(ii) alternators and starters for heavy-duty truck, industrial, marine, and agriculture applications, through an acquisition in January 2019;

(iii) brake power boosters in August 2016;

and (iv) turbochargers through an acquisition in July 2016.

In addition, our test solutions and diagnostic equipment include:

(a) the design and manufacture of test solutions and diagnostic equipment for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles through an acquisition in July 2017 and (b) the design and manufacture of advanced power emulators (AC and DC) and custom power electronic products for the automotive and aerospace industries through an acquisition in December 2018.

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

In March 2020, the WHO declared the outbreak of COVID-19 as a pandemic, which 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.

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 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.

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 additional spikes could negatively impact our business and financial condition.

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

however, a serious outbreak could affect our production capabilities.

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

We believe that the effects of the COVID-19 pandemic did not materially impact our financial results for the fourth quarter of fiscal 2020;

however, the effects of

the pandemic on our financial results for the first quarter of fiscal 2021 and other future periods could be significant and cannot currently be reasonably estimated due to the significant volatility, uncertainty and economic disruption caused by the

See Item 1A “Risk Factors” of this Form 10-K for further discussion of the potential impact of the COVID-19 pandemic on our business, results of operations and financial condition.

In response to the COVID-19 pandemic, we have established a committee, comprised of our executive officers, to oversee our risk identification, management and mitigation strategies regarding the impact of the pandemic on our business and operations.

Among other significant risks that are actively being managed by the committee, are those relating to the duration, severity and scope of the pandemic, the impact of governmental measures in response to the pandemic, potentially declining customer

demand for our products, the deterioration of general economic conditions, potential disruptions in our supply chain, the management of inventories and production volumes, and cost reduction and cash preservation initiatives, including potential

reductions in capital expenditures.

The committee continues to meet on a regular basis, closely monitoring events related to the pandemic and any appropriate actions that may be taken, including monitoring of any temporary closures, measures to ensure

our employees are safe, and ways to reduce the overall negative impact of the pandemic.

Additionally, as part of the cost reduction measures implemented in response to the impact of the COVID-19 pandemic on our business, executive committee members have all agreed to at least a 25% reduction in base salary, until we believe it is

fiscally responsible to reinstate the original base salaries.

Our Board of Directors agreed to defer all board and committee fees and retainers, as well as waive any fees related to weekly board check in meetings, as long as the executive committee

continues with a base salary reduction.

We continue to analyze our cost structure and may implement additional cost reduction measures as may be necessary due to the on-going economic challenges resulting from the COVID-19 pandemic.

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.

High-risk employees at all of our facilities have been required to remain at home;

however, they continue to receive their compensation.

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 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, 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.

During fiscal 2021, these expanded benefits, supply costs and other COVID-19 related costs resulted in $7,316,000 of total expense included in cost of goods sold and operating expenses in the consolidated statements of operations.

During fiscal 2021, we received $1,130,000, in payments from the Canadian Government under the Canadian Emergency Wage Subsidy program and our Asian subsidiaries received $171,000 from their local government assistance programs.

These payments are recorded as a reduction of cost of goods sold and operating expenses in the consolidated statements of operations.

In addition, we deferred the employer’s share of social security taxes of $1,170,000, of which $585,000 is included in accrued liabilities and $585,000 is included in other liabilities in the consolidated balance sheet at March 31, 2021 .

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.

Segment Reporting

Pursuant to the guidance provided under the FASB ASC for segment reporting, we have identified our chief operating decision maker (“CODM”), reviewed the documents used by the CODM, and understand how such documents are

used by the CODM to make financial and operating decisions.

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

We have determined through this review process that our business comprises three separate operating segments.

Two of the operating segments meet all of the aggregation criteria, and are

Two of the operating segments meet all the aggregation criteria, and are aggregated.

The remaining operating segment does not meet the quantitative thresholds for individual disclosure and we have combined our operating segments into a single reportable segment.

1 unchanged sentence

We prepare our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, in the United States.

Our significant accounting policies are discussed in detail below and in Note 2 of the notes to consolidated

financial statements.

Our significant accounting policies are discussed in detail below and in Note 2 of the notes to consolidated financial statements.

In preparing our consolidated financial statements, we use estimates and assumptions for matters that are inherently uncertain.

We base our estimates on historical experiences and reasonable assumptions.

Our use of estimates and assumptions affect

the reported amounts of assets, liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period.

Our use of estimates and assumptions affect the reported amounts of assets, liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period.

Actual results may differ from our estimates.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets.

We are not currently aware of any specific event or circumstance that would require an update to our estimates or judgments or a

revision of the carrying value of our assets or liabilities as of March 31, 2020.

We are not currently aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of March 31, 2021.

These estimates may change, as new events occur and additional information is obtained.

Actual results could differ materially from these estimates under different

assumptions or conditions.

Our remanufacturing operations include a core exchange program for the core portion of the finished good.

Actual results could differ materially from these estimates under different assumptions or conditions.

Our remanufacturing operations include core exchange programs for the core portion of the finished good.

The Used Cores that we acquire and are returned to us from our customers are a necessary raw material for remanufacturing.

We also offer our

customers marketing and other allowances that impact revenue recognition.

We also offer our customers marketing and other allowances that impact revenue recognition.

These elements of our business give rise to more complex accounting than many businesses our size or larger.

New Accounting Pronouncements Recently Adopted

In February 2016, the FASB issued new guidance that requires balance sheet recognition of a lease asset and lease liability by lessees for all leases, other than leases with a term of 12 months or less if the short-term lease exclusion expedient is

The new guidance also requires new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements.

The new guidance required a modified retrospective approach with optional

practical expedients.

The FASB provided entities with an additional transition method, which allows an entity to apply this guidance as of the beginning of the period of adoption instead of the beginning of the earliest comparative period presented in

the entity’s financial statements.

We adopted this guidance on April 1, 2019 using the modified retrospective approach and the optional transition method permitted by the FASB.

We also elected certain practical expedients permitted under the transition

guidance, including the package of practical expedients, which allowed us not to reassess lease classification for leases that commenced prior to the adoption date.

In addition, we elected to exempt leases with an initial term of 12 months or less from

balance sheet recognition and, for all classes of assets, combining non-lease components with lease components.

Upon adoption, we recorded operating lease liabilities of $53,043,000 and corresponding operating lease assets of $50,773,000.

The difference between the operating lease assets and liabilities recognized on our consolidated balance sheet primarily

related to accrued rent on existing leases that were offset against the operating lease asset upon adoption.

There was an immaterial reclassification of non-lease components to finance lease assets and finance lease liabilities upon adoption due to our

election to combine non-lease components with lease components.

The adoption of the new guidance did not have any impact on our rent expense and consolidated statement of cash flows.

However, we have material nonfunctional currency leases that could

have a material impact on our consolidated statements of operations.

As required for other monetary liabilities, lessees shall remeasure a foreign currency-denominated lease liability using the exchange rate at each reporting date, but the lease assets

are nonmonetary assets measured at historical rates, which are not affected by subsequent changes in the exchange rates.

We recorded a loss of $11,710,000 in general and administrative expenses in connection with the remeasurement of foreign

currency-denominated lease liabilities during fiscal 2020.

See Note 11 for additional discussion of the adoption of ASC 842 and the impact on our financial statements.

New Accounting Pronouncements Not Yet Adopted

Recently Adopted Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments

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 ASU issued to clarify certain provisions of the new guidance, changes the

impairment model for most financial assets and will require 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.

This pronouncement is effective for fiscal years, and for interim periods

within those fiscal years, beginning after December 15, 2019.

We will adopt this guidance on April 1, 2020 and the adoption is not expected to have a significant impact on our consolidated financial statements and related disclosures.

Additionally, the

adoption is not expected to have any significant impact on our business processes, systems and internal controls.

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.

The adoption of this guidance on April 1, 2020 increased our disclosures for our expected credit losses but did not have a material effect on our consolidated financial statements.

Prior to April 1, 2020, accounts receivable were recorded at cost less an allowance for doubtful accounts.

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

We maintained 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 in the consolidated balance sheets.

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 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.

At each reporting period, we will assess whether financial assets in a pool continue to display similar risk characteristics.

If particular receivables no longer display risk characteristics that are similar to those of the receivables in the pool, we may determine that we need to move those receivables to a different pool or perform an individual assessment of expected credit losses for those specific receivables.

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.

The standard is effective for financial statements issued for fiscal years , and for interim periods within those fiscal years, beginning

after December 15, 2019.

Early adoption is permitted.

We will adopt this guidance on April 1, 2020 and the adoption is not expected to have a significant impact on our consolidated financial statements and related disclosures.

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes , and clarifies certain aspects of the current guidance

to promote consistent application.

This guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2020.

Early adoption is permitted.

We are currently evaluating the impact this guidance will have on our

consolidated financial statements and related disclosures.

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 are 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 consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued guidance that, for a limited time, eases the potential burden in accounting for reference rate reform.

The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships

and other transactions affected by reference rate reform if certain criteria are met.

The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be

discontinued due to reference rate reform.

The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform.

These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

We are currently

evaluating our contracts and the optional expedients provided by this guidance and the impact the new standard will have on our consolidated financial statements and related disclosures.

We will apply these amendments prospectively.

The adoption of this guidance on April 1, 2020 did not have an impact on our consolidated financial statements for the year ended March 31, 2021.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application.

This guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2020.

Early adoption is permitted.

The adoption of this guidance on April 1, 2021 is not expected to have any material impact on our consolidated financial statements.

Inventory is comprised of:

2 unchanged sentences

Work-in-process is in various stages of production and is valued at the average cost of Used Cores and component raw materials issued to work orders still open, including allocations of labor and overhead costs.

Historically, work-in-process

inventory has not been material compared to the total inventory balance.

Historically, work-in-process inventory has not been material compared to the total inventory balance.

Remanufactured finished goods include:

(i) the Used Core cost and (ii) the cost of component raw materials, and allocations of labor and variable and fixed overhead costs (the “Unit Value”).

The allocations of labor and variable and fixed overhead

costs are based on the actual use of the production facilities over the prior 12 months which approximates normal capacity.

This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally

low or high production.

In addition, we exclude certain unallocated overhead such as severance costs, duplicative facility overhead costs, start-up costs, training, and spoilage from the calculation and expenses these unallocated overhead as period

(i) the Used Core cost and (ii) the cost of component raw materials, and allocations of labor and variable and fixed overhead costs (the “Unit Cost”).

The allocations of labor and variable and fixed overhead costs are based on the actual use of the production facilities over the prior 12 months which approximates normal capacity.

This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production.

Purchased finished goods also include an allocation of fixed overhead costs.

The estimate of net realizable value is subjective and based on our judgment and knowledge of current industry demand and management’s projections of industry demand.

The estimates may, therefore, be revised if there are changes in the overall

market for our products or market changes that in our judgment, impact our ability to sell or liquidate potentially excess or obsolete inventory.

The estimates may, therefore, be revised if there are changes in the overall market for our products or market changes that in our judgment, impact our ability to sell or liquidate potentially excess or obsolete inventory.

Net realizable value is determined at least quarterly as follows:

Net realizable value for finished goods by customer by product line are determined based on the agreed upon selling price with the customer for a product in the trailing 12 months.

We compare the average selling price, including any

discounts and allowances, to the finished goods cost of on-hand inventory less any reserve for excess and obsolete inventory.

We compare the average selling price, including any discounts and allowances, to the finished goods cost of on-hand inventory less any reserve for excess and obsolete inventory.

Any reduction of value is recorded as cost of goods sold in the period in which the revaluation is identified.

Net realizable value for Used Cores are determined based on current core purchase prices from core brokers to the extent that core purchases in the trailing 12 months are significant.

Remanufacturing consumes, on average, more than one Used

Core for each remanufactured unit produced since not all Used Cores are reusable.

Remanufacturing consumes, on average, more than one Used Core for each remanufactured unit produced since not all Used Cores are reusable.

The yield rates depend upon both the product and customer specifications.

We purchase Used Cores from core brokers to supplement our yield rates and Used Cores

not returned under the core exchange program.

We also consider the net selling price our customers have agreed to pay for Used Cores that are not returned under our core exchange program to assess whether Used Core cost exceeds Used Core net

realizable value on a by customer by product line basis.

We purchase Used Cores from core brokers to supplement our yield rates and Used Cores not returned under the core exchange programs.

We also consider the net selling price our customers have agreed to pay for Used Cores that are not returned under our core exchange programs to assess whether Used Core cost exceeds Used Core net realizable value on a by customer by product line basis.

Any reduction of core cost is recorded as cost of goods sold in the period in which the revaluation is identified.

We record an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory.

We periodically review inventory to identify excess

quantities and part numbers that are experiencing a reduction in demand.

Any part numbers with quantities identified during this process are reserved for at rates based upon our judgment, historical rates, and consideration of possible scrap

and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part.

As a result of this process, we recorded reserves for excess and obsolete inventory of $13,208,000 and $11,899,000 at March 31, 2020 and

2019, respectively.

The increase in the reserve for excess and obsolete inventory was primarily driven by our acquisition of Dixie.

We periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand.

Any part numbers with quantities identified during this process are reserved for at rates based upon our judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part.

As a result of this process, we recorded reserves for excess and obsolete inventory of $13,246,000 and $13,208,000 at March 31, 2021 and 2020, respectively.

We record vendor discounts as a reduction of inventories and are recognized as a reduction to cost of sales as the inventories are sold.

Inventory Unreturned

Inventory unreturned represents our estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that we expect to be returned, under our general right of return policy,

after the balance sheet date.

Inventory unreturned includes only the Unit Value of a finished good.

Inventory unreturned includes only the Unit Cost of a finished good.

The return rate is calculated based on expected returns within the normal operating cycle, which is generally one year.

As such, the related amounts are

classified in current assets.

As such, the related amounts are classified in current assets.

Inventory unreturned is valued in the same manner as our finished goods inventory.

1 unchanged sentence

Contract assets consists of:

(i) the core portion of the finished goods shipped to customers, (ii) upfront payments to customers in connection with customer contracts, (iii) core premiums paid to customers, and (iv)

long-term core inventory deposits.

(i) the core portion of the finished goods shipped to customers, (ii) upfront payments to customers in connection with customer contracts, (iii) core premiums paid to customers, (iv) finished goods premiums paid to customers, and (v) long-term core inventory deposits.

Remanufactured Cores held at customers’ locations as a part of the finished goods sold to the customer are classified as long-term contract assets.

These assets are valued at the lower of cost or net realizable value

of Used Cores on hand (See Inventory above).

For these Remanufactured Cores, we expect the finished good containing the Remanufactured Core to be returned under our general right of return policy or a similar Used Core to be returned to us by the

customer, under our core exchange program in each case, for credit.

Remanufactured Cores and Used Cores returned by consumers to our customers but not yet returned to us are classified as “Cores expected to be returned by customers”, which are

included in short-term contract assets until we physically receive them during our normal operating cycle, which is generally one year.

These assets are valued at the lower of cost or net realizable value of Used Cores on hand (See Inventory above).

Remanufactured Cores and Used Cores returned by consumers to our customers but not yet returned to us are classified as “Cores expected to be returned by customers”, which are included in short-term contract assets until we physically receive them during our normal operating cycle, which is generally one year.

Upfront payments to customers represent the marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided to our customers.

These allowances are recognized as an asset and amortized over the appropriate period of

time as a reduction of revenue if we expect to generate future revenues associated with the upfront payment.

If we do not expect to generate additional revenue, then the upfront payment is recognized in the

consolidated statements of operations when payment occurs as a reduction of revenue.

These allowances are recognized as an asset and amortized over the appropriate period of time as a reduction of revenue if we expect to generate future revenues associated with the upfront payment.

If we do not expect to generate additional revenue, then the upfront payment is recognized in the consolidated statements of operations when payment occurs as a reduction of revenue.

Upfront payments expected to be amortized during our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Core premiums paid to customers represent the difference between the Remanufactured Core acquisition price paid to customers generally in connection with new business, and the related Used Core cost, which is treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered.

We consider, among other things, the length of our

largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums.

These core premiums are amortized over a period

typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement.

We consider, among other things, the length of our largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums.

These core premiums are amortized over a period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement.

Core premiums are recorded as long-term contract assets.

Core premiums expected to be amortized within

our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Core premiums expected to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Finished goods premiums paid to customers represent the difference between the finished good acquisition price paid to customers, generally in connection with new business, and the related finished good cost, which is treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered.

Finished goods premiums are amortized over a period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement.

Finished goods premiums are recorded as long-term contract assets.

Finished goods premiums expected to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Long-term core inventory deposits represent the cost of Remanufactured Cores we have purchased from customers, which are held by the customers and remain on the customers’ premises.

The costs of these Remanufactured Cores were established at the

time of the transaction based on the then current cost.

The costs of these Remanufactured Cores were established at the time of the transaction based on the then current cost.

The selling value of these Remanufactured Cores was established based on agreed upon amounts with these customers.

We expect to realize the selling value and the related cost of these

Remanufactured Cores should our relationship with a customer end, a possibility that we consider remote based on existing long-term customer agreements and historical experience.

We expect to realize the selling value and the related cost of these Remanufactured Cores should our relationship with a customer end, a possibility that we consider remote based on existing long-term customer agreements and historical experience.

Revenue Recognition

Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied;

generally, this occurs with the transfer of control of our manufactured, remanufactured, or distributed products.

Revenue is measured

as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

Revenue is recognized net of all anticipated returns, including Used Core returns under the core exchange

program, marketing allowances, volume discounts, and other forms of variable consideration .

generally, this occurs with the transfer of control of our products.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

Revenue is recognized net of all anticipated returns, marketing allowances, volume discounts, and other forms of variable consideration .

Revenue is recognized either when products are shipped or when delivered, depending on the applicable contract terms.

Bill and hold shipments are shipped out to the customer as ex-works;

in which the customer makes arrangements and is responsible

for their shipping cost.

in which the customer makes arrangements and is responsible for their shipping cost.

No freight or shipping costs are accrued for revenue under the terms of shipments made as ex-works.

The Unit Value is recorded

as revenue based on our then current price list, net of applicable discounts and allowances.

The price of a finished remanufactured product sold to customers is generally comprised of separately invoiced amounts for the Remanufactured Core included in the product (“Remanufactured Core value”) and the unit portion included in the product (“Unit Value”), for which revenue is recorded based on our then current price list, net of applicable discounts and allowances.

The Remanufactured Core value is recorded as a net revenue based upon the estimate of Used Cores that will not be returned by the customer for credit.

estimates are subjective and based on management’s judgment and knowledge of historical, current, and projected return rates.

As reconciliations are completed with the customers the actual rates at which Used Cores are not being returned may differ

from the current estimates.

These estimates are subjective and based on management’s judgment and knowledge of historical, current, and projected return rates.

As reconciliations are completed with the customers the actual rates at which Used Cores are not being returned may differ from the current estimates.

This may result in periodic adjustments of the estimated contract asset and liability amounts recorded and may impact the projected revenue recognition rates used to record the estimated future revenue.

These estimates may

also be revised if there are changes in contractual arrangements with customers, or changes in business practices.

A significant portion of the remanufactured automotive parts sold to customers are replaced by similar Used Cores sent back for credit by

customers under the core exchange program (as described in further detail below).

The number of Used Cores sent back under the core exchange program is generally limited to the number of similar Remanufactured Cores previously shipped to each customer.

Revenue Recognition — Core Exchange Program

These estimates may also be revised if there are changes in contractual arrangements with customers, or changes in business practices.

A significant portion of the remanufactured automotive parts sold to customers are replaced by similar Used Cores sent back for credit by customers under the core exchange programs (as described in further detail below).

The number of Used Cores sent back under the core exchange programs is generally limited to the number of similar Remanufactured Cores previously shipped to each customer.

Revenue Recognition — Core Exchange Programs

Full price Remanufactured Cores:

When remanufactured products are shipped, certain customers are invoiced for the Remanufactured Core value of the product at the full Remanufactured Core sales price.

For these Remanufactured Cores, revenue is only

recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange program.

The remainder of the full price Remanufactured Core

value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit under our core exchange

For these Remanufactured Cores, revenue is only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange programs.

The remainder of the full price Remanufactured Core value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit under our core exchange programs.

Nominal price Remanufactured Cores:

Certain other customers are invoiced for the Remanufactured Core value of the product shipped at a nominal (generally $0.01 or less) Remanufactured Core price.

For these nominal Remanufactured Cores, revenue is

only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange program.

Revenue amounts are calculated based on

contractually agreed upon pricing for these Remanufactured Cores for which the customers are not returning similar Used Cores.

The remainder of the nominal price Remanufactured Core value invoiced to these customers is established as a long-term

contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit under our core exchange program.

For these nominal Remanufactured Cores, revenue is only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange programs.

Revenue amounts are calculated based on contractually agreed upon pricing for these Remanufactured Cores for which the customers are not returning similar Used Cores.

The remainder of the nominal price Remanufactured Core value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit under our core exchange programs.

Revenue Recognition;

1 unchanged sentence

Customers are allowed to return goods that their end-user customers have returned to them, whether or not the returned item is defective (warranty returns).

In addition, under the terms of certain agreements and

industry practice, customers from time to time are allowed stock adjustments when their inventory of certain product lines exceeds the anticipated sales to end-user customers (stock adjustment returns).

Customers have various contractual rights for

stock adjustment returns, which are typically less than 5% of units sold.

In addition, under the terms of certain agreements and industry practice, customers from time to time are allowed stock adjustments when their inventory of certain product lines exceeds the anticipated sales to end-user customers (stock adjustment returns).

Customers have various contractual rights for stock adjustment returns, which are typically less than 5% of units sold.

In some instances, a higher level of returns is allowed in connection with significant restocking orders.

The aggregate returns are generally limited to less than 20% of unit

The aggregate returns are generally limited to less than 20% of unit sales.

The allowance for warranty returns is established based on a historical analysis of the level of this type of return as a percentage of total unit sales.

The allowance for stock adjustment returns is based on specific

customer inventory levels, inventory movements, and information on the estimated timing of stock adjustment returns provided by customers.

The allowance for stock adjustment returns is based on specific customer inventory levels, inventory movements, and information on the estimated timing of stock adjustment returns provided by customers.

Stock adjustment returns do not occur at any specific time during the year.

The return rate for stock

adjustments is calculated based on expected returns within the normal operating cycle, which is generally one year.

The return rate for stock adjustments is calculated based on expected returns within the normal operating cycle, which is generally one year.

The Unit Value of the warranty and stock adjustment returns are treated as reductions of revenue based on the estimations made at the time of the sale.

The Remanufactured Core value of warranty and stock adjustment

returns are provided for as indicated in the paragraph “Revenue Recognition – Core Exchange Program”.

The Remanufactured Core value of warranty and stock adjustment returns are provided for as indicated in the paragraph “Revenue Recognition – Core Exchange Programs”.

As is standard in the industry, we only accept returns from on-going customers.

If a customer ceases doing business with us, we have no further obligation to accept additional product returns from that customer.

Similarly, we accept product returns

and grant appropriate credits to new customers from the time the new customer relationship is established.

Similarly, we accept product returns and grant appropriate credits to new customers from the time the new customer relationship is established.

Contract Liability

Contract liability consists of:

(i) customer allowances earned, (ii) accrued core payments, (iii) customer core returns accruals, (iv) core bank, and (v) customer deposits.

(i) customer allowances earned, (ii) accrued core payments, (iii) customer core returns accruals, (iv) core bank liability, (v) finished goods liabilities, and (vi) customer deposits.

Customer allowances earned includes all marketing allowances provided to customers.

Such allowances include sales incentives and concessions.

Voluntary marketing allowances related to a single exchange of product are

recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered.

Other marketing allowances, which may only be applied against future purchases, are recorded as a reduction to revenues in

accordance with a schedule set forth in the relevant contract.

Voluntary marketing allowances related to a single exchange of product are recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered.

Other marketing allowances, which may only be applied against future purchases, are recorded as a reduction to revenues in accordance with a schedule set forth in the relevant contract.

Sales incentive amounts are recorded based on the value of the incentive provided.

Customer allowances to be provided to customers within our normal operating cycle, which is generally

one year, are considered short-term contract liabilities and the remainder are recorded as long-term.

Customer allowances to be provided to customers within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.

Accrued core payments represent the sales price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises.

price of these Remanufactured Cores will be realized when our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience.

The payments to be made to customers for

purchases of Remanufactured Cores within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term.

The sales price of these Remanufactured Cores will be realized when our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience.

The payments to be made to customers for purchases of Remanufactured Cores within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.

Customer core returns accruals represent the full and nominally priced Remanufactured Cores shipped to our customers.

When we ship product, we recognize an obligation to accept a similar Used Core sent back under the

core exchange program based upon the Remanufactured Core price agreed upon by us and our customer.

The contract liability related to Used Cores returned by consumers to our customers but not yet returned to us are classified as short-term contract

liabilities until we physically receive these Used Cores as they are expected to be returned during our normal operating cycle, which is generally one year and the remainder are recorded as long-term.

The core bank liability represents the full Remanufactured Core sales price for cores returned under our core exchange program.

The payment for these returned cores will be made over a contractual repayment period

pursuant to our agreement with this customer.

Payments to be made within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term.

When we ship product, we recognize an obligation to accept a similar Used Core sent back under the core exchange programs based upon the Remanufactured Core price agreed upon by us and our customer.

The contract liability related to Used Cores returned by consumers to our customers but not yet returned to us are classified as short-term contract liabilities until we physically receive these Used Cores as they are expected to be returned during our normal operating cycle, which is generally one year and the remainder are recorded as long-term contract liabilities.

The core bank liability represents the full Remanufactured Core sales price for cores returned under our core exchange programs.

The payment for these returned cores are made over a contractual repayment period pursuant to our agreement with this customer.

Payments to be made within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.

Finished goods liabilities represents the agreed upon price of finished goods acquired from customers, generally in connection with new business.

The payment for these finished goods are made over a contractual repayment period pursuant to our agreement with the customer.

Payments to be made within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.

Customer deposits represent the receipt of prepayments from customers for the obligation to transfer goods or services in the future.

We classify these customer deposits as short-term contract liabilities as we expect

to satisfy these obligations within our normal operating cycle, which generally one year and the remainder are recorded as long-term.

We classify these customer deposits as short-term contract liabilities as we expect to satisfy these obligations within our normal operating cycle, which generally one year.

Customer Finished Goods Returns Accrual

returned to them and from time to time, stock adjustment returns when the customers’ inventory of certain product lines exceeds the anticipated sales to end-user customers.

The customer finished goods returns accrual represents the Unit Value of the

estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year.

Our customer finished goods returns accrual was $25,326,000 and $22,615,000 at March 31, 2020

and 2019, respectively.

We account for income taxes using the liability method, which measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their

reported amounts in the financial statements.

The customer finished goods returns accrual represents our estimate of our exposure to customer returns, including warranty returns, under our general right of return policy to allow customers to return items that their end user customers have returned to them and from time to time, stock adjustment returns when the customers’ inventory of certain product lines exceeds the anticipated sales to end-user customers.

The customer finished goods returns accrual represents the Unit Value of the estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year.

Our customer finished goods returns accrual was $31,524,000 and $25,326,000 at March 31, 2021 and 2020, respectively.

The increase in the customer finished goods returns accrual resulted from higher sales during the fourth quarter of fiscal 2021 compared with the same period of the prior year.

The resulting asset or liability is adjusted to reflect changes in the tax laws as they occur.

A valuation allowance is provided to reduce deferred tax assets when it is more likely than not that a portion

of the deferred tax asset will not be realized.

A valuation allowance is provided to reduce deferred tax assets when it is more likely than not that a portion of the deferred tax asset will not be realized.

Realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income.

Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation

allowance recorded against our net deferred tax assets.

Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans.

A valuation allowance is established when we believe

it is not more likely than not all or some of a deferred tax assets will be realized.

A valuation allowance is established when we believe it is not more likely than not all or some of a deferred tax assets will be realized.

In evaluating our ability to recover deferred tax assets within the jurisdiction in which they arise, we consider all available positive and negative evidence.

Deferred tax assets arising primarily as a result of net operating loss carry-forwards and research and development credits in connection with our recent acquisitions have been offset completely by a valuation allowance due to the uncertainty of their

utilization in future periods.

Deferred tax assets arising primarily as a result of net operating loss carry-forwards and research and development credits in connection with our Canadian operations have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods.

Should the actual amount differ from our estimate, the amount of our valuation allowance could be impacted.

5 unchanged sentences

Fiscal Years Ended March 31,

Gross profit percentage

Cash flows provided by (used in) operations

Finished goods turnover (1)

Finished goods turnover is calculated by dividing the cost of goods sold for the year by the average between beginning and ending finished goods inventory values, for each fiscal year.

We believe that this provides a useful measure of our

ability to turn our inventory into revenues.

Finished goods turnover is calculated by dividing the cost of goods sold for the year by the average between beginning and ending non-core finished goods inventory values, for each fiscal year.

Fiscal 2020 and 2019 have been updated to conform to the current year presentation for non-core finished goods turnover.

We believe that this provides a useful measure of our ability to turn our inventory into revenues.

Fiscal 2021 Compared with Fiscal 2020

4 unchanged sentences

Gross profit percentage

Our net sales for fiscal 2020 increased by $63,034,000, or 13.3%, to $535,831,000 compared with net sales for fiscal 2019 of $472,797,000, reflecting continued growth across all of our product

In addition, our net sales for fiscal 2020 were positively impacted by:

(i) our expansion of automotive aftermarket brake product offerings with the introduction of brake calipers in August 2019, which contributed net sales of $28,118,000 and

(ii) $19,663,000 due to the full-year impact of acquisitions completed during the latter part of fiscal 2019.

Sales mix for fiscal 2020 compared with 2019 for:

(i) rotating electrical products represented 73.3% versus 78.9%, (ii) wheel hubs, 14.9% versus 15.7%;

(iii) brake-related products, which include brake calipers, brake boosters, brake master

cylinders, and brake rotors, represented 8.9% versus 3.1% ;

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, represented 2.9% versus 2.3%.

Our net sales for fiscal 2021 were $540,782,000, which represents an increase of $4,951,000, or 0.9%, from fiscal 2020 of $535,831,000.

Sales for fiscal 2021 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.

This increase in sales was partially offset by the negative impact from a number of factors related to the global COVID-19 pandemic, including disruptions with worldwide supply chain and logistics services.

Sales mix for fiscal 2021 compared with fiscal 2020 for:

(i) rotating electrical products represented 72.8% compared with 73.3%, (ii) wheel hubs products represented 15.6% compared with 14.9%;

(iii) brake-related products represented 9.7% compared with 8.9%;

and (iv) test solutions and diagnostic equipment and other products represented 1.9% compared with 2.9% .

Gross Profit.

Our gross profit was $109,461,000, or 20.2% of net sales, for fiscal 2021 compared with $118,400,000, or 22.1% of net sales, for fiscal 2020.

The gross profit margin increase of 3.2% was primarily due to a lower non-cash quarterly revaluation of cores that are part of the finished goods on the customers’

shelves and lower customer allowances related to new business for fiscal 2020 as compared with fiscal 2019.

T he 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, resulted in a write-down of $10,799,000, which impacted gross margin by 2.0%,

compared with $18,843,000, which impacted gross margin by 4.0%, for fiscal 2020 and 2019, respectively.

Our gross profit for fiscal 2020 and 2019 was further impacted by:

(i) transition expenses in connection with the expansion of our

operations in Mexico of $8,337,000 and $ 8,178,000 , respectively, (ii) amortization of core premiums paid to customers related to new business of $4,501,000 and $4,127,000, respectively, (iii) customer

allowances and return accruals related to new business of $1,065,000 and $6,042,000, respectively, and (iv) net tariff costs of $1,067,000 and $1,526,000, respectively, which were paid for products sold before price increases were effective.

profit for fiscal 2020 was further impacted by a cost of $133,000 incurred in connection with the cancellation of a customer contract .

In addition, gross profit for fiscal 2019 was impacted by core sales of $7,753,000, less related cost of goods sold of $7,750,000, and a cost of $767,000 incurred in connection with the cancellation of a customer contract, and a cost of goods

sold impact of $104,000 for inventory step-up in connection with our December 2018 acquisition.

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

Higher freight costs impacted gross profit by approximately $1,785,000, or 0.3%.

Additionally, our gross profit was further impacted by $5,268,000, or 1.0%, due to COVID-19 related costs for wages and personal protective equipment.

Our gross profit for fiscal 2021 and fiscal 2020 was also impacted by:

(i) transition expenses in connection with the expansion of our operations in Mexico of $16,353,000 and $8,337,000, respectively, and (ii) amortization of core premiums paid to customers related to new business of $6,590,000 and $4,501,000, respectively.

In addition, gross profit was impacted by (i) a $3,561,000 benefit for revised tariff costs for fiscal 2021, (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 a gain due to realignment of inventory at two customer distribution centers, which resulted in a net write-down of $209,000 for fiscal 2021 compared with a write-down of $10,799,000 for fiscal 2020, (iii) customer allowances and return accruals related to new business of $408,000 and $1,065,000, and (iv) net tariff costs of $332,000 and $1,067,000 not passed through to customers for fiscal 2021 and fiscal 2020, respectively.

Our prior year gross profit was impacted by cost of $133,000 in connection with the cancellation of a customer contract.

Operating Expenses

4 unchanged sentences

Research and development

Foreign exchange impact of lease liabilities and forward contracts

Percent of net sales

2 unchanged sentences

Research and development

Foreign exchange impact of lease liabilities and forward contracts

General and Administrative.

Our general and administrative expenses for fiscal 2020 were $71,425,000, which represents an increase of $25,453,000, or 55.4%, from $45,972,000 for fiscal 2019.

This increase was

primarily due to:

(i) a non-cash loss of $11,710,000 due to the remeasurement of foreign currency-denominated lease liabilities at our Mexican subsidiary, (ii) a non-cash loss of $6,491,000 recorded during fiscal 2020 due to the change in the fair

value of the forward foreign currency exchange contracts compared to a non-cash loss of $972,000 recorded during fiscal 2019, (iii) $2,888,000 of increased bonus and other incentives, (iv) $1,485,000 of general and administrative expenses due to the

full-year impact of our fiscal 2019 acquisitions, (v) $1,315,000 of expense in connection with our internal control remediation efforts, (vi) $1,206,000 for personnel to support our growth initiatives, (vii) $1,204,000 of increased professional

services, (viii) $789,000 in aggregate foreign currency transaction losses, (ix) $571,000 of increased amortization of intangible assets in connection with our fiscal 2019 acquisitions, and (x) $544,000 of increased depreciation expense.

increases were partially offset by a decrease in share-based compensation expense of $1,423,000.

Our general and administrative expenses for fiscal 2021 were $53,847,000, which represents an increase of $623,000, or 1.2%, from fiscal 2020 of $53,224,000.

The increase in general and administrative expense was primarily due to increased costs for our expansion in Mexico and other COVID-19 related costs, such as supply costs and expanded benefits to employees.

In addition, our general and administrative expenses increased due to (i) $1,824,000 of increased share-based compensation expense and bonus expense due to headcount increase and improved results and (ii) $343,000 of increased expense due to changes in revaluations of contingent consideration.

These increases were partially offset by (i) $3,718,000 of decreased professional services due to our concerted efforts to implement new more efficient systems and enhance our in house resources, (ii) $1,933,000 of increased gain resulting from foreign currency transactions, and (iii) $768,000 of decreased travel resulting from the COVID-19 pandemic.

Sales and Marketing .

Our sales and marketing expenses for fiscal 2020 increased $1,495,000, or 7.7%, to $21,037,000 from $19,542,000 for fiscal 2019.

The increase was due primarily to:

(i) $2,261,000 of

increased sales and marketing expenses due to the full-year impact of our fiscal 2019 acquisitions and (ii) $722,000 for personnel to support our growth initiatives.

These increases in sales and marketing expenses were partially offset by:

of decreased marketing expenses related to product changeovers in connection with new business, (ii) $401,000 of decreased trade shows expenses, and (iii) $291,000 of decreased travel.

Our sales and marketing expenses for fiscal 2021 were $18,024,000, which represents a decrease of $3,013,000, or 14.3%, from fiscal 2020 of $21,037,000.

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) $1,362,000 from decreased travel, (ii) $848,000 of decreased trade shows expense, (iii) $665,000 from decreased advertising and marketing expense, and (iv) $421,000 from decreased employee-related expenses.

These decreases in sales and marketing for fiscal 2021 were partially offset by $362,000 of increased commissions.

Research and Development .

Our research and development expenses increased by $1,186,000, or 14.8%, to $9,200,000 for fiscal 2020 from $8,014,000 for fiscal 2019.

The increase was primarily due to:

$866,000 of increased research and development expenses due to the full year impact of our fiscal 2019 acquisitions and (ii) $474,000 for personnel to support our growth initiatives.

These increases were partially offset by $221,000 of decreased

Our research and development expenses for fiscal 2021 were $8,563,000, which represents a decrease of $637,000, or 6.9%, from fiscal 2020 of $9,200,000.

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) $447,000 of decreased employee-related expenses, (ii) $134,000 of decreased travel, and (iii) $96,000 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 $9,893,000 compared with a non-cash loss of $11,710,000 for fiscal 2021 and fiscal 2020, respectively, due to movements in foreign exchange rates.

In addition, the changes in the fair values of forward foreign currency exchange contracts resulted in a non-cash gain of $7,713,000 compared with a non-cash loss of $6,491,000 for fiscal 2021 and fiscal 2020, respectively.

Interest Expense

Interest Expense, net.

Our interest expense, net for fiscal 2020 increased $1,812,000, or 7.8%, to $25,039,000 from $23,227,000 for fiscal 2019.

increase in interest expense was primarily due to increased average outstanding borrowings to support our growth initiatives , including our product line expansion and our inventory levels .

The increased

utilization of our accounts receivable discount programs was offset by a decrease in the weighted average discount rate from these programs.

Our interest expense, net for fiscal 2021 was $15,770,000, which represents a decrease of $9,269,000, or 37.0%, from fiscal 2020 of $25,039,000.

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 an income tax benefit of $1,011,000, or an effective tax rate of 12.2%, compared to income tax expense $268,000, or an effective

tax rate of (3.5%), for fiscal 2020 and 2019, respectively.

The effective tax rate for fiscal 2020 was impacted by net operating loss carry-backs in connection with the CARES Act.

In addition, the effective tax rate for each year was impacted by (i)

valuation allowances, (ii) the impact of the non-deductible executive compensation under Internal Revenue Code Section 162(m), and (iii) foreign income taxed at rates that are different from the federal statutory rate.

We recorded income tax expense of $9,387,000, or an effective tax rate of 30.4%, for fiscal 2021 compared with a benefit of $1,011,000, or an effective tax rate of 12.2%, for fiscal 2020.

The effective tax rate for fiscal 2021, 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).

In addition, the effective tax rate for fiscal 2020 was impacted by net operating loss carry-backs in connection with the CARES Act.

Fiscal 2020 Compared with Fiscal 2019

4 unchanged sentences

Gross profit percentage

Our net sales for fiscal 2019 increased by $45,249,000, or 10.6%, to $472,797,000 compared with net sales for fiscal 2018 of $427,548,000, reflecting strong

growth in market share for our rotating electrical products.

In addition, our net sales were positively impacted by sales of diagnostic equipment, which benefitted from our acquisitions of D&V Electronics.

We achieved record sales despite

significant customer allowances related to new business and increased stock adjustment accruals, which were a reduction of our recognized sales (as discussed below in the Gross Profit paragraph).

Sales mix for fiscal 2019 compared with 2018 for (i) rotating electrical products represented 78.9% versus 78.2% (ii) wheel hubs, 15.7% versus 16.9%;

(iii) brake-related products, which include brake calipers, brake boosters, brake master cylinders,

and brake rotors, represents 3.1% versus 3.4% ;

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, represents 2.3% versus 1.5%.

Our net sales for fiscal 2020 increased by $63,034,000, or 13.3%, to $535,831,000 compared with net sales for fiscal 2019 of $472,797,000, reflecting continued growth across all of our product lines.

In addition, our net sales for fiscal 2020 were positively impacted by:

(i) our expansion of automotive aftermarket brake product offerings with the introduction of brake calipers in August 2019, which contributed net sales of $28,118,000 and (ii) $19,663,000 due to the full-year impact of acquisitions completed during the latter part of fiscal 2019.

Sales mix for fiscal 2020 compared with fiscal 2019 for:

(i) rotating electrical products represented 73.3% compared with 78.9%, (ii) wheel hubs products represented 14.9% compared with 15.7%;

(iii) brake-related products represented 8.9% compared with 3.1%;

and (iv) test solutions and diagnostic equipment and other products represented 2.9% compared with 2.3% .

Gross Profit.

Our gross profit percentage was 18.9% for fiscal 2019 compared with 25.0% for fiscal 2018.

Gross profit for fiscal 2019 was impacted by (i) transition expenses of

$8,178,000 in connection with the expansion of our operations in Mexico, which began in late fiscal 2018, (ii) $6,042,000 of customer allowances and stock adjustment costs related to new business and product line expansion, (iii) $4,127,000 of

amortization of core premiums paid to customers related to new business, (iv) net tariff costs of $1,526,000 paid for products sold before these expenses were passed-through to customers, (v) core sales of $7,753,000, less related cost of goods sold of

$7,750,000, and a fixed allowance cost of $767,000 in connection with the cancellation of a customer contract, and (vi) a cost of goods sold impact of $104,000 for inventory step-up in connection with our December 2018 acquisition of E&M.

addition, gross margins were impacted by several factors including higher freight and wage costs, higher costs related to development and testing of our new diagnostic equipment product line, overtime and other costs related to ramping up for new

business, and other strategic initiatives for growth.

Gross profit for fiscal 2018 was impacted by (i) $5,303,000 for customer allowances and initial return and stock adjustment accruals related to new business, (ii) $3,588,000 of amortization of core premiums paid to

customers related to new business, and (iii) transition expenses of $1,831,000 in connection with the expansion of our operations in Mexico, and (iv) a cost of goods sold impact of $269,000 for inventory step-up in connection with our July 2017

acquisition of D&V.

In addition, our gross profit was further impacted by the non-cash quarterly revaluation write-down of $18,843,000 for fiscal 2019 and $9,091,000 for fiscal 2018 for remanufactured cores held at customers’ locations,

which are included in contract assets.

Core costs are dictated by supply and demand for cores in the core broker market.

Our gross profit was $118,400,000, or 22.1% of net sales for fiscal 2020 compared with $89,174,000, or 18.9% of net sales for fiscal 2019.

The gross profit margin increase of 3.2% was primarily due to a lower non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves and lower customer allowances related to new business for fiscal 2020 as compared with fiscal 2019.

T he 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, resulted in a write-down of $10,799,000, which impacted gross margin by 2.0%, compared with $18,843,000, which impacted gross margin by 4.0%, for fiscal 2020 and fiscal 2019, respectively.

Our gross profit for fiscal 2020 and fiscal 2019 was further impacted by:

(i) transition expenses in connection with the expansion of our operations in Mexico of $8,337,000 and $ 8,178,000 , respectively, (ii) amortization of core premiums paid to customers related to new business of $4,501,000 and $4,127,000, respectively, (iii) customer allowances and return accruals related to new business of $1,065,000 and $6,042,000, respectively, and (iv) net tariff costs of $1,067,000 and $1,526,000, respectively, which were paid for products sold before price increases were effective.

Gross profit for fiscal 2020 was further impacted by a cost of $133,000 incurred in connection with the cancellation of a customer contract .

Operating Expenses

4 unchanged sentences

Research and development

Foreign exchange impact of lease liabilities and forward contracts

Percent of net sales

2 unchanged sentences

Research and development

Foreign exchange impact of lease liabilities and forward contracts

General and Administrative.

Our general and administrative expenses for fiscal 2019 were $45,972,000, which represents an increase of $10,495,000, or 29.6%, from general and administrative expenses for fiscal

2018 of $35,477,000.

This increase was primarily due to (i) $1,798,000 of increased share-based compensation expense, (ii) a loss of $972,000 recorded during fiscal 2019 due to the change in the fair value of the forward foreign currency exchange

contracts compared with a gain of $752,000 recorded during fiscal 2018, (iii) $1,493,000 of increased general and administrative expenses primarily at our Mexico location to support our growth initiatives, (iv) $1,324,000 of increased professional

services primarily due to increased audit fees, costs incurred in connection with the revision of our previously issued financial statements, and for the adoption of ASC 842, (v) $989,000 of increased general and administrative expenses attributable to

our July 2017 acquisition of D&V due to the full-year impact of the acquisition and increased amortization of intangible assets, (vi) $878,000 of increased depreciation, (vii) $931,000 of acquisition costs, (viii) $852,000 in general and

administrative expenses for our fiscal 2019 acquisitions, and (ix) $739,000 of net increases in general and administrative expenses due primarily to fluctuations in Asian foreign currency exchange rates.

During fiscal 2018, a gain of $2,313,000 was

recorded in general and administrative expenses due to the change in the fair value of the warrant liability.

The warrants were exercised on September 8, 2017.

The increase in general and administrative expense was partially offset by a $2,581,000

decrease in bonus expense.

Our general and administrative expenses for fiscal 2020 were $53,224,000, which represents an increase of $8,224,000, or 18.3%, from fiscal 2019 of $45,000,000.

This increase was primarily due to:

(i) $2,888,000 of increased bonus and other incentives, (ii) $1,485,000 of general and administrative expenses due to the full-year impact of our fiscal 2019 acquisitions, (iii) $1,315,000 of expense in connection with our internal control remediation efforts, (iv) $1,206,000 for personnel to support our growth initiatives, (v) $1,204,000 of increased professional services, (vi) $789,000 in aggregate foreign currency transaction losses, (vii) $571,000 of increased amortization of intangible assets in connection with our fiscal 2019 acquisitions, and (viii) $544,000 of increased depreciation expense.

These increases were partially offset by a decrease in share-based compensation expense of $1,423,000.

Sales and Marketing .

Our sales and marketing expenses for fiscal 2019 increased $4,512,000, or 30.0%, to $19,542,000 from $15,030,000 for fiscal 2018.

The increase was due primarily to (i) $1,143,000 of

increased commissions due to increased sales, (ii) $833,000 of increased marketing expenses related to product changeovers in connection with new business, (iii) $815,000 of increased sales and marketing expenses attributable to our July 2017

acquisition of D&V due to the full-year impact of the acquisition and increased personnel, (iv) $514,000 of increased trade show expenses, (v) $448,000 for personnel to support our growth initiatives, (vi) $486,000 in sales and marketing expenses

for our fiscal 2019 acquisitions, and (vii) $209,000 of increased advertising expense.

Our sales and marketing expenses for fiscal 2020 were $21,037,000, which represents an increase of $1,495,000, or 7.7%, from fiscal 2019 of $19,542,000.

The increase was due primarily to:

(i) $2,261,000 of increased sales and marketing expenses due to the full-year impact of our fiscal 2019 acquisitions and (ii) $722,000 for personnel to support our growth initiatives.

These increases in sales and marketing expenses were partially offset by:

(i) $701,000 of decreased marketing expenses related to product changeovers in connection with new business, (ii) $401,000 of decreased trade shows expenses, and (iii) $291,000 of decreased travel.

Research and Development .

Our research and development expenses increased by $2,322,000, or 40.8%, to $8,014,000 for fiscal 2019 from $5,692,000 for fiscal 2018.

The increase was due primarily to (i)

$1,180,000 for personnel to support our new product growth initiatives, (ii) $550,000 of increased supplies, (iii) $207,000 of increased research and development expenses attributable to our July 2017 acquisition of D&V due to the full-year impact

of the acquisition and increased personnel, (iv) $221,000 of research and development expenses for our fiscal 2019 acquisitions, (v) $81,000 of increased travel, and (vi) $58,000 of increased outside services.

Our research and development expenses for fiscal 2020 were $9,200,000, which represents an increase of $1,186,000, or 14.8%, from fiscal 2019 of $8,014,000.

The increase was primarily due to:

(i) $866,000 of increased research and development expenses due to the full year impact of our fiscal 2019 acquisitions and (ii) $474,000 for personnel to support our growth initiatives.

These increases were partially offset by $221,000 of decreased supplies.

Foreign Exchange Impact of Lease Liabilities and Forward Contracts .

The remeasurement of our foreign currency-denominated lease liabilities resulted in a non-cash loss of $11,710,000 for fiscal 2020 due to movements in foreign exchange rates.

We adopted the new lease guidance on April 1, 2019.

In addition, the changes in the fair values of the forward foreign currency exchange contracts resulted in non-cash losses of $6,491,000 and $972,000 for fiscal 2020 and fiscal 2019, respectively.

Interest Expense

Interest Expense, net.

Our interest expense, net for fiscal 2019 increased $7,782,000, or 50.4%, to $23,227,000 from $15,445,000 for fiscal 2018.

increase in interest expense was due primarily to (i) an increase in the utilization of and higher interest rates on our accounts receivable discount programs, (ii) increased average outstanding borrowings as we build our inventory levels to

support anticipated higher sales, (iii) the write-off of $303,000 of previously capitalized debt issuance costs in connection with the amendment to our credit facility, and (iv) higher interest rates on our

average outstanding borrowings under our credit facility .

Our interest expense, net for fiscal 2020 was $25,039,000, which represents an increase of $1,812,000, or 7.8%, from fiscal 2019 of $23,227,000.

The increase in interest expense was primarily due to increased average outstanding borrowings to support our growth initiatives , including our product line expansion and our inventory levels .

The increased utilization of our accounts receivable discount programs was offset by a decrease in the weighted average discount rate from these programs.

Provision for Income Taxes

We recorded an income tax expense of $268,000, or an effective tax rate of (3.5%), for fiscal 2019, which was impacted by the statute lapses

for various uncertain tax positions and return to provision adjustments, and finalization of provisional estimates under Staff Accounting Bulletin (“SAB”) 118.

We recorded income tax expense, as adjusted, for fiscal 2018 of $16,125,000, or an

effective tax rate of 45.6%, which was significantly impacted by the enactment of the Act on December 22, 2017.

In addition, the effective tax rate for each year was impacted by valuation allowances recorded in

connection with our recent acquisitions.

The Act reduced the U.S.

federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new

taxes on certain foreign sourced earnings.

During the year ended March 31, 2018, we recorded provisional amounts by applying the guidance in SAB 118, as we had not yet completed the accounting for the tax effects of enactment of the Act.

We recorded a

one-time provisional non-cash tax charge of $2,709,000 due to the revaluation of deferred tax assets and liabilities.

The one-time transition tax was estimated and recorded as a one-time provisional income tax expense of $530,000 at March 31, 2018.

As the measurement under SAB 118 ended during fiscal 2019, we completed our accounting analysis of the cumulative foreign earnings, transitional tax liability, and non-cash tax charge for deferred revaluation under the

Fiscal 2019 included a reduction of $50,000 to the provisional transition tax amount and a $102,000 increase to non-cash charge due to the revaluation of deferred tax assets and liabilities previously reported under SAB 118.

Additionally, our U.S.

tax return for the period ended March 31, 2018 was filed and any changes to the tax positions for temporary differences compared with the estimates used resulted in an adjustment of the estimated tax expense recorded as of March 31, 2018.

completion of our accounting for the Act under SAB 118, many aspects of the law remain unclear and we expect ongoing guidance to be issued at both the federal and state levels.

We will continue to monitor and assess the impact of any new developments.

We recorded an income tax benefit of $1,011,000, or an effective tax rate of 12.2%, for fiscal 2020 compared with income tax expense $268,000, or an effective tax rate of (3.5%), fiscal 2019.

The effective tax rate for fiscal 2020 was impacted by net operating loss carry-backs in connection with the CARES Act.

In addition, the effective tax rate for each year was impacted by (i) valuation allowances, (ii) the impact of the non-deductible executive compensation under Internal Revenue Code Section 162(m), and (iii) 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 $96,725,000 and $90,624,000, a ratio of current assets to current liabilities of 1.3:1.0, at March 31, 2021 and 2020, respectively.

The increase in working capital was due

primarily to higher cash and accounts receivable balances partially offset by increased borrowing under our credit facility.

In June 2019, we entered into a second amendment to the credit facility, which, among other things, increased our revolving loan facility from $200,000,000 to $238,620,000.

We generated cash during the year ended March 31, 2020 from operations, the use of receivable discount programs, and from our credit facility.

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.

We believe our cash and cash equivalents, short-term investments, use of receivable discount programs, amounts available under our credit facility, and other sources are sufficient to

satisfy our expected future working capital needs, repayment of the current portion of our term loans, and lease and capital expenditure obligations over the next 12 months.

The increase in working capital was due primarily to the buildup of our inventory to meet anticipated future demand partially offset by the associated increase in our accounts payable balances .

In addition, we used cash and collections of accounts receivable balances to pay down our credit facility during fiscal 2021.

We generated cash during fiscal 2021 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.

We believe our cash and cash equivalents, short-term investments, use of receivable discount programs, amounts available under our credit facility, and other sources are sufficient to satisfy our expected future working capital needs, repayment of the current portion of our term loans, and lease and capital expenditure obligations over the next 12 months.

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

5 unchanged sentences

Effect of exchange rates on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Additional selected cash flow data:

2 unchanged sentences

Fiscal 2021 Compared with Fiscal 2020

Net cash provided by operating activities was $18,795,000 during fiscal 2020 compared to net cash used in operating activities of $40,328,000 during fiscal 2019.

Our operating activities were significantly impacted by our growth initiatives,

including our product line expansion, and our inventory levels.

Net cash used in investing activities was $11,594,000 and $22,610,000 during fiscal 2020 and 2019, respectively.

This change was due primarily to no acquisition-related activities and redemptions of short-term investments partially offset by increased purchases of plant and equipment for our current operations and the expansion of our operations in Mexico

during fiscal 2020.

Net cash provided by financing activities was $32,153,000 and $59,936,000 during fiscal 2020 and 2019, respectively.

The significant change in our financing activities during fiscal 2020 as compared with fiscal 2019 was due mainly to lower net

borrowings under our credit facility partially offset by the payment of $1,955,000 in contingent consideration liabilities during fiscal 2020.

In addition, during fiscal 2019, we used $4,062,000 for share repurchases.

Net cash provided by operating activities was $56,089,000 and $18,795,000 for fiscal 2021 and fiscal 2020, respectively.

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 partially offset by the 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 operating activities continued to be significantly impacted by our growth initiatives, including our new expanded footprint and product lines.

Net cash used in investing activities was $14,214,000 and $11,594,000 for fiscal 2021 and fiscal 2020, respectively.

The change was due primarily to the redemption of short-term investments during the prior year.

Net cash used in financing activities was $76,567,000 for fiscal 2021 compared with net cash provided by financing activities $32,153,000 for fiscal 2020.

The significant change in our financing activities resulted from the pay down of our debt by $71,750,000 for fiscal 2021 compared with borrowing to support our growth initiatives, including the expansion of our operations in Mexico and our product line expansion for fiscal 2020.

Fiscal 2020 Compared with Fiscal 2019

Net cash used in operating activities was $40,328,000 and $13,944,000 during fiscal 2019 and 2018, respectively.

Our operating activities were significantly impacted by our growth initiatives, including our product line expansion.

operating activities include:

(i) expenses incurred in connection with the expansion of our Mexico operations, (ii) the build-up of inventory to support anticipated higher sales, and (iii) payments made to customers of $28,270,000 during fiscal 2019

for core buy-backs made in connection with new business expansion.

Net cash used in investing activities was $22,610,000 and $15,278,000 during fiscal 2019 and 2018, respectively.

This change was due primarily to our increased acquisition-related activities and capital expenditures, which was primarily for the purchase of equipment for our current operations and the expansion of our operations in Mexico.

Net cash provided by financing activities was $59,936,000 and $33,142,000 during fiscal 2019 and 2018, respectively.

The significant change in our financing activities during fiscal 2019 as compared with fiscal 2018 was due mainly to increased net

borrowing under our credit facility.

Net cash provided by operating activities was $18,795,000 during fiscal 2020 compared with net cash used in operating activities of $40,328,000 during fiscal 2019.

Our operating activities were significantly impacted by our growth initiatives, including our product line expansion, and our inventory levels.

Net cash used in investing activities was $11,594,000 and $22,610,000 during fiscal 2020 and fiscal 2019, respectively.

Net cash provided by financing activities was $32,153,000 and $59,936,000 during fiscal 2020 and fiscal 2019, respectively.

The significant change in our financing activities during fiscal 2020 as compared with fiscal 2019 was due mainly to lower net borrowings under our credit facility partially offset by the payment of $1,955,000 in contingent consideration liabilities during fiscal 2020.

In addition, during fiscal 2019, we used $4,062,000 for share repurchases.

Capital Resources

We are party to a $230,000,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of:

(i) a $200,000,000 revolving loan

facility, subject to borrowing base restrictions, a $20,000,000 sublimit for borrowings by Canadian borrowers, and a $15,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”).

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

We are 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”).

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

The Credit Facility currently permits the payment of up to $30,000,000 of dividends and share repurchases for fiscal year 2021, 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.

In June 2019, we entered into a second amendment to the Credit Facility (“Second Amendment”).

The Second Amendment, among other things, (i) increased the total size of the Revolving Facility to $238,620,000, (ii) modified the fixed charge coverage

ratio financial covenant, (iii) modified the definition of “Consolidated EBITDA”, (iv) modified the borrowing base definition to, among other things, include brake-related products as eligible inventory, (v) increased the letter of credit sublimit to

$20,000,000, (vi) increased the Canadian revolving sublimit and swing line sublimit to $24,000,000, (vii) increased the swing line sublimit to $23,862,000, (viii) permitted up to $5,000,000 of sale and lease back transactions per fiscal year, (ix)

increased the permitted amount of certain capital expenditures, (x) increased the permitted amount of operating lease obligations per fiscal year, and (xi) increased certain other covenant-related baskets.

capitalized $973,000 of new debt issuance costs in connection with the Second Amendment, which is included in prepaid and other current assets in the consolidated balance sheet at March 31, 2020.

The Term Loans require quarterly principal payments of $937,500.

The Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or 1.75%, in each case

depending on the senior leverage ratio as of the applicable measurement date.

The Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or 1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date.

There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date.

The interest rate on our Term Loans and

Revolving Facility was 4.34% and 3.64%, at March 31, 2020, respectively, and 5.24% at March 31, 2019.

The interest rate on our Term Loans and Revolving Facility was 2.62% at March 31, 2021, 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 at March 31, 2020.

We were in compliance with all financial covenants as of March 31, 2021.

Our Consolidated EBITDA for the purposes of bank covenant calculations was $73,519,000 for fiscal 2021.

On May 28, 2021, we entered into a third amendment to the Amended Credit Facility (the “Third Amendment”).

The Third Amendment, among other things, (i) extends the maturity date to May 28, 2026 from June 5, 2023, (ii) modifies the fixed charge coverage ratio financial covenant, and (iii) modifies the definition of “Consolidated EBITDA”.

The modifications to the financial covenants were effective as of March 31, 2021.

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

5 unchanged sentences

Minimum fixed charge coverage ratio

In light of COVID-19, we elected to not pay down our Revolving Facility and we accumulated cash of $49,616,000 as of March 31, 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 1.77.

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 cash of $15,523,000 at March 31, 2021 and paid down our outstanding debt by $71,750,000 during fiscal 2021.

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 $84,000,000 and $152,000,000 outstanding under the Revolving Facility at March 31, 2021 and 2020, respectively.

In addition, $3,579,000 was reserved for letters of credit at March 31, 2020.

At March 31, 2020,

after certain adjustments, $58,461,000 was available under the Revolving Facility.

In addition, $6,193,000 was outstanding for letters of credit at March 31, 2021.

At March 31, 2021, after certain contractual adjustments, $125,296,000 was available under the Revolving Facility.

Receivable Discount Programs

3 unchanged sentences

While these arrangements have reduced our working capital needs, there can be no assurance that these programs will continue in the future.

expense resulting from these programs would increase if interest rates rise, if utilization of these discounting arrangements expands, if customers extend their payment to us, or if the discount period is extended to reflect more favorable payment

terms to customers.

Interest expense resulting from these programs would increase if interest rates rise, if utilization of these discounting arrangements expands, if customers extend their payment to us, or if the discount period is extended to reflect more favorable payment terms to customers.

The following is a summary of the receivable discount programs:

Years Ended March 31,

Fiscal Years Ended March 31,

Receivables discounted

3 unchanged sentences

Off-Balance Sheet Arrangements

At March 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.

At March 31, 2021, 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.

Multi-year Customer Agreements

We have or are renegotiating long-term agreements with many of our major customers.

Under these agreements, which in most cases have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified

categories of our products.

delivery and payment terms in consideration for our designation as a customer’s exclusive or primary supplier.

These incentives differ from contract to contract and can include (i) the issuance of a specified amount of credits against receivables in

accordance with a schedule set forth in the relevant contract, (ii) support for a particular customer’s research or marketing efforts provided on a scheduled basis, (iii) discounts granted in connection with each individual shipment of product, and

(iv) other marketing, research, store expansion or product development support.

Under these agreements, which in most cases have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified categories of our products.

Because of the very competitive nature of the market and the limited number of customers for these products, our customers have sought and obtained price concessions, significant marketing allowances and more favorable delivery and payment terms in consideration for our designation as a customer’s exclusive or primary supplier.

These incentives differ from contract to contract and can include (i) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (ii) support for a particular customer’s research or marketing efforts provided on a scheduled basis, (iii) discounts granted in connection with each individual shipment of product, and (iv) other marketing, research, store expansion or product development support.

These contracts typically require that we meet ongoing performance standards.

1 unchanged sentence

While these longer-term agreements strengthen our customer relationships, the increased demand for our products often requires that we increase our inventories and personnel.

Customer demands that we purchase their Remanufactured Core inventory also

require the use of our working capital.

The marketing and other allowances we typically grant our customers in connection with our new or expanded customer relationships adversely impact the near-term revenues, profitability and associated cash flows

from these arrangements.

Customer demands that we purchase their Remanufactured Core inventory also require the use of our working capital.

However, we believe the investment we make in these new or expanded customer relationships will improve our overall liquidity and cash flow from operations over time.

Share Repurchase Program

Our board of directors have approved a stock repurchase program of up to $37,000,000 of our common stock.

As of March 31, 2020, $15,692,000 had been utilized and $21,308,000 remained available to repurchase shares under the authorized share

repurchase program, subject to the limit in our Credit Facility.

Our board of directors approved a stock repurchase program of up to $37,000,000 of our common stock.

During fiscal 2021 and 2019, we repurchased 54,960 and 163,815 shares of our common stock, respectively, for $1,139,000 and $4,062,000, respectively.

During fiscal 2020 we did not repurchase any shares of our common stock.

As of March 31, 2021, $16,831,000 was utilized and $20,169,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our Credit Facility.

We retired the 730,521 shares repurchased under this program through March 31, 2021.

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.

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.

Subsequent Event

In light of the COVID-19 pandemic, we have taken proactive steps to manage our costs and bolster our liquidity, including increasing the level of receivables collected under our receivable discount programs.

During April 2020, we collected

$59,730,000 of receivables under these programs, with $1,552,000 in interest expense associated with these accounts receivable sales, which was higher than our average monthly utilization of these programs.

Additionally, as part of the cost reduction measures implemented by us in response to the impact of the COVID-19 pandemic on our business, executive committee members have all agreed to at least a 25% reduction in base salary, until we believe it is

fiscally responsible to reinstate the original base salaries.

Our Board of Directors agreed to defer all board and committee fees and retainers, as well as waive any fees related to weekly board check in meetings, as long as the executive committee

continues with a base salary reduction.

We continue to analyze our cost structure and may implement additional cost reduction measures as may be necessary due to the on-going economic challenges resulting from the COVID-19 pandemic.

Credit Facility

On May 28, 2021, we entered into a third amendment to the Amended Credit Facility (the “Third Amendment”).

The modifications to the financial covenants were effective as of March 31, 2021.

Capital Expenditures and Commitments

Our total capital expenditures, including capital leases and non-cash capital expenditures, were $16,806,000 for fiscal 2021 and $19,511,000 for fiscal 2020.

These capital expenditures primarily include the purchase of equipment for our current

operations and the expansion of our operations in Mexico.

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 $12,300,000 of capital expenditures for our current operations and approximately $4,000,000 for continued expansion of our operations in Mexico during fiscal 2022.

2 unchanged sentences

The following summarizes our contractual obligations and other commitments as of March 31, 2021 and the effect such obligations could have on our cash flows in future periods:

Payments Due by Period

Contractual Obligations

5 unchanged sentences

Core bank liability (6)

Finished goods liabilities (7)

Unrecognized tax benefits (8)

1 unchanged sentence

Finance lease obligations represent amounts due under finance leases for various types of equipment.

Operating lease obligations represent amounts due for rent under our leases for all our facilities (including one new building leases entered in connection with the expansion of our operations in Mexico and the renewal of one building lease

in Canada), certain equipment, and our Company automobile.

Operating lease obligations represent amounts due for rent under our leases for all our facilities, certain equipment, and our Company automobile.

During the first quarter of fiscal 2022, we renewed the lease for our corporate headquarters in Torrance, California for an additional 10-year period.

We have included the future minimum lease payments of this renewal as a contractual obligation although this lease was not included in the operating lease assets and operating lease liabilities as of March 31, 2021.

Our revolving loan obligations are under our current Credit Facility that matures on June 5, 2023.

This debt is classified as a short term liability on our balance sheet as we expect to use our working capital to repay the amounts

outstanding under our revolving loan.

On May 28, 2021, we entered into the Third Amendment, which among other things, extended the maturity date of the Credit Facility to May 28, 2026 from June 5, 2023.

Accordingly, we have reflected the maturity date in the payments of contractual obligations above.

This debt is classified as a short term liability on our balance sheet as we expect to use our working capital to repay the amounts outstanding under our revolving loan.

Term loan obligations represent the amounts due for principal payments as well as interest payments to be made.

Interest payments were calculated based upon the interest rate for our term loan using the LIBOR option at March 31, 2020, which

Accrued core payment represents the amounts due for principal of $14,124,000 and interest payments of $663,000 to be made in connection with the purchases of Remanufactured Cores from our customers, which are held by these customers and

remain on their premises.

Interest payments were calculated based upon the interest rate for our term loan using the LIBOR option at March 31, 2021, which was 2.62%.

On May 28, 2021, we entered into the Third Amendment, which among other things, extended the maturity date of the Credit Facility to May 28, 2026 from June 5, 2023.

Accordingly, we have reflected the payment of our term loan through this date.

Accrued core payment represents the amounts due for principal of $7,757,000 and interest payments of $305,000 to be made in connection with the purchases of Remanufactured Cores from our customers, which are held by these customers and remain on their premises.

The core bank liability represents the amounts due for principal of $18,488,000 and interest payments of $1,696,000 to be made in connection with the return of Used Cores from our customers.

Finished goods liabilities represents the amounts due for principal of $4,561,000 and interest payments of $139,000 to be made in connection with the purchase of finished goods from our customers.

We are unable to reliably estimate the timing of future payments related to uncertain tax position liabilities at March 31, 2021;

therefore, future tax payment accruals related to uncertain tax positions in the amount of $1,011,000 have been

excluded from the table above.

therefore, future tax payment accruals related to uncertain tax positions in the amount of $1,104,000 have been excluded from the table above.

Other long-term obligations represent commitments we have with certain customers to provide marketing allowances in consideration for multi-year customer agreements to provide products over a defined period.

We are not obligated to provide

these marketing allowances should our business relationships end with these customers.

We are not obligated to provide these marketing allowances should our business relationships end with these customers.

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-K

Item 7. Management’s Discussion and Analysis