What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-09 compared with 2021-02-09 · 132 added, 187 removed, 386 unchanged (45% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

December 31, 2020

June 30, 2021

March 31, 2021

35 unchanged sentences

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

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

19,101,092 and 19,045,386 shares issued and outstanding at June 30 , 2021 and March 31 , 2021 , respectively

Additional paid-in capital

6 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Income

Condensed Consolidated Statements of Operations

Three Months Ended

Nine Months Ended

Cost of goods sold

7 unchanged sentences

Interest expense, net

Income before income tax expense

Income tax expense

Basic net income per share

Diluted net income per share

Income (loss) before income tax expense (benefit)

Income tax expense (benefit)

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

Weighted average number of shares outstanding:

2 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended

Nine Months Ended

Net income (loss)

Other comprehensive income (loss), net of tax:

1 unchanged sentence

Total other comprehensive income (loss), net of tax

Comprehensive income

Comprehensive income (loss)

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

6 unchanged sentences

Compensation recognized under employee stock plans

Exercise of stock options

Exercise of stock options, net of shares withheld for employee taxes

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

1 unchanged sentence

Balance at June 30, 2021

Compensation recognized under employee stock plans

Exercise of stock options

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

Foreign currency translation

Balance at September 30, 2020

Compensation recognized under employee stock plans

Exercise of stock options

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

Foreign currency translation

Balance at December 31, 2020

Comprehensive

Income (Loss)

Balance at March 31, 2020

Compensation recognized under employee stock plans

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

Foreign currency translation

Balance at June 30, 2019

Compensation recognized under employee stock plans

Exercise of stock options

1 unchanged sentence

Foreign currency translation

Balance at September 30, 2019

Compensation recognized under employee stock plans

Exercise of stock options

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

Foreign currency translation

Balance at December 31, 2019

Balance at June 30, 2020

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

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Depreciation and amortization

1 unchanged sentence

Amortization of core premiums paid to customers

Amortization of finished goods premiums paid to customers

Noncash lease expense

(Gain) loss due to the change in the fair value of the contingent consideration

Gain due to the change in the fair value of the contingent consideration

Foreign exchange impact of lease liabilities and forward contracts

14 unchanged sentences

Other liabilities

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Purchase of plant and equipment

Proceeds from sale of plant and equipment

Change in short-term investments

8 unchanged sentences

Cash used to net share settle equity awards

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents — Beginning of period

12 unchanged sentences

Notes to Condensed Consolidated Financial Statements

December 31, 2020

June 30, 2021

Company Background and Organization

Motorcar Parts of America, Inc.

and its subsidiaries (the “Company” or “MPA”) is a leading supplier of automotive aftermarket non-discretionary replacement parts and diagnostic equipment.

and its subsidiaries (the “Company”, or “MPA”) is a leading supplier of automotive aftermarket non-discretionary replacement parts, and test solutions and diagnostic equipment.

These replacement parts are primarily sold to automotive retail chain stores and warehouse distributors throughout North America and to major automobile manufacturers for both their aftermarket programs and warranty replacement programs (“OES”).

The Company’s diagnostic equipment primarily serves the global automotive component and powertrain testing market.

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

The Company’s test solutions and diagnostic equipment primarily serves the global automotive component and powertrain testing market.

The Company’s products include (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters, brake rotors, brake pads, and brake master cylinders, and (iv) other products, which include turbochargers and test solutions and diagnostic equipment used for electric vehicle powertrain development and manufacturing including electric motor test systems, e-axle test systems, advanced power emulators, charging unit test systems, test systems for alternators, starters, belt starter generators and bench-top testers used by the automotive retail segment.

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

3 unchanged sentences

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

The outbreak of the COVID- 19 pandemic has led to adverse impacts on the U.S.

and global economies and created uncertainty regarding the potential effects on the Company’s employees, supply chain, operations, and customer demand.

The outbreak of the COVID-19 pandemic continues to adversely impact the U.S.

and global economies – creating uncertainty regarding the potential effects on the Company’s employees, supply chain, operations, and customer demand.

The COVID-19 pandemic could impact the Company’s operations and the operations of its customers, suppliers, and vendors because of quarantines, facility closures, travel, and logistics restrictions.

The extent to which the COVID-19 pandemic impacts the Company will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted, including, but not limited to:

(i) the severity of the virus, (ii) the duration of a “second wave” or additional spikes, (iii) the effects of the pandemic on customers, suppliers, and vendors, (iv) the remedial actions and stimulus measures adopted by local, state and federal governments, and (v) the extent to which normal economic and operating conditions can resume.

(i) the severity of the virus, (ii) the occurrence and duration of additional spikes in infections, (iii) the effects of the pandemic on customers, suppliers, and vendors, (iv) the remedial actions and stimulus measures adopted by local, state and federal governments, (v) the availability and acceptance of vaccines, and (vi) the extent to which normal economic and operating conditions can resume.

Even after the COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts to its business because of an economic recession or depression that has occurred or may occur in the future.

At this time, the Company is unable to predict accurately the ultimate long-term impact the COVID-19 pandemic will have on its business and financial condition.

Basis of Presentation and New Accounting Pronouncements

4 unchanged sentences

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

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

Operating results for the three months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2022.

This report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2021, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 14, 2021.

The accompanying condensed consolidated financial statements have been prepared on a consistent basis with, and there have been no material changes to, except as noted below, the accounting policies described in Note 2 , Summary of Significant Accounting Policies, to the consolidated financial statements that are presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021 .

New Accounting Pronouncements Recently Adopted

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 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 are 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 the Company’s required disclosures for its expected credit losses but did not have a material effect on its condensed 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 condensed consolidated balance sheets.

The Company maintains allowances for uncollectible accounts receivable for estimated losses resulting from the failure or inability of its 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 condensed consolidated balance sheets.

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

The Company recognizes 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.

The Company’s allowance for credit losses is based on the assessment of the collectability of assets pooled together with similar risk characteristics.

The Company records a provision for expected credit losses using a loss-rate method based on the ratio of its historical write-offs to its average trade accounts receivable.

At each reporting period, the Company assesses 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, the Company may determine that it needs 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 changed the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures, including the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements.

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

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

The adoption of this guidance on April 1, 2020 modified certain of the Company’s disclosures for its Level 3 fair value measurements but did not have an impact on its 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 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.

The Company will apply these amendments prospectively.

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

New Accounting Pronouncements Not Yet Adopted

Recently Adopted Accounting Pronouncements

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 Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

The adoption of this guidance on April 1, 2021 did not have any material impact on the Company’s consolidated financial statements.

Accounts Receivable — Net

The Company has trade accounts receivable that result from the sale of goods and services.

Accounts receivable — net includes offset accounts related to customer payment discrepancies, returned goods authorizations (“RGAs”) issued for in-transit unit returns, and allowances for credit losses.

Accounts receivable — net includes offset accounts related to allowances for credit losses, customer payment discrepancies, and returned goods authorizations (“RGAs”) issued for in-transit unit returns.

The Company believes its credit risk with respect to trade accounts receivable is limited due to its credit evaluation process and the long-term nature of its relationships with its largest customers.

6 unchanged sentences

Accounts receivable — net is comprised of the following:

December 31, 2020

June 30, 2021

March 31, 2021

5 unchanged sentences

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

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

Nine Months Ended

December 31, 2020

During the three months ended June 30, 2020, the Company wrote off amounts previously fully reserved for in connection with the bankruptcy filing of one of its customers.

Three Months Ended

Balance at beginning of period

3 unchanged sentences

Inventory is comprised of the following:

December 31, 2020

June 30, 2021

March 31, 2021

7 unchanged sentences

Contract Assets

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

During the three months ended June 30, 2021 and 2020, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $ 984,000 and $ 1,384,000 , respectively.

Contract assets are comprised of the following:

December 31, 2020

June 30, 2021

March 31, 2021

2 unchanged sentences

Upfront payments to customers

Finished goods premiums paid to customers

Core premiums paid to customers

Total short-term contract assets

Long-term contract assets

Remanufactured cores held at customers' locations

Upfront payments to customers

Finished goods premiums paid to customers

Core premiums paid to customers

5 unchanged sentences

Three Months Ended

Nine Months Ended

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

December 31, 2020

June 30, 2021

March 31,2021

4 unchanged sentences

Three Months Ended

Nine Months Ended

Rotating electrical products

3 unchanged sentences

Significant Supplier Concentrations

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

The Company had no suppliers that accounted for more than 10% of inventory purchases for the three months ended June 30, 2021 and 2020.

The Company is party to a $ 268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $ 238,620,000 revolving loan facility, subject to borrowing base restrictions, a $ 24,000,000 sublimit for borrowings by Canadian borrowers, and a $ 20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $ 30,000,000 term loan facility (the “Term Loans”).

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 this fiscal year, subject to pro forma compliance with financial covenants.

The Credit Facility currently permits the payment of up to $ 29,430,000 of dividends and share repurchases for fiscal year 2022, subject to pro forma compliance with financial covenants.

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

In May 2021, the Company entered into a third amendment to the Credit Facility (the “Third Amendment”).

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

The Company capitalized $ 1,102,000 of new debt issuance costs in connection with the Third Amendment.

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

1 unchanged sentence

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

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

The interest rate on the Company’s Term Loans and Revolving Facility was 2.60 % and 2.59 %, respectively, at June 30, 2021 , and 2.62 % at March 31, 2021 .

The Credit Facility, among other things, requires the Company to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio.

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

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

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

The Company was in compliance with all financial covenants at June 30, 2021.

The Company had cash of $ 24,883,000 at June 30, 2021 , however, the Credit Facility only allows up to $ 6,000,000 of credit for cash when computing the senior leverage ratio.

In addition to other covenants, the Credit Facility places limits on the Company’s ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem or repurchase capital stock, alter the business conducted by the Company and its subsidiaries, transact with affiliates, prepay, redeem or purchase subordinated debt, and amend or otherwise alter debt agreements.

The following summarizes information about the Term Loans:

December 31, 2020

June 30, 2021

March 31, 2021

6 unchanged sentences

Year Ending March 31,

2021 - remaining three months

2022 - remaining nine months

Total payments

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

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

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

The Company had $ 103,000,000 and $ 84,000,000 outstanding under the Revolving Facility at June 30, 2021 and March 31, 2021 , respectively.

In addition, $ 6,444,000 was outstanding for letters of credit at June 30, 2021 .

At June 30, 2021 , after certain contractual adjustments, $ 95,323,000 was available under the Revolving Facility.

Contract Liabilities

Contract liabilities are comprised of the following:

December 31, 2020

June 30, 2021

March 31, 2021

3 unchanged sentences

Customer deposits

Finished goods liabilities

Core bank liability

4 unchanged sentences

Customer allowances earned

Finished goods liabilities

Core bank liability

2 unchanged sentences

The Company leases various facilities in North America and Asia under operating leases expiring through August 2033 .

The Company has material nonfunctional currency leases that could have a material impact on the Company’s condensed consolidated statements of income.

The Company has material nonfunctional currency leases that could have a material impact on the Company’s condensed consolidated statements of operations.

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

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

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

In connection with the remeasurement of these leases, the Company recorded gains of $ 2,795,000 and $ 1,985,000 during the three months ended June 30, 2021 and 2020, respectively.

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

Balance sheet information for leases is as follows:

Classification

December 31, 2020

June 30, 2021

March 31, 2021

7 unchanged sentences

Total lease liabilities

Lease cost recognized in the condensed consolidated statements of income is as follows:

Lease cost recognized in the condensed consolidated statements of operations is as follows:

Three Months Ended

Nine Months Ended

Operating lease cost

5 unchanged sentences

Total lease cost

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

Maturities of lease commitments at June 30, 2021 were as follows:

Maturity of lease liabilities

1 unchanged sentence

Finance Leases

2021 - remaining three months

2022 - remaining nine months

Total lease payments

2 unchanged sentences

Other information about leases is as follows:

December 31, 2020

June 30, 2021

March 31, 2021

Lease term and discount rate

10 unchanged sentences

The following is a summary of accounts receivable discount programs:

Nine Months Ended

Three Months Ended

Receivables discounted

2 unchanged sentences

Amount of discount recognized as interest expense

Net Income per Share

Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period.

Diluted net income per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, which would result in the issuance of incremental shares of common stock to the extent such impact is not anti-dilutive.

The following presents a reconciliation of basic and diluted net income per share:

Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.

Diluted net income (loss) per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, which would result in the issuance of incremental shares of common stock to the extent such impact is not anti-dilutive.

The following presents a reconciliation of basic and diluted net income (loss) per share:

Three Months Ended

Nine Months Ended

Net income (loss)

Effect of potentially dilutive securities

Diluted shares

Net income per share:

Basic net income per share

Diluted net income per share

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

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

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

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

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

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

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

net operating loss carry-forwards and non-U.S.

research and development credits in connection with its acquisitions due to the uncertainty of their utilization in future periods.

Should the actual amount differ from the Company’s estimates, the amount of the valuation allowance could be impacted.

Realization of deferred tax assets from its U.S.

operations is dependent upon the Company’s ability to generate sufficient future taxable income.

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

The Company makes these estimates and judgments about its future taxable income that are based on assumptions that are consistent with the Company’s future plans.

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

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

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

Net income (loss) per share:

Basic net income (loss) per share

Diluted net income (loss) per share

For the three months ended June 30, 2021 and 2020 , there were 634,832 and 2,133,786 , respectively, of potential common shares not included in the calculation of diluted net income (loss) per share because their effect was anti-dilutive.

The Company recorded income tax expense of $ 947,000 , or an effective tax rate of 52.4 %, and an income tax benefit of $ 1,022,000 , or an effective tax rate of 25.3 %, for the three months ended June 30, 2021 and 2020, respectively.

The effective tax rate for the three months ended June 30, 2021, was primarily impacted by (i) specific jurisdictions that the Company does not expect to recognize benefit of losses, (ii) foreign income taxed at rates that are different from the federal statutory rate, and (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m).

The Company and its subsidiaries file income tax returns in the U.S.

federal, various state, and foreign jurisdictions with varying statutes of limitations.

At June 30, 2021, the Company is not under examination in any jurisdiction, and remain subject to examination from the years ended March 31, 2017.

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

13 unchanged sentences

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

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

dollar equivalent notional value of $ 43,620,000 and $ 41,819,000 at June 30, 2021 and March 31, 2021 , respectively.

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

2 unchanged sentences

The credit risk is limited to the potential unrealized gains (which offset currency fluctuations adverse to the Company) in any such contract should this counterparty fail to perform as contracted.

Any changes in the fair values of forward foreign currency exchange contracts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of income .

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

Gain Recognized as Foreign Exchange Impact of Lease Liabilities

and Forward Contracts

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

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

Derivatives Not Designated as

Three Months Ended

Nine Months Ended

Hedging Instruments

Forward foreign currency exchange contracts

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

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

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

The fair value of the forward foreign currency exchange contracts of $ 1,167,000 and $ 1,429,000 is included in prepaid and other current assets in the condensed consolidated balance sheets at June 30, 2021 and March 31, 2021, respectively.

Fair Value Measurements

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

December 31, 2020

June 30, 2021

March 31, 2021

6 unchanged sentences

Forward foreign currency exchange contracts

Accounts payable and accrued liabilities

Accrued liabilities

Short-term contingent consideration

1 unchanged sentence

Deferred compensation

Forward foreign currency exchange contracts

Other liabilities

Long-term contingent consideration

Short-term Investments and Deferred Compensation

6 unchanged sentences

In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $ 5,200,000 over a three-year period.

E&M Research and Development (“R&D”) Event Milestone

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

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

E&M Gross Profit Earn-out Consideration

The fair value of the three-year gross profit earn-out consideration was $ 1,350,000 and $ 1,230,000 at December 31, 2020 and March 31, 2020, respectively, determined using a Monte Carlo Simulation Model.

The fair value of the three-year gross profit earn-out consideration was $ 850,000 and $ 910,000 at June 30, 2021 and March 31, 2021 , respectively, determined using a Monte Carlo Simulation Model.

Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

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

December 31, 2020

June 30, 2021

Risk free interest rate

2 unchanged sentences

Weighted average cost of capital

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

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

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

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

The Company’s contingent consideration is recorded in accounts payable and accrued liabilities in its condensed consolidated balance sheets at June 30, 2021 and March 31, 2021, and is a Level 3 liability measured at fair value.

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

Three Months Ended

Nine Months Ended

Contingent Consideration

2 unchanged sentences

Ending balance

During the three and nine months ended December 31, 2020, the Company had no other significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

During the three months ended June 30, 2021 , the Company had no other significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these instruments.

2 unchanged sentences

Stock Options

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

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

This model requires the input of subjective assumptions including the expected volatility of the underlying stock and the expected holding period of the option.

These subjective assumptions are based on both historical and other information.

Changes in the values assumed and used in the model can materially affect the estimate of fair value.

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

Nine Months Ended

Weighted average risk free interest rate

Weighted average expected holding period (years)

Weighted average expected volatility

Weighted average expected dividend yield

Weighted average fair value of options granted

During the three months ended June 30, 2021, no options to purchase shares of the Company’s common stock were granted.

The Company granted options to purchase 341,825 shares of common stock during the three months ended June 30, 2020.

The following is a summary of stock option transactions:

2 unchanged sentences

Outstanding at March 31, 2021

Outstanding at December 31, 2020

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

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

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

Outstanding at June 30, 2021

At June 30, 2021, options to purchase 420,746 shares of common stock were unvested at a weighted average exercise price of $ 17.30 .

At June 30, 2021, there was $ 2,221,000 of total unrecognized compensation expense related to unvested stock option awards.

Compensation expense related to unvested stock option awards will be recognized over the weighted average remaining vesting period of approximately 1.6 years.

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

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

During the three months ended June 30, 2021 and 2020, the Company granted 218,673 and 112,293 shares of RSUs, respectively, based on the closing market price on the grant date.

The following is a summary of non-vested RSUs:

2 unchanged sentences

Outstanding at March 31, 2021

Outstanding at December 31, 2020

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

Outstanding at June 30, 2021

At June 30, 2021, there was $ 6,738,000 of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 2.0 years.

Performance Stock Units (“PSUs”)

In June 2021, the Company granted performance-based PSUs to its executives, which typically cliff vest after three-years subject to continued employment.

These awards are contingent and granted separately for each of the following metrics:

adjusted EBITDA, net sales, and relative total shareholder return (“TSR”).

Compensation cost is determined at the grant date and recognized on a straight-line basis over the requisite service period to the extent the conditions are deemed probable.

The number of shares earned at the end of the three-year period will vary, based only on actual performance, from 0 %% to 150 % of the target number of PSUs granted.

PSUs are not considered issued or outstanding ordinary shares of the Company.

Adjusted EBITDA and net sales are considered performance conditions.

The Company will reassess the probability of achieving each performance condition separately each reporting period.

TSR is considered a market condition because it measures the Company’s return against the performance of the Russell 3000, excluding companies classified as financials and real estate, over a given period of time.

Compensation cost related to the TSR award will not be adjusted even if the market condition is not met.

The Company calculated the fair value of the PSUs for each component individually.

The fair value of PSUs subject to performance conditions is equal to the closing stock price on the grant date.

The fair value of PSUs subject to the market condition is determined using the Monte Carlo valuation model.

The following table summarizes the assumptions used in determining the fair value of the TSR awards:

Three Months Ended

Risk free interest rate

Expected life in years

Expected volatility of MPA common stock

Expected average volatility of peer companies

Average correlation coefficient of peer companies

Expected dividend yield

Grant date fair value

The following is a summary of non-vested PSUs:

Weighted Average

Grant Date Fair

Outstanding at March 31, 2021

Outstanding at June 30, 2021

At June 30, 2021, there was $ 1,939,000 of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 3.0 years .

Commitments and Contingencies

5 unchanged sentences

Three Months Ended

Nine Months Ended

Balance at beginning of period

11 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements