What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-08-09 · 268 added, 139 removed, 379 unchanged (52% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

June 30, 2021

Condensed Consolidated

Balance Sheets

September 30, 2021

March 31, 2021

35 unchanged sentences

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

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

19,172,755 and 19,045,386

shares issued and outstanding at September 30 , 2021 and March 31 , 2021 , respectively

Additional paid-in capital

6 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Income

Three Months Ended

September 30,

Six Months Ended

September 30 ,

Cost of goods sold

7 unchanged sentences

Interest expense, net

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

Income before income tax expense

Income tax expense

Basic net income per share

Diluted net income per share

Weighted average number of shares outstanding:

2 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended

Net income (loss)

September 30,

September 30 ,

Other comprehensive income (loss), net of tax:

1 unchanged sentence

Total other comprehensive income (loss), net of tax

Comprehensive income (loss)

Comprehensive income

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

10 unchanged sentences

Balance at June 30, 2021

Compensation recognized under employee stock plans

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

Foreign currency translation

Balance at September 30, 2021

Comprehensive

Income (Loss)

Balance at March 31, 2020

4 unchanged sentences

Balance at June 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 September 30, 2020

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

1 unchanged sentence

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Three Months Ended

Condensed Consolidated Statements of

Six Months Ended

September 30,

Cash flows from operating activities:

Net income (loss)

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

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

Depreciation and amortization

3 unchanged sentences

Noncash lease expense

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

Loss (gain) due to the change in the fair value of the contingent consideration

Foreign exchange impact of lease liabilities and forward contracts

44 unchanged sentences

Notes to Condensed Consolidated Financial Statements

June 30, 2021

September 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 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”).

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 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.

The Company has determined through this review process that its business comprises three separate operating segments.

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

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.

The Company has determined through this

review process that its business comprises three separate operating segments.

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 the Company has combined its operating segments into one reportable segment.

1 unchanged sentence

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.

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 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.

(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.

Basis of Presentation and New Accounting Pronouncements

1 unchanged sentence

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q.

generally accepted accounting principles

(“GAAP”) for interim financial information and with the instructions to Form 10-Q.

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

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 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 .

In the opinion of management, all

adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three and six months ended September 30, 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 .

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.

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.

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

The Company utilizes a historical loss rate method, adjusted for any changes in economic conditions or risk characteristics, to estimate its expected credit losses each period.

When developing an estimate of expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions, and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable.

The historical loss rate method considers past write-offs of trade accounts receivable over a period commensurate with the initial term of the Company’s contracts with its customers.

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.

The Company utilizes a historical loss rate method, adjusted for any changes in economic conditions or risk characteristics, to estimate its expected credit

losses each period.

supportable forecasts of future economic conditions over the contractual life of the receivable.

The historical loss rate method considers past write-offs of trade accounts receivable over a period commensurate with the initial term of the Company’s

contracts with its customers.

The Company recognizes the allowance for credit losses at inception and reassesses quarterly based on management’s expectation of the asset’s collectability.

The Company’s accounts receivable are short-term in nature and written off only when all collection attempts have failed.

The Company’s accounts receivable are short-term in nature and

written off only when all collection attempts have failed.

The Company uses receivable discount programs with certain customers and their respective banks (see Note 10).

Accounts receivable — net is comprised of the following:

June 30, 2021

September 30, 2021

March 31, 2021

4 unchanged sentences

Total accounts receivable — net

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 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

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

be collected.

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

Six Months Ended

September 30,

Balance at beginning of period

3 unchanged sentences

Inventory is comprised of the following:

June 30, 2021

September 30, 2021

March 31, 2021

7 unchanged sentences

Contract Assets

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.

During the three months ended September 30, 2021 and 2020, the Company reduced

the carrying value of Remanufactured Cores held at customers’ locations by $ 1,687,000 and $ 892,000 ,

respectively.

During the six months ended September 30, 2021 and 2020, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $ 2,671,000 and $ 2,276,000 , respectively.

Contract assets are comprised of the following:

June 30, 2021

September 30, 2021

March 31, 2021

10 unchanged sentences

Long-term core inventory deposits

Total long-term contract assets

long-term contract assets

Significant Customer and Other Information

2 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

September 30,

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

June 30, 2021

September 30, 2021

March 31, 2021

4 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

September 30,

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 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 Company had no suppliers that accounted for more than 10% of inventory purchases for the three and six months ended September 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 $ 29,430,000 of dividends and share repurchases for fiscal year 2022, 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”).

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”.

2 unchanged sentences

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 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 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.

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 2.84 % at

September 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 September 30, 2021.

The Company had cash of $ 17,911,000 at September 30, 2021 , however, the Credit Facility only allows up to $ 6,000,000 of credit for cash when computing the senior leverage ratio.

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:

June 30, 2021

September 30, 2021

March 31, 2021

6 unchanged sentences

Year Ending March 31,

2022 - remaining nine months

- remaining six months

Total payments

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.

The Company had $ 120,000,000 and $ 84,000,000 outstanding under the Revolving Facility at September 30, 2021 and March 31, 2021 , respectively.

In addition, $ 6,694,000 was outstanding for letters of credit at September 30, 2021 .

At September 30, 2021 , after certain contractual adjustments, $ 90,935,000 was available under the Revolving Facility.

Contract Liabilities

Contract liabilities are comprised of the following:

June 30, 2021

September 30, 2021

March 31, 2021

5 unchanged sentences

Core bank liability

Accrued core payment, net

Accrued core payment

Total short-term contract liabilities

4 unchanged sentences

Core bank liability

Accrued core payment, net

Accrued core payment

Total long-term contract liabilities

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 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 $ 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.

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.

historical rates and are not affected by subsequent changes in the exchange rates.

In connection with the remeasurement of these leases, the Company recorded a loss of $ 1,746,000 and a gain of $ 1,618,000 during the three months ended September 30, 2021 and 2020, respectively, and gains of $ 1,049,000 and $ 3,603,000 during the six months ended September 30, 2021 and 2020, respectively .

These amounts are included in “foreign exchange impact of

lease liabilities and forward contracts” in the condensed consolidated statements of income.

Balance sheet information for leases is as follows:

Classification

June 30, 2021

September 30, 2021

March 31, 2021

7 unchanged sentences

Total lease liabilities

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

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

Three Months Ended

September 30,

Operating lease cost

5 unchanged sentences

Total lease cost

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

Maturities of lease commitments at September 30, 2021

by fiscal year were as follows:

Maturity of lease liabilities

1 unchanged sentence

Finance Leases

2022 - remaining nine months

- remaining six months

Total lease payments

2 unchanged sentences

Other information about leases is as follows:

June 30, 2021

September 30, 2021

March 31, 2021

8 unchanged sentences

The Company uses receivable discount programs with certain customers and their respective banks.

Under these programs, the Company may sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold.

Under these programs, the Company may sell those customers’

receivables to those banks at a discount to be agreed upon at the time the receivables are sold.

These discount arrangements allow the Company to accelerate receipt of payment on customers’ receivables.

The following is a summary of accounts receivable discount programs:

Three Months Ended

Six Months Ended

September 30,

Receivables discounted

2 unchanged sentences

Amount of discount recognized as interest expense

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:

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

Three Months Ended

Net income (loss)

September 30,

Six Months Ended

September 30,

Effect of potentially dilutive securities

Diluted shares

Net income (loss) per share:

Basic net income (loss) per share

Diluted net income (loss) 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 (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).

Net income per share:

Basic net income per

Diluted net income

Potential common shares that would have the effect of increasing diluted net

income per share or decreasing diluted net loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted net income per share.

For the three months ended September 30, 2021 and 2020,

there were 915,778 and 1,500,066 ,

respectively, of potential common shares not included in the calculation of diluted net income per share because their effect was anti-dilutive.

For the six months ended September 30, 2021 and 2020, there were 707,660 and 1,500,066 , 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 $ 2,251,000 , or an

effective tax rate of 37.9 %, and $ 6,097,000 ,

or an effective tax rate of 28.6 %, for the three months ended September 30, 2021 and 2020, respectively.

The Company recorded income tax

expense of $ 3,198,000 , or an effective tax rate of 41.3 %, and $ 5,075,000 , or an effective tax rate of 29.4 %, for the six months ended September 30, 2021 and 2020, respectively.

Effective tax rates are based on current projections and any changes in future periods could result

in an effective tax rate that is materially different from the current estimate.

The effective tax rates for the three and six months ended September 30, 2021, were primarily impacted by (i) foreign income taxed at rates that are different from the

federal statutory rate, (ii) non-deductible executive compensation under Internal Revenue Code Section 162(m), and (iii) specific jurisdictions that the Company does not expect to recognize benefit of losses.

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.

federal, various state, and foreign jurisdictions with varying

statutes of limitations.

At September 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.

Financial Risk Management and Derivatives

Purchases and expenses denominated in currencies other than the U.S.

dollar, which are primarily related to the Company’s overseas facilities, expose the Company to market risk from material movements in foreign exchange rates between the U.S.

dollar, which are primarily related to the Company’s overseas facilities, expose the

Company to market risk from material movements in foreign exchange rates between the U.S.

dollar and the foreign currencies.

The Company’s primary risk exposure is from fluctuations in the value of the Mexican peso and to a lesser extent the Chinese yuan.

The Company’s primary risk exposure is from fluctuations in the value of the Mexican peso and to a lesser extent the Chinese

To mitigate these risks, the Company enters into forward foreign currency exchange contracts to exchange U.S.

dollars for these foreign currencies.

The extent to which forward foreign currency exchange contracts are used is modified periodically in response to the Company’s estimate of market conditions and the terms and length of anticipated requirements.

The Company enters into forward foreign currency exchange contracts in order to reduce the impact of foreign currency fluctuations and not to engage in currency speculation.

The use of derivative financial instruments allows the Company to reduce its exposure to the risk that the eventual cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in exchange rates between the U.S.

The extent to which forward foreign currency exchange contracts are used, is modified

periodically in response to the Company’s estimate of market conditions and the terms and length of anticipated requirements.

The Company enters into forward foreign currency exchange contracts in order to reduce the impact of foreign currency fluctuations and not to engage in

currency speculation.

changes in exchange rates between the U.S.

dollar and the foreign currencies.

The Company does not hold or issue financial instruments for trading purposes.

The Company designates forward foreign currency exchange contracts for forecasted expenditure requirements to fund foreign operations.

The Company designates forward foreign currency exchange contracts for forecasted expenditure

requirements to fund foreign operations.

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

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

equivalent notional value of $ 45,133,000 and $ 41,819,000 at September 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.

The counterparty to this derivative transaction is a major financial institution with investment grade credit rating;

The counterparty to this derivative transaction is a major financial institution with investment grade credit

however, the Company is exposed to credit risk with this institution.

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 operations.

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

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:

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

Derivatives Not Designated as

Three Months Ended

September 30,

Six Months Ended

September 30,

Hedging Instruments

Forward foreign currency exchange contracts

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.

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 three months ended June 30, 2021 and 2020 .

The fair value of the forward foreign currency exchange contracts of $ 1,004,000 is included in other current liabilities in the condensed

consolidated balance sheet at September 30, 2021.

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

The changes in the fair values of forward foreign

currency exchange contracts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of cash flows for the six months ended September 30, 2021 and 2020 .

Fair Value Measurements

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

June 30, 2021

September 30, 2021

March 31, 2021

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Deferred compensation

Forward foreign currency exchange contracts

Short-term Investments and Deferred Compensation

The Company’s short-term investments, which fund its deferred compensation liabilities, consist of investments in mutual funds.

These investments are classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

These investments are

classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

Forward Foreign Currency Exchange Contracts

The forward foreign currency exchange contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers (See Note 13).

The forward foreign currency exchange contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign

currency dealers (See Note 13).

Contingent Consideration

In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from Mechanical Power Conversion, LLC (“E&M”).

In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from Mechanical Power Conversion, LLC

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 Gross Profit Earn-out Consideration

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.

The fair value of the three-year gross profit earn-out consideration was $ 980,000 and $ 910,000 at September 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:

June 30, 2021

September 30, 2021

Risk free interest rate

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Weighted average cost of capital

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 Company’s contingent consideration is recorded in accounts payable and accrued liabilities in its condensed consolidated balance sheets at September 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

September 30,

Six Months Ended

September 30,

Contingent Consideration

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Ending balance

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.

The carrying amounts of the revolving loan, term loan and other long-term liabilities approximate their fair value based on the variable nature of interest rates and current rates for instruments with similar characteristics.

During the three and six months ended September 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.

characteristics.

Share-based Payments

Stock Options

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.

During the six months ended September 30, 2021, no

options to purchase shares of the Company’s common stock were granted.

The Company granted options to purchase 345,423 shares of common

stock during the six months ended September 30, 2020.

The following is a summary of stock option transactions:

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Outstanding at March 31, 2021

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.

Outstanding at September 30, 2021

At September 30, 2021, options to purchase 320,104

shares of common stock were unvested at a weighted average exercise price of $ 16.53 .

At September 30, 2021, there was $ 1,832,000

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 1.4 years.

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

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.

During the six months ended September 30, 2021 and 2020, the Company granted 218,928 and 212,293 shares of RSUs, respectively, based on the closing

market price on the grant date.

The following is a summary of non-vested RSUs:

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Outstanding at March 31, 2021

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.

Outstanding at September 30, 2021

At September 30, 2021, there was $ 5,411,000

of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 1.9

Performance Stock Units (“PSUs”)

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

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

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.

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.

The Company will reassess the probability of achieving each performance condition

separately each reporting period.

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 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

Six Months Ended

September 30,

Risk free interest rate

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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 .

Outstanding at September 30, 2021

At September 30, 2021, there was $ 1,774,000 of unrecognized compensation expense related to these awards,

which will be recognized over the weighted average remaining vesting period of approximately 2.7 years .

Commitments and Contingencies

Warranty Returns

The Company allows its customers to return goods that their consumers have returned to them, whether or not the returned item is defective (“warranty returns”).

The Company allows its customers to return goods that their consumers have returned to them, whether or not the returned item is defective (“warranty

The Company accrues an estimate of its exposure to warranty returns based on a historical analysis of the level of this type of return as a percentage of unit sales.

Amounts charged to expense for these warranty returns are considered in arriving at the Company’s net sales.

Amounts charged to expense for these warranty returns are considered in

arriving at the Company’s net sales.

The following summarizes the changes in the warranty return accrual:

Three Months Ended

September 30,

Balance at beginning of period

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The Company is subject to various lawsuits and claims.

In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding the Company’s business.

In addition, government agencies and self-regulatory organizations have the ability to conduct

periodic examinations of and administrative proceedings regarding the Company’s business.

Following an audit in fiscal 2019, the U.S.

Customs and Border Protection stated that it believed that the Company owed additional duties of approximately $ 17 million from 2011 through mid-2018 relating to products that it imported from Mexico.

The Company does not believe that this amount is correct and believes that it has numerous defenses and intends to dispute this amount vigorously.

The Company does not believe that this amount is correct and

believes that it has numerous defenses and intends to dispute this amount vigorously.

The Company cannot assure that the U.S.

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

What changed 10-Q

Item 1. Financial Statements