UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the fiscal year ended March 31, 20182020

OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the transition period from__________from _____________ to__________         to ______________        

Commission File No. 001-33861

Motorcar Parts of America, Inc.MOTORCAR PARTS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)

New York 11-2153962
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization) (I.R.S. Employer Identification No.)
   
2929 California Street, Torrance, California 90503
(Address of principal executive offices) Zip Code

Registrant’s telephone number, including area code: (310) 212-7910

Securities registered pursuant to Section 12(b) of the Act: common stock, $0.01 par value per share (registered on the NASDAQ Global Select Market)
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per shareMPAAThe Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐£ No ☑R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐£ No ☑R

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑R No ☐£

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☑R No ☐

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐
 
Accelerated filer ☑
Non-accelerated filer ☐
(Do not check if a smaller reporting company)
Smaller reporting company ☐
  
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

As of September 30, 2017,2019, which was the last business day of the registrant’s most recently completed fiscal second quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $553,613,587$313,529,239 based on the closing sale price as reported on the NASDAQ Global Select Market.

There were 18,893,10218,972,380 shares of common stock outstanding as of June 7, 2018.8, 2020.

DOCUMENTS INCORPORATED BY REFERENCE:

In accordance with General Instruction G (3) of Form 10-K, the information required by Part III hereof will either be incorporated into this Form 10-K by reference to the registrant’s Definitive Proxy Statement for the registrant’s next Annual Meeting of Stockholders filed within 120 days of March 31, 20182020 or will be included in an amendment to this Form 10-K filed within 120 days of March 31, 2018.2020.

TABLE OF CONTENTS

PART I
 
Item 1. Business
5
Item 1A. Risk Factors
1011
Item 1B. Unresolved Staff Comments
1619
Item 2. Properties
1619
Item 3. Legal Proceedings
1619
Item 4. Mine Safety Disclosures
16
19
PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
1720
Item 6. Selected Financial Data
2022
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2123
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
41
Item 8. Financial Statements and Supplementary Data
41
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
41
Item 9A. Controls and Procedures
41
Item 9B. Other Information
43
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance
44
Item 11. Executive Compensation
44
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
44
Item 13. Certain Relationships and Related Transactions, and Director Independence
44
Item 14. Principal Accountant Fees and Services
44
PART IV
 
Item 15. Exhibits, Financial Statement Schedules
45
Item 16. Form 10-K Summary
5150
SIGNATURES
5251

Table of Contents
MOTORCAR PARTS OF AMERICA, INC.

GLOSSARY

The following terms are frequently used in the text of this report and have the meanings indicated below.

“Used Core” — An automobile part which has previously been used in the operation of a vehicle. Generally, the Used Core is an original equipment (“OE”) automobile part installed by the vehicle manufacturer and subsequently removed for replacement. Used Cores contain salvageable parts which are an important raw material in the remanufacturing process. We obtain most Used Cores by providing credits to our customers for Used Cores returned to us under our core exchange program. Our customers receive these Used Cores from consumers who deliver a Used Core to obtain credit from our customers upon the purchase of a newly remanufactured automobile part. When sufficient Used Cores cannot be obtainedare not available from our customers, we will purchase Used Cores from core brokers, who are in the business of buying and selling Used Cores. The Used Cores purchased from core brokers or returned to us by our customers under the core exchange program, and which have been physically received by us, are part of our raw material or work in process inventory included in long-term coreand work-in-process inventory. Used Cores returned by consumers to our customers but not yet returned to us are classified as contract assets until we physically receive these Used Cores.

“Remanufactured Core” — The Used Core underlying an automobile part that has gone through the remanufacturing process and through that process has become part of a newly remanufactured automobile part. The remanufacturing process takes a Used Core, breaks it down into its component parts, replaces those components that cannot be reused and reassembles the salvageable components of the Used Core and additional new components into a remanufactured automobile part. Remanufactured Cores are included in our on-hand finished goods inventory and in the remanufactured finished good product held for sale at our customer locations. Used Cores returned by consumers to our customers but not yet returned to us continue to belocations are included in long-term contract assets. The Remanufactured Core portion of stock adjustment returns are classified as Remanufactured Corescontract assets until we physically receive these Used Cores. All Remanufactured Cores are included in our long-term core inventory or in our long-term core inventory deposit.them.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context otherwise requires, all references in this Annual Report on Form 10-K to “the Company,” “we,” “us,” “MPA,” and “our” refer to Motorcar Parts of America, Inc. and its subsidiaries.

This Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our future performance that involve risks and uncertainties. Various factors could cause actual results to differ materially from those expressed or implied by such statements. These factors include, but are not limited to: the current and future impacts of the COVID-19 public health crisis; concentration of sales to a small number of large customers; changes in the financial condition of or our relationship with any of our major customers; increases in the average accounts receivable collection period; the loss of sales to customers; delays in payments by customers; the increasing customer pressure for lower prices and more favorable payment and other terms; lower revenues than anticipated from new and existing contracts; the increasing demands on our working capital; the significant strain on working capital associated with large inventory purchases from customers; lower efficiency or production due to stay at home orders issued by governments due to COVID-19 concerns; any meaningful difference between expected production needs and ultimate sales to our customers; investments in operational changes or acquisitions; our ability to obtain any additional financing we may seek or require; our ability to maintain positive cash flows from operations; potential future changes in our previously reported results as a result of the identification and correction of errors in our accounting policies or procedures or the potential material weaknesses in our internal control over financial reporting; our failure to meet the financial covenants or the other obligations set forth in our credit agreement and the lenders’ refusal to waive any such defaults; increases in interest rates; the impact of high gasoline prices; consumer preferences and general economic conditions; increased competition in the automotive parts industry including increased competition from Chinese and other offshore manufacturers; difficulty in obtaining Used Cores and component parts or increases in the costs of those parts; political, criminal or economic instability in any of the foreign countries where we conduct operations; currency exchange fluctuations; potential tariffs, unforeseen increases in operating costs; risks associated with cyber-attacks; risks associated with conflict minerals; the impact of new accounting pronouncements and tax laws including the U.S. Tax Cuts and Jobs Act, and interpretations thereof; uncertainties affecting our ability to estimate our tax rate and other factors discussed herein and in our other filings with the Securities and Exchange Commission (the “SEC”). These and other risks and uncertainties may cause our actual results to differ materially and adversely from those expected in any forward-looking statements. Readers are directed to risks and uncertainties identified below under “Risk Factors” and elsewhere in this report for additional detail regarding factors that may cause actual results to be different than those expressed in our forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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PART I

Item 1.
Business

General

We are a leading manufacturer, remanufacturer,supplier of automotive aftermarket non-discretionary replacement parts and distributor ofdiagnostic equipment.

Consistent with our strategic vision statement to be “The Global Leader for Parts and Solutions that Move Our World Today and Tomorrow.”, we have implemented a multi-pronged platform for growth in hard parts and solutions, which are discussed further in the sections below. We operate in the non-discretionary automotive aftermarket automotivereplacement hard parts business in both the $130 billion light duty and light truck applications. We also, to a lesser extent, are a manufacturer, remanufacturer, and distributor of$15 billion heavy duty markets in North America. Our current products in the hard parts business include a significant presence in the rotating electrical category (alternators and starters). In January 2019, we completed the acquisition of all the equity interests of Dixie Electric, Ltd (“Dixie”), a privately held manufacturer and remanufacturer of alternators and starters for automotive aftermarket non-discretionary replacement parts for heavy-duty truck, and industrial, marine and agricultural application parts. Theseapplications, based in Ontario, Canada, which enhanced our heavy-duty rotating electrical initiatives. This acquisition added an estimated $698 million market opportunity for heavy duty rotating electrical to our existing rotating electrical business.

We have a scalable infrastructure, and our growth opportunities remain abundant. Our growth strategy relating to hard parts includes growing market share in all of our existing hard parts product lines with a significant focus on launching and growing an expanding line of brake products, including brake calipers, brake boosters, brake rotors, brake pads and master cylinders.

In addition to our hard parts business, we offer rotating electrical diagnostic equipment to both original equipment manufacturers and aftermarket manufacturers and distributors.

As we execute on our strategic vision for the future, we are focused on growing our emerging electrification business and leveraging our highly respected line of development and diagnostic solutions – including simulation, emulation and production software and hardware. In addition, these offerings have applications for the aerospace and military industries to support fast-evolving electrification applications and related software and hardware requirements.

Our premium non-discretionary replacement parts for automotive light duty applications are sold for use on vehicles after initial vehicle purchase. These automotive parts areprimarily 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”). We estimate the market size to be over $125 billion for each of the light duty and heavy duty markets in North America.

The current population of light duty vehicles in the U.S. is approximately 271280 million, and the average age of these vehicles is approximately 11.712 years and is expected to continue to grow, in particular during recession years. The aged vehicle population remains favorable.provides favorable opportunities for sales of our parts. Although miles driven can fluctuate primarily based onfor various reasons, including fuel prices, it hasthey have been steadily increasedincreasing for the past year. We believe dseveral years. Demand for aftermarket automotivereplacement parts generally increases with the age of vehicles. In addition, increases invehicles and miles driven can accelerate replacement rates.driven.

The automotive and light truck parts aftermarket is divided into two markets. The first is the do-it-yourself (“DIY”) market, which is generally serviced by the large retail chain outlets.outlets and on-line resellers. Consumers who purchase parts from the DIY channel generally install parts into their vehicles themselves. In most cases, this is a less expensive alternative than having the repair performed by a professional installer. The second is the professional installer market, commonly known as the do-it-for-me (“DIFM”) market. Traditional warehouse distributors, dealer networks, and commercial divisions of retail chains service this market. Generally, the consumer in this channel is a professional parts installer. Our products are distributed to both the DIY and DIFM markets. The distinction between these two markets has become less defined over the years, as retail outlets leverage their distribution strength and store locations to attract professional customers.

The heavy duty
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We also supply aftermarket non-discretionary replacement parts to the heavy-duty truck, industrial, marine, and agricultural aftermarket, which has some overlap with the automotive aftermarket as discussed above, but also has specialty distribution channels through the OES, channelfleet, and auto-electric distributor channels.auto electric outlets.

In addition, we are now inOur position within the business ofdiagnostic testing market is particularly promising, as discussed above. We have expanded our diagnostic equipment applications for combustion engine vehicles, including bench top testers for alternators and starters, belt-start generators (stop start and hybrid technology),offer diagnostic technology solutions for the pre- and post-production of electric vehicles, as well as software emulation of power trainssystems applications for electric vehicles.the electrification of all forms of transportation, including automobiles, trucks and the emerging electrification of systems with the aerospace industry.  The global automotive component and powertrain testing market represents a multi-billion-dollar market, and solidly establishes our growth for diagnostics is approximately $5 billion, withtoday and the smallest but fastest growing segment of this being infuture, as electrification becomes increasingly important around the electric vehicle market.world.

Growth Strategies and Key Initiatives

WeAs noted above, we have a multi-pronged growth strategy: first, we are focused on growing our aftermarket hard parts business in the North American marketplace; second, we are focused on growing our diagnostic business for internal combustion engines on a global basis — including original equipment and aftermarket; and third, we are focused on growing our electric vehicle diagnostic business servicing original equipment manufacturers for automotive and aerospace applications on a global basis.

To accomplish our strategic vision, we are focused on the following key initiatives:

Hard Parts
Grow our current product lines both with existing and potential new customers.  We continue to develop and offer current and new sales programs to ensure that we are doing all we can to support our customers’ businesses. We remain dedicated to managing growth and continuing to focus on enhancements to our infrastructure and making investments in resources to support our customers. We have globally positioned manufacturing and distribution centers to support our continuous growth.
Introduction of new product lines.  We continue to strive to expand our business by exploring new product lines, including working with our customers to identify potential new product opportunities.
Creating value for our customers.  A core part of our strategy is ensuring that we add meaningful value for our customers. We consistently support and pilot our customers’ supply management initiatives in addition to providing demand analytics, inventory management services, online training guides, and market share in all channels withinand retail store layout information to our customers.
Technological innovation.  We continue to expand our research and development teams as we further develop in-house technologies and advanced testing methods. This elevated level of technology aims to deliver our customers the highest quality products and support services that can be offered.
Diagnostics
Rotating Electrical
We provide industry-leading diagnostic equipment to both the light dutyoriginal equipment and heavy duty aftermarket,aftermarket. We are continuously upgrading our equipment to accommodate testing for the latest alternator and starter technology for both existing and new customers. These software and hardware upgrades are also available for existing products that the customer is using. In addition, we provide industry leading maintenance and service support for our testing equipment to provide a better end-user experience and value to our customers.
Introduction of new product lines. We have recently added new products, including DIY, DIFM,alternator and OES,starter testers for retail automotive chains and professional repair shops.
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Electric Vehicle and Aerospace
Market and grow our new product lines on a global basis. We offer products and services that cater to automotive diagnostics for inverter and electric motors for both development and production. In addition, we provide power supply hardware and emulation software diagnostic products. Our strategy is to market these products on a global basis to OE manufacturers as well as suppliers to the OE manufacturers for development and production of electric vehicles. We believe this is a rapidly emerging business, and see the opportunity for accelerating growth rates. In addition, we are well-positioned to supply diagnostic equipment to the aerospace industry to support its shift to electric power driven control systems in airplanes.
Recent Developments

In March 2020, the World Health Organization (“WHO”) declared the outbreak of the novel coronavirus (“COVID-19”) as a pandemic, which has spread globally and created significant volatility, uncertainty and economic disruption in many countries in which we operate, including the United States, Mexico, Canada, Singapore, Malaysia, China, and India. National, state and local governments in these countries have implemented a variety of measures in response to the COVID-19 pandemic that have the effect of restricting or limiting, among other activities, the operations of certain businesses. However, automotive repair and the related supply and distribution of parts have generally been classified as critical, essential or life-sustaining businesses exempted from these government shutdowns and to date we have been able to continue our business operations. Please see the discussion in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as in Item 1A "Risk Factors" for further information regarding the OE (original equipment) market forCOVID-19 pandemic declared by the WHO in March 2020.

Products

We carry approximately 36,000 stock keeping units (“SKUs”) to support automotive replacement parts and diagnostic equipment business. Our products are sold under our diagnostics business. We are well positioned for growth in all channels, in particular the DIFM market in three ways: (i) our auto parts retail customers are expanding their efforts to target the DIFM market, (ii) we sell our products undercustomers’ widely recognized private label brand names and our own brand names directly to suppliers that focus on professional installers,including Quality-Built®, Pure Energy™, Xtreme®, Talon®, Reliance™,D&V Electronics, E&M Power, Dixie Electric, DelStar®, and (iii) we sell our products to original equipment manufacturers for distribution to the professional installer both for warranty replacement and their general aftermarket channels. We have been successful in growing sales to all channels of the aftermarket.

Our goal is to take advantage of multiple growth strategies. To accomplish this, key elements of our strategy include:
·
Grow our current product lines both with existing and potential new customers.  We continue to develop and offer current and new sales programs to ensure that we are doing all we can to support our customers’ businesses. We remain dedicated to managing growth and continuing to focus on enhancements to our infrastructure and making investments in resources to support our customers.
·
Introduction of new product lines.  We continue to strive to expand our business by exploring new product lines including working with our customers to identify potential new product opportunities.
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·
The strategic acquisition of other companies or businesses.  We have in the past and intend to continue making strategic acquisitions to grow our business. We maintain an in-house acquisition team that continuously works to identify potential new targets.
·
Creating value for our customers.  A core part of our strategy is ensuring that we add meaningful value for our customers. We consistently support and pilot our customers’ supply management initiatives in addition to providing demand analytics, a suite of inventory management services, a library of online training guides, market share, and retail store layout information to our customers.
·
Technological innovation.  We continue to expand our research and development teams as we further develop in-house technologies and advanced testing methods. This elevated level of technology ensures our customers receive the highest quality products and support services that can be offered.
ProductsSelect Power Source™.

Our 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 turbochargers, brakediagnostics systems, advanced power boosters, and diagnostic equipment. We added turbochargers through an acquisition in July 2016. We began selling brake power boosters in August 2016. As a result of an acquisition in July 2017, our business also now includes developing and selling diagnostic equipment for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles.

Our OE diagnostic products are viewed as industry leading, paving the wayemulators used for the development of increasingly better electric vehiclevehicles and hybrid vehicle applications. We produce diagnostic equipmentaerospace applications, and custom power electronic products for some of the top OE automotive companiesquality control in the world.

Our products meet or exceed original equipment manufacturer specifications. We produce both newdevelopment and remanufactured units. Remanufacturing generally creates a supplyproduction of parts at a lower cost to the end user than newly manufactured partselectric vehicles and makes available automotive parts that are no longer manufactured. Our remanufactured parts are generally sold at competitively lower prices than most new replacement parts. We believe most of our automotive parts are non-elective replacement parts in all makes and models of vehicles because they are required for a vehicle to operate.

We recycle materials, including metal from the Used Cores and corrugated packaging, in keeping with our focus of positively impacting the environment.

The increasing complexity of cars and light trucks and the number of different makes and models of these vehicles have resulted in a significant increase in the number of different automotive parts required to service vehicles. We carry over 14,500 stock keeping units (“SKUs”) for automotive parts that are sold under our customers’ widely recognized private label brand names and our Quality-Built®, Pure Energy™, Xtreme®, Talon®, Reliance™and other brand names.turbochargers.

Segment Reporting

Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for segment reporting, we have identified our chief executive officer as our chief operating decision maker (“CODM”), have reviewed the documents used by the CODM, and understand how such documents are used by the CODM to make financial and operating decisions. We have determined through this review process that our business comprises onethree separate operating segments. Two of the operating segments meet all of the aggregation criteria, and are aggregated. The remaining operating segment does not meet the quantitative thresholds for individual disclosure and we have combined our operating segments into a single reportable segment for purposes of recording and reporting our financial results.segment.

Sales, Marketing and Distribution

We sell our products to the largest automotive chains, primarily in North America, including Advance (inclusive of Carquest, Autopart International, and Worldpac), AutoZone, Genuine Parts (NAPA), O’Reilly, and Pep Boys,O’Reilly with an aggregate of approximately 25,000 retail outlets. We sell diagnostic equipment via direct and indirect sales channels, technical conferences, and trade shows to some of the world’s best automotive companies. We also sell diagnostic equipment to customers in the aerospace/aviation sector. In addition, we sell our products are sold to OES customers, professional installers, and a diverse group of automotive warehouse distributors. We sell diagnostic equipment directlyDuring fiscal 2020, we sold approximately 98% of our products in North America, with less than 2% of our products sold in Asian and indirectly to some of the world’s best OE automotive companies.European countries.

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We publish printed and electronic catalogs with part numbers and applications for our hard parts products along with a detailed technical glossary and informational database. In addition, we publish printed and electronic product and service brochures and data sheets for our diagnostic product and service offerings. We believe that we maintain one of the most extensive catalog and product identification systems available to the market.

We primarily ship our products from our facilities and utilize various third partythird-party warehouse distribution centers in North America.America, including our 410,000 square foot distribution center in Tijuana, Mexico.

Customers: Customer Concentration. While we continually seek to diversify our customer base, we currently derive, and have historically derived, a substantial portion of our sales from a small number of large customers. Sales to our fourthree largest customers in the aggregate represented 88%84%, 87%83%, and 90%85%, and sales to our largest customer, AutoZone, represented 41%38%, 44%38%, and 48%41% of our net sales during fiscal 2018, 20172020, 2019 and 2016,2018, respectively. Any meaningful reduction in the level of sales to any of these customers, deterioration of the financial condition of any of these customers or the loss of any of these customers could have a materially adverse impact on our business, results of operations, and financial condition.

Customer Arrangements; Impact on Working Capital. We have various length agreements with our customers. Under these agreements, which in most cases have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified categories of our products. Because of the very competitive nature of the market and the limited number of customers for these products, our customers have sought and obtained price concessions, significant marketing allowances and more favorable delivery and payment terms in consideration for our designation as a customer’s exclusive or primary supplier. These incentives differ from contract to contract and can includeinclude: (i) the purchase of Remanufactured Core inventory on customer shelves, (ii) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (ii)(iii) support for a particular customer’s research or marketing efforts provided on a scheduled basis, (iii)(iv) discounts granted in connection with each individual shipment of product, and (iv)(v) store expansion or product development support. These contracts typically require that we meet ongoing performance standards. Our contracts with majorour customers expire at various dates through April 2021.December 2024.

While these longer-term agreements strengthen our customer relationships, the increased demand for our products often requires that we increase our inventories and personnel. Customer demands that we purchase and maintain their Remanufactured Core inventory also requires the use of our working capital. The marketing and other allowances we typically grant our customers in connection with our new or expanded customer relationships adversely impact near-term revenues, profitability and associated cash flows from these arrangements. However, we believe the investment we make in these new or expanded customer relationships will improve our overall liquidity and cash flow from operations over time.

Competition

The automotive parts aftermarketOur business is highly competitive. We compete with several large and medium sized remanufacturers and diagnosticmedium-sized companies, including BBB Industries Remy,and Cardone Industries for hard parts, AVL, Horiba, Siemens, and FEV for diagnostic equipment and a large number of smaller regional and specialty remanufacturers.companies. We also compete with other overseas manufacturers, particularly those located in China who are increasing their operations and could become a significant competitive force in the future.

We believe that the reputations for quality, reliability, and customer service that a supplier provides are significant factors in our customers’ purchase decisions. As we continuallyWe continuously strive to increase our competitive and technical advantages weas the industry and technologies rapidly evolve. Our advanced power emulators are protected by U.S. patents that provide us a strong competitive barrier for a large segment of the market and allow us to be lower cost and more efficient.

8
We believe our ability to educate also helps to distinguish us from many of our competitors. We have created an online library of video courses, aimed at armingsupporting our customers as they seek to train the next generation of technicians. We also offer live and web-based training courses via our recently created education facility within our Torrance, California headquarters. We believe our ability to provide quality replacement automotive parts, rapid and reliable delivery capabilities as well as promotional support also distinguishes us from many of our competitors. In addition, favorable pricing, our core exchange program, and extended payment terms are also very important competitive factors in customers’ purchase decisions.
7

We seek to protect our proprietary processes and other information by relying on trade secret laws and non-disclosure and confidentiality agreements with certain of our employees and other persons who have access to that information.

Operations

Production Process.Process for Non-discretionary Replacement Parts. The majority of our products are remanufactured.remanufactured at our facilities in Mexico, Canada, and to a lesser extent in Malaysia. We continue to maintain production of certain remanufactured units that require specialized service and/or rapid turnaround in our Torrance, California facility. We also manufacture and assemble new products at our facilities in Malaysia and India. Our remanufacturing process begins with the receipt of Used Cores from our customers or core brokers. The Used Cores are evaluated for inventory control purposes and then sorted by part number. Each Used Core is completely disassembled into its fundamental components. The components are cleaned in an environmentally sound process that employs customized equipment and cleaning materials in accordance with the required specifications of the particular component. All components known to be subject to major wear and those components determined not to be reusable or repairable are replaced by new components. Non-salvageable components of the Used Core are sold as scrap.

After the cleaning process is complete, the salvageable components of the Used Core are inspected and tested as prescribed by our IATF 16949 and ISO 9001:2015 approved quality control program,programs, which hashave been implemented throughout the production processes. IATF 16949 is anand ISO 9001:2015 are internationally recognized, world class, automotive quality system that was launched in 2017, replacing the previous ISO TS 16949 quality control program.programs. Upon passage of all tests, which are monitored by designated quality control personnel, all the component parts are assembled in a work cell into a finished product. Inspection and testing are conducted at multiple stages of the remanufacturing process, and each finished product is inspected and tested on equipment designed to simulate performance under operating conditions. To maximize remanufacturing efficiency, we store component parts ready for assembly in our production facilities.

Our remanufacturing processes combine product families with similar configurations into dedicated factory work cells. This remanufacturing process, known as “lean manufacturing,” replaced the more traditional “batch” assembly line approach we had previously utilized and eliminated a large number of inventory moves and the need to track inventory movement through the remanufacturing process. This lean manufacturing process has been fully implemented at all of our existing production facilities and we expect to implement this process at our recently acquired facilities. This manufacturing enables us to significantly reduce the time it takes to produce a finished product. We continue to explore opportunities for improving efficiencies in our remanufacturing process.

Offshore Remanufacturing.Production Process for Diagnostic Equipment. The majority of our remanufacturing operationsOur diagnostic systems are conductedengineered and manufactured in North America at our facilities in MexicoToronto, Canada and Malaysia. We continueBinghamton, New York, U.S. Our facility in Canada is certified under ISO 9001:2015 quality management system, which mandates that we foster continuous improvement to maintain productionour manufacturing processes. Materials for custom systems are purchased in a “just-in-time” environment while materials for standard systems are purchased in economic quantities. All materials and components are inspected and tested when required. Certain components require certificates of certain remanufactured unitscompliance or test results from our vendors prior to shipping to us. Our manufacturing process combines skilled labor from certified and licensed technicians with raw materials, manufactured components, purchased components, and purchased capital components to complete a diagnostic system. All diagnostic systems are inspected and tested per our quality control program, which has been approved by the ISO 9001:2015 quality management system.

9
Our facility in New York, U.S., manufactures test systems using purchased electronic and custom components that require specialized service and/or rapid turnaround in our U.S. facilities. In addition, we operate shipping and receiving warehousesare primarily assembled at this facility. While some circuit card assemblies are handled by outside subcontractors, most of the assemblies are manufactured in-house along with the fabrication of electronic subassemblies. Quality control and testing facilitiesis completed on these subassemblies prior to their final installation into the overall equipment rack that includes mechanical, electrical and plumbing operations. Final inspection and acceptance testing are performed to predefined procedures prior to the equipment being packaged in Singapore and Chinaa crate for our products.shipment.

Used Cores. The majority of our Used Cores are obtained from customers through the core exchange program. The core exchange program consists of the following steps:

Our customers purchaseTo supplement Used Cores received from us a remanufactured unit to be sold to their consumer.

Our customers offer their consumers a credit to exchange their used unit (Used Core) at the time the consumer purchases a remanufactured unit.

We offer our customers a credit, which reduces our accounts receivable, to send us these Used Cores.

Our customers are not obligated to send us all the Used Cores exchanged by their consumers. We have historically purchasedwe purchase Used Cores from core brokers to supplement the supply sent to us.brokers. Although this is not a primary source of Used Cores, it is a critical source for meeting our raw material demands. Remanufacturing consumes, on average, more than one Used Core for each remanufactured unit produced since not all Used Cores are reusable. The yield rates depend upon both the product and customer specifications.

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The price of a finished remanufactured product sold is generally comprised of an amount for remanufacturing (“unit value”) and an amount separately invoiced for the Remanufactured Core included in the product (“Remanufactured Core charge”). The Remanufactured Core charge is equal to the credit we offer to induce the customer to use our core exchange program and send backWe recycle materials, including metal from the Used Cores. The ability to obtain Used Cores materials, and componentscorrugated packaging, in keeping with our focus of positively impacting the types and quantities we need is essential to our ability to meet demand.environment.

Purchased Finished Goods. In addition to our remanufactured goods, we also purchase finished goods from various suppliers, including several located in Asia. We perform supplier qualification, product inspection and testing according to our IATF 16949 or ISO 9001:2015 certified quality systemsystems to assure product quality levels. We also perform periodic site audits of our suppliers’ manufacturing facilities.

Return Rights. Under our customer agreements and general industry practice, our customers are allowed stock adjustments if their inventory of certain product lines exceeds the inventory necessary to support sales to their end-user consumers (stock adjustment returns). Customers have various contractual rights for stock adjustment returns, which are typically less than 5% of units sold. In some instances, we allow a higher level of returns in connection with significant restocking orders. Stock adjustment returns do not occur at any specific time during the year. In addition, we allow customers to return goods to us that their end-user consumers have returned to them, whether or not the returned item is defective (warranty returns). We seek to limit the aggregate general right of return to less than 20% of unit sales.

As is standard in the industry, we only accept returns from on-going customers. If a customer ceases doing business with us, we have no further obligation to accept additional product returns from that customer. Similarly, we accept product returns and grant appropriate credits to new customers from the time the new customer relationship is established.

Employees

We employed 2,9964,012 full-time global employees as of March 31, 2018.2020. We use independent contractors and temporary employees to supplement our workforce as needed. A union represents 2,2663,046 of the employees at our Mexico facility.facilities. All other employees are non-union. We consider our relations with our employees to be satisfactory.

Governmental Regulation

Our operations are subject to federal, state and local laws andvarious regulations governing, among other things, emissions to air, discharge to waters, and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. We believe that our businesses, operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. Potentially significant expenditures, however, could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future.

Access to Public Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available free of charge to the public over the Internet at the SEC’s website at www.sec.gov. Our SEC filings are also available free of charge on our website www.motorcarparts.com. You may also read and copy any document we file with the SEC at its Public Reference Room at 100 F. Street, NE, Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for furtherThe information contained on the operation of the Public Reference Room.websites referenced in this Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.

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Item 1A.
Risk Factors

While we believe the risk factors described below are all the material risks currently facing our business, additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business operations. Our financial condition or results of operations could be materially and adversely impacted by these risks, and the trading price of our common stock could be adversely impacted by any of these risks. In assessing these risks, you should also refer to the other information included in or incorporated by reference into this Form 10-K, including our consolidated financial statements and related notes thereto appearing elsewhere or incorporated by reference in this Form 10-K.

Our business, results of operations, and financial condition could be materially adversely affected by the effects of widespread public health crises, including the novel coronavirus (“COVID-19”) pandemic, that are beyond our control.

The outbreak of COVID-19 in countries in which we operate, including the U.S., Mexico, Canada, Singapore, Malaysia, China, and India, could have a material adverse effect on our business, results of operations and financial condition. Ultimately, the duration and severity of the pandemic may vary depending on the characteristics of the virus and the public health response; therefore, the nature and extent of its impact on our business and operations may be uncertain and beyond our control. In April 2020, we experienced a softening in customer demand for our products and our sales could continue to decrease as a result of a decrease in customer demand for our products as a result of the COVID-19 pandemic, as well as a deterioration of general economic conditions, including a possible national or global recession, and we can provide no assurance that any decrease in sales will be offset by increased sales in the future. We have taken actions to reduce production volumes and implement cost reduction and cash preservation initiatives, including reductions in capital expenditures and employee layoffs and furloughs and may be required to do more so in the future, which could negatively impact our future growth and ability to take advantage of potential opportunities.

In the countries in which we operate, national, state and local governments have implemented a variety of measures in response to the COVID-19 pandemic, including the declaration of states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), restricting or limiting the operations of businesses deemed to be non-essential, and imposing travel restrictions on individuals, including restrictions requiring individuals to stay at their place of residence except to perform certain activities deemed to be essential. Although certain states have issued executive orders requiring all workers to remain at home, unless their work is critical, essential or life-sustaining, automotive repair and the related supply and distribution of parts have been classified as critical, essential or life-sustaining businesses exempted from these government shutdowns, in the United States and Canada. Therefore, the vast majority of our customers are currently open for business. In turn, all our major facilities in the United States and Canada have remained open and operating to date, with modified staffing in certain locations where appropriate. Although we have been able to continue to perform with certain modifications, we can provide no assurances that we will be able to continue to operate in the future without disruption, as a result of new or modifications to existing governmental measures in response to the COVID-19 pandemic.

Our other international locations have incurred various levels of restrictions. In particular, the Mexican government implemented certain measures in March through May 2020 that resulted in a reduction in productivity, as well as the temporary closure of all of our manufacturing and distribution facilities in Tijuana, Mexico, in mid-April 2020. We have also suffered closures of manufacturing, remanufacturing, and distribution facilities in China, Malaysia, Singapore and India. As of the filing of this Report, although all of our facilities are operational, any restrictions or limitations on our ability to perform such operations in the future without disruption, such as temporary closures, as a result of governmental measures in response to the pandemic could have a material adverse effect on our business, results of operations and financial condition.

The COVID-19 pandemic could cause material disruption to our business and operations as a result of worker absenteeism due to illness or other factors, and the implementation of various exposure-reducing and infection prevention measures, such as cleaning and disinfecting measures, social distancing, staggered work shifts and reduced operations and production volumes. Depending on the extent and duration of these disruptions, and their effects on our operations, our costs could increase, including our costs to address the health and safety of our employees, our ability to remanufacture and distribute product to satisfy demand for our products could be adversely impacted and, as a result, our business, financial condition and results of operations could be materially adversely affected.

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Furthermore, the COVID-19 pandemic also adversely affects the business, operations and financial condition of our customers, suppliers and other supply chain partners as a result of the governmental measures described above, disruptions to their business and operations for reasons similar to those described above, and their ability to manage and mitigate the adverse effects of these and other risks unique to their business and operations that may arise as a result of the pandemic. Similarly, our suppliers may not have the materials, capacity, or capability to manufacture our products or components according to our schedule and specifications. If our suppliers’ operations are impacted, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our customers, each of which would affect our results of operations. The duration of the disruption to our customers and to our supply chain, and related financial impact to us, cannot be estimated at this time. Should such disruption continue for an extended period of time, the impact could have a material adverse effect on our business, results of operations and financial condition.

We rely on a few large customers for a majority of our business, and the loss of any of these customers, significant changes in the prices, marketing allowances or other important terms provided to any of these customers or adverse developments with respect to the financial condition of these customers could reduce our net income and operating results.

Our net sales are concentrated among a small number of large customers. Sales to our fourthree largest customers in the aggregate represented 88%84%, and sales to our largest customer represented 41%38% of our net sales during fiscal 2018.2020. We are under ongoing pressure from our major customers to offer lower prices, extended payment terms, increased marketing and other allowances and other terms more favorable to these customers because our sales to these customers are concentrated, and the market in which we operate is very competitive. These customer demands have put continued pressure on our operating margins and profitability, resulted in periodic contract renegotiation to provide more favorable prices and terms to these customers and significantly increased our working capital needs. In addition, this customer concentration leaves us vulnerable to any adverse change in the financial condition of these customers. Changes in terms with, significant allowances for and collections from these customers could affect our operating results and cash flows. The loss of or a significant decline in sales to any of these customers could adversely affect our business, results of operations, and financial condition.

Failure to compete effectively could reduce our market share and significantly harm our financial performance.

Our industry is highly competitive, and our success depends on our ability to compete with suppliers of automotive aftermarket products, some of which may have substantially greater financial, marketing and other resources than we do. The automotive aftermarket industry is highly competitive, and our success depends on our ability to compete with domestic and international suppliers of automotive aftermarket products. Due to the diversity of our product offering, we compete with several large and medium-sized companies, including BBB Industries and Cardone Industries for hard parts, and AVL, Horiba, Siemens, and FEV for diagnostic equipment and a large number of smaller regional and specialty companies and numerous category specific competitors. In addition, we face competition from original equipment manufacturers, which, through their automotive dealerships, supply many of the same types of replacement parts we sell.

Some of our competitors may have larger customer bases and significantly greater financial, technical and marketing resources than we do. These factors may allow our competitors to:

respond more quickly than we can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products;
engage in more extensive research and development; and
spend more money and resources on marketing and promotion.

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In addition, other overseas competitors, particularly those located in China, are increasing their operations and could become a significant competitive force in the future. Increased competition could put additional pressure on us to reduce prices or take other actions, which may have an adverse effect on our operating results. We may also lose significant customers or lines of business to competitors.

Unfavorable economic conditions may adversely affect our business.

Adverse changes in economic conditions, including inflation, recession, increased fuel prices, tariffs, and unemployment levels, availability of consumer credit, taxation or instability in the financial markets or credit markets may either lower demand for our products or increase our operational costs, or both. In addition, elections and other changes in the political landscape could have similar effects. Such conditions may also materially impact our customers, suppliers and other parties with whom we do business. Our revenue will be adversely affected if demand for our products declines. The impact of unfavorable economic conditions may also impair the ability of our customers to pay for products they have purchased. As a result, reserves for doubtful accounts and write-offs of accounts receivables may increase and failure to collect a significant portion of amounts due on those receivables could have a material adverse effect upon our business, financial condition and results of operations.

Our offshore remanufacturing and logistic activities expose us to increased political and economic risks and place a greater burden on management to achieve quality standards.

Our overseas operations, especially our operations in Mexico, increase our exposure to political, criminal or economic instability in the host countries and to currency fluctuations. Risks are inherent in international operations, including:

·exchange controls and currency restrictions;
exchange controls and currency restrictions;
·currency fluctuations and devaluations;
currency fluctuations and devaluations;
·changes in local economic conditions;
changes in local economic conditions;
·repatriation restrictions (including the imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries);
repatriation restrictions (including the imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries);
·global sovereign uncertainty and hyperinflation in certain foreign countries;
global sovereign uncertainty and hyperinflation in certain foreign countries;
·laws and regulations relating to export and import restrictions;
laws and regulations relating to export and import restrictions;
·exposure to government actions; and
exposure to government actions;
·exposure to local political or social unrest including resultant acts of war, terrorism or similar events.
increased required employment related costs; and
exposure to local political or social unrest including resultant acts of war, terrorism or similar events.

These and other factors may have a material adverse effect on our offshore activities and on our business, results of operations and financial condition. Our overall success as a business depends substantially upon our ability to manage our foreign operations. We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business, and failure to do so could materially and adversely impact our business, results of operations, and financial condition.

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Interruptions or delays in obtaining component parts could impair our business and adversely affect our operating results.

In our remanufacturing processes, we obtain Used Cores, primarily through the core exchange program with our customers, and component parts from third-party manufacturers. We generally purchase up to 20% of our Used Cores from core brokers. Historically, the Used Core returned from customers together with purchases from core brokers have provided us with an adequate supply of Used Cores. If there was a significant disruption in the supply of Used Cores, whether as a result of increased Used Core acquisitions by existing or new competitors or otherwise, our operating activities could be materially and adversely impacted. In addition, a number of the other components used in the remanufacturing process are available from a very limited number of suppliers. We are, as a result, vulnerable to any disruption in component supply, and any meaningful disruption in this supply would materially and adversely impact our operating results.

Increases in the market prices of key component raw materials could increase the cost of our products and negatively impact our profitability.

In light of the continuous pressure on pricing which we have experienced from our large customers, we may not be able to recoup the higher costs of our products due to changes in the prices of raw materials, particularly aluminum and copper. If we are unable to recover a substantial portion of our raw materials from Used Cores returned to us by our customers through the core exchange program, the prices of Used Cores that we purchase may reflect the impact of changes in the cost of raw materials. However, we are unable to determine what adverse impact, if any, sustained raw material price increases may have on our product costs or profitability.

Substantial and potentially increasing competition could reduce our market share and significantly harm our financial performance.

While we believe that we are well positioned in the automotive aftermarket, this market is very competitive. In addition, other overseas manufacturers, particularly those located in China, are increasing their operations and could become a significant competitive force in the future. We may not be successful competing against other companies, some of which are larger than us and have greater financial and other resources at their disposal. Increased competition could put additional pressure on us to reduce prices or take other actions, which may have an adverse effect on our operating results. We may also lose significant customers or lines of business to competitors.

Our financial results are affected by automotive parts failure rates that are outside of our control.

Our operating results are affected over the long term by automotive parts failure rates. These failure rates are impacted by a number of factors outside of our control, including product designs that have resulted in greater reliability, the number of miles driven by consumers, and the average age of vehicles on the road. A reduction in the failure rates of automotive parts would adversely affect our sales and profitability.

Our operating results may continue to fluctuate significantly.

We have experienced significant variations in our annual and quarterly results of operations. These fluctuations have resulted from many factors, including shifts in the demand and pricing for our products, general economic conditions, including changes in prevailing interest rates, and the introduction of new products. Our gross profit percentage fluctuates due to numerous factors, some of which are outside of our control. These factors include the timing and level of marketing allowances provided to our customers, actual sales during the relevant period, pricing strategies, the mix of products sold during a reporting period, and general market and competitive conditions. We also incur allowances, accruals, charges and other expenses that differ from period to period based on changes in our business, which causes our operating income to fluctuate.

Our lenders may not waive future defaults under our credit agreements.

Our credit agreement with our lenders contains certain financial and other covenants. If we fail to meet any of these covenants in the future, there is no assurance that our lenders will waive any such defaults. If obtained, any such waiver may impose significant costs or covenants on us.
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Unfavorable currency exchange rate fluctuations could adversely affect us.

We are exposed to market risk from material movements in foreign exchange rates between the U.S. dollar and the currencies of the foreign countries in which we operate. In fiscal 2018,2020, approximately 13%21% of our total expenses were in currencies other than the U.S. dollar. As a result of our extensive operations in Mexico, our primary risk relates to changes in the rates between the U.S. dollar and the Mexican peso. To mitigate this currency risk, we enter into forward foreign exchange contracts to exchange U.S. dollars for Mexican pesos. We also enter into forward foreign exchange contracts to exchange U.S. dollars for Chinese yuan in order to mitigate risk related to our purchases and payments to our Chinese vendors. The extent to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates. We do not engage in currency speculation or hold or issue financial instruments for trading purposes. These contracts generally expire in a year or less. Any change in the fair value of foreign exchange contracts is accounted for as an increase or decrease to general and administrative expenses in current period earnings. We recorded a non-cash loss of $6,491,000 due to the change in the fair value of the forward foreign currency exchange contracts in general and administrative expenses during fiscal 2020. In addition, we recorded a loss of $11,710,000 in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2020.

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We may continue to make strategic acquisitions of other companies or businesses and these acquisitions introduce significant risks and uncertainties, including risks related to integrating the acquired businesses and achieving benefits from the acquisitions.

In order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, strategic acquisitions that involve significant risks and uncertainties. These risks and uncertainties include:

·the difficulty in integrating newly-acquired businesses and operations in an efficient and effective manner;
the difficulty in integrating newly-acquired businesses and operations in an efficient and effective manner;
·the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;
the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;
·the potential loss of key employees of the acquired businesses;
the potential loss of key employees of the acquired businesses;
·the risk of diverting the attention of senior management from our operations;
the risk of diverting the attention of senior management from our operations;
·risks associated with integrating financial reporting and internal control systems;
risks associated with integrating financial reporting and internal control systems;
·difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses; and
difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses; and
·future impairments of any goodwill of an acquired business.
future impairments of any goodwill of an acquired business.

We may also incur significant expenses to pursue and consummate acquisitions. Any of the foregoing, or a combination of them, could cause us to incur additional expenses and materially and adversely impact our business, financial condition, results of operations, or liquidity.

Our reliance on foreign suppliers for some of the automotive parts we sell to our customers or included in our products presents risks to our business.

A significant portion of automotive parts and components we use in our remanufacturing process are imported from suppliers located outside the U.S., including various countries in Asia. As a result, we are subject to various risks of doing business in foreign markets and importing products from abroad, such as:

●significant delays in the delivery of cargo due to port security considerations;
●imposition of duties, taxes, tariffs or other charges on imports;
●imposition of new legislation relating to import quotas or other restrictions that may limit the quantity of our product that may be imported into the U.S. from countries or regions where we do business;
●financial or political instability in any of the countries in which our product is manufactured;
●potential recalls or cancellations of orders for any product that does not meet our quality standards;
disruption of imports by labor disputes or strikes and local business practices;
12political or military conflict involving the U.S., which could cause a delay in the transportation of our products and an increase in transportation costs;
heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods;
Tablenatural disasters, disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of Contents
raw materials and scrutiny or embargoing of goods produced in infected areas;
●disruption of imports by labor disputes or strikesinability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and local business practices;
●political or military conflict involving the U.S., which could cause a delay in the transportation of our products and an increase in transportation costs;
●heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods;
●natural disasters, disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;
●inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and
●our ability to enforce any agreements with our foreign suppliers.

Any of the foregoing factors, or a combination of them, could increase the cost or reduce the supply of products available to us and materially and adversely impact our business, financial condition, results of operations or liquidity.

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In addition, because we depend on independent third parties to manufacture a significant portion of our wheel hub, brake calipers, brake master cylinder,cylinders, and other purchased finished goods, we cannot be certain that we will not experience operational difficulties with such manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality controls and failure to meet production deadlines or increases in manufacturing costs.

An increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales and profits.

Merchandise manufactured offshore represents a significant portion of our total product purchases. A disruption in the shipping or cost of such merchandise may significantly decrease our sales and profits. In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands. Merchandise from alternative sources may also be of lesser quality and more expensive than those we currently import. Risks associated with our reliance on imported merchandise include disruptions in the shipping and importation or increase in the costs of imported products. For example, common risks may be:

·raw material shortages;
·work stoppages;
·strikes and political unrest;
·problems with oceanic shipping, including shipping container shortages;
·increased customs inspections of import shipments or other factors causing delays in shipments;
·economic crises;
·international disputes and wars;
·loss of “most favored nation” trading status by the U. S. in relations to a particular foreign country;
·import duties;
·import quotas and other trade sanctions; and
·increases in shipping rates.

Products manufactured overseas and imported into the U.S. and other countries are subject to import restrictions and duties, which could delay their delivery or increase their cost.Following an audit in fiscal 2019, the U.S. Customs and Border Protection stated that it believed that we owed additional duties of approximately $17 million from 2011 through mid-2018 relating to products that we imported from Mexico. We do not believe that this amount is correct and believe that we have numerous defenses and intend to dispute this amount vigorously. We cannot assure you that the U.S. Customs and Border Protection will agree or that we will not need to accrue or pay additional amounts in the future.

DuringChanges in trade policy and followingother factors beyond our control could materially adversely affect our business.

A significant portion of our inventory is manufactured in and distributed from Mexico. In November 2018, the 2016 U.S. presidential election, there, Mexico and Canada signed the United States-Mexico-Canada Agreement (the “USMCA”), which is designed to overhaul and update the North American Free Trade Agreement. The USMCA has been discussionbe ratified by the respective legislatures of each of the three countries. Congress approved the USMCA in the United States-Mexico-Canada Agreement Implementation Act in January 2020 (the “Act”), and commentary regarding potential significant changesthe President signed the Act into law. The U.S. Trade Representative has notified Congress it plans to U.S. trade policies, legislation, treaties andbring the agreement into force on July 1, 2020. While USMCA has been enacted, there are still steps that must be taken by the parties to complete the “entry into force” process.

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Possible new tariffs including NAFTA and trade policies and tariffs affecting China. There have also been discussions of a disallowance of tax deductions for imported merchandise orthat might be imposed by the imposition of unilateral tariffs on imported products. It is unknown at this time whether and to what extent new legislation will be passed into law, pending or new regulatory proposals will be adopted, international trade agreements will be negotiated, or the effect that any such action may have, either positively or negatively, on our industry, or on us. Similar to many other multinational corporations, we do a significant amount of business that would be impacted by these changes. If any new legislation and/or regulations are implemented, or if existing trade agreements are renegotiated, it may be time-consuming and expensive for us to alter our business operations in order to adapt to or comply with such changes. Such operational changesUnited States government could have a material adverse effect on our business, financial condition and results of operations.

13The U.S. government has placed tariffs on certain goods imported from China and may impose new tariffs on goods imported from China and other countries, including products that we import. In retaliation, China has responded by imposing tariffs on a wide range of products imported from the U.S. and by adjusting the value of its currency. If renegotiations of existing tariffs are unsuccessful or additional tariffs or trade restrictions are implemented by the U.S. or other countries in connection with a global trade war, the resulting escalation of trade tensions could have a material adverse effect on world trade and the global economy. Even in the absence of further tariffs or trade restrictions, the related uncertainty and the market's fear of an economic slowdown could lead to a decrease in consumer spending and we may experience lower net sales than expected. Reduced net sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leverage expenses.

If our technology and telecommunications systems were to fail, or we were not able to successfully anticipate, invest in or adopt technological advances in our industry, it could have an adverse effect on our operations.

We rely on computer and telecommunications systems to communicate with our customers and vendors and manage our business. The temporary or permanent loss of our computer and telecommunications equipment and software systems, through casualty, operating malfunction, software virus or service provider failure, could disrupt our operations. In addition, our future growth may require additional investment in our systems to keep up with technological advances in our industry. If we are not able to invest in or adopt changes to our systems, or such upgrades take longer or cost more than anticipated, our business, financial condition and operating results may be adversely affected.

Cyber-attacks or other breaches of information technology security could adversely impact our business and operations.

Cyber-attacks or other breaches of network or information technology security may cause equipment failure or disruption to our operations. Such attacks, which include the use of malware, computer viruses and other means for disruption or unauthorized access, on companies have increased in frequency, scope and potential harm in recent years. While, to the best of our knowledge, we have not been subject to cyber-attacks or to other cyber incidents which, individually or in the aggregate, have been material to our operations or financial conditions, the preventive actions we take to reduce the risk of cyber incidents and protect our information technology and networks may be insufficient to repel a major cyber-attack in the future. To the extent that any disruption or security breach results in a loss or damage to our data or unauthorized disclosure of confidential information, it could cause significant damage to our reputation, affect our relationship with our customers, suppliers and employees, and lead to claims against us and ultimately harm our business. Additionally, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. While we maintain specific cyber insurance coverage, which wouldmay apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage.

Regulations related to conflict minerals could adversely impact our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo (“DRC”) and adjoining countries. These rules could adversely affect the sourcing, supply, and pricing of materials used in our products, as the number of suppliers who provide conflict-free minerals may be limited. We may also suffer reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to modify our products to avoid the use of such materials. We may also face challenges in satisfying customers who may require that our products be certified as containing conflict-free minerals.

The products we manufacture or contract to manufacture contain small quantities of Tin and Gold. We manufacture or contract to manufacture one product with small quantities of Tantalum. For the reporting year ending December 31, 2017,2019, 100% of applicable suppliers responded to our request for information on sourcing of their “conflict minerals.” This inquiry yielded 192195 smelters, refiners, or metal processing facilities for these minerals that are, or could be, in our supply chain. Of these, 89%97% were validated as conflict-free, per publicly available information on the Conflict Free Sourcing Initiative website. For the majority of the remaining entities reported to us, there is insufficient data for the industry to determine the source of materials for their smelters.

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Our strategy for managing risks associated with conflict minerals in products includes continuing to encourage our suppliers to engage in conflict-free sourcing and obtaining data from our suppliers that is more applicable to the products we purchase. We continue to monitor progress on industry efforts to ascertain whether some facilities that suppliers identified are actually smelters. We do not believe conflict minerals pose risk to our operations. We are a member of the Automobile Industry Action Group (AIAG), and support their efforts in the conflict minerals area.

Natural disasters or other disruptions in our business in California and Baja California, Mexico could increase our operating expenses or cause us to lose revenues.

A substantial portion of our operations are located in California and Baja California, Mexico, including our headquarters, remanufacturing and warehouse facilities. Any natural disaster, such as an earthquake, or other damage to our facilities from weather, fire or other events could cause us to lose inventory, delay delivery of orders to customers, incur additional repair-related expenses, disrupt our operations or otherwise harm our business. These events could also disrupt our information systems, which would harm our ability to manage our operations worldwide and compile and report financial information. As a result, we could incur additional expenses or liabilities or lose revenues, which could exceed any insurance coverage and would adversely affect our financial condition and results of operations.

Weakness in conditions in the global credit markets and macroeconomic factors could adversely affect our financial condition and results of operations.

Any weakness in the credit markets could result in significant constraints on liquidity and availability of borrowing terms from lenders and accounts payable terms with vendors. Modest economic growth in most major industrial countries in the world and uncertain prospects for continued growth threaten to cause tightening of the credit markets, more stringent lending standards and terms, and higher interest rates. The persistence of these conditions could have a material adverse effect on our borrowings and the availability, terms and cost of such borrowings. In addition, deterioration in the U.S. economy could materially and adversely impact our operating results.

Our stock price may be volatile and could decline substantially.

Our stock price may decline substantially as a result of developments in our business, the volatile nature of the stock market, and other factors beyond our control. TheOur stock price and the stock market generally has, from time to time, experienced extreme price and volume fluctuations. Many factors may cause the market price for our common stock to decline, includingincluding: (i) our operating results failing to meet the expectations of securities analysts or investors in any period, (ii) downward revisions in securities analysts’ estimates, (iii) market perceptions concerning our future earnings prospects, (iv) public or private sales of a substantial number of shares of our common stock, and (v) adverse changes in general market conditions or economic trends.trends, and (vi) market shocks generally or in our industry, such as what has recently occurred in connection with COVID-19.

Our past material weakness, and any future failure to implement and maintain effective internal control over financial reporting, could result in material misstatements inmay affect our ability to accurately report our financial statements.results and could materially and adversely affect the market price of our common stock.

Section 404 ofUnder the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight. Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of 2002 (“SOX”) requires our managementongoing monitoring of internal controls, we determined that we had a material weakness in our internal controls as of March 31, 2019 and developed a plan to assess the effectivenessremediate such weakness, which we completed as of this filing. We cannot assure you that our internal control over financial reporting atwill be effective in the end of each fiscal year and certify whetherfuture or that other material weakness will not internal control over financial reporting is effective. Our independent accountants are also required to express an opinion with respect tobe discovered in the effectiveness of our internal controls.future. Any failure to maintain or implement new or improved internaleffective controls or timely effect any difficulties we encounter in their implementation,necessary improvement of our internal and disclosure controls could result in significant deficienciesharm operating results or material weaknesses, cause us to fail to meet our periodic reporting obligations, (which may resultwhich could affect our ability to remain listed with the NASDAQ Global Select Market or subject us to adverse regulatory consequences. Ineffective internal and disclosure controls could also cause investors to lose confidence in our failure to maintainreported financial information, which would likely have a negative effect on the listing standards for our common stock) or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding the effectivenesstrading price of our internal control over financial reporting required under SOX.stock.

Uncertainties in the interpretation and application of the Tax Cuts and Jobs Act of 2017 could materially affect our tax obligations and effective tax rate.

On December 22, 2017, the U.S. enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act requires complex computations not previously required by U.S. tax law. As such, the application of accounting guidance for such items is currently uncertain. Further, compliance with the Tax Act and the accounting for such provisions require preparation and analysis of information not previously required or regularly produced. In addition, the U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the Tax Act and impact our results of operations in future periods. Accordingly, while we have provided a provisional estimate on the effect of the Tax Act in our accompanying audited financial statements, further regulatory or GAAP accounting guidance for the law, our further analysis on the application of the law, and refinement of our initial estimates and calculations could materially change our current provisional estimates, which could, in turn, materially affect our tax obligations and effective tax rate. There may also be significant future effects that these tax reforms will have on our financial results and our business strategies. In addition, there is a risk that states or foreign jurisdictions may amend their tax laws in response to these tax reforms, which could have a material impact on our future results.

Item 1B.
Unresolved Staff Comments

None.

Item 2.
Properties

The following sets forth the location, type of facility, square footage and ownership interest in each of our material facilities.

Location Type of Facility 
Approx.
Square
Feet
 
Leased
or
Owned
 Expiration
         
Torrance, CA Remanufacturing, Warehouse, Administrative, and Office           231,000 Leased March 2022
Tijuana, Mexico (1) Remanufacturing, Warehouse, and Office            312,000312,000LeasedAugust 2033
Tijuana, MexicoDistribution Center and Office           410,000 Leased December 20182032
Tijuana, Mexico (2)Remanufacturing           199,000LeasedDecember 2032
Tijuana, MexicoCore Induction and Warehouse           173,000LeasedDecember 2032
Tijuana, MexicoWarehouse             72,000LeasedJuly 2021
Ontario, Canada Remanufacturing, Warehouse, and Office            410,000157,000 Leased December 2032May 2023
Ontario, Canada Manufacturing, Warehouse, and Office              30,00035,000 Leased December 2022
Singapore & Malaysia Remanufacturing, Warehouse, and Office              74,00090,000 Leased Various through December 20212022
Shanghai, China Warehouse and Office              54,00027,000 Leased March 2019
Winchester, VAWarehouse and Office13,000LeasedFebruary 2021

(1)All renewal options for our current lease for our remanufacturing, warehouse, and office space in Tijuana, Mexico, expiring on December 31, 2018, have been fully exercised. We would have to enter into a new agreement to extend this lease further. We can request an extension of the lease by sending a written notice to the landlord at least 150 days prior to the expiration date; however, there can be no assurance that the landlord would agree to the requested extension.
(2)The shell building and ancillary improvements on our new distribution center in Tijuana, Mexico, were completed in the latter part of fiscal 2018. We began shipping certain products to our customers in the first quarter of fiscal 2019 and we expect this facility to be fully operational to ship all our products during fiscal 2019.

We believe the above mentioned facilities are sufficient to satisfy our foreseeable warehousing, production, distributioncurrent and administrative office space requirements for our currentforeseeable operations.

Item 3.
Legal Proceedings

We are subject to various lawsuits and claims in the normal course of business. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding our business. Following an audit in fiscal 2019, the U.S. Customs and Border Protection stated that it believed that we owed additional duties of approximately $17 million from 2011 through mid-2018 relating to products that we imported from Mexico. We do not believe that this amount is correct and believe that we have numerous defenses and intend to dispute this amount vigorously. We cannot assure you that the outcome of these other mattersU.S. Customs and Border Protection will have a material adverse effect on our financial positionagree or future results of operations.that we will not need to accrue or pay additional amounts in the future.

Item 4.
Mine Safety Disclosures

Not applicable.

1619
PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the NASDAQ Global Select Market under the trading symbol MPAA.

The following sets forth the high and low prices of our common stock:

  Fiscal 2018  Fiscal 2017 
  High  Low  High  Low 
1st Quarter $31.57  $25.39  $37.70  $25.50 
2nd Quarter $29.88  $24.24  $34.73  $25.78 
3rd Quarter $30.16  $23.92  $29.41  $21.75 
4th Quarter $28.98  $20.11  $30.87  $25.09 

As of June 7, 2018,8, 2020, there were 18,893,10218,972,380 shares of common stock outstanding held by 1211 holders of record. We have never declared or paid dividends on our common stock. The declaration of any prospective dividends is at the discretion of the board of directors and will be dependent upon sufficient earnings, capital requirements and financial position, general economic conditions, state law requirements, and other relevant factors. Additionally, our new credit facility permits the payment of up to $20,000,000 of dividends per calendar year, subject to a minimum availability threshold and pro forma compliance with financial covenants.

Purchases of Equity Securities by the Issuer

Share repurchase activity during the fourth quarter of fiscal 20182020 was as follows:

Periods 
Total Number of
Shares Purchased
  
Average Price
Paid Per Share
  
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs (1)
  
Total Number of
Shares Purchased
  
Average Price
Paid Per Share
  
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans or
Programs (1)
 
                        
January 1 - January 31, 2018:            
January 1 - January 31, 2020:            
Open market and privately negotiated purchases  -  $-   -  $8,145,000  -  $-  -  $21,308,000 
February 1 - February 28, 2018:                
February 1 - February 29, 2020:            
Open market and privately negotiated purchases  208,081  $22.94   208,081   8,370,000  -  $-  -  21,308,000 
March 1 - March 31, 2018:                
March 1 - March 31, 2020:            
Open market and privately negotiated purchases  -  $-   -   8,370,000   -  $-   -   21,308,000 
                            
Total  208,081       208,081  $8,370,000   0      0  $21,308,000 

(1)On February 2, 2018, our board of directors increased our share repurchase program authorization from $15,000,000 to $20,000,000 of our common stock.
As of March 31, 2018, $11,630,0002020, $15,692,000 of the $20,000,000$37,000,000 had been utilized and $8,370,000$21,308,000 remained available to repurchase shares under the authorized share repurchase program, subject to the limit in our credit facility.Amended Credit Facility. We retired the 511,746675,561 shares repurchased under this program through March 31, 2018.2020. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

Equity Compensation Plan Information

The following summarizes our equity compensation plans as of March 31, 2018:2020:

Plan Category 
Number of securities to
be issued upon
exercise of outstanding
options, warrants and
rights
(a)
  
Weighted-average
exercise price of
outstanding options
warrants and rights
(b)
  
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c )
  
Number of securities to
be issued upon
exercise of outstanding
options, warrants and
rights
(a)
  
Weighted-average
exercise price of
outstanding options
warrants and rights
(b)
  
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c )
 

       
Equity compensation plans approved by security holders  1,277,126(1) $16.97(2)  1,810,786(3)  1,738,106(1) $18.18(2)  773,732(3)
Equity compensation plans not approved by security holders  N/A   N/A   N/A   N/A   N/A   N/A 
            
Total  1,277,126  $16.97   1,810,786   1,738,106  $18.18   773,732 

(1)
Consists of (i) stock options issued under the 2004 Non-Employee Director Stock Option Plan, (ii) restricted stock units (“RSUs”and restricted stock (collectively “RSUs”) and stock options issued under the Third Amended and Restated 2010 Incentive Award Plan (the “2010 Plan”), and (iii) RSUs issued under our 2014 Non-Employee Director Incentive Award Plan (the “2014 Plan”).
(2)
The weighted average exercise price does not reflect the shares that will be issued in connection with the settlement of RSUs, since RSUs have no exercise price.
(3)
Consists of shares available for future issuance under our 2010 Plan and 2014 Plan.

1820
Stock Performance Graph

The following graph compares the cumulative return to holders of our common stock for the five years ending March 31, 20182020 with the NASDAQ Composite Total Returns Index and the Zacks Retail and Wholesale Auto Parts Index. The comparison assumes $100 was invested at the close of business on March 31, 20132015 in our common stock and in each of the comparison groups, and assumes reinvestment of dividends.

 

Item 6.
Selected Financial Data

The following selected historical consolidated financial information for the periods indicated below has been derived from and should be read in conjunction with our consolidated financial statements and related notes thereto.

Our selected income statement data below representsFactors affecting the comparability of our continuing operationsSelected Financial Data as follows:

Upon adoption of ASC 842, Leases, on April 1, 2019, right-of-use operating assets and excludesoperating lease liabilities were recorded on the resultsconsolidated balance sheet at March 31, 2020.
Prior to the retrospective adoption of ASC 606, Revenue from Contract with Customers, on April 1, 2018, we reported our core inventory as a long-term asset in our consolidated balance sheets.
We acquired certain assets and assumed certain liabilities of Mechanical Power Conversion, LLC in December 2018. We also completed the acquisitions of all of the discontinued subsidiary between the acquisitionequity interests of D&V Electronics Ltd. in May 2011July 2017 and its bankruptcyDixie Electric, Ltd. in June 2013.January 2019.
 Fiscal Years Ended March 31, 
Income Statement Data2020 2019 2018 2017 2016 
           
Net sales
 
$
535,831,000
  
$
472,797,000
  
$
427,548,000
  
$
422,058,000
  
$
369,670,000
 
Operating income
  
16,738,000
   
15,646,000
   
50,834,000
   
69,815,000
   
38,286,000
 
Net (loss) income
  
(7,290,000
)
  
(7,849,000
)
  
19,264,000
   
38,735,000
   
10,269,000
 
Basic net (loss) income per share
 
$
(0.39
)
 
$
(0.42
)
 
$
1.02
  
$
2.08
  
$
0.56
 
Diluted net (loss) income per share
 
$
(0.39
)
 
$
(0.42
)
 
$
0.99
  
$
1.99
  
$
0.54
 

  Fiscal Years Ended March 31, 
Income Statement Data 2018  2017  2016  2015  2014 
Net sales $428,072,000  $421,253,000  $368,970,000  $301,711,000  $258,669,000 
Operating income  49,624,000   67,972,000   38,286,000   33,586,000   32,104,000 
Net income  16,316,000   37,573,000   10,563,000   11,453,000   6,482,000 
Basic net income per share $0.87  $2.02  $0.58  $0.68  $0.45 
Diluted net income per share $0.84  $1.93  $0.55  $0.65  $0.42 
  March 31, 
Balance Sheet Data  2020   2019   2018   2017   2016 
                     
Total assets
 
$
777,029,000
  
$
632,362,000
  
$
552,427,000
  
$
445,090,000
  
$
425,647,000
 
Working capital (1)
  
90,624,000
   
73,528,000
   
90,287,000
   
(17,710,000
)
  
11,391,000
 
Revolving loan
  
152,000,000
   
110,400,000
   
54,000,000
   
11,000,000
   
7,000,000
 
Term loan
  
24,140,000
   
27,872,000
   
16,981,000
   
19,999,000
   
23,047,000
 
Finance lease liabilities
  
5,964,000
   
4,508,000
   
5,084,000
   
2,512,000
   
2,608,000
 
Operating lease liabilities
  
66,529,000
   
-
   
-
   
-
   
-
 
Other long term liabilities
  
97,225,000
   
44,558,000
   
49,282,000
   
25,986,000
   
35,066,000
 
Shareholders’ equity
  
275,520,000
   
279,755,000
   
286,880,000
   
257,333,000
   
218,257,000
 
  March 31, 
Balance Sheet Data  2018   2017   2016   2015   2014 
Total assets $494,497,000  $436,139,000  $399,057,000  $413,078,000  $318,853,000 
Working capital (1)  (46,267,000)  (20,651,000)  (24,449,000)  43,863,000   3,447,000 
Revolving loan  54,000,000   11,000,000   7,000,000   -   10,000,000 
Term loan  16,981,000   19,999,000   23,047,000   79,222,000   87,277,000 
Capital lease obligations  5,084,000   2,512,000   2,608,000   528,000   318,000 
Other long term liabilities  20,960,000   25,986,000   35,066,000   36,049,000   26,477,000 
Shareholders’ equity $274,976,000  $248,681,000  $210,808,000  $190,203,000  $109,636,000 

(1)
Our working capital is calculated as current assets less current liabilities. We carry our core inventory as a long-term asset in our consolidated balance sheets. As a result of our retrospective adoption of new accounting guidance, our deferred tax assets and liabilities were classified as noncurrent in the consolidated balance sheets from March 31, 2016 onward.

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements, including, without limitation, our expectations and statements regarding our outlook and future revenues, expenses, results of operations, liquidity, plans, strategies and objectives of management and any assumptions underlying any of the foregoing. Our actual results may differ significantly from those projected in the forward-looking statements. Our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include, but are not limited to, those discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” of this Annual Report on Form 10-K. Except as required by law, we assume no obligation to update the forward-looking statements or our risk factors for any reason.

Management Overview

We arehave been focused on implementing a leading manufacturer, remanufacturer, and distributor ofmulti-pronged platform for growth within the non-discretionary automotive aftermarket automotive and light truck applications. We also, to a lesser extent, are a manufacturer, remanufacturer, and distributor of heavy duty truck and industrial and agricultural application parts. Thesefor the replacement parts and diagnostic testing industry, through organic growth and acquisitions. Our investments in infrastructure and human resources, including the consolidation of our distribution center in Mexico and the significant expansion of manufacturing capacity, are sold for use on vehicles after initial vehicle purchase. These automotive parts are 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”). We estimate the market sizeexpected to be over $125 billion for each of the light dutytransformative and heavy duty marketsscalable. As a result, gross profit and net income have been impacted, and our future performance and opportunities should be considered with these factors in North America.mind.

New products introduced through our growth strategies noted above include: (i) We added turbochargers through an acquisition in July 2016. We began selling2016; (ii) brake power boosters in August 2016. As a result2016; (iii) the design and manufacture of an acquisition in July 2017, our business also now includes developing and selling diagnostic equipmentdiagnostics systems for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles. through an acquisition in July 2017; (iv) the design and manufacture of advanced power emulators (AC and DC) and custom power electronic products for the automotive and aerospace industries through an acquisition in December 2018; (v) alternators and starters for medium and heavy duty trucks, industrial equipment, farm and agriculture, transit and emergency service vehicles, and marine applications through an acquisition in January 2019; and (vi) the addition of brake calipers in August 2019.

The current populationImpact of light duty vehicles in the U.S. is approximately 271 million and the average age of these vehicles is approximately 11.7 years. The aged vehicle population remains favorable. Although miles driven fluctuate primarily based on fuel prices, it has steadily increased for the past year. We believe demand for aftermarket automotive parts generally increases with the age of vehicles. In addition, increases in miles driven can accelerate replacement rates.

The automotive and light truck parts aftermarket is divided into two markets. The first is the do-it-yourselfNovel Coronavirus (“DIY”COVID-19”) market, which is generally serviced by the large retail chain outlets. Consumers who purchase parts from the DIY channel generally install parts into their vehicles themselves. In most cases, this is a less expensive alternative than having the repair performed by a professional installer. The second is the professional installer market, commonly known as the do-it-for-me (“DIFM”) market. The traditional warehouse distributors, the dealer networks, and the commercial divisions of retail chains service this market. Generally, the consumer in this channel is a professional parts installer. Our products are distributed to both the DIY and DIFM markets.

The heavy duty truck, industrial and agricultural aftermarket has some overlap with the automotive aftermarket as discussed above, but also has specialty distribution channels through the OES channel and auto-electric distributor channels.

In addition,March 2020, the WHO declared the outbreak of COVID-19 as a pandemic, which has spread globally and created significant volatility, uncertainty and economic disruption in many countries, including the countries in which we are nowoperate. National, state and local governments in these countries have implemented a variety of measures in response to the COVID-19 pandemic that have the effect of restricting or limiting, among other activities, the operations of certain businesses.

Our business has continued to operate as we have been declared an essential business. We believe that the effects of diagnostic equipmentthe COVID-19 pandemic did not materially impact our financial results for alternators, starters, belt-start generators (stop startthe fourth quarter of fiscal 2020; however, the effects of the pandemic on our financial results for the first quarter of fiscal 2021 and hybrid technology),other future periods could be significant and electric power trains for electric vehicles. The global market for diagnostics is approximately $5 billion, withcannot currently be reasonably estimated due to the smallest but fastest growing segmentsignificant volatility, uncertainty and economic disruption caused by the pandemic. See Item 1A “Risk Factors” of this Form 10-K for further discussion of the potential impact of the COVID-19 pandemic on our business, results of operations and financial condition.

In response to the COVID-19 pandemic, we have established a committee, comprised of our executive officers, to oversee our risk identification, management and mitigation strategies regarding the impact of the pandemic on our business and operations. Among other significant risks that are actively being managed by the committee, are those relating to the duration, severity and scope of the pandemic, the impact of governmental measures in response to the electric vehicle market.pandemic, potentially declining customer demand for our products, the deterioration of general economic conditions, potential disruptions in our supply chain, the management of inventories and production volumes, and cost reduction and cash preservation initiatives, including potential reductions in capital expenditures. The committee continues to meet on a regular basis, closely monitoring events related to the pandemic and any appropriate actions that may be taken, including monitoring of any temporary closures, measures to ensure our employees are safe, and ways to reduce the overall negative impact of the pandemic.

Additionally, as part of the cost reduction measures implemented in response to the impact of the COVID-19 pandemic on our business, executive committee members have all agreed to at least a 25% reduction in base salary, until we believe it is fiscally responsible to reinstate the original base salaries. Our Board of Directors agreed to defer all board and committee fees and retainers, as well as waive any fees related to weekly board check in meetings, as long as the executive committee continues with a base salary reduction. We continue to analyze our cost structure and may implement additional cost reduction measures as may be necessary due to the on-going economic challenges resulting from the COVID-19 pandemic.

Segment Reporting

Pursuant to the guidance provided under the FASB ASC for segment reporting, we have identified our chief executive officer as CODM, haveoperating decision maker (“CODM”), reviewed the documents used by the CODM, and understand how such documents are used by the CODM to make financial and operating decisions. We have determined through this review process that our business comprises onethree separate operating segments. Two of the operating segments meet all of the aggregation criteria, and are aggregated. The remaining operating segment does not meet the quantitative thresholds for individual disclosure and we have combined our operating segments into a single reportable segment for purposes of recording and reporting our financial results.segment.
Critical Accounting Policies

We prepare our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, in the United States. Our significant accounting policies are discussed in detail below and in Note 2 of the notes to consolidated financial statements.

In preparing our consolidated financial statements, we use estimates and assumptions for matters that are inherently uncertain. We base our estimates on historical experiences and reasonable assumptions. Our use of estimates and assumptions affect the reported amounts of assets, liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period. Actual results may differ from our estimates.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not currently aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of March 31, 2020. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Our remanufacturing operations requireinclude a core exchange program for the core portion of the finished good. The Used Cores that we acquire Used Cores,and are returned to us from our customers are a necessary raw material from our customers andfor remanufacturing. We also offer our customers marketing and other allowances that impact revenue recognition. These elements of our business give rise to more complex accounting than many businesses our size or larger.

New Accounting Pronouncements Not YetRecently Adopted

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, codified in ASC 606, “Revenue Recognition - Revenue from Contracts with Customers” (“ASC 606”), which amends the guidance in the former ASC 605, “Revenue Recognition”. ASC 606 as initially issued was effective for annual periods beginning after December 15, 2016, and interim periods within that reporting period for a public entity. We may elect either a full retrospective transition method, which requires the restatement of all periods presented, or a modified retrospective transition method, which requires a cumulative-effect adjustment as of the date of initial adoption. In August 2015, the FASB delayed the effective date by one year to annual periods beginning after December 15, 2017, and interim periods within that reporting period for a public entity. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We will adopt the new standard on April 1, 2018 and have elected to utilize the full retrospective transition method.

ASC 606 establishes the requirements for recognizing revenue from contracts with customers.  The standard requires entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under the new standard, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration that the entity expects to receive in exchange for the good or service. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

Due to the impact of the new standard, we have made changes to our business processes, systems, and controls. A project team was formed and evaluated and guided the implementation process. We performed a preliminary assessment, which included the identification of the key contractual terms in our primary revenue streams and the comparison of historical accounting policies and practices to the requirements of the new standard by revenue stream. The preliminary assessment resulted in the identification of potential accounting differences that will arise from the application of the new standard. The implementation team completed its contract review phase of the project during the third quarter, which included identifying the population of contracts and completing an analysis of the potential accounting impacts of the new standard on individual contracts. During the fourth quarter, the implementation team identified the changes to business processes, systems, and controls to support recognition, presentation, and disclosure under the new standard and will implement these changes during the first quarter of fiscal 2019 as described in the subsequent paragraphs.

Our primary revenue stream is derived from the sale of remanufactured products to our customers pursuant to long-term customer contracts.  We will continue to recognize revenue at a point in time as we satisfy our performance obligation of transferring control of the product to the customer.  We recognize revenues net of anticipated returns, marketing allowances, volume discounts, and other forms of variable consideration more fully described below.  We also reviewed customer options to acquire additional goods or services, and have preliminarily determined that no material rights exist within our contracts.  We do not currently anticipate the adoption of ASU 2014-09 will have a material impact on previously reported revenue amounts.  See discussion regarding the sale of Remanufactured Cores below.
We currently anticipate that the adoption of ASU 2014-09 will primarily impact reclassifications to certain balance sheet accounts to conform to the presentation and disclosure requirements of ASC 606. For example, we currently account for Remanufactured Cores anticipated to be returned as long-term core inventory and the refund liability as a contra-account receivable account as illustrated in Note 6 of the notes to consolidated financial statements for the year ended March 31, 2018. Under ASC 606, we currently anticipate we will reclassify this asset to a contractual asset and recognize a contractual liability for amounts expected to be refunded to customers.

We also analyzed specific contractual provisions related to sales contracts that include Remanufactured Cores.  We recognize revenue for sales of cores not expected to be replaced by a similar Used Core sent back under the core exchange program only upon meeting certain criteria as described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for the year ended March 31, 2018. The adoption of ASU 2014-09 may result in an acceleration of revenue recognition, as it requires us to estimate the amount of cores not expected to be returned upon the initial recognition of revenue for contracts that include Remanufactured Cores.  As we have elected the full retrospective method of adoption, the impact to each reporting period will be measured as the net impact of (i) the acceleration of revenue into a prior period versus what was previously recorded in that period and (ii) the acceleration of revenue into that period previously recognized in a later period (the change in the estimated volume of returns in the comparable recast periods). Given that third-party information available to meet the criteria outlined in Note 2, Summary of Significant Accounting Policies, may be available at different points of time in a given fiscal period, the timing of the revenue recognized in these periods may be less predictive under ASC 605 as compared to the estimation process required under ASU 2014-09. The anticipated increase to previously reported revenues for the year ended March 31, 2016 is less than $2.0 million. The anticipated decrease to previously reported revenues for the year ended March 31, 2017 is less than $0.9 million. The anticipated decrease to reported revenues in the current fiscal year ended March 31, 2018 is less than $0.4 million.

In order to properly determine the transaction price related to our sales contracts, we have also analyzed our various forms of consideration paid to our vendors, including up-front payments for future contracts. Based on the analysis completed through the year ended March 31, 2018, we currently do not anticipate a change to our legacy accounting practices as a result of the adoption of ASU 2014-09 to account for up-front payments to our vendors. Under current accounting practices, if we expect to generate future revenues associated with an up-front payment, then an asset is recognized and amortized over the appropriate period of time as a reduction of revenue. If we do not expect to generate additional revenue then the up-front payment is recognized in the consolidated statements of income when payment occurs as a reduction of revenue.

ASU 2014-09 also codified the guidance on other assets and deferred costs relating to contracts with customers with the addition of ASC 340-40.  This guidance relates to the accounting for costs of an entity to obtain and fulfill a contract to provide goods or services to the customer.  Under the new guidance, an entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. In our review of the various costs to obtain contracts with our customers, we have preliminarily determined that currently no significant costs are incurred that meet the capitalization criteria.  Our primary cost to fulfill contracts, other than inventory related costs, relates to shipping and handling activities, which continue to be expensed as incurred consistent with historical accounting practices.

The new guidance provides several practical expedients, which we anticipate adopting. The first of these practical expedients allows a company to expense incremental costs of obtaining a contract as incurred if the amortization period would have been one year or less. As noted above, we have preliminarily concluded that we do not have any such costs that qualify for capitalization but will apply the practical expedient to the extent that such costs incurred in prospective periods qualify. Similarly, we plan to adopt guidance that allows for the effects of a significant financing component to be ignored if a company expects that the period between the transfer of the goods and services to the customer and payment will be one year or less. Finally, we plan to adopt guidance that allows a company to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations.
Financial Instruments

In January 2016, the FASB issued guidance that amends the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We expect to apply the amendments in the new guidance by means of a cumulative-effect adjustment to the opening balance of retained earnings at the beginning of the first quarter of fiscal 2019. The adoption of the new guidance is not expected to have a material impact on our consolidated financial statements.

Leases

In February 2016, the FASB issued new guidance that requires balance sheet recognition of a right-of-uselease asset and lease liability by lessees for operating leases.all leases, other than leases with a term of 12 months or less if the short-term lease exclusion expedient is elected. The new guidance also requires new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new guidance requiresrequired a modified retrospective approach with optional practical expedients. We will adoptThe FASB provided entities with an additional transition method, which allows an entity to apply this guidance as of the beginning of the period of adoption instead of the beginning of the earliest comparative period presented in the first quarter of fiscal 2020.entity’s financial statements. We are currently evaluating the impact the provisions ofadopted this guidance will haveon April 1, 2019 using the modified retrospective approach and the optional transition method permitted by the FASB. We also elected certain practical expedients permitted under the transition guidance, including the package of practical expedients, which allowed us not to reassess lease classification for leases that commenced prior to the adoption date. In addition, we elected to exempt leases with an initial term of 12 months or less from balance sheet recognition and, for all classes of assets, combining non-lease components with lease components.

Upon adoption, we recorded operating lease liabilities of $53,043,000 and corresponding operating lease assets of $50,773,000. The difference between the operating lease assets and liabilities recognized on our consolidated financial statements, but expectbalance sheet primarily related to accrued rent on existing leases that it will result in a significant increasewere offset against the operating lease asset upon adoption. There was an immaterial reclassification of non-lease components to finance lease assets and finance lease liabilities upon adoption due to our long-termelection to combine non-lease components with lease components. The adoption of the new guidance did not have any impact on our rent expense and consolidated statement of cash flows. However, we have material nonfunctional currency leases that could have a material impact on our consolidated statements of operations. As required for other monetary liabilities, lessees shall remeasure a foreign currency-denominated lease liability using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates, which are not affected by subsequent changes in the exchange rates. We recorded a loss of $11,710,000 in general and administrative expenses in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2020. See Note 11 for additional discussion of the adoption of ASC 842 and the impact on the consolidated balance sheets.our financial statements.

New Accounting Pronouncements Not Yet Adopted

Business CombinationsMeasurement of Credit Losses on Financial Instruments

In January 2017,June 2016, the FASB issued guidance which clarifiesan accounting pronouncement related to the definitionmeasurement of credit losses on financial instruments. This pronouncement, along with a businesssubsequent ASU issued to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals)clarify certain provisions of assets or businesses. Thethe new guidance, changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, including interim periods within those fiscal years. A reporting entity should apply the amendment prospectively. The adoption of2019. We will adopt this guidance inon April 1, 2020 and the first quarter of fiscal 2019adoption is not expected to have a significant impact on our consolidated financial statements and related disclosures. Additionally, the adoption is not expected to have any materialsignificant impact on our business processes, systems and internal controls.

Fair Value Measurements

In August 2018, the FASB issued guidance, which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for financial statements issued for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. We will adopt this guidance on April 1, 2020 and the adoption is not expected to have a significant impact on our consolidated financial statements.statements and related disclosures.

Goodwill ImpairmentIncome Taxes

In January 2017,December 2019, the FASB issued guidance whichthat simplifies the testaccounting for goodwill impairment. This standardincome taxes, eliminates Step 2 fromcertain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the goodwill impairment test, instead requiring an entitycurrent guidance to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value.promote consistent application. This guidance is effective for annual and interim and annual goodwill impairment testsperiods in fiscal years beginning after December 15, 2019 with early2020. Early adoption permitted. This guidance must be applied on a prospective basis. We are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements.

Modifications to Share-Based Payment Awards

In May 2017, the FASB issued guidance to provide clarity and reduce (i) the diversity in practice and (ii) the cost and complexity when applying the accounting guidance for equity-based compensation to a change to the terms or conditions of a share-based payment award. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. This guidance should be applied prospectively to an award modified on or after that adoption date. The adoption of this guidance in the first quarter of fiscal 2019 is not expected to have any material impact on our consolidated financial statements.
Derivatives and Hedging

In August 2017, the FASB issued guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; the guidance allows for early adoption in any interim period after issuance of the update. We are currently evaluating the impact this guidance will have on our consolidated financial statements.statements and related disclosures.

Reference Rate Reform

In March 2020, the FASB issued guidance that, for a limited time, eases the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating our contracts and the optional expedients provided by this guidance and the impact the new standard will have on our consolidated financial statements and related disclosures.

Inventory

Non-core Inventory

Non-core inventory is comprised ofof: (i) non-coreUsed Core and component raw materials, (ii) the non-core value of work in process,work-in-process, and (iii) the non-core value of remanufactured and purchased finished goods.

Used Core, component raw materials, and purchased finished goods and (iv) purchased finished goods. Used Cores, the Used Core value of work in process, and the Remanufactured Core portion of finished goods are classified as long-term core inventory as described below under the caption “Long-term Core Inventory.” Used Cores are a source of raw materials used in the remanufacturing of our products.

Non-core inventory is stated at the lower of average cost or net realizable value. The cost of non-core remanufactured inventory approximates average historical purchase prices paid for raw materials, and is based upon the direct costs of material and an allocation of labor and variable and fixed overhead costs. The cost of purchased finished goods inventory approximates average historical purchase prices paid, and an allocation of fixed overhead costs. The cost of non-core inventory is evaluated at least quarterly during the fiscal year and adjusted as necessary to reflect current lower of cost or net realizable value levels. These adjustments are determined for individual items of inventory within each of the three classifications of non-core inventory as follows:

Non-core raw materials are recorded at average cost, which is based on the actual purchase price of raw materials on hand. The average cost is updated quarterly. This average cost is used in the inventory costing process and is the basis for allocation of materials to finished goods during the production process.

Non-core work in processWork-in-process is in various stages of production and is valued at the average cost of Used Cores and component raw materials issued to thework orders still open, work orders.including allocations of labor and overhead costs. Historically, non-core work in processwork-in-process inventory has not been material compared to the total non-core inventory balance.

TheRemanufactured finished goods include: (i) the Used Core cost and (ii) the cost of remanufactured finished goods includes the average cost of non-corecomponent raw materials, and allocations of labor and variable and fixed overhead costs.costs (the “Unit Value”). The allocations of labor and variable and fixed overhead costs are determined based on the average actual use of the production facilities over the prior twelve12 months which approximates normal capacity. This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production. In addition, we exclude certain unallocated overhead such as severance costs, duplicative facility overhead costs, start-up costs, training, and spoilage from the calculation and expenseexpenses these unallocated overhead as period costs. Purchased finished goods also include an allocation of fixed overhead costs.

The estimate of net realizable value is subjective and based on our judgment and knowledge of current industry demand and management’s projections of industry demand. The estimates may, therefore, be revised if there are changes in the overall market for our products or market changes that in our judgment, impact our ability to sell or liquidate potentially excess or obsolete inventory. Net realizable value is determined at least quarterly as follows:

Net realizable value for finished goods by customer by product line are determined based on the agreed upon selling price with the customer for a product in the trailing 12 months. We compare the average selling price, including any discounts and allowances, to the finished goods cost of on-hand inventory less any reserve for excess and obsolete inventory. Any reduction of value is recorded as cost of goods sold in the period in which the revaluation is identified.

Net realizable value for Used Cores are determined based on current core purchase prices from core brokers to the extent that core purchases in the trailing 12 months are significant. Remanufacturing consumes, on average, more than one Used Core for each remanufactured unit produced since not all Used Cores are reusable. The yield rates depend upon both the product and customer specifications. We purchase Used Cores from core brokers to supplement our yield rates and Used Cores not returned under the core exchange program. We also consider the net selling price our customers have agreed to pay for Used Cores that are not returned under our core exchange program to assess whether Used Core cost exceeds Used Core net realizable value on a by customer by product line basis. Any reduction of core cost is recorded as cost of goods sold in the period in which the revaluation is identified.

We record an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory. We periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand. Any part numbers with quantities identified during this process are reserved for at rates based upon management’sour judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part. WeAs a result of this process, we recorded reserves of $6,682,000 and $4,125,000 for excess and obsolete inventory of $13,208,000 and $11,899,000 at March 31, 20182020 and 2017,2019, respectively. The quantity thresholds and reserve rates are subjective and are based on management’s judgment and knowledge of current and projected industry demand. The reserve estimates may, therefore, be revised if there are changesincrease in the overall marketreserve for excess and obsolete inventory was primarily driven by our products or market changes that in management’s judgment, impact our ability to sell or liquidate potentially excess or obsolete inventory.acquisition of Dixie.

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

Inventory Unreturned

Inventory unreturned represents our estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that we expect to be returned, under our general right of return policy, after the balance sheet date. Because all cores are classified separately as long-term assets, the inventoryInventory unreturned balance includes only the added unit valueUnit Value of a finished good. The return rate is calculated based on expected returns within the normal operating cycle, ofwhich is generally one year. As such, the related amounts are classified in current assets.

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

Long-term Core Inventory
Contract Assets

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

Used Cores purchased from core brokers and held in inventory at our facilities,

Used Cores returned by our customers and held in inventory at our facilities,

Used Cores returned by end-users to customers but not yet returned to us which are classified as Remanufactured Cores until they are physically received by us,

Remanufactured Cores held in finished goods inventory at our facilities; and

Remanufactured Cores held at customercustomers’ locations as a part of the finished goods sold to the customer.customer are classified as long-term contract assets. These assets are valued at the lower of cost or net realizable value of Used Cores on hand (See Inventory above). For these Remanufactured Cores, we expect the finished good containing the Remanufactured Core to be returned under our general right of return policy or a similar Used Core to be returned to us by the customer, in each case, for credit.

Long-term core inventory is recorded at average historical purchase prices determined based on actual purchases of inventory on hand. The cost and net realizable value of Used Cores for which sufficient recent purchases have occurred are deemed the same as the purchase price for purchases that are made in arm’s length transactions.

Long-term core inventory recorded at average historical purchase prices is primarily made up of Used Cores for newer products related to more recent automobile models or products for which there is a less liquid market. We purchase these Used Cores from core brokers to supplement the yield from returned cores and the under return by consumers.

Used Cores obtained in core broker transactions are valued based on average purchase price. The average purchase price of Used Cores for more recent automobile models is retained as the cost for these Used Cores in subsequent periods even as the source of these Used Cores shifts to our core exchange program.

Long-term core inventory is recorded at the lower of cost or net realizable value. In the absence of sufficient recent purchases we use the net selling price that our customers have agreed to pay for Used Cores that are not returned to us under our core exchange program in each case, for credit. Remanufactured Cores and Used Cores returned by consumers to assess whether Used Core cost exceeds Used Core net realizable value on a customer-by-customer basis.
We classify all of our core inventoriescustomers but not yet returned to us are classified as long-term assets. The determination of the long-term classification is based on our view that the value of the cores is not consumed or realized“Cores expected to be returned by customers”, which are included in cashshort-term contract assets until we physically receive them during our normal operating cycle, which is generally one year for mostyear.

Upfront payments to customers represent the marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided to our customers. These allowances are recognized as an asset and amortized over the appropriate period of time as a reduction of revenue if we expect to generate future revenues associated with the cores recorded in inventory. According to guidance provided under the FASB ASC, current assets are defined as “assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.” We do not believe that the economic value of core inventories, which we classify as long-term, is consumed because the credits issued upon the return of Used Cores offset the amounts invoiced when the Remanufactured Cores included in finished goods were sold. We do not expect the economic value of core inventories to be consumed, and thusupfront payment. If we do not expect to realize cash, untilgenerate additional revenue, then the upfront payment is recognized in the consolidated statements of operations when payment occurs as a reduction of revenue. Upfront payments expected to be amortized during our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience.normal operating cycle, which is generally one year, are classified as short-term contract assets.

However, historically for a portion of finished goods sold, ourCore premiums paid to customers will not send us arepresent the difference between the Remanufactured Core acquisition price paid to customers generally in connection with new business, and the related Used Core cost, which is treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. We consider, among other things, the length of our largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to obtainamortize these premiums. These core premiums are amortized over a period typically ranging from six to eight years, adjusted for specific circumstances associated with the credit we offer underarrangement. Core premiums are recorded as long-term contract assets. Core premiums expected to be amortized within our core exchange program. Therefore, based on our historical estimate, we derecognize the core value for these finished goodsnormal operating cycle, which is generally one year, are classified as we believe the economic value has been consumed and we have realized cash.short-term contract assets.

For these reasons, we concluded that it is more appropriate to classifyLong-term core inventory as long-term assets.

Long-term Core Inventory Deposit

The long-term core inventory deposit representsdeposits represent the cost of Remanufactured Cores we have purchased from customers, which are held by the customers and remain on the customers’ premises. The costs of these Remanufactured Cores were established at the time of the transaction based on the then current cost, determined as noted under the caption “Long-term Core Inventory”.cost. The selling value of these Remanufactured Cores was established based on agreed upon amounts with these customers. We expect to realize the selling value and the related cost of these Remanufactured Cores should our relationship with a customer end, a possibility that we consider remote based on existing long-term customer agreementagreements and historical experience.

Our inventory balances are as follows at March 31:

  2018  2017 
Non-core inventory      
Raw materials $25,805,000  $21,515,000 
Work in process  635,000   641,000 
Finished goods  53,973,000   48,337,000 
   80,413,000   70,493,000 
Less allowance for excess and obsolete inventory  (4,138,000)  (2,977,000)
Total $76,275,000  $67,516,000 
         
Inventory unreturned $7,508,000  $7,581,000 
Long-term core inventory        
Used cores held at the Company's facilities $53,278,000  $38,713,000 
Used cores expected to be returned by customers  12,970,000   11,752,000 
Remanufactured cores held in finished goods  34,201,000   27,667,000 
Remanufactured cores held at customers' locations (1)  203,751,000   185,938,000 
   304,200,000   264,070,000 
Less allowance for excess and obsolete inventory  (2,544,000)  (1,148,000)
Total $301,656,000  $262,922,000 
         
Long-term core inventory deposits $5,569,000  $5,569,000 

(1)Remanufactured cores held at customers’ locations represent the core portion of our customers’ finished goods at our customers’ locations.
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Revenue Recognition

We recognize revenue when our performance is complete, and all of the following criteria have been met:

Persuasive evidence of an arrangement exists,

Delivery has occurred or services have been rendered,

The seller’s price to the buyer is fixed or determinable, and

Collectability is reasonably assured.

For products shipped free-on-board (“FOB”) shipping point, revenueRevenue is recognized onwhen performance obligations under the dateterms of shipment. For products shipped FOB destination, revenuesa contract with our customers are satisfied; generally, this occurs with the transfer of control of our manufactured, remanufactured, or distributed products. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Revenue is recognized onnet of all anticipated returns, including Used Core returns under the estimated or actual datecore exchange program, marketing allowances, volume discounts, and other forms of delivery. We include shipping and handling charges in the gross invoice price to customers and classify the total amount as revenue. All shipping and handling costs are expensed as incurred and included in cost of sales.variable consideration.

Revenue Recognition; Net-of-Core-Value Basisis recognized either when products are shipped or when delivered, depending on the applicable contract terms. Bill and hold shipments are shipped out to the customer as ex-works; in which the customer makes arrangements and is responsible for their shipping cost. No freight or shipping costs are accrued for revenue under the terms of shipments made as ex-works.

The price of a finished remanufactured product sold to customers is generally comprised of separately invoiced amounts for the Remanufactured Core included in the product (“Remanufactured Core value”) and the unit value.Unit Value. The unit valueUnit Value is recorded as revenue based on our then current price list, net of applicable discounts and allowances. BasedThe Remanufactured Core value is recorded as a net revenue based upon the estimate of Used Cores that will not be returned by the customer for credit. These estimates are subjective and based on our experience,management’s judgment and knowledge of historical, current, and projected return rates. As reconciliations are completed with the customers the actual rates at which Used Cores are not being returned may differ from the current estimates. This may result in periodic adjustments of the estimated contract asset and liability amounts recorded and may impact the projected revenue recognition rates used to record the estimated future revenue. These estimates may also be revised if there are changes in contractual arrangements with customers, and inventory management practices, aor changes in business practices. A significant portion of the remanufactured automotive parts we sellsold to customers are replaced by similar Used Cores sent back for credit by customers under ourthe core exchange program. In accordance with our net-of-core-value revenue recognition policy, we do not recognize the Remanufactured Core value as revenue when the finished products are sold. We generally limit theprogram (as described in further detail below). The number of Used Cores sent back under the core exchange program is generally limited to the number of similar Remanufactured Cores previously shipped to each customer.

Revenue Recognition — Core RevenueExchange Program

Full price Remanufactured Cores: When we ship a remanufactured product, we invoiceproducts are shipped, certain customers are invoiced for the Remanufactured Core value portion of the product at the full Remanufactured Core sales price but do not recognize revenue for the Remanufactured Core value at that time.price. For these Remanufactured Cores, we recognize core revenue is only recognized based upon an estimate of the rate at which ourthese customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange program. The remainder of the full price Remanufactured Core value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit under our core exchange program.

Nominal price Remanufactured Cores: We invoice Certain other customers are invoiced for the Remanufactured Core value portion of the product shipped at a nominal (generally $0.01 or less) Remanufactured Core price. Unlike the full price Remanufactured Cores, we only recognize revenue fromFor these nominal Remanufactured Cores, not expected to be replaced by a similar Used Core sent back under the core exchange program when we believe that we have met allrevenue is only recognized based upon an estimate of the following criteria:

We have a signed agreement with the customer covering the nominally priced Remanufactured Cores not expected to be sent back under the core exchange program, and the agreement must specify the number of Remanufactured Cores our customerrate at which these customers will pay cash for Remanufactured Cores in lieu of sending back a similar Used Cores for credits under the core exchange program. Revenue amounts are calculated based on contractually agreed upon pricing for these Remanufactured Cores for which the customers are not returning similar Used Cores. The remainder of the nominal price Remanufactured Core value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit under our core exchange program and the basis on which the nominally priced Remanufactured Cores are to be valued (normally the average price per Remanufactured Core stipulated in the agreement).
program.

The contractual date for reconciling our records and customer’s records of the number of nominally priced Remanufactured Cores not expected to be replaced by similar Used Cores sent back under our core exchange program must be in the current or a prior period.

The reconciliation must be completed and agreed to by the customer.

The amount must be billed to the customer.
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Revenue Recognition; General Right of Return

We allow our customersCustomers are allowed to return goods to us that their end-user customers have returned to them, whether or not the returned item is defective (warranty returns). In addition, under the terms of certain agreements with our customers and industry practice, our customers from time to time are allowed stock adjustments when their inventory of certain product lines exceeds the anticipated sales to end-user customers (stock adjustment returns). Customers have various contractual rights for stock adjustment returns, which are typically less than 5% of units sold. In some instances, we allow a higher level of returns is allowed in connection with significant restocking orders. In addition, we allow customers to return goods to us that their end-user consumers have returned to them. We seek to limit theThe aggregate general right of returns are generally limited to less than 20% of unit sales.

We provide for such anticipated returns of inventory by reducing revenue and the related cost of sales for the units estimated to be returned as further described under the captions “Customer Finished Goods Returns Accrual” and “Inventory Unreturned”.

OurThe allowance for warranty returns is established based on a historical analysis of the level of this type of return as a percentage of total unit sales. Stock adjustment returns do not occur at any specific time during the year, and the expected level of these returns cannot be reasonably estimated based on a historical analysis. OurThe allowance for stock adjustment returns is based on specific customer inventory levels, inventory movements, and information on the estimated timing of stock adjustment returns provided to us by our customers. Stock adjustment returns do not occur at any specific time during the year. The return rate for stock adjustments is calculated based on expected returns within the normal operating cycle, ofwhich is generally one year.

Customer Finished Goods Returns Accrual

The customer finished goods returns accrual representsUnit Value of the non-core sales value of estimated warranty and stock adjustment returns are treated as reductions of revenue based on the estimations made at the time of the sale. The Remanufactured Core value of warranty and is classifiedstock adjustment returns are provided for as a current liability due toindicated in the expectation that these returns will occur within the normal operating cycle of one year. Our customer finished goods returns accrual was $17,805,000 and $17,667,000 at March 31, 2018 and 2017, respectively.paragraph “Revenue Recognition – Core Exchange Program”.

Accrued Core PaymentAs is standard in the industry, we only accept returns from on-going customers. If a customer ceases doing business with us, we have no further obligation to accept additional product returns from that customer. Similarly, we accept product returns and grant appropriate credits to new customers from the time the new customer relationship is established.

The
Contract Liability

Contract liability consists of: (i) customer allowances earned, (ii) accrued core payment represents the full Remanufactured Core sales price of Remanufactured Cores we have purchased from our customers, generally in connection with new business, which are held by these customerspayments, (iii) customer core returns accruals, (iv) core bank, and remain on their premises. At the same time, we record the long-term core inventory for the Remanufactured Cores purchased at its cost, determined as noted under the caption “Long-term Core Inventory”. The difference between the full Remanufactured Core sales price of Remanufactured Cores and its related cost is treated as sales allowance reducing revenue when the purchases are made. We expect to realize the selling value and the related cost of these Remanufactured Cores should our relationship with a(v) customer end, a possibility that we consider remote based on existing long-term customer agreement and historical experience.deposits.

The repayments for these Remanufactured Core inventory purchases are made through the issuance of credits against that customer’s receivables either on a one-time basis or over an agreed-upon period. The accrued core payment is recorded as current and noncurrent liability in the consolidated balance sheets based on whether repayments will occur within the normal operating cycle of one year. Our net accrued core payment was $35,009,000 and $24,063,000 at March 31, 2018 and 2017, respectively. This increase in our accrued core payment was due to increased core purchases in connection with new business awarded to us during fiscal 2018.

Sales Incentives

We provide variousCustomer allowances earned includes all marketing allowances provided to our customers, includingcustomers. Such allowances include sales incentives and concessions. MarketingVoluntary marketing allowances related to a single exchange of product are recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered. Other marketing allowances, which may only be applied against future purchases, are recorded as a reduction to revenues in accordance with a schedule set forth in the relevant contract. Sales incentive amounts are recorded based on the value of the incentive provided. Customer allowances to be provided to customers within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term.

Accrued core payments represent the sales price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises. The sales price of these Remanufactured Cores will be realized when our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience. The payments to be made to customers for purchases of Remanufactured Cores within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term.

Customer core returns accruals represent the full and nominally priced Remanufactured Cores shipped to our customers. When we ship product, we recognize an obligation to accept a similar Used Core sent back under the core exchange program based upon the Remanufactured Core price agreed upon by us and our customer. The contract liability related to Used Cores returned by consumers to our customers but not yet returned to us are classified as short-term contract liabilities until we physically receive these Used Cores as they are expected to be returned during our normal operating cycle, which is generally one year and the remainder are recorded as long-term.

Goodwill
The core bank liability represents the full Remanufactured Core sales price for cores returned under our core exchange program. The payment for these returned cores will be made over a contractual repayment period pursuant to our agreement with this customer. Payments to be made within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term.

Customer deposits represent the receipt of prepayments from customers for the obligation to transfer goods or services in the future. We evaluate goodwill for impairment at least annually duringclassify these customer deposits as short-term contract liabilities as we expect to satisfy these obligations within our normal operating cycle, which generally one year and the fourth quarterremainder are recorded as long-term.

Customer Finished Goods Returns Accrual

The customer finished goods returns accrual represents our estimate of each fiscal year or more frequentlyour exposure to customer returns, including warranty returns, under our general right of return policy to allow customers to return items that their end user customers have returned to them and from time to time, stock adjustment returns when an event occurs or circumstances change that indicate the carrying value may not be recoverable. We have concluded that therecustomers’ inventory of certain product lines exceeds the anticipated sales to end-user customers. The customer finished goods returns accrual represents the Unit Value of the estimated returns and is one reporting unit and therefore test goodwill for impairment at the entity level. In testing for goodwill impairment, we may elect to utilizeclassified as a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test. We test goodwill for impairment under the two-step impairment test by first comparing the carrying value of net assetscurrent liability due to the fair valueexpectation that these returns will occur within the normal operating cycle of the reporting unit. If the fair value of the reporting unit exceeds the carrying value, goodwill is not considered impairedone year. Our customer finished goods returns accrual was $25,326,000 and no further testing is required. If the carrying value of the reporting unit exceeds the fair value, goodwill is potentially impaired and the second step of the impairment test must be performed. In the second step, we would compare the implied fair value of the goodwill to its carrying value to determine the amount of the impairment loss, if any. We completed the required annual testing of goodwill for impairment during the fourth quarter of fiscal 2018, and determined through the qualitative assessment that our goodwill of $2,551,000$22,615,000 at March 31, 2018 is not impaired.

Intangible Assets

Our intangible assets other than goodwill are finite–lived2020 and amortized on a straight-line basis over their respective useful lives. We analyze our finite-lived intangible assets for impairment when and if indicators of impairment exist. At March 31, 2018, our net intangible assets were $3,766,000 and there were no indicators of impairment.2019, respectively.

Income Taxes

We account for income taxes using the liability method, which measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The resulting asset or liability is adjusted to reflect changes in the tax laws as they occur. A valuation allowance is provided to reduce deferred tax assets when it is more likely than not that a portion of the deferred tax asset will not be realized.

The primary components of our income tax expense are (i) the current liability or refund due for federal, state and foreign income taxes and (ii) the change in the amount of the net deferred income tax asset, including the effect of any change in the valuation allowance.

In December 2017, new tax legislation was enacted in the United States (Tax Reform Act) which resulted in significant changes to income tax expense.  As a result of the Tax Reform Act, we re-measured certain deferred tax assets and liabilities based on the newly enacted federal rate of 21%.  Accordingly, the federal net deferred tax assets were written down to account for the change. These tax changes represent provisional amounts based on our current interpretation of the Tax Reform Act and may change as we receive additional clarification and implementation guidance. We will continue to analyze the effects of the Tax Reform Act on our financial statements and operations. Any additional impacts from the enactment of the Tax Reform Act will be recorded as they are identified during the measurement period as provided for in accordance with Staff Accounting Bulletin No. 118.

Realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. A valuation allowance is established when we believe it is not more likely than not all or some of a deferred tax assets will be realized. In evaluating our ability to recover deferred tax assets within the jurisdiction in which they arise, we consider all available positive and negative evidence. Deferred tax assets arising primarily as a result of net operating loss carry-forwards and research and development credits in connection with our July 2017 acquisitionrecent acquisitions have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods. Should the actual amount differ from our estimate, the amount of our valuation allowance could be impacted.
Financial Risk Management and Derivatives

We are exposedhave made an accounting policy election to market risk from material movements in foreign exchange rates betweenrecognize the U.S. dollar and the currenciestax effects of the foreign countries in which we operate. Asglobal intangible low-taxed income as a resultcomponent of our significant operations in Mexico, our primary risk relates to changesincome tax expense in the rates betweenperiod the U.S. dollar and the Mexican peso. To mitigate this currency risk, we enter into forward foreign exchange contracts to exchange U.S. dollars for Mexican pesos. We also enter into forward foreign exchange contracts to exchange U.S. dollars for Chinese yuan in order to mitigate risk related to our purchases and payments to our Chinese vendors. The extent to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates. We do not engage in currency speculation or hold or issue financial instruments for trading purposes. These contracts generally expire in a year or less. Any changes in the fair value of foreign exchange contracts are accounted for as an increase or decrease to general and administrative expenses in current period earnings.tax arises.

Share-based Payments

In accounting for share-based compensation awards, we follow the accounting guidance for equity-based compensation, which requires that we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost associated with stock options is estimated using the Black-Scholes option-pricing model. The cost associated with restricted stock units is measured based on the number of shares granted and the closing price of our common stock on the grant date, subject to continued employment. The cost of equity instruments is recognized in the consolidated statements of income on a straight-line basis over the period during which an employee is required to provide service in exchange for the award. In addition, we account for forfeitures as they occur.

Subsequent Events

Credit Facility

On June 5, 2018 we entered into an Amended and Restated Credit Facility (the “New Credit Facility”), with the lenders party thereto, and PNC Bank, National Association, as administrative agent, consisting of (i) a $200,000,000 revolving loan facility, subject to borrowing base restrictions, a $20,000,000 sublimit for borrowings by Canadian borrowers, and a $15,000,000 sublimit for letters of credit (the “New Revolving Facility) and (ii) a $30,000,000 term loan facility (the “New Term Loans”). The loans under the New Credit Facility mature on June 5, 2023. In connection with the New Credit Facility, the lenders were granted a security interest in substantially all of our assets.

Results of Operations

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

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The following summarizes certain key operating data for the periods indicated:

 Fiscal Years Ended March 31,  Fiscal Years Ended March 31, 
 2018  2017  2016  2020  2019  2018 
                  
Gross profit percentage  24.7%  27.3%  27.4% 22.1% 18.9% 25.0%
Cash flow (used in) provided by operations $(13,944,000) $(5,269,000) $15,334,000 
Cash flows provided by (used in) operations $18,795,000  $(40,328,000) $(13,944,000)
Finished goods turnover (1)  6.3   6.7   6.5  3.0  3.3  3.9 

(1)
Finished goods turnover is calculated by dividing the cost of goods sold for the year by the average between beginning and ending non-core finished goods inventory values, for each fiscal year. We believe that this provides a useful measure of our ability to turn our inventory into revenues.

Fiscal 20182020 Compared towith Fiscal 20172019

Net Sales and Gross Profit

The following summarizes net sales and gross profit:

 Fiscal Years Ended March 31,  Fiscal Years Ended March 31, 
 2018  2017  2020  2019 
            
Net sales $428,072,000  $421,253,000  $535,831,000  $472,797,000 
Cost of goods sold  322,199,000   306,207,000  417,431,000  383,623,000 
Gross profit  105,873,000   115,046,000  118,400,000  89,174,000 
Gross profit percentage  24.7%  27.3% 22.1% 18.9%

Net Sales. Our net sales for fiscal 20182020 increased by $6,819,000,$63,034,000, or 1.6%13.3%, to $428,072,000$535,831,000 compared towith net sales for fiscal 20172019 of $421,253,000. Our prior year$472,797,000, reflecting continued growth across all of our product lines. In addition, our net sales for fiscal 2020 were positively impacted by $9,261,000by: (i) our expansion of automotive aftermarket brake product offerings with the introduction of brake calipers in August 2019, which contributed net sales of $28,118,000 and (ii) $19,663,000 due to the change in our estimatefull-year impact of acquisitions completed during the latter part of fiscal 2019.

Sales mix for anticipated stock adjustment returns. The increase in our fiscal 2018 net sales was primarily due to growth in sales of our rotating electrical products and brake booster products, in addition to sales of diagnostic equipment as a result of our July 2017 acquisition. Sales of2020 compared with 2019 for: (i) rotating electrical products represented 78.0% and 78.6%73.3% versus 78.9%, (ii) wheel hubhubs, 14.9% versus 15.7%; (iii) brake-related products, represented 16.9% and 18.5%,which include brake calipers, brake boosters, brake master cylinder productscylinders, and brake rotors, represented 2.3%8.9% versus 3.1% ; and 2.9%,(iv) diagnostics and other products, which include diagnostics systems, advanced power emulators used for the development of electric vehicles and aerospace applications, and custom power electronic products for quality control in the development and production of electric vehicles and turbochargers, represented 2.8% and 0%, of net sales for fiscal 2018 and 2017, respectively. Our net sales were further impacted by certain customer allowances as discussed below in Gross Profit paragraph.2.9% versus 2.3%.

Gross Profit. Our gross profit percentage was 24.7%$118,400,000, or 22.1% of net sales for fiscal 20182020 compared to 27.3%with $89,174,000, or 18.9% of net sales for fiscal 2017.  Gross2019.

The gross profit for fiscal 2018margin increase of 3.2% was impacted by $8,459,000 forprimarily due to a lower non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves and lower customer allowances and initial return and stock adjustment accruals related to new business entered into duringfor fiscal 2018, less2020 as compared with fiscal 2019. The non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, resulted in a costwrite-down of goods sold offset of $649,000, $10,799,000, which impacted gross margin by 2.0%, compared with $18,843,000, which impacted gross margin by 4.0%, for fiscal 2020 and 2019, respectively.

Our gross profit for fiscal 2020 and 2019 was further impacted by: (i) transition expenses of $1,831,000 in connection with the expansion of our operations in Mexico of $8,337,000 and $8,178,000, respectively, (ii) amortization of core premiums paid to customers related to new business of $4,501,000 and $4,127,000, respectively, (iii) customer allowances and return accruals related to new business of $1,065,000 and $6,042,000, respectively, and (iv) net tariff costs of $1,067,000 and $1,526,000, respectively, which were paid for products sold before price increases were effective. Gross profit for fiscal 2020 was further impacted by a cost of $133,000 incurred in connection with the cancellation of a customer contract. In addition, gross profit for fiscal 2019 was impacted by core sales of $7,753,000, less related cost of goods sold of $7,750,000, and a cost of $767,000 incurred in connection with the cancellation of a customer contract, and a cost of goods sold impact of $269,000$104,000 for inventory step-up amortization.  In addition,in connection with our gross profit for fiscalDecember 2018 was further impacted by higher returns and lower overhead absorption.  Our gross profit for fiscal 2017 was impacted by $12,727,000 for customer allowances and initial return and stock adjustment accruals related to new business less a cost of goods sold offset of $568,000, and a cost of goods sold impact of $1,457,000 for start-up and ramp-up costs incurred related to our launch of brake power boosters. This decrease was partially offset by a 0.4% increase from the change in estimate relating to stock adjustments.acquisition.

In addition, our gross profit was further impacted by the lower of cost or net realizable value revaluation for remanufactured cores held at customers’ locations of $9,091,000 for fiscal 2018 and $5,788,000 for fiscal 2017.
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Operating Expenses

The following summarizes operating expenses:

 Fiscal Years Ended March 31,  Fiscal Years Ended March 31, 
 2018  2017  2020  2019 
            
General and administrative $35,527,000  $31,124,000  $71,425,000  $45,972,000 
Sales and marketing  15,030,000   12,126,000  21,037,000  19,542,000 
Research and development  5,692,000   3,824,000  9,200,000  8,014,000 
              
Percent of net sales              
              
General and administrative  8.3%  7.4% 13.3% 9.7%
Sales and marketing  3.5%  2.9% 3.9% 4.1%
Research and development  1.3%  0.9% 1.7% 1.7%

General and Administrative. Our general and administrative expenses for fiscal 20182020 were $35,527,000,$71,425,000, which represents an increase of $4,403,000,$25,453,000, or 14.1%55.4%, from general and administrative expenses$45,972,000 for fiscal 2017 of $31,124,000. The2019. This increase in fiscal 2018 was primarily due to: (i) a non-cash loss of $11,710,000 due to (i) $1,573,000the remeasurement of increased employee-related expenses to supportforeign currency-denominated lease liabilities at our growth initiatives,Mexican subsidiary, (ii) a gainnon-cash loss of $2,313,000$6,491,000 recorded during fiscal 20182020 due to the change in the fair value of the warrant liabilityforward foreign currency exchange contracts compared to a gainnon-cash loss of $3,764,000$972,000 recorded during fiscal 2017,2019, (iii) $1,093,000$2,888,000 of increased bonus and other incentives, (iv) $1,485,000 of general and administrative expenses atdue to the full-year impact of our offshore locations due primarilyfiscal 2019 acquisitions, (v) $1,315,000 of expense in connection with our internal control remediation efforts, (vi) $1,206,000 for personnel to support our growth initiatives, and fluctuations(vii) $1,204,000 of increased professional services, (viii) $789,000 in aggregate foreign currency exchange rates, (iv) $913,000 of general and administrative expenses attributable to our July 2017 acquisition, and (v) $285,000transaction losses, (ix) $571,000 of increased travel.amortization of intangible assets in connection with our fiscal 2019 acquisitions, and (x) $544,000 of increased depreciation expense. These increases were partially offset by $1,341,000a decrease in share-based compensation expense of decreased legal and other professional services.$1,423,000.

Sales and Marketing. Our sales and marketing expenses for fiscal 20182020 increased $2,904,000,$1,495,000, or 23.9%7.7%, to $15,030,000$21,037,000 from $12,126,000$19,542,000 for fiscal 2017.2019. The increase was due primarily to: (i) $1,305,000$2,261,000 of increased sales and marketing expenses attributabledue to the full-year impact of our July 2017 acquisition,fiscal 2019 acquisitions and (ii) $1,012,000$722,000 for personnel added to support our growth initiatives,initiatives. These increases in sales and marketing expenses were partially offset by: (i) $701,000 of decreased marketing expenses related to product changeovers in connection with new business, (ii) $401,000 of decreased trade shows expenses, and (iii) $503,000$291,000 of increased commissions.decreased travel.

Research and Development. Our research and development expenses increased by $1,868,000,$1,186,000, or 48.8%14.8%, to $5,692,000$9,200,000 for fiscal 20182020 from $3,824,000$8,014,000 for fiscal 2017. This2019. The increase was primarily due primarilyto: (i) $866,000 of increased research and development expenses due to (i) $1,755,000 attributable tothe full year impact of our July 2017 acquisitionfiscal 2019 acquisitions and (ii) $399,000$474,000 for personnel added to support our growth initiatives. These increases were partially offset by (i) $170,000$221,000 of decreased expense for supplies and (ii) $119,000 of decreased expense for outside services.supplies.

Interest Expense

Interest Expense, net. Our interest expense, net for fiscal 20182020 increased $2,351,000,$1,812,000, or 18.0%7.8%, to $15,445,000$25,039,000 from $13,094,000$23,227,000 for fiscal 2017.2019. The increase in interest expense in fiscal 2018 was primarily due primarily to increased useaverage outstanding borrowings to support our growth initiatives, including our product line expansion and our inventory levels. The increased utilization of our accounts receivable discount programs increasedwas offset by a decrease in the weighted average outstanding borrowings as we continue to build our inventory to support anticipated higher sales, and the write-off of $231,000 of debt issuance costs.discount rate from these programs.

Provision for Income Taxes

Income Tax. OurWe recorded an income tax expense was $17,863,000,benefit of $1,011,000, or an effective tax rate of 52.3%12.2%, and $17,305,000,compared to income tax expense $268,000, or an effective tax rate of 31.5% during(3.5%), for fiscal 20182020 and 2017,2019, respectively. On December 22, 2017, the Tax Reform Act was enacted into law, which changed various corporate income tax provisions within the existing Internal Revenue Code. The Tax Reform Act, among other things, lowered the U.S. corporateeffective tax rate from 35% to 21% effective January 1, 2018, while also repealingfor fiscal 2020 was impacted by net operating loss carry-backs in connection with the deduction for domestic production activities, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. As a result, we recorded a one-time non-cash tax charge of $4,863,000 related to the revaluation of deferred tax assets and liabilities and a one-time tax charge of $530,000 due to the transition tax on deemed repatriation of accumulated foreign income, during fiscal 2018.
CARES Act. In addition, the effective tax rate for fiscal 2018 is a blended rate reflectingeach year was impacted by (i) valuation allowances, (ii) the estimated benefit of one quarter impact of the non-deductible executive compensation under Internal Revenue Code Section 162(m), and (iii) foreign income taxed at rates that are different from the federal tax rate reduction for fiscal 2018.statutory rate.

Fiscal 20172019 Compared towith Fiscal 20162018

Net Sales and Gross Profit

The following summarizes net sales and gross profit:

 Fiscal Years Ended March 31,  Fiscal Years Ended March 31, 
 2017  2016  2019  2018 
            
Net sales $421,253,000  $368,970,000  $472,797,000  $427,548,000 
Cost of goods sold  306,207,000   268,046,000  383,623,000  320,515,000 
Gross profit  115,046,000   100,924,000  89,174,000  107,033,000 
Gross profit percentage  27.3%  27.4% 18.9% 25.0%

Net Sales. Our net sales for fiscal 20172019 increased by $52,283,000,$45,249,000, or 14.2%10.6%, to $421,253,000$472,797,000 compared towith net sales for fiscal 20162018 of $368,970,000. The increase$427,548,000, reflecting strong growth in market share for our rotating electrical products. In addition, our net sales was across all existing product lines. $9,261,000were positively impacted by sales of this increase is due to the change indiagnostic equipment, which benefitted from our estimate for anticipated stock adjustment returns. Salesacquisitions of rotating electrical products represented 78.6% and 78.7%, wheel hub products represented 18.5% and 19.6%, and brake master cylinder products represented 2.9% and 1.7%, of netD&V Electronics. We achieved record sales for fiscal 2017 and 2016, respectively. The increase in net sales was partially offset bydespite significant customer allowances and returns related to new business asand increased stock adjustment accruals, which were a reduction of our recognized sales (as discussed below in the Gross Profit paragraph.paragraph).

Sales mix for fiscal 2019 compared with 2018 for (i) rotating electrical products represented 78.9% versus 78.2% (ii) wheel hubs, 15.7% versus 16.9%; (iii) brake-related products, which include brake calipers, brake boosters, brake master cylinders, and brake rotors, represents 3.1% versus 3.4% ; and (iv) diagnostics and other products, which include diagnostics systems, advanced power emulators used for the development of electric vehicles and aerospace applications, and custom power electronic products for quality control in the development and production of electric vehicles and turbochargers, represents 2.3% versus 1.5%.

Gross Profit. Our gross profit percentage remained substantially consistent at 27.3%was 18.9% for fiscal 20172019 compared to 27.4%with 25.0% for fiscal 2016. Our gross2018. Gross profit for fiscal 20172019 was impacted by $12,727,000(i) transition expenses of $8,178,000 in connection with the expansion of our operations in Mexico, which began in late fiscal 2018, (ii) $6,042,000 of customer allowances and stock adjustment costs related to new business and product line expansion, (iii) $4,127,000 of amortization of core premiums paid to customers related to new business, (iv) net tariff costs of $1,526,000 paid for products sold before these expenses were passed-through to customers, (v) core sales of $7,753,000, less related cost of goods sold of $7,750,000, and a fixed allowance cost of $767,000 in connection with the cancellation of a customer contract, and (vi) a cost of goods sold impact of $104,000 for inventory step-up in connection with our December 2018 acquisition of E&M. In addition, gross margins were impacted by several factors including higher freight and wage costs, higher costs related to development and testing of our new diagnostic equipment product line, overtime and other costs related to ramping up for new business, and other strategic initiatives for growth.

Gross profit for fiscal 2018 was impacted by (i) $5,303,000 for customer allowances and initial return and stock adjustment accruals related to new business, less a cost(ii) $3,588,000 of goods sold offsetamortization of $568,000,core premiums paid to customers related to new business, and (iii) transition expenses of $1,831,000 in connection with the expansion of our operations in Mexico, and (iv) a cost of goods sold impact of $1,457,000 for start-up and ramp-up costs incurred related to our launch of brake power boosters. This decrease was partially offset by a 0.4% increase from the change in estimate relating to stock adjustments. Our gross profit for fiscal 2016 was impacted by $14,364,000 for customer allowances related to new business less a cost of goods sold offset of $809,000, and a cost of goods sold impact of $43,000 for start-up costs incurred related to our launch of brake power boosters and $453,000$269,000 for inventory step-up amortization.in connection with our July 2017 acquisition of D&V.

In addition, our gross profit was further impacted by the lowernon-cash quarterly revaluation write-down of cost or net realizable value revaluation$18,843,000 for fiscal 2019 and $9,091,000 for fiscal 2018 for remanufactured cores held at customers’ locations, of $5,788,000which are included in contract assets. Core costs are dictated by supply and demand for fiscal 2017 and $2,700,000 for fiscal 2016.cores in the core broker market.
Operating Expenses

The following summarizes operating expenses:

 Fiscal Years Ended March 31,  Fiscal Years Ended March 31, 
 2017  2016  2019  2018 
            
General and administrative $31,124,000  $49,665,000  $45,972,000  $35,477,000 
Sales and marketing  12,126,000   9,965,000  19,542,000  15,030,000 
Research and development  3,824,000   3,008,000  8,014,000  5,692,000 
              
Percent of net sales              
              
General and administrative  7.4%  13.5% 9.7% 8.3%
Sales and marketing  2.9%  2.7% 4.1% 3.5%
Research and development  0.9%  0.8% 1.7% 1.3%

General and Administrative. Our general and administrative expenses for fiscal 20172019 were $31,124,000,$45,972,000, which represents a decreasean increase of $18,541,000,$10,495,000, or 37.3%29.6%, from general and administrative expenses for fiscal 20162018 of $49,665,000. The reduction in fiscal 2017$35,477,000. This increase was primarily due to (i) $1,798,000 of increased share-based compensation expense, (ii) a $3,764,000loss of $972,000 recorded during fiscal 2019 due to the change in the fair value of the forward foreign currency exchange contracts compared with a gain of $752,000 recorded during fiscal 2018, (iii) $1,493,000 of increased general and administrative expenses primarily at our Mexico location to support our growth initiatives, (iv) $1,324,000 of increased professional services primarily due to increased audit fees, costs incurred in connection with the revision of our previously issued financial statements, and for the adoption of ASC 842, (v) $989,000 of increased general and administrative expenses attributable to our July 2017 acquisition of D&V due to the full-year impact of the acquisition and increased amortization of intangible assets, (vi) $878,000 of increased depreciation, (vii) $931,000 of acquisition costs, (viii) $852,000 in general and administrative expenses for our fiscal 2019 acquisitions, and (ix) $739,000 of net increases in general and administrative expenses due primarily to fluctuations in Asian foreign currency exchange rates. During fiscal 2018, a gain of $2,313,000 was recorded in general and administrative expenses due to the change in the fair value of the warrant liability during fiscal 2017 compared to a loss of $5,137,000 recorded during fiscal 2016, (ii) $8,805,000 of decreased legalliability. The warrants were exercised on September 8, 2017. The increase in general and administrative expense as compared to fiscal 2016, which included $9,250,000 accrued in fiscal 2016 for the litigation settlement in the bankruptcy cases related to the discontinued subsidiarieswas partially offset by a $5,800,000 gain$2,581,000 decrease in connection with the settlement of litigation with Fenwick Automotive Products Limited and various of its subsidiaries, and (iii) $4,401,000 of decreased bad debt expense as compared to fiscal 2016, which included expense in fiscal 2016 resulting from the bankruptcy filing by one of our customers. These decreases were partially offset by (i) $974,000 of decreased gain recorded due to the change in the fair value of the contingent consideration in connection with our fiscal 2016 acquisition, (ii) $799,000 of increased share-based compensation, and (iii) $700,000 of increased general and administrative expenses at our offshore locations due primarily to our growth initiatives.bonus expense.

Sales and Marketing. Our sales and marketing expenses for fiscal 20172019 increased $2,161,000,$4,512,000, or 21.7%30.0%, to $12,126,000$19,542,000 from $9,965,000$15,030,000 for fiscal 2016. This2018. The increase in fiscal 2017 was due primarily to (i) $1,045,000$1,143,000 of increased commissions due to increased sales, (ii) $833,000 of increased marketing expenses related to product changeovers in connection with new business, (iii) $815,000 of increased sales and marketing expenses attributable to our July 2017 acquisition of D&V due to the full-year impact of the acquisition and increased personnel, (iv) $514,000 of increased trade show expenses, (v) $448,000 for personnel added to support our growth initiatives, (ii) $710,000(vi) $486,000 in sales and marketing expenses for our fiscal 2019 acquisitions, and (vii) $209,000 of increased commissions, (iii) $167,000 of increased outside services, (iv) $127,000 of increased travel, and (v) $97,000 of increased trade showadvertising expense.

Research and Development. Our research and development expenses increased by $816,000,$2,322,000, or 27.1%40.8%, to $3,824,000$8,014,000 for fiscal 20172019 from $3,008,000$5,692,000 for fiscal 2016. This2018. The increase in fiscal 2017 was due primarily to (i) $550,000$1,180,000 for personnel added to support our new product growth initiatives, (ii) $144,000$550,000 of increased supplies, (iii) $207,000 of increased research and (iii) $90,000development expenses attributable to our July 2017 acquisition of D&V due to the full-year impact of the acquisition and increased personnel, (iv) $221,000 of research and development expenses for our fiscal 2019 acquisitions, (v) $81,000 of increased travel, and (vi) $58,000 of increased outside services.

Interest Expense

Interest Expense, net. Our interest expense, net for fiscal 2017 decreased $3,150,000,2019 increased $7,782,000, or 19.4%50.4%, to $13,094,000$23,227,000 from $16,244,000$15,445,000 for fiscal 2016.2018. The decreaseincrease in interest expense in fiscal 2017 was due primarily to (i) an increase in the write-offutilization of previous debt issuance costs of $5,108,000 in fiscal 2016 in connection with the financing agreement which was terminated when we entered into a new credit facility in June 2015 and (ii) lower interest rates and lower average outstanding balances on our loans. These decreases in interest expense were partially offset by higher interest rates and increased use ofon our accounts receivable discount programs, during fiscal 2017.
(ii) increased average outstanding borrowings as we build our inventory levels to support anticipated higher sales, (iii) 35the write-off of $303,000 of previously capitalized debt issuance costs in connection with the amendment to our credit facility, and (iv) higher interest rates on our average outstanding borrowings under our credit facility.

Provision for Income Taxes

Income Tax. OurWe recorded an income tax expense was $17,305,000,of $268,000, or an effective tax rate of 31.5%(3.5%), for fiscal 2019, which was impacted by the statute lapses for various uncertain tax positions and $11,479,000,return to provision adjustments, and finalization of provisional estimates under Staff Accounting Bulletin (“SAB”) 118. We recorded income tax expense, as adjusted, for fiscal 2018 of $16,125,000, or an effective tax rate of 52.1% during fiscal 2017 and 2016, respectively. Our income45.6%, which was significantly impacted by the enactment of the Act on December 22, 2017. In addition, the effective tax rate for fiscal 2017each year was positively impacted by (i) a non-taxable gainvaluation allowances recorded in connection with our recent acquisitions.

The Act reduced the fair value adjustmentsU.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign sourced earnings. During the warrants comparedyear ended March 31, 2018, we recorded provisional amounts by applying the guidance in SAB 118, as we had not yet completed the accounting for the tax effects of enactment of the Act. We recorded a one-time provisional non-cash tax charge of $2,709,000 due to a non-deductible loss in fiscal 2016the revaluation of deferred tax assets and (ii) $748,000 of excessliabilities. The one-time transition tax benefitswas estimated and recorded through the provision for income taxes in fiscal 2017 as a resultone-time provisional income tax expense of $530,000 at March 31, 2018.

As the measurement under SAB 118 ended during fiscal 2019, we completed our accounting analysis of the early adoptioncumulative foreign earnings, transitional tax liability, and non-cash tax charge for deferred revaluation under the Act. Fiscal 2019 included a reduction of $50,000 to the provisional transition tax amount and a $102,000 increase to non-cash charge due to the revaluation of deferred tax assets and liabilities previously reported under SAB 118. Additionally, our U.S. tax return for the period ended March 31, 2018 was filed and any changes to the tax positions for temporary differences compared with the estimates used resulted in an adjustment of the FASB’sestimated tax expense recorded as of March 31, 2018. Despite the completion of our accounting for the Act under SAB 118, many aspects of the law remain unclear and we expect ongoing guidance to be issued at both the federal and state levels. We will continue to monitor and assess the impact of any new guidance on share-based compensation. In addition, the income tax rates for all periods are increased by the inclusion of state income taxes and non-deductible executive compensation under Internal Revenue Code Section 162(m). These increases in all periods were partially offset by the benefit of lower statutory tax rates in foreign taxing jurisdictions.developments.

Liquidity and Capital Resources

Overview

We had negative working capital (current assets minus current liabilities) of $46,267,000$90,624,000 and $20,651,000,$73,528,000, a ratio of current assets to current liabilities of 0.74:1.00 and 0.86:1.00,1.3:1.0, at March 31, 20182020 and 2017,2019, respectively. The long-term classification of our core inventory, the build-up of our inventory to support anticipated higher sales, new business with existing and potential new customers, and the addition of any new product lines haveincrease in the past, and will continue to require the use of working capital was due primarily to growhigher cash and accounts receivable balances partially offset by increased borrowing under our business.credit facility.

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

We generated cash during fiscal 2018the year ended March 31, 2020 from operations, the use of receivable discount programs, with certain of our major customers and their respective banks, as well as from our credit facility. TheAs we manage through the impacts of the COVID-19 pandemic, we have access to our existing cash, generated from these activities was used primarilyas well as our available credit facilities to build our inventory to support anticipated higher sales.

In May 2018, we entered into the New Credit Facility consisting of a $200,000,000 revolving loan facility and a $30,000,000 term loan facility, maturing in June 2023.

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

Cash Flows

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

 Fiscal Years Ended March 31,  Fiscal Years Ended March 31, 
 2018  2017  2016  2020 2019 2018 
Cash provided by (used in):                
Operating activities $(13,944,000) $(5,269,000) $15,334,000  $18,795,000  $(40,328,000) $(13,944,000)
Investing activities  (15,278,000)  (5,683,000)  (7,582,000)  (11,594,000)  (22,610,000)  (15,278,000)
Financing activities  33,142,000   (1,849,000)  (46,982,000)  32,153,000   59,936,000   33,142,000 
Effect of exchange rates on cash and cash equivalents  100,000   (67,000)  (103,000)  351,000   (136,000)  100,000 
            
Net increase (decrease) in cash and cash equivalents  4,020,000   (12,868,000)  (39,333,000) $39,705,000  $(3,138,000) $4,020,000 
                        
Additional selected cash flow data:                        
Depreciation and amortization $4,508,000  $3,714,000  $2,936,000  $9,561,000  $7,329,000  $4,508,000 
Capital expenditures  9,933,000   4,929,000   3,747,000   14,156,000   11,149,000   9,933,000 

Fiscal 20182020 Compared with Fiscal 2019

Net cash provided by operating activities was $18,795,000 during fiscal 2020 compared to net cash used in operating activities of $40,328,000 during fiscal 2019. Our operating activities were significantly impacted by our growth initiatives, including our product line expansion, and our inventory levels.

Net cash used in investing activities was $11,594,000 and $22,610,000 during fiscal 2020 and 2019, respectively.
This change was due primarily to no acquisition-related activities and redemptions of short-term investments partially offset by increased purchases of plant and equipment for our current operations and the expansion of our operations in Mexico during fiscal 2020.

Net cash provided by financing activities was $32,153,000 and $59,936,000 during fiscal 2020 and 2019, respectively. The significant change in our financing activities during fiscal 2020 as compared with fiscal 2019 was due mainly to lower net borrowings under our credit facility partially offset by the payment of $1,955,000 in contingent consideration liabilities during fiscal 2020. In addition, during fiscal 2019, we used $4,062,000 for share repurchases.

Fiscal 20172019 Compared with Fiscal 2018

Net cash used in operating activities was $13,944,000$40,328,000 and $5,269,000$13,944,000 during fiscal 2019 and 2018, and 2017, respectively. The significant changes in ourOur operating activities during fiscal 2018 as compared to fiscal 2017 were due primarily tosignificantly impacted by our growth initiatives, including our product line expansion. Fiscal 2019 operating activities include: (i) decreased operating results (net income plus net add-back for non-cash transactionsexpenses incurred in earnings),connection with the expansion of our Mexico operations, (ii) increased payments of income taxes, (iii) decreases in accounts receivable and accounts payable during fiscal 2018 compared to increases during fiscal 2017, (iv) the build-up of our inventory to support anticipated higher sales, and (v) increased core purchases, including accrued core(iii) payments made to customers of $13,816,000$28,270,000 during fiscal 2018.2019 for core buy-backs made in connection with new business expansion.

Net cash used in investing activities was $15,278,000$22,610,000 and $5,683,000$15,278,000 during fiscal 2019 and 2018, and 2017, respectively.
This change was due primarily to our increased acquisition-related activities and capital expenditures, which was primarily for the purchase of equipment for our current operations and acquisition-related activities.the expansion of our operations in Mexico.
Net cash provided by financing activities was $59,936,000 and $33,142,000 during fiscal 2019 and 2018, compared to net cash usedrespectively. The significant change in our financing activities of $1,849,000 during fiscal 2017. This change2019 as compared with fiscal 2018 was due mainly to (i) increased net borrowing primarily to build our inventory to support anticipated higher sales, (ii) repurchases of our common stock under our share repurchase program, and (iii) cash received upon exercise of the supplier warrant during fiscal 2018.credit facility.


Net cash used in investing activities was $5,683,000 and $7,582,000 during fiscal 2017 and 2016, respectively. This change was due primarily to a decrease in cash used for the acquisition related activities during fiscal 2017 as compared to fiscal 2016.

Net cash used in financing activities was $1,849,000 and $46,982,000 during fiscal 2017 and 2016, respectively. This change was due mainly to (i) the net repayment of our long-term debt in fiscal 2016 in connection with the financing agreement which was terminated when we entered into a new credit facility in June 2015, (ii) the payment of debt issuance costs associated with this new credit facility, (iii) fewer stock options exercised during fiscal 2017 as compared to fiscal 2016, and (iv) the repurchase of shares under our share repurchase program during fiscal 2017.

Capital Resources

Debt

We are party to the following credit agreements.

Credit Facility

We are party to a $145,000,000$230,000,000 senior secured financing, as(as amended (thefrom time to time, the “Credit Facility”) with thea syndicate of lenders, party thereto, and PNC Bank, National Association, as administrative agent, consisting ofof: (i) a $120,000,000$200,000,000 revolving loan facility, subject to borrowing base restrictions, a $20,000,000 sublimit for borrowings by Canadian borrowers, and a $15,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $25,000,000$30,000,000 term loan facility (the “Term Loans”). The loans under the Credit Facility mature on June 3, 2020. In connection with the Credit Facility, the lenders were granted a security interest in substantially all of our assets.5, 2023. The Credit Facility permits the payment of up to $10,000,000$20,000,000 of dividends and share repurchases per calendarfiscal year, subject to a minimum availability threshold and pro forma compliance with financial covenants. This amount was increased to $15,000,000 under the April 2017 amendment toIn connection with the Credit Facility.Facility, the lenders have a security interest in substantially all of our assets.

In April 2017,June 2019, we entered into a consent and fourthsecond amendment to the Credit Facility (the “Fourth(“Second Amendment”) which,. The Second Amendment, among other things, (i) increased the total size of the Revolving Facility to $238,620,000, (ii) modified the fixed charge coverage ratio financial covenant, (iii) modified the definition of “Consolidated EBITDA”, (iv) modified the borrowing base limit with respect to inventory located in Mexico, (ii) amended the definition and calculation of consolidated EBITDA to raise the limitation on the add-back for non-capitalized transaction expenses related to the expansion of operations in Mexico, (iii) increased the annual limit on permitted stock repurchases and dividends, and (iv) modified certain other categories (including increasing certain baskets for permitted acquisitions) and thresholds to, among other things, further accommodateinclude brake-related products as eligible inventory, (v) increased the expansionletter of our operationscredit sublimit to $20,000,000, (vi) increased the Canadian revolving sublimit and swing line sublimit to $24,000,000, (vii) increased the swing line sublimit to $23,862,000, (viii) permitted up to $5,000,000 of sale and lease back transactions per fiscal year, (ix) increased the permitted amount of certain capital expenditures, (x) increased the permitted amount of operating lease obligations per fiscal year, and (xi) increased certain other covenant-related baskets. We capitalized $973,000 of new debt issuance costs in Mexico.connection with the Second Amendment, which is included in prepaid and other current assets in the consolidated balance sheet at March 31, 2020.

In July 2017, we entered into a fifth amendment to the Credit Facility (the “Fifth Amendment”) which, among other things, amended the definition of permitted acquisitions, permitted indebtedness, and pledge agreements.
The Term Loans require quarterly principal payments of $781,250.$937,500. The Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.50%2.25%, 2.75%2.50% or 3.00%2.75% or a reference rate plus a margin of 1.50%1.25%, 1.75%1.50% or 2.00%1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.25%0.375% to 0.375%0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on our Term Loans and Revolving Facility was 4.42%4.34% and 4.52%3.64%, respectively, at March 31, 20182020, respectively, and 3.29% and 3.55%, respectively,5.24% at March 31, 2017.2019.

The Credit Facility, among other things, requires us to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all financial covenants as ofat March 31, 2018.2020. Our Consolidated EBITDA for the purposes of bank covenant calculations was $80,131,000 for fiscal 2020.

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

 
Calculation as of
March 31, 2018
  
Financial covenants
required per the Credit
Facility
  
Financial covenants
required per the Credit
Facility
  Calculation as of
March 31, 2020		 
            
Maximum senior leverage ratio  0.89   2.50  
3.00
  
2.23
 
Minimum fixed charge coverage ratio  1.34   1.15  
1.10
  
1.44
 

In light of COVID-19, we elected to not pay down our Revolving Facility and we accumulated cash of $49,616,000 as of March 31, 2020. Our credit arrangement only allows up to $6,000,000 of credit for cash when computing the senior leverage ratio. If we had paid down the Revolving Facility with cash on hand, our senior leverage ratio would have been 1.77. In addition to other covenants, the Credit Facility places limits on our ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem or repurchase capital stock, alter the business conducted by us and our subsidiaries, transact with affiliates, prepay, redeem or purchase subordinated debt, and amend or otherwise alter debt agreements.

We had $54,000,000$152,000,000 and $11,000,000$110,400,000 outstanding under the Revolving Facility at March 31, 20182020 and 2017,2019, respectively. In addition, $260,000$3,579,000 was reserved for standby letters of credit for workers’ compensation insurance and $600,000 for commercial letters of credit at March 31, 2018.2020. At March 31, 2018, $65,140,000, subject to2020, after certain adjustments, $58,461,000 was available under the Revolving Facility.

WX Agreement

In August 2012, we entered into a Revolving Credit/Strategic Cooperation Agreement (the “WX Agreement”) with Wanxiang America Corporation (the “Supplier”) and the discontinued subsidiaries. In connection with the WX Agreement, we issued a warrant (the “Supplier Warrant”) to the Supplier to purchase up to 516,129 shares of our common stock for an exercise price of $7.75 per share exercisable at any time after August 22, 2014 and on or prior to September 30, 2017.

On September 8, 2017, the Supplier exercised the Supplier Warrant in full and paid us $4,000,000. As a result of the exercise, the Supplier Warrant is no longer outstanding. The fair value of the Supplier Warrant on the exercise date was $9,566,000 using level 3 inputs and the Monte Carlo simulation model. The following assumptions were used to calculate the fair value of the Supplier Warrant: dividend yield of 0%, expected volatility of 26.4%, risk-free interest rate of 0.96%, subsequent financing probability of 0%, and an expected life of 0.06 years. We recorded a non-cash reclassification of the Supplier Warrant’s fair value to shareholders’ equity on the exercise date, with no further adjustments to the fair value of the Supplier Warrant being required. The fair value of the Supplier Warrant was $11,879,000 at March 31, 2017 and was included in other liabilities in the consolidated balance sheet.

During the years ended March 31, 2018 and 2017, a gain of $2,313,000 and $3,764,000, respectively, was recorded in general and administrative expenses due to the change in the fair value of this warrant liability.
Receivable Discount Programs

We use receivable discount programs with certain customers and their respective banks. Under these programs, we have options to sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. These discount arrangements allowsallow us to accelerate receipt of payment on customers’ receivables. While these arrangements have reduced our working capital needs, there can be no assurance that these programs will continue in the future. Interest expense resulting from these programs would increase if interest rates rise, if utilization of these discounting arrangements expands, if customers extend their payment to us, or if the discount period is extended to reflect more favorable payment terms to customers.

The following is a summary of the receivable discount programs:

 Years Ended March 31,  Years Ended March 31, 
 2018  2017  2020  2019 
            
Receivables discounted $357,224,000  $352,369,000  $461,484,000  $396,650,000 
Weighted average days  340   342  346  341 
Weighted average discount rate  3.3%  2.9% 3.3% 4.2%
Amount of discount as interest expense $11,182,000  $9,724,000  $14,780,000  $15,867,000 

Off-Balance Sheet Arrangements

At March 31, 2018,2020, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually narrow or limited purposes.

Multi-year Customer Agreements

We have or are renegotiating long-term agreements with many of our major customers. Under these agreements, which in most cases have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified categories of our products. Because of the very competitive nature of the market and the limited number of customers for these products, our customers have sought and obtained price concessions, significant marketing allowances and more favorable delivery and payment terms in consideration for our designation as a customer’s exclusive or primary supplier. These incentives differ from contract to contract and can include (i) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (ii) support for a particular customer’s research or marketing efforts provided on a scheduled basis, (iii) discounts granted in connection with each individual shipment of product, and (iv) other marketing, research, store expansion or product development support. These contracts typically require that we meet ongoing performance standards. Our contracts with majorour customers expire at various dates through April 2021.December 2024.

While these longer-term agreements strengthen our customer relationships, the increased demand for our products often requires that we increase our inventories and personnel. Customer demands that we purchase their Remanufactured Core inventory also require the use of our working capital. The marketing and other allowances we typically grant our customers in connection with our new or expanded customer relationships adversely impact the near-term revenues, profitability and associated cash flows from these arrangements. However, we believe the investment we make in these new or expanded customer relationships will improve our overall liquidity and cash flow from operations over time.

Share Repurchase Program

On February 2, 2018, ourOur board of directors increased our sharehave approved a stock repurchase program authorization from $15,000,000of up to $20,000,000$37,000,000 of our common stock. As of March 31, 2018, $11,630,000 of the $20,000,0002020, $15,692,000 had been utilized and $8,370,000$21,308,000 remained available to repurchase shares under the authorized share repurchase program, subject to the limit in our credit facility.Credit Facility. We retired the 511,746675,561 shares repurchased under this program through March 31, 2018.2020. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

39Subsequent Event

TableIn light of Contentsthe COVID-19 pandemic, we have taken proactive steps to manage our costs and bolster our liquidity, including increasing the level of receivables collected under our receivable discount programs. During April 2020, we collected $59,730,000 of receivables under these programs, with $1,552,000 in interest expense associated with these accounts receivable sales, which was higher than our average monthly utilization of these programs.

Additionally, as part of the cost reduction measures implemented by us in response to the impact of the COVID-19 pandemic on our business, executive committee members have all agreed to at least a 25% reduction in base salary, until we believe it is fiscally responsible to reinstate the original base salaries. Our Board of Directors agreed to defer all board and committee fees and retainers, as well as waive any fees related to weekly board check in meetings, as long as the executive committee continues with a base salary reduction. We continue to analyze our cost structure and may implement additional cost reduction measures as may be necessary due to the on-going economic challenges resulting from the COVID-19 pandemic.

Capital Expenditures and Commitments

Our total capital expenditures, including capital leases and non-cash capital expenditures, were $13,411,000 and $5,731,000$19,511,000 for fiscal 20182020 and 2017, respectively.$12,051,000 for fiscal 2019. These capital expenditures primarily include the purchase of equipment for our current operations and the expansion of our operations in Mexico. We expect to investincur approximately $17,000,000 in fiscal 2019 to support$6,300,000 of capital expenditures for our growth initiativescurrent operations and approximately $11,000,000 for continued expansion of our operations in Mexico.Mexico during fiscal 2021. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.

Contractual Obligations

The following summarizes our contractual obligations and other commitments as of March 31, 20182020 and the effect such obligations could have on our cash flows in future periods:

 Payments Due by Period  Payments Due by Period 
Contractual Obligations Total  
Less than
1 year
  
2 to 3
years
  
4 to 5
years
  
More than 5
years
  Total  
Less than
1 year
  
2 to 3
years
  
4 to 5
years
  
More than 5
years
 
                              
Capital lease obligations (1) $5,598,000  $1,627,000  $2,519,000  $1,452,000   - 
Finance lease obligations (1)
 $6,425,000  $2,292,000  $3,280,000  $853,000  - 
Operating lease obligations (2)  53,061,000   5,873,000   8,938,000   7,426,000  $30,824,000  117,097,000  11,427,000  21,002,000  16,745,000  $67,923,000 
Revolving loan(3)  54,000,000   54,000,000   -   -   -  152,000,000  -  -  152,000,000  - 
Term loan (3)(4)  18,559,000   3,820,000   14,739,000   -   -  26,893,000  4,720,000  8,944,000  13,229,000  - 
Accrued core payment (4)(5)  36,778,000   17,421,000   14,516,000   4,841,000   -  14,787,000  8,486,000  6,301,000  -  - 
Unrecognized tax benefits (5)  -   -   -   -   - 
Other long-term obligations (6)  69,176,000   30,154,000   38,909,000   113,000   - 
Core bank liability (6)
 11,163,000  874,000  2,332,000  2,332,000  5,625,000 
Unrecognized tax benefits (7)
 -  -  
-
  -  - 
Other long-term obligations (8)
 44,013,000  25,896,000  10,539,000  4,911,000  2,667,000 
                                    
Total $237,172,000  $112,895,000  $79,621,000  $13,832,000  $30,824,000  $372,378,000  $53,695,000  $52,398,000  $190,070,000  $76,215,000 


(1)Capital
Finance lease obligations represent amounts due under capitalfinance leases for various types of equipment.

(2)
Operating lease obligations represent amounts due for rent under our leases for all our facilities (including one new building leases entered in connection with the expansion of our new distribution centeroperations in Tijuana, Mexico)Mexico and the renewal of one building lease in Canada), certain equipment, and our Company automobile.

(3)
Our revolving loan obligations are under our current Credit Facility that matures on June 5, 2023. This debt is classified as a short term liability on our balance sheet as we expect to use our working capital to repay the amounts outstanding under our revolving loan.

(4)
Term loan obligations represent the amounts due for principal payments as well as interest payments to be made. Interest payments were calculated based upon the interest rate for our term loan using the LIBOR option at March 31, 2018,2020, which was 4.42%4.34%.

(4)(5)
Accrued core payment represents the amounts due for principal of $14,124,000 and interest payments of $663,000 to be made in connection with the purchases of Remanufactured Cores from our customers, which are held by these customers and remain on their premises.

(5)(6)
The core bank liability represents the amounts due for principal of $8,084,000 and interest payments of $3,079,000 to be made in connection with the return of Used Cores from our customers.

(7)
We are unable to reliably estimate the timing of future payments related to uncertain tax position liabilities at March 31, 2018 in the amount of $1,219,000;2020; therefore, this amount has been excluded from the table above. However, future tax payment accruals related to uncertain tax positions are included in our consolidated balance sheets, reduced by the associated federal deduction for state taxes.amount of $1,011,000 have been excluded from the table above.

(6)(8)
Other long-term obligations represent commitments we have with certain customers to provide marketing allowances in consideration for long-termmulti-year customer agreements to provide products over a defined period. We are not obligated to provide these marketing allowances should our business relationships end with these customers.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk relates to changes in interest rates, foreign currency exchange rates, and customer credit. We do not enter into derivatives or other financial instruments for trading or speculative purposes. As our overseas operations expand, our exposure to the risks associated with foreign currency fluctuations will continue to increase.

Interest rate risk

We are exposed to changes in interest rates primarily as a result of our borrowing and receivable discount programs, which have interest costs that vary with interest rate movements. Our credit facility bears interest at variable base rates, plus an applicable margin. At March 31, 2018,2020, our net debt obligations totaled $70,981,000.$176,140,000. If interest rates were to increase 1%, our net annual interest expense would have increased by approximately $710,000.$1,761,000. In addition, for each $10,000,000 of accounts receivable we discount over a period of 180 days, a 1% increase in interest rates would increase our interest expense by $50,000.

Foreign currency risk

We are exposed to foreign currency exchange risk inherent in our anticipated purchases and expenses denominated in currencies other than the U.S. dollar. We transact business in the following foreign currencies; Mexican pesos, Malaysian ringit, Singapore dollar, Chinese yuan, and the Canadian dollar. Our primary currency risks result from fluctuations in the value of the Mexican peso and to a lesser extent the Chinese yuan. To mitigate these risks, we enter into forward foreign currency exchange contracts to exchange U.S. dollars for these foreign currencies. The extent to which we use forward foreign currency exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in exchange rates. These contracts generally expire in a year or less. Any changes in the fair values of our forward foreign currency exchange contracts are reflected in current period earnings. Based upon our forward foreign currency exchange contracts related to these currencies, an increase of 10% in exchange rates at March 31, 20182020 would have increased our general and administrative expenses by approximately $2,953,000.$3,252,000. During fiscal 20182020 and 2017, a gain2019, losses of $752,000$6,491,000 and $843,000,$972,000, respectively, were recorded in general and administrative expenses due to the change in the value of the forward foreign currency exchange contracts subsequent to entering into the contracts. In addition, we recorded a loss of $11,710,000 in general and administrative expenses in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2020.

Credit Risk

We regularly review our accounts receivable and allowance for doubtful accounts by considering factors such as historical experience, credit quality and age of the accounts receivable, and the current economic conditions that may affect a customer’s ability to pay such amounts owed to us. We maintain an allowance for doubtful accounts that, in our opinion, provides for an adequate reserve to cover losses that may be incurred.

Item 8.
Financial Statements and Supplementary Data

The information required by this item is set forth in the consolidated financial statements, commencing on page F-1 included herein.

Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures

We have established
41
Management, with the participation of our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”), has evaluated the effectiveness of our disclosure controls and procedures to ensure that the information required to be disclosed by the Company(as defined in the reports that it files or submitsRules 13a- 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the “Exchange Act,”) as of the end of the period covered by this Annual Report on Form 10-K.

Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO, CFO and CAO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SECSEC’s rules and forms and that such information is accumulated and made known to the officers who certify the Company’s financial reports and to other members of senior management and the board of directors as appropriate to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of management, including our chief executive officer, chief financial officer, and chief accounting officer, we have conducted an evaluation of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(b) and 15d-15(e).forms. Based on this evaluation, our chief executive officer, chief financial officer,CEO, CFO and chief accounting officerCAO have concluded that MPA’sour disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2018.2020.

Management’s Annual Report on Internal Control Overover Financial Reporting

The Company’s managementManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

Internal15d- 15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with accounting principles generally accepted in the United State of America, applying certain estimates and judgments as required.accounting principles.

Internal control over financial reporting includes those policies and procedures that:

1.Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
2.Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
3.Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including our chief executive officer, chief financial officer, and chief accounting officer, we conducted an evaluation ofManagement assessed the effectiveness of our internal control over financial reporting based onas of March 31, 2020 using the criteria established in the 2013 Internal Control — Integrated Framework issuedset forth by the Committee of Sponsoring Organizations of the Treadway Commission.Commission in Internal Control—Integrated Framework (2013). Based on this evaluation,its assessment, our management, including our CEO and CFO, has concluded that the Company’sour internal control over financial reporting was effective as of March 31, 2018.2020.

The effectiveness of our internal control over financial reporting as of March 31, 20182020 has been audited by the Company’s independent registered public accounting firm, Ernst & Young LLP. Their assessment is included in the accompanying Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.

Remediation of Material Weakness

Throughout the year ended March 31, 2020, the Company undertook remediation measures related to the previously reported material weaknesses in internal control over financial reporting. We completed these remediation measures in the quarter ended March 31, 2020, including testing of the design and concluding on the operating effectiveness of the related controls.

Specifically, we undertook the following remediation measures:

1.Management hired additional finance and accounting personnel with the requisite experience and skill levels, supplemented by third-party technical accounting resources to enable the proper and timely review of accounting analyses and memos in various technical areas.
2.Management formalized the assessment and documentation of the Company’s accounting and financial reporting policies and procedures and enhance controls over the monitoring of compliance with these accounting policies and procedures.
3.Management enhanced the accounting and internal control training program provided to new and existing subsidiaries. Management enhanced its internal control processes to continuously monitor the subsidiaries’ compliance with and documentation of the Company’s accounting and financial reporting policies and procedures, including internal control over financial reporting.
4.Management enhanced and will continue to enhance the risk assessment process and design of internal control over financial reporting at D&V Electronics Ltd. (D&V). This includes implementation of compensating controls, enhanced and revised design of existing transaction level and financial reporting controls at D&V, and enhancements in the documentation of transaction-level controls being performed at D&V.

Changes
Based on these procedures, we believe that the previously reported material weaknesses have been remediated. However, completion of remediation procedures for these material weaknesses does not provide assurance that our modified controls will continue to operate properly or that our financial statements will be free from error.

Change in Internal Control Over Financial Reporting

There wereOther than described above in this Item 9A, there was no changeschange in MPA’sour internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the fourth quarter ended March 31, 2018period covered by this report, that havehas materially affected, or areis reasonably likely to materially affect, MPA’sour internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 9B.
Other Information

None.

43
PART III

Item 10.
Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference to our Definitive Proxy Statement in connection with our next Annual Meeting of Stockholders (the “Proxy Statement”).

Item 11.
Executive Compensation

The information required by this item is incorporated by reference to the Proxy Statement.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the Proxy Statement.

Item 13.Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the Proxy Statement.

Item 14.Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Proxy Statement.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the Proxy Statement.

Item 13.
Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the Proxy Statement.

Item 14.
Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Proxy Statement.
44
PART IV

Item 15.
Exhibits, Financial Statement Schedules

a.Documents filed as part of this report:

(1)Index to Consolidated Financial Statements:

Reports of Independent Registered Public Accounting Firm
5453
Consolidated Balance Sheets
F-1
Consolidated Statements of IncomeOperations
F-2
Consolidated Statements of Comprehensive (Loss) Income
F-3
Consolidated Statements of Shareholders’ Equity
F-4
Consolidated Statements of Cash Flows
F-5
Notes to Consolidated Financial Statements
F-6

(2)Schedules:Schedules.

Schedule II — Valuation and Qualifying Accounts
S-1

(3)Exhibits:

Number Description of Exhibit Method of Filing
     
3.1
 
Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 declared effective on March 22, 1994 (the “1994 Registration Statement”).
     
3.2
 
Amendment to Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No. 33-97498) declared effective on November 14, 1995 (the “1995 Registration Statement”).
     
 
Amendment to Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
     
 
Amendment to Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the “1998 Form 10-K”).
     
 
Amendment to Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003.
     
 
Amended and Restated By-Laws of the Company
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on August 24, 2010.
     
 
Certificate of Amendment of the Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on April 17, 2014.
     
 
Amendment to the Amended and Restated By-Laws of the Company
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 14, 2016.

Number Description of Exhibit Method of Filing
     
 
Amendment to the Amended and Restated By-Laws of the Company
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 22, 2017.
     
 
2004 Non-Employee Director Stock Option Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting.
     
 
2010 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on December 15, 2010.
     
 
Amended and Restated 2010 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 5, 2013.
     
 
Second Amended and Restated 2010 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 3, 2014.
     
 
2014 Non-Employee Director Incentive Award Plan
 
Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on March 3, 2014.
     
 
Third Amended and Restated 2010 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on November 20, 2017.
     
10.1
 
Amendment to Lease, dated October 3, 1996, by and between the Company and Golkar Enterprises, Ltd. relating to additional property in Torrance, California
 
Incorporated by reference to Exhibit 10.17 to the December 31, 1996 Form 10-Q.
     
10.2
 
Lease Agreement, dated September 19, 1995, by and between Golkar Enterprises, Ltd. and the Company relating to the Company’s facility located in Torrance, California
 
Incorporated by reference to Exhibit 10.18 to the 1995 Registration Statement.
     
 
Form of Indemnification Agreement for officers and directors
 
Incorporated by reference to Exhibit 10.25 to the 1997 Registration Statement.
     
 
Second Amendment to Lease, dated March 15, 2002, between Golkar Enterprises, Ltd. and the Company relating to property in Torrance, California
 
Incorporated by reference to Exhibit 10.44 to the 2003 10-K.
     
 Addendum to Vendor Agreement, dated May 8, 2004, between AutoZone Parts, Inc. and the CompanyIncorporated by reference to Exhibit 10.15 to the 2004 10-K.
Form of Orbian Discount Agreement between the Company and Orbian Corp.Incorporated by reference to Exhibit 10.17 to the 2004 10-K.
NumberDescription of ExhibitMethod of Filing
10.7
Form of Standard Industrial/Commercial Multi-Tenant Lease, dated May 25, 2004, between the Company and Golkar Enterprises, Ltd for property located at 530 Maple Avenue, Torrance, California 
Incorporated by reference to Exhibit 10.18 to the 2004 10-K.

NumberDescription of ExhibitMethod of Filing          
     
 
Build to Suit Lease Agreement, dated October 28, 2004, among Motorcar Parts de Mexico, S.A. de CV, the Company and Beatrix Flourie Geoffroy
 
Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on November 2, 2004.2004.
     
 Amendment No. 3 to Pay-On-Scan Addendum, dated August 22, 2006, between AutoZone Parts, Inc. and the CompanyIncorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on August 30, 2006.
Amendment No. 1 to Vendor Agreement, dated August 22, 2006, between AutoZone Parts, Inc. and Motorcar Parts of America, Inc.Incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K filed on August 30, 2006.
10.11
Lease Agreement Amendment, dated October 12, 2006, between the Company and Beatrix Flourie Geoffroy 
Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on October 20, 2006.
     
 
Third Amendment to Lease Agreement, dated as of November 20, 2006, between Motorcar Parts of America, Inc. and Golkar Enterprises, Ltd.
 
Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on November 27, 2006.
     
 
Amended and Restated Employment Agreement, dated as of December 31, 2008, by and between the Company and Selwyn Joffe
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed January 7, 2009.
10.14*
Vendor Agreement dated as of March 31, 2009, between the Company and AutoZone Parts, Inc.Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed May 5, 2009.
10.15*
Core Amendment to Vendor Agreement, dated as of March 31, 2009, between the Company and AutoZone Parts, Inc.
Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed May 5, 2009.
     
 Vendor Agreement Addendum, dated as of March 31, 2009, between the Company and AutoZone Parts, Inc.Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K/A filed on December 23, 2009.
Core Amendment to Vendor Agreement Addendum, dated as of March 31, 2009, between the Company and AutoZone Parts, Inc.Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K/A filed on December 23, 2009.
10.18*
Master Vendor Agreement, dated as of April 1, 2009, between the Company and O’Reilly Automotive, Inc.Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 13, 2010.
NumberDescription of ExhibitMethod of Filing
10.19*
Letter Agreement, dated as of April 1, 2009, between the Company and O’Reilly Automotive, Inc.Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on January 13, 2010.
10.20*
Vendor Agreement Addendum, dated as of April 1, 2009 between the Company and O’Reilly Automotive, Inc.Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on January 13, 2010.
10.21
Core Amendment No. 3 to Vendor Agreement, dated as of May 31, 2011, by and between Motorcar Parts of America, Inc. and AutoZone Parts, Inc.Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on June 16, 2011.
10.22
Core Amendment No. 4 to Vendor Agreement, dated as of May 31, 2011, by and between Motorcar Parts of America, Inc. and AutoZone Parts, Inc.Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on June 16, 2011.
10.23
Addendum No. 2 to Amendment No. 1 to Vendor Agreement, dated as of May 31, 2011, by and between Motorcar Parts of America, Inc. and AutoZone Parts, Inc.Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on June 16, 2011.
10.24
Fifth Amendment, dated as of November 17, 2011, to that certain Standard Industrial Commercial Single Tenant Lease-Gross, dated as of September 19, 1995, between Golkar Enterprises, Ltd and Motorcar Parts of America, Inc., as amended 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 25, 2011.
     
 Right of First Refusal Agreement, dated May 3, 2012Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 7, 2012.
Employment Agreement, dated as of May 18, 2012, between Motorcar Parts of America, Inc., and Selwyn Joffe 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 24, 2012.
     
 Revolving Credit/Strategic Cooperation Agreement, dated as of August 22, 2012, by and among Motorcar Parts of America, Inc. (solely for purposes of provisions specified thereto), Fenwick Automotive Products Limited and Wanxiang America CorporationIncorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on August 28, 2012.
Guaranty, dated as of August 22, 2012, by Motorcar Parts of America, Inc. for the benefit of Wanxiang America CorporationIncorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on August 28, 2012.
10.29
Warrant to Purchase Common Stock, dated as of August 22, 2012, issued by Motorcar Parts of America, Inc. to Wanxiang America CorporationIncorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on August 28, 2012.
NumberDescription of ExhibitMethod of Filing
10.30
Form of Stock Option Notice for use in connection with stock options granted to Selwyn Joffe pursuant to the Motorcar Parts of America, Inc. 2010 Incentive Award Plan 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on August 12, 2013.
     
 
Form of Stock Option Agreement for use in connection with stock options granted to Selwyn Joffe pursuant to the Motorcar Parts of America, Inc. 2010 Incentive Award Plan
 
Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on August 12, 2013.
     
 Amended and Restated Financing Agreement, dated as of November 6, 2013, among Motorcar Parts of America, Inc., each lender from time to time party thereto, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association, as administrative agentIncorporated by reference to Exhibit 10.1 to Amended Quarterly Report on Form 10-Q/A filed on February 10, 2014.
Third Amendment to Amended and Restated Financing Agreement, dated as of December 11, 2014, among Motorcar Parts of America, Inc., each lender from time to time party thereto, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association, as administrative agentIncorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 12, 2014.
10.34
Fourth Amendment to Amended and Restated Financing Agreement, dated as of April 30, 2015, among Motorcar Parts of America, Inc., each lender from time to time party thereto, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association, as administrative agentIncorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on May 1, 2015.
10.35*
Revolving Credit, Term Loan and Security Agreement, dated as of June 3, 2015, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent 
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 8, 2015.

NumberDescription of Exhibit          Method of Filing          
     
 
First Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of November 5, 2015, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
 
Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on November 9, 2015.2015.
NumberDescription of ExhibitMethod of Filing
     
 
Consent and Second Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of May 19, 2016, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
 
Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed on August 9, 2016.
     
 
Third Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of March 24, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
 
Incorporated by reference to Exhibit 10.38 to Annual Report on Form 10-K filed on June 14, 2017.
     
 
Fourth Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of April 24, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National Association, as administrative agent
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 27, 2017.
     
 
Fifth Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of July 18, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National Association, as administrative agent
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on July 24, 2017.
     
 
Amended and Restated Credit Facility, dated as of June 5, 2018, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National Association, as administrative agent
 
Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on August 9, 2018.
First Amendment to Amended and Restated Loan Agreement, dated as of November 14, 2018, among Motorcar Parts of America, Inc., D & V Electronics Ltd., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 20, 2018.

NumberDescription of ExhibitMethod of Filing          
Amendment No. 2 to Employment Agreement, dated as of February 5, 2019, between Motorcar Parts of America, Inc., and Selwyn Joffe
Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed on February 11, 2019.
Second Amendment to Amended and Restated Loan Agreement, dated as of June 4, 2019, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 11, 2018.7, 2019.
Amendment No. 3 to Employment Agreement, dated as of March 30, 2020, between Motorcar Parts of America, Inc., and Selwyn Joffe
Filed herewith.
     
 
Motorcar Parts of America, Inc., Code of Business Conduct and Ethics, as amended, effective January 15, 2015
 
Incorporated by reference to Exhibit 14.1 to Current Report on Form 8-K filed on January 20, 2015.
     
 
List of Subsidiaries
 
Filed herewith.
     
 
Consent of Independent Registered Public Accounting Firm Ernst & Young LLP
 
Filed herewith.
     
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
Filed herewith.
     
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
Filed herewith.
NumberDescription of ExhibitMethod of Filing
     
 
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
Filed herewith.
     
 
Certifications of Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
 
Filed herewith.
101.INS
 
XBRL Instance Document
 
Filed herewith.
101.INS
101.SCM
 XBRL Instance DocumentFiled herewith.
101.SCM
XBRL Taxonomy Extension Schema Document
 
Filed herewith.
101.CAL
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
Filed herewith.
101.DEF
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
Filed herewith.
101.LAB
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
Filed herewith.
101.PRE
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
Filed herewith.

*Portions of this exhibit have been granted confidential treatment by the SEC.

**
Portions of this exhibit have been omitted pursuant to a confidential treatment request submitted separately to the SEC pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
49
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in those agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

Item 16.
Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
MOTORCAR PARTS OF AMERICA, INC.
   
Dated: June 14, 201815, 2020
By:
/s/ David Lee
  
David Lee
  
Chief Financial Officer
   
Dated: June 14, 201815, 2020
By:
/s/ Kevin DalyKamlesh Shah
  Kevin Daly
Kamlesh Shah
  
Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated:

/s/ Selwyn Joffe
Chief Executive Officer and Director
June 14, 201815, 2020
Selwyn Joffe(Principal Executive Officer) 
   
/s/ David Lee
Chief Financial Officer
June 14, 2018
David Lee(Principal (Principal Financial Officer)
June 15, 2020
   
/s/ Kevin DalyKamlesh Shah
Chief Accounting Officer
June 14, 2018
Kevin DalyKamlesh Shah(Principal (Principal Accounting Officer)
June 15, 2020
   
/s/ Scott Adelson
DirectorJune 14, 2018
Scott AdelsonDirector
June 15, 2020
   
/s/ Rudolph Borneo
DirectorJune 14, 2018
Rudolph BorneoDirector
June 15, 2020
   
/s/ Philip Gay
DirectorJune 14, 2018
Philip GayDirector
June 15, 2020
   
/s/ Duane MillerDirectorJune 14, 2018
Duane MillerDirector
June 15, 2020
   
/s/ Jeffrey Mirvis
DirectorJune 14, 2018
Jeffrey MirvisDirector
June 15, 2020
   
/s/ David Bryan
DirectorJune 14, 2018
David BryanDirector
June 15, 2020
   
/s/ Joseph FergusonDirectorJune 14, 2018
Joseph FergusonDirector
June 15, 2020
   
/s/ Barbara WhittakerDirectorJune 14, 2018
Barbara Whittaker
/s/ Timothy VargoDirector
June 14, 2018
Timothy Vargo15, 2020

MOTORCAR PARTS OF AMERICA, INC.
AND SUBSIDIARIES

CONTENTS

 Page
Reports of Independent Registered Public Accounting Firm
5453
Consolidated Balance Sheets
F-1
Consolidated Statements of IncomeOperations
F-2
Consolidated Statements of Comprehensive (Loss) Income
F-3
Consolidated Statements of Shareholders’ Equity
F-4
Consolidated Statements of Cash Flows
F-5
Notes to Consolidated Financial Statements
F-6
Schedule II — Valuation and Qualifying Accounts
S-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Motorcar Parts of America, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Motorcar Parts of America, Inc. and subsidiaries’ internal control over financial reporting as of March 31, 2018,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Motorcar Parts of America, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2018,2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 20182020 and 2017,2019, the related consolidated statements of operations, comprehensive (loss) income, comprehensive income, shareholders’shareholders' equity and cash flows for each of the three years in the period ended March 31, 2018,2020, and the related notes and financial statement schedule and our report dated June 14, 201815, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and LimitationLimitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Companycompany are being made only in accordance with authorizations of management and directors of the Company;company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’scompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 
/s/ Ernst & Young LLP
  
Los Angeles, California
 
June 14, 201815, 2020
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Motorcar Parts of America, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Motorcar Parts of America, Inc. and subsidiaries
(the (the Company) as of March 31, 20182020 and 2017, and2019, the related consolidated statements of operations, comprehensive (loss) income, comprehensive income, shareholders’shareholders' equity and cash flows for each of the three years in the period ended March 31, 2018,2020, and the related notes and financial statement schedule listed in the indexIndex at Item 15(a)(2)15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2018,2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2018,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated June 14, 201815, 2020 expressed an unqualified opinion thereon.

Adoption of ASU No. 2016-02

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended March 31, 2020 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments.

Basis for Opinion

These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 
/s/ Ernst & Young LLP
  
We have served as the Company’s auditor since 20072007.
 
  
Los Angeles, California
 
June 14, 201815, 2020
 

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31,
  March 31, 2020  March 31, 2019 
ASSETS      
Current assets:      
Cash and cash equivalents $49,616,000  $9,911,000 
Short-term investments  850,000   3,273,000 
Accounts receivable — net  91,748,000   56,015,000 
Inventory — net  225,659,000   233,726,000 
Inventory unreturned  9,021,000   8,469,000 
Contract assets  20,332,000   22,183,000 
Income tax receivable  3,282,000   10,009,000 
Prepaid expenses and other current assets  8,608,000   9,296,000 
Total current assets  409,116,000   352,882,000 
Plant and equipment — net  44,957,000   35,151,000 
Operating lease assets  53,029,000   - 
Long-term deferred income taxes  18,950,000   9,746,000 
Long-term contract assets  239,540,000   221,876,000 
Goodwill  3,205,000   3,205,000 
Intangible assets — net  6,393,000   8,431,000 
Other assets  1,839,000   1,071,000 
TOTAL ASSETS $777,029,000  $632,362,000 
LIABILITIES AND SHAREHOLDERS'  EQUITY        
Current liabilities:        
Accounts payable $78,664,000  $92,461,000 
Accrued liabilities  16,419,000   14,604,000 
Customer finished goods returns accrual  25,326,000   22,615,000 
Contract liabilities  27,911,000   30,599,000 
Revolving loan  152,000,000   110,400,000 
Other current liabilities  9,390,000   4,990,000 
Operating lease liabilities  5,104,000   - 
Current portion of term loan  3,678,000   3,685,000 
Total current liabilities  318,492,000   279,354,000 
Term loan, less current portion  20,462,000   24,187,000 
Long-term contract liabilities  92,101,000   40,889,000 
Long-term deferred income taxes  79,000   257,000 
Long-term operating lease liabilities  61,425,000   - 
Other liabilities  8,950,000   7,920,000 
Total liabilities  501,509,000   352,607,000 
Commitments and contingencies        
Shareholders' equity:        
Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issued  -   - 
Series A junior participating preferred stock; par value $.01 per share, 20,000 shares authorized; none issued
  -   - 
Common stock; par value $.01 per share, 50,000,000 shares authorized; 18,969,380 and 18,817,400 shares issued and outstanding at March 31, 2020 and 2019, respectively
  190,000   188,000 
Additional paid-in capital  218,581,000   215,047,000 
Retained earnings  64,117,000   71,407,000 
Accumulated other comprehensive loss  (7,368,000)  (6,887,000)
Total shareholders' equity  275,520,000   279,755,000 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $777,029,000  $632,362,000 

 2018  2017 
ASSETS      
Current assets:      
Cash and cash equivalents $13,049,000  $9,029,000 
Short-term investments  2,828,000   2,140,000 
Accounts receivable — net  15,738,000   26,017,000 
Inventory— net  76,275,000   67,516,000 
Inventory unreturned  7,508,000   7,581,000 
Income tax receivable  7,796,000   1,709,000 
Prepaid expenses and other current assets  11,491,000   8,139,000 
Total current assets  134,685,000   122,131,000 
Plant and equipment — net  28,322,000   18,437,000 
Long-term core inventory — net  301,656,000   262,922,000 
Long-term core inventory deposits  5,569,000   5,569,000 
Long-term deferred income taxes  10,556,000   13,546,000 
Goodwill  2,551,000   2,551,000 
Intangible assets — net  3,766,000   3,993,000 
Other assets  7,392,000   6,990,000 
TOTAL ASSETS $494,497,000  $436,139,000 
LIABILITIES AND SHAREHOLDERS’  EQUITY        
Current liabilities:        
Accounts payable $73,273,000  $85,960,000 
Accrued liabilities  11,799,000   10,077,000 
Customer finished goods returns accrual  17,805,000   17,667,000 
Accrued core payment  16,536,000   11,714,000 
Revolving loan  54,000,000   11,000,000 
Other current liabilities  4,471,000   3,300,000 
Current portion of term loan  3,068,000   3,064,000 
Total current liabilities  180,952,000   142,782,000 
Term loan, less current portion  13,913,000   16,935,000 
Long-term accrued core payment  18,473,000   12,349,000 
Long-term deferred income taxes  226,000   180,000 
Other liabilities  5,957,000   15,212,000 
Total liabilities  219,521,000   187,458,000 
Commitments and contingencies        
Shareholders’ equity:        
Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issued   -   - 
Series A junior participating preferred stock; par value $.01 per share, 20,000 shares authorized; none issued  -   - 
Common stock; par value $.01 per share, 50,000,000 shares authorized; 18,893,102 and 18,648,854 shares issued and outstanding at March 31, 2018 and 2017, respectively  189,000   186,000 
Additional paid-in capital  213,609,000   205,646,000 
Retained earnings  66,606,000   50,290,000 
Accumulated other comprehensive loss  (5,428,000)  (7,441,000)
Total shareholders’ equity  274,976,000   248,681,000 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $494,497,000  $436,139,000 
The accompanying notes to consolidated financial statements are an integral part hereof.

F-1
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of IncomeOperations
Years Ended March 31,
 Years Ended March 31, 
 2018  2017  2016  2020 2019 2018 
                
Net sales $428,072,000  $421,253,000  $368,970,000  $535,831,000  $472,797,000  $427,548,000 
Cost of goods sold  322,199,000   306,207,000   268,046,000   417,431,000   383,623,000   320,515,000 
Gross profit  105,873,000   115,046,000   100,924,000   118,400,000   89,174,000   107,033,000 
Operating expenses:                        
General and administrative  35,527,000   31,124,000   49,665,000   71,425,000   45,972,000   35,477,000 
Sales and marketing  15,030,000   12,126,000   9,965,000   21,037,000   19,542,000   15,030,000 
Research and development  5,692,000   3,824,000   3,008,000   9,200,000   8,014,000   5,692,000 
Total operating expenses  56,249,000   47,074,000   62,638,000   101,662,000   73,528,000   56,199,000 
Operating income  49,624,000   67,972,000   38,286,000   16,738,000   15,646,000   50,834,000 
Interest expense, net  15,445,000   13,094,000   16,244,000   25,039,000   23,227,000   15,445,000 
Income before income tax expense  34,179,000   54,878,000   22,042,000 
Income tax expense  17,863,000   17,305,000   11,479,000 
(Loss) income before income tax (benefit) expense  (8,301,000)  (7,581,000)  35,389,000 
Income tax (benefit) expense  (1,011,000)  268,000   16,125,000 
                        
Net income $16,316,000  $37,573,000  $10,563,000 
Net (loss) income $(7,290,000) $(7,849,000) $19,264,000 
                        
Basic net income per share $0.87  $2.02  $0.58 
Basic net (loss) income per share $(0.39) $(0.42) $1.02 
Diluted net (loss) income per share $(0.39) $(0.42) $0.99 
                        
Diluted net income per share $0.84  $1.93  $0.55 
Weighted average number of shares outstanding:                        
Basic  18,854,993   18,608,812   18,233,163   18,913,788   18,849,909   18,854,993 
Diluted  19,514,775   19,418,706   19,066,093   18,913,788   18,849,909   19,514,775 

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

F-2
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) Income
Years Ended March 31,
  2018  2017  2016 
          
Net income $16,316,000  $37,573,000  $10,563,000 
Other comprehensive income (loss), net of tax:            
Unrealized gain (loss) on short-term investments (net of tax of $118,000, $111,000, and $(8,000), respectively)  218,000   196,000   (13,000)
Foreign currency translation gain (loss)  1,795,000   (2,785,000)  (2,321,000)
Total other comprehensive income (loss), net of tax  2,013,000   (2,589,000)  (2,334,000)
             
Comprehensive income $18,329,000  $34,984,000  $8,229,000 
  Years Ended March 31, 
  2020  2019  2018 
          
Net (loss) income $(7,290,000) $(7,849,000) $19,264,000 
Other comprehensive (loss) income, net of tax:            
Unrealized gain on short-term investments (net of tax of $0, $0, and $118,000, respectively)
  -   -   218,000 
Foreign currency translation (loss) gain  (481,000)  (713,000)  1,795,000 
Total other comprehensive (loss) income, net of tax  (481,000)  (713,000)  2,013,000 
             
Comprehensive (loss) income $(7,771,000) $(8,562,000) $21,277,000 

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
For the Years Ended March 31,
  Common Stock             
  Shares  Amount  
Additional Paid-in
Capital Common
Stock
  Retained Earnings  
Accumulated Other
Comprehensive (Loss)
Income
  Total 
                   
Balance at March 31, 2017  18,648,854  $186,000  $205,646,000  $59,246,000  $(7,441,000) $257,637,000 
                         
Compensation recognized under employee stock plans  -   -   3,766,000   -   -   3,766,000 
Exercise of stock options  55,351   1,000   480,000   -   -   481,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
  47,508   1,000   (597,000)  -   -   (596,000)
Repurchase and cancellation of treasury stock, including fees  (374,740)  (4,000)  (9,247,000)  -   -   (9,251,000)
Exercise of warrant for shares of common stock  516,129   5,000   13,561,000   -   -   13,566,000 
Unrealized gain on investments, net of tax  -   -   -   -   218,000   218,000 
Foreign currency translation  -   -   -   -   1,795,000   1,795,000 
Net income  -   -   -   19,264,000   -   19,264,000 
                         
Balance at March 31, 2018  18,893,102  $189,000  $213,609,000  $78,510,000  $(5,428,000) $286,880,000 
                         
Cumulative-effect adjustment for the adoption of ASU 2016-01  -   -   -   746,000   (746,000)  - 
                         
Balance at April 1, 2018  18,893,102  $189,000  $213,609,000  $79,256,000  $(6,174,000) $286,880,000 
                         
Compensation recognized under employee stock plans  -   -   5,564,000   -   -   5,564,000 
Exercise of stock options  42,032   1,000   256,000   -   -   257,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
  46,081   -   (322,000)  -   -   (322,000)
Repurchase and cancellation of treasury stock, including fees  (163,815)  (2,000)  (4,060,000)  -   -   (4,062,000)
Foreign currency translation  -   -   -   -   (713,000)  (713,000)
Net loss  -   -   -   (7,849,000)  -   (7,849,000)
                         
Balance at March 31, 2019  18,817,400  $188,000  $215,047,000  $71,407,000  $(6,887,000) $279,755,000 
                         
Compensation recognized under employee stock plans  -   -   4,141,000   -   -   4,141,000 
Exercise of stock options  59,600   1,000   456,000   -   -   457,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
  92,380   1,000   (1,063,000)  -   -   (1,062,000)
Foreign currency translation  -   -   -   -   (481,000)  (481,000)
Net loss  -   -   -   (7,290,000)  -   (7,290,000)
                         
Balance at March 31, 2020  18,969,380  $190,000  $218,581,000  $64,117,000  $(7,368,000) $275,520,000 

  Common Stock             
  Shares  Amount  
Additional
Paid-in
Capital
Common
Stock
  
Retained
Earnings
(Accumulated
Deficit)
  
Accumulated
Other
Comprehensive
Income (Loss)
  Total 
                   
                   
Balance at March 31, 2015  17,974,598  $180,000  $191,279,000  $1,262,000  $(2,518,000) $190,203,000 
                         
Compensation recognized under employee stock plans  -   -   2,584,000   -   -   2,584,000 
Exercise of stock options  510,637   5,000   5,387,000   -   -   5,392,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  46,516   -   (913,000)  -   -   (913,000)
Tax benefit from employee stock options exercised  -   -   5,313,000   -   -   5,313,000 
Unrealized gain (loss) on investments, net of tax  -   -   -   -   (13,000)  (13,000)
Foreign currency translation  -   -   -   -   (2,321,000)  (2,321,000)
Net income  -   -   -   10,563,000   -   10,563,000 
                         
Balance at March 31, 2016  18,531,751  $185,000  $203,650,000  $11,825,000  $(4,852,000) $210,808,000 
                         
Cumulative-effect adjustment  -   -   -   892,000   -   892,000 
                         
Balance at April 1, 2016  18,531,751  $185,000  $203,650,000  $12,717,000  $(4,852,000) $211,700,000 
Compensation recognized under employee stock plans  -   -   3,383,000   -   -   3,383,000 
Exercise of stock options  133,731   1,000   1,661,000   -   -   1,662,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  53,031   1,000   (1,059,000)  -   -   (1,058,000)
Repurchase and cancellation of treasury stock, including fees  (69,659)  (1,000)  (1,989,000)  -   -   (1,990,000)
Unrealized gain (loss) on investments, net of tax  -   -   -   -   196,000   196,000 
Foreign currency translation  -   -   -   -   (2,785,000)  (2,785,000)
Net income  -   -   -   37,573,000   -   37,573,000 
                         
Balance at March 31, 2017  18,648,854  $186,000  $205,646,000  $50,290,000  $(7,441,000) $248,681,000 
                         
Compensation recognized under employee stock plans  -   -   3,766,000   -   -   3,766,000 
Exercise of stock options  55,351   1,000   480,000   -   -   481,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  47,508   1,000   (597,000)  -   -   (596,000)
Repurchase and cancellation of treasury stock, including fees  (374,740)  (4,000)  (9,247,000)  -   -   (9,251,000)
Exercise of warrant for shares of common stock  516,129   5,000   13,561,000   -   -   13,566,000 
Unrealized gain (loss) on investments, net of tax  -   -   -   -   218,000   218,000 
Foreign currency translation  -   -   -   -   1,795,000   1,795,000 
Net income  -   -   -   16,316,000   -   16,316,000 
                         
Balance at March 31, 2018  18,893,102  $189,000  $213,609,000  $66,606,000  $(5,428,000) $274,976,000 

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended March 31,
  Years Ended March 31, 
  2020  2019  2018 
Cash flows from operating activities:
         
Net (loss) income 
$
(7,290,000
)
 
$
(7,849,000
)
 
$
19,264,000
 
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:            
Depreciation and amortization  
7,791,000
   
6,135,000
   
3,798,000
 
Amortization of intangible assets  
1,770,000
   
1,194,000
   
710,000
 
Amortization and write-off of debt issuance costs  
819,000
   
951,000
   
1,060,000
 
Amortization of interest on contract liabilities, net  
713,000
   
909,000
   
670,000
 
Amortization of core premiums paid to customers  
4,501,000
   
4,127,000
   
3,588,000
 
Non-cash lease expense  
5,808,000
   
-
   
-
 
Loss due to the remeasurement of lease liabilities  
11,710,000
   
-
   
-
 
Foreign currency remeasurement loss  
818,000
   
-
   
-
 
(Gain) loss due to the change in the fair value of the contingent consideration  
(98,000
)
  
324,000
   
-
 
Gain on short-term investments  
(96,000
)
  
(89,000
)
  
-
 
Gain due to the change in the fair value of the warrant liability  
-
   
-
   
(2,313,000
)
Net provision for inventory reserves  
13,372,000
   
11,153,000
   
8,491,000
 
Net provision for customer payment discrepancies  
1,626,000
   
731,000
   
998,000
 
Net provision for doubtful accounts  
610,000
   
224,000
   
21,000
 
Deferred income taxes  
(10,337,000
)
  
(3,063,000
)
  
1,548,000
 
Share-based compensation expense  
4,141,000
   
5,564,000
   
3,766,000
 
Loss on disposal of plant and equipment  
15,000
   
41,000
   
161,000
 
Change in operating assets and liabilities, net of effects of acquisitions:            
Accounts receivable  
(38,078,000
)
  
10,214,000
   
(3,298,000
)
Inventory  
(6,112,000
)
  
(76,213,000
)
  
(33,655,000
)
Inventory unreturned  
(552,000
)
  
(961,000
)
  
73,000
 
Income tax receivable  
6,753,000
   
(2,039,000
)
  
(6,312,000
)
Prepaid expenses and other current assets  
(416,000
)
  
234,000
   
(965,000
)
Other assets  
(1,109,000
)
  
(299,000
)
  
(120,000
)
Accounts payable and accrued liabilities  
(11,253,000
)
  
16,572,000
   
(11,671,000
)
Customer finished goods returns accrual  
2,725,000
   
4,588,000
   
138,000
 
Contract assets, net  
(15,835,000
)
  
(2,096,000
)
  
(25,028,000
)
Contract liabilities, net  
43,372,000
   
(11,894,000
)
  
23,871,000
 
Operating lease liabilities  
(4,726,000
)
  
-
   
-
 
Other liabilities  
8,153,000
   
1,214,000
   
1,261,000
 
Net cash provided by (used in) operating activities  
18,795,000
   
(40,328,000
)
  
(13,944,000
)
Cash flows from investing activities:
            
Purchase of plant and equipment  
(14,156,000
)
  
(11,149,000
)
  
(9,933,000
)
Purchase of business, net of cash acquired  
-
   
(11,106,000
)
  
(4,993,000
)
Proceeds from sale of plant and equipment  
43,000
   
-
   
-
 
Redemptions of (payments for) short term investments  
2,519,000
   
(355,000
)
  
(352,000
)
Net cash used in investing activities  
(11,594,000
)
  
(22,610,000
)
  
(15,278,000
)
Cash flows from financing activities:
            
Borrowings under revolving loan  
75,000,000
   
102,900,000
   
84,000,000
 
Repayments under revolving loan  
(33,400,000
)
  
(46,500,000
)
  
(41,000,000
)
Borrowings under term loan  
-
   
13,594,000
   
-
 
Repayments of term loan  
(3,750,000
)
  
(2,656,000
)
  
(3,125,000
)
Payments for debt issuance costs  
(973,000
)
  
(1,815,000
)
  
(462,000
)
Payments on finance lease obligations  
(2,164,000
)
  
(1,460,000
)
  
(905,000
)
Payment of contingent consideration  
(1,955,000
)
  
-
   
-
 
Exercise of stock options  
457,000
   
257,000
   
481,000
 
Cash used to net share settle equity awards  
(1,062,000
)
  
(322,000
)
  
(596,000
)
Repurchase of common stock, including fees  
-
   
(4,062,000
)
  
(9,251,000
)
Exercise of warrant  
-
   
-
   
4,000,000
 
Net cash provided by financing activities  
32,153,000
   
59,936,000
   
33,142,000
 
Effect of exchange rate changes on cash and cash equivalents  
351,000
   
(136,000
)
  
100,000
 
Net increase (decrease) in cash and cash equivalents  
39,705,000
   
(3,138,000
)
  
4,020,000
 
Cash and cash equivalents — Beginning of period
  
9,911,000
   
13,049,000
   
9,029,000
 
Cash and cash equivalents — End of period
 
$
49,616,000
  
$
9,911,000
  
$
13,049,000
 
Supplemental disclosures of cash flow information:
            
Cash paid for Interest, net 
$
23,558,000
  
$
21,148,000
  
$
13,623,000
 
Cash paid for Income taxes, net of refunds  
1,500,000
   
3,588,000
   
19,657,000
 
Cash paid for operating leases  
8,212,000
   
-
   
-
 
Cash paid for finance leases  
2,445,000
   
-
   
-
 
Plant and equipment acquired under finance lease  
3,144,000
  

902,000
  

3,478,000
 
Assets acquired under operating leases  
18,528,000
   
-
   
-
 
Contingent consideration  
-
   
4,400,000
   
-
 
Non-cash capital expenditures  
2,211,000
   
-
   
-
 

  2018  2017  2016 
Cash flows from operating activities:         
Net income $16,316,000  $37,573,000  $10,563,000 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:            
Depreciation  3,798,000   3,101,000   2,315,000 
Amortization of intangible assets  710,000   613,000   621,000 
Amortization of debt issuance costs  1,060,000   716,000   790,000 
Write-off of debt issuance costs  -   -   5,108,000 
Amortization of interest on accrued core payment  670,000   704,000   736,000 
(Gain) loss due to the change in the fair value of the warrant liability  (2,313,000)  (3,764,000)  5,137,000 
Gain due to the change in the fair value of the contingent consideration  -   (16,000)  (990,000)
Net provision for inventory reserves  8,491,000   3,864,000   4,518,000 
Net provision for (recovery of) customer payment discrepancies  998,000   718,000   (299,000)
Net provision for doubtful accounts  21,000   3,000   4,404,000 
Deferred income taxes  3,055,000   6,510,000   (3,781,000)
Share-based compensation expense  3,766,000   3,383,000   2,584,000 
Loss on disposal of plant and equipment  161,000   13,000   7,000 
Change in operating assets and liabilities, net of acquisitions:            
Accounts receivable  10,854,000   (18,145,000)  4,647,000 
Inventory  (6,847,000)  (10,058,000)  3,054,000 
Inventory unreturned  73,000   2,939,000   (2,687,000)
Income tax receivable  (6,081,000)  (1,686,000)  3,981,000 
Prepaid expenses and other current assets  (2,507,000)  (2,647,000)  (1,216,000)
Other assets  (384,000)  (3,339,000)  (477,000)
Accounts payable and accrued liabilities  (11,621,000)  12,446,000   6,620,000 
Customer finished goods returns accrual  138,000   (8,709,000)  6,698,000 
Long-term core inventory  (45,839,000)  (24,964,000)  (53,408,000)
Long-term core inventory deposits  -   -   26,002,000 
Accrued core payment  10,276,000   (3,180,000)  (11,266,000)
Other liabilities  1,261,000   (1,344,000)  1,673,000 
Net cash (used in) provided by operating activities  (13,944,000)  (5,269,000)  15,334,000 
Cash flows from investing activities:            
Purchase of plant and equipment  (9,933,000)  (4,929,000)  (3,747,000)
Purchase of business  (4,993,000)  (705,000)  (2,701,000)
Additions to short term investments  (352,000)  (49,000)  (1,134,000)
Net cash used in investing activities  (15,278,000)  (5,683,000)  (7,582,000)
Cash flows from financing activities:            
Borrowings under revolving loan  84,000,000   65,001,000   29,000,000 
Repayments under revolving loan  (41,000,000)  (61,001,000)  (22,000,000)
Borrowings under term loan  -   -   25,000,000 
Repayments of term loan  (3,125,000)  (3,125,000)  (86,063,000)
Payments for debt issuance costs  (462,000)  (433,000)  (2,337,000)
Payments on capital lease obligations  (905,000)  (591,000)  (374,000)
Payment of contingent consideration  -   (314,000)  - 
Exercise of stock options  481,000   1,662,000   5,392,000 
Excess tax benefits from stock-based compensation  -   -   5,313,000 
Cash used to net share settle equity awards  (596,000)  (1,058,000)  (913,000)
Repurchase of common stock, including fees  (9,251,000)  (1,990,000)  - 
Exercise of warrant  4,000,000   -   - 
Net cash provided by (used in) financing activities  33,142,000   (1,849,000)  (46,982,000)
Effect of exchange rate changes on cash and cash equivalents  100,000   (67,000)  (103,000)
Net increase (decrease) in cash and cash equivalents  4,020,000   (12,868,000)  (39,333,000)
Cash and cash equivalents — Beginning of period  9,029,000   21,897,000   61,230,000 
Cash and cash equivalents — End of period $13,049,000  $9,029,000  $21,897,000 
             
Supplemental disclosures of cash flow information:            
Cash paid during the period for:            
Interest, net $13,623,000  $11,674,000  $9,812,000 
Income taxes, net of refunds  19,657,000   12,378,000   3,762,000 
Non-cash investing and financing activities:            
Property acquired under capital lease $3,478,000  $802,000  $2,454,000 
Contingent consideration  -   -   1,320,000 
The accompanying notes to consolidated financial statements are an integral part hereof.

F-5
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

1. Company Background and Organization

Overview

Motorcar Parts of America, Inc. and its subsidiaries (the “Company”, or “MPA”) is a leading manufacturer, remanufacturer,supplier of automotive aftermarket non-discretionary replacement parts and distributor of aftermarket automotive and light truck applications. The Company also, to a lesser extent, is a manufacturer, remanufacturer, and distributor of heavy duty truck and industrial and agricultural application parts.diagnostic equipment. These replacement parts are sold for use on vehicles after initial vehicle purchase. These automotive parts areprimarily 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 turbochargers, brakediagnostics systems, advanced power boosters,emulators used for the development of electric vehicles and diagnostic equipment. The Company added turbochargers through an acquisitionaerospace applications, and custom power electronic products for quality control in July 2016. The Company began selling brake power boosters in August 2016. As a resultthe development and production of an acquisition in July 2017, its business also now includes developingelectric vehicles and selling diagnostic equipment for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles.turbochargers.

The Company obtains used automotive parts, commonly known as Used Cores, primarily ships its products from its customers underfacilities and various third-party warehouse distribution centers in North America, including the Company’s core exchange program. It also purchases Used Cores from vendors (core brokers). The customers grant credit to the consumer when the used part is returned to them, and the Company410,000 square foot distribution center in turn provides a credit to the customers upon return to the Company. These Used Cores are an essential material needed for the remanufacturing operations.Tijuana, Mexico.

The Companyrecent outbreak of the COVID-19 pandemic has remanufacturing, warehousingled to adverse impacts on the U.S. and shipping/receivingglobal economies and created uncertainty regarding potential impacts to the Company’s employees, supply chain, operations, for automotive parts in North America and Asia. In addition,customer demand. The COVID-19 pandemic could impact the Company’s operations and the operations of its customers, suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on its customers, suppliers, and vendors and the remedial actions and stimulus measures adopted by local, state and federal governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, the Company utilizes various third party warehouse distribution centersmay continue to experience adverse impacts to its business as a result of any economic recession or depression that has occurred or may occur in North America.the future. Therefore, the Company cannot reasonably estimate the impact at this time.

2. Summary of Significant Accounting Policies

New Accounting Pronouncements Not YetRecently Adopted

Revenue Recognition

In May 2014, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, codified in Accounting Standards Codification (“ASC”) 606, “Revenue Recognition - Revenue from Contracts with Customers” (“ASC 606”), which amends the guidance in the former ASC 605, “Revenue Recognition”. ASC 606 as initially issued was effective for annual periods beginning after December 15, 2016, and interim periods within that reporting period for a public entity. The Company may elect either a full retrospective transition method, which requires the restatement of all periods presented, or a modified retrospective transition method, which requires a cumulative-effect adjustment as of the date of initial adoption. In August 2015, the FASB delayed the effective date by one year to annual periods beginning after December 15, 2017, and interim periods within that reporting period for a public entity. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company will adopt the new standard on April 1, 2018 and has elected to utilize the full retrospective transition method.

ASC 606 establishes the requirements for recognizing revenue from contracts with customers.  The standard requires entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under the new standard, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration that the entity expects to receive in exchange for the good or service. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
Due to the impact of the new standard, the Company has made changes to its business processes, systems, and controls. A project team was formed and evaluated and guided the implementation process. The Company performed a preliminary assessment, which included the identification of the key contractual terms in its primary revenue streams and the comparison of historical accounting policies and practices to the requirements of the new standard by revenue stream. The preliminary assessment resulted in the identification of potential accounting differences that will arise from the application of the new standard. The implementation team completed its contract review phase of the project during the third quarter, which included identifying the population of contracts and completing an analysis of the potential accounting impacts of the new standard on individual contracts. During the fourth quarter, the implementation team identified the changes to business processes, systems, and controls to support recognition, presentation, and disclosure under the new standard and will implement these changes during the first quarter of fiscal 2019 as described in the subsequent paragraphs.

The Company’s primary revenue stream is derived from the sale of remanufactured products to its customers pursuant to long-term customer contracts.  The Company will continue to recognize revenue at a point in time as it satisfies its performance obligation of transferring control of the product to the customer.  The Company recognizes revenues net of anticipated returns, marketing allowances, volume discounts, and other forms of variable consideration more fully described below.  The Company also reviewed customer options to acquire additional goods or services and has preliminarily determined no material rights exist within its contracts.  The Company does not currently anticipate that the adoption of ASU 2014-09 will have a material impact on previously reported revenue amounts.  See discussion regarding Remanufactured Cores below.

The Company currently anticipates that the adoption of ASU 2014-09 will primarily impact reclassifications to certain balance sheet accounts to conform to the presentation and disclosure requirements of ASC 606. For example, the Company currently accounts for Remanufactured Cores anticipated to be returned as long-term core inventory and the refund liability as a contra-account receivable account as illustrated in Note 6. Under ASC 606, the Company currently anticipates it will reclassify this asset to a contractual asset and recognize a contractual liability for amounts expected to be refunded to customers.

The Company also analyzed specific contractual provisions related to sales contracts that include Remanufactured Cores.  The Company recognizes revenue for sales of cores not expected to be replaced by a similar Used Core sent back under the core exchange program only upon meeting certain criteria as noted under the caption “Revenue Recognition” below. The adoption of ASU 2014-09 may result in an acceleration of revenue recognition, as it requires the Company to estimate the amount of cores not expected to be returned upon the initial recognition of revenue for contracts that include Remanufactured Cores.  As the Company has elected the full retrospective method of adoption, the impact to each reporting period will be measured as the net impact of (i) the acceleration of revenue into a prior period versus what was previously recorded in that period and (ii) the acceleration of revenue into that period previously recognized in a later period (the change in the estimated volume of returns in the comparable recast periods). Given that third-party information available to meet the criteria outlined in Note 2, Summary of Significant Accounting Policies, may be available at different points of time in a given fiscal period, the timing of the revenue recognized in these periods may be less predictive under ASC 605 as compared to the estimation process required under ASU 2014-09. The anticipated increase to previously reported revenues for the year ended March 31, 2016 is less than $2.0 million. The anticipated decrease to previously reported revenues for the year ended March 31, 2017 is less than $0.9 million. The anticipated decrease to reported revenues in the current fiscal year ended March 31, 2018 is less than $0.4 million.

In order to properly determine the transaction price related to its sales contracts, the Company has also analyzed its various forms of consideration paid to its vendors including up-front payments for future contracts. Based on the analysis completed through the year ended March 31, 2018, the Company currently does not anticipate a change to its legacy accounting practices as a result of the adoption of ASU 2014-09 to account for up-front payments to its vendors. Under current accounting practices, if the Company expects to generate future revenues associated with an up-front payment, then an asset is recognized and amortized over the appropriate period of time as a reduction of revenue. If the Company does not expect to generate additional revenue then the up-front payment is recognized in the consolidated statements of income when payment occurs as a reduction of revenue.
ASU 2014-09 also codified the guidance on other assets and deferred costs relating to contracts with customers with the addition of ASC 340-40.  This guidance relates to the accounting for costs of an entity to obtain and fulfill a contract to provide goods or services to the customer.  Under the new guidance, an entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. In the Company’s review of the various costs to obtain contracts with its customers, it has preliminarily determined that currently no significant costs are incurred that meet the capitalization criteria.  The Company’s primary cost to fulfill contracts, other than inventory related costs, relates to shipping and handling activities, which continue to be expensed as incurred consistent with historical accounting practices.

The new guidance provides several practical expedients, which the Company anticipates adopting. The first of these practical expedients allows a company to expense incremental costs of obtaining a contract as incurred if the amortization period would have been one year or less. As noted above, the Company has preliminarily concluded that it does not have any such costs that qualify for capitalization but will apply the practical expedient to the extent that such costs incurred in prospective periods qualify. Similarly, the Company plans to adopt guidance which allows for the effects of a significant financing component to be ignored if a company expects that the period between the transfer of the goods and services to the customer and payment will be one year or less. Finally, the Company plans to adopt guidance that allows a company to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations.

Financial Instruments

In January 2016, the FASB issued guidance that amends the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company expects to apply the amendments in the new guidance by means of a cumulative-effect adjustment to the opening balance of retained earnings at the beginning of the first quarter of fiscal 2019. The adoption of the new guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Leases

In February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued new guidance that requires balance sheet recognition of a right-of-uselease asset and lease liability by lessees for operating leases.all leases, other than leases with a term of 12 months or less if the short-term lease exclusion expedient is elected. The new guidance also requiresrequired new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new guidance requires a modified retrospective approach with optional practical expedients. The Company will adoptFASB provided entities with an additional transition method, which allows an entity to apply this guidance as of the beginning of the period of adoption instead of the beginning of the earliest comparative period presented in the first quarter of fiscal 2020.entity’s financial statements. The Company is currently evaluating the impact the provisions ofadopted this guidance will have on its consolidated financial statements, but expectsApril 1, 2019 using the modified retrospective approach and the optional transition method permitted by the FASB. The Company also elected certain practical expedients permitted under the transition guidance, including the package of practical expedients, which allowed it not to reassess lease classification for leases that it will result in a significant increasecommenced prior to its long-termthe adoption date. In addition, the Company elected to exempt leases with an initial term of 12 months or less from balance sheet recognition and, for all classes of assets, combining non-lease components with lease components.

Upon adoption, the Company recorded operating lease liabilities of $53,043,000 and corresponding operating lease assets of $50,773,000. The difference between the operating lease assets and liabilities recognized on the Company’s consolidated balance sheets.sheets primarily related to accrued rent on existing leases that were offset against the operating lease asset upon adoption. There was an immaterial reclassification of non-lease components to finance lease assets and finance lease liabilities upon adoption due to the Company’s election to combine non-lease components with lease components. The adoption of the new guidance did not have any impact on the Company’s rent expense and consolidated statement of cash flows. However, the Company has material nonfunctional currency leases that could have a material impact on the Company’s consolidated statements of operations. As required for other monetary liabilities, lessees shall remeasure a foreign currency-denominated lease liability using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates, which are not affected by subsequent changes in the exchange rates. The Company recorded a loss of $11,710,000 in general and administrative expenses in connection with the remeasurement of foreign currency-denominated lease liabilities during year ended March 31, 2020. See Note 11 for additional discussion of the adoption of ASC 842 and the impact on the Company’s financial statements.

Business CombinationsNew Accounting Pronouncements Not Yet Adopted

Measurement of Credit Losses on Financial Instruments

In January 2017,June 2016, the FASB issued guidance which clarifiesan accounting pronouncement related to the definitionmeasurement of credit losses on financial instruments. This pronouncement, along with a businesssubsequent Accounting Standards Updates (“ASU”) issued to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals)clarify certain provisions of assets or businesses. Thethe new guidance, changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, including interim periods within those fiscal years. A reporting entity should apply the amendment prospectively.2019. The adoption ofCompany will adopt this guidance inon April 1, 2020 and the first quarter of fiscal 2019adoption is not expected to have a significant impact on its consolidated financial statements and related disclosures. In addition, the adoption is not expected to have any materialsignificant impact on the Company’s consolidated financial statements.business processes, systems and internal controls.

Goodwill ImpairmentFair Value Measurements

In January 2017,August 2018, the FASB issued guidance, which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for financial statements issued for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company will adopt this guidance on April 1, 2020 and the adoption is not expected to have a significant impact on its consolidated financial statements and related disclosures.

Income Taxes

In December 2019, the FASB issued guidance that simplifies the testaccounting for goodwill impairment. This standardincome taxes, eliminates Step 2 fromcertain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the goodwill impairment test, instead requiring an entitycurrent guidance to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value.promote consistent application. This guidance is effective for annual and interim and annual goodwill impairment testsperiods in fiscal years beginning after December 15, 2019 with early2020. Early adoption permitted. This guidance must be applied on a prospective basis. The Company is currently evaluating the impact the provisions of this guidance will have on its consolidated financial statements.
Modifications to Share-Based Payment Awards

In May 2017, the FASB issued guidance to provide clarity and reduce (i) the diversity in practice and (ii) the cost and complexity when applying the accounting guidance for equity-based compensation to a change to the terms or conditions of a share-based payment award. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. This guidance should be applied prospectively to an award modified on or after that adoption date. The adoption of this guidance in the first quarter of fiscal 2019 is not expected to have any material impact on the Company’s consolidated financial statements.

Derivatives and Hedging

In August 2017, the FASB issued guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; the guidance allows for early adoption in any interim period after issuance of the update. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.statements and related disclosures.

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Motorcar Parts of America, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated.

Reclassification of Prior Period Balances

The income tax receivable has been reclassified from prepaid and other current assets in the consolidated balance sheet at March 31, 2017 to conform to the consolidated balance sheet presentation at March 31, 2018. In addition, the income tax receivable has been reclassified from prepaid and other current assets in the consolidated statements of cash flows for the years ended March 31, 2017 and 2016 to conform to the consolidated statement of cash flow presentation for the year ended March 31, 2018.

Segment Reporting

Pursuant to the guidance provided under the FASB ASCFinancial Accounting Statement Board (“FASB”) Accounting Standards Codification (“ASC”) for segment reporting, the Company has identified its chief executive officer as chief operating decision maker (“CODM”), has 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 itits business comprises three separate operating segments. Two of the operating segments meet all of 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 for purposes of recording and reporting its financial results.segment.

Cash and Cash Equivalents

Cash primarily consists of cash on hand and bank deposits. Cash equivalents consist of money market funds. The Company considers all highly liquid investments purchased with an original or remaining maturity of less than three months at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.
Accounts Receivable

The allowance for doubtful accounts is developed based upon several factors including customer credit quality, historical write-off experience and any known specific issues or disputes which exist as of the balance sheet date. Accounts receivable are written off only when all collection attempts have failed. The Company does not require collateral for accounts receivable.

The Company has receivable discount programs that have been established with certain major customers and their respective banks. Under these programs, the Company has the option to sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. Once the customer chooses which outstanding invoices are going to be made available for discounting, the Company can accept or decline the bundle of invoices provided. The receivable discount programs are non-recourse, and funds cannot be reclaimed by the customer or its bank after the related invoices have been discounted.

Inventory

Non-core Inventory

Non-core inventory is comprised ofof: (i) non-coreUsed Core and component raw materials, (ii) the non-core value of work in process,work-in-process, (iii) the non-core value of remanufactured finished goods and (iv) purchased finished goods. Used Cores, the

Used Core, value of work in processcomponent raw materials, and the Remanufactured Core portion ofpurchased finished goods are classified as long-term core inventory as described below under the caption “Long-term Core Inventory.” Used Cores are a source of raw materials used in the manufacturing of the Company’s products.

Non-core inventory is stated at the lower of average cost or net realizable value. The cost of non-core remanufactured inventory approximates average historical purchase prices paid for raw materials, and is based upon the direct costs of material and an allocation of labor and variable and fixed overhead costs. The cost of purchased finished goods inventory approximates average historical purchase prices paid, and an allocation of fixed overhead costs. The cost of non-core inventory is evaluated at least quarterly during the fiscal year and adjusted as necessary to reflect current lower of cost or net realizable value levels. These adjustments are determined for individual items of inventory within each of the three classifications of non-core inventory as follows:

Non-core raw materials are recorded at average cost, which is based on the actual purchase price of raw materials on hand. The average cost is updated quarterly. This average cost is used in the inventory costing process and is the basis for allocation of materials to finished goods during the production process.

Non-core work in processWork-in-process is in various stages of production and is valued at the average cost of Used Cores and component raw materials issued to work orders still open, work orders.including allocations of labor and overhead costs. Historically, non-core work in processwork-in-process inventory has not been material compared to the total non-core inventory balance.

TheRemanufactured finished goods include: (i) the Used Core cost and (ii) the cost of remanufactured finished goods includes the average cost of non-corecomponent raw materials, and allocations of labor and variable and fixed overhead costs.costs (the “Unit Value”). The allocations of labor and variable and fixed overhead costs are determined based on the average actual use of the production facilities over the prior twelve12 months which approximates normal capacity. This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production. In addition, the Company excludes certain unallocated overhead such as severance costs, duplicative facility overhead costs, start-up costs, training, and spoilage from the calculation and expenses these unallocated overhead as period costs. Purchased finished goods also include an allocation of fixed overhead costs.

The estimate of net realizable value is subjective and based on management’s judgment and knowledge of current industry demand and management’s projections of industry demand. The estimates may, therefore, be revised if there are changes in the overall market for the Company’s products or market changes that in management’s judgment, impact its ability to sell or liquidate potentially excess or obsolete inventory. Net realizable value is determined at least quarterly as follows:

Net realizable value for finished goods by customer by product line are determined based on the agreed upon selling price with the customer for a product in the trailing 12 months. The Company compares the average selling price, including any discounts and allowances, to the finished goods cost of on-hand inventory less any reserve for excess and obsolete inventory. Any reduction of value is recorded as cost of goods sold in the period in which the revaluation is identified.

Net realizable value for Used Cores are determined based on current core purchase prices from core brokers to the extent that core purchases in the trailing 12 months are significant. Remanufacturing consumes, on average, more than one Used Core for each remanufactured unit produced since not all Used Cores are resuable. The yield rates depend upon both the product and consumer specifications. The Company purchases Used Cores from core brokers to supplement its yield rates and Used Cores not returned under the core exchange program. The Company also considers the net selling price its customers have agreed to pay for Used Cores that are not returned under its core exchange program to assess whether Used Core cost exceeds Used Core net realizable value on a by customer by product line basis. Any reduction of core cost is recorded as cost of goods sold in the period in which the revaluation is identified.

The Company records an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory. The Company periodically reviews inventory to identify excess quantities and part numbers that are experiencing a reduction in demand. Any part numbers with quantities identified during this process are reserved for at rates based upon management’s judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part. TheAs a result of this process, the Company had recorded reserves of $6,682,000 and $4,125,000 for excess and obsolete inventory of $13,208,000 and $11,899,000 at March 31, 20182020 and 2017,2019, respectively. The quantity thresholds and reserve rates are subjective and are based on management’s judgment and knowledge of current and projected industry demand. The reserve estimates may, therefore, be revised if there are changesincrease in the overall marketreserve for excess and obsolete inventory was primarily driven by the Company’s products or market changes that in management’s judgment, impact its ability to sell or liquidate potentially excess or obsolete inventory.January 2019 acquisition of Dixie Electric, Ltd. (see Note 3 below).
The Company records vendor discounts as a reduction of inventories thatand are recognized as a reduction to cost of sales as the inventories are sold.

Inventory Unreturned

Inventory unreturned represents the Company’s estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that the Company expects to be returned under its general right of return policy, after the balance sheet date. Because all cores are classified separately as long-term assets, the inventoryInventory unreturned balance includes only the added unit valueUnit Value of a finished good. The return rate is calculated based on expected returns within the normal operating cycle, ofwhich is generally one year. As such, the related amounts are classified in current assets.

Inventory unreturned is valued in the same manner as the Company’s finished goods inventory.

Long-term Core Inventory
Contract Assets

Long-termContract assets consists of: (i) the core inventory consists of:

Used Cores purchased from core brokers and held in inventory atportion of the Company’s facilities,

Used Cores returned byfinished goods shipped to the Company’s customers, (ii) upfront payments to customers in connection with customer contracts, (iii) core premiums paid to customers, and held in(iv) long-term core inventory at the Company’s facilities,
deposits.

Used Cores returned by end-users to customers but not yet returned to the Company are classified as Remanufactured Cores until they are physically received by the Company,
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Remanufactured Cores held in finished goods inventory at the Company’s facilities; and

Remanufactured Cores held at customercustomers’ locations as a part of the finished goods sold to the customer.customer are classified as long-term contract assets. These assets are valued at the lower of cost or net realizable value of Used Cores on hand (See Inventory above). For these Remanufactured Cores, the Company expects the finished good containing the Remanufactured Core to be returned under the Company’s general right of return policy or a similar Used Core to be returned to the Company by the customer, in each case, for credit.

Long-term core inventory is recorded at average historical purchase prices determined based on actual purchases of inventory on hand. The cost and net realizable value of Used Cores for which sufficient recent purchases have occurred are deemed the same as the purchase price for purchases that are made in arm’s length transactions.

Long-term core inventory recorded at average historical purchase prices is primarily made up of Used Cores for newer products related to more recent automobile models or products for which there is a less liquid market. The Company purchases these Used Cores from core brokers to supplement the yield from returned cores and the under return by consumers.

Used Cores obtained in core broker transactions are valued based on average purchase price. The average purchase price of Used Cores for more recent automobile models is retained as the cost for these Used Cores in subsequent periods even as the source of these Used Cores shifts to the core exchange program.

Long-term core inventory is recorded at the lower of cost or net realizable value. In the absence of sufficient recent purchases the Company uses the net selling price its customers have agreed to pay for Used Cores that are not returned to the Company under the Company’s core exchange program in each case, for credit. The Remanufactured Cores and Used Cores returned by consumers to assess whether Used Core cost exceeds Used Core net realizable value on a customerthe Company’s customers but not yet returned to the Company are classified as “Cores expected to be returned by customer basis.customers”, which are included in short-term contract assets until the Company physically receives them during its normal operating cycle, which is generally one year.
TheUpfront payments to customers represent the marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided by the Company classifies allto its customers. These allowances are recognized as an asset and amortized over the appropriate period of its core inventoriestime as long-term assets. The determinationa reduction of revenue if the long-term classificationCompany expects to generate future revenues associated with the upfront payment. If the Company does not expect to generate additional revenue, then the upfront payment is based on its view thatrecognized in the valueconsolidated statements of the cores is not consumed or realized in cashoperations when payment occurs as a reduction of revenue. Upfront payments expected to be amortized during the Company’s normal operating cycle, which is generally one year, for mostare classified as short-term contract assets.

Core premiums paid to customers represent the difference between the Remanufactured Core acquisition price paid to customers generally in connection with new business, and the related Used Core cost, which is treated as an asset and recognized as a reduction of revenue through the later of the coresdate at which related revenue is recognized or the date at which the sales incentive is offered. The Company considers, among other things, the length of its largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums. These core premiums are amortized over a period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement. Core premiums are recorded in inventory. According to guidance provided under the FASB ASC, current assets are defined as “assets or resources commonly identified as those which are reasonablylong-term contract assets. Core premiums expected to be realized in cash or sold or consumed duringamortized within the Company’s normal operating cycle, of the business.” The Company does not believe that the economic value of core inventories, which the Company classifiesis generally one year, are classified as long-term, is consumed because the credits issued upon the return of Used Cores offset the amounts invoiced when the Remanufactured Cores included in finished goods were sold. The Company does not expect the economic value of core inventories to be consumed, and thus the Company does not expect to realize cash, until its relationship with a customer ends, a possibility that the Company considers remote based on existing long-term customer agreements and historical experience.short-term contract assets.

However, historically for certain finished goods sold, the Company’s customer will not send the Company a Used Core to obtain the credit the Company offers under its core exchange program. Therefore, based on the Company’s historical estimate, the Company derecognizes the core value for these finished goods as the Company believes the economic value has been consumed and the Company has realized cash.

For these reasons, the Company concluded that it is more appropriate to classifyLong-term core inventory as long-term assets.

Long-term Core Inventory Deposit

The long-term core inventory deposit representsdeposits represent the cost of Remanufactured Cores the Company has purchased from customers, which are held by the customers and remain on the customers’ premises. The costs of these Remanufactured Cores were established at the time of the transaction based on the then current cost, determined as noted under the caption “Long-term Core Inventory”.cost. The selling value of these Remanufactured Cores was established based on agreed upon amounts with these customers. The Company expects to realize the selling value and the related cost of these Remanufactured Cores should its relationship with a customer end, a possibility that the Company considers remote based on existing long-term customer agreements and historical experience.

Customer Finished Goods Returns Accrual

The customer finished goods returns accrual represents the Company’s estimate of its exposure to customer returns, including warranty returns, under its general right of return policy to allow customers to return items that their end user customers have returned to them and from time to time, stock adjustment returns when the customers’ inventory of certain product lines exceeds the anticipated sales to end-user customers. The customer finished goods returns accrual represents the non-core sales valueUnit Value of the estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year.

Accrued Core Payment

The accrued core payment represents the full Remanufactured Core sales price of Remanufactured Cores the Company has purchased from its customers, generally in connection with new business, which are held by these customers and remain on their premises. At the same time, the Company records the long-term core inventory for the Remanufactured Cores purchased at its cost, determined as noted under the caption “Long-term Core Inventory”. The difference between the full Remanufactured Core sales price of Remanufactured Cores and its related cost is treated as sales allowance reducing revenue when the purchases are made. The Company expects to realize the selling value and the related cost of these Remanufactured Cores should its relationship with a customer end, a possibility that the Company considers remote based on existing long-term customer agreements and historical experience.

The repayments for these Remanufactured Core inventory purchases are made through the issuance of credits against that customer’s receivables either on a one-time basis or over an agreed-upon period. The accrued core payment is recorded as a current and noncurrent liability in the consolidated balance sheets based on whether repayments will occur within the normal operating cycle of one year.
Income Taxes

The Company accounts for income taxes using the liability method, which measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The resulting asset or liability is adjusted to reflect changes in the tax laws as they occur. A valuation allowance is provided to reduce deferred tax assets when it is more likely than not that a portion of the deferred tax asset will not be realized.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act: (i) removes certain net operating loss deduction and carry-back limitations originally imposed by the Tax Cuts and Jobs Act of 2017, (ii) increases IRC §163(j) business interest expense limitations, and (iii) technical correction on recovery period for qualified improvement property (QIP), allowing QIP to be eligible for bonus depreciation. Specifically, the Company may now carry back net operating losses originating in the year ended March 31, 2019 to the year ended March 31, 2017, resulting in an increase to its income tax receivable of $1,002,000 as of March 31, 2020.

The primary components of the Company’s income tax provision are(benefit) expense were: (i) federal income taxes, (ii) the current liability or refund due for federal, state andimpact of net operating loss carry-backs in connection with the CARES Act, (iii) foreign income taxed at rates that are different from the federal statutory rate, (iv) change in realizable deferred tax items, (v) impact of the non-deductible executive compensation under Internal Revenue Code Section 162(m), (vi) income taxes and (ii)associated with uncertain tax positions, (vii) the change in the amount ofblended state rate, and (viii) the net deferred incomeexcess tax asset, including the effect of any change in the valuation allowance.

In December 2017, new tax legislation was enacted in the United States (Tax Reform Act) which resulted in significant changesbenefit relating to income tax expense.  As a result of the Tax Reform Act, the Company re-measured certain deferred tax assets and liabilities based on the newly enacted federal rate of 21%.  Accordingly, the federal net deferred tax assets were written down to account for the change. These tax changes represent provisional amounts based on the Company’s current interpretation of the Tax Reform Act and may change as it receives additional clarification and implementation guidance. The Company will continue to analyze the effects of the Tax Reform Act on its financial statements and operations. Any additional impacts from the enactment of the Tax Reform Act will be recorded as they are identified during the measurement period as provided for in accordance with Staff Accounting Bulletin No. 118.share-based compensation.

Realization of deferred tax assets 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. Deferred tax assets arising primarily as a result of net operating loss carry-forwards and research and development credits in connection with the Company’s July 2017 acquisitionrecent acquisitions have been offset completely by a valuation allowance 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.

The Company has made an accounting policy election to recognize the U.S. tax effects of global intangible low-taxed income as a component of income tax expense in the period the tax arises.

Plant and Equipment

Plant and equipment are stated at cost, less accumulated depreciation. The cost of additions and improvements are capitalized, while maintenance and repairs are charged to expense when incurred. Depreciation is provided on a straight-line basis in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Machinery and equipment are depreciated over a range from five to ten years. Office equipment and fixtures are depreciated over a range from three to ten years. Leasehold improvements are depreciated over the lives of the respective leases or the service lives of the leasehold improvements, whichever is shorter. Depreciation of assets recorded under capitalfinance leases is included in depreciation expense.

Intangible AssetsThe Company evaluates plant and equipment, including leasehold improvements, equipment and construction in progress, and right-of-use assets for impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable. The Company groups assets at the lowest level for which cash flows are separately identified in order to measure an impairment. Events or circumstances that would result in an impairment review include a significant change in the use of an asset, the planned sale or disposal of an asset, or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset group. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset group. If it is determined to be impaired, the impairment recognized is measured by the amount by which the carrying value of the asset exceeds its fair value.

TheAs a result of the effect of the COVID-19 pandemic on macroeconomic conditions and its potential impact to the Company’s intangiblesales and operating income for future periods, it was determined that certain impairment testing triggers had occurred for the Company’s long-lived assets. Assumptions and estimates used to determine cash flows in the evaluation of impairment are subject to a degree of judgment and complexity. Any future changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in impairment charges. Future events that may result in impairment charges include extended unfavorable economic impacts of COVID-19, or other than goodwill are finite–livedfactors which could decrease revenues and amortizedprofitability of existing locations and changes in the cost structure of existing facilities. Based on a straight-line basis over their respectivethe undiscounted cash flow analysis performed, the Company determined that estimated undiscounted future cash flows exceeded the net carrying values of its long-lived assets, and, therefore, as of March 31, 2020, the Company's long-lived assets were not impaired. Assumptions and estimates about future values and remaining useful lives. Finite-lived intangiblelives of the Company’s long-lived assets are analyzed for impairment whensubjective. They can be affected by a variety of factors, including external factors such as industry and if indicators of impairment exist. At March 31, 2018,economic trends, and internal factors such as changes in the Company’s intangible assets were $3,766,000business strategy and there were no indicators of impairment.its internal forecasts.

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Goodwill

The Company evaluates goodwill for impairment at least annually during the fourth quarter of each fiscal year or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. The Company has concluded that theregoodwill impairment test is oneperformed at the reporting unit and therefore, tests goodwill for impairment atlevel, which represents the entity level.Company’s operating segments. In testing for goodwill impairment, the Company may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company’s qualitative assessment indicates that goodwill impairment is more likely than not, a two-step impairment test is performed. The Company tests goodwill for impairment underit will proceed with performing the two-step impairment test by first comparing the carrying value of net assets to the fair value of the reporting unit.quantitative assessment. If the fair value of the reporting unit exceeds theits carrying value, goodwill is not considered impaired and no further testing is required.impaired. If the carrying value of the reporting unit exceeds its fair value an impairment loss will be recognized for the amount by which the carrying value exceeds the reporting unit’s fair value.

The Company performed a qualitative assessment of goodwill impairment indicators, considering macroeconomic conditions related to the COVID-19 pandemic and its potential impact to sales and operating income for future periods. The Company expects that the duration of the COVID-19 pandemic and the continued impact of global travel restrictions, government shutdowns of non-essential businesses and disruptions to its supply chain and distribution channels to result in lower revenue and operating income for future periods. As a result, the Company determined that there were indicators of impairment, and it proceeded with a quantitative assessment of goodwill for all reporting units at March 31, 2020.

To estimate the fair value goodwill is potentially impairedof its reporting units, the Company uses a combination of the market approach and the second stepincome approach. Under the market approach, the Company estimates fair value by comparing the business to similar businesses, or guideline companies whose securities are actively traded in public markets. Under the income approach, the Company uses a discounted cash flow (“DCF”) model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate that is commensurate with the risk inherent within the reporting unit. In addition, the Company compares the aggregate of the reporting units’ fair values to its market capitalization as further corroboration of the fair values.

Estimates of fair value result from judgments about future events and uncertainties and rely on estimates and assumptions at a point in time. Judgments made in determining an estimate of fair value may materially impact the Company’s results of operations. The valuations are based on information available as of the impairment test must be performed. Intesting date and are based on expectations and assumptions that have been deemed reasonable by management. Any material changes in key assumptions, including failure to meet business plans, deterioration in the second step,U.S. and global financial markets, an increase in interest rates or an increase in the Company would comparecost of equity financing by market participants within the implied fair valueindustry or other unanticipated events and circumstances, may decrease the projected cash flows or increase the discount rates and could potentially result in an impairment charge. Under the market approach, significant estimates and assumptions also include the selection of appropriate guideline companies and the determination of appropriate valuation multiples to apply to the reporting unit. Under the income approach, significant estimates and assumptions also includes the determination of discount rates. The discount rates represent the weighted average cost of capital measuring the reporting unit’s cost of debt and equity financing, which are weighted by the percentage of debt and percentage of equity in a company’s target capital structure. Included in the estimate of the goodwillweighted average cost of capital is the assumption of a risk premium to its carrying valueaddress incremental uncertainty related to determine the amount ofreporting units’ future cash flow projections. An increase in the impairment loss, if any. risk premium increases the discount rate.

The Company completed the required annual testing of goodwill impairment for impairmenteach of the reporting units during the fourth quarter of the year ended March 31, 2018,2020, and determined through the qualitativequantitative assessment that its goodwill of $2,551,000 is$3,205,000 was not impaired.

Intangible Assets

The Company’s intangible assets other than goodwill are finite–lived and amortized on a straight-line basis over their respective useful lives. The Company analyzes its finite-lived intangible assets for impairment when and if indicators of impairment exist. As discussed under the caption “Goodwill” above, as a result of the COVID-19 pandemic, the Company determined that there were indicators of impairment present at March 31, 2020. Accordingly, the Company analyzed undiscounted cash flows for finite lived intangible assets as of March 31, 2020. Based on that undiscounted cash flow analysis, the Company determined that estimated undiscounted future cash flows exceeded their net carrying values, and, therefore, as of March 31, 2020, the Company's net intangible assets were not impaired. Assumptions and estimates about future values and remaining useful lives of the Company’s intangible assets are subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company’s business strategy and its internal forecasts.

Debt Issuance Costs

Debt issuance costs include fees and costs incurred to obtain financing. Debt issuance costs related to the Company’s term loans are presented in the balance sheet as a direct deduction from the carrying amount of the term loans. Debt issuance costs related to the Company’s revolving loan are presented in prepaid expenses and other current assets in the accompanying consolidated balance sheets, regardless of whether or not there are any outstanding borrowings under the revolving loan. These fees and costs are amortized using the straight-line method, which approximates the effective interest rate method, over the terms of the related loans and are included in interest expense in the Company’s consolidated statements of income.operations.

Foreign Currency Translation

For financial reporting purposes, the functional currency of the foreign subsidiaries is the local currency. The assets and liabilities of foreign operations for which the local currency is the functional currency are translated into the U.S. dollar at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average exchange rates during the year. The accumulated foreign currency translation adjustment is presented as a component of comprehensive income or loss in the consolidated statements of shareholders’ equity. During the year ended March 31, 2020, aggregate foreign currency transaction losses of $789,000 were recorded in general and administrative expenses.

Revenue Recognition

The Company recognizes revenueRevenue is recognized when performance byobligations under the terms of a contract with its customers are satisfied; generally, this occurs with the transfer of control of its manufactured, remanufactured, or distributed products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Revenue is completerecognized net of all anticipated returns, including Used Core returns under the core exchange program, marketing allowances, volume discounts, and allother forms of the following criteria have been met:variable consideration.

Persuasive evidence of an arrangement exists,

Delivery has occurredRevenue is recognized either when products are shipped or services have been rendered,

The seller’s pricewhen delivered, depending on the applicable contract terms. Bill and hold shipments are shipped out to the buyercustomer as ex-works; in which the customer makes arrangements and is fixedresponsible for their shipping cost. No freight or determinable, and

Collectability is reasonably assured.

For products shipped free-on-board (“FOB”) shipping point, revenue is recognized on the date of shipment. For products shipped FOB destination, revenues are recognized on the estimated or actual date of delivery. The Company includes shipping and handling charges in its gross invoice price to customers and classifies the total amount as revenue. All shipping and handling costs are expensedaccrued for revenue under the terms of shipments made as incurred and included in cost of sales.ex-works.

The price of a finished remanufactured product sold to customers is generally comprised of separately invoiced amounts for the Remanufactured Core included in the product (“Remanufactured Core value”) and for the value added by remanufacturing (“unit value”). Unit value revenueValue. The Unit Value is recorded as revenue based on the Company’s then current price list, net of applicable discounts and allowances. The Company allows customers to return slow moving and other inventory. The Company provides for such returnsRemanufactured Core value is recorded as a net revenue based upon the estimate of inventory by reducing revenue and cost of sales for the unit value of goods soldUsed Cores that are expected towill not be returned by the customer for credit. These estimates are subjective and based on amanagement’s judgment and knowledge of historical, current, and projected return analysisrates. As reconciliations are completed with the customers the actual rates at which Used Cores are not being returned may differ from the current estimates. This may result in periodic adjustments of the estimated contract asset and information obtained from customers about current stock levels as further described underliability amounts recorded and may impact the captions “Customer Finished Goods Returns Accrual” and “Inventory Unreturned”.
The Company accounts for revenues and cost of sales on a net-of-core-value basis. The Company has determined that its business practices andprojected revenue recognition rates used to record the estimated future revenue. These estimates may also be revised if there are changes in contractual arrangements resultwith customers, or changes in abusiness practices. A significant portion of the Remanufactured Coresremanufactured automotive parts sold beingto customers are replaced by similar Used Cores sent back for credit by customers under the Company’s core exchange program. Accordingly, the Company excludes the valueprogram (as described in further detail below). The number of RemanufacturedUsed Cores from revenue.

When the Company ships a product, it recognizes an obligation to accept a similar Used Core sent back under the core exchange program by recording a contra receivable account based uponis generally limited to the number of similar Remanufactured Core price agreed upon by the Company and itsCores previously shipped to each customer. Upon receipt of a Used Core, the Company grants the customer a credit based on the Remanufactured Core price billed and restores the Used Core to on-hand inventory.

Revenue Recognition — Core Exchange Program

Full price Remanufactured Cores: When the Company ships a product, it invoicesremanufactured products are shipped, certain customers are invoiced for the Remanufactured Core portionvalue of the product at the full Remanufactured Core sales price. For these Remanufactured Cores, the Company recognizes core revenue is only recognized based upon an estimate of the rate at which the Company’sthese customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the Company’score exchange program. The remainder of the full price Remanufactured Core value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as the Company expects these Remanufactured Cores to be returned for credit under its core exchange program.

In addition,Nominal price Remanufactured Cores: Certain other customers are invoiced for the Company recognizes revenue related to Remanufactured Cores originally soldCore value of the product shipped at a nominal price and not expected to be replaced by a(generally $0.01 or less) Remanufactured Core price. For these nominal Remanufactured Cores, revenue is only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used CoreCores for credits under the core exchange program. UnlikeRevenue amounts are calculated based on contractually agreed upon pricing for these Remanufactured Cores for which the fullcustomers are not returning similar Used Cores. The remainder of the nominal price Remanufactured Core value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as the Company expects these Remanufactured Cores to be returned for credit under its core exchange program.

Revenue Recognition; General Right of Return

Customers are allowed to return goods that their end-user customers have returned to them, whether or not the returned item is defective (warranty returns). In addition, under the terms of certain agreements and industry practice, customers from time to time are allowed stock adjustments when their inventory of certain product lines exceeds the anticipated sales to end-user customers (stock adjustment returns). Customers have various contractual rights for stock adjustment returns, which are typically less than 5% of units sold. In some instances, a higher level of returns is allowed in connection with significant restocking orders. The aggregate returns are generally limited to less than 20% of unit sales.

The allowance for warranty returns is established based on a historical analysis of the level of this type of return as a percentage of total unit sales. The allowance for stock adjustment returns is based on specific customer inventory levels, inventory movements, and information on the estimated timing of stock adjustment returns provided by customers. Stock adjustment returns do not occur at any specific time during the year. The return rate for stock adjustments is calculated based on expected returns within the normal operating cycle, which is generally one year.

The Unit Value of the warranty and stock adjustment returns are treated as reductions of revenue based on the estimations made at the time of the sale. The Remanufactured Core value of warranty and stock adjustment returns are provided for as indicated in the paragraph “Revenue Recognition – Core Exchange Program”.

As is standard in the industry, the Company only recognizes revenueaccepts returns from nominally priced Remanufactured Cores not expected to be replaced byon-going customers. If a similar Used Core sent back under the core exchange program whencustomer ceases doing business with the Company, believes it has met all ofno further obligation to accept additional product returns from that customer. Similarly, the following criteria:Company accepts product returns and grants appropriate credits to new customers from the time the new customer relationship is established.

The Company has a signed agreement with the customer covering the nominally priced Remanufactured Cores not expected to be replaced by a similar Used Core sent back under the core exchange program. This agreement must specify the number of Remanufactured Cores its customer will pay cash for in lieu of sending back a similar Used Core and the basis on which the nominally priced Remanufactured Cores are to be valued (normally the average price per Remanufactured Core stipulated in the agreement).

The contractual date for reconciling the Company’s records and customer’s records of the number of nominally priced Remanufactured Cores not expected to be replaced by a similar Used Core sent back under the core exchange program must be in the current or a prior period.

The reconciliation of the nominally priced Remanufactured Cores must be completed and agreed to by the customer.

The amount must be billed to the customer.

Marketing AllowancesShipping Costs

The Company recordsincludes shipping and handling charges in the gross invoice price to customers and classifies the total amount as revenue. All shipping and handling costs are expensed as cost of sales as inventory is sold.

Contract Liability

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

Customer allowances earned includes all marketing allowances provided to its customers. Such allowances include sales incentives and concessions. Voluntary marketing allowances related to a single exchange of product are recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered. Other marketing allowances, which may only be applied against future purchases, are recorded as a reduction to revenues in accordance with a schedule set forth in the relevant contract. Sales incentive amounts are recorded based on the value of the incentive provided. See Note 15 for a description of all marketing allowances.Customer allowances to be provided to customers within the Company’s normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term.

Accrued core payments represent the sales price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises. The sales price of these Remanufactured Cores will be realized when the Company’s relationship with a customer ends, a possibility that the Company considers remote based on existing long-term customer agreements and historical experience. The payments to be made to customers for purchases of Remanufactured Cores within the Company’s normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term.

Customer core returns accruals represent the full and nominally priced Remanufactured Cores shipped to the Company’s customers. When the Company ships the product, it recognizes an obligation to accept a similar Used Core sent back under the core exchange program based upon the Remanufactured Core price agreed upon by the Company and its customer. The Contract liability related to Used Cores returned by consumers to the Company’s customers but not yet returned to the Company are classified as short-term contract liabilities until the Company physically receives these Used Cores as they are expected to be returned during the Company’s normal operating cycle, which is generally one year and the remainder are recorded as long-term.

The core bank liability represents the full Remanufactured Core sales price paid for cores returned under the core exchange program. The payment for these cores will be made over a contractual repayment period pursuant to the Company’s agreement with this customer. Payments to be made within the Company’s normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term.

Customer deposits represent the receipt of prepayments from customers for the obligation to transfer goods or services in the future. The Company classifies these customer deposits as short-term contract liabilities as the Company expects to satisfy these obligations within its normal operating cycle, which generally one year and the remainder are recorded as long-term.

Advertising Costs

The Company expenses all advertising costs as incurred. Advertising expenses for the years ended March 31, 2020, 2019 and 2018 2017were $773,000, $819,000 and 2016 were $610,000, $525,000 and $474,000, respectively.

Net (Loss) Income Per Share

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and warrants, which would result in the issuance of incremental shares of common stock.stock to the extent such impact is not anti-dilutive.

F-15
The following presents a reconciliation of basic and diluted net (loss) income per share.

  Years Ended March 31, 
  2018  2017  2016 
Net income $16,316,000  $37,573,000  $10,563,000 
             
Basic shares  18,854,993   18,608,812   18,233,163 
Effect of dilutive stock options and warrants  659,782   809,894   832,930 
Diluted shares  19,514,775   19,418,706   19,066,093 
Net income per share:            
Basic net income per share $0.87  $2.02  $0.58 
             
Diluted net income per share $0.84  $1.93  $0.55 
  Years Ended March 31, 
  2020  2019  2018 
Net (loss) income $(7,290,000) $(7,849,000) $19,264,000 
Basic shares  18,913,788   18,849,909   18,854,993 
Effect of dilutive stock options and warrants  -   -   659,782 
Diluted shares  18,913,788   18,849,909   19,514,775 
Net (loss) income per share:            
Basic net (loss) income per share $(0.39) $(0.42) $1.02 
Diluted net (loss) income per share $(0.39) $(0.42) $0.99 

ThePotential common shares that would have the effect of dilutive options and warrants excludes (i) 448,039 shares subject to options with exercise prices ranging from $27.40 to $34.17increasing diluted net income per share foror decreasing diluted net loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted net (loss) income per share. For the yearyears ended March 31, 2020, 2019 and 2018, (ii) 293,239there were 1,738,106, 1,580,299, and 448,039, respectively, of potential common shares subject to options with exercise prices ranging from $28.68 to $34.17not included in the calculation of diluted net (loss) income per share for the year ended March 31, 2017, and (iii) 1,100 shares subject to options with an exercise price of $34.17 per share for the year ended March 31, 2016, which werebecause their effect was anti-dilutive.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. On an on-going basis, the Company evaluates its estimates, including those related to the carrying amount of plant and equipment;allowances for doubtful accounts, valuation of acquisition-related intangible assets including goodwill, impairmentinventory, valuation of long-lived assets, goodwill and intangible assets, depreciation and amortization of long-lived assets, litigation matters, valuation and return allowances for receivables, inventories, andof deferred income taxes; accrued liabilities, warrant liability,tax assets, share-based compensation, sales returns and litigationother customer marketing allowances, and disputes.

Thethe incremental borrowing rate used in determining the present value of lease liabilities. Although the Company uses significant estimatesdoes not believe that there is a reasonable likelihood that there will be a material change in the calculation of sales returns. These estimates are based on the Company’s historical return rates and an evaluation of estimated sales returns from specific customers.

The Company uses significant estimates in the calculation of the lower of costfuture estimate or net realizable value of long-term core inventory.

The Company’s calculation of inventory reserves involves significant estimates. The basis for the inventory reserve is a comparison of inventory on hand to historical production usage or sales volumes.

The Company uses significant estimates in the calculation of its income tax provision or benefit by using forecasts to estimate whether it will have sufficient future taxable income to realize its deferred tax assets. There can be no assurances that the Company’s taxable income will be sufficient to realize such deferred tax assets.

The Company uses significant estimates in the ongoing calculation of potential liabilities from uncertain tax positions that are more likely than not to occur.

A change in the assumptions used in calculating the estimates for sales returns, inventory reserves and income taxes could result in a differenceestimate, unforeseen changes in the related amounts recorded inindustry, or business could materially impact the Company’s consolidatedestimate and may have a material adverse effect on its business, financial statements.condition and results of operations.

Financial Instruments

The carrying amounts of cash, short-term investments, 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 current rates for instruments with similar characteristics.
Share-Based Payments

In accounting for share-based compensation awards, the Company follows the accounting guidance for equity-based compensation, which requires that the Company measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost associated with stock options is estimated using the Black-Scholes option-pricing model. The cost associated with restricted stock units is measured based on the number of shares granted and the closing price of the Company’s common stock on the grant date, subject to continued employment. The cost of equity instruments is recognized in the consolidated statements of income on a straight-line basis over the period during which an employee is required to provide service in exchange for the award. In addition, the Company accounts for forfeitures as they occur.

The Black-Scholes option-pricing 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 summarizes the Black-Scholes option-pricing model assumptions used to derive the weighted average fair value of the stock options granted during the periods noted.

 Years Ended March 31, 
 Years Ended March 31,  2020 2019 2018 
 2018  2017  2016        
Weighted average risk free interest rate  1.92%  1.39%  1.73%  
1.76
%
  
2.83
%
  
1.92
%
Weighted average expected holding period (years)  5.82   5.84   5.76   
5.70
   
5.94
   
5.82
 
Weighted average expected volatility  47.28%  47.42%  46.84%  
42.50
%
  
43.91
%
  
47.28
%
Weighted average expected dividend yield  -   -   -   
-
   
-
   
-
 
Weighted average fair value of options granted $12.63  $13.09  $14.14  
$
8.27
  
$
8.75
  
$
12.63
 

Credit Risk

The majority of the Company’s sales are to leading automotive aftermarket parts suppliers. Management believes the credit risk with respect to trade accounts receivable is limited due to the Company’s credit evaluation process and the nature of its customers. However, should the Company’s customers experience significant cash flow problems, the Company’s financial position and results of operations could be materially and adversely affected, and the maximum amount of loss that would be incurred would be the outstanding receivable balance, Used Cores expected to be returned by customers, and the value of the Remanufactured Cores held at customers’ locations.

Deferred Compensation Plan

The Company has a deferred compensation plan for certain members of management. The plan allows participants to defer salary and bonuses. The assets of the plan, which are held in a trust and are subject to the claims of the Company’s general creditors under federal and state laws in the event of insolvency.insolvency, are recorded as short-term investments in the consolidated balance sheets. Consequently, the trust qualifies as a Rabbi trust for income tax purposes. The plan’s assets consist primarily of mutual funds and are classified as available for sale. The investments are recorded at market value with any unrealized gain or loss recorded as other comprehensive income or loss in shareholders’ equity. Adjustments togeneral and administrative expense. During the deferred compensation liability are recorded in operating expenses. Theyear ended March 31, 2020 and 2019, the Company did not redeem anyredeemed $2,802,000 and $0, respectively, of its short-term investments for the payment of deferred compensation liabilities duringliabilities. During the yearsyear ended March 31, 2018 and 2017.2020, the Company recognized $96,000 in net gains which consists of $193,000 in realized gains on investments sold during the year partially offset by $97,000 of unrealized losses recognized on investments still held at March 31, 2020. The carrying value of plan assets was $2,828,000$850,000 and $2,140,000,$3,273,000, and deferred compensation liability, which is included in other current liabilities in the accompanying consolidated balance sheets, was $2,828,000$850,000 and $2,140,000$3,273,000 at March 31, 20182020 and 2017,2019, respectively. During the years ended March 31, 2018, 2017,2020, 2019, and 2016,2018, an expense of $118,000, $(14,000)$79,000, $113,000 and $409,000,$118,000 respectively, was recorded for each year related to the deferred compensation plan.

F-17During the year ended March 31, 2020, one of the Company’s named executive officer who was a participant in the deferred compensation plan redeemed $1,432,000 and elected to be paid out over 24 months. At March 31, 2020, approximately $1,295,000 remained unpaid, of which $714,000 was recorded in accrued liabilities and $581,000 was recorded in other liabilities in the accompanying consolidated balance sheet.

Comprehensive Income or Loss

Comprehensive income or loss is defined as the change in equity during a period resulting from transactions and other events and circumstances from non-owner sources. The Company’s total comprehensive income or loss consists of net unrealized income or loss from foreign currency translation adjustments and unrealized gains or losses on short-term investments.adjustments.

3. AcquisitionAcquisitions

Pursuant to a share repurchase agreement dated July 18, 2017,Mechanical Power Conversion, LLC

In December 2018, the Company completed the acquisition of allcertain assets and assumption of certain liabilities from Mechanical Power Conversion, LLC (“E&M”), a privately held company operating as E&M Power and engaged in the equity interestsdesign and manufacture of advanced power emulators (AC and DC) and custom power electronic products, based in Binghamton, New York. Future activity of this business will be recorded via D&V Electronics Ltd. (“D&V”) based in Ontario, Canada,USA, operating as the Company’s registered DBA (Doing Business As) entity. The addition of new products from E&M increased the Company’s revenue potential and product portfolio. The acquisition was consummated pursuant to an asset purchase agreement for an initial cash purchase price of $4,417,000, plus an additional working capital adjustment of $42,000 paid to the former owners of E&M. In addition, 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 the next 2-3 years. The initial fair value of the contingent consideration as of the acquisition date was $3,560,000 determined using a privately held developerprobability weighted method and manufacturer of leading edge diagnostic equipment for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles.a Monte Carlo Simulation model.

The Company allocated the final purchase consideration to acquire D&V to finite-livedIdentified intangible assets of $308,000acquired have the following useful lives: (i) five years for developed technology, (ii) eight years for customer relationships, and (iii) six months for order backlog. The goodwill recorded in connection with an estimated useful lifethe acquisition of 3 yearsE&M is deductible for income tax purposes. The Company incurred $355,000 in acquisition costs during the year ended March 31, 2019, which were recorded in general and $185,000 for trademarks with an estimated useful life of 2 years, $3,379,000 for inventory, and other net assets of $1,121,000.administrative expenses. The assets and results of operations of D&VE&M were not significant to the Company’s consolidated financial position or results of operations, and thus pro forma information is not presented.

Dixie Electric, Ltd.

In January 2019, the Company completed the acquisition of all the equity interests of Dixie Electric, Ltd (“Dixie”), a privately held manufacturer and remanufacturer of alternators and starters for automotive aftermarket non-discretionary replacement parts for heavy-duty truck, industrial, marine and agricultural applications, based in Ontario, Canada. The addition of Dixie is expected to expand the Company’s heavy duty product portfolio. The initial cash purchase price of $8,049,000, which was reduced by a working capital adjustment of $71,000, was paid to the former owners of Dixie. In addition, the Company is contingently obligated to make additional payments to the former owners of Dixie up to $1,130,000 over the next two years. The preliminary fair value of the contingent consideration as of the acquisition date was $840,000 determined using a Monte Carlo Simulation model.

Trademarks acquired will have useful life of three years. The Company incurred $576,000 in acquisition costs during the year ended March 31, 2019, which were recorded in general and administrative expenses. The assets and results of operations of Dixie, and in the aggregate with the E&M acquisition, were not significant to the Company’s consolidated financial position or results of operations, and thus pro forma information is not presented.

During the year ended March 31, 2020, the Company finalized the purchase price allocation of Dixie with no material adjustments.

4. Goodwill and Intangible Assets

Goodwill

The following summarizes the change in the Company’s goodwill:

  Years Ended March 31, 
  2018  2017 
Balance at beginning of period $2,551,000  $2,053,000 
Goodwill acquired  -   498,000 
Translation adjustment  -   - 
Impairment  -   - 
         
Balance at end of period $2,551,000  $2,551,000 
 Years Ended March 31, 
 2020 2019 
Balance at beginning of period $3,205,000  $2,551,000 
Goodwill acquired  -   654,000 
Balance at end of period $3,205,000  $3,205,000 


Intangible Assets

The following is a summary of acquired intangible assets subject to amortization at March 31:amortization:

   2018  2017     March 31, 2020  March 31, 2019 
 
Weighted
Average
Amortization
Period
 
Gross Carrying
Value
  
Accumulated
Amortization
  
Gross Carrying
Value
  
Accumulated
Amortization
  
Weighted
Average
Amortization
Period
 
Gross Carrying
Value
  
Accumulated
Amortization
  
Gross Carrying
Value
  
Accumulated
Amortization
 
Intangible assets subject to amortization                            
Trademarks 9 years $885,000  $316,000  $705,000  $191,000  9 years 
$
827,000
  
$
435,000
  
$
1,007,000
  
$
464,000
 
Customer relationships 13 years  5,900,000   2,937,000   5,900,000   2,421,000  11 years 
8,453,000
  
4,376,000
  
8,610,000
  
3,547,000
 
Order backlog 6 months 
-
  
-
  
325,000
  
180,000
 
Developed technology 3 years  301,000   67,000   -   -  5 years  
2,817,000
   
893,000
   
2,991,000
   
311,000
 
Total   $7,086,000  $3,320,000  $6,605,000  $2,612,000  9 years 
$
12,097,000
  
$
5,704,000
  
$
12,933,000
  
$
4,502,000
 

The Company did not retire any fully amortized intangible assets duringDuring the year ended March 31, 2018. The2020, the Company retired $33,000$470,000 of fully amortized intangible assets during the year ended March 31, 2017.assets.
Amortization expense for acquired intangible assets is as follows:

  Years Ended March 31, 
  2018  2017  2016 
          
Amortization expense $710,000  $613,000  $621,000 
  Years Ended March 31, 
  2020  2019  2018 
          
Amortization expense $1,770,000  $1,194,000  $710,000 

The estimated future amortization expense for acquired intangible assets subject to amortization is as follows:

Year Ending March 31,
   
2019 $771,000 
2020  711,000 
2021  613,000 
2022  580,000 
2023  580,000 
Thereafter  511,000 
Total $3,766,000 
Year Ending March 31,
   
2021 $1,479,000 
2022  1,438,000 
2023  1,408,000 
2024  1,040,000 
2025  471,000 
Thereafter  557,000 
Total $6,393,000 

5. Short-Term Investments

The short-term investments contain the assets of the Company’s deferred compensation plan. The plan’s assets consist primarily of mutual funds and are classified as available for sale. The Company did not redeem any short-term investments for the payment of deferred compensation liabilities during the years ended March 31, 2018 and 2017. At March 31, 2018 and 2017, the fair market value of the short-term investments was $2,828,000 and $2,140,000, and the deferred compensation liability to plan participants was $2,828,000 and $2,140,000, respectively.

6. Accounts Receivable — Net

Included in accountsAccounts receivable — net are significantincludes offset accounts related to customer allowances (see Note 15), customer payment discrepancies, returned goods authorizations (“RGA”) issued for in-transit unit returns, estimated future credits to be provided for Used Cores returned by the customers (see Note 2) and potential bad debts. Due to the forward looking nature and the different aging periods of certain estimated offset accounts, they may not, at any point in time, directly relate to the balances in the accounts receivable—trade account.

Accounts receivable — net is comprised of the following at March 31:following:

  2018  2017 
Accounts receivable — trade $83,700,000  $76,902,000 
Allowance for bad debts  (4,142,000)  (4,140,000)
Customer allowances earned  (11,370,000)  (7,880,000)
Customer payment discrepancies  (1,110,000)  (751,000)
Customer returns RGA issued  (15,274,000)  (12,710,000)
Customer core returns accruals  (36,066,000)  (25,404,000)
Less: total accounts receivable offset accounts  (67,962,000)  (50,885,000)
Total accounts receivable — net $15,738,000  $26,017,000 
  March 31, 2020  March 31, 2019 
       
Accounts receivable — trade $109,164,000  $75,847,000 
Allowance for bad debts  (4,252,000)  (4,100,000)
Customer payment discrepancies  (1,040,000)  (854,000)
Customer returns RGA issued  (12,124,000)  (14,878,000)
Less: total accounts receivable offset accounts  (17,416,000)  (19,832,000)
Total accounts receivable — net $91,748,000  $56,015,000 

Warranty Returns
6. Inventory

The Company allows its customers to return goods that their customers have returned to them, whether or not the returned itemInventory is defective (“warranty returns”). The Company accrues an estimate of its exposure to warranty returns based on a historical analysiscomprised of the level of this type of return as a percentage of total unit sales. Amounts charged to expense for these warranty returns are considered in arriving at the Company’s net sales. At March 31, 2018 and 2017, the Company’s total warranty return accrual was $16,646,000 and $14,286,000, respectively, of which $7,204,000 and $5,303,000, respectively, was included in the customer returns RGA issued balance in the above table for expected credits to be issued against accounts receivable and $9,442,000 and $8,983,000, respectively, was included in the customer finished goods returns accrual in the consolidated balance sheets for estimated future warranty returns.following:

The following summarizes the change in the Company’s warranty return accrual:

  Years Ended March 31, 
  2018  2017  2016 
Balance at beginning of period $14,286,000  $10,845,000  $10,904,000 
Charged to expense  105,156,000   99,673,000   80,099,000 
Amounts processed  (102,796,000)  (96,232,000)  (80,158,000)
Balance at end of period $16,646,000  $14,286,000  $10,845,000 
  March 31, 2020  March 31, 2019 
       
Raw materials $99,360,000  $95,757,000 
Work in process  3,906,000   3,502,000 
Finished goods  135,601,000   146,366,000 
   238,867,000   245,625,000 
Less allowance for excess and obsolete inventory  (13,208,000)  (11,899,000)
         
Total $225,659,000  $233,726,000 
         
Inventory unreturned $9,021,000  $8,469,000 

7. InventoryContract Assets

Non-core inventory, inventory unreturned, long-term core inventory, and long-term core inventory depositsContract assets are as follows at March 31:comprised of the following:

  2018  2017 
Non-core inventory      
Raw materials $25,805,000  $21,515,000 
Work in process  635,000   641,000 
Finished goods  53,973,000   48,337,000 
   80,413,000   70,493,000 
Less allowance for excess and obsolete inventory  (4,138,000)  (2,977,000)
Total $76,275,000  $67,516,000 
         
Inventory unreturned $7,508,000  $7,581,000 
Long-term core inventory        
Used cores held at the Company's facilities $53,278,000  $38,713,000 
Used cores expected to be returned by customers  12,970,000   11,752,000 
Remanufactured cores held in finished goods  34,201,000   27,667,000 
Remanufactured cores held at customers' locations (1)  203,751,000   185,938,000 
   304,200,000   264,070,000 
Less allowance for excess and obsolete inventory  (2,544,000)  (1,148,000)
Total $301,656,000  $262,922,000 
         
Long-term core inventory deposits $5,569,000  $5,569,000 
  March 31, 2020  March 31, 2019 
Short-term contract assets 
Cores expected to be returned by customers $12,579,000  $14,671,000 
Upfront payments to customers  2,865,000   3,101,000 
Core premiums paid to customers  4,888,000   4,411,000 
Total short-term contract assets $20,332,000  $22,183,000 
         
Long-term contract assets 
Remanufactured cores held at customers' locations $217,616,000  $196,914,000 
Upfront payments to customers  589,000   2,775,000 
Core premiums paid to customers  15,766,000   16,618,000 
Long-term core inventory deposits  5,569,000   5,569,000 
Total long-term contract assets $239,540,000  $221,876,000 

(1)Remanufactured cores held at customers’ locations represent the core portion of the Company’s customers’ finished goods at the Company’s customers’ locations.
8. Plant and Equipment

The following summarizes plantPlant and equipment at cost, at March 31:if comprised of the following:

  2018  2017 
Machinery and equipment $42,976,000  $32,589,000 
Office equipment and fixtures  11,380,000   11,806,000 
Leasehold improvements  7,832,000   7,641,000 
   62,188,000   52,036,000 
Less accumulated depreciation  (33,866,000)  (33,599,000)
Total $28,322,000  $18,437,000 
  March 31, 2020  March 31, 2019 
       
Machinery and equipment $48,424,000  $39,953,000 
Office equipment and fixtures  25,541,000   20,070,000 
Leasehold improvements  10,519,000   9,451,000 
   84,484,000   69,474,000 
Less accumulated depreciation  (39,527,000)  (34,323,000)
         
Total $44,957,000  $35,151,000 

Plant and equipment located in the foreign countries where the Company has facilities, net of accumulated depreciation, totaled $14,919,000$35,410,000 and $3,855,000$25,608,000, of which $31,845,000 and $21,822,000 is located in Mexico, at March 31, 20182020 and 2017,2019, respectively. These assets constitute substantially all the long-lived assets of the Company located outside of the United States.

9. Capital Lease Obligations

The Company leases various types of machinery and computer equipment under agreements accounted for as capital leases and included in plant and equipment as follows at March 31:

  2018  2017 
Cost $7,092,000  $3,663,000 
Less: accumulated depreciation  (1,446,000)  (893,000)
         
Total $5,646,000  $2,770,000 

Future minimum lease payments for the capital leases are as follows:

Year Ending March 31,
   
2019 $1,627,000 
2020  1,474,000 
2021  1,045,000 
2022  839,000 
2023  613,000 
Total minimum lease payments  5,598,000 
Less amount representing interest  (514,000)
Present value of future minimum lease payments  5,084,000 
Less current portion of lease payments  (1,388,000)
Long-term portion of  lease payments $3,696,000 

The current portion of lease payments of $1,388,000 is included in other current liabilities and the long-term portion of lease payments of $3,696,000 is included in other liabilities in the accompanying consolidated balance sheet at March 31, 2018.

10. Accrued Core Payment

At March 31, 2018 and 2017, the Company recorded $35,009,000 and $24,063,000, respectively, representing the net accrued core payment for the Remanufactured Core inventory purchased from its customers, which are held by these customers and remain on their premises.
Future repayments for accrued core payment are as follows:

Year Ending March 31,
    
2019 $17,421,000 
2020  7,865,000 
2021  6,651,000 
2022  4,841,000 
Total accrued core payment  36,778,000 
Less amount representing interest  (1,769,000)
Present value of accrued core payment  35,009,000 
Less current portion of accrued core payment  (16,536,000)
Long-term portion of  accrued core payment $18,473,000 

11.9. Debt

The Company has the following credit agreements.

Credit Facility

The Company is party to a $145,000,000$230,000,000 senior secured financing, as(as amended (thefrom time to time, the “Credit Facility”) with thea syndicate of lenders, party thereto, and PNC Bank, National Association, as administrative agent, consisting of (i) a $120,000,000$200,000,000 revolving loan facility, subject to borrowing base restrictions, a $20,000,000 sublimit for borrowings by Canadian borrowers, and a $15,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $25,000,000$30,000,000 term loan facility (the “Term Loans”). The loans under the Credit Facility mature on June 3, 2020. In connection with the Credit Facility, the lenders were granted a security interest in substantially all of the assets of the Company.5, 2023. The Credit Facility permits the payment of up to $10,000,000$20,000,000 of dividends and share repurchases per calendarfiscal year, subject to a minimum availability threshold and pro forma compliance with financial covenants. This amount was increased to $15,000,000 under the April 2017 amendment toIn connection with the Credit Facility.Facility, the lenders have a security interest in substantially all of the assets of the Company.

In April 2017,June 2019, the Company entered into a consent and fourthsecond amendment to the Credit Facility (the “Fourth“Second Amendment”) which,. The Second Amendment, among other things, (i) increased the total size of the Revolving Facility to $238,620,000, (ii) modified the fixed charge coverage ratio financial covenant, (iii) modified the definition of “Consolidated EBITDA”, (iv) modified the borrowing base limit with respect to inventory located in Mexico, (ii) amended the definition and calculation of consolidated EBITDA to raise the limitation on the add-back for non-capitalized transaction expenses related to the expansion of operations in Mexico, (iii) increased the annual limit on permitted stock repurchases and dividends, and (iv) modified certain other categories (including increasing certain baskets for permitted acquisitions) and thresholds to, among other things, further accommodateinclude brake-related products as eligible inventory, (v) increased the expansionletter of operationscredit sublimit to $20,000,000, (vi) increased the Canadian revolving sublimit and swing line sublimit to $24,000,000, (vii) increased the swing line sublimit to $23,862,000, (viii) permitted up to $5,000,000 of sale and lease back transactions per fiscal year, (ix) increased the permitted amount of certain capital expenditures, (x) increased the permitted amount of operating lease obligations per fiscal year, and (xi) increased certain other covenant-related baskets. The Company capitalized $973,000 of new debt issuance costs in Mexico.

In July 2017,connection with the Company entered into a fifth amendment toSecond Amendment, which is included in prepaid and other current assets in the Credit Facility (the “Fifth Amendment”) which, among other things, amended the definition of permitted acquisitions, permitted indebtedness, and pledge agreements.consolidated balance sheet at March 31, 2020.

The Term Loans require quarterly principal payments of $781,250.$937,500. The Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.50%2.25%, 2.75%2.50% or 3.00%2.75% or a reference rate plus a margin of 1.50%1.25%, 1.75%1.50% or 2.00%1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.25%0.375% to 0.375%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 4.42%4.34% and 4.52%3.64%, respectively, at March 31, 20182020, respectively, and 3.29% and 3.55%, respectively,5.24% at March 31, 2017.2019.

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 March 31, 2020.

In light of COVID-19, the Company elected not to pay down its Revolving Facility and accumulated cash of $49,616,000 as of March 31, 2018.

2020. 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 Company’s term loans are comprised of the following:

  March 31, 2020  March 31, 2019 
       
Principal amount of term loan $24,375,000  $28,125,000 
Unamortized financing fees  (235,000)  (253,000)
Net carrying amount of term loan  24,140,000   27,872,000 
Less current portion of term loan  (3,678,000)  (3,685,000)
Long-term portion of term loan $20,462,000  $24,187,000 

The following summarizes information about the Company’s Term Loans at March 31:

  2018  2017 
Principal amount of term loan $17,188,000  $20,312,000 
Unamortized financing fees  (207,000)  (313,000)
Net carrying amount of term loan  16,981,000   19,999,000 
Less current portion of term loan  (3,068,000)  (3,064,000)
Long-term portion of term loan $13,913,000  $16,935,000 

Future repayments of the Company’s Term Loans are as follows:

Year Ending March 31,
   
2019 $3,125,000 
2020  3,125,000 
2021  10,938,000 
Total payments $17,188,000 
Year Ending March 31,
   
2021  3,750,000 
2022  3,750,000 
2023  3,750,000 
2024  13,125,000 
Total payments $24,375,000 

The Company had $54,000,000$152,000,000 and $11,000,000$110,400,000 outstanding under the Revolving Facility at March 31, 20182020 and 2017,2019, respectively. In addition, $260,000$3,579,000 was reserved for standby letters of credit for workers’ compensation insurance and $600,000 for commercial letters of credit at March 31, 2018.2020. At March 31, 2018, $65,140,000, subject to2020, after certain adjustments, $58,461,000 was available under the Revolving Facility.

WX Agreement10. Contract Liabilities

InContract liabilities are comprised of the following:

  March 31, 2020  March 31, 2019 
Short-term contract liabilities 
Customer core returns accruals $4,126,000  $3,933,000 
Customer allowances earned  13,844,000   12,755,000 
Customer deposits  1,365,000   2,674,000 
Core bank liability  528,000   - 
Accrued core payment, net  8,048,000   11,237,000 
Total short-term contract liabilities $27,911,000  $30,599,000 
         
Long-term contract liabilities 
Customer core returns accruals $77,927,000  $25,722,000 
Customer allowances earned  542,000   - 
Core bank liability  7,556,000   - 
Accrued core payment, net  6,076,000   15,167,000 
Total long-term contract liabilities $92,101,000  $40,889,000 

11. Leases

The Company leases various facilities in North America and Asia under operating leases expiring through August 2012,2033. During the Company entered into a Revolving Credit/Strategic Cooperation Agreement (the “WX Agreement”) with Wanxiang America Corporation (the “Supplier”) andyear ended March 31, 2020, the discontinued subsidiaries. In connection with the WX Agreement, the Company issued a warrant (the “Supplier Warrant”) to the Supplier to purchase up to 516,129 shareslease of the Company’s common stock199,000 square foot remanufacturing facility in Mexico commenced, resulting in an increase in the operating lease liability of $16,245,000. The Company has one non-cancellable lease agreement for an exercise pricea building in Mexico, which was executed, but had not commenced as of $7.75 per share exercisable at any time after August 22, 2014March 31, 2020, and on or prioraccordingly was not included in the operating lease assets and operating lease liabilities as of March 31, 2020. Total commitments for this agreement, which expires in December 2032, are $12,538,000. In addition, the Company has a non-cancellable lease agreement for the renewal of a building lease in Canada, which was executed, but had not yet commenced as of March 31, 2020, and accordingly was not included in the operating lease assets and operating lease liabilities as of March 31, 2020. Total commitments for this agreement, which expires in May 2023, are $4,299,000. Both of these operating leases are expected to September 30, 2017.commence early in the Company’s fiscal year ending March 31, 2021. The Company also has finance leases for certain office and manufacturing equipment, which generally range from three to five years.

On September 8, 2017,The Company determines if an arrangement contains a lease at inception. Lease assets and lease liabilities are recorded based on the Supplier exercisedpresent value of lease payments over the Supplier Warrant in full and paidlease term, which includes the minimum unconditional term of the lease. Certain of the Company’s leases include options to extend the leases for up to five years. When the Company $4,000,000. As a resulthas the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that it will exercise the option, the option is considered in determining the classification and measurement of the exercise,lease. The lease assets are recorded net of any lease incentives received. Lease assets are tested for impairment in the Supplier Warrantsame manner as long-lived assets used in operations.

As the rate implicit for each of its leases is no longer outstanding. The fairnot readily determinable, the Company uses its incremental borrowing rate, based on the information available at the lease commencement date, for each of its leases in determining the present value of its expected lease payments. The Company’s incremental borrowing rate is determined by analyzing and combining an applicable risk-free rate, a financial spread adjustment and any lease specific adjustment. Certain leases contain provisions for property-related costs that are variable in nature for which the Supplier WarrantCompany is responsible, including common area maintenance and other property operating services, which are expensed as incurred and not included in the determination of lease assets and lease liabilities. These costs are calculated based on a variety of factors including property values, tax and utility rates, property services fees, and other factors. The Company records rent expense for operating leases, some of which have escalating rent payments, on a straight-line basis over the lease term.

The Company has material nonfunctional currency leases that could have a material impact on the exerciseCompany’s consolidated statements of operations. As required for other monetary liabilities, lessees shall remeasure a foreign currency-denominated lease liability using the exchange rate at each reporting date, was $9,566,000 using level 3 inputs andbut the Monte Carlo simulation model. The following assumptions were used to calculatelease assets are nonmonetary assets measured at historical rates, which are not affected by subsequent changes in the fair value of the Supplier Warrant: dividend yield of 0%, expected volatility of 26.4%, risk-free interest rate of 0.96%, subsequent financing probability of 0%, and an expected life of 0.06 years.exchange rates. The Company recorded a non-cash reclassificationloss of the Supplier Warrant’s fair value to shareholders’ equity on the exercise date, with no further adjustments to the fair value of the Supplier Warrant being required. The fair value of the Supplier Warrant was $11,879,000 at March 31, 2017 and was included in other liabilities in the consolidated balance sheet.

During the years ended March 31, 2018 and 2017, a gain of $2,313,000 and $3,764,000, respectively, was recorded$11,710,000 in general and administrative expenses due toin connection with the changeremeasurement of foreign currency-denominated lease liabilities during year ended March 31, 2020.

Balance sheet information for leases is comprised of the following:

    March 31, 2020 
LeasesClassification   
Assets:    
OperatingOperating lease assets $53,029,000 
Finance (1)Plant and equipment  6,922,000 
Total leased assets  $59,951,000 
      
Liabilities:     
Current     
OperatingOperating lease liabilities $5,104,000 
FinanceOther current liabilities  2,059,000 
Long-term     
OperatingLong-term operating lease liabilities  61,425,000 
FinanceOther liabilities  3,905,000 
Total lease liabilities  $72,493,000 

(1)
The Company had $5,403,000 in capital lease assets included in plant and equipment at March 31, 2019.

Lease cost recognized in the fair valueconsolidated statement of this warrant liability.operations is comprised of the following:

  Year Ended March 31, 
  2020 
Lease cost   
Operating lease cost (1) $8,733,000 
Short-term lease cost  1,263,000 
Variable lease cost  600,000 
Finance lease cost:    
Amortization of finance lease assets  1,616,000 
Interest on finance lease liabilities  281,000 
     
Total lease cost $12,493,000 

(1)
During the years ended March 31, 2019 and 2018, the Company incurred total operating lease expenses of $6,188,000 and $4,362,000, respectively.

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

Maturity of lease liabilities Operating Leases  Finance Leases  Total 
2021 $9,536,000  $2,292,000  $11,828,000 
2022  8,755,000   1,955,000   10,710,000 
2023  7,503,000   1,325,000   8,828,000 
2024  7,261,000   610,000   7,871,000 
2025  7,368,000   243,000   7,611,000 
Thereafter  59,837,000   -   59,837,000 
Total lease payments  100,260,000   6,425,000   106,685,000 
Less amount representing interest  (33,731,000)  (461,000)  (34,192,000)
             
Present value of lease liabilities $66,529,000  $5,964,000  $72,493,000 

Maturities of lease commitments at March 31, 2019 were as follows:

Maturity of lease liabilities Operating Leases  Capital Leases  Total 
2020 $7,405,000  $1,755,000  $9,160,000 
2021  8,206,000   1,311,000   9,517,000 
2022  7,862,000   1,040,000   8,902,000 
2023  6,726,000   719,000   7,445,000 
2024  6,696,000   89,000   6,785,000 
Thereafter  65,321,000   -   65,321,000 
Total lease payments $102,216,000   4,914,000   107,130,000 
Less amount representing interest      (406,000)  (406,000)
             
Present value of lease liabilities     $4,508,000  $106,724,000 

Other information about leases is as follows:

Year Ended March 31,
2020
Lease term and discount rate
Weighted-average remaining lease term (years):
Finance leases3.2
Operating leases12.0
Weighted-average discount rate:
Finance leases4.7%
Operating leases5.6%

12. Accounts Receivable Discount Programs

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. These discount arrangements allow the Company to accelerate receipt of payment on customers’ receivables.
The following is a summary of the Company’s accounts receivable discount programs:

  Years Ended March 31, 
  2018  2017 
       
Receivables discounted $357,224,000  $352,369,000 
Weighted average days  340   342 
Weighted average discount rate  3.3%  2.9%
Amount of discount as interest expense $11,182,000  $9,724,000 
  Years Ended March 31, 
  2020  2019 
       
Receivables discounted $461,484,000  $396,650,000 
Weighted average days  346   341 
Weighted average discount rate  3.3%  4.2%
Amount of discount as interest expense $14,780,000  $15,867,000 

13. 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 facilities overseas, expose the Company to market risk from material movements in foreign exchange rates between the U.S. dollar and the foreign currency.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. 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.rates between the U.S. dollar and the foreign currencies. The Company does not hold or issue financial instruments for trading purposes. The forward foreign currency exchange contracts are designated 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 $31,304,000$42,052,000 and $26,880,000$32,524,000 at March 31, 20182020 and 2017,2019, respectively. These contracts generally expire inhave 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 or better credit rating; 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 reflected in current period earnings and accounted for as an increase or offset to general and administrative expenses.

The following shows the effect of the Company’s derivative instruments on its consolidated statements of income:operations:

  Gain (Loss) Recognized within General and Administrative Expenses 
Derivatives Not Designated as Years Ended March 31, 
Hedging Instruments 2018  2017  2016 
          
Forward foreign currency exchange contracts $752,000  $843,000  $777,000 
  Gain (Loss) Recognized within General and Administrative Expenses 
Derivatives Not Designated as Years Ended March 31, 
Hedging Instruments 2020  2019  2018 
          
Forward foreign currency exchange contracts $(6,491,000) $(972,000) $752,000 

The fair value of the forward foreign currency exchange contracts of $1,179,000 and $427,000 are$6,284,000 is included other current liabilities in the accompanying consolidated balance sheet at March 31, 2020. The fair value of the forward foreign currency exchange contracts of $207,000 is included in prepaid and other current assets in the accompanying consolidated balance sheetssheet at March 31, 20182019. The changes in the fair values of forward foreign currency exchange contracts are included in other liabilities in the consolidated statements of cash flows for the years ended March 31, 2020, 2019, and 2017, respectively.2018.

14. Fair Value Measurements

The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a three-tier valuation hierarchy based upon observable and unobservable inputs:
Level 1 — Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 — Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 — Valuation is based upon unobservable inputs that are significant to the fair value measurement.

The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The following sets forth by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis according to the valuation techniques the Company used to determine their fair values at:

  March 31, 2018  March 31, 2017 
     
Fair Value Measurements
Using Inputs Considered as
     
Fair Value Measurements
Using Inputs Considered as
 
  Fair Value  Level 1  Level 2  Level 3  Fair Value  Level 1  Level 2  Level 3 
Assets                        
Short-term investments                        
Mutual funds $2,828,000  $2,828,000   -   -  $2,140,000  $2,140,000   -   - 
Prepaid expenses and other current assets                                
Forward foreign currency exchange contracts  1,179,000   -  $1,179,000   -   427,000   -  $427,000   - 
                                 
Liabilities                                
Other current liabilities                                
Deferred compensation  2,828,000   2,828,000   -   -   2,140,000   2,140,000   -   - 
Other liabilities                                
Warrant liability  -   -   -   -   11,879,000   -   -  $11,879,000 
  March 31, 2020  March 31, 2019 
     
Fair Value Measurements
Using Inputs Considered as
     
Fair Value Measurements
Using Inputs Considered as
 
  Fair Value  Level 1  Level 2  Level 3  Fair Value  Level 1  Level 2  Level 3 
Assets                        
Short-term investments Mutual funds
 $850,000  $850,000  $-  $-  $3,273,000  
$
3,273,000
  $-  $- 
Prepaid expenses and other current assets                                
Forward foreign currency exchange contracts  -   -   -   -   207,000   -   207,000   - 
                                 
Liabilities                                
Accrued liabilities                                
Short-term contingent consideration  2,190,000   -   -   2,190,000   2,816,000   -   -   2,816,000 
Other current liabilities                                
Deferred compensation  850,000   850,000   -   -   3,273,000   3,273,000   -   - 
Forward foreign currency exchange contracts  6,284,000   -   6,284,000   -   -   -   -   - 
Other liabilities                                
Long-term contingent consideration  463,000   -   -   463,000   1,905,000   -   -   1,905,000 

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.

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 and classified as Level 2.dealers. During the years ended March 31, 20182020 and 2017, gains2019, losses of $752,000$6,491,000 and $843,000,$972,000, respectively, were recorded in general and administrative expenses due to the change in the value of the forward foreign currency exchange contracts subsequentcontracts.

Contingent Consideration

In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from E&M. In connection with this acquisition, the Company is contingently obligated to entering intomake additional payments to the contracts.former owners of E&M up to an aggregate of $5,200,000 over the next three years.

In January 2019, the Company completed the acquisition of all the equity interests of Dixie. In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of Dixie up to $1,130,000 over the next two years.

The Company’s contingent consideration is recorded in accrued expenses and other liabilities in its consolidated balance sheets at March 31, 2020 and 2019, and is a Level 3 liability measured at fair value.

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

The fair value of the two-year R&D event milestone based on technology development and transfer was $1,130,000 and $2,190,000 at March 31, 2020 and 2019, respectively, determined using a probability weighted method with commensurate with the term of the contingent consideration.

F-25F-27
The assumptions used to determine the fair value is as follows:

Level 3 Fair Value Measurements
March 31, 2020
Risk free interest rate0.16%
Counter party rate12.16%
Probability100.00%

The assumptions used to determine fair value of the two-year R&D event milestone at March 31, 2019 is as follows: (i) a risk-free interest rate ranging from 2.30% to 2.41%, (ii) counter party risk discount rate ranging from 6.30% to 6.41%, and (iii) total probability of 90% to 100%. 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.

E&M Gross Profit Earn-out Consideration

The fair value of the three-year gross profit earn-out consideration was $1,230,000 and $1,660,000 at March 31, 2020 and 2019, respectively, determined using a Monte Carlo Simulation Model.

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

  March 31, 2020  March 31, 2019 
Risk free interest rate  0.22%  2.23%
Counter party rate  12.22%  6.23%
Expected volatility  31.00%  29.00%
Weighted average cost of capital  13.75%  16.00%

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.

Dixie Revenue Earn-out Consideration

The fair value of the two-year revenue earn-out consideration was $293,000 and $871,000 at March 31, 2020 and 2019, respectively, determined using a Monte Carlo Simulation Model.

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

  March 31, 2020  March 31, 2019 
Risk free interest rate  0.16%  2.58%
Counter party rate  15.16%  5.03%
Revenue discount rate  2.50%  6.50%
Expected volatility  33.50%  29.00%
Revenue volatility  6.50%  8.50%

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

  Years Ended March 31, 
  2018  2017 
  
Supplier
Warrant
  
Contingent
Consideration
  
Supplier
Warrant
  
Contingent
Consideration
 
Beginning balance $11,879,000  $-  $15,643,000  $330,000 
Newly issued  -   -   -   - 
Total (gain) loss included in net income  (2,313,000)  -   (3,764,000)  (16,000)
Exercises/settlements (1)  (9,566,000)  -   -   (314,000)
Net transfers in (out) of Level 3  -   -   -   - 
Ending balance $-  $-  $11,879,000  $- 

(1)Represents the fair value of the Supplier Warrant as of the exercise date (see Note 11).
  Years Ended March 31, 
  2020  2019 
  
Contingent
Consideration
  
Contingent
Consideration
 
Beginning balance $4,721,000  $- 
Newly issued  -   4,400,000 
Changes in revaluation of contingent consideration included in earnings  (113,000)  321,000 
Exercises/settlements (1)  (1,955,000)  - 
Ending balance $2,653,000  $4,721,000 

During the yearyears ended March 31, 2018,2020 and 2019, the Company had no 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.

Goodwill

Fair value assessments of the reporting unit and the reporting unit's net assets, which are performed for goodwill impairment tests, are considered Level 3 measurements due to the significance of unobservable inputs developed using company specific information. The Company considered a market approach as well as an income approach (a DCF model) to determine the fair value of the reporting unit.

Refer to Financial Note 2, “Significant Accounting Policies for more information regarding goodwill impairment assumptions.

Long-lived Assets and Intangible Assets

The Company utilizes multiple approaches including the DCF model and market approaches for estimating the fair value of long-lived assets and intangible assets. The future cash flows used in the analysis are based on internal cash flow projections from its long-range plans and include significant assumptions by management. Accordingly, the fair value assessment of the long-lived assets and intangible assets are considered Level 3 fair value measurements.

The Company measures certain long-lived and intangible assets at fair value on a nonrecurring basis when events occur that indicate an asset group may not be recoverable. If the carrying amount of an asset group is not recoverable, an impairment charge is recorded to reduce the carrying amount by the excess over its fair value.

15. Commitments and Contingencies

Operating Lease CommitmentsWarranty Returns

The Company leases various facilities in North America and Asia under operating leases expiring through December 2032, which includesallows its customers to return goods that their consumers have returned to them, whether or not the 15-year lease for a new 410,000 square foot facility in Tijuana, Mexico.returned item is defective (“warranty returns”). The Company also has short-term contractsaccrues an estimate of one year or less covering its third party warehouses that provide for contingent paymentsexposure to warranty returns based on a historical analysis of the level of sales thatthis type of return as a percentage of total unit sales. Amounts charged to expense for these warranty returns are processed throughconsidered in arriving at the third party warehouse.Company’s net sales.

The remaining future minimum rental payments underfollowing summarizes the above operating leases are as follows:changes in the warranty return accrual:

  Years Ended March 31, 
  2020  2019  2018 
          
Balance at beginning of year $19,475,000  $16,646,000  $14,286,000 
Acquisition (1)  -   221,000   - 
Charged to expense  112,590,000   111,321,000   105,156,000 
Amounts processed  (113,765,000)  (108,713,000)  (102,796,000)
             
Balance at end of year $18,300,000  $19,475,000  $16,646,000 

Year Ending March 31,
   
2019 $5,873,000 
2020  4,437,000 
2021  4,501,000 
2022  4,360,000 
2023  3,066,000 
Thereafter  30,824,000 
     
Total minimum lease payments $53,061,000 
During the years ended March 31, 2018, 2017 and 2016, the Company incurred total operating lease expenses of $4,362,000, $3,495,000 and $3,263,000, respectively.
(1)
Warranty reserve established in the opening balance sheet in connection with the Company’s Dixie acquisition.

Commitments to Provide Marketing Allowances under Long-Term Customer Contracts
The Company has or is renegotiating long-term agreements with many of its major customers. Under these agreements, which in most cases have initial terms of at least four years, the Company is designated as the exclusive or primary supplier for specified categories of the Company’s products. Because of the very competitive nature of the market and the limited number of customers for these products, the Company’s customers have sought and obtained price concessions, significant marketing allowances, and more favorable delivery and payment terms in consideration for the Company’s designation as a customer’s exclusive or primary supplier. These incentives differ from contract to contract and can include (i) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (ii) support for a particular customer’s research or marketing efforts provided on a scheduled basis, (iii) discounts granted in connection with each individual shipment of product, and (iv) other marketing, research, store expansion or product development support. These contracts typically require that the Company meet ongoing performance standards. The Company’s contracts with majorits customers expire at various dates through April 2021.December 2024. While these longer-term agreements strengthen the Company’s customer relationships, the increased demand for the Company’s products often requires that the Company increase its inventories and personnel. Customer demands that the Company purchase their Remanufactured Core inventory also require the use of the Company’s working capital.

The marketing and other allowances the Company typically grants its customers in connection with its new or expanded customer relationships adversely impact the near-term revenues, profitability, and associated cash flows from these arrangements. Such allowances include sales incentives and concessions and typically consist of: (i) allowances which may only be applied against future purchases and are recorded as a reduction to revenues in accordance with a schedule set forth in the long-term contract, (ii) allowances related to a single exchange of product that are recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered, and (iii) allowances that are madeamortization of core premiums paid to customers generally in connection with the purchasenew business.

F-30

The following summarizes the breakout of allowances discussed above, recorded as a reduction to revenues:

  Years Ended March 31, 
  2018 2017 2016 
        
Allowances incurred under long-term customer contracts $24,829,000  $23,684,000  $29,845,000 
Allowances related to a single exchange of product  79,813,000   67,262,000   47,451,000 
Allowances related to core inventory purchase obligations  2,545,000   5,470,000   2,268,000 
Total customer allowances recorded as a reduction of revenues $107,187,000  $96,416,000  $79,564,000 
 Years Ended March 31, 
 2020 2019 2018 
       
Allowances incurred under long-term customer contracts
 $26,733,000  $29,612,000  $24,829,000 
Allowances related to a single exchange of product
  97,408,000   92,588,000   79,851,000 
Amortization of core premiums paid to customers
  4,501,000   4,127,000   3,588,000 
Total customer allowances recorded as a reduction of revenues
 $128,642,000  $126,327,000  $108,268,000 

The following presents the Company’s commitments to incur allowances, excluding allowances related to a single exchange of product, which will be recognized as a charge againstreduction to revenue and customer Remanufactured Core purchase obligations, which will be recognized in accordance withwhen the terms of the relevant long-term customer contracts:related revenue is recognized:
Year Ending March 31,
   
2019 $30,154,000 
2020  21,927,000 
2021  16,982,000 
2022  113,000 
     
Total marketing allowances $69,176,000 

F-27
Year Ending March 31,
   
2021 $25,896,000 
2022  5,838,000 
2023  4,701,000 
2024  2,859,000 
2025  2,052,000 
Thereafter  2,667,000 
     
Total marketing allowances $44,013,000 

TableContingencies

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 Contentsand 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 cannot assure that the U.S. Customs and Border Protection will agree or that it will not need to accrue or pay additional amounts in the future.

16. Significant Customer and Other Information

Significant Customer Concentrations

The Company’s largest customers accounted for the following total percentage of net sales:

  Years Ended March 31, 
  2018  2017  2016 
Customer A  41%  44%  48%
Customer B  24%  20%  18%
Customer C  19%  19%  21%
Customer D  4%  4%  3%
  Years Ended March 31, 
  2020  2019  2018 
          
Customer A  38%  38%  41%
Customer B  20%  22%  25%
Customer C  26%  23%  19%

The Company’s largest customers accounted for the following total percentage of accounts receivable — trade at March 31:trade:

 March 31, 2020  March 31, 2019 
 2018  2017       
Customer A  36%  33% 
28
%
 
34
%
Customer B  16%  18% 
14
%
 
18
%
Customer C  22%  12% 33
%
 
16
%
Customer D  5%  16%

Geographic and Product Information

The Company’s products are predominantly sold in the U.S. and accounted for the following total percentage of net sales:

  Years Ended March 31, 
  2018  2017  2016 
Rotating electrical products  78%  78%  78%
Wheel hub products  17%  19%  20%
Brake master cylinders products  2%  3%  2%
Other products  3%  -%  -%
   100%  100%  100%
 Years Ended March 31, 
 2020 2019 2018 
       
Rotating electrical products  73%  79%  78%
Wheel hub products  15%  15%  17%
Brake-related products  9%  3%  3%
Other products  3%  3%  2%
   100%  100%  100%

Significant Supplier Concentrations

No suppliers accounted for more than 10% of the Company’s inventory purchases for the years ended March 31, 2018, 20172020, 2019, and 2016.2018.

17. Income Taxes

In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020. The CARES Act: (i) removes certain net operating loss deduction and carry-back limitations originally imposed by the Tax Cuts and Jobs Act of 2017, (ii) increases IRC §163(j) business interest expense limitations, and (iii) technical correction on recovery period for qualified improvement property (QIP), allowing QIP to be eligible for bonus depreciation. Specifically, the Company may now carry back net operating losses originating in the year ended March 31, 2019 to the year ended March 31, 2017, resulting in an increase to its income tax receivable of $1,002,000 as of March 31, 2020.

On December 22, 2017, comprehensive tax reform legislation known as the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act amendsamended the Internal Revenue Code to reduce U.S. tax rates and modify policies, credits and deductions for individuals and businesses. The effects of the Tax Reform Act on the Company are as follows:

Remeasurement of Deferred Taxes

The Tax Reform Act permanently reduces the U.S. federal corporate income tax rate from 35% to 21%, effective for tax years beginning after 2017. GAAP requires an adjustment to deferred taxes as a result of a change in the corporate tax rate in the period that the change is enacted, with the change recorded to the current year tax provision. Accordingly, the Company has remeasured its deferred tax assets and liabilities at the new tax rate and recorded a one-time noncash tax charge of $4,863,000 to deferred income taxes for the year ended March 31, 2018. This charge is reflected in the Company’s increased effective tax rate for the year.
Mandatory Transition Tax

In connection with the move by the U.S. to a partial territorial tax system, the Tax Reform Act provides for the exclusion of foreign-sourced dividends received by a U.S. corporation from its foreign-owned corporations beginning in 2018. In addition, the Tax Reform Act imposes a toll charge in 2017 on the deemed repatriation of a U.S. shareholder’s pro-rata share of certain foreign subsidiaries’ post-1986 accumulated earnings. The toll charge assesses an effective tax rate of 15.5% on cash and other liquid assets of U.S.-owned foreign corporations, while subjecting all other property of such corporations to an effective tax rate of 8.0%, and allows for available foreign tax credits to reduce the resulting toll charge. Taxpayers may elect to pay this tax liability over eight years on an interest-free basis. The Company has accrued an estimated toll charge liability of $530,000, reflected in current taxes payable as of March 31, 2018.

Executive Compensation

The Tax Reform Act maintains the $1,000,000 limitation on deductible compensation to cover employees. However, it eliminates the current exception for performance-based compensation and expands the definition of covered employees to include the chief financial officer. The expansion of executive compensation limitations are effective in 2018. The modifications do not apply to remuneration paid pursuant to a written binding contract in effect on November 2, 2017 if it was not materially modified on or after that date.

As a result of the Tax Reform Act, the SEC provided guidance (Staff Accounting Bulletin 118 (“SAB 118”)) that allows public companies to record provisional amounts for those impacts, with the requirement that the accounting be completed in a period not to exceed one year from the date of enactment. As of March 31, 2018, the Company has not completed the accounting for the tax effects of the Tax Reform Act. Therefore, the Company has recorded provisional amounts for the effects of the Tax Reform Act, including but not limited to, the following primary impacts of the Tax Reform Act: remeasurement of deferred tax assets and liabilities and the estimated calculation of the one-time mandatory transition tax on undistributed earnings of foreign affiliates.

The income tax expense is as follows:
  Years Ended March 31, 
  2018  2017  2016 
Current tax expense         
Federal $12,153,000  $9,451,000  $12,400,000 
State  1,406,000   318,000   1,995,000 
Foreign  1,215,000   1,455,000   803,000 
             
Total current tax expense  14,774,000   11,224,000   15,198,000 
             
Deferred tax expense (benefit)            
Federal  2,779,000   4,291,000   (2,929,000)
State  333,000   2,174,000   (757,000)
Foreign  (23,000)  (384,000)  (33,000)
             
Total deferred tax expense (benefit)  3,089,000   6,081,000   (3,719,000)
             
Total income tax expense $17,863,000  $17,305,000  $11,479,000 

F-29
  Years Ended March 31, 
  2020  2019  2018 
Current tax expense         
Federal $5,313,000  $680,000  $12,187,000 
State  1,454,000   647,000   1,425,000 
Foreign  1,566,000   1,723,000   1,194,000 
Total current tax expense  8,333,000   3,050,000   14,806,000 
Deferred tax (benefit) expense            
Federal  (4,516,000)  (2,087,000)  949,000 
State  (1,567,000)  (295,000)  393,000 
Foreign  (3,261,000)  (400,000)  (23,000)
Total deferred tax (benefit) expense  (9,344,000)  (2,782,000)  1,319,000 
Total income tax (benefit) expense $(1,011,000) $268,000  $16,125,000 

Deferred income taxes consist of the following at March 31:following:

 2018  2017  March 31, 2020  March 31, 2019 
Assets            
Accounts receivable valuation $3,915,000  $4,697,000 
Allowance for customer incentives  2,038,000   2,894,000 
Inventory obsolescence reserve  1,666,000   1,608,000 
Allowance for bad debts 
$
1,037,000
  
$
1,005,000
 
Customer allowances earned 
3,549,000
  
3,177,000
 
Allowance for stock adjustment returns 
1,743,000
  
2,073,000
 
Inventory adjustments 
5,567,000
  
3,701,000
 
Stock options  1,728,000   1,971,000  
2,427,000
  
2,221,000
 
Intangibles, net  59,000   339,000 
Operating lease liabilities (1) 
19,396,000
  
-
 
Estimate for returns  1,115,000   3,191,000  
10,839,000
  
2,107,000
 
Accrued compensation  1,152,000   1,785,000  
1,964,000
  
1,578,000
 
Net operating losses  1,079,000   834,000  
4,091,000
  
2,088,000
 
Tax credits  1,363,000   -  
1,343,000
  
1,495,000
 
Other  2,091,000   2,065,000   
1,620,000
   
5,776,000
 
        
Total deferred tax assets $16,206,000  $19,384,000  
$
53,576,000
  
$
25,221,000
 
        
Liabilities              
Property and equipment, net  (1,025,000)  (1,605,000)
Plant and equipment, net 
(5,175,000
)
 
(3,316,000
)
Intangibles, net 
(4,700,000
)
 
(5,390,000
)
Operating lease (1) 
(15,371,000
)
 
-
 
Other  (3,072,000)  (4,413,000)  
(3,966,000
)
  
(3,278,000
)
        
Total deferred tax liabilities $(4,097,000) $(6,018,000) 
$
(29,212,000
)
 
$
(11,984,000
)
        
Less valuation allowance $(1,779,000) $-  
$
(5,493,000
)
 
$
(3,748,000
)
        
Net deferred tax assets $10,330,000  $13,366,000 
        
Net long-term deferred income tax liability  (226,000)  (180,000)
Net long-term deferred income tax asset  10,556,000   13,546,000 
        
Total $10,330,000  $13,366,000  
$
18,871,000
  
$
9,489,000
 

(1)
Adoption of the new lease standard as of April 1, 2019 (see Note 2) resulted in the recognition of a deferred tax asset for operating lease liabilities and a deferred tax liability for operating lease assets. These temporary differences will reverse over the estimated term of the relevant operating leases. As of March 31, 2019, the deferred tax assets associated with operating leases were reported as other deferred tax assets under legacy US GAAP.

As of March 31, 2018,2020, the Company had state net operating loss carryforwards of $932,000.$1,689,000 and foreign net operating loss carryforwards of $14,953,000. The state net operating loss carryforwards expire betweenbeginning fiscal years 2022year 2034, and 2036.the foreign net operating loss carryforwards expire beginning fiscal year 2038. As of March 31, 2020, the Company also had investment tax credits carryforward of $1,343,000, which will expire beginning fiscal year 2032. A full valuation allowance was established on the foreign net operating loss and tax credits carryforward as the Company believes it is more likely than not these tax attributes would not be realizable in the future.

Realization of deferred tax assets 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. Deferred tax assets arising primarily as a result of non-US net operating loss carry-forwards and non-US research and development credits in connection with the Company’s July 2017 acquisitionacquisitions have been offset completely by a valuation allowance 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.

For the years ended March 31, 2018, 2017,2020, 2019, and 2016,2018, the primary components of the Company’s income tax expense werewere: (i) federal income taxes, (ii) the impact of net operating loss carry-backs in connection with the changes as a result of the Tax ReformCARES Act, (ii)(iii) foreign income taxed at rates that are different from the federal statutory rate, (iii) non-deductible expenses(iv) change in connection with the fair value adjustments on the warrants, (iv)realizable deferred tax items, (v) impact of the non-deductible executive compensation under Internal Revenue Code Section 162(m), (v) the impact of(vi) income taxes associated with uncertain tax positions, (vi)(vii) the change in the blended state rate, and (vii)(viii) the excess tax benefit relating to share-based compensation.
The difference between the income tax expense at the federal statutory rate and the Company’s effective tax rate is as follows:

  Years Ended March 31, 
  2018  2017  2016 
          
Statutory federal income tax rate  31.5%  35.0%  35.0%
State income tax rate, net of federal benefit  3.3%  2.2%  4.0%
Excess tax benefit from stock compensation  (0.7)%  (1.4)%  -%
Foreign income taxed at different rates  (2.6)%  (0.7)%  (0.8)%
Warrants  (2.1)%  (2.4)%  8.2%
Non-deductible executive compensation  1.0%  0.8%  2.2%
Change in valuation allowance  4.9%  -%  -%
Effects of mandatory redeemed repatriation  1.6%  -%  -%
Effects of U.S. tax rate changes  14.2%  -%  -%
Uncertain Tax Positions  0.6%  (0.2)%  0.4%
Other income tax  0.6%  (1.8)%  3.1%
             
   52.3%  31.5%  52.1%
  Years Ended March 31, 
  2020  2019  2018 
          
Statutory federal income tax rate  21.0%  21.0%  31.5%
State income tax rate, net of federal benefit  (3.7)%  (3.7)%  3.6%
Excess tax benefit from stock compensation  (1.3)%  0.7%  (0.7)%
Foreign income taxed at different rates  13.8%  -%  (2.6)%
Return to provision adjustments  (1.5)%  -%  -%
Warrants  -%  -%  (2.1)%
Non-deductible executive compensation  (4.0)%  (7.3)%  1.0%
Change in valuation allowance  (18.7)%  (15.3)%  4.8%
Net operating loss carryback  4.8%  -%  -%
Effects of mandatory redeemed repatriation  -%  -%  1.5%
Effects of U.S. tax rate changes  -%  0.3%  8.0%
Uncertain tax positions  2.1%  1.8%  0.6%
Research and development credit  1.1%  1.3%  (0.2)%
Non-deductible transaction costs  -%  (2.1)%  -%
Other income tax  (1.4)%  (0.2)%  0.2%
   12.2%  (3.5)%  45.6%

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions with varying statutes of limitations. At March 31, 2018,2020, the Company is not under examination in any jurisdiction and the years ended March 31, 2019, 2018, 2017, 2016, and 20152016 remain subject to examination. The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

  Years Ended March 31, 
  2018  2017  2016 
Balance at beginning of period $1,092,000  $1,181,000  $1,117,000 
Additions based on tax positions related to the current year  234,000   141,000   57,000 
Additions for tax positions of prior year  -   106,000   217,000 
Reductions for tax positions of prior year  (107,000)  -   (210,000)
Settlements  -   (336,000)  - 
             
Balance at end of period $1,219,000  $1,092,000  $1,181,000 
  Years Ended March 31, 
  2020  2019  2018 
          
Balance at beginning of period $1,083,000  $1,219,000  $1,092,000 
Additions based on tax positions related to the current year  362,000   91,000   234,000 
Reductions for tax positions of prior year  (434,000)  (227,000)  (107,000)
Balance at end of period $1,011,000  $1,083,000  $1,219,000 

At March 31, 2018, 20172020, 2019 and 2016,2018, there are $1,054,000, $840,000$823,000, $938,000 and $678,000$1,054,000 of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits as part of income tax expense. During the years ended March 31, 2018, 2017,2020, 2019, and 2016,2018, the Company recognized approximately $5,000, $51,000,$(50,000), $(23,000), and $34,000$5,000 in interest and penalties.penalties, respectively. The Company had approximately $146,000$74,000 and $141,000$124,000 for the payment of interest and penalties accrued at March 31, 20182020 and 2017,2019, respectively.

18. Defined Contribution Plans

The Company has a 401(k) plan covering all employees who are 21 years of age with at least six months of service. The plan permits eligible employees to make contributions up to certain limitations, with the Company matching 50% of each participating employee’s contribution up to the first 6% of employee compensation. Employees are immediately vested in their voluntary employee contributions and vest in the Company’s matching contributions ratably over five years. The Company’s matching contribution to the 401(k) plan was $389,000, $353,000,$496,000, $445,000, and $347,000$389,000 for the years ended March 31, 2018, 2017,2020, 2019, and 2016,2018, respectively.
19. Share-based Payments

At March 31, 2018,2020, there were 342,000 shares of the Company’s common stock reserved for grants to the Company’s non-employee directors under the 2014 Non-Employee Director Incentive Award Plan (the “2014 Plan”). Under the 2014 Plan, (i) 35,65953,784 and 37,38340,238 of restricted stock units were issued and (ii) 236,976143,909 and 263,078201,084 shares of common stock were available for grant under this plan at March 31, 20182020 and 2017,2019, respectively.

At March 31, 2018,2020, there were 3,950,000 shares of common stock reserved for grant to all employees of the Company under the 2010 Incentive Award Plan (the “2010 Plan”). Under the 2010 Plan, (i) 98,169148,199 and 88,894127,896 shares of restricted stock units were outstanding, (ii) options to purchase 1,046,2981,485,123 and 898,0091,274,165 shares of common stock were outstanding, (iii) none and (iii) 1,573,81075,000 restricted shares were outstanding, and 688,765(iv) 629,823 and 1,040,728 shares of common stock were available for grant at March 31, 20182020 and 2017,2019, respectively.

In addition, at March 31, 20182020 and 2017,2019, options to purchase 97,00051,000 and 128,00063,000 shares of common stock, respectively, were outstanding under the 2004 Non-Employee Director Stock Option Plan. There were no options outstanding to purchase common stock under the 2003 Long-Term Incentive Plan at March 31, 2018 and options to purchase 10,350 shares of common stock were outstanding under this plan at March 31, 2017. No options remain available for grant under these plans.this plan.

The shares of common stock issued upon exercise of a previously granted stock option are considered new issuances from shares reserved for issuance upon adoption of the various plans. The Company requires that the option holders provide a written notice of exercise to the stock plan administrator and payment for the shares prior to issuance of the shares.

Stock Options

The following is a summary of stock option activity during the year:transactions:

  
Number of
Shares
  
Weighted Average
Exercise Price
 
Outstanding at March 31, 2016  1,036,359  $14.92 
Granted  170,890  $27.27 
Exercised  (55,351) $8.65 
Forfeited  (8,600) $28.92 
Outstanding at March 31, 2017  1,143,298  $16.97 
  
Number of
Shares
  
Weighted Average
Exercise Price
 
       
Outstanding at March 31, 2019  1,337,165  $17.58 
Granted  302,539  $19.72 
Exercised  (59,600) $7.65 
Forfeited  (43,981) $24.98 
Outstanding at March 31, 2020  1,536,123  $18.18 

At March 31, 2018,2020, options to purchase 325,274513,198 shares of common stock were unvested at the weighted average exercise price of $28.23.$20.32.

Based on the market value of the Company’s common stock at March 31, 2018, 2017,2020, 2019, and 2016,2018, the pre-tax intrinsic value of options exercised was $913,000, $2,477,000,$508,000, $788,000, and $14,002,000,$913,000, respectively. The total fair value of stock options vested during the years ended March 31, 2020, 2019, and 2018 2017,was $2,189,000, $1,973,000, and 2016 was $1,572,000, $1,290,000, and $905,000, respectively.
The following summarizes information about the options outstanding at March 31, 2018:2020:

   Options Outstanding Options Exercisable
Range of
Exercise price
  
Shares
  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Life
In Years
  
Aggregate
Intrinsic
Value
 
Shares
  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
$4.17 to $6.25   49,000  $4.87   1.35     49,000  $4.87   
$6.26 to $7.43   354,534   6.48   4.70     354,534   6.48   
$7.44 to $19.94   211,132   9.86   5.23     211,132   9.86   
$19.95 to $34.17   528,632   27.96   8.12     203,358   27.54   
    1,143,298  $16.97   6.24  $8,555,000  818,024  $12.49 $8,555,000
   Options Outstanding Options Exercisable
Range of
Exercise price
  Shares  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Life
In Years
 
Aggregate
Intrinsic
Value
 Shares  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Life
In Years
 
Aggregate
Intrinsic
Value
                     
$5.20 to $6.47   311,634  $6.46   2.75    311,634  $6.46   2.75  
$6.48 to $18.20   223,600   10.19   3.61    204,300   9.58   3.06  
$18.21 to $22.83   524,251   19.56   8.77    83,183   19.17   8.23  
$22.84 to $28.04   216,499   26.19   6.44    163,669   25.82   6.18  
$28.05 to $34.17   260,139   29.61   5.94    260,139   29.61   5.94  
    1,536,123  $18.18   5.99 $
2,567,000  1,022,925  $17.10   4.62 $
2,567,000

The aggregate intrinsic values in the above table represent the pre-tax value of all in-the-money options if all such options had been exercised on March 31, 20182020 based on the Company’s closing stock price of $21.43$12.58 as of that date.

At March 31, 2018,2020, there was $2,795,000$2,883,000 of total unrecognized compensation expense from stock-based compensation granted under the plans, which is related to non-vested shares. The compensation expense is expected to be recognized over a weighted average vesting period of 1.71.8 years.

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

During the years ended March 31, 20182020 and 2017,2019 the Company granted 77,854113,483 and 62,637179,725 shares of RSUs, respectively, with an estimated grant date fair value of $2,157,000$2,112,000 and $1,774,000,$3,490,000, respectively, which was based on the closing market price on the date of grant. The fair value related to these awards is recognized as compensation expense over the vesting period. These awards generally vest in three equal installments beginning each anniversary from the grant date, subject to continued employment. Upon vesting, these awards may be net share settled to cover the required withholding tax with the remaining amount converted into an equivalent number of shares of common stock. Total shares withheld during the years ended March 31, 20182020 and 20172019 were 21,36158,802 and 36,586,14,959, respectively, and was based on the value of these awards as determined by the Company’s closing stock price on the vesting date.

The following is a summary of changes in the status of non-vested RSUs during the year:RSUs:

  
Number of
Shares
  
Weighted Average
Grant Date Fair
Value
 
Non-vested at March 31, 2017  126,277  $28.26 
Granted  77,854  $27.70 
Vested  (68,869) $27.41 
Forfeited  (1,434) $28.37 
Non-vested at March 31, 2018  133,828  $28.37 
  
Number of
Shares
  
Weighted Average
Grant Date Fair
Value
 
       
Non-vested at March 31, 2019  243,134  $21.75 
Granted  113,483  $18.61 
Vested  (151,182) $21.66 
Forfeited  (3,452) $21.10 
Non-vested at March 31, 2020  201,983  $20.06 

As of March 31, 2018,2020, there was $2,648,000$2,643,000 of unrecognized compensation expense related to these awards, which will be recognized over the remaining vesting period of approximately 1.9 years.

20. LitigationAccumulated Other Comprehensive Loss

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. Management does not believe that the outcome of these other matters will have a material adverse effect on its financial position or future results of operations.
21. Share Repurchase Program

As of March 31, 2018, the Company’s board of directors had approved a stock repurchase program of up to $20,000,000 of its common stock. As of March 31, 2018, $11,630,000 of the $20,000,000 had been utilized and $8,370,000 remained available to repurchase shares under the authorized share repurchase program, subject to the limit in the Company’s credit facility. The Company retired the 511,746 shares repurchased under this program through March 31, 2018. The Company’s share repurchase program does not obligate it to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

22. Accumulated Other Comprehensive Income (Loss)

The following summarizes the changes in accumulated other comprehensive income (loss) for the years ended March 31:
  2018  2017 
  
Unrealized
Gain
on Short-Term
Investments
  
Foreign
Currency
Translation
  Total  
Unrealized
Gain
on Short-Term
Investments
  
Foreign
Currency
Translation
  Total 
                   
Beginning balance $528,000  $(7,969,000) $(7,441,000) $332,000  $(5,184,000) $(4,852,000)
Other comprehensive income (loss), net of tax  218,000   1,795,000   2,013,000   196,000   (2,785,000)  (2,589,000)
Amounts reclassified from other comprehensive income (loss), net of tax  -   -   -   -   -   - 
Ending balance $746,000  $(6,174,000) $(5,428,000) $528,000  $(7,969,000) $(7,441,000)

23. Subsequent Eventsloss are as follows:

Credit Facility
  March 31, 2020  March 31, 2019 
  
Foreign
Currency
Translation
  Total  
Unrealized
Gain
on Short-Term
Investments
  
Foreign
Currency
Translation
  Total 
Balance at March 31, 2019 and 2018 $(6,887,000) $(6,887,000) $746,000  $(6,174,000) $(5,428,000)
Cumulative-effect adjustment  -   -   (746,000)  -   (746,000)
Balance at April 1, 2019 and 2018 $(6,887,000) $(6,887,000) $-  $(6,174,000) $(6,174,000)
Other comprehensive loss, net of tax  (481,000)  (481,000)  -   (713,000)  (713,000)
Balance at March 31, 2020 and 2019 $(7,368,000) $(7,368,000) $-  $(6,887,000) $(6,887,000)

On June 5, 201821. Subsequent Event

In light of the COVID-19 pandemic, the Company entered into an Amendedhas taken proactive steps to manage its costs and Restated Credit Facility (the “New Credit Facility”),bolster its liquidity, including increasing the level of receivables collected under its receivable discount programs. During April 2020, the Company collected $59,730,000 of receivables under these programs, with the lenders party thereto, and PNC Bank, National Association,$1,552,000 in interest expense associated with these accounts receivable sales, which was higher than its average monthly utilization of these programs.

Additionally, as administrative agent, consisting of (i) a $200,000,000 revolving loan facility, subject to borrowing base restrictions, a $20,000,000 sublimit for borrowings by Canadian borrowers, and a $15,000,000 sublimit for letters of credit (the “New Revolving Facility) and (ii) a $30,000,000 term loan facility (the “New Term Loans”). The loans under the New Credit Facility mature on June 5, 2023. In connection with the New Credit Facility, the lenders were granted a security interest in substantially allpart of the assetscost reduction measures implemented by the Company in response to the impact of the Company.COVID-19 pandemic on its business, executive committee members have all agreed to at least a 25% reduction in base salary, until the Company believes it is fiscally responsible to reinstate the original base salaries. The Company’s Board of Directors agreed to defer all board and committee fees and retainers, as well as waive any fees related to weekly board check in meetings, as long as the executive committee continues with a base salary reduction. The Company continues to analyze its cost structure and may implement additional cost reduction measures as may be necessary due to the on-going economic challenges resulting from the COVID-19 pandemic.

24.
22. Unaudited Quarterly Financial Data

The following summarizes selected quarterly financial data for the year ended March 31, 20182020.

   
First
Quarter
    
Second
Quarter
    
Third
Quarter
    
Fourth
Quarter
  
             
Net sales $95,063,000  $111,774,000  $100,127,000  $121,108,000 
Cost of goods sold  69,224,000   84,612,000   77,583,000   90,780,000 
Gross profit  25,839,000   27,162,000   22,544,000   30,328,000 
Operating expenses:                
General and administrative  6,187,000   8,615,000   11,915,000   8,810,000 
Sales and marketing  3,394,000   3,457,000   4,048,000   4,131,000 
Research and development  1,002,000   1,240,000   1,678,000   1,772,000 
Total operating expenses  10,583,000   13,312,000   17,641,000   14,713,000 
Operating income  15,256,000   13,850,000   4,903,000   15,615,000 
Other expense:                
Interest expense, net  3,314,000   3,522,000   3,953,000   4,656,000 
Income before income tax expense  11,942,000   10,328,000   950,000   10,959,000 
Income tax expense  4,316,000   4,027,000   7,756,000   1,764,000 
                 
Net income (loss) $7,626,000  $6,301,000  $(6,806,000) $9,195,000 
                 
Basic net income (loss) per share $0.41  $0.34  $(0.36) $0.48 
                 
Diluted net income (loss) per share $0.39  $0.33  $(0.36) $0.47 
  
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
             
Net sales $109,148,000  $150,374,000  $125,574,000  $150,735,000 
Cost of goods sold  91,565,000   113,801,000   97,913,000   114,152,000 
Gross profit  17,583,000   36,573,000   27,661,000   36,583,000 
Operating expenses:                
General and administrative  12,000,000   14,285,000   10,618,000   34,522,000 
Sales and marketing  4,919,000   5,448,000   5,623,000   5,047,000 
Research and development  2,372,000   2,148,000   2,174,000   2,506,000 
Total operating expenses  19,291,000   21,881,000   18,415,000   42,075,000 
Operating (loss) income  (1,708,000)  14,692,000   9,246,000   (5,492,000)
Other expense:                
Interest expense, net  6,173,000   6,523,000   6,879,000   5,464,000 
(Loss) income before income tax (benefit) expense  (7,881,000)  8,169,000   2,367,000   (10,956,000)
Income tax (benefit) expense  (1,730,000)  1,980,000   1,502,000   (2,763,000)
Net (loss) income $(6,151,000) $6,189,000  $865,000  $(8,193,000)
                 
Basic net (loss) income per share $(0.33) $0.33  $0.05  $(0.43)
Diluted net (loss) income per share $(0.33) $0.32  $0.04  $(0.43)

The following summarizes selected quarterly financial data for the year ended March 31, 2017:2019:

  
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
             
Net sales $85,412,000  $108,836,000  $112,595,000  $114,410,000 
Cost of goods sold  65,021,000   78,178,000   80,225,000   82,783,000 
Gross profit  20,391,000   30,658,000   32,370,000   31,627,000 
Operating expenses:                
General and administrative  3,625,000   9,869,000   7,952,000   9,678,000 
Sales and marketing  2,634,000   2,707,000   3,234,000   3,551,000 
Research and development  869,000   905,000   1,039,000   1,011,000 
Total operating expenses  7,128,000   13,481,000   12,225,000   14,240,000 
Operating income  13,263,000   17,177,000   20,145,000   17,387,000 
Other expense:                
Interest expense, net  2,819,000   3,189,000   3,357,000   3,729,000 
Income before income tax expense  10,444,000   13,988,000   16,788,000   13,658,000 
Income tax expense  2,936,000   4,845,000   5,678,000   3,846,000 
                 
Net income $7,508,000  $9,143,000  $11,110,000  $9,812,000 
                 
Basic net income per share $0.40  $0.49  $0.59  $0.53 
                 
Diluted net income per share $0.39  $0.47  $0.57  $0.50 
  
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
             
Net sales $91,668,000  $127,939,000  $124,113,000  $129,077,000 
Cost of goods sold  75,316,000   102,228,000   102,952,000   103,127,000 
Gross profit  16,352,000   25,711,000   21,161,000   25,950,000 
Operating expenses:                
General and administrative  12,091,000   8,997,000   12,331,000   12,553,000 
Sales and marketing  4,392,000   4,537,000   5,149,000   5,464,000 
Research and development  1,736,000   1,784,000   2,054,000   2,440,000 
Total operating expenses  18,219,000   15,318,000   19,534,000   20,457,000 
Operating (loss) income  (1,867,000)  10,393,000   1,627,000   5,493,000 
Other expense:                
Interest expense, net  5,075,000   5,699,000   5,764,000   6,689,000 
(Loss) income before income tax (benefit) expense  (6,942,000)  4,694,000   (4,137,000)  (1,196,000)
Income tax (benefit) expense  (1,447,000)  1,181,000   (1,035,000)  1,569,000 
Net (loss) income $(5,495,000) $3,513,000  $(3,102,000) $(2,765,000)
                 
Basic net (loss) income per share $(0.29) $0.19  $(0.16) $(0.15)
Diluted net (loss) income per share $(0.29) $0.18  $(0.16) $(0.15)

Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the year shown elsewhere in the Annual Report on Form 10-K.

Schedule II — Valuation and Qualifying Accounts

Accounts Receivable — Allowance for doubtful accounts

Years Ended
March 31,
 Description 
Balance at
beginning of
period
  
Charge to
(recovery of)
bad debts
expense
  Acquisition  
Amounts
written off
  
Balance at
end of
period
 
2018 Allowance for doubtful accounts $4,140,000  $21,000  $-  $19,000  $4,142,000 
2017 Allowance for doubtful accounts $4,284,000  $3,000  $-  $147,000  $4,140,000 
2016 Allowance for doubtful accounts $629,000  $4,404,000  $-  $749,000  $4,284,000 
Years Ended
March 31,
 Description 
Balance at
beginning of
year
  
Charge to
bad debts
expense
  Acquisition  
Amounts
written off
  
Balance at
end of
year
 
2020 Allowance for doubtful accounts $4,100,000  $610,000  $-  $458,000  $4,252,000 
2019 Allowance for doubtful accounts $4,142,000  $224,000  $63,000(1) $329,000  $4,100,000 
2018 Allowance for doubtful accounts $4,140,000  $21,000  $-  $19,000  $4,142,000 

(1)
Allowance for doubtful accounts established in the opening balance sheet in connection with the Company’s January 2019 acquisition.

Accounts Receivable — Allowance for customer-payment discrepancies

Years Ended
March 31,
 Description 
Balance at
beginning of
period
  
Charge to
(recovery of)
discrepancies
expense
  Acquisition  
Amounts
Processed
  
Balance at
end of
period
 
2018 Allowance for customer-payment discrepancies $751,000  $998,000  $-  $639,000  $1,110,000 
2017 Allowance for customer-payment discrepancies $703,000  $718,000  $-  $670,000  $751,000 
2016 Allowance for customer-payment discrepancies $852,000  $(299,000) $-  $(150,000) $703,000 
Years Ended
March 31,
 Description 
Balance at
beginning of
yearyear
  
Charge to
discrepancies
expense
  Acquisition  
Amounts
Processed
  
Balance at
end of
year
 
2020 Allowance for customer-payment discrepancies $854,000  $1,626,000  $-  $1,440,000  $1,040,000 
2019 Allowance for customer-payment discrepancies $1,110,000  $731,000  $-  $987,000  $854,000 
2018 Allowance for customer-payment discrepancies $751,000  $998,000  $-  $639,000  $1,110,000 

Inventory — Allowance for excess and obsolete inventory

Years Ended
March 31,
 Description 
Balance at
beginning of
period
  
Provision for
excess and
obsolete
inventory
  Acquisition  
Amounts
written off
  
Balance at
end of
period
 
2018 Allowance for excess and obsolete inventory $4,125,000  $8,491,000  $77,000(1) $6,011,000  $6,682,000 
2017 Allowance for excess and obsolete inventory $3,626,000  $3,864,000  $-  $3,365,000  $4,125,000 
2016 Allowance for excess and obsolete inventory $2,675,000  $4,518,000  $-  $3,567,000  $3,626,000 
Years Ended
March 31,
 Description 
Balance at
beginning of
year
  
Provision for
excess and
obsolete
inventory
  Acquisition  
Amounts
written off
  
Balance at
end of
year
 
2020 Allowance for excess and obsolete inventory $11,899,000  $13,372,000  $-  $12,063,000  $13,208,000 
2019 Allowance for excess and obsolete inventory $6,682,000  $11,153,000  $-  $5,936,000  $11,899,000 
2018 Allowance for excess and obsolete inventory $4,125,000  $8,491,000  $77,000(2) $6,011,000  $6,682,000 

(1)(2)
Allowance for excess and obsolete inventory established in the opening balance sheet in connection with the Company’s July 2017 acquisition.


S-1
S-1