# Motorcar Parts of America Inc: Form 10-Q for the period ended Dec 31, 2009

- Company: [Motorcar Parts of America Inc](/companies/mpaa.md) (CIK 918251)
- Form: 10-Q
- Filed: 2010-02-08
- Accepted by EDGAR: Feb 8, 2010, 15:56 ET
- Period: 2009-12-31
- Accession: 0000950123-10-009894
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/918251/000095012310009894/v55067e10vq.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/918251/000095012310009894/

## Management's discussion and analysis

As filed, 35,120 characters.

The following discussion and analysis presents factors that Motorcar Parts of America, Inc. and its subsidiaries (“our”, “we”, or “us”) believe are relevant to an assessment and understanding of our consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with our March 31, 2009 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on June 15, 2009.

### Disclosure Regarding Private Securities Litigation Reform Act of 1995

This report contains certain forward-looking statements with respect to our future performance that involve risks and uncertainties. Various factors could cause actual results to differ materially from those projected in such statements. These factors include, but are not limited to: concentration of sales to certain customers, changes in our relationship with any of our major customers, the increasing customer pressure for lower prices and more favorable payment and other terms, the increasing demands on our working capital, the significant strain on working capital associated with large Remanufactured Core inventory purchases from customers, our ability to obtain any additional financing we may seek or require, our ability to achieve 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 controls over financial reporting, lower revenues than anticipated from new and existing contracts, our failure to meet the financial covenants or the other obligations set forth in our bank credit agreement and the bank’s refusal to waive any such defaults, any meaningful difference between projected production needs and ultimate sales to our customers, increases in interest rates, changes in the financial condition of any of our major customers, the impact of high gasoline prices, the potential for changes in consumer spending, 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, unforeseen increases in operating costs and other factors discussed herein and in our other filings with the SEC.

### Management Overview

We remanufacture alternators and starters for import and domestic cars and light trucks in addition to heavy duty, agricultural and industrial applications and distribute them predominantly throughout the United States and Canada. Our business for heavy duty, agricultural and industrial applications is in its early stages and does not represent a significant portion of our business. Our line of light duty alternators and starters are sold to most of the largest auto parts retail chains in the United States and Canada, and various traditional warehouses for the professional installers. We believe that demand and replacement rates for after-market remanufactured alternators and starters generally increase with increases in miles driven and the age of vehicles.

Historically, our business has focused on the do-it-yourself (“DIY”) market, customers who buy remanufactured alternators and starters at an auto parts store and install the parts themselves. We believe that the do-it-for-me (“DIFM”) market, also known as the professional installer market, is an attractive opportunity for growth. We believe we are positioned to benefit from this market opportunity in two ways: (1) our auto parts retail customers are expanding their efforts to target the professional installer market segment and (2) we sell our products under private label and our Quality-Built®, Talon®, Xtreme®, and other brand names directly to suppliers that focus on professional installers. In addition, we sell our products to an original equipment manufacturer for distribution to the professional installer both for warranty replacement and their general after-market channels.

In August 2009, we completed the acquisition of certain assets of Reliance Automotive, Inc. (“Reliance”), a privately held remanufacturer of alternators and starters based in East Berlin, Connecticut. These products are sold under the Reliance™ brand name. We believe the acquisition of Reliance continues our acquisition strategy designed to further enhance our market share in North America, including the addition of a major automotive retail customer.

We operate in one business segment pursuant to FASB Accounting Standards Codification (“ASC”) 280, *Segment Reporting.*

### Results of Operations for the Three Months Ended December 31, 2009 and 2008

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

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

|  | Three Months Ended December 31, 2009 | 2008 |
| --- | ---: | ---: |
| Gross profit percentage | 29.8% | 28.3% |
| Cash flow provided by operations | $13,130,000 | $5,898,000 |
| Finished goods turnover (annualized) (1) | 4.9 | 5.1 |
| Annualized return on equity (2) | 9.2% | (1.4)% |

(1) Annualized finished goods turnover for the fiscal quarter is calculated by multiplying cost of sales for the quarter by 4 and dividing the result by the average between beginning and ending non-core finished goods inventory values for the fiscal quarter. We believe this provides a useful measure of our ability to turn production into revenues.

(2) Annualized return on equity is computed as net income (loss) for the fiscal quarter multiplied by 4 and dividing the result by beginning shareholders’ equity. Annualized return on equity measures our ability to invest shareholders’ funds profitably.

Following is our unaudited results of operations, reflected as a percentage of net sales:

|  | Three Months Ended December 31, 2009 | 2008 |
| --- | ---: | ---: |
| Net sales | 100.0% | 100.0% |
| Cost of goods sold | 70.2 | 71.7 |
| Gross profit | 29.8 | 28.3 |
| Operating expenses: |  |  |
| General and administrative | 10.4 | 15.3 |
| Sales and marketing | 4.2 | 4.3 |
| Research and development | 1.0 | 1.4 |
| Impairment of goodwill | — | 5.8 |
| Operating income | 14.2 | 1.5 |
| Interest expense — net of interest income | 4.9 | 3.4 |
| Income tax expense (benefit) | 3.4 | (1.1) |
| Net income (loss) | 5.9% | (0.8)% |

*Net Sales*. Net sales for the three months ended December 31, 2009 increased by $680,000 to $36,482,000 compared to net sales for the three months ended December 31, 2008 of $35,802,000. This increase was primarily due to net sales to new customers acquired as a result of our acquisition of certain assets of Reliance, which was partially offset by lower sales to our other existing customers, due mainly to the positive impact of update orders in the same quarter of the prior fiscal year.

*Cost of Goods Sold/Gross Profit.* Cost of goods sold as a percentage of net sales decreased during the three months ended December 31, 2009 to 70.2% from 71.7% for the three months ended December 31, 2008, resulting in a corresponding increase in our gross profit of 1.5% to 29.8% for the three months ended December 31, 2009 from 28.3% for the three months ended December 31, 2008. The increase in the gross profit percentage, as compared to the three months ended December 31, 2008, was primarily due to lower manufacturing costs and increased revenue from our scrap metal compared to the three months ended December 31, 2008. This increase in gross profit was partly offset by an increase in packaging costs of $125,000 reflecting increased sales to new customers and improved and more costly packaging materials compared to the three months ended December 31, 2008, and an increase in the provision for inventory reserves of $238,000 compared to the three months ended December 31, 2008.

*General and Administrative.* Our general and administrative expenses for the three months ended December 31, 2009 were $3,801,000, which represents a decrease of $1,659,000, or 30.4%, from general and administrative expenses for the three months ended December 31, 2008 of $5,460,000. This decrease in general and administrative expenses during the three months ended December 31, 2009 was primarily due to a gain of $292,000 recorded due to the changes in the fair value of foreign exchange contracts, compared to a loss of $1,347,000 during the three months ended December 31, 2008.

*Sales and Marketing*. Our sales and marketing expenses for the three months ended December 31, 2009 decreased $7,000, or 0.5%, to $1,548,000 from $1,555,000 for the three months ended December 31, 2008. This decrease was due primarily to decreased trade show expenses, partially offset by the addition of employees as a result of our acquisition of certain assets of Reliance.

*Research and Development*. Our research and development expenses decreased by $160,000, or 31.1%, to $355,000 for the three months ended December 31, 2009 from $515,000 for the three months ended December 31, 2008. The decrease in research and development expenses were due primarily to lower compensation resulting from a reduction in workforce and cost of supplies.

*Impairment of Goodwill*. We recorded a non-cash pre-tax impairment charge of $2,091,000 for the three months ended December 31, 2008. After recording the impairment charge, we had no goodwill remaining on our Consolidated Balance Sheet as of March 31, 2009.

*Interest Expense.* Our interest expense, net of interest income, for the three months ended December 31, 2009 was $1,776,000. This represents an increase of $573,000, or 47.6%, over interest expense, net of interest income, of $1,203,000 for the three months ended December 31, 2008. This increase was primarily attributable to an increase in discounts for the factored receivables for the three months ended December 31, 2009 compared to the three months ended December 31, 2008.

*Income Tax*. For the three months ended December 31, 2009, we recognized income tax expense of $1,252,000 compared to an income tax benefit of $380,000 recognized for the three months ended December 31, 2008. Our effective tax rate for the three months ended December 31, 2009 and 2008 was 36.9% and 54.8%, respectively. The effective tax rate includes required adjustments to reflect the appropriate nine month rates in both fiscal periods. The income tax benefit recorded for the three months ended December 31, 2008, primarily reflects the income tax effect of goodwill impairment at income tax rates not offset by lower statutory tax rates in foreign taxing jurisdictions.

### Results of Operations for the Nine Months Ended December 31, 2009 and 2008

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

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

|  | Nine Months Ended December 31, 2009 | 2008 |
| --- | ---: | ---: |
| Gross profit percentage | 26.6% | 31.9% |
| Cash flow provided by (used in) operations | $15,855,000 | $(4,673,000) |
| Finished goods turnover (annualized) (1) | 5.1 | 4.5 |
| Annualized return on equity (2) | 9.7% | 7.4% |

20

(1) Annualized finished goods turnover for the nine months ended December 31, 2009 and 2008 is calculated by multiplying cost of sales for each nine month period by 1.33 and dividing the result by the average between beginning and ending non-core finished goods inventory values for each nine month period. We believe this provides a useful measure of our ability to turn production into revenues.

(2) Annualized return on equity is computed as net income for the nine months ended December 31, 2009 and 2008 multiplied by 1.33 and dividing the result by beginning shareholders’ equity. Annualized return on equity measures our ability to invest shareholders’ funds profitably.

Following is our unaudited results of operations, reflected as a percentage of net sales:

|  | Nine Months Ended December 31, 2009 | 2008 |
| --- | ---: | ---: |
| Net sales | 100.0% | 100.0% |
| Cost of goods sold | 73.4 | 68.1 |
| Gross profit | 26.6 | 31.9 |
| Operating expenses: |  |  |
| General and administrative | 9.2 | 13.9 |
| Sales and marketing | 4.0 | 3.7 |
| Research and development | 0.9 | 1.5 |
| Impairment of goowill | — | 2.0 |
| Operating income | 12.5 | 10.8 |
| Gain on acquisition | (1.2) | — |
| Interest expense — net of interest income | 3.4 | 3.0 |
| Income tax expense | 4.0 | 3.0 |
| Net income | 6.3% | 4.8% |

*Net Sales*. Net sales for the nine months ended December 31, 2009 increased by $3,665,000, to $108,609,000 compared to net sales for the nine months ended December 31, 2008 of $104,944,000. This increase was primarily due to net sales to new customers acquired as a result of our acquisitions partially offset by lower sales to our other existing customers. Our sales in the first two months of the nine month period were negatively impacted by an inventory reduction program initiated by one of our largest customers and an understanding with a customer to delay shipments because of its then uncertain financial future. In addition, our net sales for the nine months ended December 31, 2009 were positively impacted by the recognition of $845,000 of previously deferred core revenue. We have recognized this revenue because we do not expect to incur any additional sales incentive allowances associated with Remanufactured Core buybacks from this customer.

*Cost of Goods Sold/Gross Profit.* Cost of goods sold as a percentage of net sales increased during the nine months ended December 31, 2009 to 73.4% from 68.1% for the nine months ended December 31, 2008, resulting in a corresponding decrease in our gross profit of 5.3% to 26.6% for the nine months ended December 31, 2009 from 31.9% for the nine months ended December 31, 2008. The decrease in the gross profit percentage, as compared to the nine months ended December 31, 2008, was primarily due to (i) the reversal of a $1,307,000 accrual related to the customs duties claims during the nine months ended December 31, 2008, (ii) an increase in packaging costs of $1,023,000 reflecting increased sales to new customers and improved and more costly packaging materials compared to the nine months ended December 31, 2008, (iii) an increase in the provision for inventory reserves of $1,129,000 compared to the nine months ended December 31, 2008, and (iv) a reduction in scrap metal prices that resulted in a decrease in revenue of $705,000 for our scrap metal compared to the nine months ended December 31, 2008. In addition, our gross profit in the prior year was impacted by acceleration of $2,300,000 of promotional allowances earned in the fourth quarter of fiscal 2008, which otherwise would have been earned by one of our customers during the fourth quarter of fiscal 2008 through the first four months of fiscal 2009.

*General and Administrative.* Our general and administrative expenses for the nine months ended December 31, 2009 were $9,966,000, which represents a decrease of $4,668,000, or 31.9%, from general and administrative expenses for the nine months ended December 31, 2008 of $14,634,000. This decrease in general and administrative expenses during the nine months ended December 31, 2009 was primarily due to the following: (i) a gain of $1,395,000 recorded due to the changes in the fair value of foreign exchange contracts compared to a loss of $1,704,000 during the nine months ended December 31, 2008, (ii) $481,000 of decreased professional services fees, (iii) $324,000 of decreased stock-based compensation, (iv) $279,000 of decreased general and administrative expenses at our offshore manufacturing facilities, (v) $163,000 of decreased travel expense, and (vi) $108,000 of decreased severance and other related expenses.

*Sales and Marketing*. Our sales and marketing expenses for the nine months ended December 31, 2009 increased $444,000, or 11.4%, to $4,355,000 from $3,911,000 for the nine months ended December 31, 2008. This increase was due primarily to the addition of employees as a result of our acquisitions, increased catalog expenses, and increased commission expenses due to higher net sales, and was partially offset by decreased trade show expense, consulting fees, and travel.

*Research and Development*. Our research and development expenses decreased by $535,000, or 34.3%, to $1,023,000 for the nine months ended December 31, 2009 from $1,558,000 for the nine months ended December 31, 2008. The decrease in research and development expenses were due primarily to lower compensation resulting from a reduction in workforce and cost of supplies.

*Impairment of Goodwill*. We recorded a non-cash pre-tax impairment charge of $2,091,000 for the nine months ended December 31, 2008. After recording the impairment charge, we had no goodwill remaining on our Consolidated Balance Sheet as of March 31, 2009.

*Gain on acquisition*. During the nine months ended December 31, 2009, we recorded a gain of $1,331,000 in connection with the acquisition of certain assets of Reliance as the estimated fair value of the net assets acquired exceeded the fair value of the consideration transferred.

*Interest Expense.* Our interest expense, net of interest income, for the nine months ended December 31, 2009 was $3,746,000. This represents an increase of $577,000 over interest expense, net of interest income, of $3,169,000 for the nine months ended December 31, 2008. This increase was primarily attributable to an increase in discounts for the factored receivables and higher average outstanding balances on our Revolving Loan, which were partially offset by lower interest rates on our Revolving Loan balance during the nine months ended December 31, 2009.

*Income Tax*. For the nine months ended December 31, 2009 and 2008, we recognized income tax expense of $4,330,000 and $3,115,000, respectively. Our effective tax rate for the nine months ended December 31, 2009 and 2008 was 39.0% and 38.2%, respectively. The effective tax rate increase primarily reflects a decrease in the benefit from lower statutory rates in foreign taxing jurisdictions.

### Liquidity and Capital Resources

### Overview

At December 31, 2009, we had working capital of $2,497,000, a ratio of current assets to current liabilities of 1.1:1, including cash of $465,000, compared to negative working capital of $3,569,000, a ratio of current assets to current liabilities of 0.94:1, including cash of $452,000 at March 31, 2009. The significant change in working capital from March 31, 2009 primarily resulted from the accelerated collection of our accounts receivables balances from the receivable discount programs, the increase in our accounts payable balances, and the proceeds from our Term Loan were used to pay down the balance of our Revolving Loan.

During the nine months ended December 31, 2009, we used cash generated by operations, from our receivable discount programs we have with certain of our customers, and obtained from our New Credit Facility as our primary sources of liquidity. In September 2009, one of these customers reinstated the use of its receivable discount program which had been previously suspended in May 2008.

We believe our cash generated by operations, amounts available under our New Credit Agreement, and our cash and short term investments on hand are sufficient to satisfy our expected future working capital needs, capital lease commitments and capital expenditure obligations over the next twelve months.

### Cash Flows

Net cash provided by operating activities was $15,855,000 for the nine months ended December 31, 2009 compared to net cash used in operating activities of $4,673,000 for the nine months ended December 31, 2008. The most significant changes in operating activities for the nine months ended December 31, 2009 compared to the nine months ended December 31, 2008 were the (i) reinstatement in September 2009 of a receivable discount program with one of our major customers which had been suspended by the customer in May 2008, (ii) an increase in our accounts payable and accrued liabilities compared to the nine months ended December 31, 2008, and (iii) our long-term core inventory levels increased less during the nine months ended December 31, 2009 compared to the same nine month period of the prior year due primarily to increased levels of Remanufactured Cores held for sale at our customers’ locations. These changes in operating activities were partly offset by an increase in our non-core inventory levels during the nine months ended December 31, 2009 compared to a decrease in our non-core inventory levels during the nine months ended December 31, 2008.

Net cash used in investing activities was $3,416,000 and $9,030,000 during the nine months ended December 31, 2009 and 2008, respectively. The decrease in net cash used in investing activities primarily resulted from the acquisition of certain assets of Reliance during the nine months ended December 31, 2009, compared to the acquisitions of both AIM and SCP during the nine months ended December 31, 2008. Capital expenditures for the nine months ended December 31, 2009 primarily related to the purchase of equipment for our manufacturing facilities compared to purchases in the prior year primarily related to IT equipment and improvements at our California and offshore facilities.

Net cash used in financing activities was $12,445,000 during the nine months ended December 31, 2009 compared to net cash provided by financing activities of $13,304,000 during the nine months ended December 31, 2008. Cash resources generated by operating activities and the proceeds from our Term Loan were primarily used to pay down the balance of our Revolving Loan. The borrowings under our Revolving Loan in the prior year were primarily used to finance our acquisitions of AIM and SCP, pay down our accounts payable balances, and to offset the reduction in cash resources due to one of our customer’s suspension of its receivable discount program to factor our accounts receivable. In September 2009, this customer re-opened the use of this program.

### Capital Resources

#### Debt

Our amended and restated credit agreement, with our bank (the “Old Credit Agreement”) provided us with a revolving loan of up to $40,000,000, including obligations under outstanding letters of credit. The Old Credit Agreement, among other things, allowed us to borrow under the revolving loan for the purpose of consummating certain permitted acquisitions.

In June 2009, we entered into a sixth amendment to the Old Credit Agreement with our bank. This amendment, among other things: (i) created a borrowing reserve in the amount of $7,500,000 reserved by our bank against our revolving loan commitment amount and available in the event the receivables from our largest customer were no longer factored, and (ii) amended certain financial covenants, including our leverage ratio and EBITDA covenants.

In August 2009, we entered into a seventh amendment to the Old Credit Agreement with our bank. This amendment, among other things, extended the expiration date of the credit facility to July 13, 2010.

The Old Credit Agreement, among other things, required us to maintain certain financial covenants, including cash flow, fixed charge coverage ratio and leverage ratio and a number of restrictive covenants, including limits on capital expenditures and operating leases, prohibitions against additional indebtedness, payment of dividends, pledge of assets and loans to officers and/or affiliates. In addition, it was an event of default under the Old Credit Agreement if Selwyn Joffe was no longer our CEO.

In October 2009, we entered into a revolving credit and term loan agreement (the “New Credit Agreement”) with our bank and one additional lender (the “Lenders”), which permits us to borrow up to $45,000,000 (the “New Credit Facility”). The New Credit Facility, among other things, provides us with a revolving loan (the “Revolving

Loan”) of up to $35,000,000, including obligations under outstanding letters of credit and a borrowing reserve in the amount of $7,500,000 to be reserved by the Lenders against our Revolving Loan commitment amount and this borrowing reserve becomes available in the event the receivables from our largest customer are no longer factored, and a term loan (the “Term Loan”) in the principal amount of $10,000,000.

The New Credit Agreement, among other things, requires us to maintain certain financial covenants, including tangible net worth, fixed charge coverage ratio and leverage ratio covenants.

The Term Loan matures in October 2014 and requires principal payments of $500,000 on a quarterly basis. The first quarterly payment is due on January 4, 2010. The Revolving Loan expires in October 2011 and provides us the option to request up to three one-year extensions.

The Lenders hold a security interest in substantially all of our assets. The balance of the Revolving Loan was $700,000 and $21,600,000 at December 31, 2009 and March 31, 2009, respectively. Additionally, we had reserved $2,201,000 of the Revolving Loan for standby letters of credit for workers’ compensation insurance and $576,000 reserved for commercial letters of credit as of December 31, 2009. As of December 31, 2009, $31,523,000 was available under the Revolving Loan, and of this, $7,500,000 was reserved for use in the event our largest customer discontinued its current practice of having our receivables factored.

We were in compliance with all financial covenants under the New Credit Agreement as of December 31, 2009.

The Revolving Loan and the Term Loan bear interest at either our bank’s reference rate plus an applicable margin or a London Interbank Offered Rate (“LIBOR”) rate (which in the case of the Term Loan shall not be lower than 3.75%) plus an applicable margin, as selected by us in accordance with the New Credit Agreement. The reference rate is, as further described in the New Credit Agreement, the higher of our bank’s announced base rate and the Federal funds rate plus 1/2 percent. The applicable margins are determined quarterly on a prospective basis as set forth below:

| Leverage Ratio | Applicable LIBOR Margin | Applicable Reference Rate Margin |
| --- | --- | --- |
| Less than 1.5:1.0 | 275 basis points | 150 basis points |
| Greater than or equal to 1.5:1.0 | 300 basis points | 175 basis points |

Our ability to comply in future periods with the financial covenants in the New Credit Agreement, will depend on our ongoing financial and operating performance, which, in turn, will be subject to economic conditions and to financial, business and other factors, many of which are beyond our control and will be substantially dependent on the selling prices and demand for our products, customer demands for marketing allowances and other concessions, raw material costs, and our ability to successfully implement our overall business strategy, including acquisitions. If a violation of any of the covenants occurs in the future, we would attempt to obtain a waiver or an amendment from our Lenders. No assurance can be given that we would be successful in this regard.

#### Receivable Discount Programs

Our liquidity has been positively impacted by receivable discount programs we have established with certain customers and their respective banks. Under these programs, we have the option to sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. The weighted average discount under this program was 4.7% during the nine months ended December 31, 2009 and has allowed us to accelerate collection of receivables aggregating $64,885,000 by a weighted average of 335 days. While these arrangements have reduced our working capital needs, there can be no assurance that these programs will continue in the future. These programs resulted in interest expense of $2,841,000 during the nine months ended December 31, 2009. Interest expense resulting from these programs would increase if interest rates rise, if utilization of these discounting arrangements expands, or if the discount period is extended to reflect more favorable payment terms to customers. In September 2009, one of these customers reinstated the use of its receivable discount program which had been previously suspended in May 2008.

#### Off-Balance Sheet Arrangements

At December 31, 2009, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually narrow or limited purposes.

### Capital Expenditures and Commitments

### Capital Expenditures

Our capital expenditures were $816,000 for the nine months ended December 31, 2009 and primarily relate to the purchase of equipment for our manufacturing facilities. We expect our fiscal year 2010 capital expenditures to be approximately $1.5 million. We intend to use our working capital and incur additional capital lease obligations to finance these capital expenditures.

### Related Party Transactions

Our related party transactions primarily consist of employment and director agreements and stock option agreements.

Except as noted below, our related party transactions have not changed since March 31, 2009.

During the nine months ended December 31, 2009, we paid Houlihan Lokey Howard & Zukin Capital, Inc. $8,200 for reimbursement of out-of-pocket expenses. Scott Adelson, a member of our Board of Directors, is a Senior Managing Director of Houlihan Lokey Howard & Zukin Capital, Inc.

### Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates that are presented in the Company’s Annual Report on Form 10-K for the year ended March 31, 2009, except as discussed below.

### New Accounting Pronouncements

In May 2009, the FASB established standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued that are included in FASB ASC 855, *Subsequent Events (“*FASB ASC 855”). Entities are required to disclose the date through which subsequent events have been evaluated and the basis for that date. FASB ASC 855 is effective on a prospective basis for interim and annual periods ending after June 15, 2009. The adoption of this standard on June 30, 2009 did not have any material impact on our consolidated financial position and results of operations.

In June 2009, the FASB issued SFAS No. 166, *Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140*, which was subsequently codified in December 2009 by Accounting Standards Update (“ASU”) No. 2009-16 as FASB ASC 860, *Transfers and Servicing (“*FASB ASC 860”). FASB ASC 860 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. FASB ASC 860 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2009. We do not expect the adoption of FASB ASC 860 on April 1, 2010 to have any material impact on our consolidated financial position and results of operations.

In June 2009, the FASB issued SFAS No. 167, *Amendments to FASB Interpretation No. 46(R)*, which was subsequently codified in December 2009 by ASU No. 2009-17 as FASB ASC 810, *Consolidations (“*FASB ASC 810”). This statement amends the consolidation guidance applicable to variable interest entities and is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2009. We do not expect the adoption of

FASB ASC 810 on April 1, 2010 to have any material impact on our consolidated financial position and results of operations.

In June 2009, the FASB approved the FASB ASC as the single source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the ASC has become non-authoritative. The ASC is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. We began to use the new guidelines and numbering system prescribed by the ASC when referring to GAAP during the second quarter of fiscal 2010. As the ASC was not intended to change or alter existing GAAP, it did not have any impact on our consolidated financial position and results of operations.

In August 2009, the FASB issued ASU No. 2009-05, *Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value*. This update provides clarification for the fair value measurement of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available. This update is effective for the first reporting period, including interim periods, beginning after issuance. The adoption of this update on October 1, 2009 did not have any material impact on our consolidated financial position and results of operations.

In January 2010, the FASB issued ASU No. 2010-06, *Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements*. This update requires new disclosures for transfers in and out of Level 1 and Level 2 of the fair value hierarchy and expanded disclosures for activity in Level 3 of the fair value hierarchy. The update also clarifies existing disclosures regarding the level of disaggregation for disclosure and disclosures about inputs and valuation techniques. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009. We do not expect the adoption of this update on January 1, 2010 to have any material impact on our consolidated financial position and results of operations. The disclosures regarding certain Level 3 activity are effective for fiscal years beginning after December 15, 2010. We are currently evaluating the impact the adoption of this guidance on April 1, 2011 will have on our consolidated financial position and results of operations.

## Market risk

As filed, 243 characters.

There have been no material changes in market risk from the information provided in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K as of March 31, 2009, which was filed on June 15, 2009.

## Controls and procedures

As filed, 890 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, we have evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e), as of the period covered by this Quarterly Report. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.

### Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the third quarter ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 199 characters.

There have been no material changes to the risk factors set forth in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended March 31, 2009, filed with the SEC on June 15, 2009.

Filed Feb 8, 2010.
Source: SEC EDGAR, the filing index for accession 0000950123-10-009894. Last ingested by Listed: Nov 10, 2026, 01:42 ET. No prices; not investment advice.