# Motorcar Parts of America Inc: Form 10-Q for the period ended Dec 31, 2016

- Company: [Motorcar Parts of America Inc](/companies/mpaa.md) (CIK 918251)
- Form: 10-Q
- Filed: 2017-02-09
- Accepted by EDGAR: Feb 9, 2017, 16:01 ET
- Period: 2016-12-31
- Accession: 0001140361-17-005391
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/918251/000114036117005391/form10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/918251/000114036117005391/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-10-01 to 2016-12-31 | $112.6m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2016-04-01 to 2016-12-31 | $306.8m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-10-01 to 2016-12-31 | $80.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2016-04-01 to 2016-12-31 | $223.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2016-10-01 to 2016-12-31 | $32.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2016-04-01 to 2016-12-31 | $83.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2016-10-01 to 2016-12-31 | $1.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2016-04-01 to 2016-12-31 | $2.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2016-10-01 to 2016-12-31 | $20.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2016-04-01 to 2016-12-31 | $50.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2016-10-01 to 2016-12-31 | $5.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2016-04-01 to 2016-12-31 | $13.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-10-01 to 2016-12-31 | $11.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2016-04-01 to 2016-12-31 | $27.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-10-01 to 2016-12-31 | $0.57 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2016-04-01 to 2016-12-31 | $1.43 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-10-01 to 2016-12-31 | $0.59 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2016-04-01 to 2016-12-31 | $1.49 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-10-01 to 2016-12-31 | 19,441,265 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2016-04-01 to 2016-12-31 | 19,399,857 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 9 months, 2016-04-01 to 2016-12-31 | $4.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2016-12-31 | $3.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-12-31 | $147.2m | us-gaap:AssetsCurrent |
| Total assets | at 2016-12-31 | $443.0m | us-gaap:Assets |
| Current liabilities | at 2016-12-31 | $143.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-12-31 | $203.1m | us-gaap:Liabilities |
| Long-term debt | at 2016-12-31 | $17.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2016-12-31 | $3.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2016-12-31 | $239.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,030 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, 2016 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on June 14, 2016, as amended by the Form 10-K/A filed with the SEC on July 29, 2016.

### 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 a small number of 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, 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 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, 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, unforeseen increases in operating costs, risks associated with cyber-attacks, risks associated with conflict minerals, and other factors discussed herein and in our other filings with the SEC.

### Management Overview

We are a leading manufacturer, remanufacturer, and distributor of aftermarket automotive parts for import and domestic cars, light trucks, heavy duty, agricultural and industrial applications. We sell our products predominantly in North America to the largest auto parts retail and traditional warehouse chains and to major automobile manufacturers for both their aftermarket programs and their OES programs. Our products include (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake master cylinders, and (iv) other products which include turbochargers and brake power boosters. We added turbochargers with our acquisition in July 2016. We began selling brake power boosters in August 2016.

The aftermarket for automobile parts is divided into two markets. The first is the DIY 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 DIFM market. This market is generally serviced by the traditional warehouse distributors, the dealer networks, and the commercial divisions of retail chains. Generally, the consumer in this channel is a professional parts installer. Our products are distributed to both the DIY and DIFM markets.

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 we have one reportable segment for purposes of recording and reporting our financial results.

### Results of Operations for the Three Months Ended December 31, 2016 and 2015

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

The following summarizes certain key operating data:

|  | Three Months Ended December 31, 2016 | 2015 |
| --- | ---: | ---: |
| Gross profit percentage | 28.7% | 30.7% |
| Cash flow provided by (used in) operations | $1,506,000 | $(9,214,000) |
| Finished goods turnover (annualized) (1) | 6.3 | 6.6 |

(1) Annualized finished goods turnover for the fiscal quarter is calculated by multiplying cost of goods sold 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 our inventory into revenues.

### Net Sales and Gross Profit

The following summarizes net sales and gross profit:

|  | Three Months Ended December 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net sales | $112,595,000 | $94,022,000 |
| Cost of goods sold | 80,225,000 | 65,123,000 |
| Gross profit | 32,370,000 | 28,899,000 |
| Gross profit percentage | 28.7% | 30.7% |

*Net Sales*. Our net sales for the three months ended December 31, 2016 increased by $18,573,000, or 19.8%, to $112,595,000 compared to net sales for the three months ended December 31, 2015 of $94,022,000. The increase in our net sales was attributable to higher sales of rotating electrical products, brake master cylinders and the introduction of brake power boosters. $9,261,000 of this increase is due to the change in estimate in our accrual for anticipated stock adjustment returns.

*Gross Profit.* Our gross profit percentage was 28.7% for the three months ended December 31, 2016 compared to 30.7% for the three months ended December 31, 2015. Our gross profit for the three months ended December 31, 2016 was impacted by volume and stock update discounts for rotating electrical products. In addition, our gross profit percentage for the three months ended December 31, 2016 was further impacted by $258,000 for customer allowances related to new business. This decrease was partially offset by a 1.3% increase from the change in estimate relating to stock adjustments. In the prior year’s three months ended December 31, 2015, the gross profit included a cost of goods sold impact of $176,000 for inventory step-up amortization.

### Operating Expenses

The following summarizes operating expenses:

|  | Three Months Ended December 31, 2016 | 2015 |
| --- | ---: | ---: |
| General and administrative | $7,952,000 | $8,802,000 |
| Sales and marketing | 3,234,000 | 2,671,000 |
| Research and development | 1,039,000 | 711,000 |
| **Percent of net sales** |  |  |
| General and administrative | 7.1% | 9.4% |
| Sales and marketing | 2.9% | 2.8% |
| Research and development | 0.9% | 0.8% |

*General and Administrative.* Our general and administrative expenses for the three months ended December 31, 2016 were $7,952,000, which represents a decrease of $850,000, or 9.7%, from general and administrative expenses for the three months ended December 31, 2015 of $8,802,000. The reduction was primarily due to (i) $4,624,000 of decreased bad debt expense as compared to the three months ended December 31, 2015, which included expense resulting from the bankruptcy filing by one of our customers, (ii) a $962,000 gain recorded due to the change in the fair value of the warrant liability during the three months ended December 31, 2016 compared to a $1,275,000 loss recorded during the three months ended December 31, 2015, and (iii) $732,000 of decreased legal expense. These decreases were partially offset by (i) a $5,800,000 gain in connection with the settlement of litigation with Fenwick Automotive Products Limited and various of its subsidiaries during the three months ended December 31, 2015 and (ii) a $964,000 loss recorded due to the change in the fair value of the forward foreign currency exchange contracts during the three months ended December 31, 2016 compared to a $245,000 gain recorded during the three months ended December 31, 2015.

*Sales and Marketing*. Our sales and marketing expenses for the three months ended December 31, 2016 increased $563,000, or 21.1%, to $3,234,000 from $2,671,000 for the three months ended December31, 2015. The increase was due primarily to our growth initiatives and increased commissions.

*Research and Development*. Our research and development expenses increased by $328,000, or 46.1%, to $1,039,000 for the three months ended December 31, 2016 from $711,000 for the three months ended December 31, 2015, due primarily to our growth initiatives.

### Interest Expense

*Interest Expense, net.* Our interest expense, net for the three months ended December 31, 2016 increased $841,000, or 33.4%, to $3,357,000 from $2,516,000 for the three months ended December 31, 2015. The increase in interest expense was due primarily to higher interest rates on (i) our accounts receivable discount programs and (ii) higher average outstanding balances on our revolving facility.

### Provision for Income Taxes

*Income Tax*. Our income tax expense for the three months ended December 31, 2016 and 2015 was $5,678,000, or an effective tax rate of 33.8%, and $6,451,000, or an effective tax rate of 45.4%, respectively. Our income tax rate for the three months ended December 31, 2016 was positively impacted by (i) a non-taxable gain in connection with the fair value adjustments on the warrants compared to a non-deductible loss for the three months ended December 31, 2015 and (ii) $34,000 of excess tax benefits as a result of the early adoption of the FASB’s 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.

### Results of Operations for the Nine Months Ended December 31, 2016 and 2015

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

The following summarizes certain key operating data:

|  | Nine Months Ended December 31, 2016 | 2015 |
| --- | ---: | ---: |
| Gross profit percentage | 27.2% | 28.3% |
| Cash flow (used in) provided by operations | $(20,810,000) | $9,963,000 |
| Finished goods turnover (annualized) (1) | 6.4 | 6.5 |

(1) Annualized finished goods turnover for the period is calculated by multiplying cost of goods sold for the period by 1.33 and dividing the result by the average between beginning and ending non-core finished goods inventory values for the period. We believe this provides a useful measure of our ability to turn our inventory into revenues.

### Net Sales and Gross Profit

The following summarizes net sales and gross profit:

|  | Nine Months Ended December 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net sales | $306,843,000 | $271,527,000 |
| Cost of goods sold | 223,424,000 | 194,817,000 |
| Gross profit | 83,419,000 | 76,710,000 |
| Gross profit percentage | 27.2% | 28.3% |

*Net Sales*. Our net sales for the nine months ended December 31, 2016 increased by $35,316,000, or 13.0%, to $306,843,000 compared to net sales for the nine months ended December 31, 2015 of $271,527,000. The increase in our net sales was across all existing product lines. $9,261,000 of this increase is due to the change in estimate in our accrual for anticipated stock adjustment returns. This increase was partially offset by allowances and returns related to new business as discussed below in the Gross Profit paragraph.

*Gross Profit.* Our gross profit percentage decreased to 27.2% for the nine months ended December 31, 2016 from 28.3% for the nine months ended December 31, 2015. Our gross profit for the nine months ended December 31, 2016 was impacted by $12,215,000 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 $140,000 for start-up costs incurred related to our launch of brake power boosters. This decrease was partially offset by a 0.5% increase from the change in estimate relating to stock adjustments. Our gross profit for the nine months ended December 31, 2015 was impacted by $10,863,000 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 $321,000 for inventory step-up amortization.

### Operating Expenses

The following summarizes operating expenses:

|  | Nine Months Ended December 31, 2016 | 2015 |
| --- | ---: | ---: |
| General and administrative | $21,446,000 | $38,381,000 |
| Sales and marketing | 8,575,000 | 7,583,000 |
| Research and development | 2,813,000 | 2,093,000 |
| **Percent of net sales** |  |  |
| General and administrative | 7.0% | 14.1% |
| Sales and marketing | 2.8% | 2.8% |
| Research and development | 0.9% | 0.8% |

*General and Administrative.* Our general and administrative expenses for the nine months ended December 31, 2016 were $21,446,000, which represents a decrease of $16,935,000, or 44.1%, from general and administrative expenses for the nine months ended December 31, 2015 of $38,381,000. The reduction was primarily due to (i) a $5,727,000 gain recorded due to the change in the fair value of the warrant liability during the nine months ended December 31, 2016 compared to a loss of $3,017,000 recorded during the nine months ended December 31, 2015, (ii) $7,251,000 of decreased legal expense as compared to the nine months ended December 31, 2015, which included $9,250,000 accrued for the litigation settlement in the bankruptcy cases related to the discontinued subsidiaries partially offset by a $5,800,000 gain in connection with the settlement of litigation with Fenwick Automotive Products Limited and various of its subsidiaries, and (iii) $4,553,000 of decreased bad debt expense as compared to the nine months ended December 31, 2015, which included expense resulting from the bankruptcy filing by one of our customers. These decreases were partially offset by (i) $2,046,000 of increased loss recorded due to the change in the fair value of the forward foreign currency exchange contracts, (ii) $797,000 of increased general and administrative expenses at our offshore locations due primarily to our growth initiatives, and (iii) $769,000 of increased share-based compensation.

*Sales and Marketing*. Our sales and marketing expenses for the nine months ended December 31, 2016 increased $992,000, or 13.1%, to $8,575,000 from $7,583,000 for the nine months ended December 31, 2015. The increase was due primarily to our growth initiatives.

*Research and Development*. Our research and development expenses increased by $720,000, or 34.4%, to $2,813,000 for the nine months ended December 31, 2016 from $2,093,000 for the nine months ended December 31, 2015, due primarily to our growth initiatives.

### Interest Expense

*Interest Expense, net.* Our interest expense, net for the nine months ended December 31, 2016 decreased $4,201,000, or 31.0%, to $9,365,000 from $13,566,000 for the nine months ended December 31, 2015. The decrease in interest expense was due primarily to (i) the write-off of previous debt issuance costs of $5,108,000 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 of our accounts receivable discount programs during the nine months ended December 31, 2016.

### Provision for Income Taxes

*Income Tax*. Our income tax expense for the nine months ended December 31, 2016 and 2015 was $13,459,000, or an effective tax rate of 32.7%, and $6,821,000, or an effective tax rate of 45.2%, respectively. Our income tax rate for the nine months ended December 31, 2016 was positively impacted by (i) a non-taxable gain in connection with the fair value adjustments on the warrants compared to a non-deductible loss for the nine months ended December 31, 2015 and (ii) $624,000 of excess tax benefits as a result of the early adoption of the FASB’s 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.

### Liquidity and Capital Resources

### Overview

At December 31, 2016, we had working capital of $3,943,000, a ratio of current assets to current liabilities of 1.03:1.00, and cash of $3,941,000, compared to working capital of $8,702,000, a ratio of current assets to current liabilities of 1.10:1.00, and cash of $21,897,000 at March 31, 2016. We generated cash during the nine months ended December 31, 2016 from the use of receivable discount programs with certain of our major customers and their respective banks, as well as from our credit facility. The cash generated from these activities was used primarily to make payments for certain customer allowances and initial return and stock adjustment accruals in connection with new business and to build our inventory levels to support higher sales.

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, capital lease commitments, and capital expenditure obligations over the next 12 months.

### Share Repurchase Program

On June 9, 2016, our board of directors approved a stock repurchase program of up to $10,000,000 of our outstanding common stock, at prices deemed appropriate by management. This program replaces our existing $5,000,000 repurchase program, announced in March 2010, pursuant to which we had purchased 67,347 shares for a total of $389,000, which leaves $9,611,000 available for repurchases under the new stock repurchase program.

### Cash Flows

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

| Cash provided by (used in): | Nine Months Ended December 31, 2016 | 2015 |
| --- | ---: | ---: |
| Operating activities | $(20,810,000) | $9,963,000 |
| Investing activities | (4,821,000) | (6,707,000) |
| Financing activities | 7,910,000 | (50,642,000) |
| Effect of exchange rates on cash and cash equivalents | (235,000) | (143,000) |
| Net decrease in cash and cash equivalents | $(17,956,000) | $(47,529,000) |
| **Additional selected cash flow data:** |  |  |
| Depreciation and amortization | $2,718,000 | $2,213,000 |
| Capital expenditures | 4,127,000 | 3,168,000 |

Net cash used in operating activities was $20,810,000 during the nine months ended December 31, 2016 compared to net cash provided by operating activities of $9,963,000 during the nine months ended December 31, 2015. The significant changes in our operating activities were due primarily to (i) an increase in accounts receivable during the nine months ended December 31, 2016 compared to a decrease during the nine months ended December 31, 2015, (ii) payments made in connection with new business, and (iii) increased inventory levels to support our future growth.

Net cash used in investing activities was $4,821,000 and $6,707,000 during the nine months ended December 31, 2016 and 2015, respectively. This change was due primarily to a decrease in cash used for the acquisition related activities during the nine months ended December 31, 2016 as compared to the nine months ended December 31, 2015.

Net cash provided by financing activities was $7,910,000 during the nine months ended December 31, 2016 compared to net cash used in financing activities during the nine months ended December 31, 2015 of $50,642,000. This change was due mainly to (i) the net repayment of our long-term debt 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, and (iii) fewer stock options exercised during the nine months ended December 31, 2016 as compared to the nine months ended December 31, 2015.

### Capital Resources

#### Debt

We are party to the following credit agreements.

#### Credit Facility

We are a party to a $125,000,000 senior secured financing (the “Credit Facility”) with the lenders party thereto, and PNC Bank, National Association, as administrative agent, consisting of (i) a $100,000,000 revolving loan facility, subject to borrowing base restrictions and a $15,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $25,000,000 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. Our Credit Facility permits the payment of up to $10,000,000 of dividends per calendar year, subject to a minimum availability threshold and pro forma compliance with financial covenants.

In May 2016, we entered into a consent and second amendment to the Credit Facility (the “Second Amendment”) which, among other things, (i) increased the borrowing capacity of the Revolving Facility from $100,000,000 to $120,000,000, subject to certain borrowing base restrictions and a $15,000,000 sublimit for letters of credit, (ii) amended the definition and calculation of consolidated EBITDA, (iii) increased the maximum of amount of capital expenditures, and (iv) made certain other amendments and modifications.

The Term Loans require quarterly principal payments of $781,250. The Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.50%, 2.75% or 3.00% or a reference rate plus a margin of 1.50%, 1.75% or 2.00%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.25% to 0.375%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on our Term Loans and Revolving Facility was 3.12% and 4.09%, respectively, at December 31, 2016 compared to 2.94% and 3.53%, respectively, at March 31, 2016.

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 of December 31, 2016.

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

|  | Calculation as of December 31, 2016 | Financial covenants required per the Credit Facility |
| --- | ---: | ---: |
| Maximum senior leverage ratio | 0.41 | 2.50 |
| Minimum fixed charge coverage ratio | 1.44 | 1.05 |

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 $18,001,000 and $7,000,000 outstanding under the Revolving Facility at December 31, 2016 and March 31, 2016, respectively. In addition, $260,000 was reserved for standby letters of credit for workers’ compensation insurance and $600,000 for commercial letters of credit at December 31, 2016. At December 31, 2016, $101,139,000, subject to certain adjustments, 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 also issued a warrant (the “Supplier Warrant”) to the Supplier to purchase up to 516,129 shares of our common stock for an initial exercise price of $7.75 per share exercisable at any time after August 22, 2014 and on or prior to September 30, 2017. The exercise price is subject to adjustments, among other things, for sales of common stock by us at a price below the exercise price.

The fair value of the Supplier Warrant using level 3 inputs and the Monte Carlo simulation model was $9,916,000 and $15,643,000 at December 31, 2016 and March 31, 2016, respectively. These amounts are included in other liabilities in the consolidated balance sheets. The warrant liability continues to be classified as a noncurrent liability at December 31, 2016 as we do not expect to settle this amount in cash. During the three months ended December 31, 2016 and 2015, a gain of $962,000 and a loss of $1,275,000, respectively, were recorded in general and administrative expenses due to the change in the fair value of this warrant liability. During the nine months ended December 31, 2016 and 2015, a gain of $5,727,000 and a loss of $3,017,000, respectively, were 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 allows 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:

|  | Nine Months Ended December 31, 2016 | 2015 |
| --- | ---: | ---: |
| Receivables discounted | $254,795,000 | $248,443,000 |
| Weighted average days | 341 | 342 |
| Annualized weighted average discount rate | 2.9% | 2.2% |
| Amount of discount as interest expense | $6,864,000 | $5,241,000 |

#### Off-Balance Sheet Arrangements

At December 31, 2016, 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 $4,127,000 and $3,168,000 for the nine months ended December 31, 2016 and 2015, respectively. These capital expenditures represent the purchase of equipment for our office, manufacturing and warehouse facilities. We expect our fiscal 2017 capital expenditures to be approximately $5,000,000 to support our current operations. In addition, we expect to invest additional amounts in connection with the expansion of our operations in Mexico. We expect to use our working capital and incur additional capital lease obligations to finance these capital expenditures.

### Related Party Transactions

There have been no material changes to our related party transactions that are presented in our Annual Report on Form 10-K for the year ended March 31, 2016, which was filed on June 14, 2016 and as amended by the Form 10-K/A filed with the SEC on July 29, 2016.

### Litigation

There have been no material changes to our litigation matters that are presented in our Annual Report on Form 10-K for the year ended March 31, 2016, which was filed on June 14, 2016 and as amended by the Form 10-K/A filed with the SEC on July 29, 2016.

### Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates that are presented in our Annual Report on Form 10-K for the year ended March 31, 2016, which was filed on June 14, 2016, except as discussed below.

### Recently Adopted Accounting Standards

#### Share-based Compensation

In March 2016, the FASB issued guidance that simplifies several aspects of the accounting for share-based payment transactions and states that, among other things, all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement and an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2016 with early adoption permitted. We early adopted this guidance effective April 1, 2016 which resulted in a cumulative-effect adjustment of $892,000 through retained earnings and current deferred tax assets to record excess tax benefits not previously recognized. We have also elected to account for forfeitures as they occur using the modified retrospective approach which did not have any material impact on our consolidated balance sheets. In addition, we are now required to present excess tax benefits as an operating activity (combined with other income tax cash flows) on the statements of cash flows rather than as a financing activity and have elected to adopt this change prospectively.

#### Extraordinary Items

In January 2015, the FASB issued guidance that simplifies income statement presentation by eliminating the concept of extraordinary items. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. There was no impact on our consolidated financial statements from the adoption of this guidance.

### Accounting Standards Not Yet Adopted

#### Revenue Recognition

In May 2014, the FASB issued guidance codified in ASC 606, “Revenue Recognition - Revenue from Contracts with Customers”, which amends the guidance in the former ASC 605, “Revenue Recognition”. The new guidance is effective for annual periods beginning after December 15, 2016, and interim periods within that reporting period for a public company. A full or modified retrospective transition method is required. 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 company. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Accordingly, the updated standard is effective for us in the first quarter of fiscal 2019 and we do not plan to early adopt. We have not yet selected a transition method and are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

#### Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

In August 2014, the FASB issued guidance which requires an entity to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). If conditions or events raise substantial doubt that is not alleviated, an entity should disclose that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued), along with the principal conditions or events that raise substantial doubt, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations and management’s plans that are intended to mitigate those conditions. The new guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We do not expect any impact on our financial position, results of operations or cash flows from the adoption of this guidance.

#### Inventory

In July 2015, the FASB issued guidance that requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements.

#### Income Taxes

In November 2015, the FASB issued guidance that requires deferred tax liabilities and assets to be classified as noncurrent in the consolidated balance sheet. The guidance is effective for fiscal years beginning after December 15, 2016 including interim periods within those fiscal years with early adoption permitted. A reporting entity should apply the amendment prospectively or retrospectively. We are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements.

#### Financial Instruments

In January 2016, the FASB issued guidance that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. A reporting entity should apply the new guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements.

#### Leases

In February 2016, the FASB issued new guidance that requires balance sheet recognition of a right-of-use asset and lease liability by lessees for operating leases. 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 requires a modified retrospective approach with optional practical expedients. We are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements.

#### Statement of Cash Flows

In August 2016, the FASB issued guidance which adds and/or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is intended to reduce diversity in practice in how certain transactions are presented and classified in the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years; early adoption is permitted. We do not expect any impact on our consolidated statements of cash flows from the adoption of this guidance.

#### Business Combinations

In January 2017, the FASB issued guidance which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. A reporting entity should apply the amendment prospectively. We are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements.

## Market risk

As filed, 256 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, 2016, which was filed with the SEC on June 14, 2016.

## Controls and procedures

As filed, 3,198 characters.

### Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including our chief executive officer, chief financial officer, and chief accounting officer, 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(e) and 15d-15(e). Based on this evaluation, our chief executive officer, chief financial officer, and chief accounting officer concluded that MPA’s disclosure controls and procedures were effective as of December 31, 2016.

### Inherent Limitations Over Internal Controls

The Company’s management 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).

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 accounting principles generally accepted in the United States of America, applying certain estimates and judgments as required.

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.

### Changes in Internal Control Over Financial Reporting

There were no changes in MPA’s internal control over financial reporting during the third quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, MPA’s internal control over financial reporting.

## Risk factors

As filed, 256 characters.

There have been no material changes in 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, 2016, filed on June 14, 2016 and as amended by the Form 10-K/A filed with the SEC on July 29, 2016.

Filed Feb 9, 2017.
Source: SEC EDGAR, the filing index for accession 0001140361-17-005391. Last ingested by Listed: Oct 24, 2026, 15:00 ET. No prices; not investment advice.