# Motorcar Parts of America Inc: Form 10-Q for the period ended Jun 30, 2018

- Company: [Motorcar Parts of America Inc](/companies/mpaa.md) (CIK 918251)
- Form: 10-Q
- Filed: 2018-08-09
- Accepted by EDGAR: Aug 9, 2018, 16:01 ET
- Period: 2018-06-30
- Accession: 0001140361-18-036059
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/918251/000114036118036059/form10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/918251/000114036118036059/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-04-01 to 2018-06-30 | $92.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2018-04-01 to 2018-06-30 | $75.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2018-04-01 to 2018-06-30 | $17.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2018-04-01 to 2018-06-30 | $1.7m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2018-04-01 to 2018-06-30 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2018-04-01 to 2018-06-30 | −$1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-04-01 to 2018-06-30 | −$5.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-04-01 to 2018-06-30 | −$0.27 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-04-01 to 2018-06-30 | −$0.27 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-04-01 to 2018-06-30 | 18,895,847 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2018-04-01 to 2018-06-30 | −$924.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2018-04-01 to 2018-06-30 | $1.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2018-04-01 to 2018-06-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2018-06-30 | $12.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-06-30 | $290.6m | us-gaap:AssetsCurrent |
| Total assets | at 2018-06-30 | $549.3m | us-gaap:Assets |
| Current liabilities | at 2018-06-30 | $198.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-06-30 | $278.5m | us-gaap:Liabilities |
| Long-term debt | at 2018-06-30 | $27.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-06-30 | $2.7m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-06-30 | $270.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,739 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, 2018 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on June 14, 2018.

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

This report 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: 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 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 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; 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 under “Risk Factors” included in our Annual Report on Form 10-K filed with the SEC on June 14, 2018 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.

### Management Overview

We are a leading manufacturer, remanufacturer, and distributor of 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. These replacement parts 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”). 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, brake power boosters, and diagnostic equipment. As a result of an acquisition in July 2017, our business also now includes developing and selling diagnostics systems for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles.

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. 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, we are now in the business of diagnostic equipment for alternators, starters, belt-starter generators (stop start and hybrid technology), and electric power trains for electric vehicles. The smallest but fastest growing segment of the global market for diagnostics is the electric vehicle market.

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 June 30, 2018 and 2017

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

The following summarizes certain key operating data:

|  | Three Months Ended June 30, 2018 | 2017 |
| --- | ---: | ---: |
| Gross profit percentage | 18.6% | 27.9% |
| Cash flow used in operations | $(924,000) | $(644,000) |
| Finished goods turnover (annualized) (1) | 3.1 | 3.2 |

(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 finished goods inventory values for the fiscal quarter. With the adoption of ASC 606, our inventory now includes all on-hand core inventory. 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 June 30, 2018 | 2017 |
| --- | ---: | ---: |
| Net sales | $92,565,000 | $95,519,000 |
| Cost of goods sold | 75,314,000 | 68,843,000 |
| Gross profit | 17,251,000 | 26,676,000 |
| Gross profit percentage | 18.6% | 27.9% |

*Net Sales*. Our net sales for the three months ended June 30, 2018 decreased by $2,954,000, or 3.1%, to $92,565,000 compared to net sales for the three months ended June 30, 2017 of $95,519,000. Our net sales were positively impacted by sales of diagnostics equipment, which resulted from our July 2017 acquisition. We have experienced year-over-year market share growth in all of our product lines. However, sales for the quarter were soft due to lower replenishment orders in line with overall weak industry sales in the early part of the quarter. In addition, we had numerous customer allowances related to new business and increased stock adjustment accruals related to commitments for future update orders. These allowances and return accruals were a reduction to our recognized sales. We believe that these factors were temporary and, in fact, we experienced a recovery in the latter part of the quarter.

*Gross Profit.* Our gross profit percentage was 18.6% for the three months ended June 30, 2018 compared to 27.9% for the three months ended June 30, 2017. Gross profit for the three months ended June 30, 2018 was impacted by $1,207,000 for customer allowances related to new business and transition expenses of $1,755,000 in connection with the expansion of our operations in Mexico. Gross margins were additionally impacted by (i) timing of customer shipments, (ii) higher freight costs compared to the prior year, (iii) stock adjustment accruals, and (iv) lower absorption of overhead costs.

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 $2,624,000 for the three months ended June 30, 2018 and $1,350,000 for the three months ended June 30, 2017.

### Operating Expenses

The following summarizes operating expenses:

|  | Three Months Ended June 30, 2018 | 2017 |
| --- | ---: | ---: |
| General and administrative | $12,340,000 | $6,187,000 |
| Sales and marketing | 4,392,000 | 3,394,000 |
| Research and development | 1,736,000 | 1,002,000 |
| **Percent of net sales** |  |  |
| General and administrative | 13.3% | 6.5% |
| Sales and marketing | 4.7% | 3.6% |
| Research and development | 1.9% | 1.0% |

*General and Administrative.* Our general and administrative expenses for the three months ended June 30, 2018 were $12,340,000, which represents an increase of $6,153,000, or 99.5%, from general and administrative expenses for the three months ended June 30, 2017 of $6,187,000. This increase was primarily due to (i) a comparative increase in expenses of $3,718,000 due to a loss of $2,666,000 recorded due to the change in the fair value of the forward foreign currency exchange contracts for the three months ended June 30, 2018 compared to a gain of $1,052,000 recorded for the three months ended June 30, 2017, (ii) $567,000 of increased professional services for transactions during the quarter relating to expansion and fees related to the adoption of ASC 606, (iii) $401,000 of general and administrative expenses attributable to our July 2017 D&V acquisition, and (iv) $180,000 of increased general and administrative expenses primarily at our Mexico locations to support our growth initiatives. In addition, the three months ended June 30, 2017 included a gain of $1,293,000 recorded due to the change in the fair value of the warrant liability, which was settled on September 8, 2017.

*Sales and Marketing*. Our sales and marketing expenses for the three months ended June 30, 2018 increased $998,000, or 29.4%, to $4,392,000 from $3,394,000 for the three months ended June 30, 2017. The increase was due primarily to (i) $490,000 of sales and marketing expenses attributable to our July 2017 D&V acquisition, (ii) $248,000 for personnel added to support our growth initiatives, and $233,000 of increased trade shows.

*Research and Development*. Our research and development expenses increased by $734,000, or 73.3%, to $1,736,000 for the three months ended June 30, 2018 from $1,002,000 for the three months ended June 30, 2017. The increase was due primarily to (i) $390,000 of research and development expenses attributable to our July 2017 D&V acquisition, (ii) $257,000 for personnel added to support our growth initiatives, and (iii) $136,000 of increased supplies.

### Interest Expense

*Interest Expense, net.* Our interest expense, net for the three months ended June 30, 2018 increased $1,761,000, or 53.1%, to $5,075,000 from $3,314,000 for the three months ended June 30, 2017. The increase in interest expense was due primarily to a (i) higher discount rate on our accounts receivable discount programs, (ii) the write-off of $303,000 of previously capitalized debt issuance costs in connection with the amendment to our credit facility, (iii) increased average outstanding borrowings as we build our inventory levels to support anticipated higher sales, and (iv) higher interest rates on our average outstanding borrowings.

### Provision for Income Taxes

*Income Tax*. We recorded an income tax benefit of $1,278,000, or an effective tax rate of 20.3%, for the three months ended June 30, 2018 compared to income tax expense for the three months ended June 30, 2017 of $4,628,000, or an effective tax rate of 36.2%. On December 22, 2017, the Tax Cuts and Jobs Act (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. corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.

### Liquidity and Capital Resources

### Overview

We had working capital (current assets minus current liabilities) of $91,742,000 and $85,651,000, a ratio of current assets to current liabilities of 1.5:1.0 and 1.4:1.0, at June 30, 2018 and March 31, 2018, respectively. The increase in working capital was due primarily to the build-up of our inventory to support anticipated higher sales.

We generated cash during the three months ended June 30, 2018 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 build our inventory levels to support anticipated higher sales.

In June 2018, we entered into an amended and restated credit facility consisting of a $200,000,000 revolving loan facility and a $30,000,000 term loan facility, maturing in June 2023.

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:

| Cash provided by (used in): | Three Months Ended June 30, 2018 | 2017 |
| --- | ---: | ---: |
| Operating activities | $(924,000) | $(644,000) |
| Investing activities | (1,701,000) | (770,000) |
| Financing activities | 1,955,000 | 458,000 |
| Effect of exchange rates on cash and cash equivalents | (137,000) | 47,000 |
| Net decrease in cash and cash equivalents | $(807,000) | $(909,000) |
| **Additional selected cash flow data:** |  |  |
| Depreciation and amortization | $1,586,000 | $1,039,000 |
| Capital expenditures | 1,546,000 | 597,000 |

Net cash used in operating activities was $924,000 and $644,000 during the three months ended June 30, 2018 and 2017, respectively. The significant changes in our operating activities during the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 were due primarily to (i) an increase in accounts payable during the three months ended June 30, 2018 compared to a decrease during the three months ended June 30, 2017, (ii) decreased operating results (net income plus net add-back for non-cash transactions in earnings), (iii) the build-up of our inventory to support anticipated higher sales, and (iv) increased remanufactured core purchases, including accrued core payments to certain of our major customers of $4,551,000 during the three months ended June 30, 2018.

Net cash used in investing activities was $1,701,000 and $770,000 during the three months ended June 30, 2018 and 2017, respectively. The significant change in our investing activities during the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 was due primarily to increased capital expenditures.

Net cash provided by financing activities was $1,955,000 and $458,000 during the three months ended June 30, 2018 and 2017, respectively. The significant change in our financing activities during the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 was due mainly to decreased cash used to repurchase shares of our common stock under our share repurchase program.

### Capital Resources

#### Credit Facility

We were a party to a $145,000,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $120,000,000 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 were scheduled to 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 permitted the payment of up to $15,000,000 of dividends per calendar year, subject to a minimum availability threshold and pro forma compliance with financial covenants. The Term Loans required quarterly principal payments of $781,250. The interest rate on the Company’s Term Loans and Revolving Facility was 4.42% and 4.52%, respectively, as of March 31, 2018.

In June 2018, we entered into an amendment and restatement of the Credit Facility (as so amended and restated, the “Amended Credit Facility”) with a syndicate of lenders, 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 “Amended Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Amended Term Loans”). The loans under the Amended Credit Facility mature on June 5, 2023. The Amended Credit Facility permits the payment of up to $20,000,000 of dividends per fiscal year, subject to a minimum availability threshold and pro forma compliance with financial covenants. In connection with the Amended Credit Facility, the lenders were granted a security interest in substantially all of our assets. We wrote-off $303,000 of previously capitalized debt issuance costs and capitalized $1,722,000 of new debt issuance costs in connection with the Amended Credit Facility.

The Amended Term Loans required quarterly principal payments of $937,500 beginning October 1, 2018. The Amended Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or 1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on our Amended Term Loans and Amended Revolving Facility was 4.75% and 4.81%, respectively, as of June 30, 2018.

The Amended 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 June 30, 2018.

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

|  | Calculation as of June 30, 2018 | Financial covenants required under the Amended Credit Facility |
| --- | ---: | ---: |
| Maximum senior leverage ratio | 1.04 | 3.00 |
| Minimum fixed charge coverage ratio | 1.28 | 1.10 |

In addition to other covenants, the Amended 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 $45,406,000 and $54,000,000 outstanding under the revolving facility at June 30, 2018 and March 31, 2018, respectively. In addition, $734,000 was reserved for letters of credit at June 30, 2018. At June 30, 2018, subject to certain adjustments, $128,694,000 was available under the Amended Revolving Facility.

#### 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:

|  | Three Months Ended June 30, 2018 | 2017 |
| --- | ---: | ---: |
| Receivables discounted | $86,785,000 | $86,520,000 |
| Weighted average days | 334 | 342 |
| Annualized weighted average discount rate | 4.1% | 3.1% |
| Amount of discount as interest expense | $3,324,000 | $2,522,000 |

#### Off-Balance Sheet Arrangements

At June 30, 2018, 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 total capital expenditures, including capital leases, were $1,546,000 and $643,000 for the three months ended June 30, 2018 and 2017, respectively. These capital expenditures primarily include the purchase of equipment for our current operations and the expansion of our operations in Mexico. We expect to invest approximately $17,000,000 in fiscal 2019 to support our growth initiatives and continued expansion of our operations in Mexico. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.

### Subsequent Event

#### Share Repurchase Program

On August 6, 2018, our board of directors increased the share repurchase program authorization from $20,000,000 to $37,000,000 of our common stock. 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.

### 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, 2018, which was filed on June 14, 2018.

### 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, 2018, which was filed on June 14, 2018, except as discussed below.

### New Accounting Pronouncements Recently Adopted

#### Revenue Recognition

Effective April 1, 2018, we adopted Accounting Standards Codification Topic 606, *Revenue from Contracts with Customers, (“*ASC 606”) using the full retrospective transition method. Under this method, we revised our consolidated financial statements for the years ended March 31, 2017 and 2018, and applicable interim periods within the fiscal year ended March 31, 2018, as if ASC 606 had been effective for those periods. Periods prior to the fiscal year ended March 31, 2017 were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605, *Revenue Recognition*. ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are distinct performance obligations. See Note 3, Revenue Recognition, for additional discussion of the adoption of ASC Topic 606 and the impact on our financial statements.

#### 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 applied the amendments in the new guidance by means of a cumulative-effect adjustment of $746,000, net of tax, to the opening balance of retained earnings on April 1, 2018. Short-term investments are recorded at fair value with $69,000 of unrealized gain now recorded as a component of general and administrative expense.

#### 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 did not have any impact on our consolidated financial statements.

#### 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. The adoption of this guidance did not have any impact on our consolidated financial statements.

### New Accounting Pronouncements Not Yet Adopted

#### 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 will adopt this guidance in the first quarter of fiscal 2020. We have developed an implementation plan and are currently gathering data to further assess the impact of the ASU on our financial statements. The adoption is anticipated to have a significant increase to our long-term assets and liabilities on the consolidated balance sheets.

#### Goodwill Impairment

In January 2017, the FASB issued guidance which simplifies the test for goodwill impairment. This standard eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019 with 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.

#### 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.

#### Reporting Comprehensive Income

In February 2018, the FASB issued guidance that permits, but does not require, companies to reclassify the stranded tax effects of the Tax Reform Act on items within accumulated other comprehensive income to retained earnings. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact 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, 2018, which was filed with the SEC on June 14, 2018.

## Controls and procedures

As filed, 3,190 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 June 30, 2018.

### 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 first quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, MPA’s internal control over financial reporting.

## Risk factors

As filed, 186 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, 2018, filed on June 14, 2018.

Filed Aug 9, 2018.
Source: SEC EDGAR, the filing index for accession 0001140361-18-036059. Last ingested by Listed: Nov 10, 2026, 01:42 ET. No prices; not investment advice.