{"url_path":"/sec/mpaa/10-k/2026/item-7a","section_key":"item-7a","section_title":"Item 7A Quantitative and Qualitative Disclosures About Market Risk","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-08","source_url":"https://www.sec.gov/Archives/edgar/data/918251/0001140361-26-024463-index.html","accession_number":"0001140361-26-024463","cik":"0000918251","ticker":"MPAA","issuer_name":"MOTORCAR PARTS OF AMERICA INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/918251/0001140361-26-024463-index.html","primary_entity_key":"0000918251","primary_entity_name":"MOTORCAR PARTS OF AMERICA INC"},"word_count":727,"has_tables":true,"body_markdown":"Item 7A.\n\nQuantitative and Qualitative Disclosures About Market Risk\n\n \n\nOur primary market risk relates to changes in interest rates, foreign currency exchange rates, and customer credit. We do not enter into derivatives or other financial instruments for trading or speculative purposes. As our overseas operations expand, our exposure to the risks associated with foreign currency fluctuations will continue to increase.\n\n \n\nInterest rate risk\n\n \n\nWe are exposed to changes in interest rates primarily as a result of the use of our accounts receivable discount programs and borrowing under our Credit Facility, which have interest costs that vary with interest rate movements. During the years ended March 31, 2026 and 2025, collections under our accounts receivable discount program were $620,561,000 and $643,918,000, respectively. The weighted average discount rate was 5.4% and 6.2% during fiscal 2026 and 2025, respectively. If discount rates were to increase 1%, our net annual interest expense on our accounts receivable discount programs would have increased by approximately $6,206,000. In addition, our Revolving Facility bears interest at variable base rates, plus an applicable margin, which was 6.79% and 7.46% at March 31, 2026 and 2025, respectively. At March 31, 2026, borrowings under our Revolving Facility totaled $94,668,000. If interest rates were to increase 1%, our net annual interest expense on our Revolving Facility would have increased by approximately $947,000.\n\n \n\nForeign currency risk\n\n \n\nWe are exposed to foreign currency exchange risk inherent in our purchases and expenses denominated in currencies other than the U.S. dollar. We transact business in the following foreign currencies: Mexican pesos, Canadian dollar, Malaysian ringgit, Singapore dollar, Chinese yuan, and the Indian rupee. Our primary currency risks result from fluctuations in the value of the Mexican peso and to a lesser extent, the Chinese yuan. To mitigate these risks, we enter into forward foreign currency exchange contracts to exchange U.S. dollars for these foreign currencies. The extent to which we use forward foreign currency exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in exchange rates. These contracts generally expire in a year or less. Any changes in the fair values of our forward foreign currency exchange contracts are reflected in current-period earnings. Based upon our forward foreign currency exchange contracts related to these currencies, an increase of 10% in exchange rates at March 31, 2026 would have increased our operating expenses by approximately $3,994,000. During fiscal 2026 and 2025, a gain of $2,515,000 and a loss of $4,179,000, respectively, were recorded due to the change in the fair value of the forward foreign currency exchange contracts subsequent to entering into the contracts. In addition, we recorded a gain of $6,409,000 and a loss of $11,713,000 in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2026 and 2025, respectively.\n\n \n\nCredit Risk\n\n \n\nWe regularly review our accounts receivable and allowance for credit losses by considering factors such as historical experience, credit quality and age of the accounts receivable, and the current economic conditions that may affect a customer’s ability to pay such amounts owed to us. The majority of our sales are to leading automotive aftermarket parts suppliers. We participate in trade accounts receivable discount programs with our major customers. If the creditworthiness of any of our customers was downgraded, we could be adversely affected, in that we may be subjected to higher interest rates on the use of these accounts receivable discount programs or we could be forced to wait longer for payment. In certain cases, we have experienced higher interest rates due to changes in customer credit profiles, which has impacted the overall cost of these financing arrangements. Should our customers experience significant cash flow problems, our financial position and results of operations could be materially and adversely affected, and the maximum amount of loss that would be incurred would be the outstanding receivable balance, Used Cores expected to be returned by customers, and the value of the Remanufactured Cores held at customers’ locations. We maintain an allowance for credit losses that, in our opinion, provides for an adequate reserve to cover losses that may be incurred.\n\n \n\n50\n\n[Table of Contents](#tableOfContents0)"}