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What changed in MOTORCAR PARTS OF AMERICA INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of MOTORCAR PARTS OF AMERICA INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+251 added−274 removedSource: 10-K (2024-06-11) vs 10-K (2023-06-14)

Top changes in MOTORCAR PARTS OF AMERICA INC's 2024 10-K

251 paragraphs added · 274 removed · 185 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeAll test solutions and diagnostic equipment are inspected and tested per our quality control program, which has been approved by the ISO 9001:2015 quality management system. Our facility in New York, U.S., manufactures test solutions and diagnostic equipment using purchased electronic and custom components that are primarily assembled at this facility.
Biggest changeOur manufacturing process combines skilled labor from certified and licensed technicians with raw materials, manufactured components, purchased components, and purchased capital components to complete our test solutions and diagnostic equipment. All test solutions and diagnostic equipment are inspected and tested per our quality control program, which has been approved by the ISO 9001:2015 quality management system.
The majority of our products are remanufactured at our facilities in Mexico, Canada, and to a lesser extent in Malaysia. We continue to maintain production of certain remanufactured units that require specialized service at our Torrance, California facility. We also manufacture and assemble new products at our facilities in Malaysia and India.
The majority of our products are remanufactured at our facilities in Mexico, Canada, and to a lesser extent in Malaysia. We continue to maintain production of certain remanufactured units that require specialized service at our Torrance, California facility. We also manufacture and assemble new products at our facilities in Canada, Malaysia and India.
Segment Reporting Our three operating segments are as follows: • Hard Parts , including (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) turbochargers, • Test Solutions and Diagnostic Equipment , including (i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) test solutions and diagnostic equipment for the pre- and post-production of electric vehicles, (iii) software emulation of power systems applications for the electrification of all forms of transportation (including automobiles, trucks and the emerging electrification of systems within the aerospace industry, such as electric vehicle charging stations), and 6 Table of Contents • Heavy Duty , including non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.
Segment Reporting Our three operating segments are as follows: • Hard Parts , which includes (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) turbochargers, • Test Solutions and Diagnostic Equipment , which includes (i) applications for combustion engine vehicles, including bench-top testers for alternators and starters, (ii) equipment for the pre- and post-production of electric vehicles, and (iii) software emulation of power system applications for the electrification of all forms of transportation (including automobiles, trucks, the emerging electrification of systems within the aerospace industry, and electric vehicle charging stations), and 6 Table of Contents • Heavy Duty , which includes non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.
We believe we have a strong relationship with the union that represents our employees. Our facilities are located in labor markets with readily available access to skilled and unskilled workers. Our relationship and communication with our unionized and non-represented workforce is good. Inclusion and Diversity . Our board is ethnically diverse and comprised of 9 independent directors, including three women.
We believe we have a strong relationship with the union that represents our employees. Our facilities are located in labor markets with readily available access to skilled and unskilled workers. Our relationship and communication with our unionized and non-represented workforce is good. Inclusion and Diversity . Our board is ethnically diverse and comprised of 8 independent directors, including three women.
During fiscal 2023, we sold approximately 98% of our products in North America, with approximately 2% of our products sold in Asian and European countries. We publish printed and electronic catalogs with part numbers and applications for our products along with a detailed technical glossary and informational database.
During fiscal 2024, we sold approximately 98% of our products in North America, with approximately 2% of our products sold in Asian and European countries. We publish printed and electronic catalogs with part numbers and applications for our products along with a detailed technical glossary and informational database.
Highlights of our eco-friendly remanufacturing processes include: • sorting the Used Cores returned by customers utilizing an innovative and efficient core-sorting process; • reconditioning and re-utilizing durable components after passing rigorous testing processes; • savings of raw materials due to a reduction in the required materials used in the remanufacturing production process, compared with new product processes; and • recycling of water, cardboard, and metal.
Highlights of our eco-friendly remanufacturing processes include: 9 Table of Contents • sorting the Used Cores returned by customers utilizing an innovative and efficient core-sorting process; • reconditioning and re-utilizing durable components after passing rigorous testing processes; • savings of raw materials due to a reduction in the required materials used in the remanufacturing production process, compared with new product processes; and • recycling of water, cardboard, and metal.
To maximize remanufacturing efficiency, we store component parts ready for assembly in our production facilities. 8 Table of Contents Our remanufacturing processes combine product families with similar configurations into dedicated factory work cells. This remanufacturing process, known as “lean manufacturing,” eliminated a large number of inventory moves and the need to track inventory movement through the remanufacturing process.
To maximize remanufacturing efficiency, we store component parts ready for assembly in our production facilities. Our remanufacturing processes combine product families with similar configurations into dedicated factory work cells. This remanufacturing process, known as “lean manufacturing,” eliminated a large number of inventory moves and the need to track inventory movement through the remanufacturing process.
These contracts typically require that we meet ongoing performance standards. 7 Table of Contents While these longer-term agreements strengthen our customer relationships, the increased demand for our products often requires that we increase our inventories and personnel. Customer demands that we purchase and maintain their Remanufactured Core inventory also requires the use of our working capital.
These contracts typically require that we meet ongoing performance standards. While these longer-term agreements strengthen our customer relationships, the increased demand for our products often requires that we increase our inventories and personnel. Customer demands that we purchase and maintain their Remanufactured Core inventory also requires the use of our working capital.
To accomplish our strategic vision, we are focused on the following key initiatives: Hard Parts • Grow our current product lines both with existing and potential new customers. We continue to develop and offer current and new sales programs to ensure that we are supporting our customers’ businesses.
To accomplish our strategic vision, we are focused on the following key initiatives: Hard Parts • Grow our current product lines both with existing and potential new customers. We continue to develop and offer current and new sales programs to ensure that we are supporting our customers’ business needs.
The current population of light-duty vehicles in the U.S. is approximately 285 million, and the average age of these vehicles is approximately 12 years and is expected to continue to grow, in particular during recession years. Although miles driven can fluctuate for various reasons, including fuel prices, they have been generally increasing for several years.
The current population of light-duty vehicles in the U.S. is approximately 288 million, and the average age of these vehicles is approximately 13 years and is expected to continue to grow, in particular during recession years. Although miles driven can fluctuate for various reasons, including fuel prices, they have been generally increasing for several years.
These software and hardware upgrades are also available for existing products that the customer is using. In addition, we provide industry leading maintenance and service support for our test solutions and diagnostic equipment to provide a better end-user experience and value to our customers. • Market and grow our new product lines on a global basis.
These software and hardware upgrades are also available for existing products that the customer is using. In addition, we provide industry leading maintenance and service support to provide a better end-user experience and value to our customers. • Market and grow our new product lines on a global basis.
In addition, we are well-positioned to supply test solutions and diagnostic equipment to the aerospace industry to support its shift to electric power driven control systems in airplanes. Heavy Duty • Market and grow our innovative design solutions and commitment to quality.
In addition, we are well-positioned to supply the aerospace industry to support its shift to electric power-driven control systems in airplanes. Heavy Duty • Market and grow our innovative design solutions and commitment to quality.
We believe that our commitment to our Company, our employees and the communities within which we operate has led to high employee satisfaction and low employee turnover, and our commitment to our customers, suppliers and business partners has resulted in high customer satisfaction, as evidenced by the customer awards that we routinely win, and decades-long customer relationships. 9 Table of Contents Environmental.
We believe that our commitment to our Company, our employees and the communities within which we operate has led to high employee satisfaction and low employee turnover, and our commitment to our customers, suppliers and business partners has resulted in high customer satisfaction, as evidenced by the customer awards that we routinely win, and decades-long customer relationships. Environmental.
We believe an inclusive workforce is critical to our success, with an ongoing focus on the hiring, retention, and advancement of women and other underrepresented ethnic groups. We employ 38% women and 62% men globally. In the United States, 76% of our workforce are considered ethnic minorities. Health, Safety and Wellness .
We believe an inclusive workforce is critical to our success, with an ongoing focus on the hiring, retention, and advancement of women and other underrepresented ethnic groups. We employ 37% women and 63% men globally. In the United States, 73% of our workforce are considered ethnic minorities. Health, Safety and Wellness .
Sales, Marketing and Distribution We sell our hard parts products to the largest automotive chains, including Advance (inclusive of Carquest, Autopart International, and Worldpac), AutoZone, Genuine Parts (NAPA), and O’Reilly with an aggregate of approximately 26,000 retail outlets. In addition, these products are sold to warranty replacement programs (“OES”) customers, professional installers, and a diverse group of automotive warehouse distributors.
Sales, Marketing and Distribution We sell our hard parts products to the largest automotive chains, including Advance Auto Parts, AutoZone, Genuine Parts (NAPA), and O’Reilly Auto Parts with an aggregate of approximately 25,000 retail outlets. In addition, these products are sold to warranty replacement programs (“OES”) customers, professional installers, and a diverse group of automotive warehouse distributors.
We continue to develop and improve product performance, ease of installation or coverage simplification to deliver installation-ready products to provide extended service life and reduced downtime for our existing and new customers. Products We carry approximately 37,000 stock keeping units (“SKUs”) to support automotive replacement parts and test solutions and diagnostic equipment.
We continue to develop and improve product performance, ease of installation, and coverage simplification to deliver installation-ready products to provide extended service life and reduced downtime for our customers. Products We carry approximately 42,000 stock keeping units (“SKUs”) to support automotive aftermarket non-discretionary replacement parts and test solutions and diagnostic equipment.
Our Company was founded in 1968 on the values of integrity, common decency and respect for others. Our core values are Excellence, Passion/Productivity, Innovation/Integrity, Community, and Quality (“EPICQ”) and characterize our daily corporate focus.
Environmental, Social and Governance (ESG) and Human Capital Our Culture. Our Company was founded in 1968 on the values of integrity, common decency and respect for others. Our core values are Excellence, Passion/Productivity, Innovation/Integrity, Community, and Quality (“EPICQ”) and characterize our daily corporate focus.
As of March 31, 2023, we employed approximately 5,600 people, with 400 people in the United States, 4,800 people in Mexico, 200 people Canada, and 200 people in Malaysia and China. Approximately 5,200 people are production employees. We have non-union and unionized facilities. Approximately 4,700 production employees are covered by a local union.
As of March 31, 2024, we employed approximately 5,900 people, with 400 people in the United States, 5,000 people in Mexico, 200 people Canada, and 300 people in Malaysia and China. Approximately 5,400 people are production employees. We have non-union and unionized facilities. Approximately 4,900 production employees are covered by a local union.
Sales to our three largest customers in the aggregate represented 84%, 85%, and 87%, and sales to our largest customer, represented 37%, 38%, and 42% of our net sales during fiscal 2023, 2022 and 2021, respectively.
Sales to our three largest customers in the aggregate represented 83%, 84%, and 85%, and sales to our largest customer, represented 35%, 37%, and 38% of our net sales during fiscal 2024, 2023 and 2022, respectively.
The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, are not separately reportable, and are included within the “all other” category. See Note 19 of the notes to consolidated financial statements for more information.
Our Hard Parts operating segment meets the criteria of a reportable segment. The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, are not required to be separately reported, and are included within the “all other” category. See Note 19 of the notes to consolidated financial statements for more information.
The marketing and other allowances we typically grant our customers in connection with our new or expanded customer relationships adversely impact near-term revenues, profitability and associated cash flows from these arrangements. However, we believe the investment we make in these new or expanded customer relationships will improve our overall liquidity and cash flow from operations over time.
The marketing and other allowances we typically grant our customers in connection with our new or expanded customer relationships adversely impact near-term revenues, profitability and associated cash flows from these arrangements.
This manufacturing enables us to significantly reduce the time it takes to produce a finished product. We continue to explore opportunities for improving efficiencies in our remanufacturing process. Production Process for Test Solutions and Diagnostic Equipment. Our test solutions and diagnostic equipment are engineered and manufactured in North America at facilities in Toronto, Canada and Binghamton, New York, U.S.
This manufacturing enables us to significantly reduce the time it takes to produce a finished product. We continue to explore opportunities for improving efficiencies in our remanufacturing process. 8 Table of Contents Production Process for Test Solutions and Diagnostic Equipment.
Competition Our business is highly competitive. We compete with several large and medium-sized companies, including BBB Industries and Cardone Industries for hard parts, and AVL and Horiba for test solutions and diagnostic equipment, and a large number of smaller regional and specialty companies.
We compete with several large and medium-sized companies, including (i) BBB Industries, First Brands and DRIV for hard parts, (ii) Burke Porter and Loccionni for test solutions and diagnostic equipment, and (iii) a large number of smaller regional and specialty companies.
We perform supplier qualification, product inspection and testing according to our IATF 16949 or ISO 9001:2015 certified quality systems to assure product quality levels. We also perform periodic site audits of our suppliers’ manufacturing facilities. Environmental, Social and Governance (ESG) and Human Capital Our Culture.
Purchased Finished Goods . In addition to our remanufactured goods, we also purchase finished goods from various approved suppliers, including several located in Asia. We perform supplier qualification, product inspection and testing according to our IATF 16949 or ISO 9001:2015 certified quality systems to assure product quality levels. We also perform periodic site audits of our suppliers’ manufacturing facilities.
Our Board of Directors appointed the Audit Committee with direct oversight of our: (i) information security policies, including periodic assessment of risk of information security breach, training program, significant threat changes and vulnerabilities and monitoring metrics and (ii) effectiveness of information security policy implementation.
We continually evaluate the security environment surrounding the handling and control of our critical data and have instituted additional measures to help protect us from system intrusion or data breaches. 10 Table of Contents Our Board of Directors appointed the Audit Committee with direct oversight of our: (i) information security policies, including periodic assessment of risk of information security breach, training program, significant threat changes and vulnerabilities and monitoring metrics and (ii) effectiveness of information security policy implementation.
This program includes various technical controls, including security monitoring, data leakage protection, network segmentation and access controls around the computer resources that house confidential or sensitive data. We have also implemented employee awareness training programs around phishing, malware, and other cyber risks.
Information Security and Risk Oversight We have an information security risk program committed to regular risk management practices surrounding the protection of confidential data. This program includes various technical controls, including security monitoring, data leakage protection, network segmentation and access controls around the computer resources that house confidential or sensitive data.
Although this is not a primary source of Used Cores, it is a critical source for meeting our raw material demands. Remanufacturing consumes, on average, more than one Used Core for each remanufactured unit produced since not all Used Cores are reusable. The yield rates depend upon both the product and customer specifications.
Remanufacturing consumes, on average, more than one Used Core for each remanufactured unit produced since not all Used Cores are reusable. The yield rates depend upon both the product and customer specifications. We recycle materials, including metal from the Used Cores and corrugated packaging, in keeping with our focus as a remanufacturer to lessen our footprint on the environment.
While some circuit card assemblies are handled by outside subcontractors, most of the assemblies are manufactured in-house along with the fabrication of electronic subassemblies. Quality control and testing is completed on these subassemblies prior to their final installation into the overall equipment rack that includes mechanical, electrical and thermal management operations.
Quality control and testing is completed on these subassemblies prior to their final installation into the overall equipment rack that includes mechanical, electrical and thermal management operations. Final inspection and acceptance testing are performed to predefined procedures prior to the equipment being packaged in a crate for shipment. Used Cores.
Final inspection and acceptance testing are performed to predefined procedures prior to the equipment being packaged in a crate for shipment. Used Cores. The majority of our Used Cores are obtained from customers through the core exchange programs. To supplement Used Cores received from our customers we purchase Used Cores from core brokers.
The majority of our Used Cores are obtained from customers through the core exchange programs. To supplement Used Cores received from our customers we purchase Used Cores from core brokers. Although this is not a primary source of Used Cores, it is a critical source for meeting our raw material demands.
Our facility in Canada is certified under ISO 9001:2015 quality management system, which mandates that we foster continuous improvement to our manufacturing processes. Materials for custom systems are purchased in a “just-in-time” environment while materials for standard systems are purchased in economic quantities. All materials and components are inspected and tested when required.
Materials for custom systems are purchased in a “just-in-time” environment while materials for standard systems are purchased in economic quantities. All materials and components are inspected and tested when required. Certain components require certificates of compliance or test results from our vendors prior to shipping to us.
Removed
Prior to the fourth quarter of fiscal 2023, our operating segments met the aggregation criteria and were aggregated. Effective as of the fourth quarter of fiscal 2023, we revised our segment reporting as we determined that our three operating segments no longer met the criteria to be aggregated. Our Hard Parts operating segment meets the criteria of a reportable segment.
Added
However, we believe the investment we make in these new or expanded customer relationships will improve our overall liquidity and cash flow from operations over time. 7 Table of Contents Competition Our business is highly competitive.
Removed
Certain components require certificates of compliance or test results from our vendors prior to shipping to us. Our manufacturing process combines skilled labor from certified and licensed technicians with raw materials, manufactured components, purchased components, and purchased capital components to complete our test solutions and diagnostic equipment.
Added
Our test solutions and diagnostic equipment are engineered and manufactured in North America at facilities in Toronto, Canada and Binghamton, New York, U.S. Our facility in Canada is certified under ISO 9001:2015 quality management system, which mandates that we foster continuous improvement to our manufacturing processes.
Removed
We recycle materials, including metal from the Used Cores and corrugated packaging, in keeping with our focus as a remanufacturer to lessen our footprint on the environment. Purchased Finished Goods . In addition to our remanufactured goods, we also purchase finished goods from various approved suppliers, including several located in Asia.
Added
Our facility in New York, U.S., manufactures test solutions and diagnostic equipment using purchased electronic and custom components that are primarily assembled at this facility. While some circuit card assemblies are handled by outside subcontractors, most of the assemblies are manufactured in-house along with the fabrication of electronic subassemblies.
Removed
In addition, we launched an Agri-farm organic food and community program in Mexico to enhance our social responsibility practices on a global basis. 10 Table of Contents Information Security and Risk Oversight We have an information security risk program committed to regular risk management practices surrounding the protection of confidential data.
Added
We have also implemented employee awareness training programs around phishing, malware, and other cyber risks.
Removed
We continually evaluate the security environment surrounding the handling and control of our critical data and have instituted additional measures to help protect us from system intrusion or data breaches.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

52 edited+20 added−10 removed57 unchanged
Biggest changeMany factors may cause the market price for our common stock to decline, including: (i) our operating results failing to meet the expectations of securities analysts or investors in any period, (ii) downward revisions in securities analysts’ estimates, (iii) market perceptions concerning our future earnings prospects, (iv) public or private sales of a substantial number of shares of our common stock, (v) adverse changes in general market conditions or economic trends, and (vi) market shocks generally or in our industry, such as what has recently occurred. 19 Table of Contents General Risk Factors We may continue to make strategic acquisitions of other companies or businesses and these acquisitions introduce significant risks and uncertainties, including risks related to integrating the acquired businesses and achieving benefits from the acquisitions.
Biggest changeMany factors may cause the market price for our common stock to decline, including: (i) our operating results failing to meet the expectations of securities analysts or investors in any period, (ii) downward revisions in securities analysts’ estimates, (iii) market perceptions concerning our future earnings prospects, (iv) public or private sales of a substantial number of shares of our common stock, (v) adverse changes in general market conditions or economic trends, and (vi) market shocks generally or in our industry.
Risks Related to Our Overseas Operations Our offshore remanufacturing and logistic activities expose us to increased political and economic risks and place a greater burden on management to achieve quality standards. Our overseas operations, especially our operations in Mexico, increase our exposure to political, criminal or economic instability in the host countries and to currency fluctuations.
Risks Related to Our Overseas Operations Our offshore remanufacturing and logistic activities expose us to increased political and economic risks and place a greater burden on management to achieve quality standards. Our international operations, especially our operations in Mexico, increase our exposure to political, criminal or economic instability in the host countries and to currency fluctuations.
As a result, reserves for doubtful accounts and write-offs of accounts receivables may increase and failure to collect a significant portion of amounts due on those receivables could have a material adverse effect upon our business, results of operations, and financial condition.
As a result, reserves for doubtful accounts and write-offs of accounts receivables may increase, and delay or failure to collect a significant portion of amounts due on those receivables could have a material adverse effect upon our business, results of operations, and financial condition.
As a result, we are subject to various risks of doing business in foreign markets and importing products from abroad, such as the following, which we have experienced in the last fiscal year: ● significant delays in the delivery of cargo due to port security and over-crowding considerations; ● imposition of duties, taxes, tariffs or other charges on imports; ● financial or political instability in any of the countries in which our product is manufactured; ● potential recalls or cancellations of orders for any product that does not meet our quality standards; ● disruption of imports by labor disputes or strikes and local business practices; ● inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and ● natural disasters, disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas.
As a result, we are subject to various risks of doing business in foreign markets and importing products from abroad, such as the following, which we have experienced in the last fiscal year: ● significant delays in the delivery of cargo due to port security and over-crowding considerations; ● imposition of duties, taxes, tariffs or other charges on imports; ● financial or political instability in the countries in which our product is manufactured; ● potential recalls or cancellations of orders for products that do not meet our quality standards; ● disruption of imports by labor disputes or strikes and local business practices; ● inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and ● natural disasters, conflicts, disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods.
These and other factors may have a material adverse effect on our offshore activities and on our business, results of operations and financial condition. Our overall success as a business depends substantially upon our ability to manage our foreign operations.
These and other factors may have a material adverse effect on our international activities and on our business, results of operations and financial condition. Our overall success as a business depends substantially upon our ability to manage our foreign operations.
Our failure to maintain effective internal control over financial reporting may affect our ability to accurately report our financial results and could materially and adversely affect the market price of our common stock. Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight.
Our failure to maintain effective internal control over financial reporting may affect our ability to accurately report our financial results and could materially and adversely affect the market price of our common stock. 16 Table of Contents Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight.
While the current presidential administration has rejoined the WTO, it remains difficult to predict what affect the USMCA, the WTO or other trade agreements and organizations will have on our business.
While the current presidential administration has rejoined the WTO, it remains difficult to predict what effect the USMCA, the WTO or other trade agreements and organizations will have on our business.
In addition, as the capital markets get more volatile, it may become more difficult to obtain such waivers or refinance our debt. Weakness in conditions in the global credit markets and macroeconomic factors , including interest rates, could adversely affect our financial condition and results of operations.
In addition, as the capital markets get more volatile, it may become more difficult to obtain such waivers or refinance our debt. 18 Table of Contents Weakness in conditions in the global credit markets and macroeconomic factors, including interest rates, could adversely affect our financial condition and results of operations.
Risks are inherent in international operations, including: • exchange controls and currency restrictions; • currency fluctuations and devaluations; • changes in local economic conditions; • repatriation restrictions (including the imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries); • global sovereign uncertainty and hyperinflation in certain foreign countries; • laws and regulations relating to export and import restrictions; 17 Table of Contents • exposure to government actions; • increased required employment related costs; and • exposure to local political or social unrest including resultant acts of war, terrorism or similar events.
Risks are inherent in international operations, including: • exchange controls and currency restrictions; • currency fluctuations and devaluations; • changes in local economic conditions; • repatriation restrictions (including the imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries); • global sovereign uncertainty and hyperinflation; • laws and regulations relating to export and import restrictions; • exposure to government actions; • increased required employment related costs; and • exposure to local political or social unrest including resultant acts of war, terrorism or similar events.
In addition, we also get pressure from our suppliers to pay them faster and our customers to pay us slower, which impacts our cash flows. 12 Table of Contents Risks Related to Our Business and Industry We rely on a few large customers for a majority of our business, and the loss of any of these customers, significant changes in the prices, marketing allowances or other important terms provided to any of these customers or adverse developments with respect to the financial condition of these customers could reduce our net income and operating results.
In addition, we also get pressure from our suppliers to pay them faster and our customers to pay us slower, which impacts our cash flows. 12 Table of Contents Risks Related to Our Business and Industry We rely on a few customers for a majority of our business, and the loss of any of these customers, significant changes in the prices, marketing allowances or other important terms provided to any of these customers, or adverse developments with respect to the financial condition of these customers, could harm our operating results.
It is also possible, in the future, that we may experience the following risks related to doing business in foreign markets and importing products from abroad, such as the following: ● imposition of new legislation relating to import quotas or other restrictions that may limit the quantity of our product that may be imported into the U.S. from countries or regions where we do business; ● political or military conflict involving foreign countries or the U.S., which could cause a delay in the transportation of our products and an increase in transportation costs; ● heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods; and ● our ability to enforce any agreements with our foreign suppliers.
We also face the following risks related to doing business in foreign markets and importing products from abroad: ● imposition of new legislation relating to import quotas or other restrictions that may limit the quantity of our product that may be imported into the U.S. from countries or regions where we do business; ● political or military conflict involving foreign countries or the U.S., which could cause a delay in the transportation of our products and an increase in transportation costs; ● heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods; and ● our ability to enforce agreements with our foreign suppliers.
Reduced net sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leverage expenses. 18 Table of Contents Risks Related to Our Indebtedness Our debt can impact our operating results and cash flows and limit our operations.
Reduced net sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leverage expenses. Risks Related to Our Indebtedness Our debt can impact our operating results and cash flows and limit our operations.
We are exposed to market risk from material movements in foreign exchange rates between the U.S. dollar and the currencies of the foreign countries in which we operate. In fiscal 2023, approximately 25% of our total expenses were in currencies other than the U.S. dollar.
We are exposed to market risk from material movements in foreign exchange rates between the U.S. dollar and the currencies of the foreign countries in which we operate. In fiscal 2024, approximately 27% of our total expenses were in currencies other than the U.S. dollar.
In light of the continuous pressure on pricing which we have experienced from our large customers, we may not be able to recoup the higher costs of our products due to changes in the prices of raw materials, including, but not limited to, aluminum, copper, steel, and cardboard.
In addition to the continuous pressure on pricing which we have experienced from our largest customers, we also may not be able to recoup the higher costs of our products due to changes in the prices of raw materials, including, but not limited to, aluminum, copper, steel, and cardboard.
As of March 31, 2023, we had $158,325,000 of debt outstanding under our credit facility, which is at variable interest rates. Fluctuations in those rates could impact our operating results and cash flows. In particular, interest rates have been rising recently, which increases our interest expense.
As of March 31, 2024, we had $128,000,000 of debt outstanding under our credit facility, which is at variable interest rates. Fluctuations in those rates could impact our operating results and cash flows. In particular, interest rates have been rising recently, which increases our interest expense.
The weighted average interest on our debt was 8.12% at March 31, 2023 compared to 3.12% at March 31, 2022. In addition, our credit facility has covenants that limit aspects of our operations. In addition, on March 31, 2023, we issued and sold $32,000,000 in aggregate principal amount of 10.0% convertible notes due in 2029 (the “Convertible Notes”).
The weighted average interest on our debt was 8.43% at March 31, 2024 compared with 8.12% at March 31, 2023. In addition, our credit facility has covenants that limit aspects of our operations. In addition, on March 31, 2023, we issued and sold $32,000,000 in aggregate principal amount of 10.0% convertible notes due in 2029 (the “Convertible Notes”).
We are under ongoing pressure from our major customers to offer lower prices, extended payment terms, increased marketing and other allowances and other terms more favorable to these customers because our sales to these customers are concentrated, and the market in which we operate is very competitive.
We are under ongoing pressure from our major customers to offer lower prices, extend payment terms, increase marketing and other allowances and other terms more favorable to these customers because our sales to these customers are concentrated, and provide the market in which we operate is very competitive.
The incidence of cyber-attacks and other breaches of information technology security have increased worldwide. Cyber-attacks or other breaches of network or information technology security may cause equipment failure or disruption to our operations.
Cyber-attacks or other breaches of information technology security could adversely impact our business and operations. The incidence of cyber-attacks and other breaches of information technology security have increased worldwide. Cyber-attacks or other breaches of network or information technology security may cause equipment failure or disruption to our operations.
The products we manufacture or contract to manufacture contain small quantities of Tin and Gold. We manufacture or contract to manufacture one product with small quantities of Tantalum. For the reporting year ending December 31, 2022, we surveyed 211 smelters, refiners, or metal processing facilities for these minerals that are, or could be, in our supply chain.
The products we manufacture or contract to manufacture contain small quantities of Tin and Gold. We manufacture or contract to manufacture one product with small quantities of Tantalum. For the reporting year ending December 31, 2023, we surveyed 255 smelters or refiners for these minerals that are, or could be, in our supply chain.
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.
Should our customers experience significant cash flow problems, our financial position and results of operations could be materially and adversely affected, and our losses could include the outstanding receivable balance, Used Cores expected to be returned by customers, and the value of the Remanufactured Cores held at customers’ locations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo (“DRC”) and adjoining countries.
Regulations related to conflict minerals could adversely impact our business. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo (“DRC”) and adjoining countries.
We may also incur significant expenses to pursue and consummate acquisitions. Any of the foregoing, or a combination of them, could cause us to incur additional expenses and materially and adversely impact our business, financial condition, results of operations, or liquidity. Increasing attention to environmental, social, and governance matters may impact our business, financial results, or stock price.
Any of the foregoing, or a combination of them, could cause us to incur additional expenses and materially and adversely impact our business, financial condition, results of operations or liquidity. 19 Table of Contents Increasing attention to environmental, social, and governance matters may impact our business, financial results, or stock price.
We could experience adverse impacts from these conditions in a number of ways, including, but not limited to, the following which have occurred to some extent during this fiscal year: • supply chain delays or stoppages due to shipping delays (cargo ship, train and truck shortages as well as staffing shortages) resulting in increased freight costs, closed supplier facilities or distribution centers, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas; • change in demand for or availability of our products as a result of our customers modifying their restocking, fulfillment, or shipping practices; • increased raw material, and other input costs resulting from market volatility; • increased working capital needs and/or an increase in trade accounts receivable write-offs as a result of increased financial pressures on our suppliers or customers; and • fluctuations in foreign currency exchange rates or interest rates resulting from market uncertainties.
Certain of these conditions may impact our operations and the operations of our customers, suppliers, and vendors in a number of ways, including but not limited to, the following: • supply chain delays or stoppages due to shipping delays (cargo ship, train and truck shortages as well as staffing shortages) resulting in increased freight costs, closed supplier facilities or distribution centers, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods from some countries or areas; • change in demand for or availability of our products as a result of our customers modifying their restocking, fulfillment, or shipping practices; • increased raw material, and other input costs; • increased working capital needs and/or an increase in trade accounts receivable write-offs as a result of increased financial pressures on our suppliers or customers; and • fluctuations in foreign currency exchange rates or interest rates.
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 discount programs or we could be forced to wait longer for payment.
If the creditworthiness of any of our customers was downgraded, we could be adversely affected as we may be subjected to higher interest rates on the use of these discount programs or we could be forced to wait longer for payment.
Our net sales are concentrated among a small number of large customers. Sales to our three largest customers in the aggregate represented 84%, and sales to our largest customer represented 37% of our net sales during fiscal 2023.
Our net sales are concentrated among a small number of our customers. Sales to our three largest customers in the aggregate represented 83%, and sales to our largest customer represented 35% of our net sales during fiscal 2024.
A failure to comply with investor or customer expectations and standards, which are evolving, or if we are perceived to not have responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, could also cause reputational harm to our business and could have a material adverse effect on us.
A failure to comply with investor or customer expectations and standards, which are evolving, or if we are perceived to not have responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, could also cause reputational harm to our business, cause certain investors to be unwilling to invest in our stock, which could adversely impact our ability to raise capital and could have other material adverse effects on us.
Adverse changes in economic conditions, including inflation, recession, increased fuel prices, tariffs, and unemployment levels, availability of consumer credit, taxation or instability in the financial markets or credit markets may either lower demand for our products or increase our operational costs, or both. In addition, elections and other changes in the political landscape could have similar effects.
Unfavorable economic conditions may adversely affect our business. Adverse changes in economic conditions, including inflation, recession, increased fuel prices, tariffs, and unemployment levels, availability of consumer credit, taxation or instability in the financial markets or credit markets may either lower demand for our products or increase our operational costs, or both.
We recorded a non-cash gain of $2,776,000 and a non-cash loss of $316,000 due to the change in the fair value of the forward foreign currency exchange contracts during fiscal 2023 and 2022, respectively. In addition, we recorded gains of $6,515,000 and $1,989,000 in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2023 and 2022, respectively.
We recorded a non-cash loss of $1,373,000, a non-cash gain of $2,776,000, and a non-cash loss of $316,000 due to the change in the fair value of the forward foreign currency exchange contracts during fiscal 2024, 2023, and 2022, respectively.
We 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 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 amounts owed to us. We participate in trade accounts receivable discount programs with our major customers.
In December 2019, the United States, Mexico and Canada signed the amended United States-Mexico-Canada Agreement (the “USMCA”), which replaced NAFTA. In July 2020, the U.S. notified the United Nations of its intention to withdraw from the WTO.
We are affected by trade policy, including the North American Free Trade Agreement (“NAFTA”) and the World Trade Organization (the “WTO”). In December 2019, the United States, Mexico and Canada signed the amended United States-Mexico-Canada Agreement (the “USMCA”), which replaced NAFTA. In July 2020, the U.S. notified the United Nations of its intention to withdraw from the WTO.
Due to the diversity of our product offering, we compete with several large and medium-sized companies, including BBB Industries and Cardone Industries for hard parts, and AVL and Horiba for test solutions and diagnostic equipment and a large number of smaller regional and specialty companies and numerous category specific competitors.
Due to the diversity of our product offering, we compete with several large and medium-sized companies, including (i) BBB Industries, First Brands and DRIV for hard parts, (ii) Burke Porter and Loccionni for test solutions and diagnostic equipment, and (iii) a large number of smaller regional and specialty companies.
A significant portion of automotive parts and components we use in our remanufacturing process are imported from suppliers located outside the U.S., including China and other countries in Asia.
Our reliance on foreign suppliers for some of the automotive parts we sell to our customers or included in our products presents risks to our business . A significant portion of automotive parts and components we use in our remanufacturing process are imported from suppliers located outside the U.S., including China and other countries in Asia.
These factors may allow our competitors to: • respond more quickly than we can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products; • engage in more extensive research and development; and • spend more money and resources on marketing and promotion.
These factors may allow our competitors to: • respond more quickly than we can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products; • engage in more extensive research and development; and • allocate more money and resources on marketing and promotion. 13 Table of Contents Increased competition could put additional pressure on us to reduce prices or take other actions, which may have an adverse effect on our operating results.
Such conditions may also materially impact our customers, suppliers and other parties with whom we do business. Our revenue will be adversely affected if demand for our products declines. The impact of unfavorable economic conditions may also impair the ability of our customers to pay for products they have purchased.
In addition, elections and other changes in the political landscape could have similar effects. Such conditions may also materially impact our customers, suppliers and other parties with whom we do business. Our revenue will be adversely affected if demand for our products declines.
Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage.
While we maintain specific cyber insurance coverage, which may apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage.
We also incur allowances, accruals, charges and other expenses that differ from period to period based on changes in our business, which causes our operating income to fluctuate. Regulations related to conflict minerals could adversely impact our business.
We also incur allowances, accruals, charges and other expenses that differ from period to period based on changes in our business, which causes our operating income to fluctuate. Natural disasters or other disruptions in our business in California and Baja California, Mexico could increase our operating expenses or cause us to lose revenues.
We have not been able to ascertain the conflict-free status of the remaining smelters or refiners. 16 Table of Contents Our strategy for managing risks associated with conflict minerals in products includes continuing to encourage our suppliers to engage in conflict-free sourcing and obtaining data from our suppliers that is more applicable to the products we purchase.
Our strategy for managing risks associated with conflict minerals in products includes continuing to encourage our suppliers to engage in conflict-free sourcing and obtaining data from our suppliers that is more applicable to the products we purchase. We continue to monitor progress on industry efforts to ascertain whether some facilities that suppliers identified are actually smelters.
The temporary or permanent loss of our computer and telecommunications equipment and software systems, through casualty, operating malfunction, software virus or service provider failure, could disrupt our operations. In addition, our future growth may require additional investment in our systems to keep up with technological advances in our industry.
We rely on computer and telecommunications systems to communicate with our customers and vendors and manage our business. The temporary or permanent loss of our computer and telecommunications equipment and software systems, through casualty, operating malfunction, software virus or service provider failure, could disrupt our operations.
If we are not able to invest in or adopt changes to our systems, or such upgrades take longer or cost more than anticipated, our business, financial condition and operating results may be adversely affected. 20 Table of Contents Cyber-attacks or other breaches of information technology security could adversely impact our business and operations.
In addition, our future growth may require additional investment in our systems to keep up with technological advances in our industry. If we are not able to invest in or adopt changes to our systems, or such upgrades take longer or cost more than anticipated, our business, financial condition and operating results may be adversely affected.
Our operating results may continue to fluctuate significantly. We have experienced significant variations in our annual and quarterly results of operations. These fluctuations have resulted from many factors, including shifts in the demand and pricing for our products, general economic conditions, including changes in prevailing interest rates, and the introduction of new products.
These fluctuations have resulted from many factors, including shifts in the demand and pricing for our products, general economic conditions, including changes in prevailing interest rates, wage inflation and multiple minimum wage increases in Mexico in the past and likely in the future, and the introduction of new products.
The automotive industry is increasingly focused on the development of hybrid and electric vehicles and of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully-automated driving experience.
We may also lose significant customers or lines of business to competitors. If we do not respond appropriately, the evolution of the automotive industry could adversely affect our business. The automotive industry is increasingly focused on the development of hybrid and electric vehicles and of advanced driver assistance technologies, with the goal of a commercially-viable, fully-automated driving experience.
Natural disasters or other disruptions in our business in California and Baja California, Mexico could increase our operating expenses or cause us to lose revenues. A substantial portion of our operations are located in California and Baja California, Mexico, including our headquarters, remanufacturing and warehouse facilities.
A substantial portion of our operations are located in Southern California and Baja California, Mexico, including our headquarters, remanufacturing and warehouse facilities.
While, to the best of our knowledge, we have not been subject to cyber-attacks or to other cyber incidents which, individually or in the aggregate, have been material to our operations or financial conditions, the preventive actions we take to reduce the risk of cyber incidents and protect our information technology and networks may be insufficient to repel a major cyber-attack in the future.
We have been impacted by security incidents in the past and will likely continue to experience security incidents of varying degrees. The preventive actions we take to reduce the risk of cyber incidents and protect our information technology and networks may be insufficient to repel a major cyber-attack in the future.
If our technology and telecommunications systems were to fail, or we were not able to successfully anticipate, invest in or adopt technological advances in our industry, it could have an adverse effect on our operations. We rely on computer and telecommunications systems to communicate with our customers and vendors and manage our business.
We are a member of the Automobile Industry Action Group (AIAG) and support their efforts in the conflict minerals area. 20 Table of Contents If our technology and telecommunications systems were to fail, or we were not able to successfully anticipate, invest in or adopt technological advances in our industry, it could have an adverse effect on our operations.
Risks Related to Economic, Political and Health Conditions Developments in global and local conditions, such as slowing growth, inflation, the Russia/Ukraine conflict and the COVID-19 pandemic, have a material impact on our results of operations and financial condition, and the continuation of or worsening of such conditions could have a similar or worse impact.
Risks Related to Economic, Political and Health Conditions Developments in global and local conditions, such as international trade disputes, a foreign or domestic debt crisis, currency volatility, natural disasters, war, such as the war in Ukraine and the conflict in Israel, Gaza and surrounding areas, epidemics and pandemics, the fear of spread of contagious diseases and civil unrest, may have a material impact on our results of operations and financial condition, and the continuation of or worsening of such conditions could have a similar or worse impact.
Our operating results are affected over the long term by automotive parts failure rates. These failure rates are impacted by a number of factors outside of our control, including product designs that have resulted in greater reliability, the number of miles driven by consumers, and the average age of vehicles on the road.
These failure rates are impacted by a number of factors outside of our control, including the reliability and durability of vehicles and parts, the number of miles driven by consumers, and the average age of vehicles on the road. These trends could reduce the demand for our products and thus adversely affect our sales and profitability.
Of these, 89% were validated as conflict-free, per publicly available information on the Conflict Free Sourcing Initiative website.
Of these, 87% were validated as Compliant or Conformant as conflict-free, per publicly available information on the Conflict Free Sourcing Initiative website. We have not been able to ascertain the conflict-free status of the remaining smelters or refiners.
Products manufactured overseas and imported into the U.S. and other countries are subject to import restrictions and duties, which could delay their delivery or increase their cost. We are subject to various lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding our business.
Products manufactured overseas and imported into the U.S. and other countries are subject to import restrictions and duties, which could delay their delivery or increase their cost. We are regularly in contact with customs officials from various countries and disagree from time to time on the amounts due.
In addition, we face competition from original equipment manufacturers, which, through their automotive dealerships, supply many of the same types of replacement parts we sell. Some of our competitors may have larger customer bases and significantly greater financial, technical and marketing resources than we do.
Some of our competitors may have larger customer bases and significantly greater financial, technical and marketing resources than we do.
If we are unable to recover a substantial portion of our raw materials from Used Cores returned to us by our customers through the core exchange programs, the prices of Used Cores that we purchase may reflect the impact of changes in the cost of raw materials.
We recover a substantial portion of our raw materials from Used Cores returned to us by our customers through the core exchange programs. To supplement Used Cores received from our customers, we purchase Used Cores from core brokers. Although this is not a primary source of Used Cores, it is a critical source for meeting our raw material demands.
These activities include increasing attention and demands for action related to climate change and promoting the use of energy saving building materials.
These activities include increasing attention and demands for action related to climate change and promoting the use of energy saving building materials. As they evaluate investment decisions, many investors and customers, look not only at company disclosures but also to ESG rating systems that have been developed by third parties to allow ESG comparisons among companies.
Several conditions have led to adverse impacts on the U.S. and global economies and created uncertainty regarding the potential effects on our employees, supply chain, operations, and customer demand. These conditions impact our operations and the operations of our customers, suppliers, and vendors because of quarantines, facility closures, travel, logistics restrictions and supply chain issues.
Several conditions have led to adverse impacts on the U.S. and global economies and created uncertainty regarding the potential effects on our employees, supply chains, operations, and customer demand including international trade disputes, a foreign or domestic debt crisis, currency volatility, natural disasters, war, such as the war in Ukraine and the conflict in Israel, Gaza and surrounding areas, epidemics and pandemics, the fear of spread of contagious diseases and civil unrest.
Removed
The extent to which these conditions impact us will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted, including, but not limited to: (i) general economic and growth conditions, (ii) the impact of inflation on our expenses, (iii) the effects of the Russia/Ukraine conflict on international trade, customers, suppliers, and vendors, (iv) public health crises, such as the COVID-19 pandemic, and (v) the extent to which we return to “normal” economic and operating conditions or the economy stabilizes to a “new normal.” Even if some of these conditions subside, we may continue to experience adverse impacts to our business because of an economic recession or depression that has occurred or may occur in the future, as well as the lingering effects on logistics, supply chain and the social norms of society.
Added
The impact of unfavorable economic conditions may also impair the ability of our customers to pay for products they have purchased.
Removed
At this time, we are unable to predict accurately the impact these conditions will have on our business and financial condition in the future. Unfavorable economic conditions may adversely affect our business.
Added
We also face competition from original equipment manufacturers, which, through their automotive dealerships, supply many of the same types of replacement parts we sell. In addition, other overseas competitors, particularly those located in China, are increasing their operations and are becoming a significant competitive force.
Removed
In addition, other overseas competitors, particularly those located in China, are increasing their operations and could become a significant competitive force in the future. Increased competition could put additional pressure on us to reduce prices or take other actions, which may have an adverse effect on our operating results.
Added
The higher prices of these Used Cores that we purchase could impact the cost of raw materials. Raw material price increases have had an impact on our product costs and profitability and continued increases will similarly adversely affect us.
Removed
We may also lose significant customers or lines of business to competitors. 13 Table of Contents If we do not respond appropriately, the evolution of the automotive industry could adversely affect our business.
Added
Our financial results are affected by automotive parts failure rates that are outside of our control. 14 Table of Contents Our operating results are affected over the long term by automotive parts failure rates.
Removed
Sustained raw material price increases has had an impact on our product costs and profitability to date, but we are unable to determine the overall impact, in the future, at this time. Our financial results are affected by automotive parts failure rates that are outside of our control.
Added
In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding our business. Our operating results may continue to fluctuate significantly. We have experienced significant variations in our annual and quarterly results of operations.
Removed
A reduction in the failure rates of automotive parts would reduce the demand for our products and thus adversely affect our sales and profitability. 14 Table of Contents Our reliance on foreign suppliers for some of the automotive parts we sell to our customers or included in our products presents risks to our business .
Added
During fiscal 2024, we sustained minor damage from rain, which resulted in short-term power outages.
Removed
We continue to monitor progress on industry efforts to ascertain whether some facilities that suppliers identified are actually smelters. We do not believe conflict minerals pose risk to our operations. We are a member of the Automobile Industry Action Group (AIAG) and support their efforts in the conflict minerals area.
Added
In addition, we recorded gains of $5,187,000, $6,515,000, and $1,989,000 in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2024, 2023, and 2022, respectively. 17 Table of Contents Changes in trade policy and other factors beyond our control could materially adversely affect our business.
Removed
Changes in trade policy and other factors beyond our control could materially adversely affect our business. The former presidential administration advocated for greater restrictions on international trade generally, including with respect to the North American Free Trade Agreement (“NAFTA”) and the World Trade Organization (the “WTO”).
Added
Our stock price is also affected by volume, which impacts the ability of investors to buy or sell our stock.
Removed
Such attacks, which include the use of malware, computer viruses and other means for disruption or unauthorized access, on companies have increased in frequency, scope and potential harm in recent years.
Added
General Risk Factors We have made and may continue to make strategic acquisitions of other companies and businesses, and these acquisitions have and may continue to introduce significant risks and uncertainties, including risks related to integrating the acquired businesses and achieving benefits from the acquisitions.
Removed
Additionally, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. While we maintain specific cyber insurance coverage, which may apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case.
Added
We may also incur significant expenses to pursue and consummate acquisitions.
Added
Although we participate in a number of these ratings systems, we do not participate in all such systems.
Added
The criteria used in these ratings systems may conflict and change frequently, and we cannot predict how these third parties will score us, nor can we have any assurance that they score us accurately or other companies accurately or that other companies have provided them with accurate data.
Added
We supplement our participation in ratings systems with published disclosures of our ESG activities, but some investors may desire other disclosures that we do not provide. We also incur significant costs in complying with reporting obligations and could incur liability if a regulator or other third party disagrees with our statements.
Added
In addition, the SEC recently issued final rules that mandate additional ESG disclosure and impose other requirements on us. In addition, some of the domestic and foreign jurisdictions in which we operate could mandate additional ESG disclosure and impose additional requirements on us.
Added
For example, in October 2023, California passed two bills that require certain companies that do business in California to disclose their GHG emissions and climate-related financial risks starting in 2026.
Added
We do not believe conflict minerals pose risk to our operations.
Added
We may face such attacks through use of malware, computer viruses, attachments to e-mails and other means for disruption or unauthorized access The risk of a cybersecurity attack, including by computer hackers (individual or hacking organizations), foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased.
Added
The techniques and sophistication used to conduct cyber-attacks and breaches of IT systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until such attacks are launched or have been in place for a period of time.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeSquare Feet Leased or Owned Expiration Torrance, CA Remanufacturing, Warehouse, Administrative, and Office 231,000 Leased March 2032 Tijuana, Mexico Remanufacturing, Warehouse, and Office 312,000 Leased August 2033 Tijuana, Mexico Distribution Center and Office 410,000 Leased December 2032 Tijuana, Mexico Remanufacturing, Warehouse, and Office 199,000 Leased December 2032 Tijuana, Mexico Core Induction, Warehouse, and Office 173,000 Leased December 2032 Tijuana, Mexico Warehouse 104,000 Leased May 2024 Singapore & Malaysia Remanufacturing, Warehouse, and Office 114,000 Leased Various through December 2024 Shanghai, China Warehouse and Office 27,000 Leased March 2024 Ontario, Canada Remanufacturing, Warehouse, and Office 157,000 Leased May 2026 Ontario, Canada Manufacturing, Warehouse, and Office 35,000 Leased December 2024 We believe the above mentioned facilities are sufficient to satisfy our current and foreseeable operations.
Biggest changeSquare Feet Leased or Owned Expiration Torrance, CA Remanufacturing, Warehouse, Administrative, and Office 231,000 Leased March 2032 Tijuana, Mexico Remanufacturing, Warehouse, and Office 312,000 Leased August 2033 Tijuana, Mexico Distribution Center and Office 410,000 Leased December 2032 Tijuana, Mexico Remanufacturing, Warehouse, and Office 199,000 Leased December 2032 Tijuana, Mexico Core Induction, Warehouse, and Office 173,000 Leased December 2032 Tijuana, Mexico Warehouse 68,000 Leased June 2026 Singapore & Malaysia Remanufacturing, Warehouse, and Office 144,000 Leased Various through September 2032 Shanghai, China Warehouse and Office 27,000 Leased March 2027 Ontario, Canada Remanufacturing, Warehouse, and Office 157,000 Leased May 2026 Ontario, Canada Manufacturing, Warehouse, and Office 35,000 Leased December 2024 We believe the above mentioned facilities are sufficient to satisfy our current and foreseeable operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are subject to various lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding our business. Following an audit in fiscal 2019 (“Audit”), the U.S.
Biggest changeItem 3. Legal Proceedings We are subject to various lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding our business, and our compliance with law, code, and regulations related to all matters including but not limited to environmental, information security, taxes, levies, tariffs and such.
Removed
Customs and Border Protection (“CBP”) stated that it believed that we owed additional duties relating to products that we imported from Mexico from 2011 through mid-2018. The CBP recently requested that we pay additional duties of approximately $3,900,000 from 2011 through mid-2018 related to the findings of the Audit.
Removed
We do not believe that this amount is correct and believe that we have numerous defenses and are disputing this amount vigorously. We cannot assure that the CBP will agree or that we will not need to accrue or pay additional amounts in the future.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe initial conversion rate is 66.6667 shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $15.00 per share of common stock). 22 Table of Contents Equity Compensation Plan Information The following summarizes our equity compensation plans as of March 31, 2023: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c ) Equity compensation plans approved by security holders 1,854,795 (1 ) $ 20.20 (2 ) 871,432 (3 ) Equity compensation plans not approved by security holders N/A N/A N/A Total 1,854,795 $ 20.20 871,432 (1) Consists of (i) 6,000 stock options issued under the 2004 Non-Employee Director Stock Option Plan, (ii) 366,169 restricted stock units and restricted stock (collectively “RSUs”), 192,696 performance stock units (PSU’s), and 1,226,745 stock options issued under the Fourth Amended and Restated 2010 Incentive Award Plan (the “2010 Plan”), (iii) 10,417 RSUs issued under our 2014 Non-Employee Director Incentive Award Plan (the “2014 Plan”), and (iv) 52,768 RSUs issued under our 2022 Incentive Award Plan (the “2022 Plan”).
Biggest changeEquity Compensation Plan Information The following summarizes our equity compensation plans as of March 31, 2024: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c ) Equity compensation plans approved by security holders 2,122,863 (1 ) $ 9.32 (2 ) 430,129 (3 ) Equity compensation plans not approved by security holders N/A N/A N/A Total 2,122,863 $ 9.32 430,129 (1) Consists of (i) 140,299 restricted stock units (“RSUs”), 192,696 performance stock units (PSU’s), and 975,884 stock options issued under the Fourth Amended and Restated 2010 Incentive Award Plan (the “2010 Plan”) and (ii) 100,624 RSUs, 581,227 PSUs, and 132,133 stock options issued under our 2022 Incentive Award Plan (the “2022 Plan”).
We retired the 837,007 shares repurchased under this program through March 31, 2023. 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.
We retired the 837,007 shares repurchased under this program through March 31, 2024. 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.
Purchases of Equity Securities by the Issuer Share repurchase activity during the fourth quarter of fiscal 2023 was as follows: Periods Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) January 1 - January 31, 2023: Open market and privately negotiated purchases - $ - - $ 18,255,000 February 1 - February 28, 2023: Open market and privately negotiated purchases - $ - - 18,255,000 March 1 - March 31, 2023: Open market and privately negotiated purchases - $ - - 18,255,000 Total 0 0 $ 18,255,000 (1) As of March 31, 2023, $18,745,000 of the $37,000,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our Credit Facility.
Purchases of Equity Securities by the Issuer Share repurchase activity during the fourth quarter of fiscal 2024 was as follows: Periods Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) January 1 - January 31, 2024: Open market and privately negotiated purchases - $ - - $ 18,255,000 February 1 - February 29, 2024: Open market and privately negotiated purchases - $ - - 18,255,000 March 1 - March 31, 2024: Open market and privately negotiated purchases - $ - - 18,255,000 Total 0 0 $ 18,255,000 (1) As of March 31, 2024, $18,745,000 of the $37,000,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our Credit Facility.
(3) Consists of shares available for future issuance under our 2022 Plan. 23 Table of Contents Stock Performance Graph The following graph compares the cumulative return to holders of our common stock for the five years ending March 31, 2023 with the NASDAQ Composite Total Returns Index and the Zacks Retail and Wholesale Auto Parts Index.
(3) Consists of shares available for future issuance under our 2022 Plan. 24 Table of Contents Stock Performance Graph The following graph compares the cumulative return to holders of our common stock for the five years ending March 31, 2024 with the NASDAQ Composite Total Returns Index and the Zacks Retail and Wholesale Auto Parts Index.
The comparison assumes $100 was invested at the close of business on March 31, 2018 in our common stock and in each of the comparison groups, and assumes reinvestment of dividends. 24 Table of Contents
The comparison assumes $100 was invested at the close of business on March 31, 2019 in our common stock and in each of the comparison groups, and assumes reinvestment of dividends. 25 Table of Contents
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NASDAQ Global Select Market under the trading symbol MPAA. As of June 6, 2023, there were 19,494,615 shares of common stock outstanding held by 11 holders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NASDAQ Global Select Market under the trading symbol MPAA. As of June 4, 2024, there were 19,662,380 shares of common stock outstanding held by 10 holders of record.
Removed
Sales of Unregistered Securities On March 31, 2023, we issued $32,000,000 aggregate principal amount of convertible notes (the “Convertible Notes”) in a private placement offering to persons reasonably believed to be qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act. The Convertible Notes bear interest at a rate of 10% per year.
Removed
The Convertible Notes may either be redeemed for cash, converted into shares of our common stock, or a combination thereof, at our election. The Convertible Notes are presented as convertible notes, net of unamortized debt issuance costs, on the consolidated balance sheet.
Removed
The aggregate proceeds from the offering were approximately $ 31,280,000 million, net of initial purchasers’ fees and other related expenses. The notes will mature on March 30, 2029, unless earlier converted, repurchased or redeemed.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

87 edited+41 added−68 removed80 unchanged
Biggest changeOn February 3, 2023, we entered into the fifth amendment, which among other things, (i) waived certain existing defaults and events of defaults arising from non-compliance with the fixed charge coverage ratio and senior leverage ratio financial covenants as of the end of the fiscal quarter ended December 31, 2022, (ii) modified the fixed charge coverage ratio and senior leverage ratio financial covenant levels for the quarters ending March 31, 2023 and June 30, 2023, (iii) modified the definitions of “Applicable Margin” and “Consolidated EBITDA”, and (iv) added a new minimum undrawn availability financial covenant.
Biggest changeOn August 3, 2023, we entered into a seventh amendment to the Credit Facility, which among other things, (i) permitted us to repay our outstanding balance of Term Loans, (ii) permitted the exclusion of quarterly principal payments of Term Loans from the fixed charge coverage ratio (including retrospectively for the prior periods) for all quarters beginning June 30, 2023, (iii) reset the fixed charge coverage ratio financial covenant level for the quarters ending September 30, 2023 and December 31, 2023, (iv) eliminated the senior leverage ratio financial covenant effective with the quarter ended June 30, 2023, (v) extended the minimum undrawn availability financial covenant through the delivery of the June 30, 2024 compliance certificate, and (vi) excluded the amount of all amendment fees and expenses incurred in connection with this amendment as well as prior unamortized fees associated with the Term Loans from bank EBITDA and the fixed charge coverage ratio financial covenant.
We consider, among other things, the length of our largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums.
We consider, among other things, the length of our largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums.
The Convertible Notes include customary provisions relating to the occurrence of Events of Default, which include the following: (i) certain payment defaults on the Convertible Notes; (ii) certain events of bankruptcy, insolvency and reorganization involving us or any of our subsidiaries; (iii) the entering of one or more final judgements or orders against us or any of our subsidiaries for an aggregate payment exceeding $25,000,000; (iv) the acceleration of senior debt; (v) certain failures of us to comply with certain provisions of the Note Purchase Agreement or material breaches of the Note Purchase Agreement by us or any of our subsidiaries; (vi) any material provision of the Note Purchase Agreement, the Convertible Notes, the guarantee, the subordination agreement, the warrants or the registration rights agreement, for any reason, ceases to be valid and binding on us or any subsidiary, or any subsidiary shall so claim in writing to challenge the validity of or our liability under the Note Purchase Agreement, the Convertible Notes, or the registration rights agreement; or (vii) we fail to maintain the listing of our capital stock on a national securities exchange.
The Convertible Notes include customary provisions relating to the occurrence of Events of Default, which include the following: (i) certain payment defaults on the Convertible Notes; (ii) certain events of bankruptcy, insolvency and reorganization involving us or any of our subsidiaries; (iii) the entering of one or more final judgments or orders against us or any of our subsidiaries for an aggregate payment exceeding $25,000,000; (iv) the acceleration of senior debt; (v) certain failures of us to comply with certain provisions of the Note Purchase Agreement or material breaches of the Note Purchase Agreement by us or any of our subsidiaries; (vi) any material provision of the Note Purchase Agreement, the Convertible Notes, the guarantee, the subordination agreement, the warrants or the registration rights agreement, for any reason, ceases to be valid and binding on us or any subsidiary, or any subsidiary shall so claim in writing to challenge the validity of or our liability under the Note Purchase Agreement, the Convertible Notes, or the registration rights agreement; or (vii) we fail to maintain the listing of our capital stock on a national securities exchange.
Customer deposits represent the receipt of prepayments from customers for the obligation to transfer goods or services in the future. We classify these customer deposits as short-term contract liabilities as we expect to satisfy these obligations within our normal operating cycle, which generally one year.
Customer deposits represent the receipt of prepayments from customers for the obligation to transfer goods or services in the future. We classify these customer deposits as short-term contract liabilities as we expect to satisfy these obligations within our normal operating cycle, which is generally one year.
The Convertible Notes also contain additional features, such as, default interest and options related to a Fundamental Transaction, requiring bifurcation which were not separately accounted for as the value of such features were not material at March 31, 2023.
The Convertible Notes also contain additional features, such as, default interest and options related to a Fundamental Transaction, requiring bifurcation which were not separately accounted for as the value of such features were not material at March 31, 2024 and 2023.
After March 31, 2026, we may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price equal to the redemption price plus $4,000,000, but only if (i) we are listed on a national exchange, (ii) there is no “Event of Default” occurring and continuing and (iii) Adjusted EBITDA for the prior four quarters is greater than $80,000,000.
After March 31, 2026, we may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price equal to the redemption price plus $5,000,000, but only if (i) we are listed on a national exchange, (ii) there is no “Event of Default” occurring and continuing and (iii) Adjusted EBITDA for the prior four quarters is greater than $80,000,000.
As of March 31, 2023, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our Credit Facility. We retired the 837,007 shares repurchased under this program through March 31, 2023.
As of March 31, 2024, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our Credit Facility. We retired the 837,007 shares repurchased under this program through March 31, 2024.
Given the nature of these various factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future. 26 Table of Contents Inflation The cost to manufacture and distribute our products is impacted by the cost of raw materials, finished goods, labor, and transportation.
Given the nature of these various factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future. Inflation The cost to manufacture and distribute our products is impacted by the cost of raw materials, finished goods, labor, and transportation.
We are not currently aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of March 31, 2023. These estimates may change, as new events occur and additional information is obtained.
We are not currently aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of March 31, 2024. However, these estimates may change, as new events occur and additional information is obtained.
Highlights and Accomplishments in Fiscal 2023 During fiscal 2023, we continued to execute our strategic plan – focusing on meaningful growth and improving profitability by leveraging our offshore infrastructure, industry position and customer relationships.
Highlights and Accomplishments in Fiscal 2024 During fiscal 2024, we continued to execute our strategic plan – focusing on meaningful growth and improving profitability by leveraging our offshore infrastructure, industry position and customer relationships.
Similarly, we accept product returns and grant appropriate credits to new customers from the time the new customer relationship is established. 31 Table of Contents Contract Liability Contract liability consists of: (i) customer allowances earned, (ii) accrued core payments, (iii) customer core returns accruals, (iv) core bank liability, (v) finished goods liabilities, and (vi) customer deposits.
Similarly, we accept product returns and grant appropriate credits to new customers from the time the new customer relationship is established. Contract Liability Contract liability consists of: (i) customer allowances earned, (ii) accrued core payments, (iii) customer core returns accruals, (iv) core bank liability, (v) finished goods liabilities, and (vi) customer deposits.
Any reduction of value is recorded as cost of goods sold in the period in which the revaluation is identified. • Net realizable value for Used Cores are determined based on current core purchase prices from core brokers to the extent that core purchases in the trailing 12 months are significant.
Any reduction of value is recorded as cost of goods sold in the period in which the revaluation is identified. 30 Table of Contents • Net realizable value for Used Cores are determined based on current core purchase prices from core brokers to the extent that core purchases in the trailing 12 months are significant.
Our significant accounting policies are discussed in detail below and in Note 2 of the notes to consolidated financial statements. In preparing our consolidated financial statements, we use estimates and assumptions for matters that are inherently uncertain. We base our estimates on historical experiences and reasonable assumptions.
Our significant accounting policies are discussed in detail below and in Note 2 of the notes to consolidated financial statements. 28 Table of Contents In preparing our consolidated financial statements, we use estimates and assumptions for matters that are inherently uncertain. We base our estimates on historical experiences and reasonable assumptions.
The customer finished goods returns accrual represents the Unit Value of the estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year. Our customer finished goods returns accrual was $37,984,000 and $38,086,000 at March 31, 2023 and 2022, respectively.
The customer finished goods returns accrual represents the Unit Value of the estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year. Our customer finished goods returns accrual was $38,312,000 and $37,984,000 at March 31, 2024 and 2023, respectively.
Segment Reporting Our three operating segments are as follows: • Hard Parts , including (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) turbochargers, • Test Solutions and Diagnostic Equipment , including (i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) test solutions and diagnostic equipment for the pre- and post-production of electric vehicles, (iii) software emulation of power systems applications for the electrification of all forms of transportation (including automobiles, trusts and the emerging electrification of systems within the aerospace industry, such as electric vehicle charging stations), and 27 Table of Contents • Heavy Duty , including non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.
Segment Reporting Our three operating segments are as follows: • Hard Parts , which includes (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) turbochargers, • Test Solutions and Diagnostic Equipment , which includes (i) applications for combustion engine vehicles, including bench-top testers for alternators and starters, (ii) equipment for the pre- and post-production of electric vehicles, and (iii) software emulation of power system applications for the electrification of all forms of transportation (including automobiles, trucks, the emerging electrification of systems within the aerospace industry, and electric vehicle charging stations), and • Heavy Duty , which includes non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.
Purchased finished goods also include an allocation of fixed overhead costs. 28 Table of Contents The estimate of net realizable value is subjective and based on our judgment and knowledge of current industry demand and management’s projections of industry demand.
Purchased finished goods also include an allocation of fixed overhead costs. The estimate of net realizable value is subjective and based on our judgment and knowledge of current industry demand and management’s projections of industry demand.
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 allow us to accelerate receipt of payment on customers’ receivables.
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 accounts receivable discount programs allow us to accelerate receipt of payment on customers’ receivables.
(collectively, the “Purchasers”) and Bison Capital Partners VI, L.P., as the purchaser representative (the “Purchaser Representative”) for the issuance and sale of $32,000,000 in aggregate principal amount of convertible notes due in 2029 (the “Convertible Notes”) to be used for general corporate purposes.
(collectively, the “Purchasers”) and Bison Capital Partners VI, L.P., as the purchaser representative (the “Purchaser Representative”) for the issuance and sale of $32,000,000 in aggregate principal amount of convertible notes due in 2029 (the “Convertible Notes”), which was used for general corporate purposes.
Revenue Recognition — Core Exchange Programs Full price Remanufactured Cores: When remanufactured products are shipped, certain customers are invoiced for the Remanufactured Core value of the product at the full Remanufactured Core sales price.
Revenue Recognition — Core Exchange Programs 32 Table of Contents Full price Remanufactured Cores: When remanufactured products are shipped, certain customers are invoiced for the Remanufactured Core value of the product at the full Remanufactured Core sales price.
While these arrangements have reduced our working capital needs, there can be no assurance that these programs will continue in the future.
While these arrangements have reduced our working capital needs, there can be no assurance that these accounts receivable discount programs will continue in the future.
We estimate the fair value of the Warrants at each balance sheet date. Any subsequent changes from the initial recognition in the fair value of the Warrants will be recorded in current period earnings in the consolidated statements of operations. The Convertible Notes may be converted, subject to certain conditions, at a conversion price of approximately $15.00 (the “Conversion Option”).
Any subsequent changes from the initial recognition in the fair value of the Warrants will be recorded in current period earnings in the consolidated statements of operations. The Convertible Notes may be converted, subject to certain conditions, at a conversion price of approximately $15.00 (the “Conversion Option”).
As a result of this process, we recorded reserves for excess and obsolete inventory of $16,436,000 and $13,520,000 at March 31, 2023 and 2022, respectively. This increase in the reserve was primarily due to excess inventory of certain finished goods on hand at March 31, 2023 compared with March 31, 2022.
As a result of this process, we recorded reserves for excess and obsolete inventory of $17,372,000 and $16,436,000 at March 31, 2024 and 2023, respectively. This increase in the reserve was primarily due to excess inventory of certain finished goods on hand at March 31, 2024 compared with March 31, 2023.
Share Repurchase Program In August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock. During fiscal 2023, we did not repurchase any shares of our common stock. During fiscal 2022 and 2021, we repurchased 106,486 and 54,960 shares of our common stock, respectively, for $1,914,000 and $1,139,000, respectively.
Share Repurchase Program In August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock. During fiscal 2024 and 2023, we did not repurchase any shares of our common stock. During fiscal 2022, we repurchased 106,486 shares of our common stock for $1,914,000.
(10) Other long-term obligations represent commitments we have with certain customers to provide marketing allowances in consideration for multi-year customer agreements to provide products over a defined period. We are not obligated to provide these marketing allowances should our business relationships end with these customers. 45 Table of Contents
(9) Other long-term obligations represent commitments we have with certain customers to provide marketing allowances in consideration for multi-year customer agreements to provide products over a defined period. We are not obligated to provide these marketing allowances should our business relationships end with these customers.
The following summarizes certain key operating consolidated data for the periods indicated: Fiscal Years Ended March 31, 2023 2022 2021 Cash flows (used in) provided by operations $ (21,754,000 ) $ (44,862,000 ) $ 56,089,000 Finished goods turnover (1) 3.6 3.8 4.1 (1) Finished goods turnover is calculated by dividing the cost of goods sold for the year by the average between beginning and ending non-core finished goods inventory values, for each fiscal year.
The following summarizes certain key operating consolidated data for the periods indicated: Fiscal Years Ended March 31, 2024 2023 2022 Cash flows provided by (used in) operations $ 39,172,000 $ (21,754,000 ) $ (44,862,000 ) Finished goods turnover (1) 3.7 3.6 3.8 (1) Finished goods turnover is calculated by dividing the cost of goods sold for the year by the average of beginning and ending non-core finished goods inventory values, for each fiscal year.
(9) We are unable to reliably estimate the timing of future payments related to uncertain tax position liabilities at March 31, 2023; therefore, future tax payment accruals related to uncertain tax positions in the amount of $1,964,000 have been excluded from the table above.
(8) We are unable to reliably estimate the timing of future payments related to uncertain tax position liabilities at March 31, 2024; therefore, future tax payment accruals related to uncertain tax positions in the amount of $1,784,000 have been excluded from the table above.
Deferred tax assets arising primarily as a result of net operating loss carry-forwards and research and development credits in connection with our Canadian operations have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods. Should the actual amount differ from our estimate, the amount of our valuation allowance could be impacted.
Deferred tax assets arising primarily as a result of net operating loss carry-forwards and research and development credits in connection with our Canadian operations have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods.
(2) Operating lease obligations represent amounts due for rent under our leases for all our facilities, certain equipment, and our Company automobile. (3) Obligations under our Revolving Facility mature on May 28, 2026.
(2) Operating lease obligations represent amounts due for rent under our leases for all our facilities, certain equipment, and our Company automobile. (3) Obligations under our Revolving Facility mature on December 12, 2028.
In connection with our entry into the Note Purchase Agreement, we have appointed Douglas Trussler to serve on our Board. Receivable Discount Programs We use receivable discount programs with certain customers and their respective banks.
In connection with our entry into the Note Purchase Agreement, we appointed Douglas Trussler to serve on our Board. 41 Table of Contents Accounts Receivable Discount Programs We use accounts receivable discount programs offered by certain customers and their respective banks.
(8) Finished goods liabilities represents the amounts due for principal of $1,690,000 and interest payments of $20,000 to be made in connection with the purchase of finished goods from our customers.
(7) Finished goods liabilities represents the amounts due for principal of $549,000 and no interest payments to be made in connection with the purchase of finished goods from our customers.
We believe our cash and cash equivalents, 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.
We believe cash generated from operations, our cash and cash equivalents, use of accounts receivable discount programs, amounts available under our credit facility, and other sources are sufficient to satisfy our working capital needs, and lease and capital expenditure obligations over the next 12 months.
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. Capital Expenditures and Commitments Our total capital expenditures, including capital leases and non-cash capital expenditures, were $4,792,000 for fiscal 2023 and $8,150,000 for fiscal 2022.
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. 42 Table of Contents Capital Expenditures and Commitments Our total capital expenditures were $1,755,000 for fiscal 2024 and $4,792,000 for fiscal 2023.
Revenue is recognized either when products are shipped or when delivered, depending on the applicable contract terms. 30 Table of Contents The price of a finished remanufactured product sold to customers is generally comprised of separately invoiced amounts for the Remanufactured Core included in the product (“Remanufactured Core value”) and the unit portion included in the product (“Unit Value”), for which revenue is recorded based on our then current price list, net of applicable discounts and allowances.
The price of a finished remanufactured product sold to customers is generally comprised of separately invoiced amounts for the Remanufactured Core included in the product (“Remanufactured Core value”) and the unit portion included in the product (“Unit Value”), for which revenue is recorded based on our then current price list, net of applicable discounts and allowances.
The significant change in our financing activities was due mainly to additional net borrowings under our credit facility during fiscal 2022 to support the investment in our inventory compared with repayments under our credit facility during fiscal 2021. 40 Table of Contents Capital Resources Credit Facility We are party to a $268,620,000 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 $238,620,000 revolving loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”).
Capital Resources Credit Facility We are party to a $268,620,000 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 $238,620,000 revolving loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”).
Remanufactured Cores and Used Cores returned by consumers to our customers but not yet returned to us are classified as “Cores expected to be returned by customers”, which are included in short-term contract assets until we physically receive them during our normal operating cycle, which is generally one year. 29 Table of Contents Upfront payments to customers represent marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided to our customers.
Remanufactured Cores and Used Cores returned by consumers to our customers but not yet returned to us are classified as “Cores expected to be returned by customers”, which are included in short-term contract assets until we physically receive them during our normal operating cycle, which is generally one year.
This change was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in non-cash gains of $6,515,000 and $1,989,000 for the years ended March 31, 2023 and 2022, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash gain of $2,776,000 compared with a non-cash loss of $316,000 for the years ended March 31, 2023 and 2022, respectively, due to the changes in their fair values. 35 Table of Contents Operating Income Consolidated Operating Income .
This change during fiscal 2024 compared with fiscal 2023 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in non-cash gains of $5,187,000 and $6,515,000, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash loss of $1,373,000 compared with a non-cash gain of $2,776,000, respectively, due to the changes in their fair values.
These allowances are recognized as an asset and amortized over the appropriate period of time as a reduction of revenue if we expect to generate future revenues associated with the upfront payment.
Upfront payments to customers represent marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided to our customers. These allowances are recognized as an asset and amortized over the appropriate period of time as a reduction of revenue if we expect to generate future revenues associated with the upfront payment.
We continue to manage our working capital to maximize our operating cash flow. Net cash used in investing activities was $4,191,000 and $7,938,000 for fiscal 2023 and 2022, respectively.
We continue to manage our working capital to maximize our operating cash flow. Net cash used in investing activities was $479,000 and $4,191,000 for fiscal 2024 and 2023, respectively. The change in our investing activities primarily resulted from decreased capital expenditures.
(6) Accrued core payment represents the amounts due for principal of $12,227,000 and interest payments of $1,062,000 to be made in connection with the purchases of Remanufactured Cores from our customers, which are held by these customers and remain on their premises.
(5) Accrued core payment represents the amounts due for principal of $10,011,000 and interest payments of $639,000 to be made in connection with the purchases of Remanufactured Cores from our customers, which are held by these customers and remain on their premises. 43 Table of Contents (6) The core bank liability represents the amounts due for principal of $13,582,000 and interest payments of $548,000 to be made in connection with the return of Used Cores from our customers.
The notes will mature on March 30, 2029, unless earlier converted, repurchased or redeemed. 39 Table of Contents Cash Flows The following summarizes cash flows as reflected in the consolidated statements of cash flows: Fiscal Years Ended March 31, 2023 2022 2021 Cash (used in) provided by: Operating activities $ (21,754,000 ) $ (44,862,000 ) $ 56,089,000 Investing activities (4,191,000 ) (7,938,000 ) (14,214,000 ) Financing activities 14,308,000 60,215,000 (76,567,000 ) Effect of exchange rates on cash and cash equivalents 217,000 78,000 599,000 Net (decrease) increase in cash and cash equivalents $ (11,420,000 ) $ 7,493,000 $ (34,093,000 ) Additional selected cash flow data: Depreciation and amortization $ 12,444,000 $ 12,886,000 $ 11,144,000 Capital expenditures 4,201,000 7,550,000 13,942,000 Fiscal 2023 Compared with Fiscal 2022 Net cash used in operating activities was $21,754,000 and $44,862,000 for fiscal 2023 and 2022, respectively.
Cash Flows The following summarizes cash flows as reflected in the consolidated statements of cash flows: Fiscal Years Ended March 31, 2024 2023 2022 Cash provided by (used in): Operating activities $ 39,172,000 $ (21,754,000 ) $ (44,862,000 ) Investing activities (479,000 ) (4,191,000 ) (7,938,000 ) Financing activities (36,439,000 ) 14,308,000 60,215,000 Effect of exchange rates on cash and cash equivalents 124,000 217,000 78,000 Net increase (decrease) in cash and cash equivalents $ 2,378,000 $ (11,420,000 ) $ 7,493,000 Additional selected cash flow data: Depreciation and amortization $ 11,619,000 $ 12,444,000 $ 12,886,000 Capital expenditures 1,000,000 4,201,000 7,550,000 Fiscal 2024 Compared with Fiscal 2023 Net cash provided by operating activities was $39,172,000 for fiscal 2024 compared with net cash used in operations of $21,754,000 for fiscal 2023.
This debt is classified as a short term liability on our balance sheet as we expect to use our working capital to repay the amounts outstanding under our revolving loan. (4) Term Loan obligations represent the amounts due for principal payments as well as interest payments to be made.
This debt is classified as a short term liability on our balance sheet as we expect to use our working capital to repay the amounts outstanding under our revolving loan. (4) Obligations under our Convertible Notes mature on March 30, 2029.
Our foreign exchange impact of lease liabilities and forward contracts for the years ended March 31, 2023 and 2022 were non-cash gains of $9,291,000 and $1,673,000, respectively.
Foreign Exchange Impact of Lease Liabilities and Forward Contracts . Our foreign exchange impact of lease liabilities and forward contracts for fiscal 2024 and 2023 were non-cash gains of $3,814,000 and $9,291,000, respectively.
In evaluating our ability to recover deferred tax assets within the jurisdiction in which they arise, we consider all available positive and negative evidence.
In evaluating our ability to recover deferred tax assets within the jurisdiction in which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, past financial performance, and tax planning strategies.
We also offer our customers marketing and other allowances that impact revenue recognition. These elements of our business give rise to more complex accounting than many businesses our size or larger. Inventory Inventory is comprised of: (i) Used Core and component raw materials, (ii) work-in-process, and (iii) remanufactured and purchased finished goods.
We also offer our customers marketing and other allowances that impact revenue recognition. These elements of our business give rise to more complex accounting than many businesses our size or larger.
The change in the customer finished goods returns accrual primarily resulted from the timing of returned goods authorizations (“RGAs”) issued at March 31, 2023 compared with March 31, 2022. 32 Table of Contents Income Taxes We account for income taxes using the liability method, which measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements.
Income Taxes We account for income taxes using the liability method, which measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements.
Debt issuance costs of $1,006,000 are presented in the balance sheet as a direct deduction from the carrying amounts of the Convertible Notes at March 31, 2023. Debt issuance costs are amortized using the effective interest method through the maturity of the Convertible Note and recorded in interest expense in the consolidated statements of operations.
Unamortized debt issuance costs of $1,058,000 and $1,006,000 are presented in the balance sheet as a direct deduction from the carrying amounts of the Convertible Notes at March 31, 2024 and 2023, respectively.
We can only pass our increased costs onto customers on a limited basis. Future general price inflation and its impact on costs and availability of materials could adversely affect our financial results. Interest Rates Interest rates are rising in an effort to curb higher inflation.
During fiscal 2024, we experienced increased costs of raw materials, finished goods, higher labor costs in Mexico, and other administrative costs. We can only pass our increased costs onto customers on a limited basis. Future general price inflation and its impact on costs and availability of materials could adversely affect our financial results.
Used Core, component raw materials, and purchased finished goods are stated at the lower of average cost or net realizable value. Work-in-process is in various stages of production and is valued at the average cost of Used Cores and component raw materials issued to work orders still open, including allocations of labor and overhead costs.
Work-in-process is in various stages of production and is valued at the average cost of Used Cores and component raw materials issued to work orders still open, including allocations of labor and overhead costs. Historically, work-in-process inventory has not been material compared to the total inventory balance.
Liquidity and Capital Resources Overview We had working capital (current assets minus current liabilities) of $154,886,000 and $110,580,000, a ratio of current assets to current liabilities of 1.4:1.0 at March 31, 2023 and 1.3:1.0 at March 31, 2022.
Liquidity and Capital Resources Overview We had working capital (current assets minus current liabilities) of $156,034,000 and $154,886,000, a ratio of current assets to current liabilities of 1.4:1.0 at March 31, 2024 and 2023, respectively. Our primary source of liquidity was from cash generated from operations during fiscal 2024.
Gross margin for the year ended March 31, 2022 was further impacted by transition expenses in connection with the expansion of our brake-related operations in Mexico of $2,744,000. 34 Table of Contents Operating Expenses The following summarizes consolidated operating expenses: Fiscal Years Ended March 31, 2023 2022 General and administrative $ 54,756,000 $ 57,499,000 Sales and marketing 21,729,000 22,833,000 Research and development 10,322,000 10,502,000 Foreign exchange impact of lease liabilities and forward contracts (9,291,000 ) (1,673,000 ) Percent of net sales General and administrative 8.0 % 8.8 % Sales and marketing 3.2 % 3.5 % Research and development 1.5 % 1.6 % Foreign exchange impact of lease liabilities and forward contracts (1.4 )% (0.3 )% General and Administrative.
Operating Expenses The following summarizes consolidated operating expenses: Fiscal Years Ended March 31, 2024 2023 General and administrative $ 57,769,000 $ 54,756,000 Sales and marketing 22,481,000 21,729,000 Research and development 9,995,000 10,322,000 Foreign exchange impact of lease liabilities and forward contracts (3,814,000 ) (9,291,000 ) Percent of net sales General and administrative 8.0 % 8.0 % Sales and marketing 3.1 % 3.2 % Research and development 1.4 % 1.5 % Foreign exchange impact of lease liabilities and forward contracts (0.5 )% (1.4 )% General and Administrative.
However, if the volume weighted average price of our common stock for 20 consecutive days prior to the notice of the Company Redemption is less than $15.00, the Purchasers may exercise the warrants and we will pay the Redemption Price plus $2,000,000.
However, if the volume weighted average price of our common stock for 20 consecutive days prior to the notice of the Company Redemption is less than $15, the Purchasers may exercise the warrants and we will pay the Redemption Price plus $2,000,000. 40 Table of Contents The Conversion Option and the Company Redemption both met the criteria for bifurcation from the Convertible Notes as derivatives and have been combined as a compound net derivative liability (the “Compound Net Derivative Liability”).
Our use of estimates and assumptions affect the reported amounts of assets, liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period. Actual results may differ from our estimates. There continues to be uncertainty and disruption in the global economy and financial markets.
Our use of estimates and assumptions affect the reported amounts of assets, liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period.
In addition, we exclude certain unallocated overhead such as severance costs, duplicative facility overhead costs, start-up costs, training, and spoilage from the calculation and expenses these unallocated overhead costs as period costs.
This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production. In addition, we exclude certain unallocated overhead such as severance costs, duplicative facility overhead costs, start-up costs, training, and spoilage from the calculation and expenses these unallocated overhead costs as period costs.
If we do not expect to generate additional revenue, then the upfront payment is recognized in the consolidated statements of operations when payment occurs as a reduction of revenue. Upfront payments expected to be amortized during our normal operating cycle, which is generally one year, are classified as short-term contract assets.
If we do not expect to generate additional revenue, then the upfront payment is recognized in the consolidated statements of operations when payment occurs as a reduction of revenue.
We were in compliance with all financial covenants as of March 31, 2023. We had $145,200,000 and $155,000,000 outstanding under the Revolving Facility at March 31, 2023 and 2022, respectively. In addition, $6,370,000 was reserved for letters of credit at March 31, 2023.
We had $128,000,000 and $145,200,000 outstanding under the Revolving Facility at March 31, 2024 and 2023, respectively. In addition, $6,370,000 was outstanding for letters of credit at March 31, 2024. At March 31, 2024, after certain contractual adjustments, $100,915,000 was available under the Revolving Facility.
Revenue is recognized net of all anticipated returns, marketing allowances, volume discounts, and other forms of variable consideration .
Revenue is recognized net of all anticipated returns, marketing allowances, volume discounts, and other forms of variable consideration . Revenue is recognized either when products are shipped or when delivered, depending on the applicable contract terms.
The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, are not separately reportable, and are included within the “all other” category. See Note 19 of the notes to consolidated financial statements for more information. Critical Accounting Policies We prepare our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, in the United States.
Our Hard Parts operating segment meets the criteria of a reportable segment. The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, are not required to be separately reported, and are included within the “all other” category. See Note 19 of the notes to consolidated financial statements for more information.
We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. A valuation allowance is established when we believe it is not more likely than not all or some of a deferred tax assets will be realized.
A valuation allowance is established when we believe it is not more likely than not all or some of a deferred tax assets will be realized.
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. 43 Table of Contents The following is a summary of the receivable discount programs: Fiscal Years Ended March 31, 2023 2022 Receivables discounted $ 548,376,000 $ 525,441,000 Weighted average days 328 336 Weighted average discount rate 5.3 % 1.9 % Amount of discount as interest expense $ 26,432,000 $ 9,197,000 Multi-year Customer Agreements We have or are renegotiating long-term agreements with many of our major customers.
The following is a summary of the accounts receivable discount programs: Fiscal Years Ended March 31, 2024 2023 Receivables discounted $ 618,012,000 $ 548,376,000 Weighted average days 336 328 Weighted average discount rate 6.8 % 5.3 % Amount of discount as interest expense $ 39,175,000 $ 26,432,000 Multi-year Customer Agreements We have or are renegotiating long-term agreements with many of our major customers.
Our general and administrative expenses for fiscal 2023 were $54,756,000, which represents a decrease of $2,743,000, or 4.8%, from fiscal 2022 of $57,499,000.
Our general and administrative expenses for fiscal 2024 were $57,769,000, which represents an increase of $3,013,000, or 5.5%, from fiscal 2023 of $54,756,000.
Accrued core payments represent the sales price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises.
Customer allowances to be provided to customers within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities. 33 Table of Contents Accrued core payments represent the sales price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises.
The Warrants do not become exercisable unless a Company Redemption (as defined below) occurs and the volume weighted average price of our common stock for 20 consecutive days prior to the redemption is less than $15.00. The fair value of the Warrants, using Level 3 inputs and the Monte Carlo simulation model, was zero at March 31, 2023.
In connection with the Note Purchase Agreement, we entered into common stock warrants (the “Warrants”) with the Purchasers, which mature on March 30, 2029. The Warrants do not become exercisable unless a Company Redemption (as defined below) occurs and the volume weighted average price of our common stock for 20 consecutive days prior to the redemption is less than $15.00.
Realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans.
The aggregate proceeds from the offering were approximately $31,280,000, net of initial purchasers’ fees and other related expenses. The initial conversion rate is 66.6667 shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $15.00 per share of common stock).
The initial conversion rate is 66.6667 shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $15.00 per share of common stock). At March 31, 2024, we had 28,214,757 shares of our common stock available to be issued if the Convertible Notes were converted.
In addition, gross margin for the year ended March 31, 2023 was impacted by (i) non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $3,736,000 and (ii) a $2,034,000 reduction of payroll expense for the ERC.
In addition, our gross margin for fiscal 2024 compared with fiscal 2023 was impacted by (i) additional expenses of $7,472,000 and $8,195,000, respectively, primarily due to certain costs for disruptions in the supply chain, (ii) amortization of core and finished goods premiums paid to customers related to new business of $10,963,000 and $11,791,000, respectively, and (iii) the non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $5,353,000 and $3,736,000, respectively.
The effective tax rate for year ended March 31, 2023, was primarily impacted by (i) specific jurisdictions that we do not expect to recognize the benefit of losses, (ii) foreign income taxed at rates that are different from the federal statutory rate, and (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m).
The effective tax rate for fiscal 2024, was primarily impacted by (i) the valuation allowance on U.S. and Canadian deferred tax assets that we do not expect to be realized, (ii) excess tax benefit from stock-based compensation, (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m), and (iv) foreign income taxed at rates that are different from the federal statutory rate. 37 Table of Contents Fiscal 2023 Compared with Fiscal 2022 A discussion of the changes in our results of operations for the year ended March 31, 2023, as compared with the year ended March 31, 2022, has been omitted from this Form 10-K but may be found in Item 7.
The resulting asset or liability is adjusted to reflect changes in the tax laws as they occur. A valuation allowance is provided to reduce deferred tax assets when it is more likely than not that a portion of the deferred tax asset will not be realized.
A valuation allowance is provided to reduce deferred tax assets when it is more likely than not that a portion of the deferred tax asset will not be realized. 34 Table of Contents Realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income.
Core premiums paid to customers represent the difference between the Remanufactured Core acquisition price paid to customers generally in connection with new business, and the related Used Core cost.
Upfront payments expected to be amortized during our normal operating cycle, which is generally one year, are classified as short-term contract assets. 31 Table of Contents Core premiums paid to customers represent the difference between the Remanufactured Core acquisition price paid to customers generally in connection with new business, and the related Used Core cost.
The loans under the Credit Facility mature on May 28, 2026. The Credit Facility currently permits the payment of up to $29,043,000 of dividends and share repurchases for fiscal year 2023, subject to pro forma compliance with financial covenants. In connection with the Credit Facility, the lenders have a security interest in substantially all of our assets.
Prior to the eighth amendment discussed below, the loans under the Credit Facility were scheduled to mature on May 28, 2026. In connection with the Credit Facility, the lenders have a security interest in substantially all of our assets.
We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures. 44 Table of Contents Contractual Obligations The following summarizes our contractual obligations and other commitments as of March 31, 2023 and the effect such obligations could have on our cash flows in future periods: Payments Due by Period Contractual Obligations Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Finance lease obligations (1) $ 5,008,000 $ 2,064,000 $ 2,406,000 $ 532,000 $ 6,000 Operating lease obligations (2) 113,671,000 13,567,000 24,634,000 21,541,000 53,929,000 Revolving facility (3) 145,200,000 - - 145,200,000 - Term loan (4) 14,947,000 4,655,000 8,391,000 1,901,000 - Convertible notes (5) 56,704,000 - - - 56,704,000 Accrued core payment (6) 13,289,000 3,480,000 5,985,000 3,824,000 - Core bank liability (7) 16,148,000 2,018,000 4,036,000 4,036,000 6,058,000 Finished goods liabilities (8) 1,710,000 1,277,000 433,000 - - Unrecognized tax benefits (9) - - - - - Other long-term obligations (10) 63,976,000 14,637,000 22,226,000 19,137,000 7,976,000 Total $ 430,653,000 $ 41,698,000 $ 68,111,000 $ 196,171,000 $ 124,673,000 (1) Finance lease obligations represent amounts due under finance leases for various types of equipment.
Contractual Obligations The following summarizes our contractual obligations and other commitments as of March 31, 2024 and the effect such obligations could have on our cash flows in future periods: Payments Due by Period Contractual Obligations Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Finance lease obligations (1) $ 3,825,000 $ 1,753,000 $ 1,539,000 $ 533,000 $ - Operating lease obligations (2) 101,759,000 12,676,000 23,568,000 22,054,000 43,461,000 Revolving facility (3) 128,000,000 - - 128,000,000 - Convertible notes (4) 56,704,000 - - 56,704,000 - Accrued core payment (5) 10,650,000 3,792,000 5,737,000 1,121,000 - Core bank liability (6) 14,130,000 2,018,000 4,036,000 4,036,000 4,040,000 Finished goods liabilities (7) 549,000 404,000 145,000 - - Unrecognized tax benefits (8) - - - - - Other long-term obligations (9) 54,095,000 14,701,000 21,479,000 15,089,000 2,826,000 Total $ 369,712,000 $ 35,344,000 $ 56,504,000 $ 227,537,000 $ 50,327,000 (1) Finance lease obligations represent amounts due under finance leases for various types of equipment.
Our research and development expenses for fiscal 2023 were $10,322,000, which represents a decrease of $180,000, or 1.7%, from fiscal 2022 of $10,502,000. This decrease in research and development expenses during fiscal 2023 was primarily due to (i) a $725,000 reduction of payroll expense related to the ERC and (ii) $265,000 of decreased outside services.
Our research and development expenses for fiscal 2024 were $9,995,000, which represents a decrease of $327,000, or 3.2%, from fiscal 2023 of $10,322,000. This decrease was primarily due to a headcount reduction and a reduction in research and development expenses. These decreases were partially offset by the $725,000 employee retention credit recorded in the prior year.
Historically, work-in-process inventory has not been material compared to the total inventory balance. Remanufactured finished goods include: (i) the Used Core cost and (ii) the cost of component raw materials, and allocations of labor and variable and fixed overhead costs (the “Unit Cost”).
Remanufactured finished goods include: (i) the Used Core cost and (ii) the cost of component raw materials, and allocations of labor and variable and fixed overhead costs (the “Unit Cost”). The allocations of labor and variable and fixed overhead costs are based on the actual use of the production facilities over the prior 12 months which approximates normal capacity.
We are experiencing higher interest costs for our borrowing and our customers’ receivable discount programs, which have interest costs that vary with interest rate movements. The majority of our interest costs results from our customers’ receivable discount programs. The weighted average discount rate for these programs was 5.3% for fiscal 2023 compared with 1.9% for fiscal 2022.
The majority of our interest costs result from our accounts receivable discount programs, which had a weighted average discount rate of 6.8% for fiscal 2024 compared with 5.3% for fiscal 2023. These continued higher interest rates and any future increases in interest rates will continue to adversely impact our financial results.
The following summarizes consolidated net sales by product mix: Years Ended March 31, 2023 2022 Rotating electrical products 67 % 69 % Wheel hub products 11 % 13 % Brake-related products 18 % 15 % Other products 4 % 3 % 100 % 100 % Gross Profit.
Our consolidated net sales for fiscal 2024 were $717,684,000, which represents an increase of $34,610,000, or 5.1%, from fiscal 2023 of $683,074,000 due to strong demand for both our rotating electric and brake-related product lines. 35 Table of Contents The following summarizes consolidated net sales by product mix: Fiscal Years Ended March 31, 2024 2023 Rotating electrical products 66 % 67 % Brake-related products 20 % 18 % Wheel hub products 10 % 11 % Other products 4 % 4 % 100 % 100 % Gross Profit.
The aggregate proceeds from the offering were approximately $ 31,280,000 , net initial purchasers’ fees and other related expenses.
On August 1, 2023, we entered into the second amendment to the Note Purchase Agreement, which amended the definition of “Permitted Restricted Payments” to permit the prepayment of our Term Loans. The aggregate proceeds from the offering were approximately $31,280,000, net of initial purchasers’ fees and other related expenses.
Our finished goods turnover for fiscal 2023 was impacted by our investment in inventory during the prior year to address disruptions related to the worldwide supply chain and logistics challenges to meet higher anticipated future sales. 33 Table of Contents Fiscal 2023 Compared with Fiscal 2022 Net Sales and Gross Profit The following summarizes net sales and gross profit: Fiscal Years Ended March 31, 2023 2022 Net sales $ 683,074,000 $ 650,308,000 Cost of goods sold 569,112,000 532,443,000 Gross profit 113,962,000 117,865,000 Gross profit percentage 16.7 % 18.1 % Net Sales .
Fiscal 2024 Compared with Fiscal 2023 Net Sales and Gross Profit The following summarizes net sales and gross profit: Fiscal Years Ended March 31, 2024 2023 Net sales to external customers $ 717,684,000 $ 683,074,000 Cost of goods sold 585,133,000 569,112,000 Gross profit 132,551,000 113,962,000 Gross profit percentage 18.5 % 16.7 % Net Sales .
The Company Redemption has been combined with the Conversion Option as a compound net derivative liability (the “Compound Net Derivative Liability”). The Compound Net Derivative Liability has been recorded within convertible note, related party in the consolidated balance sheet at March 31, 2023. We estimate the fair value of the Compound Net Derivative Liability at each balance sheet date.
The Compound Net Derivative Liability has been recorded within convertible note, related party in the consolidated balance sheets.
These capital expenditures primarily include the purchase of equipment for our current operations and the expansion of our operations in Mexico, which was completed during the second quarter of fiscal 2022. We expect to incur approximately $7,000,000 of capital expenditures primarily to support our current operations during fiscal 2024.
We expect to incur approximately $7,000,000 of capital expenditures primarily to support our global growth initiatives and current operations during fiscal 2025. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.
The significant change in our financing activities was due mainly to net repayments under our credit facility during fiscal 2023 compared to net borrowings under our credit facility during fiscal 2022 to support the investment in our inventory partially offset by $32,000,000 in proceeds less debt issuance costs from the issuance of our convertible notes during fiscal 2023.
The change in our financing activities primarily resulted from (i) the net repayment of amounts outstanding under our credit facility of $30,325,000 during fiscal 2024 compared with $13,550,000 during fiscal 2023 and (ii) the payment of debt issuance costs incurred in connection with the amendments to our credit facility and convertible notes during fiscal 2024.
The significant change in our operating activities was due primarily to (i) a reduction of inventory that was built-up in the prior year to meet customer demand, (ii) a reduction of accounts payable balances due to lower purchases as we continue to manage our inventory levels, and (iii) increased sales for fiscal 2023 compared with fiscal 2022, resulting in a higher accounts receivable balance which will be collected in future periods.
The significant changes in our operating activities reflect (i) increased collections of our accounts receivable balances resulting from higher sales during the current year, (ii) the timing of supplier payments compared with the prior year, and (iii) continued investments in inventory to support anticipated future demand for our products compared with inventory reduction initiatives in the prior year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+1 added−1 removed6 unchanged
Biggest changeFor each $500,000,000 of accounts receivable we discount over a period of 180 days, a 1% increase in interest rates would have increased our interest expense by $2,500,000. The weighted average discount rate on our factored receivables was 5.3% during fiscal 2023 compared with 1.9% for fiscal 2022.
Biggest changeThe weighted average discount rate was 6.8% and 5.3% during fiscal 2024 and 2023, respectively. If discount rates were to increase 1%, our net annual interest expense on our accounts receivable discount programs would have increased by approximately $6,180,000.
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, 2023 would have increased our operating expenses by approximately $4,761,000.
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, 2024 would have increased our operating expenses by approximately $5,146,000.
During fiscal 2023 and fiscal 2022, a gain of $2,776,000 and a loss of $316,000, respectively, was recorded due to the change in the value of the forward foreign currency exchange contracts subsequent to entering into the contracts.
During fiscal 2024 and fiscal 2023, a loss of $1,373,000 and a gain of $2,776,000, respectively, was recorded due to the change in the value of the forward foreign currency exchange contracts subsequent to entering into the contracts.
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 programs or we could be forced to wait longer for payment.
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 discount programs or we could be forced to wait longer for payment.
We maintain an allowance for credit losses that, in our opinion, provides for an adequate reserve to cover losses that may be incurred. 46 Table of Contents
We maintain an allowance for credit losses that, in our opinion, provides for an adequate reserve to cover losses that may be incurred.
Interest rate risk We are exposed to changes in interest rates primarily as a result of our borrowing and receivable discount programs, which have interest costs that vary with interest rate movements. Our credit facility bears interest at variable base rates, plus an applicable margin. At March 31, 2023, our net debt obligations totaled $158,143,000.
Interest rate risk We are exposed to changes in interest rates primarily as a result of our borrowing and receivable discount programs, which have interest costs that vary with interest rate movements. Our revolving facility bears interest at variable base rates, plus an applicable margin, which was 8.43% and 8.12% at March 31, 2024 and 2023, respectively.
Credit Risk We 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.
In addition, we recorded gains $5,187,000 and $6,515,000 in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2024 and fiscal 2023, respectively. 44 Table of Contents Credit Risk We 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.
If interest rates were to increase 1%, our net annual interest expense on our credit facility would have increased by approximately $1,581,000. The weighted average interest on our debt was 8.12% at March 31, 2023 compared to 3.12% at March 31, 2022. In addition, during the year ended March 31, 2023, receivables discounted were $548,376,000.
At March 31, 2024, borrowings under our revolving facility totaled $128,000,000. If interest rates were to increase 1%, our net annual interest expense on our revolving facility would have increased by approximately $1,280,000. In addition, during the years ended March 31, 2024 and 2023, collections under our accounts receivable discount program were $618,012,000 and $548,376,000, respectively.
Removed
In addition, we recorded gains $6,515,000 and $1,989,000 in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2023 and fiscal 2022, respectively.
Added
The majority of our sales are to leading automotive aftermarket parts suppliers. We participate in trade accounts receivable discount programs with our major customers.

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