EDGAR 10-K Filing

Company CIK: 918251
Filing Year: 2024
Filename: 918251_10-K_2024_0001140361-24-029700.json

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ITEM 1. BUSINESS
Item 1.
Business
General
We are a leading supplier of automotive aftermarket non-discretionary replacement parts and test solutions and diagnostic equipment -- building upon industry leading technology to be “The Global Leader for Parts and Solutions that Move Our World Today and Tomorrow”. We operate in the $130 billion non-discretionary automotive aftermarket for replacement hard parts in North America. Our hard parts products include light-duty rotating electrical products, wheel hub products, brake-related products, and turbochargers. In addition, we sell test solutions and diagnostic equipment, which were added with our acquisitions of D&V Electronics Ltd. in July 2017 and Mechanical Power Conversion, LLC in December 2018 and heavy-duty rotating electrical products, which were added with our January 2019 acquisition of Dixie Electric, Ltd.
The automotive aftermarket is divided into two markets. The first is the do-it-yourself (“DIY”) market, which is generally serviced by the large retail chain outlets and on-line resellers. Consumers who purchase parts from the DIY market generally install parts into their vehicles themselves. In most cases, this is a less expensive alternative than having the repair performed by a professional installer. The second is the professional installer market, commonly known as the do-it-for-me (“DIFM”) market. Traditional warehouse distributors, dealer networks, and commercial divisions of retail chains service this market. Generally, the consumer in this market is a professional parts installer. Our products are distributed to both the DIY and DIFM markets. The distinction between these two markets has become less defined over the years, as retail outlets leverage their distribution strength and store locations to attract customers.
Demand for replacement parts generally increases with the age of vehicles and miles driven, which provides favorable opportunities for sales of our products. 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.
In addition, we operate in the $11 billion-plus rapidly emerging global market for automotive test solutions and diagnostic equipment and see the opportunity for accelerating growth rates for today and the future as electrification becomes increasingly important around the world. We also operate in the $700 million market for medium and heavy-duty automotive aftermarket replacement parts for truck, industrial, marine, and agricultural applications.
Growth Strategies and Key Initiatives
With a scalable infrastructure and abundant growth opportunities, we are focused on growing our aftermarket business in the North American marketplace and growing our leadership position in the test solutions and diagnostic equipment market by providing innovative and intuitive solutions to our customers.
To accomplish our strategic vision, we are focused on the following key initiatives:
Hard Parts
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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. We remain dedicated to managing growth and continuing to focus on enhancements to our infrastructure and making investments in resources to support our customers. We have globally positioned manufacturing and distribution centers to support our continuous growth.
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Introduction of new product lines. We continue to strive to expand our business by exploring new product lines, including working with our customers to identify potential new product opportunities.
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Creating value for our customers. A core part of our strategy is ensuring that we add meaningful value for our customers. We consistently support and pilot our customers’ supply management initiatives in addition to providing demand analytics, inventory management services, online training guides, and market share and retail store layout information to our customers.
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Technological innovation. We continue to expand our research and development teams as we further develop in-house technologies and advanced testing methods. This elevated level of technology aims to deliver our customers high quality products and support services.
Test Solutions and Diagnostic Equipment
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We provide industry-leading test solutions and diagnostic equipment to both original equipment manufacturers and the aftermarket. We are continuously upgrading our equipment to accommodate testing for the latest alternator and starter technology for both existing and new customers. 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.
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Market and grow our new product lines on a global basis. We offer products and services that cater to automotive test solutions and diagnostic equipment for inverter and electric motors for both development and production. In addition, we provide power supply hardware and emulation software diagnostic products. Our strategy is to market these products on a global basis to original equipment manufacturers as well as suppliers to the original equipment manufacturers for development and production of electric vehicles and electric vehicle charging systems. We believe this is a rapidly emerging business and see the opportunity for accelerating growth rates. 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
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Market and grow our innovative design solutions and commitment to quality. 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 products are sold under our customers’ widely recognized private label brand names and our own brand names including Quality-Built®, Pure Energy™, D&V Electronics, Dixie Electric, and DelStar®.
Our products include: (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters, brake rotors, brake pads, and brake master cylinders, (iv) turbochargers, (v) test solutions and diagnostic equipment products, and (vi) heavy-duty products.
Segment Reporting
Our three operating segments are as follows:
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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,
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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
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Heavy Duty, which includes non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.
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.
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. Our heavy-duty products, which have some overlap with the light-duty automotive aftermarket, are also sold via specialty distribution channels through OES, fleet, and auto electric outlets. We also sell test solutions and diagnostic equipment to the automotive chains listed above and via direct and indirect sales channels, technical conferences, and trade shows to some of the world’s leading automotive companies, and to the aerospace/aviation sector. We offer testing services at our technical center located in Detroit, Michigan. 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. In addition, we publish printed and electronic product and service brochures and data sheets for our test solutions and diagnostic equipment and service offerings. We believe that we maintain one of the most extensive catalog and product identification systems available to the market.
We primarily ship our products from our facilities and various third-party warehouse distribution centers in North America, including our 410,000 square foot distribution center in Tijuana, Mexico.
Customers: Customer Concentration. While we continually seek to diversify our customer base, we currently derive, and have historically derived, a substantial portion of our sales from a small number of large customers. 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. Any meaningful reduction in the level of sales to any of these customers, deterioration of the financial condition of any of these customers or the loss of any of these customers could have a materially adverse impact on our business, results of operations, and financial condition.
Customer Arrangements: Impact on Working Capital. We have various length agreements with our customers. Under these agreements, which in most cases have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified categories of our products. Because of the very competitive nature of the market and the limited number of customers for these products, our customers have sought and obtained price concessions, significant marketing allowances and more favorable delivery and payment terms in consideration for our designation as a customer’s exclusive or primary supplier. These incentives differ from contract to contract and can include: (i) the purchase of Remanufactured Core inventory on customer shelves, (ii) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (iii) support for a particular customer’s research or marketing efforts provided on a scheduled basis, (iv) discounts granted in connection with each individual shipment of product, and (v) store expansion or product development support. 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. 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.
Competition
Our business is highly competitive. 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 also compete with other overseas manufacturers, particularly those located in China who are increasing their operations and could become a significant competitive force in the future.
We believe that the reputations for quality, reliability, and customer service that a supplier provides are significant factors in our customers’ purchase decisions. We continuously strive to increase our competitive and technical advantages as the industry and technologies rapidly evolve. Our advanced power emulators are protected by U.S. patents that provide us a strong competitive barrier for a large segment of the market and allow us to be lower cost and more efficient.
We believe our ability to educate also helps to distinguish us from many of our competitors. We have created an online library of video courses, aimed at supporting our customers as they seek to train the next generation of technicians. We also offer live and web-based training courses via our education center within our Torrance, California headquarters. We believe our ability to provide quality replacement automotive parts, rapid and reliable delivery capabilities as well as promotional support also distinguishes us from many of our competitors. In addition, favorable pricing, our core exchange programs, and extended payment terms are also very important competitive factors in customers’ purchase decisions.
We seek to protect our proprietary processes and other information by relying on trade secret laws and non-disclosure and confidentiality agreements with certain of our employees and other persons who have access to that information.
Operations
Production Process for Non-discretionary Replacement Parts. 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. Our remanufacturing process begins with the receipt of Used Cores from our customers or core brokers. The Used Cores are evaluated for inventory control purposes and then sorted by part number. Each Used Core is completely disassembled into its fundamental components. The components are cleaned in an environmentally sound process that employs customized equipment and cleaning materials in accordance with the required specifications of the particular component. All components known to be subject to major wear and those components determined not to be reusable or repairable are replaced by new components. Non-salvageable components of the Used Core are sold as scrap.
After the cleaning process is complete, the salvageable components of the Used Core are inspected and tested as prescribed by our IATF 16949 and ISO 9001:2015 approved quality programs, which have been implemented throughout the production processes. IATF 16949 and ISO 9001:2015 are internationally recognized, world class, quality programs. Upon passage of all tests, which are monitored by designated quality control personnel, all the component parts are assembled in a work cell into a finished product. Inspection and testing are conducted at multiple stages of the remanufacturing process, and each finished product is inspected and tested on equipment designed to simulate performance under operating conditions. 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. 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. 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. 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. 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.
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. 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. 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. 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.
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.
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. These values are embodied in our Code of Ethics, which has been adopted by our Board of Directors to serve as a statement of principles to guide our decision-making and reinforce our commitment to these values in all aspects of our business. 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. Environmental and sustainable processes have been our hallmark since the Company’s establishment. We take our commitment to environmental stewardship seriously. The use of Remanufactured Cores results in a substantial reduction of raw materials and energy consumption. With the potential to significantly reduce material and energy consumption, industry sources believe that remanufacturing is the most efficient and sustainable process for producing aftermarket replacement parts - making our business practices green by nature. See more information on this at investors.motorcarparts.com/esg. Highlights of our eco-friendly remanufacturing processes include:
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sorting the Used Cores returned by customers utilizing an innovative and efficient core-sorting process;
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reconditioning and re-utilizing durable components after passing rigorous testing processes;
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savings of raw materials due to a reduction in the required materials used in the remanufacturing production process, compared with new product processes; and
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recycling of water, cardboard, and metal.
Human Capital. We regard our team members as integral to our strategic growth and success. We recognize that safety, inclusion, and offering exciting opportunities are fundamental to facilitating high retention and satisfaction of high performance team members. Equally important, we provide competitive compensation and excellent benefit programs, and support numerous programs that build connections between our team members and their communities. We believe our team members share our corporate ethics and values, as demonstrated in their daily interactions with customers, co-workers, vendors, and the public at large.
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. 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. 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. The success of our business is connected to the safety and well-being of our team members and their families. We provide our employees and their families with flexible and convenient health and wellness programs - including protection and security to lessen concerns about missing work and the potential financial impact. Our programs are intended to support the physical and mental well-being with the tools and resources for employees to improve or maintain their health, and we encourage engagement in healthy behaviors for team members and their families.
Compensation and benefits. We provide competitive compensation and benefit programs that meet the needs of our employees, and are tailored to their local markets. In addition to wages and salaries, these programs may include annual cash bonuses, stock awards, a 401(k) Plan, healthcare, and insurance, and implemented methodologies to manage performance, provide feedback and develop talent.
Social Responsibility. We are firmly committed to social responsibility. While safety, respect, and inclusion have always been fundamental to our company, these qualities are more important than ever. Our socially responsible initiatives include subsidized food programs for certain employees, donations to community organizations, sponsorship of sport teams and weekend family events.
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. We have also implemented employee awareness training programs around phishing, malware, and other cyber risks. 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.
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. Our Audit Committee is comprised entirely of independent directors, one of whom has significant work experience related to information security issues or oversight. Management will report information security instances to the Audit Committee as they occur, if material, and will provide a summary multiple times per year to the Audit Committee.
Governmental Regulation
Our operations are subject to various regulations governing, among other things, emissions to air, discharge to waters, and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. We believe that our businesses, operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. Potentially significant expenditures, however, could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future.
Access to Public Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available free of charge to the public over the Internet at the SEC’s website at www.sec.gov. In addition, our SEC filings and Code of Ethics are available free of charge on our website www.motorcarparts.com. The information contained on the websites referenced in this Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.

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ITEM 1A. RISK FACTORS
Item 1A.
Risk Factors
While we believe the risk factors described below are all the material risks currently facing our business, additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business operations. Our financial condition or results of operations could be materially and adversely impacted by these risks, and the trading price of our common stock could be adversely impacted by any of these risks. In assessing these risks, you should also refer to the other information included in or incorporated by reference into this Form 10-K, including our consolidated financial statements and related notes thereto appearing elsewhere or incorporated by reference in this Form 10-K.
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.
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. 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:
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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;
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change in demand for or availability of our products as a result of our customers modifying their restocking, fulfillment, or shipping practices;
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increased raw material, and other input costs;
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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
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fluctuations in foreign currency exchange rates or interest rates.
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. 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. The impact of unfavorable economic conditions may also impair the ability of our customers to pay for products they have purchased. 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. 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.
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.
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. 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. Customer demands have put continued pressure on our operating margins and profitability, resulted in periodic contract renegotiation to provide more favorable prices and terms to these customers and significantly increased our working capital needs. The loss of or a significant decline in sales to any of these customers could adversely affect our business, results of operations, and financial condition. In addition, customer concentration leaves us vulnerable to any adverse change in the financial condition of these customers.
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. 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. 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. We maintain an allowance for credit losses that, in our opinion, provides for an adequate reserve to cover losses that may be incurred. However, we cannot assure you that our losses will not exceed our reserve for the reasons and risks above. Changes in terms with, significant allowances for, and collections from these customers could affect our operating results and cash flows.
Failure to compete effectively could reduce our market share and significantly harm our financial performance.
Our industry is highly competitive, and our success depends on our ability to compete with suppliers of automotive aftermarket products, some of which may have substantially greater financial, marketing and other resources than we do. The automotive aftermarket industry is highly competitive, and our success depends on our ability to compete with domestic and international suppliers of automotive aftermarket products. 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. 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.
Some of our competitors may have larger customer bases and significantly greater financial, technical and marketing resources than we do. These factors may allow our competitors to:
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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;
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engage in more extensive research and development; and
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allocate more money and resources on marketing and promotion.
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. 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. There has also been an increase in consumer preferences for mobility on demand services, such as car and ride sharing, as opposed to automobile ownership, which may result in a long-term reduction in the number of vehicles per capita. In addition, some industry participants are exploring transportation through alternatives to automobiles. These evolving areas have also attracted increased competition from entrants outside the traditional automotive industry. If we do not continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologies in response to consumer preferences, it could have an adverse impact on our results of operations. These changes may also reduce demand for our products for combustion engine vehicles.
Work stoppages, production shutdowns and similar events could significantly disrupt our business.
Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage or production shutdown at one or more of our manufacturing and assembly facilities could have adverse effects on our business. Similarly, if one or more of our customers were to experience a work stoppage, that customer would likely halt or limit purchases of our products. We have also experienced significant disruptions in the supply of several key components from Asia due to work stoppages, production shutdowns, government closures, and other supply chain issues at many of our suppliers, leading to an adverse effect on our financial results.
Interruptions or delays in obtaining component parts could impair our business and adversely affect our operating results.
In our remanufacturing processes, we obtain Used Cores, primarily through the core exchange programs with our customers, and component parts from third-party manufacturers. To supplement Used Cores received from our customers we purchase Used Cores from core brokers. Historically, the Used Core returned from customers together with purchases from core brokers have provided us with an adequate supply of Used Cores. If there was a significant disruption in the supply of Used Cores, whether as a result of increased Used Core acquisitions by existing or new competitors or otherwise, our operating activities could be materially and adversely impacted. In addition, a number of the other components used in the remanufacturing process are available from a very limited number of suppliers. We are, as a result, vulnerable to any disruption in component supply, and any meaningful disruption in this supply would materially and adversely impact our operating results.
Increases in the market prices of key component raw materials could increase the cost of our products and negatively impact our profitability.
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. 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. 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.
Our financial results are affected by automotive parts failure rates that are outside of our control.
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 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.
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. 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:
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significant delays in the delivery of cargo due to port security and over-crowding considerations;
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imposition of duties, taxes, tariffs or other charges on imports;
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financial or political instability in the countries in which our product is manufactured;
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potential recalls or cancellations of orders for products that do not meet our quality standards;
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disruption of imports by labor disputes or strikes and local business practices;
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inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and
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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.
We also face the following risks related to doing business in foreign markets and importing products from abroad:
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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;
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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;
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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
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our ability to enforce agreements with our foreign suppliers.
Any of the foregoing factors, or a combination of them, could increase the cost or reduce the supply of products available to us and materially and adversely impact our business, financial condition, results of operations or liquidity.
In addition, because we depend on independent third parties to manufacture a significant portion of our wheel hub, brake-related products, and other purchased finished goods, we cannot be certain that we will not experience operational difficulties with such manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality controls and failure to meet production deadlines or increases in manufacturing costs.
An increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales and profits.
Merchandise manufactured offshore represents a significant portion of our total product purchases. A disruption in the shipping or cost of such merchandise may significantly decrease our sales and profits. In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands. Merchandise from alternative sources may also be of lesser quality and more expensive than those we currently import. Risks associated with our reliance on imported merchandise include disruptions in the shipping and importation or increase in the costs of imported products. For example, common risks include:
•
raw material shortages;
•
problems with oceanic shipping, including shipping container shortages;
•
increased customs inspections of import shipments or other factors causing delays in shipments; and
•
increases in shipping rates, all of which we experienced.
As well as the following common risks, which we may experience in the future:
•
work stoppages;
•
strikes and political unrest;
•
economic crises;
•
international disputes and wars;
•
loss of “most favored nation” trading status by the U. S. in relations to a particular foreign country;
•
import duties; and
•
import quotas and other trade sanctions.
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, 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. 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. Our gross profit percentage fluctuates due to numerous factors, some of which are outside of our control. These factors include the timing and level of marketing allowances provided to our customers, actual sales during the relevant period, pricing strategies, the mix of products sold during a reporting period, and general market and competitive conditions. 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.
A substantial portion of our operations are located in Southern California and Baja California, Mexico, including our headquarters, remanufacturing and warehouse facilities. Any natural disaster, such as an earthquake, or other damage to our facilities from weather, fire or other events could cause us to lose inventory, delay delivery of orders to customers, incur additional repair-related expenses, disrupt our operations or otherwise harm our business. These events could also disrupt our information systems, which would harm our ability to manage our operations worldwide and compile and report financial information. As a result, we could incur additional expenses or liabilities or lose revenues, which could exceed any insurance coverage and would adversely affect our financial condition and results of operations. During fiscal 2024, we sustained minor damage from rain, which resulted in short-term power outages.
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. Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. We cannot assure you that our internal control over financial reporting will be effective in the future or that other material weakness will not be discovered in the future. Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with the Nasdaq Global Select Market or subject us to adverse regulatory consequences. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our stock.
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. 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.
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. We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business, and failure to do so could materially and adversely impact our business, results of operations, and financial condition.
Unfavorable currency exchange rate fluctuations could adversely affect us.
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. As a result of our extensive operations in Mexico, our primary risk relates to changes in the rates between the U.S. dollar and the Mexican peso. To mitigate this currency risk, we enter into forward foreign exchange contracts to exchange U.S. dollars for Mexican pesos. We also enter into forward foreign exchange contracts to exchange U.S. dollars for Chinese yuan in order to mitigate risk related to our purchases and payments to our Chinese vendors. The extent to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates. We do not engage in currency speculation or hold or issue financial instruments for trading purposes. These contracts generally expire in a year or less. Any change in the fair value of foreign exchange contracts is accounted for as an increase or decrease to foreign exchange impact of lease liabilities and forward contracts in the consolidated statements of operations. 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. 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.
Changes in trade policy and other factors beyond our control could materially adversely affect our business.
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. 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. If the U.S. were to withdraw from or materially modify any other international trade agreements to which it is a party or if the U.S. imposes significant additional tariffs on imports from China or other restrictions, it could have an adverse impact on our business.
Possible new tariffs that might be imposed by the United States government could have a material adverse effect on our results of operations.
The U.S. government has placed tariffs on certain goods imported from China and may impose new tariffs on goods imported from China and other countries, including products that we import. In retaliation, China has responded by imposing tariffs on a wide range of products imported from the U.S. and by adjusting the value of its currency. If renegotiations of existing tariffs are unsuccessful or additional tariffs or trade restrictions are implemented by the U.S. or other countries in connection with a global trade war, the resulting escalation of trade tensions could have a material adverse effect on world trade and the global economy. Even in the absence of further tariffs or trade restrictions, the related uncertainty and the market's fear of an economic slowdown could lead to a decrease in consumer spending, and we may experience lower net sales than expected. 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.
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 8.43% 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”). The issuance of shares of our common stock upon conversion of the Convertible Notes may dilute the ownership interests of existing stockholders and reduce our per share results of operations. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.
We may also incur additional debt in the future, which could further increase our leverage, reduce our cash flow or further restrict our business.
Our lenders may not waive future defaults under our credit agreements.
Our credit agreement with our lenders contains certain financial and other covenants. If we fail to meet any of these covenants in the future, there is no assurance that our lenders will waive any such defaults or that we will otherwise be able to cure them. If we obtained a waiver, it may impose significant costs or covenants on us. 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.
The banking industry and global credit markets also experience difficulties from time to time, and issues involving our lenders could impact our deposits, the availability, terms and cost of borrowings or our ability to refinance our debt. Any weakness in the credit markets could result in significant constraints on liquidity and availability of borrowing terms from lenders and accounts payable terms with vendors. These issues could also result in more stringent lending standards and terms and higher interest rates. In addition, 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. Any limitations on our ability to fund our operations could have a material adverse effect on our business, financial condition and ability to grow.
Risks Related to Owning Our Stock
Our stock price is volatile and could decline substantially.
Our stock price has fluctuated in the past and may decline substantially in the future as a result of developments in our business, the volatile nature of the stock market, and other factors beyond our control. Our stock price and the stock market generally has, from time to time, experienced extreme price and volume fluctuations. Many 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. Our stock price is also affected by volume, which impacts the ability of investors to buy or sell our stock.
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.
In order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, strategic acquisitions that involve significant risks and uncertainties. These risks and uncertainties include:
•
the difficulty in integrating newly acquired businesses and operations in an efficient and effective manner;
•
the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;
•
the potential loss of key employees of the acquired businesses;
•
the risk of diverting the attention of senior management from our operations;
•
risks associated with integrating financial reporting and internal control systems;
•
difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses; and
•
future impairments of any goodwill of an acquired business.
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.
In recent years, increasing attention has been given to corporate activities related to environmental, social, and governance (“ESG”) matters in public discourse and the investment community. A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities, and other members of the investing community. 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. Although we participate in a number of these ratings systems, we do not participate in all such systems. 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. 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.
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. 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. 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.
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. These rules could adversely affect the sourcing, supply, and pricing of materials used in our products, as the number of suppliers who provide conflict-free minerals may be limited. We may also suffer reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to modify our products to avoid the use of such materials. We may also face challenges in satisfying customers who may require that our products be certified as containing conflict-free minerals.
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. 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.
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. 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.
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. 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. 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.
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. 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. 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.
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. As cyber-attacks continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. In addition, our remediation efforts may not be successful. To the extent that any disruption or security breach results in a loss or damage to our data or unauthorized disclosure of confidential information, it could cause significant damage to our reputation, affect our relationship with our customers, suppliers and employees, and lead to claims against us and ultimately harm our business. Additionally, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future including if such security breaches result in a violation of applicable federal and state privacy and other laws, or subject us to private consumer, business partner, or securities litigation and governmental investigations and proceedings, any of which could result in our exposure to material civil or criminal liability. 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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.
Unresolved Staff Comments
None.

---

ITEM 2. PROPERTIES
Item 2.
Properties
The following sets forth the location, type of facility, square footage and ownership interest in each of our material facilities.
Location
Type of Facility
Approx.
Square
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.

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ITEM 3. LEGAL PROCEEDINGS
Item 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.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4.
Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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.
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
$
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. 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.
Equity 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”).
(2)
The weighted average exercise price does not reflect the shares that will be issued in connection with the settlement of RSUs and PSUs, since RSUs and PSUs have no exercise price.
(3)
Consists of shares available for future issuance under our 2022 Plan.
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, 2019 in our common stock and in each of the comparison groups, and assumes reinvestment of dividends.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6.
Selected Financial Data
None.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements, including, without limitation, our expectations and statements regarding our outlook and future revenues, expenses, results of operations, liquidity, plans, strategies and objectives of management and any assumptions underlying any of the foregoing. Our actual results may differ significantly from those projected in the forward-looking statements. Our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include, but are not limited to, those discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” of this Annual Report on Form 10-K. Except as required by law, we assume no obligation to update the forward-looking statements or our risk factors for any reason.
Management Overview
With a scalable infrastructure and abundant growth opportunities, we are focused on growing our aftermarket business in the North American marketplace and growing our leadership position in the test solutions and diagnostic equipment market by providing innovative and intuitive solutions to our customers. Our investments in infrastructure and human resources during the past few years reflects the significant expansion of manufacturing capacity to support multiple product lines. These investments included (i) a 410,000 square foot distribution center, (ii) two buildings totaling 372,000 square feet for remanufacturing and core sorting of brake calipers, and (iii) the realignment of production at our original 312,000 square foot facility in Mexico.
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. The following significant accomplishments support our optimism moving forward:
•
Sales increased by 5.1 percent to a record $717.7 million, despite industry softness in the fiscal fourth quarter;
•
Increased market share for our brake-related product lines for both our branded Quality-Built® and our private label retail brake products;
•
Expanded brand equity by increasing sales under the MPA portfolio of brands, including Quality-Built®, in the professional installer market;
•
Sales growth in our recently launched Mexican market continued to accelerate, driven by market share gains through additional business being awarded by current customers;
•
Secured additional commitments for our JBT-1 bench-top testers that are being rolled-out to the majority of retail stores in North America;
•
Gross profit increased 16.3 percent to $132.6 million;
•
Gross margin increased 1.8 percentage points to 18.5 percent;
•
Opened a new facility in Malaysia to support manufacturing of wheel hub products for direct shipments to our customers;
•
Operating income increased 26.5 percent to $46.1 million;
•
Generated cash from operating activities of approximately $39.2 million;
•
Reduced net bank debt by $32.5 million to $114.0 million;
•
Restructured our credit agreement to eliminate the senior leverage ratio financial covenant;
•
Retired our term loans and materially reduced the balance of our revolving facility;
•
Instituted a vendor supply chain financing program to support our strategy for neutralization of working capital; and
•
Made significant progress on enhancing our Environmental, Social and Governance practices on a global basis.
Trends Affecting Our Business
Our business is impacted by various factors within the economy that affect both our customers and our industry, including but not limited to inflation, interest rates, disruptions in the supply chain, fuel costs, wage rates, and other economic conditions. 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. 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.
Interest Rates
Interest rates remain high in an effort to curb on-going inflation. We are experiencing higher interest costs for our accounts receivable discount programs and borrowings under our credit facility, which have interest costs that vary with interest rate movements. 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.
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.
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.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, in the United States. 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 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. 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. Actual results could differ materially from these estimates under different assumptions or conditions.
Our remanufacturing operations include core exchange programs for the core portion of the finished goods. The Used Cores that we acquire and are returned to us from our customers are a necessary raw material for remanufacturing. 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.
Recently Adopted Accounting Pronouncements
Supplier Finance Programs
In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50) Disclosure of Supplier Finance Program Obligations. This standard requires qualitative and quantitative disclosures sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period and potential magnitude of supplier finance programs. The guidance is effective for fiscal years beginning after December 15, 2022.
During fiscal 2024, we launched a supplier finance program as part of our ongoing efforts to improve cash flow and liquidity. This program allows certain of our suppliers to sell their receivables due from us to a participating financial institution at the sole discretion of both the supplier and the financial institution. The program is administered by a third party. We have no economic interest in the sale of these receivables and no direct relationship with the financial institution. Payments to the third-party administrator are based on services rendered and are not on related to the volume or number of financing agreements between suppliers, financial institution, and the third-party administrator. We are not a party to agreements negotiated between participating suppliers and the financial institution. Our obligations to our suppliers, including amounts due and payment terms, are not affected by a supplier's decision to participate in this program. We do not provide guarantees and there are no assets pledged to the financial institution or the third-party administrator for the committed payment in connection with this program. As of March 31, 2024, we had $1,695,000 of outstanding supplier obligations confirmed under this program, included in accounts payable in the consolidated balance sheet.
Accounting Pronouncements Not Yet Adopted
Disclosure Improvements
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This standard was issued in response to the SEC’s disclosure update and simplification initiative, which affects a variety of topics within the Accounting Standards Codification. The amendments apply to all reporting entities within the scope of the affected Topics unless otherwise indicated. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. We are currently evaluating the impact this guidance will have on our financial statement disclosures.
Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This standard requires us to disclose significant segment expenses that are regularly provided to the CODM and are included within each reported measure of segment operating results. The standard also requires us to disclose the total amount of any other items included in segment operating results, which were not deemed to be significant expenses for separate disclosure, along with a qualitative description of the composition of these other items. In addition, the standard also requires disclosure of the CODM’s title and position, as well as detail on how the CODM uses the reported measure of segment operating results to evaluate segment performance and allocate resources. The standard also aligns interim segment reporting disclosure requirements with annual segment reporting disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact this guidance will have on our financial statement disclosures.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). This standard requires us to provide further disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, as well as additional information about federal, state/local and foreign income taxes. The standard also requires us to annually disclose our income taxes paid (net of refunds received), disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied prospective basis, although optional retrospective application is permitted. We are currently evaluating the impact this guidance will have on our financial statement disclosures.
Inventory
Inventory is comprised of: (i) Used Core and component raw materials, (ii) work-in-process, and (iii) remanufactured and purchased finished goods.
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. 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”). 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. 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. 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. The estimates may, therefore, be revised if there are changes in the overall market for our products or market changes that in our judgment impact our ability to sell or liquidate potentially excess or obsolete inventory. Net realizable value is determined at least quarterly as follows:
•
Net realizable value for finished goods by customer, by product line are determined based on the agreed upon selling price with the customer for a product in the trailing 12 months. We compare the average selling price, including any discounts and allowances, to the finished goods cost of on-hand inventory, less any reserve for excess and obsolete inventory. 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. 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 purchase Used Cores from core brokers to supplement our yield rates and Used Cores not returned under the core exchange programs. We also consider the net selling price our customers have agreed to pay for Used Cores that are not returned under our core exchange programs to assess whether Used Core cost exceeds Used Core net realizable value on a by customer, by product line basis. Any reduction of core cost is recorded as cost of goods sold in the period in which the revaluation is identified.
•
We record an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory. We periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand. Any part numbers with quantities identified during this process are reserved for at rates based upon our judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part. 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.
We record vendor discounts as a reduction of inventories and are recognized as a reduction to cost of sales as the inventories are sold.
Inventory Unreturned
Inventory unreturned represents our estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that we expect to be returned, under our general right of return policy, after the balance sheet date. Inventory unreturned includes only the Unit Cost of a finished goods. The return rate is calculated based on expected returns within the normal operating cycle, which is generally one year. As such, the related amounts are classified in current assets. Inventory unreturned is valued in the same manner as our finished goods inventory.
Contract Assets
Contract assets consists of: (i) the core portion of the finished goods shipped to customers, (ii) upfront payments to customers in connection with customer contracts, (iii) core premiums paid to customers, (iv) finished goods premiums paid to customers, and (v) long-term core inventory deposits.
Remanufactured Cores held at customers’ locations as a part of the finished goods sold to the customer are classified as long-term contract assets. These assets are valued at the lower of cost or net realizable value of Used Cores on hand (See Inventory above). For these Remanufactured Cores, we expect the finished good containing the Remanufactured Core to be returned under our general right of return policy or a similar Used Core to be returned to us by the customer, under our core exchange programs, in each case for credit. 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.
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. 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.
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 core premiums are treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. 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. These core premiums are amortized over a period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement. Core premiums are recorded as long-term contract assets. Core premiums expected to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.
Finished goods premiums paid to customers represent the difference between the finished good acquisition price paid to customers, generally in connection with new business, and the related finished good cost, which is treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. 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. Finished goods premiums are amortized over a period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement. Finished goods premiums are recorded as long-term contract assets. Finished goods premiums expected to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.
Long-term core inventory deposits represent the cost of Remanufactured Cores we have purchased from customers, which are held by the customers and remain on the customers’ premises. The costs of these Remanufactured Cores were established at the time of the transaction based on the then current cost. The selling value of these Remanufactured Cores was established based on agreed upon amounts with these customers. We expect to realize the selling value and the related cost of these Remanufactured Cores should our relationship with a customer end, a possibility that we consider remote based on existing long-term customer agreements and historical experience.
Revenue Recognition
Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our products. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. 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 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 Remanufactured Core value is recorded as a net revenue based upon the estimate of Used Cores that will not be returned by the customer for credit. These estimates are subjective and based on management’s judgment and knowledge of historical, current, and projected return rates. As reconciliations are completed with the customers the actual rates at which Used Cores are not being returned may differ from the current estimates. This may result in periodic adjustments of the estimated contract asset and liability amounts recorded and may impact the projected revenue recognition rates used to record the estimated future revenue. These estimates may also be revised if there are changes in contractual arrangements with customers, or changes in business practices. A significant portion of the remanufactured automotive parts sold to customers are replaced by similar Used Cores sent back for credit by customers under the core exchange programs (as described in further detail below). The number of Used Cores sent back under the core exchange programs is generally limited to the number of similar Remanufactured Cores previously shipped to each customer.
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. For these Remanufactured Cores, revenue is only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange programs. The remainder of the full price Remanufactured Core value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit under our core exchange programs.
Nominal price Remanufactured Cores: Certain other customers are invoiced for the Remanufactured Core value of the product shipped at a nominal (generally $0.01 or less) Remanufactured Core price. For these nominal Remanufactured Cores, revenue is only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange programs. Revenue amounts are calculated based on contractually agreed upon pricing for these Remanufactured Cores for which the customers are not returning similar Used Cores. The remainder of the nominal price Remanufactured Core value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit under our core exchange programs.
Revenue Recognition; General Right of Return
Customers are allowed to return goods that their end-user customers have returned to them, whether or not the returned item is defective (warranty returns). In addition, under the terms of certain agreements and industry practice, customers from time to time are allowed stock adjustments when their inventory of certain product lines exceeds the anticipated sales to end-user customers (stock adjustment returns). Customers have various contractual rights for stock adjustment returns, which are typically less than 5% of units sold. In some instances, a higher level of returns is allowed in connection with significant restocking orders. The aggregate returns are generally limited to less than 20% of unit sales.
The allowance for warranty returns is established based on a historical analysis of the level of this type of return as a percentage of total unit sales. The allowance for stock adjustment returns is based on specific customer inventory levels, inventory movements, and information on the estimated timing of stock adjustment returns provided by customers. Stock adjustment returns do not occur at any specific time during the year. The return rate for stock adjustments is calculated based on expected returns within the normal operating cycle, which is generally one year.
The Unit Value of the warranty and stock adjustment returns are treated as reductions of revenue based on the estimations made at the time of the sale. The Remanufactured Core value of warranty and stock adjustment returns are provided for as indicated in the paragraph “Revenue Recognition - Core Exchange Programs”.
As is standard in the industry, we only accept returns from on-going customers. If a customer ceases doing business with us, we have no further obligation to accept additional product returns from that customer. 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.
Customer allowances earned includes all marketing allowances provided to customers. Such allowances include sales incentives and concessions. Voluntary marketing allowances related to a single exchange of product are recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered. Other marketing allowances, which may only be applied against future purchases, are recorded as a reduction to revenues in accordance with a schedule set forth in the relevant contract. Sales incentive amounts are recorded based on the value of the incentive provided. 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.
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 sales price of these Remanufactured Cores will be realized when our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience. The payments to be made to customers for purchases of Remanufactured Cores 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.
Customer core returns accruals represent the full and nominally priced Remanufactured Cores shipped to our customers. When we ship product, we recognize an obligation to accept a similar Used Core sent back under the core exchange programs based upon the Remanufactured Core price agreed upon by us and our customer. The contract liability related to Used Cores returned by consumers to our customers but not yet returned to us are classified as short-term contract liabilities until we physically receive these Used Cores as they are expected to be returned during our normal operating cycle, which is generally one year and the remainder are recorded as long-term contract liabilities.
The core bank liability represents the full Remanufactured Core sales price for cores returned under our core exchange programs. The payment for these returned cores are made over a contractual repayment period pursuant to our agreement with this customer. Payments to be made 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.
Finished goods liabilities represents the agreed upon price of finished goods acquired from customers, generally in connection with new business. The payment for these finished goods are made over a contractual repayment period pursuant to our agreement with the customer. Payments to be made 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.
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.
Customer Finished Goods Returns Accrual
The customer finished goods returns accrual represents our estimate of our exposure to customer returns, including warranty returns, under our general right of return policy to allow customers to return items that their end user customers have returned to them and from time to time, stock adjustment returns when the customers’ inventory of certain product lines exceeds the anticipated sales to end-user customers. 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. The change in the customer finished goods returns accrual primarily resulted from the timing of returned goods authorizations (“RGAs”) issued at March 31, 2024 compared with March 31, 2023.
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. 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.
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. 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. 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. 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. During the year ended March 31, 2024, we recorded a discrete non-cash valuation allowance of $38,009,000 on U.S. federal and various state deferred tax assets that is considered not more likely than not to be realized under U.S. GAAP. Should the actual amount differ from our estimate, the amount of our valuation allowance could be impacted.
We have made an accounting policy election to recognize the U.S. tax effects of global intangible low-taxed income as a component of income tax expense in the period the tax arises.
Results of Operations
The following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein.
The following summarizes certain key operating consolidated data for the periods indicated:
Fiscal Years Ended March 31,
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. We believe that this provides a useful measure of our ability to turn our inventory into revenues.
Fiscal 2024 Compared with Fiscal 2023
Net Sales and Gross Profit
The following summarizes net sales and gross profit:
Fiscal Years Ended March 31,
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. 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.
The following summarizes consolidated net sales by product mix:
Fiscal Years Ended March 31,
Rotating electrical products
%
%
Brake-related products
%
%
Wheel hub products
%
%
Other products
%
%
%
%
Gross Profit. Our consolidated gross profit for fiscal 2024 increased $18,589,000, or 16.3%, to $132,551,000 from $113,962,000 for fiscal 2023. Our consolidated gross margin, as a percentage of consolidated net sales, improved by 1.8% for fiscal 2024 to 18.5% from 16.7% for fiscal 2023. This improvement is due to better utilization of our facilities and the benefit of price increases that went into effect during current and prior periods.
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.
In addition, gross margin for fiscal 2023 was impacted by a $2,034,000 reduction of payroll expense for the Employee Retention Credit (“ERC”).
Operating Expenses
The following summarizes consolidated operating expenses:
Fiscal Years Ended March 31,
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. 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. This increase was primarily due to (i) $2,960,000 of increased employee incentives, (ii) $1,075,000 of increased employee-related expenses which resulted from the $1,377,000 employee retention credit recorded in the prior year partially offset by lower expenses due to cost-cutting measures, and (iii) $1,033,000 of increased professional services. These increases were partially offset by (i) $952,000 of decreased severance and (ii) the benefit of our continued cost-cutting measures at our offshore locations.
Sales and Marketing. Our sales and marketing expenses for fiscal 2024 were $22,481,000, which represents an increase of $752,000, or 3.5%, from fiscal 2023 of $21,729,000. This increase was primarily due to (i) the $968,000 employee retention credit recorded in the prior year and (ii) $467,000 of increased commissions due to higher sales. These increases were partially offset by our cost-cutting measures, which included (i) $375,000 of decreased marketing and advertising expenses and (ii) $218,000 of decreased trade show expense.
Research and Development. 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.
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. 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.
Operating Income
Consolidated Operating Income. Our consolidated operating income for fiscal 2024 was $46,120,000, which represents an increase of $9,674,000, or 26.5%, from fiscal 2023 of $36,446,000. Operating income increased primarily due to higher gross profit, which was partially offset by higher operating expenses as discussed above.
Interest Expense
Interest Expense, net. Our interest expense for fiscal 2024 was $60,040,000, which represents an increase of $20,485,000, or 51.8%, from interest expense for fiscal 2023 of $39,555,000. This increase was primarily due to (i) higher interest rates and increased collection of receivables utilizing accounts receivable discount programs on higher sales, (ii) higher interest rates offset by lower average outstanding balances under our credit facility, and (iii) non-cash interest expense incurred on the convertible notes issued on March 31, 2023.
Change in Fair Value of Compound Net Derivative Liability
Change in Fair Value of Compound Net Derivative Liability. Our change in fair value of compound net derivative liability for fiscal 2024 was a non-cash gain of $1,020,000 associated with the convertible notes issued on March 31, 2023.
Loss on Extinguishment of Debt
Loss on Extinguishment of Debt. Our loss on extinguishment of debt was $168,000 in connection with the repayment of the remaining outstanding balance of our term loans during fiscal 2024.
Provision for Income Taxes
Income Tax. We recorded an income tax expense of $36,176,000, or an effective tax rate of (276.8)%, and $1,098,000, or an effective tax rate of (35.3)%, for fiscal 2024 and 2023, respectively. During fiscal 2024, we recorded a discrete non-cash valuation allowance of $38,009,000 on our U.S. federal and various state deferred tax assets primarily due to recent losses. 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.
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. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2023, filed with the SEC on June 14, 2023, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors” located at the top of the page.
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. 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.
Cash Flows
The following summarizes cash flows as reflected in the consolidated statements of cash flows:
Fiscal Years Ended March 31,
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. 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. 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.
Net cash used in financing activities was $36,439,000 for fiscal 2024 compared with net cash provided by financing activities of $14,308,000 for 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. During fiscal 2023 we generated proceeds, less debt issuance costs, from the issuance of $32,000,000 in convertible notes issued on March 31, 2023.
Fiscal 2023 Compared with Fiscal 2022
A discussion of the changes in our operating activities, investing activities, and financing activities 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. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2023, filed with the SEC on June 14, 2023, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors” located at the top of the page.
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”). 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.
On 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.
On August 3, 2023, we repaid the remaining outstanding balance of our Term Loans and recorded a loss on extinguishment of debt for the remaining unamortized debt issuance costs of $168,000 in the consolidated statement of operations.
On December 12, 2023, we entered into an eighth amendment to the Credit Facility, which among other things, (i) extended the maturity date to December 12, 2028 from May
28, 2026, (ii) amended the definition of “Applicable Margin” to provide for a pricing grid, with the Applicable Margin for Term SOFR loans ranging from 2.75% to 3.25% and the Applicable Margin for base rate loans ranging from 1.75% to 2.25%, in each case based on average daily undrawn availability for the most recently completed calendar quarter, (iii) amended the existing fixed charge coverage ratio financial covenant that is only tested if undrawn availability (which may include up to $8,000,000 of suppressed availability) is less than 22.5% of the aggregate revolving commitments, and (iv) amended the definitions of Consolidated EBITDA and fixed charge coverage ratio and certain component definitions used therein.
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. The interest rate on our Revolving Facility was 8.43% and 8.13% respectively, at March 31, 2024 and 2023, respectively.
The Credit Facility, as amended, requires us to maintain a minimum fixed charge coverage ratio if undrawn availability is less than 22.5% of the aggregate revolving commitments and a specified minimum undrawn availability. During the period ended March 31, 2024, undrawn availability was greater than the 22.5% threshold, therefore, the fixed charge coverage ratio financial covenant was not required to be tested.
Convertible Notes
On March 31, 2023, we entered into a note purchase agreement, as amended, (the “Note Purchase Agreement”) with Bison Capital Partners VI, L.P. and Bison Capital Partners VI-A, L.P. (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. The Convertible Notes bear interest at a rate of 10.0% per annum, compounded annually, and payable (i) in kind or (ii) in cash, annually in arrears on April 1 of each year, commencing on April 1, 2024. On June 8, 2023, we entered into the first amendment to the Note Purchase Agreement, which among other things, removed a provision that specified the Purchasers would be entitled to receive a dividend or distribution payable in certain circumstances. This amendment was effective as of March 31, 2023. 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. 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 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. The fair value of the Warrants, using Level 3 inputs and the Monte Carlo simulation model, was zero at March 31, 2024 and 2023. 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”). The Convertible Notes also include a provision for a return of interest (“Return of Interest”), which requires the Purchasers to return 15.0% of the interest paid to us in certain circumstances. The Return of Interest provision is accounted for as part of the Conversion Option and if the Conversion Option is exercised in the future, the Return of Interest provision will remain outstanding until the Purchaser sells all of the underlying stock received upon conversion. Upon conversion, any value associated with the Return of Interest provision will be reflected as a derivative asset upon conversion, with changes in fair value being recorded in earnings in the consolidated statements of operations until settlement in connection with the sale of the underlying stock by the Purchaser. Unless and until we deliver a redemption notice, the Purchasers of the Convertible Notes may convert their Convertible Notes at any time at their option. Upon conversion, the Convertible Notes will be settled in shares of our common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. The Convertible Notes have a stated maturity of March 30, 2029, subject to earlier conversion or redemption in accordance with their terms.
If there is a Fundamental Transaction, as defined in the Form of Convertible Promissory Note, we may redeem all or part of the Convertible Notes. Except in the case of the occurrence of a Fundamental Transaction, we may not redeem the Convertible Notes prior to March 31, 2026. 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. The “Redemption Price” shall mean a cash amount equal to the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest. 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.
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”). The Compound Net Derivative Liability has been recorded within convertible note, related party in the consolidated balance sheets. The fair value of the Conversion Option and the Company Redemption option using Level 3 inputs and the Monte Carlo simulation model was a liability of $9,800,000 and $10,400,000, and an asset of $2,390,000 and $1,970,000 at March 31, 2024 and 2023, respectively. We estimate the fair value of the Compound Net Derivative Liability at each balance sheet date. Any subsequent changes from the initial recognition in the fair value of the Compound Net Derivative Liability will be recorded in current period earnings in the consolidated statements of operations. During the year ended March 31, 2024, we recorded a gain of $1,020,000 as the change in fair value of the Compound Net Derivative Liability in the consolidated statement of operations and consolidated statement of cash flows.
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. Any subsequent changes from the initial recognition in the fair value of those features will be recorded in current period earnings in the consolidated statements of operations.
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. Events of Default will be subject to a 30-day cure period except for those related to clause (ii) and (iv) of the preceding sentence.
If an Event of Default occurs and is continuing, then, we shall deliver written notice to the Purchasers within 5 business days of first learning of such Event of Default. If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to us (and not solely with respect to our significant subsidiary) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Convertible Notes then outstanding will immediately become due and payable without any further action.
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. Debt issuance costs are amortized using the effective interest method through the maturity of the Convertible Notes and recorded in interest expense in the consolidated statements of operations. The effective interest rate was 18.3% as of March 31, 2024. Debt issuance costs of $360,000 allocated to the Compound Net Derivative Liability were immediately expensed to interest expense in the consolidated statements of operations for the year ended March 31, 2023.
Additionally, pursuant to the Note Purchase Agreement, subject to certain conditions, the Purchaser Representative shall have the right to nominate one director to serve (the “Investor Director”) on our Board of Directors (the “Board”). If an Investor Director is not currently serving on the Board, and subject to certain other conditions set forth in the Note Purchase Agreement, the Purchaser Representative shall have the right to designate one person to have observation rights with respect to all meetings of the Board. In connection with our entry into the Note Purchase Agreement, we appointed Douglas Trussler to serve on our Board.
Accounts Receivable Discount Programs
We use accounts receivable discount programs offered by certain customers and their respective banks. Under these programs, we have options to sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. These accounts receivable discount programs allow us to accelerate receipt of payment on customers’ receivables. While these arrangements have reduced our working capital needs, there can be no assurance that these accounts receivable discount programs will continue in the future. Interest expense resulting from these accounts receivable discount programs would increase if interest rates rise, if utilization of these accounts receivable discount programs expand, if customers extend their payment to us, or if the discount period is extended to reflect more favorable payment terms to customers.
The following is a summary of the accounts receivable discount programs:
Fiscal Years Ended March 31,
Receivables discounted
$
618,012,000
$
548,376,000
Weighted average days
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. Under these agreements, which in most cases have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified categories of our products. Because of the very competitive nature of the market and the limited number of customers for these products, our customers have sought and obtained price concessions, significant marketing allowances and more favorable delivery and payment terms in consideration for our designation as a customer’s exclusive or primary supplier. These incentives differ from contract to contract and can include (i) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (ii) support for a particular customer’s research or marketing efforts provided on a scheduled basis, (iii) discounts granted in connection with each individual shipment of product, and (iv) other marketing, research, store expansion or product development support. 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 their Remanufactured Core inventory also require the use of our working capital. The marketing and other allowances we typically grant our customers in connection with our new or expanded customer relationships adversely impact the 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.
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. 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. 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 were $1,755,000 for fiscal 2024 and $4,792,000 for fiscal 2023. These capital expenditures include (i) cash paid for the purchase of plant and equipment plant, (ii) equipment acquired under finance leases, and (iii) non-cash capital expenditures. Capital expenditures for fiscal 2024 primarily include the purchase of equipment for our current operations. 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.
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.
(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. 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. There are no future payments required under the Convertible Notes prior to their maturity, therefore, the carrying value of the notes plus interest payable in kind, assuming no early redemption or conversion has occurred, is included in the above table based on their maturity date of March 30, 2029.
(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.
(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.
(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.
(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.
(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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk relates to changes in interest rates, foreign currency exchange rates, and customer credit. We do not enter into derivatives or other financial instruments for trading or speculative purposes. As our overseas operations expand, our exposure to the risks associated with foreign currency fluctuations will continue to increase.
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. 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. The 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.
Foreign currency risk
We are exposed to foreign currency exchange risk inherent in our anticipated purchases and expenses denominated in currencies other than the U.S. dollar. We transact business in the following foreign currencies; Mexican pesos, Malaysian ringgit, Singapore dollar, Chinese yuan, and the Canadian dollar. Our primary currency risks result from fluctuations in the value of the Mexican peso and to a lesser extent the Chinese yuan. To mitigate these risks, we enter into forward foreign currency exchange contracts to exchange U.S. dollars for these foreign currencies. The extent to which we use forward foreign currency exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in exchange rates. These contracts generally expire in a year or less. Any changes in the fair values of our forward foreign currency exchange contracts are reflected in current period earnings. Based upon our forward foreign currency exchange contracts related to these currencies, an increase of 10% in exchange rates at March 31, 2024 would have increased our operating expenses by approximately $5,146,000. 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. 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.
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. 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. Should our customers experience significant cash flow problems, our financial position and results of operations could be materially and adversely affected, and the maximum amount of loss that would be incurred would be the outstanding receivable balance, Used Cores expected to be returned by customers, and the value of the Remanufactured Cores held at customers’ locations. We maintain an allowance for credit losses that, in our opinion, provides for an adequate reserve to cover losses that may be incurred.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.
Financial Statements and Supplementary Data
The information required by this item is set forth in the consolidated financial statements, commencing on page included herein.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the “Exchange Act,”) as of the end of the period covered by this Annual Report on Form 10-K.
Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO, CFO and CAO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our CEO, CFO and CAO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2024.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2024 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on its assessment, our management, including our CEO and CFO, has concluded that our internal control over financial reporting was effective as of March 31, 2024.
The effectiveness of our internal control over financial reporting as of March 31, 2024 has been audited by the Company’s independent registered public accounting firm, Ernst & Young LLP. Their assessment is included in the accompanying Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.
Change in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the period covered by this report, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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ITEM 9B. OTHER INFORMATION
Item 9B.
Other Information
Trading Arrangements
During the quarter ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as each such term is defined in Item 408 of Regulation S-K.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to our Definitive Proxy Statement in connection with our next Annual Meeting of Stockholders (the “Proxy Statement”).

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ITEM 11. EXECUTIVE COMPENSATION
Item 11.
Executive Compensation
The information required by this item is incorporated by reference to the Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14.
Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the Proxy Statement.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item15.
Exhibits, Financial Statement Schedule
a.
Documents filed as part of this report:
(1)
Index to Consolidated Financial Statements:
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 42)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive (Loss) Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Schedule.
Schedule II - Valuation and Qualifying Accounts
S-1
(3)
Exhibits:
Number
Description of Exhibit
Method of Filing
3.1
Certificate of Incorporation of the Company
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 declared effective on March 22, 1994 (the “1994 Registration Statement”).
3.2
Amendment to Certificate of Incorporation of the Company
Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No. 33-97498) declared effective on November 14, 1995 (the “1995 Registration Statement”).
3.3
Amendment to Certificate of Incorporation of the Company
Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
3.4
Amendment to Certificate of Incorporation of the Company
Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the “1998 Form 10-K”).
3.5
Amendment to Certificate of Incorporation of the Company
Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003.
3.6
Amended and Restated By-Laws of the Company
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on August 24, 2010.
3.7
Certificate of Amendment of the Certificate of Incorporation of the Company
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on April 17, 2014.
3.8
Amendment to the Amended and Restated By-Laws of the Company
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 14, 2016.
Number
Description of Exhibit
Method of Filing
3.9
Amendment to the Amended and Restated By-Laws of the Company
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 22, 2017.
3.10
Third Amendment to the Amended and Restated By-Laws of the Company
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 1, 2022.
4.1
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q filed on August 9, 2022.
4.2
2004 Non-Employee Director Stock Option Plan
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting.
4.3
2010 Incentive Award Plan
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on December 15, 2010.
4.4
Amended and Restated 2010 Incentive Award Plan
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 5, 2013.
4.5
Second Amended and Restated 2010 Incentive Award Plan
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 3, 2014.
4.6
2014 Non-Employee Director Incentive Award Plan
Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on March 3, 2014.
4.7
Third Amended and Restated 2010 Incentive Award Plan
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on November 20, 2017.
4.8
Fourth Amended and Restated 2010 Incentive Award Plan
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on July 24, 2020.
4.9
2022 Incentive Award Plan
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on July 29, 2022.
4.10
Form of Convertible Promissory Note
Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on March 31, 2023.
4.11
Form of Common Stock Warrant
Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on March 31, 2023.
4.12
First Amended and Restated Convertible Promissory Note
Incorporated by reference to Exhibit 4.12 to the Annual Report on Form 10-K filed on June 14, 2023.
4.13
First Amended and Restated Common Stock Warrant
Incorporated by reference to Exhibit 4.13 to the Annual Report on Form 10-K filed on June 14, 2023.
Number
Description of Exhibit
Method of Filing
10.1
Form of Indemnification Agreement for officers and directors
Incorporated by reference to Exhibit 10.25 to the 1997 Registration Statement.
10.2
Amended and Restated Employment Agreement, dated as of December 31, 2008, by and between the Company and Selwyn Joffe
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed January 7, 2009.
10.3
Employment Agreement, dated as of May 18, 2012, between Motorcar Parts of America, Inc., and Selwyn Joffe
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 24, 2012.
10.4
Form of Stock Option Notice for use in connection with stock options granted to Selwyn Joffe pursuant to the Motorcar Parts of America, Inc. 2010 Incentive Award Plan
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on August 12, 2013.
10.5
Form of Stock Option Agreement for use in connection with stock options granted to Selwyn Joffe pursuant to the Motorcar Parts of America, Inc. 2010 Incentive Award Plan
Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on August 12, 2013.
10.6*
Revolving Credit, Term Loan and Security Agreement, dated as of June 3, 2015, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 8, 2015.
10.7
First Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of November 5, 2015, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on November 9, 2015.
10.8
Consent and Second Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of May 19, 2016, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed on August 9, 2016.
10.9
Third Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of March 24, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.38 to Annual Report on Form 10-K filed on June 14, 2017.
Number
Description of Exhibit
Method of Filing
10.10
Fourth Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of April 24, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 27, 2017.
10.11
Fifth Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of July 18, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on July 24, 2017.
10.12*
Amended and Restated Credit Facility, dated as of June 5, 2018, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on August 9, 2018.
10.13
First Amendment to Amended and Restated Loan Agreement, dated as of November 14, 2018, among Motorcar Parts of America, Inc., D & V Electronics Ltd., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 20, 2018.
10.14
Amendment No. 2 to Employment Agreement, dated as of February 5, 2019, between Motorcar Parts of America, Inc., and Selwyn Joffe
Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed on February 11, 2019.
10.15
Second Amendment to Amended and Restated Loan Agreement, dated as of June 4, 2019, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 7, 2019.
10.16
Amendment No. 3 to Employment Agreement, dated as of March 30, 2020, between Motorcar Parts of America, Inc., and Selwyn Joffe
Incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K filed on June 15, 2020.
10.17
Amendment No. 4 to Employment Agreement, dated as of May 21, 2020, between Motorcar Parts of America, Inc., and Selwyn Joffe
Incorporated by reference to exhibit 10.1 to the Quarterly Report filed on August 10, 2020.
Number
Description of Exhibit
Method of Filing
10.18
Third Amendment to Amended and Restated Loan Agreement, dated as of May 28, 2021, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 2, 2021.
10.19
Amendment No. 5 to Employment Agreement, dated as of June 18, 2021, between Motorcar Parts of America, Inc., and Selwyn Joffe
Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed on August 9, 2021.
10.20
Fourth Amendment to Amended and Restated Loan Agreement, dated as of November 3, 2022, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on November 9, 2022.
10.21
Fifth Amendment to Amended and Restated Loan Agreement, dated as of February 3, 2023, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on February 9, 2023.
10.22
Note Purchase Agreement
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 31, 2023.
10.23
Registration Rights Agreement
Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 31, 2023.
10.24
Sixth Amendment to Amended and Restated Loan Agreement, dated as of May 28, 2021, among Motorcar Parts of America, Inc., D & V Electronics Ltd., Dixie Electric Ltd., and Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on March 31, 2023.
10.25
Amendment No. 6 to Employment Agreement, dated March 29, 2023, between Motorcar Parts of America, Inc. and Selwyn Joffe.
Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on March 31, 2023.
10.26
First Amendment to Note Purchase Agreement
Incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K filed on June 14, 2023.
10.27
Seventh Amendment to Amended and Restated Loan Agreement, dated as of August 3, 2023, among Motorcar Parts of America, Inc., D & V Electronics Ltd., Dixie Electric Ltd., and Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on August 9, 2023.
10.28
Second Amendment to the Note Purchase Agreement
Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on August 9, 2023.
10.29
Eighth Amendment to Amended and Restated Loan Agreement, dated as of December 12, 2023, among Motorcar Parts of America, Inc., D & V Electronics Ltd., Dixie Electric Ltd., and Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 13, 2023.
21.1
List of Subsidiaries
Filed herewith.
23.1
Consent of Independent Registered Public Accounting Firm Ernst & Young LLP
Filed herewith.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
Filed herewith.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
Filed herewith.
31.3
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
Filed herewith.
32.1
Certifications of Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
Filed herewith.
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the XBRL document)
Filed herewith.
101.SCM
Inline XBRL Taxonomy Extension Schema Document
Filed herewith.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Filed herewith.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Filed herewith.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
Filed herewith.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
Filed herewith.
*
Portions of this exhibit have been granted confidential treatment by the SEC.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in those agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.