Highlights and Accomplishments in Fiscal 2022

During fiscal 2022, we accomplished the following significant successes despite ongoing worldwide supply chain and logistics challenges and inflationary pressures:

• We achieved organic sales growth of more than 20 percent;

• We developed a comprehensive line of brake pads, utilizing an industry-leading

formulation, and brake rotors, serving the professional installer market under

our Quality Built® brand;

• We secured multi-year new business commitments and opportunities of more than

$100 million, primarily across multiple brake-related products;

• We successfully expanded sales through additional product line offerings in

• We completed a multi-year expansion program of our facilities in Mexico,

including completion of a new brake caliper remanufacturing facility;

• We added capacity to support anticipated future growth with limited additional

• We extended the maturity date of our Credit Facility from June 2023 to May 2026

to enhance our liquidity and capital resources;

• We secured inventory which enabled us to support our customers, meet demand and

obtain new business -- despite worldwide supply chain and logistics challenges;

• We secured purchase orders from all major automotive retailers for rotating

• We opened an electric vehicle ("EV") contract testing center in Detroit,

• We continued a series of prestigious Tier-1 wins for our EV technology with

orders from major global automotive, aerospace and research institutions;

• Equally important, we continued our social responsibility initiatives with

plans to launch an Agri-farm organic food and community program in Mexico and

continued our focus on opportunities to enhance our Environmental, Social and

Governance practices on a global basis.

Impact of the Novel Coronavirus ("COVID-19")

There have been no serious outbreaks in any of our production facilities; however, a serious outbreak could affect our production capabilities. We experienced inefficiencies in operations due to the implementation of additional personnel safety measures throughout our facilities.

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.

• 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

• 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

We record vendor discounts as a reduction of inventories and are recognized as a reduction to cost of sales as the inventories are sold.

Revenue Recognition - Core Exchange Programs

Revenue Recognition; General Right of Return

Customer Finished Goods Returns Accrual

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

(1) Finished goods turnover is calculated by dividing the cost of goods sold for

the year by the average between beginning and ending non-core finished goods

inventory values, for each fiscal year. We believe that this provides a

useful measure of our ability to turn our inventory into revenues. The

decrease in finished goods turnover for fiscal 2022 reflects our continued

Net Sales and Gross Profit

The following summarizes net sales and gross profit:

The following summarizes sales mix:

The following summarizes operating expenses:

Foreign exchange impact of lease liabilities and forward contracts

Net increase (decrease) in cash and cash equivalents $ 7,493,000 $ (34,093,000 ) $ 39,705,000

The following is a summary of the receivable discount programs:

Amount of discount as interest expense $ 9,197,000 $ 9,513,000

(1) Finance lease obligations represent amounts due under finance leases for

(2) Operating lease obligations represent amounts due for rent under our leases

for all our facilities, certain equipment, and our Company automobile.

(3) Obligations under our Revolving Facility mature on May 28, 2026. 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

(4) Term Loan obligations represent the amounts due for principal payments as

well as interest payments to be made. Interest payments were calculated based

upon the interest rate for our Term Loan using the LIBOR option at March 31,

(5) Accrued core payment represents the amounts due for principal of $2,607,000

and interest payments of $106,000 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

$16,901,000 and interest payments of $1,264,000 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

$3,125,000 and interest payments of $64,000 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, 2022; therefore, future tax

(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

© Edgar Online, source Glimpses