Motorcar Parts of America, Inc. Provides Restated, Audited Results for Fiscal Years 2004, 2003, 2002 Under New Accounting Policies
- Reports sales on net-of-core-value basis
- Nine month numbers for FY 05 to be released shortly
- Anticipates positive business outlook
LOS ANGELES, June 2 -- Motorcar Parts of America, Inc. ("MPA" or the "Company") , a leading provider of remanufactured alternators and starters for the automotive aftermarket, today announced its restated results for the fiscal years ended March 31, 2004, 2003, and 2002. These restated results have been prepared in accordance with the Company's new accounting policies and audited by the Company's independent auditors, Grant Thornton LLP. Grant Thornton's review of the Company's results for the interim periods and the audit for the full fiscal year ended March 31, 2005 is ongoing, and the Company expects that the review of the interim periods will be completed in the near future. During the fiscal year ending March 31, 2005, the Company experienced strong business trends and believes that the results, when released, will show significant financial improvement compared to FY 2004.
MPA previously reported that it has corrected its accounting policy with respect to accounting for sales to customers and the recognition of the related core revenues and costs. The core refers to the portion of the used alternator or starter that is typically returned by the aftermarket customer and is a key component of the remanufacturing process. MPA now accounts for revenues and cost of sales on a net-of-core-value basis.
MPA has also corrected both its accounting to accrue for stock adjustments and other returns and its inventory valuation policies. The results for the full fiscal years 2004, 2003 and 2002 have been prepared in accordance with these policy changes.
"While the issuance of our restated financials for fiscal year 2004 and earlier periods causes us to look back at our performance," Selwyn Joffe, MPA's Chairman and CEO stated, "I am pleased to note that for fiscal year 2005, the Company expects to report strong financial results and is positioned to further enhance future performance."
Sales for the fiscal year ended March 31, 2004 were $80.5 million compared to $84 million in the previous full year. Gross profit for FY 2004 was $22 million (down from $23.1 million previously reported) compared with $17.5 million in the prior year. Operating income for the year rose to $9.9 million (down from $11 million previously reported) from $7.1 million in the previous year. Net income was $5.8 million or $0.69 per diluted share (down from $6.5 million and $0.77 per diluted share, respectively) compared with $10.7 million or $1.25 per diluted share in the prior year. Significantly, the year ended March 31, 2003 had the benefit of a $5 million tax credit, while the year ended March 31, 2004 had an income tax expense of $3.1 million.
Financial Condition
At March 31, 2004 the Company reported cash generated from operating activities of $15.2 million, unchanged under these new policies. Its balance sheet showed positive working capital of $35.8 million, cash balances of $7.6 million, debt of $3 million and shareholders' equity of $40.4 million.
Recent Events
In May 2005 the Company commenced limited start-up production at its new manufacturing facility in Tijuana, Mexico. The Company anticipates increasing production levels at this site over the course of fiscal 2006 as performance becomes established.
Business Outlook
The Company is currently reviewing its results for the full fiscal year ended March 31, 2005. The Company reported experiencing favorable business trends during this fiscal year and based on preliminary analysis of these results, the Company expects to report significant financial progress over the prior fiscal year.
"The solid financial performance that we are expecting to report for the full year ending March 31, 2005, has been due to growth across our customer base. Of particular note, we are now seeing revenue benefits associated with the pay-on-scan arrangement with our largest retail customer. Under this arrangement, we do not recognize revenues until the inventory is purchased by the retailer's end customer. We have now substantially moved through the inventory cycle of our pay on scan arrangement and are seeing the positive impacts to our revenue line. We also believe that, subject of course to satisfaction of demanding customer requirements, we are in a strong position to enhance our relationships for future growth in fiscal 2006," commented Joffe.
The Company noted that it has successfully begun shipping its new automobile manufacturer customer. In this connection, the Company added that its first quarter Fiscal 2006 results will be adversely impacted by significant start-up expenses being incurred in connection with this contract. Based on existing contracts, the Company expects a significant increase in Net Sales for Fiscal 2006 over Fiscal 2005.
Restatement of Financial Statements
The financial statements contained in this release have been restated to correct errors in the Company's previous accounting policy with respect to accounting for sales to customers and the recognition of the related core revenues and costs. The Company has determined that revenues and cost of goods sold should be accounted for on a net-of core basis. This change results in a material decrease in the Company's net revenues and cost of sales, but has no impact on its gross profit, operating profit, net income or cash flow from operations.
In addition the Company has determined that the accrual for stock adjustments and other returns was incorrectly recorded in previous financial statements. When recording the estimate for stock adjustments and other returns, the Company previously increased cost of goods sold by the gross profit of the anticipated stock adjustments and other returns. The Company also discovered an error in the calculation of gross profit margins used to record estimated stock adjustment returns. Correction of the error therefore results in a change to previously-reported gross profit.
The Company also corrected an error in its inventory valuation policies and processes in order to conform to lower-of-cost-or-market requirements. As a result, the Company eliminated its general valuation reserve amounts and changed its method of determining market value of core inventory. At each March 31, the Company now compares the carrying value of cores to the highest quoted broker prices and reduces the carrying value of all cores that have a value that is greater than the highest quoted core broker price. At each September 30 the Company now compares the carrying value of cores to high broker prices plus a factor to reflect seasonality.
The Company's review of its accounting policies and the resulting restatement of results was precipitated in part by comments that the Company received from the Securities and Exchange Commission's division of Corporation finance in connection with the SEC's review of the Company's financial information contained in prior periodic report filings. The Company may make additional changes, and adjust certain items in this restatement, if requested to do so by the SEC based on the results of its review which is ongoing.
About MPA
Motorcar Parts of America, Inc. is a leading manufacturer of replacement alternators and starters for imported and domestic cars and light trucks in the United States and Canada. MPA has facilities in the United States in Torrance, California, Nashville, Tennessee, and Charlotte, North Carolina, as well as overseas in Mexico, Singapore and Malaysia. The Company websites are located at www.motorcarparts.com and www.quality-built.com.
Disclosure Regarding Private Securities Litigation Reform Act of 1995:
This press release contains certain forward-looking statements with respect to our future performance that involve risks and uncertainties. Various factors could cause actual results to differ materially from those projected in such statements. These factors include, but are not limited to: concentration of sales to certain customers, changes in our relationship with any of our customers, including the increasing customer pressure for lower prices and more favorable payment and other terms, potential future changes in our accounting policies that may be made as the SEC's review of our previously filed public reports proceeds, our failure to meet the financial covenants or the other obligations set forth in our bank credit agreement and the bank's refusal to waive any such defaults, increases in interest rates, changes in the financial condition of any of our major customers, the potential for changes in consumer spending, consumer preferences and general economic conditions, increased competition in the automotive parts industry, unforeseen increases in operating costs and other factors discussed herein and in our filings with the Securities and Exchange Commission.
For more information, contact: Crocker Coulson Selwyn Joffe President Chairman, President & CEO CCG Investor Relations Motorcar Parts of America, Inc. (310) 231-8600 (310) 972-4005 crocker.coulson@ccgir.com MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES Consolidated Balance Sheets Year Ended March 31, 2004 (RESTATED) 2004 2003 ASSETS Current Assets: Cash and cash equivalents $7,630,000 $1,307,000 Short term investments 288,000 162,000 Accounts receivable, net of allowance for doubtful accounts of $14,000 and $87,000 in 2004 and 2003, respectively 9,789,000 9,163,000 Inventory - net 25,595,000 24,574,000 Deferred income tax asset 8,786,000 8,959,000 Prepaid income tax 172,000 28,000 Inventory unreturned 2,716,000 2,440,000 Prepaid expenses and other current assets 880,000 577,000 Total current assets 55,856,000 47,210,000 Plant and equipment - net 4,758,000 5,228,000 Deferred income taxes 378,000 3,189,000 Other assets 774,000 1,112,000 TOTAL ASSETS $61,766,000 $56,739,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $13,456,000 $8,082,000 Accrued liabilities 2,851,000 2,559,000 Line of credit 3,000,000 9,932,000 Deferred compensation 260,000 214,000 Other current liabilities 62,000 18,000 Current portion of capital lease obligations 409,000 815,000 Total current liabilities 20,038,000 21,620,000 Deferred income 100,000 -- Capital lease obligations, less current portion 1,247,000 209,000 Total Liabilities 21,385,000 21,829,000 Commitments and Contingencies -- -- Shareholders' Equity: Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issued -- -- Series A junior participating preferred stock; no par value, 20,000 shares authorized; None Issued -- -- Common stock; par value $.01 per share, 20,000,000 shares authorized; 8,085,955 and 7,960,455 shares issued and outstanding at March 31, 2004 and 2003, respectively 81,000 80,000 Additional paid-in capital 53,096,000 53,126,000 Accumulated other comprehensive loss (78,000) (107,000) Accumulated deficit (12,718,000) (18,189,000) Total shareholders' equity 40,381,000 34,910,000 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $61,766,000 $56,739,000 MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES Consolidated Statements of Operations Year Ended March 31, 2004 (RESTATED) 2004 2003 2002 Net sales $80,548,000 $83,969,000 $87,059,000 Cost of goods sold 58,512,000 66,427,000 66,256,000 Gross profit 22,036,000 17,542,000 20,803,000 Operating expenses: General and administrative 9,616,000 8,916,000 7,203,000 Sales and marketing 1,977,000 1,071,000 1,167,000 Research and development 565,000 564,000 552,000 Provision for doubtful accounts 13,000 (104,000) 412,000 Total operating expenses 12,171,000 10,447,000 9,334,000 Operating income 9,865,000 7,095,000 11,469,000 Other (expense) income Interest expense (968,000) (1,980,000) (3,582,000) Interest income 37,000 636,000 26,000 Income before income tax (expense) benefit 8,934,000 5,751,000 7,913,000 Income tax (expense) benefit (3,123,000) 4,967,000 3,915,000 Net income $5,811,000 $10,718,000 $11,828,000 Basic income per share $0.72 $1.35 $1.63 Diluted income per share $0.69 $1.25 $1.52 Weighted average shares outstanding: Basic 8,023,228 7,960,455 7,253,606 Diluted 8,388,129 8,540,560 7,765,958 MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES Consolidated Balance Sheets Year Ended March 31, 2004 March 31, 2004 Originally ASSETS Reported Adjustments Restated Current Assets: Cash and cash equivalents $7,630,000 $-- $7,630,000 Short term investments 288,000 -- 288,000 Accounts receivable, net of allowance for doubtful accounts 14,626,000 (4,837,000) 9,789,000 Inventory - net 28,744,000 (3,149,000) 25,595,000 Deferred income tax asset 8,124,000 662,000 8,786,000 Prepaid income tax 172,000 -- 172,000 Inventory unreturned -- 2,716,000 2,716,000 Prepaid expenses and other current assets 880,000 -- 880,000 Total current assets 60,464,000 (4,608,000) 55,856,000 Plant and equipment - net 4,758,000 -- 4,758,000 Deferred income taxes -- 378,000 378,000 Other assets 774,000 -- 774,000 TOTAL ASSETS $65,996,000 $(4,230,000) $61,766,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $13,456,000 $-- $13,456,000 Accrued liabilities 2,851,000 -- 2,851,000 Line of credit 3,000,000 -- 3,000,000 Deferred compensation 260,000 -- 260,000 Other current liabilities 62,000 -- 62,000 Current portion of capital lease obligations 409,000 -- 409,000 Total current liabilities 20,038,000 -- 20,038,000 Deferred income taxes 1,016,000 (1,016,000) -- Deferred income 100,000 -- 100,000 Capital lease obligations, less current portion 1,247,000 -- 1,247,000 Total Liabilities 22,401,000 (1,016,000) 21,385,000 Commitments and Contingencies -- -- -- Shareholders' Equity: Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issued -- -- -- Series A junior participating preferred stock; no par value, 20,000 shares authorized; None Issued -- -- -- Common stock; par value $.01 per share, 20,000,000 shares authorized; 8,085,955 and 7,960,455 shares issued and outstanding at March 31, 2004 and 2003, respectively 81,000 -- 81,000 Additional paid-in capital 53,096,000 -- 53,096,000 Accumulated other comprehensive loss (78,000) -- (78,000) Accumulated deficit (9,504,000) (3,214,000) (12,718,000) Total shareholders' equity 43,595,000 (3,214,000) 40,381,000 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $65,996,000 $(4,230,000) $61,766,000 MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES Consolidated Statements of Operations Year ended March 31, 2004 Originally Reported Adjustments Restated Net sales, as originally reported $152,636,000 -- -- Eliminate sales of cores -- $(71,173,000) -- Adjustment for estimated inventory returns -- (1,242,000) -- Adjustment for gross profit on stock adjustment returns -- 327,000 -- Net sales, as restated -- (72,088,000) $80,548,000 Cost of goods sold, as originally reported 129,500,000 -- -- Eliminate cost of goods sold - core -- (71,173,000) -- Adjustment for estimated inventory returns -- (577,000) -- Adjustment for gross profit on stock adjustment returns -- 622,000 -- Core inventory valuation adjustment -- 140,000 -- Cost of goods sold, as restated (70,988,000) 58,512,000 Gross profit 23,136,000 (1,100,000) 22,036,000 Operating expenses: General and administrative 9,616,000 -- 9,616,000 Sales and marketing 1,977,000 -- 1,977,000 Research and development 565,000 -- 565,000 Provision for doubtful accounts 13,000 -- 13,000 Total operating expenses 12,171,000 -- 12,171,000 Operating income 10,965,000 (1,100,000) 9,865,000 Other (expense) income Interest expense (968,000) -- (968,000) Interest income 37,000 -- 37,000 Income before income tax expense, as restated 10,034,000 (1,100,000) 8,934,000 Income tax expense, as originally reported (3,552,000) -- -- Income tax adjustment -- 429,000 -- Income tax expense, as restated -- 429,000 (3,123,000) Net income $6,482,000 $(671,000) $5,811,000 Basic income per share $0.81 $(0.09) $0.72 Diluted income per share $0.77 $(0.08) $0.69 Weighted average shares outstanding: Basic 8,023,228 -- 8,023,228 Diluted 8,388,129 -- 8,388,129 MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Year Ended March 31, 2004 Originally Reported Adjustments Restated Cash flows from operating activities: Net income $6,482,000 $(671,000) $5,811,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,369,000 -- 2,369,000 Provision for inventory reserves and stock adjustments 2,473,000 93,000 2,566,000 Provision for doubtful accounts 13,000 -- 13,000 Expense (benefit) for deferred income taxes 3,413,000 (429,000) 2,984,000 Tax benefit from employee stock options 139,000 -- 139,000 Changes in: -- -- -- Accounts receivable (1,870,000) 1,242,000 (628,000) Inventory (3,626,000) 41,000 (3,585,000) Prepaid income tax (144,000) -- (144,000) Inventory unreturned -- (276,000) (276,000) Prepaid expenses and other current assets (303,000) -- (303,000) Other assets 338,000 -- 338,000 Accounts payable 5,379,000 -- 5,379,000 Accrued liabilities 299,000 -- 299,000 Deferred compensation 46,000 -- 46,000 Other liabilities 44,000 -- 44,000 Deferred income 100,000 -- 100,000 Net cash provided by operating activities $15,152,000 $-- $15,152,000