Motorcar Parts of America(MPAA) - 2021 Q4 - Annual Report

Part I Business MPA is a leading supplier of automotive aftermarket parts and diagnostic equipment, operating in the $130 billion North American market with a focus on remanufacturing and EV/aerospace test solutions - MPA operates in the $130 billion non-discretionary automotive aftermarket in North America, with a core business in rotating electrical parts and a strategic expansion into brake products and heavy-duty applications[20][21] - Strategically expanding into test solutions and diagnostic equipment for the EV and aerospace industries, targeting a multi-billion-dollar global market[22][26][27] Customer Concentration (Fiscal Years 2019-2021) | Customer Group | FY 2021 (%) | FY 2020 (%) | FY 2019 (%) | | :--- | :--- | :--- | :--- | | Three Largest Customers (Aggregate) | 87% | 84% | 83% | | Largest Customer (AutoZone) | 42% | 38% | 38% | - Remanufacturing process primarily in Mexico, Canada, and Malaysia, utilizing lean manufacturing and IATF 16949/ISO 9001 quality standards[46][47][48] - As of March 31, 2021, the company employed approximately 5,700 people globally, with 4,800 in Mexico and 4,700 production employees unionized[57] Risk Factors The company faces significant risks from the COVID-19 pandemic, high customer concentration, intense competition, and challenges associated with extensive offshore operations - COVID-19 pandemic poses significant risks including supply chain delays, increased freight costs, and reduced consumer demand[71][73] - High customer concentration is a major risk, with the three largest customers accounting for 87% of net sales in fiscal 2021[74] - The business is highly competitive, facing pressure from large domestic and international suppliers and emerging Chinese manufacturers[75][76] - Offshore operations, especially in Mexico, expose the company to political, economic, and currency risks, with 23% of fiscal 2021 expenses in non-USD currencies[98][100] - Potential new tariffs on goods imported from China and other countries could materially affect operations[102] Unresolved Staff Comments No unresolved staff comments have been reported by the company - None Properties The company's material facilities are primarily leased, located in the US, Mexico, Canada, and Asia, including over 1 million sq ft in Tijuana, Mexico Major Leased Facilities | Location | Type of Facility | Approx. Square Feet | | :--- | :--- | :--- | | Torrance, CA | Remanufacturing, Warehouse, Admin | 231,000 | | Tijuana, Mexico | Distribution Center and Office | 410,000 | | Tijuana, Mexico | Remanufacturing, Warehouse, Office | 312,000 | | Tijuana, Mexico | Remanufacturing, Warehouse, Office | 199,000 | | Tijuana, Mexico | Core Induction, Warehouse, Office | 173,000 | | Ontario, Canada | Remanufacturing, Warehouse, Office | 157,000 | Legal Proceedings The company is disputing a $17 million claim from U.S. Customs and Border Protection for additional duties on products imported from Mexico - U.S. Customs and Border Protection asserts the company owes approximately $17 million in additional duties for products imported from Mexico from 2011 to mid-2018, which the company disputes[117] Mine Safety Disclosures This item is not applicable to the company - Not applicable Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under MPAA, with $1.14 million in share repurchases in Q4 FY2021 and $20.17 million remaining in the repurchase program - The company's common stock trades on the NASDAQ Global Select Market under the symbol MPAA[120] Share Repurchase Activity (Q4 FY2021) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | Dollar Value Remaining Under Program ($) | | :--- | :--- | :--- | :--- | | Feb 1 - Feb 28, 2021 | 54,960 | $20.72 | $20,169,000 | | Total Q4 | 54,960 | - | $20,169,000 | Selected Financial Data This section is intentionally left blank by the company - None Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses fiscal 2021 performance, noting $540.8 million in net sales, a gross margin decline to 20.2%, strong operating cash flow of $56.1 million, and a $71.8 million debt reduction Impact of COVID-19 The COVID-19 pandemic caused demand fluctuations and supply chain disruptions, leading to $7.3 million in related expenses in fiscal 2021, partially offset by $1.3 million in government assistance - In fiscal 2021, the company incurred $7.316 million in total COVID-19 related expenses[137] - The company received $1.301 million in government assistance payments from Canada and Asia to offset COVID-related costs[137] Results of Operations Fiscal 2021 net sales increased to $540.8 million, gross margin declined to 20.2% due to higher costs, and net income was $21.5 million, a turnaround from a $7.3 million loss in fiscal 2020 Fiscal Year 2021 vs. 2020 Performance | Metric | FY 2021 ($) | FY 2020 ($) | | :--- | :--- | :--- | | Net Sales | $540,782,000 | $535,831,000 | | Gross Profit | $109,461,000 | $118,400,000 | | Gross Profit % | 20.2% | 22.1% | | Net Income (Loss) | $21,476,000 | $(7,290,000) | - Gross profit in FY2021 was negatively impacted by $5.268 million in COVID-related costs and $16.353 million in Mexico operations transition expenses[191][192] - The company recorded a non-cash gain of $17.606 million from foreign exchange impacts in FY2021, compared to an $18.201 million loss in FY2020[195][199] Fiscal Year 2020 vs. 2019 Performance | Metric | FY 2020 ($) | FY 2019 ($) | | :--- | :--- | :--- | | Net Sales | $535,831,000 | $472,797,000 | | Gross Profit | $118,400,000 | $89,174,000 | | Gross Profit % | 22.1% | 18.9% | | Net (Loss) | $(7,290,000) | $(7,849,000) | Liquidity and Capital Resources Liquidity improved in fiscal 2021 with operating cash flow increasing to $56.1 million, enabling a $71.8 million debt reduction, with $125.3 million available under the credit facility Cash Flow Summary (Fiscal Years 2019-2021) | Cash Flow Activity | FY 2021 ($) | FY 2020 ($) | FY 2019 ($) | | :--- | :--- | :--- | :--- | | Operating Activities | $56,089,000 | $18,795,000 | $(40,328,000) | | Investing Activities | $(14,214,000) | $(11,594,000) | $(22,610,000) | | Financing Activities | $(76,567,000) | $32,153,000 | $59,936,000 | - The company has a $268.6 million senior secured credit facility, with $84.0 million outstanding on the revolving facility and $20.5 million on the term loan as of March 31, 2021[226][230][419] - The company was in compliance with all financial covenants as of March 31, 2021, with a senior leverage ratio of 1.46 and a fixed charge coverage ratio of 1.26[228][229] Receivable Discount Program Summary (FY2021 vs FY2020) | Metric | FY 2021 ($) | FY 2020 ($) | | :--- | :--- | :--- | | Receivables Discounted | $491,285,000 | $461,484,000 | | Amount of Discount as Interest Expense | $9,513,000 | $14,780,000 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate fluctuations, foreign currency exposure, and customer credit concentration, with mitigation strategies in place - A hypothetical 1% increase in interest rates would increase annual net interest expense by approximately $1.045 million on its $104.5 million net debt[244] - The company uses forward contracts to mitigate foreign currency risks, where a 10% adverse change in exchange rates would have increased operating expenses by approximately $3.932 million at March 31, 2021[245] - In fiscal 2021, the company recorded a $7.713 million gain on forward currency contracts and a $9.893 million gain on remeasurement of foreign currency-denominated lease liabilities[245] Financial Statements and Supplementary Data This section refers to the consolidated financial statements and related notes, commencing on page F-1 - The required information is set forth in the consolidated financial statements, commencing on page F-1[247] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2021, with an unqualified audit opinion from Ernst & Young LLP - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021[250] - Management concluded that internal control over financial reporting was effective as of March 31, 2021, based on the COSO framework (2013)[253] - No material changes in internal control over financial reporting occurred during the period[255] Other Information The company reports no other information for this item - None Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the company's Proxy Statement[260] Executive Compensation Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the Proxy Statement[261] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the Proxy Statement[262] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the Proxy Statement[263] Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the Proxy Statement[264] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Form 10-K report, including financial statements, schedules, and various exhibits - This item provides an index to the Consolidated Financial Statements and lists all exhibits filed with the report[266][267] Form 10-K Summary The company has not provided a summary for this item - None Financial Statements Consolidated Financial Statements The audited consolidated financial statements for fiscal years 2019-2021 are presented, showing fiscal 2021 total assets of $847.9 million, net sales of $540.8 million, and net income of $21.5 million Consolidated Balance Sheet Highlights (As of March 31, 2021) | Account | Amount ($) | | :--- | :--- | | Total Current Assets | $422,856,000 | | Total Assets | $847,882,000 | | Total Current Liabilities | $326,131,000 | | Total Liabilities | $546,737,000 | | Total Shareholders' Equity | $301,145,000 | Consolidated Statement of Operations Highlights (Year Ended March 31, 2021) | Account | Amount ($) | | :--- | :--- | | Net Sales | $540,782,000 | | Gross Profit | $109,461,000 | | Operating Income | $46,633,000 | | Net Income | $21,476,000 | | Diluted EPS | $1.11 | - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of March 31, 2021[286][294] - Critical Audit Matters include the complexity of accounting for 'Contractual Agreements with Core Exchange Programs' and the completeness of 'Marketing Allowances'[298][299][302]