SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________
TO___________.
Commission File No. 0-23538
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MOTORCAR PARTS & ACCESSORIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2153962
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2727 Maricopa Street, Torrance, California 90503
------------------------------------------- -----
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (310) 212-7910
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
There were 6,433,455 shares of Common Stock outstanding at August 11, 1998.
<PAGE>
MOTORCAR PARTS & ACCESSORIES
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets as of June 30, 1998 (unaudited)
and March 31, 1998........................................3
Statements of Operations (unaudited) for the three month
periods ended June 30, 1998 and 1997......................4
Statements of Cash Flows (unaudited) for the three month
periods ended June 30, 1998 and 1997......................5
Notes to Financial Statements (unaudited).........................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..................9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................13
Signatures.......................................................14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MOTORCAR PARTS & ACCESSORIES, INC.
Balance Sheets
<TABLE>
<CAPTION>
A S S E T S June 30, 1998 March 31, 1998
----------- ------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................ $ 3,053,000 $ 3,108,000
Accounts receivable - net of allowance of $250,000....................... 32,241,000 29,591,000
Inventory................................................................ 60,905,000 54,736,000
Prepaid expenses and other current assets................................ 1,853,000 1,862,000
------------ ------------
Total current assets.............................................. 98,052,000 89,297,000
Plant and equipment - net................................................... 8,332,000 7,141,000
Other assets................................................................ 1,725,000 1,807,000
------------ -----------
T O T A L......................................................... $108,109,000 $98,245,000
=========== ==========
L I A B I L I T I E S
Current liabilities:
Current portion of capital lease obligations............................. $ 454,000 $ 395,000
Accounts payable and accrued expenses.................................... 15,322,000 11,816,000
Income taxes payable..................................................... 2,442,000 1,592,000
Deferred income tax liability............................................ 161,000 161,000
------------- -----------
Total current liabilities......................................... 18,379,000 13,964,000
Long-term debt.............................................................. 17,135,000 13,983,000
Other liabilities........................................................... 1,232,000 1,163,000
Capitalized lease obligations - less current portion........................ 1,171,000 602,000
Deferred income tax liability............................................... 406,000 406,000
------------- --------------
T O T A L......................................................... $ 38,323,000 $30,118,000
------------ -----------
SHAREHOLDERS' EQUITY
Preferred stock; par value $.01 per share, 5,000,000 shares authorized;
none issued..............................................................
Common stock; par value $.01 per share, 20,000,000 shares authorized;
6,433,455 shares issued and outstanding at June 30, 1998 and
6,428,455 issued and outstanding at March 31, 1998....................... 64,000 64,000
Additional paid-in capital.................................................. 50,968,000 50,927,000
Unearned portion of compensatory stock options.............................. (19,000) (48,000)
Accumulated foreign currency translation adjustment......................... (87,000) (57,000)
Retained earnings........................................................... 18,860,000 17,241,000
----------- ----------
Total shareholders' equity........................................ 69,786,000 68,127,000
----------- ----------
T O T A L......................................................... $108,109,000 $98,245,000
=========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
-3-
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Income:
Net sales..................................................... $31,022,000 $21,784,000
----------- -----------
Operating expenses:
Cost of goods sold............................................ 25,362,000 17,504,000
Research and development...................................... 257,000 145,000
Selling expenses.............................................. 567,000 621,000
General and administrative expenses........................... 1,853,000 1,215,000
------------ ------------
Total operating expenses............................... 28,039,000 19,485,000
----------- -----------
Operating income................................................. 2,983,000 2,299,000
Interest expense (net of interest income)........................ 323,000 396,000
------------ -------------
Income before income taxes....................................... 2,660,000 1,903,000
Provision for income taxes....................................... 1,041,000 732,000
------------ -------------
Net income ...................................................... $ 1,619,000 $ 1,171,000
============ ============
Basic income per share........................................... $ 0.25 $ 0.23
============ ============
Diluted income per share......................................... $ 0.25 $ 0.23
============ ============
Weighted average common shares outstanding -
basic income per share........................................ 6,429,000 5,010,000
Effect of potential common shares................................ 127,000 142,000
------------ -------------
Weighted average common shares outstanding -
diluted income per share...................................... 6,556,000 5,152,000
============ =============
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
-4-
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 1,619,000 $ 1,171,000
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization..................................... 413,000 244,000
Non-cash charge for compensatory stock options
issued........................................................ 29,000 0
(Increase) decrease in:
Accounts receivable............................................. (2,650,000) (657,000)
Inventory....................................................... (6,169,000) (10,246,000)
Prepaid expenses and other assets............................... 9,000 (107,000)
Other assets.................................................... 82,000 658,000
Increase (decrease) in:
Accounts payable and accrued expenses........................... 3,506,000 1,571,000
Income taxes payable............................................ 850,000 (239,000)
Other liabilities............................................... 69,000 166,000
Due to affiliate................................................ 0 3,000
--------------- -------------
Net cash (used in) operating activities..................... (2,242,000) (7,436,000)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment............................. (900,000) (762,000)
Sale of investments................................................... 0 882,000
---------------- ------------
Net cash (used in) provided by investing activities......... (900,000) 120,000
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in line of credit............................. 3,152,000 7,088,000
Payments on capital lease obligation.................................. (106,000) (207,000)
Payments on acquisitions.............................................. 0 (140,000)
Proceeds from exercise of options..................................... 41,000 120,000
------------- ------------
(continued on next page)
-5-
<PAGE>
Three Months Ended June 30,
--------------------------
1998 1997
---- ----
Net cash provided by financing activities....................... 3,087,000 6,861,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS....................................................... (55,000) (455,000)
Cash and cash equivalents - (beginning of period)........................ 3,108,000 3,539,000
----------- -----------
CASH AND CASH EQUIVALENTS - END OF
PERIOD................................................................ $3,053,000 $3,084,000
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................................ $ 351,000 $ 378,000
Income taxes........................................................ $ 126,000 $ 971,000
Noncash investing and financing activities:
Property acquired under capital lease............................... $ 734,000 $ 0
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
-6-
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
Notes to Financial Statements (Unaudited)
(NOTE A) - The Company and its Significant Accounting Policies:
- --------------------------------------------------------------
Motorcar Parts & Accessories, Inc., and its subsidiaries (the
"Company"), remanufactures and distributes alternators and starters and
assembles and distributes spark plug wire sets for the automotive after-market
industry (replacement parts sold for use on vehicles after initial purchase).
These automotive parts are sold to automotive retail chains and warehouse
distributors throughout the United States.
[1] Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries as of June 30, 1998.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
[2] Basis of presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of Management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the three month period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending
March 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended March 31, 1998.
-7-
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
Notes to Financial Statements (Unaudited)
(NOTE B)- Inventory:
- -------------------
Inventory is comprised of the following:
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998
------------- --------------
<S> <C> <C>
Raw materials......................... $29,964,000 $28,609,000
Work-in-process....................... 6,522,000 7,066,000
Finished goods........................ 24,419,000 19,061,000
----------- -----------
T o t a l................ $60,905,000 $54,736,000
=========== ===========
</TABLE>
(NOTE C) - Related Parties:
- -------------------------
In April 1997, MVR Products Co. Pte, Ltd. ("MVR") and Unijoh Sdn, Bhd
("Unijoh") became wholly owned subsidiaries of the Company in a stock-for-stock
merger which has been accounted for in a manner similar to a pooling of
interests. Under the terms of the merger agreement, the Company issued 145,455
shares of its common stock. The financial statements prior to the date of
combination have not been restated as the effect is not material to the
Company's financial condition and results of operations. The combined assets and
combined liabilities of MVR and Unijoh aggregated approximately $632,000 and
$399,000, respectively, at the date of combination.
Prior to the merger, the Company conducted business with MVR, which
operates a shipping warehouse and which conducts business with Unijoh. Unijoh
operates a remanufacturing facility similar to the Company. MVR's warehouse is
located in Singapore and Unijoh's factory is located in Malaysia. Two
shareholders/officers/directors of the Company owned 70% of both MVR and Unijoh,
with the remaining 30% owned by an unrelated third party. All of the cores
processed by Unijoh were produced for the Company on a contract remanufacturing
basis. The cores and other raw materials used in production by Unijoh were
supplied by the Company and were included in the Company's inventory. Inventory
owned by the Company and held by MVR and Unijoh was $762,000 at March 31, 1997.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere herein.
Results of Operations
- ---------------------
Quarter Ended June 30,
1998 1997
---- ----
Net sales 100.0% 100.0%
Cost of goods sold 81.8 80.4
----- ------
Gross profit 18.2 19.6
Research and development 0.8 0.6
Selling expenses 1.8 2.8
General & administrative expenses 6.0 5.6
------- -------
Operating income 9.6 10.6
Interest expense - net 1.0 1.8
------- -------
Income before income taxes 8.6 8.8
Provision for income taxes 3.4 3.4
------- -------
Net income 5.2% 5.4%
======== ========
In its remanufacturing operations, the Company obtains used
alternators and starters, commonly known as "cores," from its customers as
trade-ins and by purchasing them from vendors. Such trade-ins are recorded when
cores are received from customers. Credits for cores are allowed only against
purchases of similar remanufactured products and generally are used within 60
days of issuance by the customer. Due to this trade-in policy, the Company does
not reserve for trade-ins. In addition, since it is unlikely that a customer
will not utilize its trade-in credits, the credit is recorded when the core is
returned as opposed to when the customer purchases new products. The Company
believes that this policy is consistent throughout the remanufacturing and
rebuilding industry.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
- -----------------------------------------------------------------------------
Net sales for the three months ended June 30, 1998 increased
$9,238,000 or 42.4%, from $21,784,000 to $31,022,000, over net sales for the
three months ended June 30, 1997. The increase in net sales is primarily
attributable to sales to one of the Company's largest customers of alternators
for domestic vehicles in connection with the recent expansion of the Company's
product line to include remanufactured products for domestic vehicles.
Cost of goods sold over the periods increased $7,858,000 or 44.9%,
from $17,504,000 to $25,362,000. The increase primarily is attributable to
additional costs incurred in connection with increased production and sales. As
a percentage of net sales, cost of goods sold increased to 81.8%
-9-
<PAGE>
for the quarter ended June 30, 1998 as compared to 80.4% for the quarter ended
June 30, 1997. The increase as a percentage of net sales is attributable to (i)
lower gross margins relating to the Company's new product line, (ii) slightly
reduced efficiencies resulting from increased labor costs in connection with
increased production requirements in response to strong demand for the Company's
products and (iii) pricing pressures.
Selling expenses decreased over the periods by $54,000 or 8.7%, from
$621,000 to $567,000. This decrease resulted principally from reduced
advertising allowances to customers and reduced sales commissions to outside
sales agents, offset partially by higher inside sales salaries. As a percentage
of net sales, selling expenses decreased over the periods from 2.9% to 1.8%,
reflecting the leveraging of these expenses over the Company's increased net
sales.
General and administrative expenses increased over the periods by
$638,000 or 52.5%, from $1,215,000 to $1,853,000. The increase resulted
principally from the addition of certain management personnel in connection with
the expansion of the Company's operations and an increase in certain
compensation expense. General and administrative expenses as a percentage of net
sales increased over the periods from 5.6% to 6.0%.
For the three months ended June 30, 1998 interest expense net of
interest income was $323,000. This represents a decrease of $73,000 or 18.4%
over net interest expense of $396,000 for the three months ended June 30, 1997.
Interest expense was comprised principally of interest on the Company's
revolving credit facility, borrowings under which were significantly reduced by
payments from the proceeds of the Company's public offering in November 1997.
Liquidity and Capital Resources
The Company's recent operations have been financed principally from
the net proceeds of the Company's public offering in November 1997, borrowings
under its revolving credit facility and cash flow from operations. As of June
30, 1998, the Company's working capital was $79,673,000, including $3,053,000 of
cash and cash equivalents.
Net cash used in operating activities during the three months ended
June 30, 1998 was $2,242,000. The principal use of cash during the three months
related to an increase in inventory of $6,169,000 and an increase in accounts
receivable of $2,650,000 offset by an increase in accounts payable and accrued
expenses of $3,506,000. The increase in inventory of both finished goods and raw
materials was due primarily to the anticipation of the ensuing selling season of
the Company's product. The increase in accounts receivable was due primarily to
the increased net sales in the quarter ended June 30, 1998, although the days
outstanding of the accounts receivable increased slightly due to extended
payment terms given to some customers. As of June 30, 1998, the current portion
of capitalized lease obligations was $454,000.
-10-
<PAGE>
Net cash used in and provided by investing activities during the three
months ended June 30, 1998 and June 30, 1997 was $900,000 and $120,000,
respectively. During the quarter ended June 30, 1998, the Company purchased
$900,000 of property, plant and equipment in order to facilitate the continued
expansion of the Company's manufacturing capacity.
Net cash provided by financing activities in the three months ended
June 30, 1998 and June 30, 1997 was $3,087,000 and $6,861,000, respectively. The
net cash provided by financing activities in the quarter ended June 30, 1998
primarily was attributable to increased borrowings of $3,152,000 under the
Company's revolving credit facility. During the quarter ended June 30, 1998, the
Company also received $41,000 from the exercise of stock options.
The Company has a credit agreement expiring in August 1999 with Wells
Fargo Bank, National Association (the "Bank") that provides for a revolving
credit facility in an aggregate principal amount not exceeding $25,000,000,
which credit facility is secured by a lien on substantially all of the assets of
the Company. The credit facility provides for an interest rate on borrowings at
the Bank's prime rate less .25% or LIBOR plus 1.25%. Under the terms of the
credit facility and included in the maximum amount thereunder, the Bank will
issue letters of credit and banker's acceptances for the account of the Company
in an aggregate amount not exceeding $2,500,000. At August 2, 1998, the
outstanding balance on the credit facility was approximately $20,873,000.
The Company's accounts receivable as of June 30, 1998 was $32,241,000,
representing an increase of $2,650,000 or 9.0% over accounts receivable on March
31, 1998. In addition, the Company occasionally extends payment terms on certain
orders with certain customers. The Company partially protects itself from losses
due to uncollectible accounts receivable through an insurance policy with an
independent credit insurance company at an annual premium of approximately
$85,000. The Company's policy generally has been to issue credit to new
customers only after the customers have been included to some extent under the
coverage of its accounts receivable insurance policy. As of June 30, 1998, the
Company's accounts receivable from its largest customer represented
approximately 57% of all accounts receivable.
The Company's inventory as of June 30, 1998 was $60,905,000,
representing an increase of $6,169,000 or 11.3% over inventory as of March 31,
1998. This increase, as discussed above, primarily reflects the Company's
anticipated growth in net sales in connection with domestic vehicles and, to a
lesser extent, increased business from existing customers and the need to have
sufficient inventory to support shorter lead times for deliveries to customers.
Also, the Company continues to increase the number of SKUs sold requiring the
Company to carry raw materials for this wider variety of parts.
Year 2000 Compliance
The Company is working to resolve the potential impact of the year
2000 on the ability of the Company's computerized information systems to
accurately process information that may be date- sensitive. Any of the Company's
programs that recognize a date using "00" as the year 1900 rather
-11-
<PAGE>
than the year 2000 could result in errors or system failures. The Company
utilizes a number of computer programs across its entire operation and has
recently selected a new information system, one benefit of which is expected to
be year 2000 compliance. The new system is expected to cost approximately
$1,500,000. The Company has not completed its assessment, but currently believes
that costs of addressing this issue will not have a material adverse impact on
the Company's financial position. However, if the Company and third parties upon
which it relies are unable to address this issue in a timely manner, it could
result in a material financial risk to the Company. In order to ensure that this
does not occur, the Company plans to devote all resources required to resolve
any significant year 2000 issues in a timely manner.
Disclosure Regarding Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements with respect
to the future performance of the Company 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, the
uncertainty of long-term results from the Company's recent entrance into the
business of remanufacturing alternators and starters for domestic vehicles,
concentration of sales to certain customers, the potential for changes in
consumer spending, consumer preferences and general economic conditions,
increased competition in the automotive parts remanufacturing industry,
unforeseen increases in operating costs and other factors discussed herein and
in the Company's other filings with the Securities and Exchange Commission.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K during the
quarterly period ended June 30, 1998.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MOTORCAR PARTS & ACCESSORIES, INC.
Dated: August 14, 1998 By: /s/ Peter Bromberg
---------------------------------
Peter Bromberg
Chief Financial Officer
-14-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- ------------
27.1 Financial Data Schedule
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,053,000
<SECURITIES> 0
<RECEIVABLES> 32,491,000
<ALLOWANCES> 250,000
<INVENTORY> 60,905,000
<CURRENT-ASSETS> 98,052,000
<PP&E> 12,171,000
<DEPRECIATION> 3,839,000
<TOTAL-ASSETS> 108,109,000
<CURRENT-LIABILITIES> 18,379,000
<BONDS> 0
0
0
<COMMON> 64,000
<OTHER-SE> 69,722,000
<TOTAL-LIABILITY-AND-EQUITY> 108,109,000
<SALES> 31,022,000
<TOTAL-REVENUES> 31,022,000
<CGS> 25,362,000
<TOTAL-COSTS> 28,039,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 323,000
<INCOME-PRETAX> 2,660,000
<INCOME-TAX> 1,041,000
<INCOME-CONTINUING> 1,619,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,619,000
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
