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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 17, 2001
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Motorcar Parts & Accessories, Inc.
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(Exact name of registrant as specified in its charter)
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New York 0-23538 11-2153962
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(State or other (Commission File Number) (IRS Employer
jurisdiction Identification No.)
of incorporation)
2727 Maricopa Street, Torrance, California 90503
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 212-7910
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(Former name or former address, if changed since last report.)
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS.
AUDITED MARCH 31, 2000 FINANCIAL STATEMENTS; UNAUDITED INTERIM FINANCIAL
INFORMATION
Attached to this Form 8-K as Exhibit 99.1 is the Company's recently
completed audited March 31, 2000 financial statements (the "2000 Financial
Statements"). The 2000 Financial Statements include audited consolidated
balance sheets as of March 31, 1999 and March 31, 2000, together with audited
consolidated statements of operations (the "2000 Statement of Operations")
and cash flows for the year ended March 31, 2000.
Attached to this Form 8-K as Exhibits 99.2 and 99.3 are the
Company's unaudited financial statements for the interim periods ended June
30, 2000 and September 30, 2000, respectively.
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the
Company's audited financial statements for the year ended March 31, 2000 and
unaudited financial statements for the periods ended June 30, 2000 and
September 30, 2000. The selected financial data should be read in conjunction
with the consolidated financial statements and notes thereto appearing
elsewhere herein.
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Six Months Three Months Three Months
Ended Ended Ended Year Ended
September 30, September 30, June 30, March 31,
2000 2000 2000 2000
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(Unaudited) (Unaudited) (Unaudited)
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Net of sales 100.0% 100.0% 100.0% 100.0%
Costs of goods sold 91.2% 91.6% 90.7% 96.8%
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Gross profit 8.8% 8.4% 9.3% 3.2%
Research and development 0.3% 0.3% 0.4% 0.4%
Sales and marketing 0.7% 0.6% 0.8% 0.9%
Provision for doubtful accounts 0.0% 0.0% 0.0% 0.2%
General and administrative 4.5% 3.9% 5.0% 6.0%
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Operating / income (loss) 3.3% 3.6% 3.1% (4.3%)
Interest expense - net 2.4% 2.3% 2.4% 1.6%
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Income (loss) before tax benefit and cumulative effect
of accounting change 1.0% 1.3% 0.7% (5.9%)
Income tax benefit 0.0% 0.0% 0.0% 0.6%
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Income (loss) before cumulative effect of accounting 1.0% 1.3% 0.7% (5.3%)
change
Cumulative effect of accounting change 0.0% 0.0% 0.0% 9.2%
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Net income (loss) 1.0% 1.3% 0.7% (14.5%)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
The following discussion includes references to certain operating
results during the year ended March 31, 1999, the three months ended June 30,
1999 and the three months and six months ended September 30, 1999. While the
Company believes these references are helpful for purposes of understanding
the discussion of the Company's operating results, the Company has not
included financial statements at and for the period ended March 31, 1999
(other than the audited March 31, 1999 balance sheet included with Exhibit
99.1), June 30, 1999 or September 30, 1999 in this Form 8-K because the
Company has not restated these financial statements to give effect to the
change in the Company's method of accounting for inventory or any adjustments
that might result from an audit or review of these statements.
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FOR THE YEAR ENDED MARCH 31, 2000
The 2000 Statement of Operations shows a net loss for the year of
$28,244,000. Of this total net loss, $17,702,000 is attributable to the
cumulative effect of a change in the Company's method of accounting for
inventory. The Company adopted the change effective April 1, 1999. (The
Company has not restated previously issued financial statements to give
effect to this cumulative change on previously reported results of
operation.) As explained in Note E to the 2000 Financial Statements, in prior
years, when the Company valued its inventory at the lower of cost or market,
market was determined by the weighted average of the repurchase price of
cores acquired from customers as trade-ins and the price paid for cores
purchased from brokers. Under the new method, the Company determines market
value based on comparisons to current core broker prices, whose prices are
normally less than the core values credited to customers' accounts when cores
are returned to the Company as trade-ins. In addition, the Company reviews
core inventory to identify excess quantities and maturing product lines. An
allowance for obsolescence is provided to reduce the carrying value (market
value of inventory) to its estimated net realizable value. Because several of
the Company's competitors filed for bankruptcy protection in the late 1990s,
the supply of cores has increased considerably. This has tended to drive down
the carrying value of the Company's inventory. As noted in Note E to the 2000
Financial Statements, this change in the Company's method of accounting for
inventory resulted in an adjustment to inventory values at March 31, 2000 of
$31,052,000.
The Company's net sales of $194,293,000 for the year ended March 31,
2000 represents a significant increase over the historical level of net
sales. This increase is attributable to new product lines sold to existing
customers totaling approximately $31,000,000 during the year ended March 31,
2000 and increased purchases of existing product lines by its customers. The
Company is substantially dependent upon sales to six customers, and any
meaningful reduction in the level of sales to any of these customers could
have a material adverse effect on the Company.
During the year ended March 31, 2000, cost of goods sold was
$188,097,000, or 96.8% of net sales. Cost of goods sold for the year reflects
the lower gross margins in an unprofitable product line and lower
manufacturing efficiencies resulting from rapid growth. The Company
discontinued the unprofitable line of business during the fiscal year ended
March 31, 2000. Cost of goods sold for fiscal 2000 also represents a
significant increase from the historically reported percentage that cost of
goods sold represented of the Company's total sales. Downward pressure on
prices in the marketplace and a corresponding change in the Company's product
mix has contributed to this decrease in historical gross margins.
General and administrative expenses for the year ended March 31,
2000 totaled $11,832,000. This represents a significant increase over the
Company's historical levels of general and administrative expenses, a one
time marketing and advertising cost of $2,000,000 and an increase in
professional fees related to the Company's change of accountants and method
of accounting for inventory. In addition, the class action litigation, the
SEC investigation and the implementation of an upgraded computer system
contributed to this increase.
Sales and marketing expenses for the year ended March 31, 2000
totaled $1,864,000, representing a decrease of the total selling expenses
from historical periods. This decrease in sales and marketing expenses is
primarily related to a reduction in sales personnel.
Interest expense increased to $3,227,000 for the year ended March
31, 2000. This increase is attributable to higher average outstanding
balances on the Company's line of credit during the most recent fiscal year
together with generally higher interest rates.
FOR THE THREE MONTHS ENDED JUNE 30, 2000
Net sales for the three months ended June 30, 2000 were
$41,401,000, a decrease of more than 15% from sales for the first quarter in
the prior year. This decrease in net sales was the direct result of the
Company eliminating an unprofitable line of domestic business.
Gross profit for the three months ended June 30, 2000 improved to
9.3% from the low or slightly negative gross profit for the first quarter in
the prior year. This improvement is attributed to the Company moving away
from an unprofitable line of domestic business plus an increase in
manufacturing efficiencies, when compared to historically-reported gross
profit margins.
Sales and marketing expenses decreased significantly during the
three months ended June 30, 2000 compared to the first quarter in the prior
year. This was primarily due to a decrease in advertising costs and a
reduction in personnel. General and administrative expenses also decreased
compared to the first quarter in the prior year due to reduced professional
fees and the absence of implementation costs associated with the upgraded
computer system for better management visibility and Y2K compliance in 1999.
For the three months ended June 30, 2000 interest expense increased
significantly when compared to the first quarter of the prior year due to
higher average outstanding balances under the Company's line of credit
together with generally higher interest rates.
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FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Net sales for the three months ended September 30, 2000 were
$43,964,000, a decrease of more than 15% from sales for the second quarter of
the prior year. This decrease in net sales was the direct result of the
Company eliminating an unprofitable line of domestic business.
Gross profit for the three months ended September 30, 2000 improved
to 8.4% for the three months ended September 30, 2000 as compared to the
second quarter of the prior year. This improvement is attributed to both
lower sales and increased efficiencies, as the Company moved away from an
unprofitable line of business and as the Company was able to more efficiently
manage the lower levels of manufacturing activity.
Sales and marketing expenses decreased significantly during the
three months ended September 30, 2000 as compared to the second quarter of
the prior year. This decrease was primarily due to a reduction in advertising
costs. General and administrative expenses also decreased significantly over
the same comparative periods principally due to the absence of implementation
costs associated with the upgraded computer system purchased for better
management visibility and Y2K compliance in 1999.
For the three months ended September 30, 2000 interest expense
increased due to higher average outstanding balances under the Company's line
of credit with generally higher interest rates.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
Net sales for the six months ended September 30, 2000 were
$85,365,000, a decrease from sales for the first six months of the prior
year. This decrease in net sales was the direct result of the Company
eliminating an unprofitable line of domestic business.
Gross profit margins for the six months ended September 30, 2000
improved to 8.8% from lower profit margins realized during the first six
months of the prior year. This improvement is attributed to the Company
moving away from an unprofitable line of domestic business, plus an increase
in manufacturing efficiencies.
Sales and marketing expenses decreased during the six months ended
September 30, 2000 as compared to the first six months of the prior year. The
decrease resulted principally from a reduction in personnel. General and
administrative expenses also decreased significantly over the comparative
periods, principally due to a reduction in professional fees, as well as the
absence of the implementation costs associated with the Company's upgraded
computer system previously noted.
For the six months ended September 30, 2000 net interest expense
was $2,019,000. This represents a more than 50% increase over net interest
expense for the first six months of the prior year. This increase is
attributed to the Company carrying higher average outstanding balances under
its line of credit and generally higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations out of cash flow from operations
and historically has utilized borrowings under its existing line of credit.
Because of the Company's failure to satisfy certain financial covenants,
including minimum cash flow levels, or to provide the bank with required
financial information, the Company was in default under its credit agreement.
In connection with the bank's agreement to waive these defaults, the Company
agreed to reduce the maximum level of borrowings under this line of credit
from the original level of $38 million to $33 million by March 31, 2001. This
reduction is required to be made in monthly increments of $500,000 through
March 31, 2001. While the Company has made net payments on its line of credit
totaling $3,250,000 over the nine months through December, 2000 and expects
to be able to generate sufficient cash flow from operations to satisfy the
required reductions in total borrowings under the bank credit agreement,
there is no assurance that it will be able to make such further required
reductions. In addition to the other remedies the bank would have in the
event the Company did not make the required principal paydowns, the interest
rate on the Company's line of credit would increase by 1% per annum. The bank
has agreed to extend the deadline for the Company to provide the bank with an
approved expression of interest from a third-party lender to refinance the
loan under the bank credit agreement from December 15, 2000 to January 26,
2001. No assurance can be given that the Company will be able to provide such
an expression of interest to the bank.
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CLASS ACTION LAWSUIT
The Company is a defendant in a class action lawsuit pending in the
United States District Court, Central District of California. The complaint
in the class action alleges that, over a three year period, the Company
misstated earnings in violation of securities laws. The complaint seeks
damages on behalf of all investors who purchased common stock of the Company
from August 1, 1996 to July 30, 1999. The Company's Directors and Officers
insurance carrier has also filed a claim against the Company and certain of
its officers that seeks to rescind coverage for the claims made against the
Company and certain of its officers in the class action lawsuit. See Note O
to the 2000 Financial Statements. The Company, counsel for the class action
plaintiffs and counsel for the insurance carrier are currently engaged in
discussions to determine whether the class action lawsuit can be settled.
While management is hopeful that settlement can be reached, there can be no
assurances that settlement will be reached or that such a settlement would be
approved by the court. In the absence of final resolution of the litigation
and in view of the position articulated by the Directors and Officers
insurance carrier, continued litigation of the class action lawsuit could
have a material adverse effect on the Company.
PENDING INVESTIGATION BY THE SECURITIES AND EXCHANGE COMMISSION
The Company is subject to an investigation by the Securities and
Exchange Commission (SEC) relating to the same issues involved in the
above-mentioned lawsuit. The outcome of these investigations cannot presently
be determined.
CONSOLIDATION OF OPERATIONS
Presently, the Company conducts its operations primarily in two
facilities located in Torrance, California. One building, housing Executive
Offices, Sales Offices, and Final Assembly Operations, consists of
approximately 125,000 square feet. The other facility consists of nearly
240,000 square feet of primarily Warehousing, Shipping/Receiving, Engineering
and Tear-down and Assembly Operations. The Company is in the process of
consolidating all operations into the single larger facility. As a result
the Company anticipates the following to happen:
- Savings in rent and utilities will be achieved;
- Efficiencies in production will be realized due to
redesigning many current operations, including
kitting, remanufacturing and packaging; and
- The effectiveness of Management will be increased by residing
in one facility
The cost of this consolidation is anticipated to be $500,000 and is
expected to result in annualized savings of nearly $1,000,000, and capacity
will be increased through production and design efficiencies. The actual
costs and savings could vary significantly from these estimates.
The Company is also evaluating the costs and benefits associated
with its Singapore and Malaysian purchasing, manufacturing and warehousing
facilities.
CUSTOMER CONCENTRATION
The Company is substantially dependent upon sales to six major
customers. During the year ended March 31, 2000 and for the six months
ended September 30, 2000, sales to these six customers constituted
approximately 90% of the Company's total sales. During the same period, sales
to the Company's top three customers totaled approximately 75% of the
Company's total sales. Any meaningful reduction in the level of sales to any
of these customers could have a material adverse impact upon the Company. In
addition, the concentration of the Company's sales has increasingly limited
the Company's ability to negotiate favorable prices for its products.
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: concentration of sales to certain customers, changes
in the Company's relationship with any of its 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, the costs associated with
and the anticipated savings from the Company's consolidation of facilities
and other factors discussed herein and in the Company's other filings with
the Securities and Exchange Commission.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(C) Exhibits: The following exhibits are filed as part of this report:
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Exhibit 99.1 Consolidated Financial Statements of Motorcar Parts & Accessories, Inc. and Report of
Independent Certified Public Accountants, March 31, 2000 and 1999.
Exhibit 99.2 Interim Financial Information of Motorcar Parts & Accessories at and for the period ended
June 30, 2000
Exhibit 99.3 Interim Financial Information of Motorcar Parts & Accessories at and for the period ended
September 30, 2000
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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 hereunto duly authorized.
MOTORCAR PARTS & ACCESSORIES, INC.
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(Registrant)
Date January 17, 2001 /s/ Anthony Souza
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(Signature)
Anthony Souza
President
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EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
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Exhibit 99.1 Consolidated Financial Statements of Motorcar Parts & Accessories, Inc. and Report of
Independent Certified Public Accountants, March 31, 2000 and 1999.
Exhibit 99.2 Interim Financial Information of Motorcar Parts & Accessories at and for the period ended
June 30, 2000
Exhibit 99.3 Interim Financial Information of Motorcar Parts & Accessories at and for the period ended
September 30, 2000
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