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, 1996.
[_] 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.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-2153962
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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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 4,881,000 shares of Common Stock outstanding at August 7, 1996.
MOTORCAR PARTS & ACCESSORIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of June 30, 1996 (unaudited)
and March 31, 1996......................................3
Statements of Operations (unaudited) for the three month
periods ended June 30, 1996 and 1995....................4
Statements of cash flows (unaudited) for the three month
periods ended June 30, 1996 and 1995....................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................................12
Signatures......................................................13
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MOTORCAR PARTS & ACCESSORIES, INC.
BALANCE SHEETS
A S S E T S June 30, 1996 March 31, 1996
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(Unaudited)
Current assets:
Cash and cash equivalents ............................................... $ 116,000 $ 164,000
Short-term investments .................................................. 730,000 8,336,000
Accounts receivable - net of allowance for doubtful accounts ............ 18,102,000 17,264,000
Inventory ............................................................... 30,205,000 28,551,000
Prepaid expenses and other current assets ............................... 823,000 637,000
Deferred income tax asset ............................................... 226,000 226,000
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Total current assets ............................................. 50,202,000 55,178,000
Long-term investments ...................................................... 3,353,000 2,393,000
Plant and equipment - net .................................................. 2,796,000 2,469,000
Other assets ............................................................... 202,000 149,000
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T O T A L ........................................................ $56,553,000 $60,189,000
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L I A B I L I T I E S
Current liabilities:
Current portion of capital lease obligations ............................ $ 618,000 $ 554,000
Accounts payable and accrued expenses ................................... 7,046,000 8,855,000
Income taxes payable .................................................... 610,000 1,331,000
Due to affiliate ........................................................ 149,000 184,000
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Total current liabilities ........................................ 8,423,000 10,924,000
Long-term debt ............................................................. 12,083,000 14,541,000
Capitalized lease obligations - less current portion ....................... 848,000 594,000
Deferred income tax liability .............................................. 99,000 99,000
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T O T A L ........................................................ $21,453,000 $26,158,000
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SHAREHOLDERS' EQUITY
Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none
issued
Common stock; par value $.01 per share, 10,000,000 shares authorized;
4,866,000 shares issued and outstanding at June 30, 1996 and 4,819,750
issued and outstanding at March 31, 1996 ................................ 49,000 48,000
Additional paid-in capital ................................................. 28,462,000 28,431,000
Retained earnings .......................................................... 6,589,000 5,552,000
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Total shareholders' equity ....................................... 35,100,000 34,031,000
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T O T A L ........................................................ $56,553,000 $60,189,000
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The accompanying notes to financial statements
are an integral part hereof.
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MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Operations
(Unaudited)
Three Months Ended June 30,
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1996 1995
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Income:
Net sales ............................. $18,375,000 $11,632,000
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Operating expenses:
Cost of goods sold .................... 14,713,000 9,179,000
Selling expenses ...................... 540,000 414,000
General and administrative expenses ... 1,194,000 923,000
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Total operating expenses ....... 16,447,000 10,516,000
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Operating income ......................... 1,928,000 1,116,000
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Interest expense (net of interest income) 211,000 224,000
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Income before income taxes ............... 1,717,000 892,000
Provision for income taxes ............... 680,000 366,000
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Net income - historical .................. $ 1,037,000 $ 526,000
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Weighted average common shares outstanding 4,982,000 3,318,000
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Net income per common share .............. $ .21 $ .16
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The accompanying notes to financial statements
are an integral part hereof.
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MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Cash Flows (Unaudited)
3 Months Ended June 30,
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1996 1995
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Cash flows from operating activities:
Net income .............................................. $ 1,037,000 $ 526,000
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization ....................... 136,000 87,000
(Increase) decrease in:
Accounts receivable ............................... (838,000) (228,000)
Inventory ......................................... (1,654,000) (1,100,000)
Prepaid expenses and other assets ................. (186,000) 6,000
Other assets ...................................... (53,000) (5,000)
Increase (decrease) in:
Accounts payable and accrued expenses ............. (1,809,000) (667,000)
Income taxes payable .............................. (721,000) 74,000
Due to affiliate .................................. (35,000) 96,000
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Net cash (used in) operating activities ....... (4,123,000) (1,211,000)
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Cash flows from investing activities:
Purchase of property, plant and equipment ............... (79,000) (65,000)
Sale of investments...................................... 6,646,000 382,000
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Net cash from investing activities ............ 6,567,000 317,000
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Cash flows from financing activities:
Net increase (decrease) in line of credit ............... (2,458,000) 800,000
Payments on capital lease obligation .................... (66,000) (45,000)
Proceeds from exercise of options ....................... 32,000 0
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Net cash provided by (used in) financing activities (2,492,000) 755,000
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(continued on next page)
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3 Months Ended June 30,
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1996 1995
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ......................................... (48,000) (139,000)
Cash and cash equivalents - (beginning of period) .......... 164,000 611,000
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CASH AND CASH EQUIVALENTS - END OF
PERIOD .................................................. $ 116,000 $ 472,000
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Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .............................................. $ 305,000 $ 238,000
Income taxes .......................................... $ 1,401,000 $ 293,000
Noncash investing and financing activities:
Property acquired under capital lease ................. $ 252,000 $ 20,000
The accompanying notes to financial statements
are an integral part hereof.
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MOTORCAR PARTS & ACCESSORIES, INC.
Notes to Financial Statements (Unaudited)
(NOTE A) - The Company and its Significant Accounting Policies:
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Motorcar Parts & Accessories, Inc. (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). The Company's alternators and
starters are produced principally for use in imported cars. The spark plug wire
sets are produced for use in imported as well as domestic cars. These automotive
parts are sold to automotive retail chains and warehouse distributors throughout
the United States.
[1] Cash Equivalents:
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The Company considers all highly liquid short-term investments with a
maturity of three months or less to be cash equivalents.
[2] Investments:
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The Company's marketable securities are classified as available for
sale and reported at fair value which approximates amortized cost. Any
unrealized gains or losses are classified as a separate component of
shareholders' equity.
[3] Accounts receivable - Allowance:
--------------------------------
The Company protects itself from losses due to uncollectible accounts
receivable through the purchase of credit insurance except for receivables due
from a limited number of accounts due from leading automotive parts retailers,
which exceed the insurance coverage and certain small balances. Beginning in
fiscal year 1996 an allowance for estimated uncollectible accounts receivable is
provided.
[4] Inventory:
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Inventory is stated at the lower of cost or market, cost being
determined by the average cost method.
[5] Revenue recognition:
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The Company recognizes sales when products are shipped. The Company
obtains used alternator and starter units, commonly known as cores, from its
customers as trade-ins. Cores are an essential material need for remanufacturing
operations. Beginning with the quarter ended June 30, 1996, the Company
implemented a new accounting presentation with respect to its reporting of
sales. In the past, net sales were reduced to reflect deductions for cores
returned for credit and cost of goods sold was reduced by the cost of the cores
returned. Under the new presentation, net sales will be reported on a gross
basis, that is core returns from customers will not be deducted in order to
reach net sales will be reported on a gross basis, that is core returns from
customers will not be deducted in order to reach net sales, but rather will be
included in cost of goods sold. The quarter ended June 30, 1995 was restated to
show this change. Formerly, the quarter ended June 30, 1995 showed net sales of
$8,058,000 and cost of goods sold of $5,605,000.
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MOTORCAR PARTS & ACCESSORIES, INC.
Notes to Financial Statements (Unaudited)
(NOTE B)- Inventory:
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Inventory is comprised of the following:
June 30, 1996 March 31, 1996
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Raw materials ......... $16,410,000 17,568,000
Work-in-process ....... 2,945,000 3,466,000
Finished goods ........ 11,050,000 7,517,000
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T o t a l $30,405,000 $28,551,000
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(NOTE C) - Related Parties:
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The Company conducts business with MVR Products Co. PTE, Ltd.
("MVR"). MVR operates a shipping warehouse which conducts business with Unijoh
Sdn, Bhd ("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 own 70% of both
MVR and Unijoh, with the remaining 30% owned by an unrelated third party. All of
the cores processed by Unijoh are produced for the Company on a contract
remanufacturing basis. The cores and other raw materials used in production by
Unijoh are supplied by the Company and are included in the Company's inventory.
Inventory owned by the Company and held by MVR and Unijoh was $541,000 as at
June 30, 1996. The Company incurred costs of approximately $370,000 from the
affiliates for the quarter ended June 30, 1996. The amount due to affiliate as
at June 30, 1996 and March 31, 1996 was due to MVR.
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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
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Quarter Ended June 30
1996 1995
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Net sales ........................................ 100.0% 100.0%
Cost of goods sold ............................... 80.1 78.9
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Gross profit ..................................... 19.9 21.1
Selling expenses ................................. 2.9 3.6
General & administrative expenses ................ 6.5 7.9
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Operating income ................................. 10.5 9.6
Interest expense - net ........................... 1.2 1.9
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Income before income taxes ....................... 9.3 7.7
Provision for income taxes ....................... 3.7 3.2
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Net Income ....................................... 5.6% 4.5%
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Beginning with the quarter ended June 30, 1996, the Company
implemented a new accounting presentation with respect to its reporting of
sales. In the past, the Company deducted the value of all cores returned from
its customers in order to reach net sales. Under the new presentation, revenues
will be reported on a gross basis, that is core returns from customers will not
be deducted in order to reach net sales, but rather will be included in cost of
goods sold. The quarter ended June 30, 1995 has been restated to reflect this
new presentation. The Company believes that this new presentation provides a
truer depiction of actual sales and cost of goods sold. In addition, it reflects
the proper relationship between sales and inventory.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
- -----------------------------------------------------------------------------
Net sales for the three months ended June 30, 1996 were $18,375,000,
an increase of $6,743,000 or 58.0% over the three months ended June 30, 1995.
The increase in net sales is attributable to sales to new customers (Delphi
Energy & Engine Management Systems, a division of General Motors, and Canadian
Tire), the general growth of business with existing customers and, the Company
believes, to the continued aging of the import vehicle fleet. In addition, the
Company is in the process of expanding its product line to include
remanufactured alternators and starters for domestic cars and light trucks.
These sales generated revenues of approximately $400,000 for the quarter ended
June 30, 1996. The number of units shipped to all customers was approximately
325,000 units during the quarter ended June 30, 1996 as compared to
approximately 208,000 units in the comparable period a year earlier, a 56.3%
increase.
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Cost of goods sold over the periods increased $5,534,000 or 60.3%
from $9,179,000 to $14,713,000. The increase is primarily attributable to
additional costs in connection with increased production. As a percentage of net
sales, these expenses increased from 78.9% for the quarter ended June 30, 1995
to 80.1% for the recent quarter. This increase is primarily attributable to the
pricing pressures that the Company experienced during the first four months of
calendar year 1996. The Company was largely successful in lowering its
manufacturing costs in response to these pricing pressures.
Selling expenses over the periods increased $126,000 or 30.4% from
$414,000 to $540,000. The increase was due to an expansion of the Company's
sales force as well as greater commissions paid to its outside sales
representatives. Advertising expenses, the largest component of selling
expenses, remained relatively constant over the periods, decreasing from
approximately $220,000 to $209,000 over the periods. As a percentage of net
sales, selling expenses decreased from 3.6% to 2.9% over the periods,
representing increased leveraging of these costs.
General and administrative expenses increased $271,000 or 29.4% from
$923,000 for the three months ended June 30, 1995 to $1,194,000 for the three
months ended June 30, 1996. As a percentage of net sales, these expenses
decreased over the periods from 7.9% to 6.5%, which reflects the leveraging of
these costs over Company's increased net sales. Approximately 44.3% of the
increase was the result of costs incurred under the Company's new incentive
bonus plan implemented in September 1995. The balance of the increase was
primarily attributable to increased insurance coverages and company travel.
Interest expense, net of interest income of $94,000 for the three
months ended June 30, 1996, was $211,000. This represented a decrease of $13,000
or 5.8% from net interest expense of $224,000 for the three months ended June
30, 1995. Interest expense is comprised principally of interest of the Company's
revolving credit facility. Interest income is derived from investments
principally from the Company's second public offering in November 1995.
Liquidity and Capital Resources
- -------------------------------
The Company's operations have been financed principally from the net
proceeds of the Company's second public offering in November 1995, borrowings
under a revolving credit facility and cash flows from operations. As of June 30,
1996, the Company's working capital was $41,779,000 including $4,199,000 of cash
and investments.
Net cash used in operating activities during the three months ended
June 30, 1996 and 1995 was $4,123,000 and $1,211,000, respectively. The increase
was primarily due to an increase in inventory of $1,654,000 and a decrease in
accounts payable and accrued expenses of $1,809,000. The increase in inventory
was primarily attributable to the addition of approximately $1,420,000 of
inventory for the Company's recent entry into the business of remanufacturing
domestic alternators and starters, which growth in inventory for this new
business may be expected to continue for the
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foreseeable future. As of June 30, 1996 the current portion of capitalized lease
obligations was $618,000.
Net cash from investing activities during the three months ended June
30, 1996 and 1995 was $6,567,000 and $317,000, respectively. During the three
months ended June 30, 1996 the Company used $6,646,000 of investments to fund
its operating and financing activities.
Net cash from financing activities was $2,492,000 and $755,000 for
the three months ended June 30, 1996 and 1995, respectively. During the three
months ended June 30, 1996 the Company decreased its line of credit by
$2,458,000.
In September 1995, the Company amended its credit agreement with
Wells Fargo Bank, National Association (the "Bank"). The credit agreement
provides for a revolving credit facility in an aggregate principal amount not
exceeding $15,000,000, 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 lower of the Bank's prime rate and LIBOR
plus 1.75%. 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 9, 1996, the outstanding balance on the credit facility
was approximately $12,100,000.
The Company's accounts receivable as of June 30, 1996 was
$18,102,000. This represents an increase of $838,000 over accounts receivable on
March 31, 1996. During the three months ended June 30, 1996 the Company extended
its normal terms with certain of its customers. In addition, there are times
when the Company extends payment terms with certain customers in order to help
them finance an increase in the number of SKUs carried by that customer. The
Company insures collection of certain of its accounts receivable through an
insurance policy with an independent credit company at an annual premium of
approximately $70,000. The Company's policy generally has been to issue credit
to new customers only after they have been included under the coverage of its
accounts receivable insurance policy.
The Company's inventory as of June 30, 1996 was $30,205,000, an
increase of $1,654,000 or 5.8% over March 31, 1996. The increase primarily
reflects the addition of approximately $1,420,000 of inventory for the Company's
recent entry into the business of remanufacturing domestic alternators and
starters. In addition the Company is continuing to add new SKUs to its product
line thus increasing the amounts of cores and finished goods needed to supply
its customers.
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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, 1996.
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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, thereunto duly authorized.
MOTORCAR PARTS & ACCESSORIES, INC.
Dated: August 8, 1996 By: /S/ PETER BROMBERG
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Peter Bromberg
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description Page Number
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27.1 Financial Data Schedule