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 DECEMBER 31,
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
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 4,866,000 shares of Common Stock outstanding at February 7, 1997.
MOTORCAR PARTS & ACCESSORIES, INC.
INDEX
-----
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets as of December 31, 1996 (unaudited)
and March 31, 1996.................................. .....3
Statements of Operations (unaudited) for the nine and three
month periods ended December 31, 1996 and 1995....... ....4
Statements of Cash Flows (unaudited) for the nine month
periods ended December 31, 1996 and 1995..................5
Notes to Financial Statements (unaudited).........................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..................8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................12
Signatures.......................................................13
-2-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MOTORCAR PARTS & ACCESSORIES, INC.
Balance Sheets
--------------
A S S E T S
----------- December 31,
1996 March 31, 1996
------ --------------
(Unaudited)
Current assets:
Cash and cash equivalents............................................ $ 1,108,000 $ 164,000
Short-term investments............................................... 0 8,336,000
Accounts receivable - net of allowance for doubtful accounts......... 22,886,000 17,264,000
Inventory............................................................ 34,980,000 28,551,000
Prepaid expenses and other current assets............................ 709,000 637,000
Deferred income tax asset............................................ 251,000 226,000
---------- ----------
Total current assets.......................................... 59,934,000 55,178,000
Long-term investments................................................... 3,821,000 2,393,000
Plant and equipment - net............................................... 3,659,000 2,469,000
Other assets............................................................ 206,000 149,000
---------- ----------
T O T A L..................................................... $ 67,620,000 $ 60,189,000
========== ==========
L I A B I L I T I E S
---------------------
Current liabilities:
Current portion of capital lease obligations......................... $ 795,000 $ 554,000
Accounts payable and accrued expenses................................ 10,137,000 8,855,000
Income taxes payable................................................. 1,310,000 1,331,000
Due to affiliate..................................................... 184,000 184,000
---------- ----------
Total current liabilities..................................... 12,426,000 10,924,000
Long-term debt.......................................................... 16,329,000 14,541,000
Capitalized lease obligations - less current portion.................... 491,000 594,000
Deferred income tax liability........................................... 99,000 99,000
---------- ----------
T O T A L..................................................... 29,345,000 26,158,000
---------- ----------
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;
4,866,000 shares issued and outstanding at December 31,
1996 and 4,819,750 issued and outstanding at March 31, 1996.......... 49,000 48,000
Additional paid-in capital.............................................. 28,781,000 28,431,000
Retained earnings....................................................... 9,445,000 5,552,000
---------- ----------
Total shareholders' equity.................................... 38,275,000 34,031,000
---------- ----------
T O T A L..................................................... $67,620,000 $ 60,189,000
========== ==========
The accompanying notes to financial statements
are an integral part hereof.
-3-
MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Operations
------------------------
(Unaudited)
For the Nine Months Ended For the Three Months Ended
December 31, December 31,
------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
Income:
Net Sales......................... $ 62,263,000 $ 44,990,000 $ 22,523,000 $ 17,661,000
---------- ---------- ---------- ----------
Operating expenses:
Cost of goods sold................ 49,737,000 35,694,000 17,907,000 13,975,000
Selling expenses.................. 1,725,000 1,467,000 674,000 592,000
General and administrative
expenses..................... 3,632,000 3,251,000 1,257,000 1,249,000
---------- ---------- ---------- ----------
Total operating expenses.. 55,094,000 40,412,000 19,838,000 15,816,000
---------- ---------- ---------- ----------
Operating income..................... 7,169,000 4,578,000 2,685,000 1,845,000
Interest expense - net of
interest income.................. 752,000 652,000 287,000 194,000
---------- ---------- ---------- ----------
Income before income taxes........... 6,417,000 3,926,000 2,398,000 1,651,000
Provision for income taxes........... 2,524,000 1,541,000 936,000 626,000
---------- ---------- ---------- ----------
Net income........................... $ 3,893,000 $ 2,385,000 $ 1,462,000 $ 1,025,000
---------- ---------- ---------- ----------
Weighted average common shares
outstanding....................... 5,003,000 3,615,000 5,007,000 4,144,000
---------- ---------- ---------- ----------
Net income per common
share............................. $ 0.78 $ 0.66 $ 0.29 $ 0.25
========== ========== ============ ============
The accompanying notes to financial statements
are an integral part hereof.
-4-
MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Cash Flows for the Nine Months Ended December 31,
---------------------------------------------------------------
(unaudited)
1996 1995
---- -----
Cash flows from operating activities:
Net income.................................................. $ 3,893,000 $ 2,385,000
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization...................... 476,000 306,000
(Increase) decrease:
Accounts receivable............................ (5,622,000) (4,543,000)
Inventory...................................... (6,429,000) (10,606,000)
Prepaid expenses and other assets ............. (72,000) (209,000)
Other assets.................................. (57,000) (39,000)
Increase (decrease) in:
Accounts payable and accrued expenses .... 1,282,000 2,007,000
Income taxes payable...................... (46,000) 827,000
Due to related parties.................... 0 110,000
----------- -----------
Net cash (used in)
operating activities...................... (6,575,000) (9,762,000)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment................... (1,052,000) (275,000)
Short-term and long-term investments........................ 6,908,000 (7,350,000)
----------- -----------
Net cash provided by (used in)
investing activities........................... 5,856,000 (7,625,000)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in line of credit................... 1,788,000 (571,000)
Proceeds from exercised options............................ 351,000 32,000
Payments on capital lease obligation ....................... (476,000) (178,000)
Proceeds from secondary public offering..................... 0 20,290,000
----------- -----------
Net cash provided by
financing activities........................... 1,663,000 19,573,000
----------- -----------
NET INCREASE (DECREASE) IN CASH...................................... 944,000 2,186,000
Cash - beginning of period .......................................... 164,000 611,000
----------- -----------
CASH - END OF PERIOD .......................................... $ 1,108,000 $2,797,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .......................................... $ 844,000 $ 688,000
Income taxes .......................................... 2,520,000 665,000
Non-cash investing and financing activities:
Property acquired under capital lease....................... 338,000 397,000
The accompanying notes to financial statements
are an integral part hereof.
-5-
MOTORCAR PARTS & ACCESSORIES, INC.
Notes to Financial Statements (Unaudited)
(NOTE A) - The Company and its Significant Accounting Policies:
- ---------------------------------------------------------------
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:
-----------------
The Company considers all highly liquid short-term investments
with a maturity of three months or less to be cash equivalents.
[2] Investments:
------------
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 to a limited extent from losses
due to uncollectible accounts receivable through the purchase of credit
insurance except for receivables due from a limited number of accounts with
leading automotive parts retailers and certain small customers. Beginning in
fiscal year 1996 an allowance for estimated uncollectible accounts receivable is
provided.
[4] Inventory:
----------
Inventory is stated at the lower of cost or market, cost being
determined by the average cost method.
[5] Revenue Recognition:
--------------------
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
-6-
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 nine and three months ended December 31, 1995 was restated to
show this change. Formerly, the nine and three months ended December 31, 1995
showed net sales of $31,207,000 and $12,347,000 and cost of goods sold of
$21,911,000 and $8,661,000, respectively.
(NOTE B)- Inventory:
- --------------------
Inventory is comprised of the following:
December 31, 1996 March 31, 1996
----------------- --------------
Raw materials.................. $19,092,000 17,568,000
Work-in-process................ 2,970,000 3,466,000
Finished goods................. 12,918,000 7,517,000
----------- -----------
T o t a l......... $34,980,000 $28,551,000
=========== ===========
(NOTE C) - Related Parties:
- ---------------------------
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 two-thirds of
both MVR and Unijoh, with the remaining one-third 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 $632,000 as at December 31, 1996. The Company incurred costs of
approximately $1,248,000 and $342,000 from the affiliates for the nine and three
months ended December 31, 1996. The amount due to affiliate as at December 31,
1996 and March 31, 1996 was due to MVR.
-7-
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
- ---------------------
Nine Months Ended Three Months Ended
December 31, December 31,
-------------------- --------------------------
1996 1995 1996 1995
-------- --------- --------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 79.9 79.3 79.5 79.1
-------- --------- --------- --------
Gross profit 20.1 20.7 20.5 20.9
Selling expenses 2.8 3.3 3.0 3.4
General & administrative
expenses 5.8 7.2 5.6 7.1
-------- --------- --------- --------
Operating income 11.5 10.2 11.9 10.4
Interest expense - net 1.2 1.5 1.3 1.1
-------- --------- --------- --------
Income before income taxes 10.3 8.7 10.6 9.3
Provision for income taxes 4.0 3.4 4.1 3.5
-------- --------- --------- --------
Net Income 6.3% 5.3% 6.5% 5.8%
======== ========= ========= ========
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
are reported on a gross basis, that is core returns from customers are not
deducted in order to reach net sales, but rather are included in cost of goods
sold. The nine and three month periods ended December 31, 1995 have 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 a more proper relationship between sales and inventory.
Net sales for the nine months ended December 31, 1996 increased
$17,273,000 or 38.4%, from $44,990,000 to $62,263,000 over the nine months ended
December 31, 1995. Net sales for the three months ended December 31, 1996
increased $4,862,000 or 27.5%, from $17,661,000 to $22,523,000 over the three
months ended December 31, 1995. The increases are attributable to the general
growth of business with existing customers, including the occurrence of update
orders with certain customers, which increase the number of SKUs that these
customers offer in their stores. In addition, the Company believes that the
continued aging of the import vehicle fleet also contributed to its increased
sales. The Company also continued the expansion of its product line to include
remanufactured alternators and starters for domestic car and light trucks, which
generated net sales of approximately $750,000 for the nine months ended December
31, 1996. The number of units
-8-
shipped to all customers was approximately 1,029,000 units during the recent
nine-month period and approximately 758,000 units during the same period a year
earlier, representing an increase of approximately 35.8%.
Cost of goods sold for the nine months ended December 31, 1996
increased $14,043,000 or 39.3%, from $35,694,000 to $49,737,000, over the nine
months ended December 31, 1995. Cost of goods sold for the three months ended
December 31, 1996 increased $3,932,000 or 28.1%, from $13,975,000 to
$17,907,000, over the three months ended December 31, 1995. The increases are
primarily attributable to additional costs in connection with increased
production. Cost of goods sold as a percentage of net sales increased over the
nine-month periods from 79.3% to 79.9% and over the three-month periods from
79.1% to 79.5%. While the increases in cost of goods sold are minimal over the
periods, they can be primarily attributed to the pricing pressures that the
Company experienced during the first four months of calendar 1996 as offset by
the continuing lowering of manufacturing costs by the Company.
Selling expenses for the nine months ended December 31, 1996 increased
$258,000 or 17.6%, from $1,467,000 to $1,725,000, over the nine months ended
December 31, 1995. Selling expenses for the three months ended December 31, 1996
increased $82,000 or 13.9%, from $592,000 to $674,000 over the three months
ended December 31, 1995. Selling expenses as a percentage of net sales decreased
to 2.8% for the nine months ended December 31, 1996 from 3.3% for the same
period a year earlier and 3.0% for the three months ended December 31, 1996 from
3.4% for the same period one year earlier. These decreases in selling expenses
as a percentage of net sales represent the continued leveraging of these costs
over the Company's increased net sales. The increases in selling expenses in
general are attributable to increased advertising allowances given to customers
as well as increased payroll relating to the Company's sales department.
General and administrative expenses for the nine months ended December
31, 1996 increased $381,000 or 11.7% from $3,251,000 to $3,632,000 over the nine
months ended December 31, 1995. General and administrative expenses remained
approximately the same at $1,257,000 for the three months ended December 31,
1996 and $1,249,000 for the three months ended December 31, 1995. As a
percentage of net sales these expenses decreased over the nine-month periods
from 7.2% to 5.8% and over the three-month periods from 7.1% to 5.6%. These
decreases represent the continued leveraging of these costs over the Company's
increased net sales. Approximately 65.6% of the increase over the nine-month
periods was the result of costs incurred under the Company's incentive bonus
plan adopted in August 1995. The balance of the increase was primarily
attributable to increased insurance coverages and professional fees.
Interest expense net of interest income was $752,000 for the nine
months ended December 31, 1996 and $287,000 for the three months ended December
31, 1996. This represents an increase of $100,000 or 15.3% and $93,000 or 47.9%,
respectively, over the comparable periods a year earlier. Interest expense is
comprised principally of interest paid on the Company's revolving credit
facility. The balance of interest expense is from loans on the Company's capital
leases. Interest income of $175,000 for the nine months ended December 31, 1996
and $43,000 for the three months
-9-
ended December 31, 1996 was 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 cash flow
from operations, the net proceeds of the Company's public offerings in March
1994 and November 1995 and borrowings under a revolving credit facility. As of
December 31, 1996, the Company's working capital was $47,508,000.
Net cash used in operating activities during the first nine months of
fiscal 1997 and 1996 was $6,575,000 and $9,762,000, respectively. The increase
was primarily due to an increase in accounts receivable of $5,622,000, an
increase in inventory of $6,429,000 and an offsetting increase in accounts
payable and accrued expenses of $1,282,000. The increase in accounts receivable
is primarily attributable to the increased sales of the Company during the nine
months ended December 31, 1996. The increase in inventory was primarily
attributable to the addition of approximately $5,300,000 of inventory for the
Company's recent entry into the business of remanufacturing domestic alternators
and starters. Growth in inventory for this new business is expected to continue
for the foreseeable future. In connection with the Company's expansion into this
business, the Company has secured a lease for an additional 160,000 square foot
production and warehouse facility effective April 1, 1997 located near its
existing facility in Torrance, California.
Net cash provided by (and used in) investing activities during the
nine months ended December 31, 1996 and 1995 was $5,856,000 and ($7,625,000),
respectively. During the nine months ended December 31, 1996 the Company used
$6,908,000 of investments to fund its operating and financing activities and
spent $1,052,000 in connection with the purchase of new plant and equipment.
Net cash provided by financing activities was $1,663,000 and
$19,573,000 for the first nine months of fiscal 1997 and 1996, respectively.
During the nine months ended December 31, 1996, the Company realized $351,000
from the proceeds of exercised stock options and increased its borrowings by
$1,788,000.
The Company has a credit agreement expiring in 1998 with Wells Fargo
Bank, National Association (the "Bank") that provides for a revolving credit
facility in an aggregate principal amount recently increased to a maximum of
$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 lower of the Bank's prime rate less .25% and LIBOR plus 1.65%.
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
February 9, 1997, the outstanding balance on the credit facility was
approximately $17,300,000.
-10-
The Company's accounts receivable as of December 31, 1996 was
$22,886,000. This represents an increase of $5,622,000 over accounts receivable
on March 31, 1996. There are times when the Company extends payments terms with
certain customers in order to help them finance an increase in the number of
SKUs carried by that customer and for other purposes. 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 December 31, 1996 was $34,980,000, an
increase of $3,681,000 or 11.8% over September 30, 1996 and an increase of
$6,429,000 or 22.5% over March 31, 1996. The increase includes the addition of
approximately $5,300,000 of inventory predominantly over the last three months
for the Company's recent entry into the business of remanufacturing domestic
alternators and starters and, to a lesser extent, the Company's addition of new
SKUs to its product line thus increasing the quantity of cores and finished
goods needed to supply its customers.
-11-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.4 Credit Agreement, dated as of June 1, 1996,
by and between the Company and Wells Fargo
Bank, National Association
10.5 Revolving Line of Credit Note, dated as of
November 1, 1996, by and between the Company
and Wells Fargo Bank, National Association
10.17 Amendment to Lease, dated October 3, 1996,
by and between Golkar Enterprises, Ltd. and
the Company relating to additional property
in Torrance, California.
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 December 31, 1996.
-12-
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: February 13, 1997 By: /s/ Peter Bromberg
----------------------------------
Peter Bromberg
Chief Financial Officer
-13-
EXHIBIT INDEX
-------------
Exhibit
Number Description Page Number
- ------ ----------- -----------
10.4 Credit Agreement, dated as of June 1, 1996, 15
by and between the Company and Wells Fargo
Bank, National Association
10.5 Revolving Line of Credit Note, dated as of 33
November 1, 1996, by and between the Company
and Wells Fargo Bank, National Association
10.17 Amendment to Lease, dated October 3, 40
1996, by and between Golkar Enterprises,
Ltd. and the Company relating to additional
property in Torrance, California.
27.1 Financial Data Schedule 47
-14-