SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1997
|_| TRANSITION REPORT UNDER 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
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, $.01 par
value
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 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 [_]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Issuer's revenues for its most recent fiscal year: $86,872,000.
The aggregate market value, calculated on the basis of the average bid and asked
prices of such stock on the National Association of Securities Dealers Automated
Quotation System, of Common Stock held by non-affiliates of the Registrant as of
June 23, 1997 was approximately $65,774,512.
There were 5,036,455 shares of Common Stock outstanding as of June 23, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of the Registrant's Proxy Statement relating to its 1997 Annual
Meeting of Shareholders is incorporated by reference herein
PART I
ITEM 1. BUSINESS.
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GENERAL
The Company is a leading remanufacturer and distributor of
replacement alternators and starters for both imported and domestic cars and
light trucks in the United States. The Company's alternators and starters are
remanufactured for vehicles imported from Japan, Germany, Sweden, England,
France, Italy and Korea and, as commenced in fiscal 1997, for domestic vehicles.
The imported vehicles for which the Company remanufactures alternators and
starters also include (i) "world cars," which are produced by General Motors,
Chrysler and Ford and originally equipped with components produced by foreign
manufacturers, and (ii) "transplants," which are manufactured in the United
States by Toyota, Nissan, Honda, Mazda and others. The Company also assembles
and distributes ignition wire sets for imported and domestic cars and light
trucks.
The Company's products are sold throughout the United States to many
of the nation's largest chains of retail automotive stores, including AutoZone,
CSK Auto, The Pep Boys, O'Reilly Automotive, Hi-Lo Automotive and Trak
Automotive. The Company also sells its alternators and starters throughout
Canada as a supplier to that country's largest chain of retail automotive
stores, Canadian Tire. During the last several years, the Company has
concentrated on sales to retail automotive chains, which the Company believes is
the fastest growing segment of the automotive after-market industry. For fiscal
1997, approximately 85% of the Company's sales were to retail automotive chains
comprised of approximately 4,000 stores, with the balance of sales primarily to
large warehouse distributors, such as APS Holdings. The Company also supplies
remanufactured alternators and starters for imported vehicles for distribution
through Service Parts Operations (SPO), which units are sold under General
Motors' private label, AC Delco.
THE AUTOMOTIVE AFTER-MARKET INDUSTRY
The Company's historical market, the import automotive after-market
industry for alternators and starters, which is comprised almost exclusively of
remanufacturers and rebuilders, has experienced significant growth during recent
years. The Company expects this growth to continue as a result of several
trends. These trends include the proliferation of imported cars and light trucks
(including world cars and transplants) in use, the growth in the number of miles
driven each year and the growth in the number of imported vehicles at the prime
repair age of four years and older. In addition, the Company believes its new
market, the domestic automotive after-market industry for alternators and
starters, represents substantial growth opportunities. The Company believes that
this new market is approximately three times the size of the Company's
historical import market.
The Company targets two distinct groups of end-users that buy
replacement automotive parts: (i) individual consumers, who purchase parts to
perform "do-it-yourself" repairs on their own vehicles; and (ii) professional
"do-it-for-me" installers, which include automotive repair shops and the
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service departments of automobile dealers. The individual consumer market is
typically supplied through retailers and through the retail arms of warehouse
distributors. Automotive repair shops generally purchase parts through local
independent parts wholesalers, through national warehouse distributors and, more
recently, through automotive parts retailers. Automobile dealer service
departments generally obtain parts through the distribution systems of
automobile manufacturers. In recent years, chains of retail stores in the
automotive after-market industry have become an increasingly important channel
for the distribution of the Company's products. The Company also believes that
significant consolidation among distributors of automotive replacement parts has
resulted in fewer and larger distributors. In addition, the Company believes
that, as a result of its entrance into the business of remanufacturing
alternators and starters for domestic vehicles, warehouse distributors will
become a more important distribution channel for the Company.
Remanufacturing of operational replacement parts is a significant
component of the automotive aftermarket industry. Sales by chains of retail
automotive stores and by automotive wholesalers of remanufactured alternators
and starters are believed by the Company to comprise the vast majority of the
Company's market. Only a portion of that market is supplied by the sale of
similar new replacement parts. Remanufacturing, which involves the re-use of
parts which might otherwise be discarded, creates a supply of parts at a
significantly lower cost to the user than newly- manufactured parts, and makes
available automotive parts which are no longer being manufactured. By making
readily available parts for automotive general use, remanufacturing benefits
automotive repair shops by relieving them of the need to rebuild worn parts on
an individual basis and conserves materials which would otherwise be used to
manufacture new replacement parts. Most importantly, however, the Company's
remanufactured parts are sold at significantly lower prices than competitive new
replacement parts. These features also enable retail customers themselves to
engage in cost- saving repairs.
COMPANY PRODUCTS
The Company's primary products are remanufactured replacement
alternators and starters for both imported and domestic cars and light trucks.
The Company also assembles and distributes ignition wire sets for the automotive
after-market for use in a wide variety of makes and models of foreign
automobiles. Alternators, starters and ignition wire sets are essential
components in all makes and models of automobiles. These products constitute
non-elective replacement parts, which are required for a vehicle to operate.
Approximately 17% of the Company's products are sold under its brand name,
including the use of its registered trademark "MPA," and the remainder are sold
for resale under customer private labels. Customers that sell the Company's
products under private label include AutoZone, CSK Auto, The Pep Boys, APS
Holdings and Delphi.
The Company's alternators and starters are produced to meet or
exceed automobile manufacturer specifications depending upon the make and model
of the automobile. The Company remanufactures a broad assortment of starters and
alternators in order to accommodate the numerous and increasing varieties of
these products currently in use. The Company currently provides approximately
825 different alternators and 575 different starters. The Company's import
alternators
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and starters are provided for virtually all Japanese manufacturers, including
Toyota, Honda, Nissan, Mazda and Mitsubishi, certain European manufacturers,
including Mercedes Benz, BMW, Volvo and Volkswagen, manufacturers of world cars,
including Chrysler, General Motors and Ford, and foreign manufacturers of
transplant cars.
CUSTOMERS
The Company's products are marketed throughout the United States and
Canada. The Company's customers consist of many of the United States' largest
chains of retail automotive stores and automotive warehouse distributors. The
Company also sells its products to Canada's largest chain of retail automotive
stores, Canadian Tire.
A significant percentage of the Company's sales has been
concentrated among a relatively small number of customers. The Company's three
largest customers accounted for approximately 29%, 18% and 18%, respectively, of
net sales during fiscal 1997. The Company's four largest customers accounted for
approximately 21%, 11%, 20% and 18%, respectively, of net sales during fiscal
1996. The Company's three largest customers accounted for approximately 27%, 14%
and 12%, respectively, of the Company's net sales during fiscal 1995. There can
be no assurance that this concentration of sales among customers will not
continue in the future. The loss of a significant customer or a substantial
decrease in sales to such a customer would have a material adverse effect on the
Company's sales and operating results. In addition, customers may demand price
concessions from the Company that could adversely affect profit margins. The
Company's arrangements with most of its customers are based on the receipt of
purchase orders and otherwise are not subject to long-term written contracts and
generally may be terminated upon short notice.
OPERATIONS OF THE COMPANY
Cores
In its remanufacturing operations, the Company obtains used
alternators and starters, commonly known as "cores," which are sorted by make
and model and stored until needed. When needed for remanufacturing, the cores
are completely disassembled into component parts. Components which can be
incorporated into the remanufactured product are thoroughly cleaned, tested and
refinished. All components known to be subject to major wear, and those
components determined not to be reusable or repairable, are replaced by new
components. The unit is then reassembled on an assembly line into a finished
product. Inspection and testing are conducted at various stages of the
remanufacturing process, and each finished product is inspected and tested on
equipment designed to simulate performance under operating conditions.
Components of cores which are not used by the Company in its remanufacturing
process are sold as scrap.
The majority of the cores remanufactured by the Company are obtained
from customers as trade-ins, which are credited against future purchases. The
Company's customers encourage consumers to exchange their used units at the time
of purchase through the use of credits. To a lesser
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extent, the Company also purchases cores in the open market from core brokers,
who are dealers specializing in buying and selling cores. Although the Company
believes that the open market does not and will continue not to represent a
primary source of cores, this market offers a reliable source for maintaining
stock balance. Other materials and components used in remanufacturing are also
purchased in the open market. The ability to obtain cores of the types and
quantities required by the Company is essential to the Company's ability to meet
demand and expand production.
The price of a finished product generally is comprised of a
separately invoiced amount for the core included in the product ("core value")
and an amount for remanufacturing. Upon receipt of a core as a trade-in, credit
generally is given to the customer for the amount originally invoiced with
respect to that core. The Company limits trade-ins to cores for units included
in its sales catalogs and in condition able to be remanufactured, and credit for
cores is allowed only against purchases by a customer of similar remanufactured
products within a specified time period. A customer's total allowable credit for
core trade-ins is further limited by the dollar volume of the customer's
purchases of similar products within such time period. Core values fluctuate on
the basis of several economic factors, including market availability and demand
and core prices then being paid by other remanufacturers and core brokers.
Beginning with fiscal 1997, 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. Fiscal 1996 and 1995 net
sales and cost of goods sold have been reclassified 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.
Production Process
The initial step in the Company's remanufacturing process begins
with the receipt in boxed quantities of cores from various sources, including
trade-ins from customers and purchases in the open market. The cores are
assessed and evaluated for inventory control purposes and then sorted by part
number. Each core is then completely disassembled into all of its fundamental
components. The components are cleaned in a process that employs customized
equipment, detergents and other chemicals. The cleaning process is accomplished
in accordance with the required specifications of the particular units.
After the cleaning process is complete, the components are then
inspected and tested as prescribed by the Company's rigorous quality control
program. This program, which is implemented throughout the operational process,
is known as statistical process control. Upon passage of all tests, the
components are placed on an automatic conveyor for assembly into the required
units. The assembly process is monitored by designated quality control
personnel. Each fully assembled unit is then subjected to additional testing to
ensure performance and quality. Finished products are then
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either stored in the Company's warehouse facility or packaged for immediate
delivery. In addition, to maximize efficiency, the Company stores in its
warehousing facilities component parts ready for assembly. The Company's
management information systems, including hardware and software, facilitate the
remanufacturing process from cores to finished products. In general, this
process takes approximately four days.
The Company conducts business through two wholly-owned foreign
subsidiaries, MVR Products Pte Limited ("MVR"), which operates a shipping
warehouse and testing facility and maintains office space and remanufacturing
capability in Singapore, and Unijoh Sdn, Bhd ("Unijoh"), which conducts in
Malaysia remanufacturing operations similar to those conducted by the Company at
its remanufacturing facility in Torrance. These foreign operations are conducted
with quality control standards and other internal controls similar to those
currently implemented at the Company's remanufacturing facilities in Torrance.
The facilities of MVR and Unijoh are located approximately one hour drive apart.
The Company believes that the operations of its foreign subsidiaries are
important because of the lower labor costs experienced by these subsidiaries in
the same remanufac turing process.
In April 1997, the Company acquired all of the outstanding capital
stock of MVR and Unijoh from its shareholders, Mel Marks, Richard Marks and
Vincent Quek (each of whom owned one-third of each acquired entity), for an
aggregate purchase price to all such selling shareholders for both acquired
entities of 145,455 shares of Common Stock. The shares of Common Stock
constituting the purchase price have not been registered for sale pursuant to
the Securities Act of 1933 and are subject to a lock-up arrangement between the
Company and each such selling shareholder releasing for public resale one-fourth
of such shares on each of the first four anniversaries of the acquisitions. The
purchase price and other terms of the acquisitions were determined by the
Special Committee of the Board of Directors of the Company following
negotiations with the selling shareholders. In connection with, and as a
condition to, the acquisitions, the Special Committee received a fairness
opinion from Houlihan Lokey Howard & Zukin, a specialty investment banking firm.
Product Trade-Ins
The Company has a trade-in policy that it believes is typical for
the remanufactured automotive replacement parts industry. A manufacturer
typically provides a product warranty that is honored whether or not the
purchaser continues to do business with the manufacturer. As the Company
believes is the practice in its industry, however, the Company accepts product
trade-ins only if the purchaser makes future purchases from the Company within a
specified time period. Product trade-ins to the Company result only in credits
against future purchases. If a customer ceases doing business with the Company,
the Company recognizes no further obligations to that customer with respect to
product trade-ins and no additional product returns would be accepted by the
Company. The customer would return any returnable products to a new
remanufacturer maintaining the same policy, which remanufacturer would accept
the product trade-ins and grant appropriate credits regardless of whether the
units were originally purchased from that new remanufacturer.
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As a result of the product trade-in policy in the Company's
industry, the Company accounts for product trade-ins on a current basis. No
reserve is made for future product trade-ins since there is no on-going
obligation to accept such trade-ins in the absence of continuing sales to the
returning customer. The Company believes that its return rate has been
consistent with the return rates generally experienced in its industry. In
addition, the obligation to accept trade-ins is only recognized as a credit
against future sales in the form of a reduction in the purchase price for those
sales. The Company's product trade-in policy encompasses all product trade-ins,
including cores, true warranty trade-ins, alleged warranty trade-ins and any
other product adjustments. The amount of the credit given in connection with a
returned unit is equal to the sum of the unit price and the core price.
COMPETITION
The automotive after-market industry of remanufacturers and
rebuilders of alternators and starters for both imported cars and light trucks
is highly competitive. The Company's competitors include several other
relatively large sources of remanufactured units and numerous smaller, regional
rebuilders. Certain of the Company's competitors sell a wide variety of other
automotive parts, thereby establishing broader name recognition in the entire
automotive after-market. In addition, certain of the Company's competitors are
divisions or subsidiaries of entities also engaged in other businesses which
have substantially greater financial resources than those of the Company. The
Company also competes with several large regional remanufacturers and with
remanufacturers which are franchised by certain original equipment manufacturers
to remanufacture their products for regional distribution. Alternators and
starters produced by regional and other small rebuilders typically are not
processed and finished to the same extent as, and do not compete directly with,
the Company's products. The Company also competes with numerous rebuilders which
serve comparatively local areas.
The Company's products have not been patented nor does the Company
believe that its products are patentable. The Company will continue to attempt
to protect its proprietary processes and other information by relying on trade
secret laws and non-disclosure and confidentiality agreements with certain of
its employees and other persons who have access to its proprietary processes and
other information.
GOVERNMENTAL REGULATION
The Company's operations are subject to federal, state and local
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company is not subject to any such
laws and regulations which are specific to the automotive after-market industry.
The Company believes that its business, operations and facilities have been and
are being operated in compliance in all material respects with applicable
environmental and health and safety laws and regulations, many of which provide
for substantial fines and criminal sanctions for violations. The operation of
automotive parts remanufacturing plants, however, entails risks in these areas,
and there can be no assurance that the Company will not incur material costs or
liabilities. In addition,
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potentially significant expenditures could be required in order to comply with
evolving environmental and health and safety laws, regulations or requirements
that may be adopted or imposed in the future. The Company believes, although
there can be no assurance, that the overall impact of compliance with
regulations and legislation protecting the environment will not have a material
effect on its future financial position or results of operations.
EMPLOYEES
The Company has approximately 640 full time employees. Of the
Company's employees, 20 are considered administrative personnel and six are
sales personnel. None of the Company's employees is a party to any collective
bargaining agreement. The Company has not experienced any work stoppages and
considers its employee relations to be satisfactory.
ITEM 2. PROPERTIES.
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The Company maintains facilities in Torrance, California, Roslyn,
New York and Nashville, Tennessee. The Torrance facilities contain an aggregate
of approximately 352,000 square feet and accommodate most of the Company's
corporate headquarters and remanufacturing, warehousing and other office
requirements. The Company moved into its initial Torrance facility, consisting
of approximately 125,000 square feet, in September 1993. The lease for the
initial facility provides for a monthly rental of $44,280 through September
1999, increasing thereafter to $47,601 through March 31, 2002, the termination
date of the lease. In September 1995, the Company entered into a lease for an
additional approximately 80,000 square feet in a second facility in the same
industrial area in Torrance and, in October 1996, increased its leased space in
the second facility to a total of approximately 227,000 square feet. The lease
for the second facility provides for a base monthly rental of $60,252 through
September 1999, increasing thereafter to $64,771 through March 31, 2002, the
termination date of the lease. The Company's facilities were designed and
equipped according to specifications generated by the Company in order to
accommodate the Company's current and projected needs. The facilities are
anticipated to be sufficient to satisfy the Company's foreseeable production
requirements. The Company also maintains an East Coast administrative and sales
office in Roslyn, New York. This site contains approximately 1,000 square feet
of office space. In October 1995, the Company opened a 31,000-square foot
warehouse and distribution facility in Nashville, Tennessee to service the
Company's growing East Coast and Southern market. The lease for this facility
expires on October 31, 1998 and provides for a monthly rental of $9,331. In
addition, the Company has facilities at its subsidiaries' locations in Malaysia
and Singapore.
ITEM 3. LEGAL PROCEEDINGS.
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There are no pending material legal proceedings to which the Company
or any of its properties is subject nor, to the knowledge of the Company, are
any such legal proceedings threatened.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
-9-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
- ------- -------------------------------------------------------------
Matters.
--------
The Company's Common Stock, par value $0.01 per share (the "Common
Stock"), is quoted on the National Association of Securities Dealers' Automated
Quotation ("NASDAQ") National Market under the symbol MPAA. The following table
sets forth the high and low bid prices for the Common Stock during each quarter
of fiscal 1996 and fiscal 1997 as reported by NASDAQ. The prices reported
reflect inter-dealer quotations, may not represent actual transactions and do
not include retail mark-ups, mark-downs or commissions.
Fiscal 1996 Fiscal 1997
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High Low High Low
---- --- ---- ---
First Quarter 11 8.5 19 14.250
Second Quarter 15 10.375 15.750 9.375
Third Quarter 15.875 12.750 15 11.875
Fourth Quarter 15.875 11.375 17.625 13.250
As of June 23, 1997, there were 5,036,455 shares of Common Stock
outstanding held by 45 holders of record.
The Company has not declared or paid dividends on the Common Stock
during the last two fiscal years.
The declaration of dividends in the future will be at the election
of the Board of Directors and will depend upon the earnings, capital
requirements and financial position of the Company, general economic conditions,
state law requirements and other relevant factors. In addition, the Company's
agreement with its bank lender prohibits payment of dividends without the bank's
prior consent, except dividends payable in Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA.
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The financial information set forth below for the fiscal years ended
March 31, 1997, 1996 and 1995 should be read in conjunction with the detailed
information in the financial statements and notes thereto appearing elsewhere
herein.
The financial information set forth below for the fiscal years ended
March 31, 1994 and 1993 have been audited by Richard A. Eisner & Company, LLP,
independent certified public accountants.
Fiscal Year Ended March 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands, except per share data)
Income Statement Data (1):
Net sales ....................................... $ 86,872 $ 64,358 $ 39,235 $ 29,018 $ 24,033
Cost of goods sold .............................. 69,255 50,965 30,690 21,816 19,038
Research and development ........................ 185 -- -- -- --
Selling expenses ................................ 2,305 1,984 1,498 2,117 1,441
General and administrative expenses ............. 4,974 4,577 3,704 2,593 2,134
Moving expenses ................................. -- -- -- 256 --
Operating income ................................ 10,153 6,832 3,343 2,236 1,420
Interest expense (net of interest income) ....... (1,090) (833) (540) (453) (352)
-------- -------- -------- -------- --------
Income before income taxes ...................... 9,063 5,999 2,803 1,783 1,068
Provision for income taxes (pro forma for fiscal
1994 and 1993) (2) .............................. 3,529 2,353 1,197 728 453
-------- -------- -------- -------- --------
Net Income ............................... $ 5,534 $ 3,646 $ 1,606 $ 1,055 $ 615
======== ======== ======== ======== ========
Net Income per share (pro forma for fiscal
1994 and fiscal 1993) (3) ................ $ 1.11 $ 0.93 $ 0.49 $ 0.52 $ 0.29
======== ======== ======== ======== ========
Weighted average common shares outstanding
(pro forma for fiscal 1994 and fiscal 1993) (3) . 5,007 3,939 3,295 2,018 2,145
======== ======== ======== ======== ========
March 31,
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1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data:
Total assets ............................ $75,510 $60,189 $25,823 $16,871 $ 9,045
Working capital ......................... 51,800 44,254 18,096 12,041 1,958
Long-term debt and capitalized lease
obligations -- less current portions 17,839 15,135 9,502 4,920 14
Shareholders' equity .................... 40,108 34,031 10,016 8,410 2,274
- ----------------------
(1) Net sales and cost of goods sold for fiscal 1996, 1995, 1994 and 1993
have been reclassified to increase cost of goods sold, rather than
decrease net sales, by core trade-ins. See Note A[6] to the financial
statements contained herein.
(2) From January 1, 1987 through December 31, 1993, the Company was subject
to taxation as an "S" corporation in accordance with the Code. As a
result, the net income of the Company during that time was faxed for
federal (and some state) income tax purposes directly to the Company's
shareholders rather than to the Company. Pro forma data reflects the
income tax expense that would have been recorded had the Company not
been exempt from the payment of such taxes.
(3) Pro forma data for fiscal 1994 and fiscal 1993 reflect the stock split
effected by the Company in January 1994, which increased the number of
issued and outstanding shares of Common Stock from 54.3428 shares to
2,000,000 shares.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATION.
---------------------------------------------
GENERAL
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS
Fiscal Year Ended March 31,
1997 1996 1995
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Net sales 100.0% 100.0% 100.0%
Cost of goods sold 79.7 79.2 78.2
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Gross profit 20.3 20.8 21.8
Research and development 0.2 0.0 0.0
Selling expenses 2.7 3.1 3.8
General and administrative expenses 5.7 7.1 9.4
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Operating income 11.7 10.6 8.5
Interest expense - net of interest income 1.3 1.3 1.4
------- ------- -------
Income before income taxes 10.4 9.3 7.1
Provision for income taxes 4.1 3.7 3.1
------- ------- -------
Net income 6.4% 5.7% 4.1%
======= ======= =======
In its remanufacturing operations, the Company obtains used
alternators and starters, commonly known as "cores," from various sources,
principally the Company's existing customers, as trade-ins. Such trade-ins are
recorded when cores are received from customers. Credits for cores are allowed
only against purchases of similar remanufactured products and are generally used
within sixty 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.
Beginning with fiscal 1997, 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. Fiscal 1996 and 1995 have
been reclassified to reflect this new presentation. The Company believes that
this new presentation provides a truer depiction of
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actual sales and cost of goods sold. In addition, it reflects a more proper
relationship between sales and inventory.
Fiscal 1997 compared to Fiscal 1996
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Net sales for fiscal 1997 increased $22,514,000 or 35.0%, from
$64,358,000 to $86,872,000, over fiscal 1996. The increase is attributable to
the general growth of business with existing customers, including the
commencement of sales to a large customer of alternators for domestic vehicles,
and 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 expansion of the Company's product line
to include remanufactured alternators and starters for domestic vehicles
generated net sales of approximately $6,832,000 for fiscal 1997. The number of
all units shipped to all customers was approximately 1,379,000 units during
fiscal 1997 and approximately 1,093,000 units during fiscal 1996, representing
an increase of approximately 26.2%. The increase in net sales also reflects an
increase in the number of higher priced, later-model units.
Cost of goods sold for fiscal 1996 increased $18,290,000 or 35.9%,
from $50,965,000 to $69,255,000, over fiscal 1996. The increase is primarily
attributable to additional costs in connection with increased production. Cost
of goods sold as a percentage of net sales increased over the periods from 79.2%
to 79.7%. While the increase in cost of goods sold over the periods is minimal,
it can be primarily attributed to pricing pressures experienced by the Company
as offset by the continuing lowering of manufacturing costs by the Company.
Selling expenses for fiscal 1997 increased $321,000 or 16.2%, from
$1,984,000 to $2,305,000, over fiscal 1996. Selling expenses as a percentage of
net sales decreased to 2.7% for fiscal 1997 from 3.1% for fiscal 1996. This
decrease in selling expenses as a percentage of net sales represents the
continued leveraging of selling costs over the Company's increased net sales.
The increases in selling expenses in general are attributable to increased
payroll relating to the Company's sales department.
General and administrative expenses for fiscal 1997 increased
$397,000 or 8.7%, from $4,577,000 to $4,974,000, over fiscal 1996. As a
percentage of net sales these expenses decreased over the periods from 7.1% to
5.7%. This decrease represents the continued leveraging of these costs over the
Company's increased net sales. The increase over the periods was the result of
additional insurance costs, including as a result of an increase in directors
and officers liability coverage up to $15,000,000, general salary increases
(including giving effect to the 1996 federal minimum wage increase) and certain
non-income-based state and local taxes.
Interest expense net of interest income was $1,090,000 for fiscal
1997. This represents an increase of $257,000 or 30.9% over fiscal 1996.
Interest expense is comprised principally of interest paid on the Company's
revolving credit facility, the borrowings under which increased over the
periods. The balance of interest expense is from loans on the Company's capital
leases. Interest
-13-
income of $218,000 for fiscal 1997 was derived from investments principally from
the Company's second public offering in November 1995.
Fiscal 1996 compared to Fiscal 1995
- -----------------------------------
Net sales for fiscal 1996 increased $25,123,000 or 64.0% from
$39,235,000 to $64,358,000. The increase in net sales is attributable to sales
to new customers, the general growth of business with existing customers and,
indirectly, to, the Company believes, the continued aging of the import vehicle
fleet. During fiscal 1996, the Company began shipping products to two
significant new customers. The number of units shipped to all customers was
approximately 1,093,000 during fiscal 1996 as compared with approximately
689,000 during fiscal 1995, representing an increase of approximately 55.9%.
Cost of goods sold over the periods increased $20,275,000 or 66.1%
from $30,690,000 to $50,965,000. The increases are attributable to additional
costs during the recent year in connection with increased production. As a
percentage of net sales these expenses increased to 79.2% for the recent fiscal
year from 78.2% for the prior fiscal year. This relatively small percentage
increase is primarily attributable to increased direct production costs, which
were partially offset by benefits the Company experienced from leveraging
indirect production costs over increased net sales. In February 1996, the
Company began experiencing pricing pressures on certain of its alternators and
starters, which may affect gross profit to a limited extent in the future. The
Company also anticipates lowering its manufacturing costs to help offset price
decreases in response to these pricing pressures.
Selling expenses over the periods increased $486,000 or 32.4% from
$1,498,000 to $1,984,000. This increase was the result of an increase of
approximately $433,000 in advertising and other allowances to customers during
fiscal 1996. The balance of the increase was primarily attributable to increased
salaries of the Company's sales force. Advertising allowances accounted for
57.5% of the Company's total selling expenses for fiscal 1996 as compared to
47.3% for fiscal 1995. Despite these increases, selling expenses as a percentage
of net sales decreased to 3.1% from 3.8% over the periods reflecting leveraging
of these expenses over increased net sales.
General and administrative expenses over the periods increased
$873,000 or 23.6% from $3,704,000 to $4,577,000. Approximately 69.2% of the
increase was due to costs incurred under the Company's new incentive bonus plan
which was implemented in September 1995. The additional increase is primarily
attributable to increased insurance coverage, computer expenses and professional
fees. As a percentage of net sales, general and administrative expenses
decreased from 9.4% to 7.1% over the periods reflecting leveraging of these
expenses over increased net sales.
Interest expense net of interest income of $219,000 for fiscal 1996
was $833,000, an increase of 54.3% from $540,000 in fiscal 1995. Interest
expense is comprised principally of interest on the Company's revolving credit
facility. The significantly increased interest expense over the prior year was
due to the Company's increased borrowing under this facility. Interest income is
derived from short-term investments principally from the Company's second public
offering in November 1995.
-14-
Liquidity and Capital Resources
- -------------------------------
The Company's recent operations have been financed principally from
the net proceeds of the Company's second public offering in November 1995,
borrowings under its revolving credit facility and cash flow from operations. As
of March 31, 1997, the Company's working capital was $51,800,000, including
$3,539,000 of cash and cash equivalents.
Net cash used in operating activities during fiscal 1997, 1996 and
1995 was $5,978,000, $15,344,000 and $6,721,000, respectively. The principal use
of cash in fiscal 1997 related to an increase in inventory of $13,311,000 and an
increase in accounts receivable of $5,064,000 offset by an increase in accounts
payable and accrued expenses of $5,134,000. The increase in inventory was due in
large part to the addition of inventory in excess of $10,000,000 in connection
with the Company's entrance during fiscal 1997 into the business of
remanufacturing alternators and starters for domestic vehicles. The timing of
this inventory build-up was based in part upon the Company's belief that the
demand for its initial domestic alternator product will be highest in the
summer. The increase in accounts receivable was due primarily to the increased
net sales in fiscal 1997, although the days outstanding of the accounts
receivable remained constant over the periods. As of March 31, 1997, the current
portion of capitalized lease obligations was $743,000.
Net cash provided by investing activities during fiscal 1997 was
$6,770,000 as compared to net cash used in investing activities during fiscal
1996 and 1995 of $10,770,000 and $991,000, respectively. During fiscal 1997, the
Company used $8,855,000 of investments to fund its operations and purchased
$2,085,000 of property, plant and equipment. In fiscal 1996, short-term
investments of $10,113,000 were purchased with proceeds from the Company's 1996
public offering, which short-term investments provided the source of the cash
used during fiscal 1997.
Net cash provided by financing activities in fiscal 1997, 1996 and
1995 was $2,583,000, $25,667,000 and $4,525,000, respectively. The net cash
provided by financing activities in 1997 was primarily attributable to an
increase in the Company's revolving line of credit as offset primarily by
payments on a capital lease obligation. The increase in fiscal 1996 was
primarily attributable to the proceeds from the second public offering and, to a
lesser extent, an increase in the Company's revolving line of credit and the
exercise of warrants and options. Proceeds from the second public offering
totaled $19,501,000. The balance of cash provided by financing activities in
fiscal 1996 was from an increase in the Company's revolving line of credit. The
increase in fiscal 1995 was due primarily to an increase in the Company's
revolving line of credit. During fiscal 1997, the Company realized $356,000 from
the proceeds of exercised stock options and increased its borrowings under the
line of credit by $2,955,000.
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 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
lower of the
-15-
Bank's prime rate less .25% or 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 June 16, 1997, the outstanding
balance on the credit facility was approximately $23,878,000.
The Company's accounts receivable as of March 31, 1997 was
$22,328,000. This represents an increase of $5,064,000 or 29.3% over accounts
receivable on March 31, 1996. This is consistent with the 35.0% increase in net
sales in fiscal 1997 over fiscal 1996. 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 and for other
purposes. 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 $70,000. The Company's
policy generally has been to issue credit to new customers only after the
customers have been included under the coverage of its accounts receivable
insurance policy. As of March 31, 1997, the Company's accounts receivable from
its largest customer represented approximately 57% of all accounts receivable.
The Company's inventory as of March 31, 1997 was $41,862,000, which
represents an increase of $13,311,000 or 46.6% over inventory as of March 31,
1996. The increase includes the addition of approximately $10,800,000 of
inventory during the last half of fiscal 1997 for the Company's entrance into
the business of remanufacturing alternators and starters for domestic vehicles.
The increase generally reflects the Company's anticipated growth in net sales,
primarily in connection with respect to domestic vehicles, 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.
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.
-16-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
The information required by this item is set forth in the Financial
Statements, commencing on page F-1 included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------- ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------
Not applicable.
-17-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- ---------------------------------------------------
The information required by this item is incorporated by reference
herein in the "Election of Directors" section of the Company's Proxy Statement
to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
- -------- -----------------------
The information required by this item is incorporated by reference
herein in the "Executive Compensation" section of the Company's Proxy Statement
to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
- -------- -----------------------------
BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------
The information required by this item is incorporated by reference
herein in the "Security Ownership of Management" section of the Company's Proxy
Statement to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
The information required by this item is incorporated by reference
herein in the "Certain Transactions" section of the Company's Proxy Statement to
be filed pursuant to Regulation 14A.
-18-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- -------- ----------------------------------------------------------------
a. Exhibits:
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
3.1 Certificate of Incorporation Incorporated by reference to
of the Company. Exhibit 3.1 to the Company's
Registration Statement on Form SB-2
(No. 33-74528) declared effective
on March 22, 1994 (the "1994
Registration Statement").
3.2 Amendment to Certificate of Incorporated by reference to
Incorporation of the Company. Exhibit 3.2 to the Company's
Registration Statement on Form S-1
(No. 33-97498) declared effective
on November 14, 1995 (the "1995
Registration Statement").
3.3 Amendment to Certificate of Filed herewith.
Incorporation of the Company.
3.4 By-Laws of the Company. Incorporated by reference to
Exhibit 3.2 to the 1994
Registration Statement.
4.1 Specimen Certificate of the Incorporated by reference to
Company's Common Stock. Exhibit 4.1 to the 1994
Registration Statement.
4.2 Form of Underwriter's Common Incorporated by reference to
Stock Purchase Warrant. Exhibit 4.2 to the 1994
Registration Statement.
4.3 1994 Stock Option Plan. Incorporated by reference to
Exhibit 4.3 to the 1994
Registration Statement.
-19-
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
4.4 Form of Incentive Stock Option Incorporated by reference to
Agreement. Exhibit 4.4 to the 1994
Registration Statement.
4.5 1994 Non-Employee Director Incorporated by reference to
Stock Option Plan. Exhibit 4.5 to the Company's Annual
Report on Form 10- KSB for the
fiscal year ended March 31, 1995.
4.6 Executive and Key Employee Incorporated by reference to
Incentive Bonus Plan. Exhibit 4.6 to the 1995
Registration Statement.
10.1 Credit Agreement, dated as Incorporated by reference to
of June 1, 1996, by and Exhibit 10.4 to the Company's
between the Company and Quarterly Report on Form 10- Q for
Wells Fargo Bank, N.A. the quarter ended December 31, 1996
(the "December 31, 1996 Form 10-
Q").
10.2 First Amendment to Credit Filed herewith.
Agreement, dated as of
November 1, 1996, by and
between the Company and Wells
Fargo Bank, N.A.
10.3 Revolving Line of Credit Note, Incorporated by reference to
dated as of November 1, 1996, Exhibit 10.5 to the December 31,
by and between the Company and 1996 Form 10-Q.
Wells Fargo Bank, N.A.
10.4 Lease Agreement, dated March 9, Incorporated by reference to
1993, by and between the Company Exhibit 10.3 to the 1994
and Maricopa Enterprises, Ltd., Registration Statement.
relating to the Company's initial
facility located in Torrance,
California.
-20-
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
10.5 Second Amendment to Lease, Filed herewith.
dated October 1, 1996, by and
between the Company and Maricopa
Enterprises, Ltd., relating
to the Company's initial facility
located in Torrance, California.
10.6 Amendment to Lease, dated Incorporated by reference to
October 3, 1996, by and between Exhibit 10.17 to the December 31,
the Company and Golkar 1996 Form 10-Q.
Enterprises, Ltd. relating to
additional property in Torrance,
California.
10.7 Amended and Restated Employment Incorporated by reference to
Agreement, dated as of September Exhibit 10.7 to the 1995
1, 1995, by and between the Registration Statement.
Company and Mel Marks.
10.8 First Amendment to Amended and Filed herewith.
Restated Employment Agreement,
dated as of April 1, 1997, by
and between the Company and Mel
Marks.
10.9 Amended and Restated Employment Incorporated by reference to
Agreement, dated as of September Exhibit 10.8 to the 1995
1, 1995, by and between the Registration Statement.
Company and Richard Marks.
10.10 First Amendment to Amended Filed herewith.
and Restated Employment
Agreement, dated as of April
1, 1997, by and between the
Company and Richard Marks.
10.11 Employment Agreement, dated Incorporated by reference to
as of February 1, 1994, by and Exhibit 10.7 to the 1994
between the Company and Registration Statement.
Steven Kratz.
-21-
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
10.12 First Amendment to Employment Exhibit 10.12 to the 1995
Agreement, dated as of Registration Statement.
September 1, 1995, by and
between the Company and
Steven Kratz.
10.13 Second Amendment to Employment Filed herewith.
Agreement, dated as of
April 1, 1997, by and between
the Company and Steven Kratz.
10.14 Employment Agreement, dated Incorporated by reference to
as of March 1, 1994, by and Exhibit 10.12 to the 1994
between the Company and Peter Registration Statement.
Bromberg.
10.15 First Amendment to Employment Incorporated by reference to
Agreement, dated as of September Exhibit 10.12 to the 1995
1, 1995, by and between the Registration Statement.
Company and Peter Bromberg.
10.16 Second Amendment to Employment Filed herewith.
Agreement, dated as of April
1, 1997, by and between the
Company and Peter Bromberg.
10.17 Employment Agreement, dated as Incorporated by reference to
of September 1, 1995, by and Exhibit 10.13 to the 1995
between the Company and Eli Registration Statement.
Markowitz.
10.18 Employment Agreement, dated as Filed herewith.
of April 1, 1997, by and among
MVR, Unijoh and Vincent Quek.
10.19 Form of Consulting Agreement, Incorporated by reference to
dated as of September 1, 1995, Exhibit 10.14 to the 1995
by and between the Company and Registration Statement.
Selwyn Joffe.
-22-
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
10.20 Lease Agreement, dated March Incorporated by reference to
28, 1995, by and between the Exhibit 10.11 to the Company's
Company and Equitable Life Annual Report on Form 10-KSB for
Assurance Society of the the fiscal year ended March 31,
United States, relating to 1995.
the Company's facility located
in Nashville, Tennessee.
10.21 Lease Agreement, dated Incorporated by reference to
September 19, 1995, by and Exhibit 10.18 to the 1995
between Golkar Enterprises, Registration Statement.
Ltd. and the Company relating
to the Company's facility
located in Nashville, Tennessee.
10.22 Agreement and Plan of Filed herewith.
Reorganization, dated as of
April 1, 1997, by and among
the Company, Mel Marks, Richard
Marks and Vincent Quek relating
to the acquisition of MVR
and Unijoh.
22.1 List of Subsidiaries. Filed herewith.
23.1 Consent of Richard A. Eisner Filed herewith.
& Company, LLP.
27.1 Financial Data Schedule. Filed herewith.
b. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the fiscal
quarter ended March 31, 1997.
-23-
MOTORCAR PARTS & ACCESSORIES, INC.
- I N D E X -
PAGE
NUMBER
REPORT OF INDEPENDENT AUDITORS F-2
BALANCE SHEETS AS AT MARCH 31, 1997
AND MARCH 31, 1996 F-3
STATEMENTS OF INCOME FOR EACH OF
THE YEARS IN THE THREE-YEAR PERIOD
ENDED MARCH 31, 1997 F-4
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY FOR EACH OF THE YEARS IN THE
THREE-YEAR PERIOD ENDED MARCH 31, 1997 F-5
STATEMENTS OF CASH FLOWS FOR EACH OF
THE YEARS IN THE THREE-YEAR PERIOD
ENDED MARCH 31, 1997 F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Motorcar Parts & Accessories, Inc.
Torrance, California
We have audited the accompanying balance sheets of Motorcar Parts &
Accessories, Inc. as at March 31, 1997 and March 31, 1996 and the related
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended March 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of Motorcar Parts &
Accessories, Inc. at March 31, 1997 and March 31, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
May 16, 1997
F-2
MOTORCAR PARTS & ACCESSORIES, INC.
BALANCE SHEETS
A S S E T S March 31,
----------- -------------------------
(Note F) 1997 1996
----------- -----------
Current assets:
Cash and cash equivalents (Note A[1]) . . $ 3,539,000 $ 164,000
Short-term investments (Notes A[2] and B) 8,336,000
Accounts receivable - net of allowance
for doubtful accounts of $200,000 and
$100,000, respectively (Note J) . . . . 22,328,000 17,264,000
Inventory (Notes A[3] and C) . . . . . . . 41,862,000 28,551,000
Prepaid expenses and other current assets 593,000 637,000
Deferred income tax asset
(Notes A[4] and K) . . . . . . . . . . . 142,000 226,000
----------- -----------
Total current assets . . . . . . . 68,464,000 55,178,000
Long-term investments (Notes A[2] and B) . . 1,874,000 2,393,000
Plant and equipment - net (Notes A[7] and D) 4,291,000 2,469,000
Other assets . . . . . . . . . . . . . . . . 881,000 149,000
----------- -----------
T O T A L . . . . . . . . . . . . . $75,510,000 $60,189,000
=========== ===========
L I A B I L I T I E S
---------------------
Current liabilities:
Current portion of capital lease
obligations (Note E) . . . . . . . . . . $ 743,000 $ 554,000
Accounts payable and accrued expenses . . 13,777,000 8,855,000
Income taxes payable (Notes A[6] and K) . 2,005,000 1,331,000
Due to affiliate (Note G) . . . . . . . . 139,000 184,000
----------- -----------
Total current liabilities . . . . . 16,664,000 10,924,000
Long-term debt (Note F) . . . . . . . . . . . 17,496,000 14,541,000
Capitalized lease obligations - less current
portion (Note E) . . . . . . . . . . . . . 343,000 594,000
Other liabilities . . . . . . . . . . . . . . 570,000
Deferred income tax liability
(Notes A[6] and K) . . . . . . . . . . . . 329,000 99,000
----------- -----------
T o t a l . . . . . . . . . . . . . 35,402,000 26,158,000
----------- -----------
Commitments and other matters (Notes H, I and J)
SHAREHOLDERS' EQUITY
--------------------
(Note L)
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; 4,867,500
and 4,819,750 shares issued and
outstanding . . . . . . . . . . . . . . . 49,000 48,000
Additional paid-in capital . . . . . . . . . 28,973,000 28,431,000
Retained earnings . . . . . . . . . . . . . . 11,086,000 5,552,000
----------- -----------
Total shareholders' equity . . . . 40,108,000 34,031,000
----------- -----------
T O T A L . . . . . . . . . . . . . $75,510,000 $60,189,000
=========== ===========
The accompanying notes to financial
statements are an integral part hereof.
F-3
MOTORCAR PARTS & ACCESSORIES, INC.
STATEMENTS OF INCOME
Year Ended March 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Income:
Net sales (Note A[6]) . . . $86,872,000 $64,358,000 $39,235,000
----------- ----------- -----------
Operating expenses:
Cost of goods sold . . . . 69,255,000 50,965,000 30,690,000
Research and development . 185,000
Selling expenses . . . . . 2,305,000 1,984,000 1,498,000
General and administrative
expenses . . . . . . . . 4,974,000 4,577,000 3,704,000
----------- ----------- -----------
Total operating
expenses . . . . . 76,719,000 57,526,000 35,892,000
----------- ----------- -----------
Operating income . . . . . . . 10,153,000 6,832,000 3,343,000
Interest expense (net of
interest income of $218,000,
$219,000 and $73,000 for
1997, 1996 and 1995,
respectively) . . . . . . . 1,090,000 833,000 540,000
----------- ----------- -----------
Income before income taxes . . 9,063,000 5,999,000 2,803,000
Provision for income taxes
(Notes A[4] and K) . . . . 3,529,000 2,353,000 1,197,000
----------- ----------- -----------
NET INCOME . . . . . . . . . . $ 5,534,000 $ 3,646,000 $ 1,606,000
=========== =========== ===========
Weighted average common shares
outstanding (Note A[7]) . . 5,007,000 3,939,000 3,295,000
=========== =========== ===========
Net income per common share . $ 1.11 $ .93 $ .49
=========== =========== ===========
The accompanying notes to financial
statements are an integral part hereof.
F-4
MOTORCAR PARTS & ACCESSORIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Note L)
Common Stock
------------------------- Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1994 ....................... 3,207,500 $ 32,000 $ 8,078,000 $ 300,000 $ 8,410,000
Net income ...................................... 1,606,000 1,606,000
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1995 ....................... 3,207,500 32,000 8,078,000 1,906,000 10,016,000
Proceeds from exercise of warrants
and options .................................. 112,250 1,000 867,000 868,000
Proceeds from public offering (net
of costs of $1,874,000) ..................... 1,500,000 15,000 19,486,000 19,501,000
Net income ...................................... 3,646,000 3,646,000
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1996 ....................... 4,819,750 48,000 28,431,000 5,552,000 34,031,000
Proceeds from exercise of options ............... 47,750 1,000 355,000 356,000
Tax benefit from exercise of options ............ 187,000 187,000
Net income ...................................... 5,534,000 5,534,000
----------- ----------- ----------- ----------- -----------
BALANCE - MARCH 31, 1997 ....................... 4,867,500 $ 49,000 $28,973,000 $11,086,000 $40,108,000
=========== =========== =========== =========== ===========
The accompanying notes to financial
statements are an integral part hereof.
F-5
MOTORCAR PARTS & ACCESSORIES, INC.
STATEMENTS OF CASH FLOWS
Year Ended March 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
Cash flows from operating activities:
Net income ........................................................... $ 5,534,000 $ 3,646,000 $ 1,606,000
Adjustments to reconcile net income to net cash (used in) operating
activities:
Depreciation and amortization .................................... 717,000 429,000 306,000
(Increase) decrease in:
Accounts receivable ............................................ (5,064,000) (6,589,000) (6,409,000)
Inventory ...................................................... (13,311,000) (16,434,000) (4,886,000)
Prepaid expenses and other current assets ...................... 44,000 (300,000) (115,000)
Other assets ................................................... (732,000) (50,000) 29,000
Deferred income taxes .......................................... 314,000 (82,000) 20,000
Increase (decrease) in:
Accounts payable and accrued expenses .......................... 5,134,000 3,094,000 2,486,000
Income taxes payable ........................................... 861,000 785,000 290,000
Due to affiliate ............................................... (45,000) 157,000 (48,000)
Other liabilities .............................................. 570,000
------------ ------------ ------------
Net cash (used in) operating activities ...................... (5,978,000) (15,344,000) (6,721,000)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment ............................ (2,085,000) (657,000) (375,000)
Change in investments ................................................ 8,855,000 (10,113,000) (616,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities .......... 6,770,000 (10,770,000) (991,000)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in line of credit ....................................... 2,955,000 5,552,000 4,683,000
Payments on capital lease obligation ................................. (728,000) (254,000) (158,000)
Proceeds from public offerings ....................................... 19,501,000
Proceeds from exercise of warrants and options ....................... 356,000 868,000
------------ ------------ ------------
Net cash provided by financing activities .................... 2,583,000 25,667,000 4,525,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 3,375,000 (447,000) (3,187,000)
Cash and cash equivalents - beginning of year ........................... 164,000 611,000 3,798,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR ................................. $ 3,539,000 $ 164,000 $ 611,000
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ........................................................... $ 1,262,000 $ 1,035,000 $ 572,000
Income taxes ....................................................... 2,354,000 1,590,000 862,000
Noncash investing and financing activities:
Property acquired under capital lease .............................. 454,000 707,000 93,000
Property acquired included in accounts payable and accrued expenses
at March 31, 1996 and financed through a capitalizable lease
during fiscal 1997 ............................................... 212,000 212,000
The accompanying notes to financial
statements are an integral part hereof.
F-6
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(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). 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
purchased 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] Inventory:
Inventory is stated at the lower of cost or market; cost being
determined by the average cost method.
[4] Income taxes:
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes" which requires the use of the liability method of accounting for income
taxes. The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements. The resulting asset or liability is adjusted to reflect
changes in the tax laws as they occur.
[5] Depreciation and amortization:
Property and equipment are depreciated on the straight-line method
over their estimated useful lives. Leasehold improvements are amortized by the
straight-line method over the shorter of their estimated useful life or the term
of the lease.
(continued)
F-7
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
- ---------------------------------------------------------------
(continued)
[6] 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 and by purchasing them from vendors. Cores are an
essential material needed for remanufacturing operations. During the year ended
March 31, 1997, the Company implemented a new accounting presentation with
respect to its reporting of sales. In the past, net sales were reduced by the
core inventory value to reflect deductions for cores returned for credit from
customers ("core trade- ins") and by the value of the credits issued in excess
of core inventory value ("product trade-ins"). Cost of goods sold was reduced
for core trade-ins only. As reclassified, net sales are reduced by product
trade-ins and other deductions and allowances only and core trade-ins are
included in cost of goods sold. Net sales and cost of goods sold for the years
ended March 31, 1996 and March 31, 1995 were reclassified to reflect this
change.
Trade-ins are recorded upon receipt of cores from customers. Credits
for core and product trade-ins are allowed only against future purchases of
similar remanufactured products and are generally used by the customer within
sixty days of issuance. Due to this unique trade-in policy, the Company does not
provide a reserve for trade-ins. In addition, since it is remote 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. This policy is
consistent throughout the remanufacturing and rebuilding industry.
The effect of this policy is as follows:
March 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
Sales. . . . . . . . . . $ 97,677,000 $ 73,826,000 $ 45,272,000
Product trade-ins. . . . (10,805,000) (9,468,000) (6,037,000)
------------- ------------- -------------
Net sales. . . . . . . . 86,872,000 64,358,000 39,235,000
Core trade-ins . . . . . (29,179,000) (19,445,000) (10,978,000)
------------- ------------- -------------
Net sales as previously
classified. . . . . . $ 57,693,000 $ 44,913,000 $ 28,257,000
============= ============= ============
Cost of goods sold . . . $ 69,255,000 $ 50,965,000 $ 30,690,000
Core trade-ins . . . . . (29,179,000) (19,445,000) (10,978,000)
------------- ------------- -------------
Cost of goods sold as
previously classified $ 40,076,000 $ 31,520,000 $ 19,712,000
============= ============= ============
(continued)
F-8
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[7] Earnings per share:
Earnings per share is computed using the weighted average number of
shares outstanding during each year, which include the incremental effect of
common stock equivalents consisting of stock options.
[8] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[9] Impairment of long-lived assets:
The Company adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" during the year. SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable assets, and goodwill related to those assets. There was no effect
of adoption of SFAS 121 on the financial statements.
[10] Financial instruments:
The carrying amounts of accounts receivable, accounts payable,
accrued expenses, capitalized lease obligations and long-term debt approximate
their fair value.
Estimated fair value of these financial instruments, some of which
are for short durations, has been determined using available market information.
In evaluating the fair value information, considerable judgment is required to
interpret the market data used to develop the estimates. The use of different
market assumptions and/or different valuation techniques may have a material
effect on the estimated fair value amounts. Accordingly, the estimates of fair
value presented herein may not be indicative of the amounts that could be
realized in a current market exchange.
(continued)
F-9
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[11] Stock-based compensation:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation". SFAS 123 encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for its
stock-based compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), Accounting for Stock
Issued to Employees" and disclose the pro forma effects on net income and
earnings per share had the fair value of options been expensed. Under the
provisions of APB No. 25, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's common stock at the
date of the grant over the amount an employee must pay to acquire the stock.
(See Note L[2]).
[12] Recently issued accounting pronouncements:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share". This new standard requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the statement of income and requires
reconciliation of the numerators and the denominators of the basic and diluted
EPS calculations. This statement will be effective for the third quarter of the
Company's 1998 fiscal year. The Company has not yet quantified what effect the
adoption of SFAS 128 will have on its earnings per share of common stock.
(NOTE B) - Investments:
The estimated fair value of available for sale investments at March
31 is as follows:
1997 1996
----------- -----------
U.S. Treasury bills due in
one year or less . . . . . . $ - 0 - $ 2,272,000
Municipal bonds due in one
year or less . . . . . . . . - 0 - 4,492,000
U.S. Treasury notes due in
one year or less . . . . . . - 0 - 1,572,000
----------- -----------
- 0 - 8,336,000
Mortgage-backed securities and
municipal bonds due after
one year . . . . . . . . . . 1,874,000 2,393,000
----------- -----------
T o t a l . . . . . . $ 1,874,000 $10,729,000
=========== ===========
(continued)
F-10
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Investments: (continued)
The estimated fair value of each investment approximates the
amortized cost and, therefore, there are no unrealized gains or losses as of
March 31, 1997.
(NOTE C) - Inventory:
Inventory is comprised of the following:
March 31,
-------------------------
1997 1996
------------ -----------
Raw materials. . . . . . . . . $24,046,000 $17,568,000
Work-in-process. . . . . . . . 4,270,000 3,466,000
Finished goods . . . . . . . . 13,546,000 7,517,000
------------ -----------
T o t a l. . . . . . $41,862,000 $28,551,000
============ ===========
(NOTE D) - Plant and Equipment:
Plant and equipment, at cost, are summarized as follows:
March 31,
-------------------------
1997 1996
------------ -----------
Machinery and equipment. . . . $ 4,362,000 $ 2,311,000
Office equipment and fixtures. 1,272,000 891,000
Leasehold improvements . . . . 472,000 365,000
------------ -----------
6,106,000 3,567,000
Less accumulated depreciation
and amortization (including
assets held under capital
lease). . . . . . . . . . . (1,815,000) (1,098,000)
------------ ------------
T o t a l. . . . . . $ 4,291,000 $ 2,469,000
============ ============
(NOTE E) - Obligations Under Capital Leases:
The Company has various capital leases for machinery and computer
equipment. Assets aggregating approximately $2,338,000 have been capitalized.
(continued)
F-11
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Obligations Under Capital Leases: (continued)
Future minimum lease payments at March 31, 1997 for the capitalized
leases are as follows:
1998......................................... $ 829,000
1999......................................... 306,000
2000......................................... 61,000
----------
1,196,000
Amount representing imputed interest . 110,000
Present value of future minimum
lease payments............................ 1,086,000
Less current maturities...................... 743,000
Long-term obligation at March 31, 1997....... $ 343,000
==========
(NOTE F) - Long-Term Debt:
In November 1996, the Company amended its revolving line of credit
agreement. The agreement provides for a credit facility in an aggregate
principal amount not exceeding $25,000,000 and is collateralized by a lien on
substantially all of the assets of the Company. The agreement expires on June 1,
1998 and provides for interest on borrowings at a fluctuating rate per annum
.25% below the bank's prime rate or at a fixed rate at 1.65% above LIBOR. The
agreement allows the Company to obtain from the bank letters of credit, and
banker's acceptances in an aggregate amount not exceeding $2,500,000 and
requires the Company to maintain certain financial ratios. As of March 31, 1997
balances due under this agreement amounted to $17,496,000.
The Company previously had a $15,000,000 revolving line of credit
agreement with the same bank. Balances due under this agreement amounted to
$14,541,000 as of March 31, 1996.
(continued)
F-12
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - 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 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 $762,000 and
$920,000 as at March 31, 1997 and March 31, 1996, respectively. The Company
incurred costs of approximately $1,574,000, $1,432,000 and $1,349,000 from the
affiliates for the years ended March 31, 1997, March 31, 1996 and March 31,
1995, respectively. The amount due to affiliate as at March 31, 1997 and March
31, 1996 was due to MVR.
In April 1997, MVR and Unijoh became wholly owned subsidiaries of
the Company in a stock-for-stock merger which will be 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 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
$398,000, respectively, at the date of combination.
(NOTE H) - Employment Agreement and Bonus Plan:
- -----------------------------------------------
The Company has employment agreements with six officers, expiring
from September 1, 1997 through September 1, 2000, which provide for annual base
salaries aggregating $1,295,000. In addition, four of the officers were granted
options pursuant to the Company's Stock Option Plan (Note L[2]) for the purchase
of 317,500 shares of common stock (92,500, 90,000 and 135,000 granted in fiscal
years 1997, 1996 and 1995, respectively). Of these options, 25,000 and 10,000
were exercised during the years ended March 31, 1997 and March 31, 1996,
respectively.
The Company has established a bonus plan for the benefit of
executives and certain key employees. The bonus is calculated as a percentage of
the base salary ranging from 18% to 50%. The bonus percentage varies according
to the percentage increase in earnings before income taxes and other
predetermined parameters.
(continued)
F-13
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Commitments:
- -----------------------
The Company leases offices and warehouse facilities in New York,
California and Tennessee under operating leases expiring through 2002. The
aggregate rentals under these leases and leases which have been terminated was
$819,000, $609,000 and $435,000 for the years ended March 31, 1997, March 31,
1996 and March 31, 1995, respectively. Certain leases contain escalation clauses
for real estate taxes and operating expenses.
The Company also leases office equipment and machinery under
noncancellable operating leases having remaining terms in excess of one year.
At March 31, 1997, the future minimum rental payments under the
above operating leases are as follows:
Real
Total Estate Machinery
1998. . . . . . . . . $1,493,000 $1,366,000 $127,000
1999. . . . . . . . . 1,401,000 1,319,000 82,000
2000. . . . . . . . . 1,334,000 1,301,000 33,000
2001. . . . . . . . . 1,353,000 1,348,000 5,000
2002. . . . . . . . . 1,348,000 1,348,000
----------- ---------- --------
T o t a l . $6,929,000 $6,682,000 $247,000
=========== =========== ========
(NOTE J) - Major Customers and Credit Concentration:
- ----------------------------------------------------
The Company partially protects itself from losses due to
uncollectible accounts receivable through the purchase of credit insurance.
Accounts receivable balances not covered by credit insurance are primarily due
from leading automotive parts retailers.
The Company's four largest customers accounted for the following
percentage of net sales:
Year Ended
March 31,
----------------
Customer 1997 1996 1995
-------- ---- ---- ----
A. . . . . . . . . . . . 18% 21% 27%
B. . . . . . . . . . . . 18 11 14
C. . . . . . . . . . . . 29 20 12
D. . . . . . . . . . . . 8 18
(continued)
F-14
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - Major Customers and Credit Concentration: (continued)
- ----------------------------------------------------
Customer A accounted for approximately 13%, 25% and 50% of the
accounts receivable at March 31, 1997, March 31, 1996 and March 31, 1995. In
addition, Customer C accounted for approximately 57% and 35% of the accounts
receivable at March 31, 1997 and March 31, 1996.
(NOTE K) - Income Taxes:
- ------------------------
The provision for income taxes consists of the following:
Year Ended March 31,
--------------------
1997 1996 1995
---- ---- ----
Current:
Federal. . . . . . . $2,750,000 $1,913,000 $ 900,000
State. . . . . . . . 465,000 522,000 277,000
Deferred . . . . . . 314,000 (82,000) 20,000
----------- ----------- ----------
T o t a l . . $ 3,529,000 $ 2,353,000 $ 1,197,000
=========== =========== ===========
The difference between the tax provision and the amount that would
be computed by applying the statutory federal income tax rate to income before
taxes is attributable to the following:
Year Ended March 31,
--------------------
1997 1996 1995
---- ---- ----
Income tax provision
at 34% . . . . . . . $ 3,081,000 $ 2,040,000 $ 953,000
State and local taxes,
net of federal
benefit. . . . . . . 307,000 345,000 183,000
Permanent differences . (20,000) 18,000 11,000
Other . . . . . . . . . 161,000 (50,000) 50,000
----------- ----------- -----------
T o t a l . . $ 3,529,000 $ 2,353,000 $ 1,197,000
=========== =========== ===========
Deferred income tax asset of $142,000 and $226,000 at March 31, 1997
and March 31, 1996, respectively, is comprised of temporary differences in tax
and financial reporting resulting primarily from capitalization of certain
inventory costs for tax purposes. Deferred tax liability of $329,000 and $99,000
at March 31, 1997 and March 31, 1996, respectively, is comprised of differences
resulting from using accelerated depreciation rates for tax purposes.
(continued)
F-15
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Shareholders' Equity:
- --------------------------------
[1] Capital Stock:
--------------
In November 1995, the Company effected a public offering of its
securities. The Company issued 1,500,000 shares for $14.25 a share, yielding net
proceeds of approximately $19,501,000 after underwriting commissions and
expenses totalling approximately $1,874,000. Also, two principal shareholders
sold an aggregate of 344,500 shares in connection with this offering.
[2] Stock option plan:
------------------
In December 1993, the shareholders approved a Stock Option Plan (the
"Plan") which was amended in October 1996 to provide for the granting of options
to purchase 720,000 common shares to employees and directors. Options granted
may be either "incentive stock options" within the meaning of Section 422A of
the Internal Revenue Code or nonqualified options. The Plan is administered by
the Board of Directors, which determines the terms of options exercised,
including the exercise price, the number of shares subject to the option and the
terms and conditions of exercise.
In August of 1995, the shareholders approved a Nonemployee Director
Stock Option Plan (the "Directors Plan") which provides for the granting of
options to purchase 15,000 common shares to directors. The Directors Plan is
administered by the Board of Directors.
The following table summarizes the activity under these Plans:
Y e a r E n d e d M a r c h 3 1,
-----------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ------- --------- ------- --------- -------
Options outstanding at beginning
of year ....................... 335,000 $ 9.23 250,000 $ 7.40 85,000 $ 6.00
Granted .......................... 381,500 12.98 109,000 12.96 165,000 8.13
Exercised ........................ (47,750) 7.46 (23,000) 7.19
Cancelled ........................ (180,250) 14.69 (1,000) 8.13
--------- --------- ---------
Options outstanding at end of year 488,500 10.31 335,000 9.23 250,000 7.40
========= ========= =========
Options exercisable at end of
year .......................... 290,417 9.34 278,000 8.83 173,000 7.47
========= ========= =========
(continued)
F-16
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Shareholders' Equity: (continued)
- --------------------------------
[2] Stock option plan: (continued)
------------------
The following table presents information relating to stock options
outstanding at March 31, 1997:
Options Outstanding Options Exercisable
---------------------------- -------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Exercise Life in Exercise
Exercise Price Shares Price Years Shares Price
-------------- ------ ----- ----- ------ -----
$ 6.00 - $ 8.125 178,000 $ 7.41 7.06 178,000 $ 7.41
$ 9.00 - $10.625 184,500 10.59 8.72 61,250 10.51
$11.875 - $12.250 51,500 12.31 9.13 15,000 13.13
$14.69 - $17.313 74,500 15.20 9.68 36,167 15.26
--------- ---------
T o t a l. . 488,500 10.31 8.30 290,417 9.34
========= =========
As of March 31, 1997, 165,000 options are available for
future grant under the Plan and 10,500 options are available for future grant
under the Directors Plan.
The weighted-average fair value at date of grant for options
granted during the year ended March 31, 1997 and March 31, 1996 was $5.50 and
$5.63 per option, respectively. The fair value of options at date of grant was
estimated using the Black-Scholes option pricing model utilizing the following
assumptions:
March 31,
-----------------------
1997 1996
---------- ----------
Risk-free interest rates. . . . . 5.8% - 6.5% 6.1% - 6.9%
Expected option life in years . . 5 5
Expected stock price volatility . 36% 38%
Expected dividend yield . . . . . 0% 0%
Had the Company elected to recognize compensation cost based on the
fair value of the options at the date of grant as prescribed by SFAS 123, net
income for the years ended March 31, 1997 and March 31, 1996 would have been
$5,180,000 and $3,425,000 or $1.03 per share and $.87 per share, respectively.
(continued)
F-17
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Shareholders' Equity: (continued)
- ---------------------------------
[3] Warrants:
---------
In connection with the Company's initial public offering the
Company issued to the underwriter 105,000 warrants to purchase common stock at
an exercise price of $7.20. In connection with a public offering in November
1995, 90,000 warrants were exercised.
F-18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 26, 1997
MOTORCAR PARTS & ACCESSORIES, INC.
By: /s/ Mel Marks
-------------------------------
Mel Marks,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Mel Marks Chairman of the Board, June 26, 1997
- ------------------------ Chief Executive Officer
Mel Marks and Director (principal
executive officer)
/s/ Richard Marks President, Chief June 26, 1997
- ------------------------ Operating Officer and
Richard Marks Director
/s/ Murray Rosenzweig Director June 26, 1997
- ------------------------
Murray Rosenzweig
/s/ Mel Moskowitz Director June 26, 1997
- ------------------------
Mel Moskowitz
Director June 26, 1997
- ------------------------
Selwyn Joffe
/s/ Peter Bromberg Chief Financial Officer June 26, 1997
- ------------------------ (principal financial officer
Peter Bromberg and principal accounting officer)
-24-
EXHIBIT INDEX
Exhibit
Number Description Page Number
- ------ ----------- -----------
3.3 Amendment to Certificate of Incorporation of the Company
10.2 First Amendment to Credit Agreement, dated as of November 1,
1996, by and between the Company and Wells Fargo Bank, N.A.
10.5 Second Amendment to Lease, dated October 1, 1996, by and
between the Company and Maricopa Enterprises, Ltd., relating
to the Company's initial facility located in Torrance,
California
10.8 First Amendment to Amended and Restated Employment Agreement,
dated as of April 1, 1997, by and between the Company and Mel
Marks
10.10 First Amendment to Amended and Restated Employment Agreement,
dated as of April 1, 1997, by and between the Company and
Richard Marks
10.13 Second Amendment to Employment Agreement, dated as of April 1,
1997, by and between the Company and Steven Kratz
10.16 Second Amendment to Employment Agreement, dated as of April 1,
1997, by and between the Company and Peter Bromberg
10.18 Employment Agreement, dated as of April 1, 1997, by and among
MVR, Unijoh and Vincent Quek.
10.22 Agreement and Plan of Reorganization, dated as of April 1,
1997, by and among the Company, Mel Marks, Richard Marks and
Vincent Quek relating to the acquisition of MVR and Unijoh
21.1 List of Subsidiaries
23.1 Consent of Richard A. Eisner & Company, LLP
27.1 Financial Data Schedule
-25-
COMMISSION FILE NO. 0-23538
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
MOTORCAR PARTS & ACCESSORIES, INC.