SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________
TO___________.
Commission File No. 0-23538
MOTORCAR PARTS & ACCESSORIES, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2153962
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2727 MARICOPA STREET, TORRANCE, CALIFORNIA 90503
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (310) 212-7910
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
There were 5,067,455 shares of Common Stock outstanding at August 7, 1997.
MOTORCAR PARTS & ACCESSORIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of June 30, 1997 (unaudited)
and March 31, 1997..................................3
Statements of Operations (unaudited) for the three month
periods ended June 30, 1997 and 1996................4
Statements of cash flows (unaudited) for the three month
periods ended June 30, 1997 and 1996................5
Notes to Financial Statements (unaudited)....................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.............9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................12
Signatures..................................................13
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MOTORCAR PARTS & ACCESSORIES, INC.
BALANCE SHEETS
A S S E T S JUNE 30, 1997 MARCH 31, 1997
----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents ............................................... $ 3,084,000 $ 3,539,000
Short-term investments .................................................. 92,000
Accounts receivable - net of allowance for doubtful accounts ............ 22,985,000 22,328,000
Inventory ............................................................... 52,108,000 41,862,000
Prepaid expenses and other current assets ............................... 700,000 593,000
Deferred income tax asset ............................................... 142,000 142,000
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Total current assets ............................................. 79,111,000 68,464,000
Long-term investments ...................................................... 900,000 1,874,000
Plant and equipment - net .................................................. 4,809,000 4,291,000
Other assets ............................................................... 223,000 881,000
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T O T A L ........................................................ $85,043,000 $75,510,000
=========== ===========
LIABILITIES
Current liabilities:
Current portion of capital lease obligations ............................ $ 668,000 $ 743,000
Accounts payable and accrued expenses ................................... 15,348,000 13,777,000
Income taxes payable .................................................... 1,766,000 2,005,000
Due to affiliate ........................................................ 142,000 139,000
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Total current liabilities ........................................ 17,924,000 16,664,000
Long-term debt ............................................................. 24,584,000 17,496,000
Other Liabilities .......................................................... 736,000 570,000
Capitalized lease obligations - less current portion ....................... 211,000 343,000
Deferred income tax liability .............................................. 329,000 329,000
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T O T A L ........................................................ $43,784,000 $35,402,000
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SHAREHOLDERS' EQUITY
Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none
issued
Common stock; par value $.01 per share, 20,000,000 shares authorized;
5,039,400 shares issued and outstanding at June 30, 1997 and 4,867,500
issued and outstanding at March 31, 1997 ................................ 49,000 49,000
Additional paid-in capital ................................................. 28,953,000 28,973,000
Retained earnings .......................................................... 12,257,000 11,086,000
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Total shareholders' equity ....................................... 41,259,000 40,108,000
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T O T A L ........................................................ $85,043,000 $75,510,000
=========== ===========
The accompanying notes to financial statements
are an integral part hereof.
3
MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Operations
(Unaudited)
THREE MONTHS ENDED JUNE 30,
---------------------------
1997 1996
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Income:
Net sales ................................... $21,784,000 $18,375,000
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Operating expenses:
Cost of goods sold .......................... 17,504,000 14,713,000
Research and development .................... 145,000 0
Selling expenses ............................ 621,000 540,000
General and administrative expenses ......... 1,215,000 1,194,000
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Total operating expenses ............. 19,485,000 16,447,000
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Operating income ............................... 2,299,000 1,928,000
Interest expense (net of interest income) ...... 396,000 211,000
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Income before income taxes ..................... 1,903,000 1,717,000
Provision for income taxes ..................... 732,000 680,000
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Net income - historical ........................ $ 1,171,000 $ 1,037,000
=========== ===========
Weighted average common shares outstanding ..... 5,152,000 4,982,000
=========== ===========
Net income per common share .................... $ .23 $ .21
=========== ===========
The accompanying notes to financial statements
are an integral part hereof.
4
MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Cash Flows (Unaudited)
THREE MONTHS ENDED JUNE 30,
---------------------------
1997 1996
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Cash flows from operating activities:
Net income .............................................. $ 1,171,000 $ 1,037,000
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization ....................... 244,000 136,000
(Increase) decrease in:
Accounts receivable ............................... (657,000) (838,000)
Inventory ......................................... (10,246,000) (1,654,000)
Prepaid expenses and other assets ................. (107,000) (186,000)
Other assets ...................................... 658,000 (53,000)
Increase (decrease) in:
Accounts payable and accrued expenses ............. 1,571,000 (1,809,000)
Income taxes payable .............................. (239,000) (721,000)
Other liabilities ................................. 166,000 0
Due to affiliate .................................. 5,000 (35,000)
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Net cash (used in) operating activities ....... (7,436,000) (4,123,000)
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Cash flows from investing activities:
Purchase of property, plant and equipment ............... (762,000) (79,000)
Sale of Investments ..................................... 882,000 6,646,000
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Net cash from investing activities ............ 120,000 6,567,000
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Cash flows from financing activities:
Net increase (decrease) in line of credit ............... 7,088,000 (2,458,000)
Payments on capital lease obligation .................... (207,000) (66,000)
Payments on acquisitions ................................ (140,000) 0
Proceeds from exercise of options ....................... 120,000 32,000
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Net cash provided by (used in) financing activities 6,861,000 (2,492,000)
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(continued on next page)
5
THREE MONTHS ENDED JUNE 30,
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1997 1996
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................................. (455,000) (48,000)
Cash and cash equivalents - (beginning of period) ... 3,539,000 164,000
----------- -----------
CASH AND CASH EQUIVALENTS - END OF
PERIOD ........................................... $ 3,084,000 $ 116,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ....................................... $ 378,000 $ 305,000
Income taxes ................................... $ 971,000 $ 1,401,000
Noncash investing and financing activities:
Property acquired under capital lease .......... $ 0 $ 252,000
The accompanying notes to financial statements
are an integral part hereof.
6
MOTORCAR PARTS & ACCESSORIES, INC.
Notes to Financial Statements (Unaudited)
(NOTE A) - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
Motorcar Parts & Accessories, Inc. (the "Company"), remanufactures
and distributes alternators and starters and assembles and distributes spark
plug wire sets for the automotive after-market industry (replacement parts sold
for use on vehicles after initial purchase). These automotive parts are sold to
automotive retail chains and warehouse distributors throughout the United States
and in Canada.
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1998. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended March 31, 1997.
7
MOTORCAR PARTS & ACCESSORIES, INC.
Notes to Financial Statements (Unaudited)
(NOTE B)- INVENTORY:
Inventory is comprised of the following:
JUNE 30, 1997 MARCH 31, 1997
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Raw materials ..........................$28,541,000 $24,046,000
Work-in-process ........................ 3,731,000 4,270,000
Finished goods ......................... 19,836,000 13,546,000
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T o t a l ................$52,108,000 $41,862,000
=========== ===========
(NOTE C) - RELATED PARTIES:
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 remanufacturing 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 acquisitions will be accounted
for in a manner similar to a pooling of interests. 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.
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.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS
Quarter Ended June 30
1997 1996
-------- --------
Net sales 100.0% 100.0%
Cost of goods sold 80.4 80.1
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Gross profit 19.6 19.9
Research and development 0.6 0.0
Selling expenses 2.8 2.9
General & administrative expenses 5.6 6.5
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Operating income 10.6 10.5
Interest expense - net 1.8 1.2
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Income before income taxes 8.8 9.3
Provision for income taxes 3.4 3.7
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Net Income 5.4% 5.6%
======== ========
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Net sales for the three months ended June 30, 1997 were $21,784,000,
an increase of $3,409,000 or 18.6% over the three months ended June 30, 1996.
The increase in net sales is attributable to the commencement of sales to a
large customer of alternators for domestic vehicles, sales for the period of
this alternator were 96,000 units as compared to 6,000 a year earlier. The
expansion of the Company's product line to include remanufactured alternators
and starters for domestic cars and light vehicles generated net sales of
approximately $5,400,000 for the quarter ended June 30, 1997. The number of
units shipped to all customers was approximately 332,000 units during the
quarter ended June 30, 1997 as compared to approximately 271,000 units in the
comparable period a year earlier, a 22.5% increase. For the period, sales for
imported cars were 236,000 units as compared to 265,000 units a year earlier.
Cost of goods sold over the periods increased $2,791,000 or 19.0%
from $14,713,000 to $17,504,000. The increase is primarily attributable to
additional costs in connection with increased production. As a percentage of net
sales, these expenses increased from 80.1% for the quarter ended June 30, 1996
to 80.4% for the recent quarter. This minor increase is primarily attributable
to continuing pricing pressures that the Company experienced through fiscal
1997. The Company has been largely successful in lowering its manufacturing
costs in response to these pricing pressures.
9
Selling expenses over the periods increased $81,000 or 15.0% from
$540,000 to $621,000. Advertising expenses increased $64,000 from $209,000 to
$273,000. The increase was also due to an expansion of the Company's sales force
related travel expenses. As a percentage of net sales, selling expenses
decreased slightly from 2.9% to 2.8%.
General and administrative expenses increased $21,000 or 1.8% from
$1,194,000 for the three months ended June 30, 1996 to $1,215,000 for the three
months ended June 30, 1997. As a percentage of net sales, these expenses
decreased over the periods from 6.5% to 5.6%, which reflects the leveraging of
these costs over 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 insurance coverage.
Interest expense, net of interest income of $31,000 for the three
months ended June 30, 1997, was $396,000. This represented an increase of
$185,000 or 87.7% from net interest expense of $211,000 for the three months
ended June 30, 1996. Interest expense is comprised principally of interest of
the Company's revolving credit facility, the borrowings under which increased
significantly over the periods. Interest income is derived from investments
principally from the Company's second public offering in November 1995.
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 June 30, 1997, the Company's working capital was $61,187,000, including
$3,084,000 of cash and cash equivalents.
Net cash used in operating activities during the three months ended
June 30, 1997 was $7,436,000. The principal use of cash during the three months
related to an increase in inventory of $10,246,000 and an increase in accounts
receivable of $657,000 offset by an increase in accounts payable and accrued
expenses of $1,571,000. The increase in inventory was due in large part to the
addition of inventory during the three-month period of approximately $9,400,000
in connection with the Company's recent entrance into the business of
remanufacturing alternators and starters for domestic vehicles, representing an
aggregate addition of inventory for this business of approximately $19,500,000.
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.
Net cash provided by investing activities during the three months
ended June 30, 1997 and June 30, 1996 was $120,000 and $6,567,000, respectively.
During June 1997, the Company used $882,000 of investments to fund its
operations and purchased $762,000 of property, plant and equipment.
Net cash provided by financing activities in the three months ended
June 30, 1997 was $6,861,000. The net cash provided by financing activities in
June 1997 was primarily attributable to
10
an increase in the Company's revolving line of credit as offset primarily by
payments on a capital lease obligation.
The Company has a credit agreement expiring in August 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 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
August 7, 1997, the outstanding balance on the credit facility was approximately
$24,873,000.
The Company's accounts receivable as of June 30, 1997 was
$22,985,000. This represents an increase of $657,000 or 2.9% over accounts
receivable on March 31, 1997. 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 stockkeeping units 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
$85,000. The Company's policy generally has been to issue credit to new
customers only after the customers have been included to some extent under the
coverage of its accounts receivable insurance policy. As of June 30, 1997, the
Company's accounts receivable from its largest customer represented
approximately 49% of all accounts receivable.
The Company's inventory as of June 30, 1997 was $52,108,000, which
represents an increase of $10,246,000 or 24.5% over inventory as of March 31,
1997. This increase is discussed above and primarily reflects the Company's
anticipated growth in net sales in connection with domestic vehicles and, to a
lesser extent, increased business from existing customers and the need to have
sufficient inventory to support shorter lead times for deliveries to customers.
Also, the Company continues to increase the number of stockkeeping units 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.
11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K during the
quarterly period ended June 30, 1997.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MOTORCAR PARTS & ACCESSORIES, INC.
Dated: August 14, 1997 By: /S/ PETER BROMBERG
---------------------------
Peter Bromberg
Chief Financial Officer
13
EXHIBIT INDEX
Exhibit
Number Description
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27.1 Financial Data Schedule
14