SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31,
1998.
[ ] 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.
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(Exact name of registrant as specified in its charter)
New York 11-2153962
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2727 Maricopa Street, Torrance, California 90503
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (310) 212-7910
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
There were 6,449,705 shares of Common Stock outstanding at February 9, 1999.
MOTORCAR PARTS & ACCESSORIES
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets as of December 31, 1998 (unaudited)
and March 31, 1998............................................................3
Statements of Operations (unaudited) for the nine and three month
periods ended December 31, 1998 and 1997......................................4
Statements of Cash Flows (unaudited) for the nine month
periods ended December 31, 1998 and 1997......................................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.....................................................13
Signatures...........................................................................14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MOTORCAR PARTS & ACCESSORIES, INC.
Balance Sheets
A S S E T S December 31, March 31,
1998 1998
------------ ---------
(Unaudited)
Current assets:
Cash and cash equivalents.................................................... $ 3,210,000 $ 3,108,000
Accounts receivable - net.................................................... 23,631,000 29,591,000
Inventory.................................................................... 71,968,000 54,736,000
Prepaid expenses and other current assets.................................... 1,488,000 1,862,000
------------ ------------
Total current assets.................................................. 100,297,000 89,297,000
Plant and equipment - net....................................................... 12,052,000 7,141,000
Other assets.................................................................... 1,641,000 1,807,000
------------ ------------
T O T A L............................................................. $113,990,000 $98,245,000
============ ===========
L I A B I L I T I E S
Current liabilities:
Current portion of capital lease obligations................................. $ 814,000 $ 395,000
Accounts payable and accrued expenses........................................ 10,123,000 11,816,000
Income taxes payable......................................................... 2,955,000 1,592,000
Deferred income tax liability................................................ 211,000 161,000
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Total current liabilities............................................. 14,103,000 13,964,000
Long-term debt.................................................................. 22,127,000 13,983,000
Other liabilities............................................................... 1,359,000 1,163,000
Capitalized lease obligations less current portion.............................. 3,020,000 602,000
Deferred income tax liability................................................... 506,000 406,000
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T O T A L............................................................. $ 41,115,000 $30,118,000
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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;
6,450,000 shares issued and outstanding at December 31, 1998 and
6,428,000 shares issued and outstanding at March 31, 1998................... 64,000 64,000
Additional paid-in capital...................................................... 51,115,000 50,927,000
Unearned portion of compensatory stock options.................................. 0 (48,000)
Accumulated foreign currency translation adjustment............................. (65,000) (57,000)
Retained earnings............................................................... 21,761,000 17,241,000
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Total shareholders' equity............................................ 72,875,000 68,127,000
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T O T A L............................................................. $113,990,000 $98,245,000
============ ===========
The accompanying notes to financial statements
are an integral part hereof.
MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Operations
(Unaudited)
Nine Months Ended Three Months Ended
December 31, December 31,
-------------- -------------
1998 1997 1998 1997
------ ------ ------ -----
Income:
Net sales..................................... $97,522,000 $80,923,000 $30,545,000 $30,468,000
----------- ----------- ----------- -----------
Operating expenses:
Cost of goods sold............................ 80,413,000 65,303,000 25,412,000 24,839,000
Research and development...................... 715,000 428,000 210,000 161,000
Selling, general and administrative........... 7,564,000 6,125,000 2,590,000 2,228,000
Acquisition costs............................. 336,000 0 336,000 0
----------- ---------- ----------- ------------
Total operating expenses............... 89,028,000 71,856,000 28,548,000 27,228,000
----------- ---------- ----------- ------------
Operating income................................. 8,494,000 9,067,000 1,997,000 3,240,000
Interest expense -- net.......................... 1,121,000 1,304,000 419,000 412,000
------------ ----------- ----------- ------------
Income before income taxes....................... 7,373,000 7,763,000 1,578,000 2,828,000
Provision for income taxes....................... 2,853,000 3,030,000 626,000 1,106,000
------------ ----------- ------------- -----------
Net income ...................................... $4,520,000 $4,733,000 $ 952,000 $1,722,000
========== ========== =========== ==========
Basic net income per share....................... $0.70 $0.90 $0.15 $0.30
===== ===== ===== =====
Weighted average number of shares
outstanding -- basic......................... 6,431,000 5,254,000 6,436,000 5,704,000
Diluted income per share......................... $0.70 $0.87 $0.15 $0.29
===== ===== ===== =====
Weighted average number of shares 6,502,000 5,442,000 6,485,000 5,870,000
outstanding - diluted.........................
The accompanying notes to financial statements
are an integral part hereof.
MOTORCAR PARTS & ACCESSORIES, INC.
Statements of Cash Flows (Unaudited)
Nine Months Ended December 31,
------------------------------
1998 1997
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Cash flows from operating activities:
Net income.......................................................... $4,520,000 $4,733,000
Adjustments to reconcile net income to net cash
(used in) operating activities:
Non-cash charge for compensatory stock options
issued............................................................ 48,000 113,000
Depreciation and amortization................................... 1,456,000 795,000
(Increase) decrease in:
Accounts receivable........................................... 5,960,000 (2,996,000)
Inventory..................................................... (17,232,000) (17,693,000)
Prepaid expenses and other current assets..................... 374,000 (359,000)
Other assets.................................................. 166,000 542,000
Increase (decrease) in:
Accounts payable and accrued expenses......................... (1,693,000) (2,748,000)
Income taxes payable.......................................... 1,363,000 382,000
Other liabilities............................................. 196,000 299,000
Deferred income taxes......................................... 150,000 0
----------- --------------
Net cash (used in) operating activities................... (4,692,000) (16,932,000)
----------- ------------
Cash flows from investing activities:
Purchase of property, plant and equipment........................... (3,047,000) (2,556,000)
Change in investments............................................... 0 1,874,000
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Net cash (used in)
investing activities................................. (3,047,000) (682,000)
----------- ------------
Cash flows from financing activities:
Net increase (decrease) in line of credit........................... 8,144,000 (3,463,000)
Payments on capital lease obligation................................ (491,000) (585,000)
(continued on next page)
Nine Months Ended December 31,
------------------------------
1998 1997
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Proceeds from exercise of warrants and stock options................ 188,000 765,000
Proceeds from public offerings...................................... 0 19,859,000
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Net cash provided by financing activities..................... 7,841,000 16,576,000
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................................................... 102,000 (1,038,000)
Cash and cash equivalents - beginning of period........................ 3,108,000 3,539,000
Beginning cash balance of pooled entity ............................... 0 124,000
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CASH AND CASH EQUIVALENTS - END OF
PERIOD.............................................................. $3,210,000 $2,625,000
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.......................................................... $1,092,000 $1,392,000
Income taxes...................................................... $1,340,000 $2,726,000
Noncash investing and financing activities:
Property acquired under capital lease............................. $3,328,000 $ 0
The accompanying notes to financial statements
are an integral part hereof.
MOTORCAR PARTS & ACCESSORIES, INC.
Notes to Financial Statements (Unaudited)
(NOTE A) - The Company and its Significant Accounting Policies:
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Motorcar Parts & Accessories, Inc., and its subsidiaries (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.
[1] Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries as of December 31,
1998. All significant intercompany accounts and transactions have been
eliminated in consolidation.
[2] 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 nine month period ended December 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending
March 31, 1999. 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, 1998.
MOTORCAR PARTS & ACCESSORIES, INC.
Notes to Financial Statements (Unaudited)
(NOTE B)- Inventory:
Inventory is comprised of the following:
December 31, 1998 March 31, 1998
----------------- --------------
Raw materials.................................. $ 41,458,000 $ 28,609,000
Work-in-process................................ 6,690,000 7,066,000
Finished goods................................. 23,820,000 19,061,000
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T o t a l......................... $ 71,968,000 $ 54,736,000
============ ============
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere herein.
Results of Operations
- ---------------------
Nine Months Ended Three Months Ended
December 31, December 31,
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1998 1997 1998 1997
---- ---- ---- ----
Net sales....................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............................. 82.5 80.7 83.2 81.5
------ ------ ----- ------
Gross profit.................................... 17.5 19.3 16.8 18.5
Research and development........................ 0.7 0.5 0.7 0.6
Selling, general and administrative
expenses.................................... 7.8 7.6 8.5 7.3
Acquisition costs............................... 0.3 0.0 1.1 0.0
------ ------ ------ ------
Operating income................................ 8.7 11.2 6.5 10.6
Interest expense - net of
interest income............................. 1.1 1.6 1.3 1.3
------ ------ ------ ------
Income before income taxes...................... 7.6 9.6 5.2 9.3
Provision for income taxes...................... 3.0 3.8 2.1 3.6
------ ------ ------ ------
Net income...................................... 4.6% 5.8% 3.1% 5.7%
====== ====== ====== ======
In its remanufacturing operations, the Company obtains used
alternators and starters, commonly known as "cores," from its customers as
trade-ins and by purchasing them from vendors. 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 60
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.
Three Months Ended December 31, 1998 Compared to Three Months Ended December 31,
- --------------------------------------------------------------------------------
1997
- ----
Net sales for the three months ended December 31, 1998 were
$30,545,000, an increase of $77,000 or 0.3% over the three months ended December
31, 1997. The increased net sales reflects the Company's rapid growth and
increased market share in the domestic vehicles business as offset by a one-time
re-calendarization of purchasing patterns by a significant customer in the
import vehicles business during the third quarter.
Cost of goods sold increased over the periods by $573,000 or 2.3% from
$24,839,000 to $25,412,000. The increase primarily is attributable to additional
costs incurred with increased production and sales. As a percentage of net
sales, cost of goods sold increased to 83.2% for the three months ended December
31, 1998 as compared to 81.5% for the three months ended December 31, 1997. The
increase as a percentage of net sales is attributable to (i) an increase in the
Company's product mix of products for domestic vehicles, which tend to carry
lower gross margins and (ii) pricing pressures.
Selling, general and administrative expenses increased over the
periods by $362,000 or 16.2% from $2,228,000 for the three months ended December
31, 1997 to $2,590,000 for the three months ended December 31, 1998. The
increase resulted principally from the addition of certain personnel in the
Company's information systems, sales and accounting departments and generally in
connection with the expansion of the Company's operations and increased
production. As a percentage of net sales, these expenses increased over the
periods from 7.3% to 8.5%, reflecting the increase in the amount of these
expenses without any significant increase in net sales, for the reasons
discussed above.
For the three months ended December 31, 1998 interest expense net of
interest income was $419,000. This represents an increase of $7,000 or 1.7% over
net interest expense of $412,000 for the three months ended December 31, 1997.
Interest expense was comprised principally of interest on the Company's
revolving credit facility and capital leases.
Nine Months Ended December 31, 1998 Compared to Nine Months Ended December 31,
- --------------------------------------------------------------------------------
1997
- ----
Net sales for the nine months ended December 31, 1998 were
$97,522,000, an increase of $16,599,000 or 20.5% over the nine months ended
December 31, 1997. The increased net sales reflects the Company's rapid growth
and increased market share in the domestic vehicles business as partially offset
by a one-time re-calendarization of purchasing patterns by a significant
customer in the import vehicles business during the third quarter.
Cost of goods sold increased over the periods by $15,110,000 or 23.1%
from $65,303,000 to $80,413,000. The increase primarily is attributable to
additional costs incurred with increased production and sales. As a percentage
of net sales, cost of goods sold increased to 82.5% for the nine months ended
December 31, 1998 as compared to 80.7% for the nine months ended December 31,
1997. The increase as a percentage of net sales is attributable to (i) an
increase in the Company's product mix of products for domestic vehicles, which
tend to carry lower gross margins and (ii) pricing pressures.
Selling, general and administrative expenses increased over the
periods by $1,439,000 or 23.5% from $6,125,000 for the nine months ended
December 31, 1997 to $7,564,000 for the nine months ended December 31, 1998. The
increase resulted principally from the addition of certain personnel in the
Company's information systems, sales and accounting departments and generally in
connection with the expansion of the Company's operations and increased
production. As a percentage of net sales, these expenses increases slightly over
the periods from 7.6% to 7.8%.
For the nine months ended December 31, 1998 interest expense net of
interest income was $1,121,000. This represents a decrease of $183,000 or 14.0%
over net interest expense of $1,304,000 for the nine months ended December 31,
1997. Interest expense was comprised principally of interest on the Company's
revolving credit facility and capital leases.
Liquidity and Capital Resources
- -------------------------------
The Company's recent operations have been financed principally from
the net proceeds of the Company's public offering in November 1997, borrowings
under its revolving credit facility and cash flow from operations. As of
December 31, 1998, the Company's working capital was $86,194,000, including
$3,210,000 of cash and cash equivalents.
Net cash used in operating activities during the nine months ended
December 31, 1998 was $4,692,000. The principal use of cash during the nine
months related to an increase in inventory of $17,232,000 and a decrease in
accounts payable and accrued expenses of $1,693,000 offset by a decrease in
accounts receivable of $5,960,000. The increase in inventory and the decrease in
accounts receivable was due principally to increased returns of cores from
customers.
Net cash used in investing activities during the nine months ended
December 31, 1998 and December 31, 1997 was $3,047,000 and $682,000,
respectively. During the nine months ended December 31, 1998, the Company
purchased $6,375,000 of plant and equipment, of which $3,328,000 was acquired
under a capital lease.
Net cash provided by financing activities in the nine months ended
December 31, 1998 and December 31, 1997 was $7,841,000 and $16,576,000,
respectively. The net cash provided by financing activities in the quarter ended
December 31, 1998 primarily was attributable to increased borrowings of
$8,144,000 under the Company's revolving credit facility. The net cash provided
by financing activities in the prior nine-month period reflected the receipt of
net proceeds in the amount of approximately $19,900,000 from the Company's
public offering in November 1997.
The Company has a credit agreement expiring in August 2001 with Wells
Fargo Bank, National Association (the "Bank") that provides for a revolving
credit facility in an aggregate principal amount not exceeding $35,000,000,
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 Bank's prime rate less .25% or LIBOR plus 1.00%. 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 $7,500,000. At January 28, 1999, the
outstanding balance on the credit facility was approximately $23,500,000.
The Company's accounts receivable as of December 31, 1999 was
$23,631,000, representing a decrease of $5,960,000 or 20.1% from accounts
receivable on March 31, 1998. The decrease, notwithstanding the increase in net
sales, reflects increased core returns from customers, which returns are
credited to the customers against future purchases. 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 $75,000. 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 December 31, 1998, the Company's
accounts receivable from its largest customer represented approximately 53% of
all accounts receivable.
The Company's inventory as of December 31, 1998 was $71,968,000,
representing an increase of $17,232,000 or 31.5% over inventory as of March 31,
1998. This increase, as discussed above, primarily reflects the Company's
anticipated growth in net sales in connection with domestic vehicles, increased
core returns 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
SKUs sold requiring the Company to carry raw materials for this wider variety of
parts.
Year 2000 Compliance
- --------------------
The Company is working to resolve the potential impact of the year
2000 on the ability of the Company's computerized information systems to
accurately process information that may be date-sensitive. Any of the Company's
programs that recognize a date using "00" as the year 1900 rather than the year
2000 could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation and has recently selected a new
information system, one benefit of which is expected to be year 2000 compliance.
The Company has not completed its assessment, but currently believes that costs
of addressing this issue will not have a material adverse impact on the
Company's financial position. However, if the Company is unable to address this
issue in a timely manner, it could result in a material financial risk to the
Company. As a backup plan, the Company has spent approximately $40,000 to
upgrade its current computer system to meet year 2000 compliance requirements
and to ensure that any date recognition problems with its new computer system
will not result in errors or system failures. The Company conducts business with
a number of third parties and has not completed its assessment of year 2000
compliance with such third parties. If such third parties are unable to address
this issue in a timely manner, it could result in a material financial risk to
the Company. In order to ensure that this does not occur, the Company plans to
devote all resources required to resolve any significant year 2000 issues in a
timely manner.
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.
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 December 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MOTORCAR PARTS & ACCESSORIES, INC.
Dated: February 16, 1999 By: /s/ Peter Bromberg
------------------------
Peter Bromberg
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
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27.1 Financial Data Schedule