e424b3
MOTORCAR PARTS OF AMERICA, INC.
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-144887
PROSPECTUS
SUPPLEMENT NO. 12
(To Prospectus dated October 22, 2007)
This is a prospectus supplement to our prospectus dated October 22, 2007 relating to the
resale from time to time by selling stockholders of up to 4,188,192
shares of our Common Stock. On November 10, 2008, we filed with
the Securities and Exchange Commission a Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
2008. On
November 21, 2008, we filed with the Securities and Exchange
Commission a Current Report on Form 8-K with respect to the
resignation of Irv Siegel from our Board of Directors and our
noncompliance with certain NASDAQ Marketplace Rules. The
Form 10-Q and Form 8-K are
attached to and made a part of this prospectus supplement.
This prospectus supplement should be read in conjunction with the prospectus, and this
prospectus supplement is qualified by reference to the prospectus, except to the extent that the
information provided by this prospectus supplement supersedes the information contained in the
prospectus.
The securities
offered by the prospectus involve a high degree of risk. You should carefully
consider the Risk Factors referenced on page 2 of the prospectus in determining whether to
purchase the Common Stock.
The
date of this prospectus supplement is November 21, 2008.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
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o |
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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. 001-33861
MOTORCAR PARTS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
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New York
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11-2153962 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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2929 California Street, Torrance, California
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90503 |
(Address of principal executive offices)
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Zip Code |
Registrants 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
o |
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Accelerated filer
þ |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
There were 11,962,021 shares of Common Stock outstanding at November 4, 2008.
MOTORCAR PARTS OF AMERICA, INC.
TABLE OF CONTENTS
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4 |
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5 |
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6 |
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7 |
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17 |
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27 |
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28 |
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28 |
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28 |
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31 |
2
MOTORCAR PARTS OF AMERICA, INC.
GLOSSARY
The following terms are frequently used in the text of this report and have the meanings indicated
below.
Used Core An alternator or starter which has been used in the operation of a vehicle. The Used
Core is an original equipment (OE) alternator or starter installed by the vehicle manufacturer
and subsequently removed for replacement. Used Cores contain salvageable parts which are an
important raw material in the remanufacturing process. We obtain most Used Cores by providing
credits to our customers for Used Cores returned to us under our core exchange program. Our
customers receive these Used Cores from consumers who deliver a Used Core to obtain credit from our
customers upon the purchase of a newly remanufactured alternator or starter. If sufficient Used
Cores cannot be obtained from our customers, we will purchase Used Cores from core brokers, who are
in the business of buying and selling Used Cores. The Used Cores purchased from core brokers or
returned to us by our customers under the core exchange program, and which have been physically
received by us, are part of our raw material or work in process inventory included in long-term
core inventory.
Remanufactured Core The Used Core underlying an alternator or starter that has gone through
the remanufacturing process and through that process has become part of a newly remanufactured
alternator or starter. The remanufacturing process takes a Used Core, breaks it down into its
component parts, replaces those components that cannot be reused and reassembles the salvageable
components of the Used Core and additional new components into a remanufactured alternator or
starter. Remanufactured Cores are included in our on-hand finished goods inventory and in the
remanufactured finished good product held for sale at customer locations. Used Cores returned by
consumers to our customers but not yet returned to us continue to be classified as Remanufactured
Cores until we physically receive these Used Cores. All Remanufactured Cores are included in our
long-term core inventory or in our long-term core inventory deposit.
3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
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September 30, 2008 |
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March 31, 2008 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash |
|
$ |
129,000 |
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|
$ |
1,935,000 |
|
Short-term investments |
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|
355,000 |
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|
373,000 |
|
Accounts receivable net |
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13,225,000 |
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|
2,789,000 |
|
Inventory net |
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|
29,505,000 |
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|
32,707,000 |
|
Deferred income taxes |
|
|
5,802,000 |
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|
5,657,000 |
|
Inventory unreturned |
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|
3,905,000 |
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|
4,124,000 |
|
Prepaid expenses and other
current
assets |
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|
1,394,000 |
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|
1,608,000 |
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Total current assets |
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54,315,000 |
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|
49,193,000 |
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Plant and equipment net |
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15,804,000 |
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|
15,996,000 |
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Long-term core inventory |
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61,138,000 |
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|
50,808,000 |
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Long-term core inventory
deposit |
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23,321,000 |
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22,477,000 |
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Long-term accounts receivable |
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767,000 |
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Long-term deferred income taxes |
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1,346,000 |
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1,357,000 |
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Goodwill |
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2,091,000 |
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Intangible assets net |
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2,898,000 |
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Other assets |
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437,000 |
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810,000 |
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TOTAL ASSETS |
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$ |
161,350,000 |
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$ |
141,408,000 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
27,237,000 |
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$ |
32,401,000 |
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Note payable |
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1,293,000 |
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Accrued liabilities |
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1,147,000 |
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2,200,000 |
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Accrued salaries and wages |
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2,325,000 |
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3,396,000 |
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Accrued workers
compensation claims |
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2,161,000 |
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2,042,000 |
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Income tax payable |
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2,242,000 |
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392,000 |
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Line of credit |
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17,550,000 |
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Deferred compensation |
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355,000 |
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373,000 |
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Deferred income |
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133,000 |
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|
133,000 |
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Other current liabilities |
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297,000 |
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448,000 |
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Current portion of capital
lease
obligations |
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1,717,000 |
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1,711,000 |
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Total current liabilities |
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56,457,000 |
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43,096,000 |
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Deferred income, less current
portion |
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55,000 |
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122,000 |
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Deferred core revenue |
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3,981,000 |
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2,927,000 |
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Deferred gain on
sale-leaseback |
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1,081,000 |
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1,340,000 |
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Other liabilities |
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621,000 |
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265,000 |
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Capitalized lease obligations, less current
portion |
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2,268,000 |
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2,565,000 |
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Total liabilities |
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64,463,000 |
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50,315,000 |
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Commitments and Contingencies
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Shareholders equity: |
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Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issued |
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Series A junior participating preferred stock; par value $.01 per share,
20,000 shares authorized; none issued |
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Common stock; par value $.01 per share, 20,000,000 shares authorized;
11,962,021 and 12,070,555 shares issued and outstanding at September 30, 2008
and March 31, 2008, respectively |
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120,000 |
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121,000 |
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Additional paid-in capital |
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92,336,000 |
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92,663,000 |
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Additional paid-in
capital-warrant |
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1,879,000 |
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1,879,000 |
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Shareholder note receivable |
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(682,000 |
) |
Accumulated other
comprehensive
income |
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448,000 |
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360,000 |
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Accumulated earnings (deficit) |
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2,104,000 |
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(3,248,000 |
) |
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Total shareholders equity |
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96,887,000 |
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|
91,093,000 |
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TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
161,350,000 |
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$ |
141,408,000 |
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The accompanying condensed notes to unaudited consolidated financial statements are an integral
part hereof.
4
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
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Six Months Ended |
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Three Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
69,142,000 |
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$ |
69,260,000 |
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$ |
36,437,000 |
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$ |
33,819,000 |
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Cost of goods sold |
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45,756,000 |
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50,815,000 |
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24,531,000 |
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25,574,000 |
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Gross profit |
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23,386,000 |
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18,445,000 |
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11,906,000 |
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8,245,000 |
|
Operating expenses: |
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General and administrative |
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9,174,000 |
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9,513,000 |
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4,972,000 |
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4,725,000 |
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Sales and marketing |
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2,356,000 |
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1,726,000 |
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1,344,000 |
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|
797,000 |
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Research and development |
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1,043,000 |
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|
550,000 |
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|
581,000 |
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275,000 |
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Total operating expenses |
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|
12,573,000 |
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|
11,789,000 |
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6,897,000 |
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5,797,000 |
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|
|
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|
|
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|
|
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Operating income |
|
|
10,813,000 |
|
|
|
6,656,000 |
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|
|
5,009,000 |
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|
|
2,448,000 |
|
Other expense (income): |
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|
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Interest expense |
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1,984,000 |
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3,201,000 |
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1,152,000 |
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|
1,544,000 |
|
Interest income |
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(18,000 |
) |
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|
(15,000 |
) |
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(4,000 |
) |
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(1,000 |
) |
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Income before income tax expense |
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8,847,000 |
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|
3,470,000 |
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|
3,861,000 |
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|
905,000 |
|
Income tax expense |
|
|
3,495,000 |
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|
|
1,412,000 |
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|
1,541,000 |
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|
439,000 |
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Net income |
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$ |
5,352,000 |
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|
$ |
2,058,000 |
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$ |
2,320,000 |
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$ |
466,000 |
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Basic net income per share |
|
$ |
0.44 |
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$ |
0.19 |
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$ |
0.19 |
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$ |
0.04 |
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Diluted net income per share |
|
$ |
0.44 |
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|
$ |
0.18 |
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$ |
0.19 |
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$ |
0.04 |
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Weighted average number of shares outstanding: |
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|
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Basic |
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12,029,039 |
|
|
|
10,979,426 |
|
|
|
11,987,975 |
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12,043,198 |
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Diluted |
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12,158,376 |
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|
11,351,048 |
|
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12,130,280 |
|
|
|
12,402,249 |
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The accompanying condensed notes to unaudited consolidated financial statements are an integral
part hereof.
5
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
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Six Months Ended |
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September 30, |
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2008 |
|
|
2007 |
|
Cash flows from operating activities: |
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|
|
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|
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Net income |
|
$ |
5,352,000 |
|
|
$ |
2,058,000 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
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|
|
|
|
|
Depreciation and amortization |
|
|
1,561,000 |
|
|
|
1,434,000 |
|
Amortization of intangible assets |
|
|
92,000 |
|
|
|
|
|
Amortization of deferred gain on sale-leaseback |
|
|
(259,000 |
) |
|
|
(259,000 |
) |
(Recovery of) provision for inventory reserves |
|
|
(285,000 |
) |
|
|
575,000 |
|
Provision for customer payment discrepencies |
|
|
240,000 |
|
|
|
163,000 |
|
Provision for doubtful accounts |
|
|
224,000 |
|
|
|
152,000 |
|
Deferred income taxes |
|
|
(163,000 |
) |
|
|
(332,000 |
) |
Share-based compensation expense |
|
|
385,000 |
|
|
|
590,000 |
|
Impact of tax benefit on APIC pool |
|
|
|
|
|
|
(110,000 |
) |
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(11,216,000 |
) |
|
|
(6,440,000 |
) |
Inventory |
|
|
5,276,000 |
|
|
|
5,712,000 |
|
Income tax receivable |
|
|
|
|
|
|
1,885,000 |
|
Inventory unreturned |
|
|
219,000 |
|
|
|
606,000 |
|
Prepaid expenses and other current assets |
|
|
424,000 |
|
|
|
(32,000 |
) |
Other assets |
|
|
374,000 |
|
|
|
(6,000 |
) |
Accounts payable and accrued liabilities |
|
|
(7,653,000 |
) |
|
|
(20,418,000 |
) |
Income tax payable |
|
|
1,899,000 |
|
|
|
(209,000 |
) |
Deferred compensation |
|
|
(18,000 |
) |
|
|
135,000 |
|
Deferred income |
|
|
(67,000 |
) |
|
|
(67,000 |
) |
Deferred core revenue |
|
|
1,054,000 |
|
|
|
812,000 |
|
Long-term accounts receivable |
|
|
767,000 |
|
|
|
|
|
Long-term core inventory |
|
|
(7,909,000 |
) |
|
|
(1,750,000 |
) |
Long-term core inventory deposits |
|
|
(844,000 |
) |
|
|
(391,000 |
) |
Other current liabilities |
|
|
(24,000 |
) |
|
|
132,000 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(10,571,000 |
) |
|
|
(15,760,000 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(1,232,000 |
) |
|
|
(891,000 |
) |
Purchase of businesses |
|
|
(6,891,000 |
) |
|
|
|
|
Change in short term investments |
|
|
(37,000 |
) |
|
|
(100,000 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(8,160,000 |
) |
|
|
(991,000 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under line of credit |
|
|
28,310,000 |
|
|
|
30,200,000 |
|
Repayments under line of credit |
|
|
(10,760,000 |
) |
|
|
(49,100,000 |
) |
Payments on capital lease obligations |
|
|
(904,000 |
) |
|
|
(790,000 |
) |
Exercise of stock options |
|
|
|
|
|
|
187,000 |
|
Excess tax benefit from employee stock options exercised |
|
|
|
|
|
|
115,000 |
|
Proceeds from issuance of common stock and warrants |
|
|
|
|
|
|
40,061,000 |
|
Stock issuance costs |
|
|
|
|
|
|
(3,079,000 |
) |
Impact of tax benefit on APIC pool |
|
|
|
|
|
|
110,000 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
16,646,000 |
|
|
|
17,704,000 |
|
Effect of exchange rate changes on cash |
|
|
279,000 |
|
|
|
43,000 |
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(1,806,000 |
) |
|
|
996,000 |
|
Cash and cash equivalents Beginning of period |
|
|
1,935,000 |
|
|
|
349,000 |
|
|
|
|
|
|
|
|
Cash and cash equivalents End of period |
|
$ |
129,000 |
|
|
$ |
1,345,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
1,849,000 |
|
|
$ |
3,220,000 |
|
Income taxes |
|
|
1,638,000 |
|
|
|
(389,000 |
) |
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Property acquired under capital lease |
|
$ |
357,000 |
|
|
$ |
509,000 |
|
Holdback on purchase of businesses |
|
|
800,000 |
|
|
|
|
|
Note payable on purchase of business |
|
|
1,293,000 |
|
|
|
|
|
Retirement of common stock in satisfaction of shareholder note receivable |
|
|
682,000 |
|
|
|
|
|
The accompanying condensed notes to unaudited consolidated financial statements are an integral
part hereof.
6
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
September 30, 2008 and 2007
(Unaudited)
The accompanying unaudited consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (GAAP) 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 GAAP 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 six and three months ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the fiscal year ending March 31,
2009. This report should be read in conjunction with the Companys audited consolidated financial
statements and notes thereto for the fiscal year ended March 31, 2008, which are included in the
Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on
June 16, 2008.
The accompanying consolidated financial statements have been prepared on a consistent basis with,
and there have been no material changes to, the accounting policies described in Note B to the
consolidated financial statements that are presented in the Companys Annual Report on Form 10-K
for the fiscal year ended March 31, 2008, except as discussed in Note 14 below.
Certain items in the Consolidated Balance Sheet for the fiscal year ended March 31, 2008 have been
reclassified to conform to fiscal 2009 classifications.
1. Company Background and Organization
Motorcar Parts of America, Inc. and its subsidiaries (the Company or MPA) remanufacture and
distribute alternators and starters for imported and domestic cars and light trucks. These
replacement parts are sold for use on vehicles after initial vehicle purchase. These automotive
parts are sold to automotive retail chain stores and warehouse distributors throughout the United
States and Canada and to a major U.S. automobile manufacturer.
The Company obtains used alternators and starters, commonly known as Used Cores, primarily from its
customers (retailers) as trade-ins. It also purchases Used Cores from vendors (core brokers). The
retailers grant credit to the consumer when the used part is returned to them, and the Company in
turn provides a credit to the retailer upon return to the Company. These Used Cores are an
essential material needed for the remanufacturing operations. The Company has remanufacturing,
warehousing and shipping/receiving operations for alternators and starters in Mexico, California,
Singapore and Malaysia. In addition, the Company utilizes third party warehouse distribution
centers in Fairfield, New Jersey and Springfield, Oregon.
In September 2007, the Company exercised its right to cancel the lease of its Torrance, California
facility with respect to approximately 80,000 square feet currently utilized for core receipt,
storage and packing. This cancellation was effective May 31, 2008. The Company transitioned these
functions to its facilities in Mexico.
In June 2008, the Company notified its third party warehouse distribution center in Fairfield, New
Jersey, of its intention to terminate its agreement effective September 18, 2008. In July 2008,
the Company signed a letter of intent to utilize the services of another third party fee warehouse
distribution center in Edison, New Jersey.
The Company operates in one business segment pursuant to Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures about Segments of Enterprise and Related Information.
2. Acquisitions
On May 16, 2008, the Company completed the acquisition of certain assets of Automotive Importing
Manufacturing, Inc. (AIM), specifically its operation which produced new and remanufactured
alternators and starters for imported and domestic passenger vehicles. These products are sold
under Talon, Xtreme and other brand names. The acquisition was consummated pursuant to a signed
definitive purchase agreement, dated April 24, 2008.
The Company believes the acquisition of AIM expands its customer base and product line, including
the addition of business in heavy duty alternator and starter applications.
7
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
The following table reflects the preliminary allocation of the purchase price:
|
|
|
|
|
Consideration and acquisition costs: |
|
|
|
|
Cash consideration |
|
$ |
3,727,000 |
|
Purchase price hold back |
|
|
500,000 |
|
Acquisition costs |
|
|
437,000 |
|
|
|
|
|
|
|
$ |
4,664,000 |
|
|
|
|
|
|
|
|
|
|
Purchase price allocation: |
|
|
|
|
Accounts receivable, net of allowances |
|
$ |
(221,000 |
) |
Inventory |
|
|
2,853,000 |
|
Trademarks |
|
|
212,000 |
|
Customer relationships |
|
|
1,441,000 |
|
Non-compete agreements |
|
|
50,000 |
|
Goodwill |
|
|
329,000 |
|
|
|
|
|
Total purchase price |
|
$ |
4,664,000 |
|
|
|
|
|
The definitive purchase agreement was amended on May 16, 2008. The amendment provided for an
additional contingent consideration of up to $400,000 to AIM if the net sales to certain customers
exceed an agreed upon dollar threshold during the period June 1, 2008 to May 31, 2009. Any
subsequent payment under this arrangement would increase the total purchase price and would be
allocated to goodwill.
On August 22, 2008, the Company completed the acquisition of certain assets of Suncoast Automotive
Products, Inc. (SCP), specifically its operation which produced new and remanufactured
alternators and starters for the automotive, industrial and heavy
duty aftermarkets. These products
are sold under the SCP brand name. The acquisition was consummated pursuant to a signed asset
purchase agreement, dated August 13, 2008.
The Company believes the acquisition of SCP enhances the Companys market share in North America.
Pro forma information is not presented as the assets, results of operations and purchase price of
SCP were not significant to the Companys consolidated financial position or results of operations,
individually or in the aggregate with the acquisition of AIM.
The following table reflects the preliminary allocation of the purchase price:
|
|
|
|
|
Consideration and acquisition costs: |
|
|
|
|
Cash consideration |
|
$ |
2,448,000 |
|
Purchase price hold back |
|
|
300,000 |
|
Note payable |
|
|
1,293,000 |
|
Acquisition costs |
|
|
279,000 |
|
|
|
|
|
|
|
$ |
4,320,000 |
|
|
|
|
|
|
|
|
|
|
Purchase price allocation: |
|
|
|
|
Accounts receivable, net of allowances |
|
$ |
(95,000 |
) |
Inventory |
|
|
1,366,000 |
|
Trademarks |
|
|
115,000 |
|
Customer relationships |
|
|
1,110,000 |
|
Non-compete agreements |
|
|
62,000 |
|
Goodwill |
|
|
1,762,000 |
|
|
|
|
|
Total purchase price |
|
$ |
4,320,000 |
|
|
|
|
|
The note payable to SCP of $1,293,000 bears interest at prime plus 1% and is payable in monthly
installments of $100,000 beginning in October 2008.
8
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
The results of operations of certain assets acquired from AIM and SCP are included in the
Consolidated Statement of Income from their respective acquisition dates.
3. Goodwill and Intangible Assets
The Company accounts for goodwill under the guidance set forth in SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142), which specifies that goodwill and indefinite-lived intangibles
should not be amortized. The Company evaluates goodwill for impairment on an annual basis or more
frequently if events or circumstances occur that would indicate a reduction in fair value of the
Company. The Companys intangible assets other than goodwill are finite-lived and amortized on a
straight-line basis over their respective useful lives and are analyzed for impairment under the
guidance set forth in SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets
(SFAS No. 144) when and if indicators of impairment exist. The following is a summary of the
Companys intangible assets as of September 30, 2008, which resulted from the acquisitions of AIM
and SCP during the six-month period. The Company had no goodwill or intangible assets at March 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
|
|
Amortization |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Period |
|
|
Value |
|
|
Amortization |
|
Intangible assets subject to
amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
5 - 7 years |
|
$ |
327,000 |
|
|
$ |
11,000 |
|
Customer relationships |
|
7 years |
|
|
2,551,000 |
|
|
|
77,000 |
|
Non-compete agreements |
|
5 years |
|
|
112,000 |
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
2,990,000 |
|
|
$ |
92,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not subject to
amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
$ |
2,091,000 |
|
|
$ |
|
|
Amortization expense related to intangible assets was $92,000 and $62,000 during the six and three
months ended September 30, 2008, respectively. The aggregate estimated amortization expense for
intangible assets is as follows:
|
|
|
|
|
Year ending March 31, |
|
|
|
|
2009remaining six months |
|
$ |
220,000 |
|
2010 |
|
|
440,000 |
|
2011 |
|
|
440,000 |
|
2012 |
|
|
440,000 |
|
2013 |
|
|
440,000 |
|
Thereafter |
|
|
918,000 |
|
|
|
|
|
Total |
|
$ |
2,898,000 |
|
|
|
|
|
4. Accounts Receivable Net
Included in accounts receivable net are significant offset accounts related to customer
allowances earned, customer payment discrepancies, in-transit and estimated future unit returns,
estimated future credits to be provided for Used Cores returned by the customers and potential bad
debts. Due to the forward looking nature and the different aging periods of certain estimated
offset accounts, they may not, at any point in time, directly relate to the balances in the open
trade accounts receivable.
9
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Accounts receivable net is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008 |
|
|
March 31, 2008 |
|
Accounts receivable trade |
|
$ |
39,032,000 |
|
|
$ |
25,740,000 |
|
Allowance for bad debts |
|
|
(242,000 |
) |
|
|
(18,000 |
) |
Customer allowances earned |
|
|
(3,444,000 |
) |
|
|
(2,178,000 |
) |
Customer payment discrepancies |
|
|
(411,000 |
) |
|
|
(492,000 |
) |
Customer finished goods returns accruals |
|
|
(8,078,000 |
) |
|
|
(7,977,000 |
) |
Customer core returns accruals |
|
|
(13,632,000 |
) |
|
|
(12,286,000 |
) |
|
|
|
|
|
|
|
Less: total accounts receivable offset accounts |
|
|
(25,807,000 |
) |
|
|
(22,951,000 |
) |
|
|
|
|
|
|
|
|
Total accounts receivable net |
|
$ |
13,225,000 |
|
|
$ |
2,789,000 |
|
|
|
|
|
|
|
|
Warranty Returns
The Company allows its customers to return goods to the Company that their end-user customers have
returned to them, whether the returned item is or is not defective (warranty returns). The Company
accrues an estimate of its exposure to warranty returns based on a historical analysis of the level
of this type of return as a percentage of total units sales. The warranty return accrual is
included under the customer finished goods returns accruals in the above table.
Change in the Companys warranty return accrual is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
(2,824,000 |
) |
|
$ |
(3,455,000 |
) |
|
$ |
(3,309,000 |
) |
|
$ |
(2,249,000 |
) |
Charged to expenses |
|
|
16,420,000 |
|
|
|
13,729,000 |
|
|
|
8,457,000 |
|
|
|
7,892,000 |
|
Amounts processed |
|
|
(16,135,000 |
) |
|
|
(15,301,000 |
) |
|
|
(8,657,000 |
) |
|
|
(8,258,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
(3,109,000 |
) |
|
$ |
(1,883,000 |
) |
|
$ |
(3,109,000 |
) |
|
$ |
(1,883,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
10
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
5. Inventory
Inventory includes non-core inventory, inventory unreturned, long-term core inventory, long-term
core inventory deposit and is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2008 |
|
|
2008 |
|
Non-core inventory |
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
9,797,000 |
|
|
$ |
11,406,000 |
|
Work-in-process |
|
|
74,000 |
|
|
|
155,000 |
|
Finished goods |
|
|
21,224,000 |
|
|
|
23,206,000 |
|
|
|
|
|
|
|
|
|
|
|
31,095,000 |
|
|
|
34,767,000 |
|
Less allowance for excess and obsolete inventory |
|
|
(1,590,000 |
) |
|
|
(2,060,000 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
29,505,000 |
|
|
$ |
32,707,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory unreturned |
|
$ |
3,905,000 |
|
|
$ |
4,124,000 |
|
|
|
|
|
|
|
|
Long-term core inventory |
|
|
|
|
|
|
|
|
Used cores held at companys facilities |
|
$ |
13,907,000 |
|
|
$ |
12,630,000 |
|
Used cores expected to be returned by customers |
|
|
3,790,000 |
|
|
|
2,255,000 |
|
Remanufactured cores held in finished goods |
|
|
18,471,000 |
|
|
|
15,407,000 |
|
Remanufactured cores held at customers locations |
|
|
25,262,000 |
|
|
|
21,218,000 |
|
|
|
|
|
|
|
|
|
|
|
61,430,000 |
|
|
|
51,510,000 |
|
Less allowance for excess and obsolete inventory |
|
|
(292,000 |
) |
|
|
(702,000 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
61,138,000 |
|
|
$ |
50,808,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term core inventory deposit |
|
$ |
23,321,000 |
|
|
$ |
22,477,000 |
|
|
|
|
|
|
|
|
6. Major Customers
The Companys five largest customers accounted for the following total percentage of net sales and
accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
September 30, |
|
September 30, |
Sales |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Customer A |
|
|
48 |
% |
|
|
54 |
% |
|
|
50 |
% |
|
|
52 |
% |
Customer B |
|
|
12 |
% |
|
|
8 |
% |
|
|
10 |
% |
|
|
11 |
% |
Customer C |
|
|
11 |
% |
|
|
8 |
% |
|
|
10 |
% |
|
|
9 |
% |
Customer D |
|
|
11 |
% |
|
|
13 |
% |
|
|
12 |
% |
|
|
12 |
% |
Customer E |
|
|
10 |
% |
|
|
11 |
% |
|
|
9 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
Accounts Receivable |
|
September 30, 2008 |
|
March 31, 2008 |
Customer A |
|
|
12 |
% |
|
|
19 |
% |
Customer B |
|
|
24 |
% |
|
|
24 |
% |
Customer C |
|
|
26 |
% |
|
|
31 |
% |
Customer D |
|
|
22 |
% |
|
|
5 |
% |
Customer E |
|
|
8 |
% |
|
|
11 |
% |
11
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
For the six months ended September 30, 2008, one supplier provided approximately 23% of the raw
materials purchased. For the six months ended September 30, 2007, two suppliers provided
approximately 21% and 12%, respectively, of the raw materials purchased. For the three months ended
September 30, 2008, two suppliers provided approximately 20% and 12%, respectively, of the raw
materials purchased. For the three months ended September 30, 2007, one supplier provided
approximately 23% of the raw materials purchased. No other supplier accounted for more than 10% of
the Companys raw materials purchases for the six and three months ended September 30, 2008 or
2007.
7. Line of Credit; Factoring Agreements
On October 24, 2007, the Company entered into an amended and restated credit agreement (the Credit
Agreement) with its bank. Under the Credit Agreement, the bank continues to provide the Company
with a
revolving loan (the Revolving Loan) of up to $35,000,000, including obligations under outstanding
letters of credit, which may not exceed $7,000,000. In January 2008, the Company entered into an
amendment to the Credit Agreement with its bank. This amendment extended the expiration date of the
credit facility to October 1, 2009.
In May 2008, the Companys Credit Agreement was further amended to allow the Company to, among
other things, borrow up to $15,000,000 under the Revolving Loan for the purpose of consummating
certain permitted acquisitions. The aggregate consideration paid for any single permitted
acquisition may not exceed $7,500,000, and the aggregate consideration paid for all permitted
acquisitions made during the term of the Credit Agreement may not exceed $20,000,000.
In August 2008, the Company entered into a third amendment to the Credit Agreement, which increased
the amount of credit available under the Revolving Loan from $35,000,000 to $40,000,000. Pursuant
to the terms of these amendments, the Company may continue to use the entire available amount under
the Revolving Loan for working capital and general corporate purposes.
The bank holds a security interest in substantially all of the Companys assets. At September 30,
2008, the balance of the Revolving Loan was $17,550,000. There was no outstanding balance on the
Revolving Loan at March 31, 2008. Additionally, the Company had reserved $3,001,000 of the
Revolving Loan for standby letters of credit for workers compensation insurance as of September
30, 2008. As of September 30, 2008, $19,449,000 was available under the Revolving Loan.
The Credit Agreement, among other things, continues to require the Company to maintain certain
financial covenants, including cash flow, fixed charge coverage ratio and leverage ratio and a
number of restrictive covenants, including limits on capital expenditures and operating leases,
prohibitions against additional indebtedness, payment of dividends, pledge of assets and loans to
officers and/or affiliates. In addition, it is an event of default under the loan agreement if
Selwyn Joffe is no longer the Companys CEO.
The Company was in compliance with all financial covenants under the Credit Agreement as of
September 30, 2008.
Under two separate agreements executed on July 30, 2004 and August 21, 2003 with two customers and
their respective banks, the Company may sell those customers receivables to those banks at a
discount to be agreed upon at the time the receivables are sold. The Company has an arrangement
with one additional customer under which that customers receivables may also be sold at a
discount. These discount arrangements have allowed the Company to accelerate collection of customer
receivables aggregating $36,768,000 and $44,083,000 for the six months ended September 30, 2008 and
2007, respectively, by an average of 314 days and 264 days, respectively. On an annualized basis,
the weighted average discount rate on the receivables sold to the banks during the six months ended
September 30, 2008 and 2007 was 4.8% and 6.6%, respectively. The amount of the discount on these
receivables, $1,421,000 and $2,475,000 for the six months ended September 30, 2008 and 2007,
respectively, was recorded as interest expense. In May 2008, one of these customers suspended the
use of its receivable discount program, but has advised the Company that it may be in a position to
re-open the use of this program sometime in the future.
12
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
8. Stock Options and Share-Based Payments
The Company adopted FAS No. 123(R), effective April 1, 2006, using the modified prospective
adoption method. The Company did not modify the terms of any previously granted options in
anticipation of the adoption of FAS No. 123(R). The Company recognized stock-based compensation
expense of $385,000 and $590,000 for the six months ended September 30, 2008 and 2007,
respectively. The Company granted 50,000 and 49,000 stock options during the six months ended
September 30, 2008 and 2007, respectively.
At September 30, 2008, there was $236,000 of total unrecognized compensation expense from
stock-based compensation granted under the plans, which is related to unvested shares. The
compensation expense is expected to be recognized over a weighted average vesting period of 0.9
years.
9. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Diluted net income per share includes the
effect, if any, from the potential exercise or conversion of securities, such as stock options and
warrants, which would result in the issuance of incremental shares of common stock.
The following presents a reconciliation of basic and diluted net income per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
5,352,000 |
|
|
$ |
2,058,000 |
|
|
$ |
2,320,000 |
|
|
$ |
466,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
12,029,039 |
|
|
|
10,979,426 |
|
|
|
11,987,975 |
|
|
|
12,043,198 |
|
Effect of dilutive stock options and warrants |
|
|
129,337 |
|
|
|
371,622 |
|
|
|
142,305 |
|
|
|
359,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
12,158,376 |
|
|
|
11,351,048 |
|
|
|
12,130,280 |
|
|
|
12,402,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.44 |
|
|
$ |
0.19 |
|
|
$ |
0.19 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.44 |
|
|
$ |
0.18 |
|
|
$ |
0.19 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of dilutive options and warrants excludes 1,124,400 options and 546,283 warrants with
exercise prices ranging from $7.27 to $18.38 per share for the six and three months ended September
30, 2008, respectively, and 165,875 options and 546,283 warrants with exercise prices ranging from
$12.00 to $19.13 per share for the six and three months ended September 30, 2007, respectively
all of which were anti-dilutive.
10. Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income (SFAS No. 130) established standards for the
reporting and display of comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity during a period
resulting from transactions and other events and circumstances from non-owner sources. The
Companys total comprehensive income consists of net income, unrealized gain on short-term
investments and foreign currency translation adjustments.
13
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
5,352,000 |
|
|
$ |
2,058,000 |
|
|
$ |
2,320,000 |
|
|
$ |
466,000 |
|
Unrealized (loss) gain on short-term investments |
|
|
(33,000 |
) |
|
|
35,000 |
|
|
|
(39,000 |
) |
|
|
|
|
Foreign currency translation |
|
|
121,000 |
|
|
|
87,000 |
|
|
|
(188,000 |
) |
|
|
(48,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income |
|
$ |
5,440,000 |
|
|
$ |
2,180,000 |
|
|
$ |
2,093,000 |
|
|
$ |
418,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Income Taxes
Income tax expenses for the six and three months ended September 30, 2008 and 2007 reflect income
tax rates higher than the federal statutory rates primarily due to state income taxes, which were
partially offset by the benefit of lower statutory tax rates in foreign taxing jurisdictions. At
March 31, 2008, the Company no longer had any federal net operating loss carry forward. As a
result, the Companys cash flow will be impacted by its future tax payments.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and
various state and foreign jurisdictions with varying statutes of limitations. The 2004 through 2007
tax years generally remain subject to examination by federal and most state tax authorities. There
are currently no Internal Revenue Service examinations taking place or scheduled. The specific
timing of when the resolution of each tax position will be reached is uncertain.
12. Litigation
In December 2003, the SEC and the United States Attorneys Office brought actions against Richard
Marks, the Companys former President and Chief Operating Officer. (Mr. Marks is also the son of
Mel Marks, the Companys founder, largest shareholder and member of its Board of Directors.) Mr.
Marks ultimately pled guilty to several criminal charges in June 2005.
In June 2006, the Company entered into a Settlement Agreement and Mutual Release with Mr. Marks.
Under this agreement (which was unanimously approved by a Special Committee of the Board of
Directors consisting of Messrs. Borneo, Gay and Siegel), Mr. Marks agreed to pay the Company
$682,000 as partial reimbursement of the legal fees and costs the Company had advanced pursuant its
pre-existing indemnification agreements with Mr. Marks. This amount was due on January 15, 2008. In
June 2006, the Company recorded a shareholder note receivable for the $682,000 Mr. Marks owed the
Company. The note was classified in shareholders equity as it was collateralized by the Companys
common stock. Mr. Marks also agreed to pay interest at the prime rate plus one percent on June 15,
2007 (paid on June 22, 2007) and January 15, 2008 (paid on January 22, 2008). Mr. Marks pledged
shares of the Companys common stock that he owned to secure this obligation. Under the terms of an
amendment to the agreement with Mr. Marks that was effective January 15, 2008, the Company agreed
to extend the due date of Mr. Marks obligation to pay $682,000 from January 15, 2008 to July 15,
2008. This amendment was unanimously approved by the Special Committee of the Board of Directors
that had approved the original Settlement Agreement. On July 22, 2008, the Company retired 108,534
shares of its common stock which had been pledged by Mr. Marks in satisfaction of the $682,000
shareholder note receivable plus interest accrued from January 15, 2008 through July 22, 2008, and
the remaining shares pledged as collateral were released to Mr. Marks.
The Company is subject to various lawsuits and claims in the normal course of business. Management
does not believe that the outcome of these matters will have a material adverse effect on its
financial position or future results of operations.
13. Customs Duties
The Company received a request for information dated April 16, 2007 from the U.S. Bureau of Customs
and Border Protection (CBP) concerning the Companys importation of products remanufactured at
the Companys Malaysian
14
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
facilities. In response to the CBPs request, the Company began an internal
review, with the assistance of customs counsel, of its custom duties procedures. During this review
process, the Company identified a potential exposure related to the omission of certain cost
elements in the appraised value of used alternators and starters, which were remanufactured in
Malaysia and returned to the United States since June 2002.
The Company provided a prior disclosure letter dated June 5, 2007 to the customs authorities in
order to obtain more time to complete its internal review process. This prior disclosure letter
also provides the Company the opportunity to self report any underpayment of customs duties in
prior years which could reduce financial penalties, if any, imposed by the CBP. Based on the review
conducted by the Company, it was determined that it was probable the CBP would make a claim for
additional duties, fees and interest on the value of remanufactured units shipped back
to the Company from Malaysia. Therefore, an accrual for $1,836,000 was recorded as of March 31,
2008, representing the estimated maximum value of the probable claim.
On February 7, 2008, the Company responded to the CBP with the results of its internal review for
products shipped back to the Company during the period from June 5, 2002 to March 31, 2007. In
connection with this response, the Company paid approximately $278,000 to the CBP, which included
the payment of duties, fees, and interest on the value of certain components that were used in the
remanufacture of the products shipped back to the Company. On May 6, 2008, the Company paid an
additional $126,000 to the CBP covering duties, fees and interest on the value of certain
components that were used in the remanufacture of the products shipped back to the Company during
the period from April 1, 2007 to March 31, 2008. These payments reduced the accrued liability
recorded in connection with the claim.
During the three months ended June 30, 2008, the Company received notification from the CBP stating
that the prior disclosure had been reviewed and determined to be valid, therefore, no further
penalties are likely to be assessed and the review was closed regarding remanufactured units
shipped back to the Company from Malaysia. During the three months ended June 30, 2008, the accrual
of $1,307,000 was reversed, reducing cost of goods sold.
14. New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No.
157 defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. It also
established a framework for measuring fair value in accordance GAAP and expands disclosures about
fair value measurement. SFAS No. 157 applies to other accounting pronouncements that require or
permit fair value measurements. SFAS No. 157 was effective for fiscal years beginning after
November 15, 2007. However, a FASB Staff Position issued in February 2008, delayed the
effectiveness of SFAS No. 157 for one year, but only as applied to nonfinancial assets and
nonfinancial liabilities. The adoption of SFAS No. 157 on April 1, 2008 did not have an impact on
the Companys financial position, results of operations or cash flows.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as
of the measurement date. The classification of fair value measurements within the hierarchy is
based upon the lowest level of input that is significant to the measurement. The three levels are
defined as follows:
|
|
|
Level 1 Valuation is based upon quoted prices (unadjusted) in active markets for
identical assets or liabilities. |
|
|
|
|
Level 2 Valuation is based upon quoted prices for similar assets and liabilities in
active markets, or other inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument. |
|
|
|
|
Level 3 Valuation is based upon unobservable inputs that are significant to the fair
value measurement. |
15
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
The following table summarizes the valuation of the Companys short-term investments, deferred
compensation and financial instruments by the above SFAS No. 157 categories as of September 30,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
Fair Value at |
|
Using Inputs Considered as |
|
|
September 30, 2008 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
355,000 |
|
|
$ |
355,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
|
|
355,000 |
|
|
|
355,000 |
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
|
|
212,000 |
|
|
|
|
|
|
$ |
212,000 |
|
|
|
|
|
The Companys short-term investments, which fund its deferred compensation liabilities, consist of
investments in mutual funds. These investments are classified as Level 1 as the shares of these
mutual funds trade with sufficient frequency and volume to enable the Company to obtain pricing
information on an ongoing basis.
The forward foreign currency exchange contracts are primarily measured based on the foreign
currency spot and forward rates quoted by the banks or foreign currency dealers. During the six
months ended September 30, 2008, an increase of $357,000 in general and administrative expenses was
recorded due to the change in the value of foreign exchange contracts.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159). SFAS No. 159 permits companies to choose to measure at fair
value certain financial instruments and other items that are not currently required to be measured
at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The
Company adopted SFAS No. 159 on April 1, 2008 and elected not to measure any additional financial
instruments or other items at fair value.
On December 4, 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)).
SFAS No. 141(R) applies to any transaction or other event that meets the definition of a business
combination. Where applicable, SFAS No. 141(R) establishes principles and requirements for how the
acquirer recognizes and measures identifiable assets acquired, liabilities assumed, non-controlling
interest in the acquiree and goodwill or gain from a bargain purchase. In addition, SFAS No. 141(R)
determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. Also in December 2007, the FASB issued
Statement No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS No. 160).
This Statement amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
establish accounting and reporting standards for the non-controlling interest in a subsidiary and
for the deconsolidation of a subsidiary. SFAS No. 141(R) and SFAS No. 160 are required to be
adopted simultaneously and are effective for the first annual reporting period beginning on or
after December 15, 2008 with earlier adoption being prohibited. The Company does not currently have
any non-controlling interests in its subsidiaries. Both SFAS No. 141(R) and SFAS No. 160 are
adopted prospectively, therefore they do not have any current impact.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activities-an amendment of FASB Statement No. 133 (SFAS No. 161). SFAS No. 161 changes
the disclosure requirements for derivative instruments and hedging activities. Entities are
required to provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are accounted for under FASB
Statement No. 133 and its related interpretations, and (c) how derivative instruments and related
hedged items affect an entitys financial position, financial performance, and cash flows. The
guidance in SFAS No. 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161
encourages, but does not require, comparative disclosures for earlier periods at initial adoption.
The Company is currently assessing the impact of SFAS No. 161.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Principles (SFAS
No. 162). SFAS No. 162 outlines the order of authority for the sources of accounting principles.
SFAS No. 162 is effective 60 days following the SECs approval of the Public Company Accounting
Oversight Board amendments to AU Section
16
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. The Company does not expect SFAS No. 162 to have any
impact on its consolidated financial statements and required disclosures.
15. Subsequent Events
On October 2, 2008, the Company established a wholly owned subsidiary incorporated in Canada,
Motorcar Parts of Canada, Inc. This new subsidiary is expected to provide sales and marketing
services to the Company. Currently, this subsidiary does not have assets or results of operations.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis presents factors that we believe are relevant to an
assessment and understanding of our consolidated financial position and results of operations. This
financial and business analysis
should be read in conjunction with our March 31, 2008 audited consolidated financial statements
included in our Annual Report on Form 10-K filed with the SEC on June 16, 2008.
Disclosure Regarding Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements with respect to our future performance 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:
concentration of sales to certain customers, changes in our relationship with any of our customers,
including the increasing customer pressure for lower prices and more favorable payment and other
terms, our ability to renew the contract with our largest customer that expired in August 2008 and
the terms of any such renewal or to continue our relationship with this customer on an otherwise
equally satisfactory basis, the increasing demands on our working capital, including the
significant strain on working capital associated with large Remanufactured Core inventory purchases
from customers of the type we have increasingly made, our ability to obtain any additional
financing we may seek or require, our ability to achieve positive cash flows from operations,
potential future changes in our previously reported results as a result of the identification and
correction of errors in our accounting policies or procedures or the material weaknesses in our
internal controls over financial reporting, lower revenues than anticipated from new and existing
contracts, our failure to meet the financial covenants or the other obligations set forth in our
bank credit agreement and the banks refusal to waive any such defaults, any meaningful difference
between projected production needs and ultimate sales to our customers, increases in interest
rates, changes in the financial condition of any of our major customers, the impact of high
gasoline prices, the potential for changes in consumer spending, consumer preferences and general
economic conditions, increased competition in the automotive parts industry, including increased
competition from Chinese and other offshore manufacturers, difficulty in obtaining Used Cores and
component parts or increases in the costs of those parts, political or economic instability in any
of the foreign countries where we conduct operations, unforeseen increases in operating costs and
other factors discussed herein and in our other filings with the SEC.
Acquisitions
On May 16, 2008, we completed the acquisition of certain assets of Automotive Importing
Manufacturing, Inc. (AIM), specifically its operation which produced new and remanufactured
alternators and starters for imported and domestic passenger vehicles. These products are sold
under Talon, Xtreme and other brand names. The acquisition was consummated pursuant to a signed
definitive purchase agreement, dated April 24, 2008.
We believe the acquisition of AIM expands our customer base and product line, including the
addition of business in heavy duty alternator and starter applications.
17
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
The following table reflects the preliminary allocation of the purchase price:
|
|
|
|
|
Consideration and acquisition costs: |
|
|
|
|
Cash consideration |
|
$ |
3,727,000 |
|
Purchase price hold back |
|
|
500,000 |
|
Acquisition costs |
|
|
437,000 |
|
|
|
|
|
|
|
$ |
4,664,000 |
|
|
|
|
|
|
|
|
|
|
Purchase price allocation: |
|
|
|
|
Accounts receivable, net of allowances |
|
$ |
(221,000 |
) |
Inventory |
|
|
2,853,000 |
|
Trademarks |
|
|
212,000 |
|
Customer relationships |
|
|
1,441,000 |
|
Non-compete agreements |
|
|
50,000 |
|
Goodwill |
|
|
329,000 |
|
|
|
|
|
Total purchase price |
|
$ |
4,664,000 |
|
|
|
|
|
The definitive purchase agreement was amended on May 16, 2008. The amendment provided for an
additional contingent consideration of up to $400,000 to AIM if the net sales to certain customers
exceed an agreed upon dollar threshold during the period June 1, 2008 to May 31, 2009. Any
subsequent payment under this arrangement would increase the total purchase price and would be
allocated to goodwill.
On August 22, 2008, we completed the acquisition of certain assets of Suncoast Automotive Products,
Inc. (SCP), specifically its operation which produced new and remanufactured alternators and
starters for the automotive, industrial and heavy duty aftermarkets. These products are sold under
the SCP brand name. The acquisition was consummated pursuant to a signed asset purchase agreement,
dated August 13, 2008.
We believe the acquisition of SCP enhances our market share in North America. Pro forma information
is not presented as the assets, results of operations and purchase price of SCP were not
significant to our consolidated financial position or results of operations, individually or in the
aggregate with the acquisition of AIM.
The following table reflects the preliminary allocation of the purchase price:
|
|
|
|
|
Consideration and acquisition costs: |
|
|
|
|
Cash consideration |
|
$ |
2,448,000 |
|
Purchase price hold back |
|
|
300,000 |
|
Note payable |
|
|
1,293,000 |
|
Acquisition costs |
|
|
279,000 |
|
|
|
|
|
|
|
$ |
4,320,000 |
|
|
|
|
|
|
|
|
|
|
Purchase price allocation: |
|
|
|
|
Accounts receivable, net of allowances |
|
$ |
(95,000 |
) |
Inventory |
|
|
1,366,000 |
|
Trademarks |
|
|
115,000 |
|
Customer relationships |
|
|
1,110,000 |
|
Non-compete agreements |
|
|
62,000 |
|
Goodwill |
|
|
1,762,000 |
|
|
|
|
|
Total purchase price |
|
$ |
4,320,000 |
|
|
|
|
|
The note payable to SCP of $1,293,000 bears interest at prime plus 1% and is payable in monthly
installments of $100,000 beginning in October 2008.
The results of operations of certain assets acquired from AIM and SCP are included in the
Consolidated Statement of Income from their respective acquisition dates.
18
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Results of Operations for the Three Months Ended September 30, 2008 and 2007
The following discussion and analysis should be read in conjunction with the financial statements
and notes thereto appearing elsewhere herein.
The following table summarizes certain key operating data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2008 |
|
2007 |
Gross profit percentage |
|
|
32.7 |
% |
|
|
24.4 |
% |
Cash flow from operations |
|
$ |
(3,229,000 |
) |
|
$ |
(3,987,000 |
) |
Finished goods turnover (annualized) (1) |
|
|
4.2 |
|
|
|
6.4 |
|
Annualized return on equity (2) |
|
|
10.2 |
% |
|
|
3.9 |
% |
|
|
|
(1) |
|
Annualized finished goods turnover for the fiscal quarter is calculated by multiplying cost
of sales for the quarter by 4 and dividing the result by the average between beginning and
ending non-core finished goods inventory values, for the fiscal quarter. We believe this
provides a useful measure of our ability to turn production into revenues. |
|
(2) |
|
Annualized return on equity is computed as net income for the fiscal quarter multiplied by 4
and dividing the result by beginning shareholders equity. Annualized return on equity
measures our ability to invest shareholders funds profitably. |
Following is our unaudited results of operations, reflected as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold |
|
|
67.3 |
|
|
|
75.6 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
32.7 |
|
|
|
24.4 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
|
13.6 |
|
|
|
14.0 |
|
Sales and marketing |
|
|
3.7 |
|
|
|
2.4 |
|
Research and development |
|
|
1.6 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
Operating income |
|
|
13.8 |
|
|
|
7.2 |
|
Interest expense net of interest income |
|
|
3.2 |
|
|
|
4.6 |
|
Income tax expense |
|
|
4.2 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
Net income |
|
|
6.4 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
Net Sales. Net sales for the three months ended September 30, 2008 increased by $2,618,000, or
7.7%, to $36,437,000 compared to net sales for the three months ended September 30, 2007 of
$33,819,000. This increase was primarily due to net sales to new customers resulting from our
acquisitions and higher sales to our existing customers.
Cost of Goods Sold/Gross Profit. Cost of goods sold as a percentage of net sales decreased during
the three months ended September 30, 2008 to 67.3% from 75.6% for the three months ended September
30, 2007, resulting in a corresponding increase in our gross profit of 8.3% to 32.7% for the three
months ended September 30, 2008 from 24.4% for the three months ended September 30, 2007. The
increase in the gross profit percentage, as compared to
the three months ended September 30, 2007, was primarily due to (i) the lower per unit
manufacturing costs resulting from the transition of a majority of remanufacturing operations from
the United States to our Mexico and Malaysia facilities, (ii) the recording of a customs
duties accrual of $1,450,000 during the three months ended
September 30, 2007 and (iii) increased net sales.
19
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
General and Administrative. Our general and administrative expenses for the three months ended
September 30, 2008 were $4,972,000, which represents an increase of $247,000, or 5.2%, from general
and administrative expenses for the three months ended September 30, 2007 of $4,725,000. This
increase was primarily due to the following: (i) an increase of $560,000 in general and
administrative expenses compared to an increase of $57,000 for the three months ended September 30,
2007, due to the changes in the value of our foreign exchange contracts, and (ii) an increase of
$165,000 at our offshore facilities primarily due to the shift of remanufacturing operations. These
increases in general and administrative expenses were partially offset by $478,000 of decreased
audit and other professional services fees during the three months ended September 30, 2008.
Sales and Marketing. Our sales and marketing expenses for the three months ended September 30, 2008
increased $547,000, or 68.6%, to $1,344,000 from $797,000 for the three months ended September 30,
2007. This increase was due primarily to the addition of employees which resulted from our
acquisition of AIM, increased trade show and advertising expenses, an increase in travel related
expenses, and an increase in consulting fees.
Research and Development. Our research and development expenses increased by $306,000, or 111.3%,
to $581,000 for the three months ended September 30, 2008 from $275,000 for the three months ended
September 30, 2007. The increase was primarily related to an increase in compensation and travel
related expenses in connection with our new heavy duty aftermarket initiative related to
alternators and starters.
Interest Expense. Our interest expense, net of interest income, for the three months ended
September 30, 2008 was $1,148,000. This represents a decrease of $395,000, or 25.6%, over interest
expense, net of interest income, of $1,543,000 for the three months ended September 30, 2007. This
decrease was primarily attributable to a lower balance of receivables being factored during the
three months ended September 30, 2008 compared to the three months ended September 30, 2007. The
decrease in interest expense, net of interest income, was partially offset by an increase in
interest expense on our line of credit due to higher average outstanding balances during the three
months ended September 30, 2008 compared to the three months ended September 30, 2007.
Income Tax. For the three months ended September 30, 2008, we recognized income tax expense of
$1,541,000 compared to $439,000 for the three months ended September 30, 2007. Income tax expenses
for the three months ended September 30, 2008 and 2007 reflect income tax rates higher than the
federal statutory rates primarily due to state income taxes, which were partially offset by the
benefit of lower statutory tax rates in foreign taxing jurisdictions. At March 31, 2008, we no
longer had any federal net operating loss carry forward. As a result, our cash flow will be
impacted by our future tax payments.
Results of Operations for the Six Months Ended September 30, 2008 and 2007
The following discussion and analysis should be read in conjunction with the financial statements
and notes thereto appearing elsewhere herein.
The following table summarizes certain key operating data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
September 30, |
|
|
2008 |
|
2007 |
Gross profit percentage |
|
|
33.8 |
% |
|
|
26.6 |
% |
Cash flow from operations |
|
$ |
(10,571,000 |
) |
|
$ |
(15,760,000 |
) |
Finished goods turnover (annualized) (1) |
|
|
4.1 |
|
|
|
5.9 |
|
Annualized return on equity (2) |
|
|
11.8 |
% |
|
|
8.6 |
% |
|
|
|
(1) |
|
Annualized finished goods turnover for the six months ended September 30, 2008 and 2007 is
calculated by multiplying cost of sales for each six month period by 2 and dividing the result
by the average between beginning and ending non-core finished goods inventory values, for each
six month period. We believe this provides a useful measure of our ability to turn production
into revenues. |
|
(2) |
|
Annualized return on equity is computed as net income for the six months ended September 30,
2008 and 2007 multiplied by 2 and dividing the result by beginning shareholders equity.
Annualized return on equity measures our ability to invest shareholders funds profitably. |
20
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Following is our unaudited results of operations, reflected as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold |
|
|
66.2 |
|
|
|
73.4 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
33.8 |
|
|
|
26.6 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
|
13.3 |
|
|
|
13.7 |
|
Sales and marketing |
|
|
3.4 |
|
|
|
2.5 |
|
Research and development |
|
|
1.5 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
Operating income |
|
|
15.6 |
|
|
|
9.6 |
|
Interest expense net of interest income |
|
|
2.8 |
|
|
|
4.6 |
|
Income tax expense |
|
|
5.1 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
Net income |
|
|
7.7 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
Net Sales. Net sales for the six months ended September 30, 2008 decreased by $118,000, or 0.2%, to
$69,142,000 compared to net sales for the six months ended September 30, 2007 of $69,260,000. The
decrease in net sales was primarily due to the impact of purchasing and return patterns from our
existing customers, partially offset by an increase in net sales to new customers resulting from
our acquisitions.
Cost of Goods Sold/Gross Profit. Cost of goods sold as a percentage of net sales decreased during
the six months ended September 30, 2008 to 66.2% from 73.4% for the six months ended September 30,
2007, resulting in a corresponding increase in our gross profit of 7.2% to 33.8% for the six months
ended September 30, 2008 from 26.6% for the six months ended September 30, 2007. The increase in
the gross profit percentage, as compared to the six months ended September 30, 2007, was primarily
due to (i) the lower per unit manufacturing costs resulting from the transition of a majority of
remanufacturing operations from the United States to our Mexico and Malaysia facilities, and (ii)
the reversal of a $1,307,000 accrual related to the customs duties claims during the six months
ended September 30, 2008, which accrual was initially recorded during the six months ended
September 30, 2007.
General and Administrative. Our general and administrative expenses for the six months ended
September 30, 2008 were $9,174,000, which represents a decrease of $339,000, or 3.6%, from general
and administrative expenses for the six months ended September 30, 2007 of $9,513,000. This
decrease was primarily due to the following: (i) $891,000 of decreased audit and other professional
services fees, and (ii) $424,000 of decreased severance and other related expenses. These decreases
in general and administrative expenses were partially offset by (x) an increase of $395,000 at our
offshore facilities primarily due to the shift of remanufacturing operations, (y) an increase of
$357,000 for the six months ended September 30, 2008 compared to a decrease of $55,000 for the six
months ended September 30, 2007, due to the changes in the value of foreign exchange contracts, and
(z) an increase of $125,000 in travel related expenses.
Sales and Marketing. Our sales and marketing expenses for the six months ended September 30, 2008
increased $630,000, or 36.5%, to $2,356,000 from $1,726,000 for the six months ended September 30,
2007. This increase was due primarily to the addition of employees which resulted from our
acquisition of AIM, increased trade show and advertising expenses, an increase in travel related
expenses, and an increase in consulting fees.
Research and Development. Our research and development expenses increased by $493,000, or 89.6%, to
$1,043,000 for the six months ended September 30, 2008 from $550,000 for the six months ended
September 30, 2007. The increase was primarily related to an increase in compensation and travel
related expenses in connection with our new heavy duty aftermarket initiative related to
alternators and starters.
Interest Expense. Our interest expense, net of interest income, for the six months ended September
30, 2008 was $1,966,000. This represents a decrease of $1,220,000, or 38.3%, over interest expense,
net of interest income, of $3,186,000 for the six months ended September 30, 2007. This decrease
was primarily attributable to a lower
21
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
balance of receivables being factored during the six months
ended September 30, 2008 compared to the six months ended September 30, 2007. Interest expense, net
of interest income, also decreased slightly due to a decrease in short-term interest rates.
Income Tax. For the six months ended September 30, 2008, we recognized income tax expense of
$3,495,000 compared to $1,412,000 for the six months ended September 30, 2007. Income tax expenses
for the six months ended September 30, 2008 and 2007 reflect income tax rates higher than the
federal statutory rates primarily due to state income taxes, which were partially offset by the
benefit of lower statutory tax rates in foreign taxing jurisdictions. At March 31, 2008, we no
longer had any federal net operating loss carry forward. As a result, our cash flow will be
impacted by our future tax payments.
Liquidity and Capital Resources
Overview
At September 30, 2008, we had negative working capital of $2,142,000, a ratio of current assets to
current liabilities of 0.96:1, and cash of $129,000, compared to working capital of $6,097,000, a
ratio of current assets to current liabilities of 1.1:1, and cash of $1,935,000 at March 31, 2008.
The change in working capital from March 31, 2008 is primarily the result of increased short-term
borrowings under our line of credit, which were primarily used to acquire certain assets of AIM and
SCP, to offset the reduction in cash resources due to one of our customers suspension of its
receivable discount program to factor our accounts receivable, and to pay down our accounts payable
balances.
We have financed our operations through the use of our Revolving Loan and the receivable discount
programs we have with certain of our customers. In May 2008, one of these customers suspended the
use of its receivable discount program, but has advised us that it may be in a position to re-open
the use of this program sometime in the future. We cannot provide assurance that the program will
be re-instated or that a similar program with another customer will be established or continued.
We believe amounts available under our Credit Agreement and our cash and short term investments on
hand are sufficient to satisfy our expected future working capital needs, capital lease commitments
and capital expenditure obligations over the next year.
Cash Flows
Net cash used in operating activities was $10,571,000 for the six months ended September 30, 2008
compared to $15,760,000 for the six months ended September 30, 2007. The most significant changes
in operating activities for the six months ended September 30, 2008 compared to the six months
ended September 30, 2007 was (i) an increase in net income attributable in part to the following: (y) the
reversal of the customs duties accrual during the six months ended September 30, 2008, which
accrual was originally recorded during the six months ended September 30, 2007; (z) a reduction in
costs from the shift of remanufacturing operations to our Mexican and Malaysian facilities; (ii) an
increase in our long-term core inventory due to increased levels of Remanufactured Cores held
for sale at our customers locations; (iii) the reduction in cash resources due to one of our
customers suspension of its receivable discount program to factor our accounts receivable; and (iv) a less
significant reduction in our accounts payable and accrued liabilities for the six months
ended September 30, 2008 as compared to the six months ended September 30, 2007, as the proceeds
from our private placement were used to pay down accounts payable balances of $20,418,000 during
the six months ended September 30, 2007.
Additionally, as of March 31, 2008, we had no remaining net operating loss carry forwards. As net
operating loss carry forwards for tax purposes are no longer available, we anticipate that our
future cash flow will be impacted by our future tax payments.
Net cash used in investing activities was $8,160,000 and $991,000 during the six months ended
September 30, 2008 and 2007, respectively. The change primarily resulted from the acquisition of
certain assets of AIM of $4,664,000, less the $500,000 holdback, the acquisition of certain assets
of SCP of $4,320,000, less the $300,000 holdback and $1,293,000 note payable to SCP related to the
acquisition, and capital expenditures during the period of $1,232,000.
22
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
The capital expenditures primarily related to IT equipment and improvements at our Torrance, California and offshore
facilities.
Net cash provided by financing activities was $16,646,000, and $17,704,000, during the six months
ended September 30, 2008 and 2007, respectively. During the six months ended September 30, 2008, we
borrowed amounts under our line of credit to finance the acquisitions, to pay down our accounts
payable balances, and to offset the reduction in cash resources due to one of our customers
suspension of its receivable discount program to factor our accounts receivable. In May 2007, we
completed a private placement of our common stock and warrants, which was substantially used to pay
down borrowings under the line of credit and accounts payable balances.
Capital Resources
Line of Credit
On October 24, 2007, we entered into an amended and restated credit agreement (the Credit
Agreement) with our bank. Under the Credit Agreement, the bank continues to provide us with a
revolving loan (the Revolving Loan) of up to $35,000,000, including obligations under outstanding
letters of credit, which may not exceed $7,000,000. In January 2008, we entered into an amendment
to the Credit Agreement with our bank. This amendment extended the expiration date of our credit
facility to October 1, 2009.
In May 2008, our Credit Agreement was further amended to allow us to, among other things, borrow up
to $15,000,000 under the Revolving Loan for the purpose of consummating certain permitted
acquisitions. The aggregate consideration paid for any single permitted acquisition may not exceed
$7,500,000, and the aggregate consideration paid for all permitted acquisitions made during the
term of the Credit Agreement may not exceed $20,000,000.
In August 2008, we entered into a third amendment to the Credit Agreement, which increased the
amount of credit available under the Revolving Loan from $35,000,000 to $40,000,000. Pursuant to
the terms of these amendments, we may continue to use the entire available amount under the
Revolving Loan for working capital and general corporate purposes.
The bank holds a security interest in substantially all of our assets. At September 30, 2008, the
balance of the Revolving Loan was $17,550,000. There was no outstanding balance on the Revolving
Loan at March 31, 2008. Additionally, we had reserved $3,001,000 of the Revolving Loan for standby
letters of credit for workers compensation insurance as of September 30, 2008. As of September 30,
2008, $19,449,000 was available under the Revolving Loan.
The Credit Agreement (as amended), among other things, continues to require us to maintain certain
financial covenants, including cash flow, fixed charge coverage ratio and leverage ratio and
includes a number of restrictive covenants, including limits on capital expenditures and operating
leases, prohibitions against additional indebtedness, payment of dividends, pledge of assets and
loans to officers and/or affiliates. In addition, it is an event of default under the loan
agreement if Selwyn Joffe is no longer our CEO.
We were in compliance with all financial covenants under the Credit Agreement as of September 30,
2008.
Borrowings under the Revolving Loan bear interest at a base rate per annum plus an applicable
margin which fluctuates as noted below:
|
|
|
|
|
|
|
Leverage Ratio as of the End of the Fiscal Quarter |
|
|
Greater Than or |
|
|
Base Interest Rate Selected by us |
|
Equal to 1.50 to 1.00 |
|
Less Than 1.50 to 1.00 |
Banks Reference Rate, plus
|
|
0.0% per year
|
|
-0.25% per year |
Banks LIBOR Rate, plus
|
|
2.0% per year
|
|
1.75% per year |
Our ability to comply in future periods with the financial covenants in the Credit Agreement, as
amended, will depend on our ongoing financial and operating performance, which, in turn, will be
subject to economic conditions and to financial, business and other factors, many of which are
beyond our control and will be substantially
23
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
dependent on the selling prices and demand for our
products, customer demands for marketing allowances and other concessions, raw material costs, and
our ability to successfully implement our overall business strategy, including acquisitions. If a
violation of any of the covenants occurs in the future, we would attempt to obtain a waiver or an
amendment from our bank. No assurance can be given that we would be successful in this regard.
Receivable Discount Program
Our liquidity has been positively impacted by receivable discount programs we have established with
certain customers and their respective banks. Under these programs, we have the option to sell
those customers receivables to those banks at a discount to be agreed upon at the time the
receivables are sold. The discount under this program averaged 4.8% during the six months ended
September 30, 2008 and has allowed us to accelerate collection of receivables aggregating
$36,768,000 by an average of 314 days. While these arrangements have reduced our working capital
needs, there can be no assurance that these programs will continue in the future. These programs
resulted in interest costs of $1,421,000 during the six months ended September 30, 2008. These
interest costs would increase if interest rates rise, if utilization of these discounting
arrangements expands and if the discount period is extended to reflect more favorable payment terms
to customers.
In May 2008, one of these customers suspended the use of its receivable discount program, but has
advised us that it may be in a position to re-open the use of this program sometime in the future.
We cannot provide assurance that the program will be re-instated or that a similar program with
another customer will be established or continued.
Off-Balance Sheet Arrangements
At September 30, 2008, we had no off-balance sheet financing or other arrangements with
unconsolidated entities or financial partnerships (such as entities often referred to as structured
finance or special purpose entities) established for purposes of facilitating off-balance sheet
financing or other debt arrangements or for other contractually narrow or limited purposes.
Capital Expenditures and Commitments
Capital Expenditures
Our capital expenditures were $1,589,000 for the six months ended September 30, 2008, including the
capital expenditures acquired under capital leases. A significant portion of these expenditures
relate to IT equipment and improvements at our Torrance, California and offshore facilities. We
expect our fiscal 2009 capital expenditure to be in the range of $2.5 million to $3.5 million. We
expect to use our working capital and incur additional capital lease obligations to finance these
capital expenditures.
Customs Duties
We received a request for information dated April 16, 2007 from the U.S. Bureau of Customs and
Border Protection, or CBP, concerning the importation of products remanufactured at our Malaysian
facilities. In response to the CBPs request, we began an internal review, with the assistance of
customs counsel, of our custom duties procedures. During this review process, we identified a
potential exposure related to the omission of certain cost elements in the appraised value of used
alternators and starters, which were remanufactured in Malaysia and returned to the United States
since June 2002.
We also provided a prior disclosure letter dated June 5, 2007 to the customs authorities in order
to obtain more time to complete our internal review process. This prior disclosure letter also
provides us the opportunity to self report any underpayment of customs duties in prior years which
could reduce financial penalties, if any, imposed by the CBP. Based on our review, we determined
that it was probable the CBP would make a claim for additional duties, fees and interest on the
value of remanufactured units shipped back to us from Malaysia. Therefore, we recorded an accrual
for $1,836,000 as of March 31, 2008, representing the estimated maximum value of the probable
claim.
On February 7, 2008, we responded to the CBP with the results of our internal review for products
shipped back to us during the period from June 5, 2002 to March 31, 2007. In connection with this
response, we paid approximately
24
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
$278,000 to the CBP, which included the payment of duties, fees,
and interest on the value of certain components that were used in the remanufacture of the products
shipped back to us. On May 6, 2008, we paid an additional $126,000 to the CBP covering duties, fees
and interest on the value of certain components that were used in the remanufacture of the products
shipped back to us during the period from April 1, 2007 to March 31, 2008. These payments reduced
the accrued liability recorded in connection with the claim.
During the three months ended June 30, 2008, we received notification from the CBP stating that the
prior disclosure had been reviewed and determined to be valid, therefore, no further penalties are
likely to be assessed and the review was closed regarding remanufactured units shipped back to us
from Malaysia. During the three months ended June 30, 2008, the accrual of $1,307,000 was reversed,
reducing cost of goods sold.
Litigation
In December 2003, the SEC and the United States Attorneys Office brought actions against Richard
Marks, our former President and Chief Operating Officer. (Mr. Marks is also the son of Mel Marks,
our founder, largest shareholder and member of our Board of Directors.) Mr. Marks ultimately pled
guilty to several criminal charges in June 2005.
In June 2006, we entered into a Settlement Agreement and Mutual Release with Mr. Marks. Under this
agreement (which was unanimously approved by a Special Committee of the Board of Directors
consisting of Messrs. Borneo, Gay and Siegel), Mr. Marks agreed to pay us $682,000 as partial
reimbursement of the legal fees and costs we had advanced pursuant our pre-existing indemnification
agreements with Mr. Marks. This amount was due on January 15, 2008. In June 2006, we recorded a
shareholder note receivable for the $682,000 Mr. Marks owed us. The note was classified in
shareholders equity as it was collateralized by our common stock. Mr. Marks also agreed to pay
interest at the prime rate plus one percent on June 15, 2007 (paid on June 22, 2007) and January
15, 2008 (paid on January 22, 2008). Mr. Marks pledged shares of our common stock that he owned to
secure this obligation. Under the terms of an amendment to the agreement with Mr. Marks that was
effective January 15, 2008, we agreed to extend the due date of Mr. Marks obligation to pay
$682,000 from January 15, 2008 to July 15, 2008. This amendment was unanimously approved by the
Special Committee of the Board of Directors that had approved the original Settlement Agreement. On
July 22, 2008, we retired 108,534 shares of our common stock which had been pledged by Mr. Marks in
satisfaction of the $682,000 shareholder note receivable plus interest accrued from January 15,
2008 through July 22, 2008, and the remaining shares pledged as collateral were released to Mr.
Marks.
We are subject to various lawsuits and claims in the normal course of business. Management does not
believe that the outcome of these matters will have a material adverse effect on its financial
position or future results of operations.
Related Party Transactions
Our related party transactions primarily consist of employment and director agreements and stock
option agreements.
During the three months ended September 30, 2008, we paid Houlihan Lokey Howard & Zukin Capital,
Inc. a $100,000 retainer for services. Scott J. Adelson, a member of our board of directors, is a
Senior Managing Director for Houlihan Lokey Howard & Zukin Capital, Inc.
Except as noted above and in the Litigation discussion above, our related party transactions have
not changed since March 31, 2008.
Critical Accounting Policies
There have been no material changes to our critical
accounting policies and estimates that are
presented in our Annual Report on Form 10-K for the year ended March 31, 2008, except as
discussed below.
25
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No.
157 defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. It also
established a framework for measuring fair value in GAAP and expands disclosures about fair value
measurement. SFAS No. 157 applies to other accounting pronouncements that require or permit fair
value measurements. SFAS No. 157 was effective for fiscal years beginning after November 15, 2007.
However, a FASB Staff Position issued in February 2008, delayed the effectiveness of SFAS No. 157
for one year, but only as applied to nonfinancial assets and nonfinancial liabilities. The adoption
of SFAS No. 157 on April 1, 2008 did not have an impact on our financial position, results of
operations or cash flows.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as
of the measurement date. The classification of fair value measurements within the hierarchy is
based upon the lowest level of input that is significant to the measurement. The three levels are
defined as follows:
|
|
|
Level 1 Valuation is based upon quoted prices (unadjusted) in active markets for
identical assets or liabilities. |
|
|
|
|
Level 2 Valuation is based upon quoted prices for similar assets and liabilities in
active markets, or other inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument. |
|
|
|
|
Level 3 Valuation is based upon unobservable inputs that are significant to the fair
value measurement. |
The following table summarizes the valuation of our short-term investments and financial
instruments by the above SFAS No. 157 categories as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
Fair Value at |
|
Using Inputs Considered as |
|
|
September 30, 2008 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
355,000 |
|
|
$ |
355,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
|
|
355,000 |
|
|
|
355,000 |
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
|
|
212,000 |
|
|
|
|
|
|
$ |
212,000 |
|
|
|
|
|
Our short-term investments, which fund our deferred compensation liabilities, consist of
investments in mutual funds. These investments are classified as Level 1 as the shares of these
mutual funds trade with sufficient frequency and volume to enable us to obtain pricing information
on an ongoing basis.
The forward foreign currency exchange contracts are primarily measured based on the foreign
currency spot and forward rates quoted by the banks or foreign currency dealers. During the six
months ended September 30, 2008, an increase of $357,000 in general and administrative expenses was
recorded due to the change in the value of foreign exchange contracts.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159). SFAS No. 159 permits companies to choose to measure at fair
value certain financial instruments and other items that are not currently required to be measured
at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We
adopted SFAS No. 159 on April 1, 2008 and elected not to measure any additional financial
instruments or other items at fair value.
On December 4, 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)).
SFAS No. 141(R) applies to any transaction or other event that meets the definition of a business
combination. Where
26
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
applicable, SFAS No. 141(R) establishes principles and requirements for how the
acquirer recognizes and measures identifiable assets acquired, liabilities assumed, non-controlling
interest in the acquiree and goodwill or gain from a bargain purchase. In addition, SFAS No. 141(R)
determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. Also in December 2007, the FASB issued
Statement No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS No. 160).
This Statement amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
establish accounting and reporting standards for the non-controlling interest in a subsidiary and
for the deconsolidation of a subsidiary. SFAS No. 141(R) and SFAS No. 160 are required to be
adopted simultaneously and are effective for the first annual reporting period beginning on or
after December 15, 2008 with earlier adoption being prohibited. We do not currently have any
non-controlling interests in our subsidiaries. Both SFAS No. 141(R) and SFAS No. 160 are adopted
prospectively, therefore they do not have any current impact.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activities-an amendment of FASB Statement No. 133 (SFAS No. 161). SFAS No. 161 changes
the disclosure requirements for derivative instruments and hedging activities. Entities are
required to provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are accounted for under FASB
Statement No. 133 and its related interpretations, and (c) how derivative instruments and related
hedged items affect an entitys financial position, financial performance, and cash flows. The
guidance in SFAS No. 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161
encourages, but does not require, comparative disclosures for earlier periods at initial adoption.
We are currently assessing the impact of SFAS No. 161.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Principles (SFAS
No. 162). SFAS No. 162 outlines the order of authority for the sources of accounting principles.
SFAS No. 162 is effective 60 days following the SECs approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. We do not expect SFAS No. 162 to have any impact on our
consolidated financial statements and required disclosures.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The recent turmoil in the credit and capital markets has increased the volatility associated with
interest rates and foreign currency exchange rates. However, we continue to manage these risks as
described in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual
Report on Form 10-K as of March 31, 2008, which was filed on June 16, 2008.
For a further discussion of our market risk, refer to Item 7A. Quantitative and Qualitative
Disclosures About Market Risk in our Annual Report on Form 10-K as of March 31, 2008, which was
filed on June 16, 2008.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation required by the Securities Exchange Act of 1934 (the 1934 Act),
under the supervision and with the participation of our Chief Executive Officer, Chief Financial
Officer, and Chief Accounting Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rule 13a-15(e) of the 1934 Act, as of the end of
the period covered by this report. Based on this evaluation, our Chief Executive Officer, Chief
Financial Officer, and Chief Accounting Officer concluded that our disclosure controls and procedures
were effective to provide reasonable assurance that information required to
be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms and to
provide reasonable assurance that such information is accumulated and communicated to our
management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting
Officer, as appropriate to allow timely decisions regarding required disclosure.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving
their objectives as specified above. Management does not expect, however, that our disclosure
controls and procedures will prevent or
27
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
detect all error and fraud. Any control system, no matter
how well designed and operated, is based upon certain assumptions and can provide only reasonable,
not absolute, assurance that its objectives will be met. Further, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting that occurred
during the period covered by this report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1A. Risk Factors
Our business and operations entail a variety of risks and uncertainties, including those described
in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2008, filed with
the SEC on June 16, 2008. In addition, the following information amends and further updates our
risk factors and should be read in conjunction with those prior disclosures.
Deteriorating conditions in the global credit markets and macroeconomic factors could adversely
affect our financial condition and results of operations.
Over the past several months, significant deterioration in the financial condition of
financial institutions has resulted in a severe loss of liquidity and availability in global credit
markets and in higher short-term borrowing costs, and more stringent borrowing terms. Recessionary
conditions in the global economy threaten to cause further tightening of the credit markets, more
stringent lending standards and terms, and higher volatility in interest rates. The persistence of
these conditions could have a material adverse effect on our
borrowings and the availability, terms and cost of
such borrowings. In addition, further deterioration in the U.S. economy could adversely affect our
corporate results, which could adversely affect our operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Limitation on Payment of DividendsThe Credit Agreement prohibits the declaration or payment of
any dividends other than dividends payable in the capital stock of the Company.
Item 6. Exhibits.
(a) Exhibits:
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Number |
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Description of Exhibit |
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Method of Filing |
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3.1
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Certificate of Incorporation of the
Company
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Incorporated by reference to Exhibit 3.1
to the Companys Registration Statement on
Form SB-2 declared effective on March 22,
1994 (the 1994 Registration Statement). |
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3.2
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Amendment to Certificate of
Incorporation of the Company
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Incorporated by reference to Exhibit 3.2
to the Companys Registration Statement on
Form S-1 (No. 33-97498) declared effective
on November 14, 1995. |
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3.3
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Amendment to Certificate of
Incorporation of the Company
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Incorporated by reference to Exhibit 3.3
to the Companys Annual Report on Form
10-K for the fiscal year ended March 31,
1997. |
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3.4
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Amendment to Certificate of
Incorporation of the Company
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Incorporated by reference to Exhibit 3.4
to the Companys Annual Report on Form
10-K for the fiscal year ended March 31,
1998 (the 1998 Form 10-K). |
28
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
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Number |
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Description of Exhibit |
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Method of Filing |
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3.5
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Amendment to Certificate of
Incorporation of the Company
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Incorporated by reference to Exhibit C to
the Companys proxy statement on Schedule
14A filed with the SEC on November 25,
2003. |
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3.6
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By-Laws of the Company
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Incorporated by reference to Exhibit 3.2
to the 1994 Registration Statement. |
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4.1
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Specimen Certificate of the Companys
common stock
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Incorporated by reference to Exhibit 4.1
to the 1994 Registration Statement. |
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4.2
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Form of Underwriters common stock
purchase warrant
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Incorporated by reference to Exhibit 4.2
to the 1994 Registration Statement. |
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4.3
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1994 Stock Option Plan
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Incorporated by reference to Exhibit 4.3
to the 1994 Registration Statement. |
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4.4
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Form of Incentive Stock Option Agreement
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Incorporated by reference to Exhibit 4.4
to the 1994 Registration Statement. |
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4.5
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1994 Non-Employee Director Stock Option
Plan
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Incorporated by reference to Exhibit 4.5
to the Companys Annual Report on Form
10-KSB for the fiscal year ended March 31,
1995. |
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4.6
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1996 Stock Option Plan
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Incorporated by reference to Exhibit 4.6
to the Companys Registration Statement on
Form S-2 (No. 333-37977) declared
effective on November 18, 1997. |
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4.8
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2003 Long Term Incentive Plan
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Incorporated by reference to Exhibit 4.9
to the Companys Registration Statement on
Form S-8 filed with the SEC on April 2,
2004. |
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4.9
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2004 Non-Employee Director Stock Option
Plan
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Incorporated by reference to Appendix A to
the Proxy Statement on Schedule 14A for
the 2004 Annual Shareholders Meeting. |
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4.10
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Registration Rights Agreement among the
Company and the investors identified on
the signature pages thereto, dated as
of May 18, 2007
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Incorporated by reference to Exhibit 10.2
to Current Report on Form 8-K filed on May
18, 2007. |
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4.11
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Form of Warrant to be issued by the
Company to investors in connection with
the May 2007 Private Placement
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Incorporated by reference to Exhibit 10.4
to Current Report on Form 8-K filed on May
18, 2007. |
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31.1
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Certification of Chief Executive
Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
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Filed herewith. |
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31.2
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Certification of Chief Financial
Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
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Filed herewith. |
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31.3
|
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Certification of Chief Accounting
Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
|
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Filed herewith. |
29
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
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Number |
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Description of Exhibit |
|
Method of Filing |
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32.1
|
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Certifications of Chief Executive
Officer, Chief Financial Officer and
Chief Accounting Officer pursuant to
Section 906 of the Sarbanes Oxley Act
of 2002
|
|
Filed herewith. |
30
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
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.
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MOTORCAR PARTS OF AMERICA, INC
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Dated: November 10, 2008 |
By: |
/s/ David Lee
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David Lee |
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Chief Financial Officer |
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Dated: November 10, 2008 |
By: |
/s/ Kevin Daly
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Kevin Daly |
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Chief Accounting Officer |
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31
Exhibit 31.1
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Selwyn Joffe, certify that:
1. I have reviewed this report on Form 10-Q of Motorcar Parts of America, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused, such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrant most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting.
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
|
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|
Date: November 10, 2008 |
/s/ Selwyn Joffe
|
|
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Selwyn Joffe |
|
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Chief Executive Officer |
|
|
Exhibit 31.2
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, David Lee, certify that:
1. I have reviewed this report on Form 10-Q of Motorcar Parts of America, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused, such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based upon such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
|
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|
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|
Date: November 10, 2008 |
/s/ David Lee
|
|
|
David Lee |
|
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Chief Financial Officer |
|
|
Exhibit 31.3
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Kevin Daly, certify that:
1. I have reviewed this report on Form 10-Q of Motorcar Parts of America, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused, such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based upon such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
|
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|
|
|
|
|
|
Date: November 10, 2008 |
/s/ Kevin Daly
|
|
|
Kevin Daly |
|
|
Chief Accounting Officer |
|
|
Exhibit 32.1
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
CERTIFICATE OF CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND CHIEF
ACCOUNTING OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the Company) on Form
10-Q for the quarter ended September 30, 2008 as filed with the Securities and Exchange Commission
on the date hereof (the Quarterly Report), I, Selwyn Joffe, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to my knowledge, that:
|
1. |
|
The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities and Exchange Act of 1934; and |
|
|
2. |
|
The information contained in the Quarterly Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
|
|
|
|
|
|
|
|
|
/s/ Selwyn Joffe |
|
|
Selwyn Joffe |
|
|
Chief Executive Officer |
|
|
November 10, 2008 |
|
In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the Company) on Form
10-Q for the quarter ended September 30, 2008 as filed with the Securities and Exchange Commission
on the date hereof (the Quarterly Report), I, David Lee, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to my knowledge, that:
|
1. |
|
The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities and Exchange Act of 1934; and |
|
|
2. |
|
The information contained in the Quarterly Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
|
|
|
|
|
|
|
|
|
/s/ David Lee
|
|
|
David Lee |
|
|
Chief Financial Officer |
|
|
November 10, 2008 |
|
In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the Company) on Form
10-Q for the quarter ended September 30, 2008 as filed with the Securities and Exchange Commission
on the date hereof (the Quarterly Report), I, Kevin Daly, Chief Accounting Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to my knowledge, that:
|
1. |
|
The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities and Exchange Act of 1934; and |
|
|
2. |
|
The information contained in the Quarterly Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
|
|
|
|
|
|
|
|
|
/s/ Kevin Daly
|
|
|
Kevin Daly |
|
|
Chief Accounting Officer |
|
|
November 10, 2008 |
|
The foregoing certifications are being furnished to the Securities and Exchange Commission as part
of the accompanying report on Form 10-Q. A signed original of each of these statements has been
provided to Motorcar Parts of America, Inc. and will be retained by Motorcar Parts of America, Inc.
and furnished to the Securities and Exchange Commission or its staff upon request.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 17, 2008
Motorcar Parts of America, Inc.
(Exact name of registrant as specified in its charter)
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New York
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001-33861
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11-2153962 |
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(State or other jurisdiction
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(Commission
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(IRS Employer |
of incorporation)
|
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File Number)
|
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Identification No.) |
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2929 California Street, Torrance CA
|
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90503 |
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(Address of principal executive offices)
|
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(Zip Code) |
Registrants telephone number, including area code: (310) 212-7910
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions:
o |
|
Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425) |
|
o |
|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12) |
|
o |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b)) |
|
o |
|
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c)) |
Item
3.01. Notice of Delisting or Failure to Satisfy a Continued Listing
Rule or Standard; Transfer of Listing.
On November 19, 2008, Motorcar Parts of America, Inc.
(the Registrant) notified the Nasdaq Stock Market, Inc.
(NASDAQ) that as a result of the vacancy caused by
Irv Siegels resignation from its Board of Directors, as discussed in Item 5.02 below, the Registrant is not presently
in compliance with NASDAQ Marketplace Rules 4350(c)(1) and 4350(d)(2)(A). These rules require
that (i) a majority of its Board of Directors be comprised of independent members and (ii) its Audit
Committee be comprised of three independent members, respectively. On November 20, 2008, the Registrant received
a NASDAQ Staff Deficiency Letter indicating that the Registrant presently fails to comply with these requirements.
The letter also indicated that NASDAQ will provide the Registrant with the cure periods in accordance with NASDAQ
Marketplace Rules 4350(c)(1) and 4350(d)(4)(B), respectively.
The
Registrant is currently conducting a search for a new director who
would meet the requirements of NASDAQ and be appointed to the
Registrants Board of Directors and Audit Committee within the cure
periods allowed under the NASDAQ Stock Market Rules.
In
addition, the Registrants By-Laws require that committees of its
Board of Directors consist of at least three members. The Registrant
intends to meet the By-Laws requirement by either appointing a new
director to serve on the committees that Mr. Siegel previously served
on or by appointing other current members of the Board of Directors
to serve on such committees.
On
November 21, 2008, the Registrant issued a press release regarding
the Registrants noncompliance with the requirements of the NASDAQ
Marketplace Rules and the NASDAQ Staff Deficiency Letter received by
the Registrant from NASDAQ. The press release is attached hereto as
Exhibit 99.1 and is incorporated herein by reference.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers.
Effective November 17, 2008, Irv Siegel resigned as a director of the Registrant. There was no disagreement or dispute between Mr. Siegel and the Registrant
relating to the Registrants operations, policies or practices.
In addition to being a member of the Registrants Board of Directors, Mr. Siegel was the Chairman
of the Compensation Committee and a member of the Audit, Ethics and Nominating and Corporate
Governance Committees. Mr. Siegel resigned from each of these committees effective November 17,
2008.
Mr. Siegel shall receive a consulting fee of $5,000 per month for the three months following his
resignation from the Registrant in connection with certain transition services which may be
provided by him to the Registrant as requested by the Registrant.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
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99.1 |
|
Press Release of Motorcar Parts of America, Inc., dated November 21, 2008. |
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 hereunto duly authorized.
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MOTORCAR PARTS OF AMERICA, INC.
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Date: November 21, 2008
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/s/ Michael M. Umansky |
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Michael M. Umansky |
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Vice President and General Counsel |
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EXHIBIT INDEX
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Exhibit No. |
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Description |
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99.1 |
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Press Release of Motorcar Parts of
America Inc., dated November 21, 2008. |
Exhibit 99.1
NEWS RELEASE
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CONTACT:
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Gary S. Maier |
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Maier & Company, Inc. |
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(310) 442-9852 |
MOTORCAR PARTS OF AMERICA RECEIVES NON-COMPLIANCE LETTER FROM NASDAQ
CONCERNING BOARD COMPOSITION
Expects to Fill Vacancy and Regain Compliance in a Timely Manner
LOS ANGELES, CA November 21, 2008 Motorcar Parts of America, Inc. (NasdaqGM:MPAA) today
announced it has been notified by the Nasdaq Stock Market, Inc. that the company is not presently
in compliance with NASDAQ Marketplace Rules 4350(c)(1) and 4350(d)(2)(A) as a result of a vacancy
caused by the recent resignation of Irv Siegel from its board of directors.
The NASDAQ Marketplace Rules require that a majority of its board of directors be comprised
of independent members and its audit committee be comprised of three independent members.
The company received a NASDAQ Staff Deficiency Letter on November 20, 2008 indicating its
current non-compliance with the requirements of NASDAQ Marketplace Rules 4350(c)(1) and
4350(d)(2)(A). The letter also indicated that NASDAQ will provide Motorcar Parts of America with
the cure periods in accordance with NASDAQ Marketplace Rules 4350(c)(1) and 4350(d)(4)(B),
respectively.
Motorcar Parts of America is currently conducting a search for a new director who would meet
the requirements of NASDAQ and be appointed to its board of directors and audit committee within
the cure periods allowed under the NASDAQ Stock Market Rules.
The companys bylaws require that committees of its board of directors consist of at least
three members. It intends to meet the requirements of the companys bylaws by either appointing a
new director to serve on the committees that Mr. Siegel previously served on or by appointing other
current members of the board of directors to serve on such committees.
About Motorcar Parts of America
Motorcar Parts of America, Inc. is a remanufacturer of alternators and starters for imported
and domestic passenger vehicles, light trucks and heavy duty applications. Its products are sold
to
(more)
Tribecca
Plaza 12233 West
Olympic Boulevard
Suite 258 Los
Angeles, California 90064
TELEPHONE
310.442.9852
FACSIMILE 310.442.9855
Motorcar Parts of America, Inc.
2-2-2
automotive retail outlets and the professional repair market throughout the United States and
Canada. The companys facilities are located in California, Tennessee, Mexico, Malaysia and
Singapore. Additional information is available at www.motorcarparts.com.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain
forward-looking statements. The statements contained in this press release that are not historical
facts are forward-looking statements based on the companys current expectations and beliefs
concerning future developments and their potential effects on the company, including its ability to
fill the board vacancy in a timely manner. These forward-looking statements involve significant
risks and uncertainties (some of which are beyond the control of the company) and are subject to
change based upon various factors. Reference is also made to the Risk Factors set forth in the
companys Form 10-K Annual Report filed with the Securities and Exchange Commission (SEC)in June
2008 and in its Form 10-Qs filed with the SEC thereafter for additional risks and uncertainties
facing the company. The company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as the result of new information, future events or otherwise.
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