Motorcar Parts Of America Inc 10-Q for FY2023 Q3
Motorcar Parts Of America Inc (MPAA)
10-Q
2023-02-09
For: 2022-12-31
View Original
Added on
April 05, 2026
About this 10-Q
Motorcar Parts Of America Inc filed this 10-Q on February 9, 2023, covering the quarter ended December 31, 2022 (FY2023 Q3).
Headline figures
Quarter ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $151.82M
- down 6.2% from $161.81M a year earlier
- Net income
- $1.03M
- down 67.3% from net income of $3.14M a year earlier
- Diluted EPS
- $0.05
- down 68.8% from $0.16 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2022
|
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
(Exact name of registrant as specified in its charter)
|
|
|
|
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Registrant’s telephone number, including area code: (310 )
212-7910
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading symbol(s)
|
Name of each exchange on which registered
|
|
|
|
|
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer ☐
|
|
|
Non-accelerated filer ☐
|
Smaller reporting company
|
|
|
Emerging growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
There were 19,491,395 shares of Common Stock
outstanding at February 2, 2023.
MOTORCAR PARTS OF AMERICA, INC.
|
PART I — FINANCIAL INFORMATION
|
||
|
4
|
||
|
4
|
||
|
5
|
||
|
6
|
||
|
7
|
||
|
8
|
||
|
9
|
||
|
22
|
||
|
30
|
||
|
30
|
||
|
PART II — OTHER INFORMATION
|
||
|
32
|
||
|
32
|
||
|
32
|
||
|
32
|
||
|
32
|
||
|
33
|
||
|
35
|
||
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 automobile part which has previously been used in the operation of a vehicle. Generally, the Used Core is an original equipment (“OE”) automobile part 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 programs. 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 automobile part. When sufficient Used Cores are not
available from our customers, we 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 programs, and
which have been physically received by us, are part of our raw material and work-in-process inventory. Used Cores returned by consumers to our customers but not yet returned to us are classified as contract assets until we physically receive
these Used Cores.
“Remanufactured Core” — The Used Core underlying an automobile part that has gone through the remanufacturing process and through that process has become part of a newly remanufactured automobile part. 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
automobile part. Remanufactured Cores held for sale at our customer locations are included in long-term contract assets. The Remanufactured Core portion of stock adjustment returns are classified as contract assets until we physically
receive them.
PART I — FINANCIAL INFORMATION
| Item 1. |
Financial Statements
|
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
|
December 31, 2022
|
March 31, 2022
|
|||||||
|
ASSETS
|
(Unaudited)
|
|||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Short-term investments
|
|
|
||||||
|
Accounts receivable — net
|
|
|
||||||
|
Inventory
|
|
|
||||||
|
Contract assets
|
|
|
||||||
|
Prepaid expenses and other current assets
|
|
|
||||||
|
Total current assets
|
|
|
||||||
|
Plant and equipment — net
|
|
|
||||||
|
Operating lease assets
|
|
|
||||||
|
Long-term deferred income taxes
|
|
|
||||||
|
Long-term contract assets
|
|
|
||||||
|
Goodwill and intangible assets — net
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
TOTAL ASSETS
|
$
|
|
$
|
|
||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable and accrued liabilities
|
$
|
|
$
|
|
||||
|
Customer finished goods returns accrual
|
|
|
||||||
|
Contract liabilities
|
|
|
||||||
|
Revolving loan
|
|
|
||||||
|
Other current liabilities
|
|
|
||||||
|
Operating lease liabilities
|
|
|
||||||
|
Current portion of term loan
|
|
|
||||||
|
Total current liabilities
|
|
|
||||||
|
Term loan, less current portion
|
|
|
||||||
|
Long-term contract liabilities
|
|
|
||||||
|
Long-term deferred income taxes
|
|
|
||||||
|
Long-term operating lease liabilities
|
|
|
||||||
|
Other liabilities
|
|
|
||||||
|
Total liabilities
|
|
|
||||||
|
Commitments and contingencies
|
|
|
||||||
|
Shareholders’ equity:
|
||||||||
|
Preferred stock; par value $
|
|
|
||||||
|
Series A junior participating preferred stock; par value $
|
|
|
||||||
|
Common stock; par value $
|
|
|
||||||
|
Additional paid-in capital
|
|
|
||||||
|
Retained earnings
|
|
|
||||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
|
Total shareholders’ equity
|
|
|
||||||
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
|
$
|
|
||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Net sales
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Cost of goods sold
|
|
|
||||||||||||||
|
Gross profit
|
||||||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
General and administrative
|
|
|
||||||||||||||
|
Sales and marketing
|
|
|
||||||||||||||
|
Research and development
|
|
|
||||||||||||||
|
Foreign exchange impact of lease liabilities and forward contracts
|
(
|
)
|
|
( |
) | |||||||||||
|
Total operating expenses
|
|
|
||||||||||||||
|
Operating income
|
|
|
||||||||||||||
|
Interest expense, net
|
|
|
||||||||||||||
|
(Loss) income before income tax (benefit) expense
|
(
|
)
|
|
( |
) | |||||||||||
|
Income tax (benefit) expense
|
(
|
)
|
|
( |
) | |||||||||||
|
Net income (loss)
|
$
|
|
$
|
|
$ | ( |
) | $ | ||||||||
|
Basic net income (loss) per share
|
$
|
|
$
|
|
$ | ( |
) | $ | ||||||||
|
Diluted net income (loss) per share
|
$
|
|
$
|
|
$ | ( |
) | $ | ||||||||
|
Weighted average number of shares outstanding:
|
||||||||||||||||
|
Basic
|
|
|
||||||||||||||
|
Diluted
|
|
|
||||||||||||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Net income (loss)
|
$
|
|
$
|
|
$ | ( |
) | $ | ||||||||
|
Other comprehensive income (loss), net of tax:
|
||||||||||||||||
|
Foreign currency translation gain (loss)
|
|
(
|
)
|
|||||||||||||
|
Total other comprehensive income (loss), net of tax
|
|
(
|
)
|
|||||||||||||
|
Comprehensive income (loss)
|
$
|
|
$
|
|
$ | ( |
) | $ | ||||||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
(Unaudited)
|
Common Stock
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
(Loss) Income
|
Total
|
|||||||||||||||||||
|
Balance at March 31, 2022
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Compensation recognized under employee stock plans
|
-
|
|
|
|
|
|
||||||||||||||||||
|
Exercise of stock options, net of shares withheld for employee taxes
|
|
|
|
|
|
|
||||||||||||||||||
|
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
Foreign currency translation
|
-
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
|
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
|
Balance at June 30, 2022
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Compensation recognized under employee stock plans
|
-
|
|||||||||||||||||||||||
|
Exercise of stock options, net of shares withheld for employee taxes
|
||||||||||||||||||||||||
|
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
|
( |
) | ( |
) | ||||||||||||||||||||
|
Foreign currency translation
|
- | |||||||||||||||||||||||
|
Net loss
|
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance at September 30, 2022
|
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
|
Compensation recognized under employee stock plans
|
-
|
|||||||||||||||||||||||
|
Exercise of stock options, net of shares withheld for employee taxes
|
||||||||||||||||||||||||
|
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
|
( |
) | ||||||||||||||||||||||
|
Foreign currency translation
|
-
|
|||||||||||||||||||||||
|
Net income
|
-
|
|||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
|
Common Stock
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
(Loss) Income
|
Total
|
|||||||||||||||||||
|
Balance at March 31,2021
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Compensation recognized under employee stock plans
|
-
|
|
|
|
|
|
||||||||||||||||||
|
Exercise of stock options, net of shares withheld for employee taxes
|
||||||||||||||||||||||||
|
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
Foreign currency translation
|
-
|
|
|
|
|
|
||||||||||||||||||
|
Net income
|
-
|
|
|
|
|
|
||||||||||||||||||
|
Balance at June 30, 2021
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Compensation recognized under employee stock plans
|
- | |||||||||||||||||||||||
|
Exercise of stock options, net of shares withheld for employee taxes
|
||||||||||||||||||||||||
|
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
|
( |
) | ( |
) | ||||||||||||||||||||
|
Foreign currency translation
|
-
|
|||||||||||||||||||||||
|
Net income
|
- | |||||||||||||||||||||||
|
Balance at September 30, 2021
|
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
|
Compensation recognized under employee stock plans
|
-
|
|||||||||||||||||||||||
|
Exercise of stock options, net of shares withheld for employee taxes
|
||||||||||||||||||||||||
|
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
|
||||||||||||||||||||||||
|
Repurchase and cancellation of treasury stock, including fees
|
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
|
Foreign currency translation
|
-
|
( |
) | ( |
) | |||||||||||||||||||
|
Net income
|
-
|
|||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
(Unaudited)
| Nine Months Ended | ||||||||
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net (loss) income
|
$
|
(
|
)
|
$
|
|
|||
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
|
|
||||||
|
Amortization of interest
|
|
|
||||||
|
Amortization of core premiums paid to customers
|
|
|
||||||
|
Amortization of finished goods premiums paid to customers
|
|
|
||||||
|
Noncash lease expense
|
|
|
||||||
|
Gain due to the change in the fair value of the contingent consideration
|
|
|
||||||
|
Foreign exchange impact of lease liabilities and forward contracts
|
(
|
)
|
|
|||||
|
Loss (gain) on short-term investments
|
|
(
|
)
|
|||||
|
Net provision for inventory reserves
|
|
|
||||||
|
Net provision for customer payment discrepancies and credit losses
|
|
|
||||||
|
Deferred income taxes
|
|
(
|
)
|
|||||
|
Share-based compensation expense
|
|
|
||||||
|
Loss on disposal of plant and equipment
|
|
|
||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
|
|
||||||
|
Inventory
|
(
|
)
|
(
|
)
|
||||
|
Prepaid expenses and other current assets
|
(
|
)
|
|
|||||
|
Other assets
|
|
|
||||||
|
Accounts payable and accrued liabilities
|
(
|
)
|
(
|
)
|
||||
|
Customer finished goods returns accrual
|
(
|
)
|
|
|||||
|
Contract assets, net
|
(
|
)
|
(
|
)
|
||||
|
Contract liabilities, net
|
|
|
||||||
|
Operating lease liabilities
|
(
|
)
|
(
|
)
|
||||
|
Other liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from investing activities:
|
||||||||
|
Purchase of plant and equipment
|
(
|
)
|
(
|
)
|
||||
|
Purchase of short-term investments
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Borrowings under revolving loan
|
|
|
||||||
|
Repayments of revolving loan
|
(
|
)
|
(
|
)
|
||||
|
Repayments of term loan
|
(
|
)
|
(
|
)
|
||||
|
Payments for debt issuance costs
|
(
|
)
|
(
|
)
|
||||
|
Payments on finance lease obligations
|
(
|
)
|
(
|
)
|
||||
|
Exercise of stock options, net of cash used to pay employee taxes
|
|
|
||||||
|
Cash used to net share settle equity awards
|
(
|
)
|
(
|
)
|
||||
|
Repurchase of common stock, including fees
|
( |
) | ||||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
(
|
)
|
|
|||||
|
Net decrease in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Cash and cash equivalents — Beginning of period
|
|
|
||||||
|
Cash and cash equivalents — End of period
|
$
|
|
$
|
|
||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Cash paid for interest, net
|
$
|
|
$
|
|
||||
|
Cash paid for income taxes, net of refunds
|
|
|
||||||
|
Cash paid for operating leases
|
|
|
||||||
|
Cash paid for finance leases
|
|
|
||||||
|
Plant and equipment acquired under finance leases
|
|
|
||||||
|
Assets acquired under operating leases
|
|
|
||||||
|
Non-cash capital expenditures
|
|
|
||||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
December 31, 2022
(Unaudited)
1. Company Background and Organization
Motorcar Parts of America, Inc. and its subsidiaries (the “Company”, or “MPA”) is a leading supplier of automotive aftermarket non-discretionary replacement
parts, and test solutions and diagnostic equipment. These replacement parts are primarily sold to automotive retail chain stores and warehouse distributors throughout North America and to major automobile manufacturers for both their aftermarket
programs and warranty replacement programs (“OES”). The Company’s test solutions and diagnostic equipment primarily serves the global automotive component and powertrain testing market. The Company’s products include (i) rotating electrical products
such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters, brake rotors, brake pads, and brake master cylinders, and (iv) other products, which include (a)
turbochargers and (b) test solutions and diagnostic equipment used for electric vehicle powertrain development and manufacturing including electric motor test systems, e-axle test systems, advanced power emulators, charging unit test systems, test
systems for alternators and starters, belt starter generators, bench-top testers, and specialized test services for electric vehicle inverters.
Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for segment reporting, the
Company has identified its chief operating decision maker (“CODM”), reviewed the documents used by the CODM, and understands how such documents are used by the CODM to make financial and operating decisions. The Company has determined through this
review process that its business comprises three separate operating segments. The operating segments meet all the criteria to be
aggregated and are presented as such.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic continues to adversely impact the U.S. and global economies – creating uncertainty regarding the potential effects on the supply chain
disruptions, rate of inflation, increasing interest rates, and customer demand. The extent to which these may impact the Company will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted. The Company
may continue to experience adverse impacts to its business because of an economic recession or depression that has occurred or may occur in the future.
2. Basis of Presentation and New Accounting Pronouncements
Basis of Presentation
The accompanying unaudited condensed 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 three and nine months ended December 31, 2022 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2023. This report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2022, which are included in the
Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 14, 2022.
The accompanying condensed 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 2, Summary of Significant Accounting Policies, to
the consolidated financial statements that are presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022.
3. Accounts Receivable — Net
The Company has trade accounts receivable that result from the sale of goods and services. Accounts receivable — net includes offset accounts related to
allowances for credit losses, customer payment discrepancies, and returned goods authorizations (“RGAs”) issued for in-transit unit returns. The Company uses receivable discount programs with certain customers and their respective banks (see Note
10).
Accounts receivable — net is comprised of the following:
|
|
December 31, 2022
|
March 31, 2022
|
||||||
|
Accounts receivable — trade
|
$
|
|
$
|
|
||||
|
Allowance for credit losses
|
(
|
)
|
(
|
)
|
||||
|
Customer payment discrepancies
|
(
|
)
|
(
|
)
|
||||
|
Customer returns RGA issued
|
(
|
)
|
(
|
)
|
||||
|
Total accounts receivable — net
|
$
|
|
$
|
|
||||
4. Inventory
Inventory is comprised of the following:
|
|
December 31, 2022
|
March 31, 2022
|
||||||
|
Inventory
|
||||||||
|
Raw materials
|
$
|
|
$
|
|
||||
|
Work-in-process
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
|
|
|
||||||
|
Less allowance for excess and obsolete inventory
|
(
|
)
|
(
|
)
|
||||
|
Inventory — net
|
|
|
||||||
|
Inventory unreturned
|
|
|
||||||
|
Total inventory
|
$
|
|
$
|
|
||||
5. Contract Assets
During the three months ended December 31, 2022 and 2021, the Company reduced the
carrying value of Remanufactured Cores held at customers’ locations by $863,000 and $846,000 ,
respectively. During
the nine months ended December 31, 2022 and 2021, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $2,704,000
and $3,517,000 , respectively.
Contract assets are comprised of the following:
|
|
December 31, 2022
|
March 31, 2022
|
||||||
|
Short-term contract assets
|
||||||||
|
Cores expected to be returned by customers
|
$
|
|
$
|
|
||||
| Core premiums paid to customers | ||||||||
|
Upfront payments to customers
|
|
|
||||||
|
Finished goods premiums paid to customers
|
|
|
||||||
|
Total short-term contract assets
|
$
|
|
$
|
|
||||
|
Remanufactured cores held at customers’ locations
|
$
|
|
$
|
|
||||
| Core premiums paid to customers | ||||||||
| Long-term core inventory deposits | ||||||||
| Finished goods premiums paid to customers | ||||||||
|
Upfront payments to customers
|
|
|
||||||
|
Total long-term contract assets
|
$
|
|
$
|
|
||||
6. Significant Customer and Other Information
Significant Customer Concentrations
The largest customers accounted for the following percentage of net sales:
|
|
Three Months Ended
December 31,
|
Nine Months
Ended
December 31,
|
||||||||||||||
|
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Net sales
|
||||||||||||||||
|
Customer A
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
|
Customer B
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
|
Customer C
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
| Customer D |
% | % | % | % | ||||||||||||
The largest customers accounted for the following percentage of accounts receivable – trade:
|
|
December 31, 2022
|
March 31, 2022
|
||||||
|
Accounts receivable - trade
|
||||||||
|
Customer A
|
|
%
|
|
%
|
||||
|
Customer B
|
|
%
|
|
%
|
||||
| Customer C | % | % | ||||||
| Customer D |
% | % | ||||||
Geographic and Product Information
The Company’s products are sold predominantly in the U.S. and accounted for the following percentages of net sales:
|
|
Three Months Ended
December 31,
|
Nine Months
Ended
December 31,
|
||||||||||||||
|
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
| Product line |
||||||||||||||||
|
Rotating electrical products
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
|
Wheel hub products
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
|
Brake-related products
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
|
Other products
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
|
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||
Significant Supplier Concentrations
The Company had no suppliers that accounted for more than 10% of inventory purchases for the three and nine months ended December 31, 2022 and 2021.
7. Debt
The Company is party to a $268,620,000 senior
secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders and PNC Bank, National Association, as administrative agent, consisting of (i) a $238,620,000 revolving loan facility, subject to borrowing base restrictions, a $24,000,000
sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”). The loans under the Credit Facility mature on May 28, 2026 . The Credit Facility currently permits the payment of up to $29,043,000
of dividends and share repurchases for fiscal year 2023, subject to pro forma compliance with financial covenants. In connection with the Credit Facility, the lenders have a security interest in substantially all of the assets of the Company.
The Term Loans require quarterly principal payments of $937,500 . The Credit Facility bears interest at rates equal
to either SOFR (as defined below) plus a margin of 2.25 %, 2.50 % or 2.75 % or a reference rate plus a margin of 1.25 %, 1.50 % or 1.75 %, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375 % to 0.50 %, depending on the senior
leverage ratio as of the applicable measurement date. The interest rate on the Company’s Term Loans and Revolving Facility was 6.98 % and
7.16 % respectively, at December 31, 2022, and 2.99 % and 3.13 % respectively, at March 31, 2022.
The Credit Facility, among other things, requires the Company to maintain certain financial covenants including a maximum senior leverage
ratio and a minimum fixed charge coverage ratio. In addition, the Credit Facility places limits on the Company’s ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in
asset sales, redeem, or repurchase capital stock, alter the business conducted by the Company and its subsidiaries, transact with affiliates, prepay, redeem, or purchase subordinated debt, and amend or otherwise alter debt agreements.
On November 3, 2022, the Company entered into a fourth amendment to the Credit Facility (the “Fourth Amendment”). The Fourth Amendment,
among other things, (i) modified the fixed charge coverage ratio financial covenant for the fiscal quarters ending September 30, 2022 and December 31, 2022, (ii) modified the total leverage ratio financial covenant for the fiscal quarter ending
September 30, 2022, (iii) modified the definition of “Consolidated EBITDA”, and (iv) replaced LIBOR as the benchmark rate with a replacement benchmark based on the Secured Overnight Financing Rate (“SOFR”) effective beginning November 3, 2022.
The modifications to the financial covenants were effective as of September 30, 2022.
As of December 31, 2022, the Company identified certain defaults with respect to
the Credit Facility, which arose from non-compliance with certain financial covenants. On February 3, 2023, the Company entered into a fifth amendment to the Credit Facility (the “Fifth Amendment”). The Fifth Amendment, among other things, (i)
waived certain existing defaults and events of default arising from non-compliance with the fixed charge coverage ratio and senior leverage ratio financial covenants as of the end of the fiscal quarter ended December 31, 2022, (ii) modified the
fixed charge coverage ratio and senior leverage ratio financial covenants for the quarters ending March 31, 2023 and June 30, 2023, (iii) modified the definitions of “Applicable Margin” and “Consolidated EBITDA”, and (iv) added a new minimum
undrawn availability financial covenant.
The following summarizes information about the Term Loans:
|
|
December 31, 2022
|
March 31, 2022
|
||||||
|
Principal amount of Term Loans
|
$
|
|
$
|
|
||||
|
Unamortized financing fees
|
(
|
)
|
(
|
)
|
||||
|
Net carrying amount of Term Loans
|
|
|
||||||
|
Less current portion of Term Loans
|
(
|
)
|
(
|
)
|
||||
|
Long-term portion of Term Loans
|
$
|
|
$
|
|
||||
Future repayments of the Term Loans are as follows:
|
Year Ending March 31,
|
||||
|
2023
- remaining three months
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
Total payments
|
$
|
|
||
The Company had $175,000,000 and $155,000,000 outstanding under the Revolving Facility at December 31, 2022 and March 31, 2022, respectively. In addition, $6,370,000 was outstanding for letters of credit at December
31, 2022. At December 31, 2022, after certain contractual adjustments, $57,250,000 was available under the Revolving Facility.
8. Contract Liabilities
Contract liabilities are comprised of the following:
|
|
December 31, 2022
|
March 31, 2022
|
||||||
|
Short-term contract liabilities
|
||||||||
|
Customer allowances earned
|
$
|
|
$
|
|
||||
|
Customer core returns accruals
|
|
|
||||||
|
Customer deposits
|
|
|
||||||
|
Accrued core payment
|
|
|
||||||
|
Core bank liability
|
|
|
||||||
|
Finished goods liabilities
|
|
|
||||||
|
Total short-term contract liabilities
|
$
|
|
$
|
|
||||
|
|
||||||||
|
Long-term contract liabilities
|
||||||||
|
Customer core returns accruals
|
$
|
|
$
|
|
||||
|
Core bank liability
|
|
|
||||||
|
Accrued core payment
|
|
|
||||||
|
Finished goods liabilities
|
|
|
||||||
|
Customer allowances earned
|
|
|
||||||
|
Total long-term contract liabilities
|
$
|
|
$
|
|
||||
9. Leases
The Company leases various facilities in North America and Asia under operating leases expiring through August 2033. The Company has material nonfunctional currency leases that could have a material impact on the Company’s
condensed consolidated statements of operations. As required for other monetary liabilities, lessees remeasure foreign currency-denominated lease liabilities using the exchange rate at each reporting date, but the lease assets are nonmonetary
assets measured at historical rates and are not affected by subsequent changes in the exchange rates. In connection with the remeasurement of these leases, the Company recorded a gain of $3,129,000 and a loss of $985,000 during the three months ended December 31,
2022 and 2021, respectively. During the nine months ended December 31, 2022 and 2021, the Company recorded gains of $2,108,000 and $64,000 , respectively, in connection with the remeasurement of
these leases. These amounts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of operations.
Balance sheet information for leases is as follows:
|
Leases
|
Classification
|
December 31, 2022
|
March 31, 2022
|
|||||||
|
Assets:
|
|
|||||||||
|
Operating
|
|
$
|
|
$
|
|
|||||
|
Finance
|
|
|
|
|||||||
|
Total leased assets
|
|
$
|
|
$
|
|
|||||
|
|
|
|||||||||
|
Liabilities:
|
|
|||||||||
|
Current
|
|
|||||||||
|
Operating
|
|
$
|
|
$
|
|
|||||
|
Finance
|
|
|
|
|||||||
|
Long-term
|
|
|||||||||
|
Operating
|
|
|
|
|||||||
|
Finance
|
|
|
|
|||||||
|
Total lease liabilities
|
|
$
|
|
$
|
|
|||||
Lease cost recognized in the condensed consolidated statements of operations is as follows:
|
Three Months Ended
|
Nine Months
Ended |
|||||||||||||||
|
|
December 31,
|
December 31, |
||||||||||||||
|
|
2022
|
2021
|
2022 |
2021 |
||||||||||||
|
Lease cost
|
||||||||||||||||
|
Operating lease cost
|
$
|
|
$
|
|
$ |
$ |
||||||||||
|
Short-term lease cost
|
|
|
||||||||||||||
|
Variable lease cost
|
|
|
||||||||||||||
|
Finance lease cost:
|
||||||||||||||||
|
Amortization of finance lease assets
|
|
|
||||||||||||||
|
Interest on finance lease liabilities
|
|
|
||||||||||||||
|
Total lease cost
|
$
|
|
$
|
|
$ |
$ |
||||||||||
Maturities of lease commitments at December 31, 2022
by fiscal year were as follows:
|
Maturity of lease liabilities
|
Operating Leases
|
Finance Leases
|
Total
|
|||||||||
|
2023
- remaining three months
|
$
|
|
$
|
|
$
|
|
||||||
|
2024
|
|
|
|
|||||||||
|
2025
|
|
|
|
|||||||||
|
2026
|
|
|
|
|||||||||
|
2027
|
|
|
|
|||||||||
|
Thereafter
|
|
|
|
|||||||||
|
Total lease payments
|
|
|
|
|||||||||
|
Less amount representing interest
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Present value of lease liabilities
|
$
|
|
$
|
|
$
|
|
||||||
Other information about leases is as follows:
|
|
December 31, 2022
|
March 31, 2022
|
||||||
|
Lease term and discount rate
|
||||||||
|
Weighted-average remaining lease term (years):
|
||||||||
|
Finance leases
|
|
|
||||||
|
Operating leases
|
|
|
||||||
|
Weighted-average discount rate:
|
||||||||
|
Finance leases
|
|
%
|
|
%
|
||||
|
Operating leases
|
|
%
|
|
%
|
||||
10. Accounts Receivable Discount Programs
The Company uses receivable discount programs with certain customers and their respective banks. Under these programs, the Company may sell those customers’
receivables to those banks at a discount to be agreed upon at the time the receivables are sold. These discount arrangements allow the Company to accelerate receipt of payment on customers’ receivables.
The following is a summary of accounts receivable discount programs:
|
Nine Months
Ended
|
||||||||
|
|
December 31,
|
|||||||
|
|
2022
|
2021
|
||||||
|
Receivables discounted
|
$
|
|
$
|
|
||||
|
Weighted average number of days collection was accelerated
|
|
|
||||||
|
Annualized weighted average discount rate
|
|
%
|
|
%
|
||||
|
Amount of discount recognized as interest expense
|
$
|
|
$
|
|
||||
11. Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, which would result in the issuance of incremental shares of common stock to the extent
such impact is not anti-dilutive.
The following presents a reconciliation of basic and diluted net income (loss) per
share:
| Three Months Ended | Nine
Months Ended |
|||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
|
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Net income (loss)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Basic shares
|
|
|
|
|
||||||||||||
|
Effect of potentially dilutive securities
|
|
|
|
|
||||||||||||
|
Diluted shares
|
|
|
|
|
||||||||||||
|
Net income (loss) per share:
|
||||||||||||||||
|
Basic net income (loss) per
share
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Diluted net income (loss) per
share
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
Potential common shares that would have the effect of increasing diluted net
income per share or decreasing diluted net loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted net income
(loss) per share. For the three months ended December 31, 2022 and 2021, there were 1,201,984 and 1,130,694 , respectively, of potential common shares not included in the calculation of diluted net income (loss) per share because their effect was anti-dilutive. For the nine months ended December 31, 2022 and 2021, there were 1,897,876 and 720,756 , respectively, of potential common shares not included in the calculation of
diluted net income (loss) per share because their effect was anti-dilutive.
12. Income Taxes
The Company recorded an income tax benefit of $8,971,000 , or an effective tax rate of 112.9 %, and income tax expense of $1,588,000 , or an effective tax rate of 33.6 %,
for the three months ended December 31, 2022 and 2021, respectively. The Company recorded an income tax benefit of $9,296,000 , or an
effective tax rate of 62.1 %, and income tax expense of $4,786,000 , or an effective tax rate of 38.4 %, for the nine months ended
December 31, 2022 and 2021, respectively. Effective tax rates are based on current annual projections and any changes in future periods could result in an effective tax rate that is materially different from the current estimate. The effective tax
rate for the three and nine months ended December 31, 2022, was primarily impacted by (i) specific jurisdictions that the Company does not expect to recognize the benefit of losses, (ii) foreign income taxed at rates that are different from the
federal statutory rate, and (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m).
The Company and its subsidiaries file income tax returns in the U.S. federal, various state, and foreign jurisdictions with varying
statutes of limitations. At December 31, 2022, the Company is not under examination in any jurisdiction, and remain subject to examination from the years ended March 31, 2017. The Company believes no significant changes in the unrecognized tax
benefits will occur within the next 12 months.
13. Financial Risk Management and Derivatives
Purchases and expenses denominated in currencies other than the U.S. dollar, which are primarily related to the Company’s overseas facilities, expose the
Company to market risk from material movements in foreign exchange rates between the U.S. dollar and the foreign currencies. The Company’s primary risk exposure is from fluctuations in the value of the Mexican peso and to a lesser extent the Chinese
yuan. To mitigate these risks, the Company enters into forward foreign currency exchange contracts to exchange U.S. dollars for these foreign currencies. The extent to which forward foreign currency exchange contracts are used, is modified
periodically in response to the Company’s estimate of market conditions and the terms and length of anticipated requirements.
The Company enters into forward foreign currency exchange contracts in order to reduce the impact of foreign currency fluctuations and not to engage in
currency speculation. The use of derivative financial instruments allows the Company to reduce its exposure to the risk that the eventual cash outflow resulting from funding the expenses of the foreign operations will be materially affected by
changes in exchange rates between the U.S. dollar and the foreign currencies. The Company does not hold or issue financial instruments for trading purposes. The Company designates forward foreign currency exchange contracts for forecasted expenditure
requirements to fund foreign operations.
The Company had forward foreign currency exchange contracts with a U.S. dollar
equivalent notional value of $47,369,000 and $44,968,000 at December 31, 2022 and March 31, 2022, respectively. These contracts generally have a term of one year or less, at rates agreed at the inception of the contracts. The counterparty to this derivative transaction is a major financial institution with investment grade credit
rating; however, the Company is exposed to credit risk with this institution. The credit risk is limited to the potential unrealized gains (which offset currency fluctuations adverse to the Company) in any such contract should this counterparty
fail to perform as contracted. Any changes in the fair values of forward foreign currency exchange contracts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of
operations.
The following shows the effect of derivative instruments on the condensed consolidated statements of operations:
|
Gain (Loss) Recognized as Foreign Exchange Impact
of Lease Liabilities and Forward Contracts
|
||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
|
Derivatives Not Designated as
|
December 31,
|
December 31,
|
||||||||||||||
|
Hedging Instruments
|
2022
|
2021
|
2022 |
2021
|
||||||||||||
|
Forward foreign currency exchange contracts
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||||
The fair value of the forward foreign currency exchange contracts of $1,558,000 and $1,113,000 is included in prepaid expenses and other current assets in the condensed consolidated balance sheets at December 31, 2022 and March 31, 2022, respectively. The changes in the
fair values of forward foreign currency exchange contracts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of cash flows for the nine months ended December 31, 2022 and
2021.
14. Fair Value Measurements
The following summarizes financial assets and liabilities measured at fair value, by level within the fair value hierarchy:
|
December 31, 2022
|
March 31, 2022
|
|||||||||||||||||||||||||||||||
|
Fair Value Measurements
|
Fair Value Measurements
|
|||||||||||||||||||||||||||||||
|
Using Inputs Considered as
|
Using Inputs Considered as
|
|||||||||||||||||||||||||||||||
|
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Short-term investments Mutual funds
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Prepaid expenses and other current assets Forward foreign currency
exchange contracts
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Other current liabilities
|
||||||||||||||||||||||||||||||||
|
Deferred compensation
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Short-term Investments and Deferred Compensation
The Company’s 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.
Forward Foreign Currency Exchange Contracts
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 (See Note 13).
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximate their fair value due to the short-term nature of these instruments. The carrying amounts of the revolving loan, term loan and other long-term liabilities approximate their fair value based on the variable nature of interest rates and
current rates for instruments with similar characteristics.
15. Share-based Payments
Stock Options
During the nine months ended December 31, 2022 and 2021,
no
The following is a summary of stock option transactions:
|
|
Number of
Shares
|
Weighted Average
Exercise Price
|
||||||
|
Outstanding at March 31, 2022
|
|
$
|
|
|||||
|
Granted
|
|
$
|
|
|||||
|
Exercised
|
(
|
)
|
$
|
|
||||
|
Forfeited/Cancelled
|
(
|
)
|
$
|
|
||||
|
Expired
|
( |
) | $ | |||||
|
Outstanding at December 31, 2022
|
|
$
|
|
|||||
At December 31, 2022, options to purchase 99,839 shares of common stock were unvested at a weighted average exercise price of $15.16 .
At December 31, 2022, there was $295,000 of total unrecognized compensation expense related to unvested stock option awards, which will be recognized over the weighted average remaining vesting period of
approximately six months .
Restricted Stock Units and Restricted Stock Awards (collectively
“RSUs”)
During the nine months ended December 31, 2022 and 2021, the Company granted (i)
performance-based restricted stock awards which had a threshold performance level of 33,333 66,667 100,000 229,121 and 163,703 of time-based vesting restricted stock units, respectively, based on the closing market price on the grant date.
The following is a summary of non-vested RSUs:
|
|
Number of
Shares
|
Weighted Average
Grant Date Fair
Value
|
||||||
|
Outstanding at March 31, 2022
|
|
$
|
|
|||||
|
Granted
|
|
$
|
|
|||||
|
Vested
|
(
|
)
|
$
|
|
||||
|
Forfeited/Cancelled
|
(
|
)
|
$
|
|
||||
|
Outstanding at December 31, 2022
|
|
$
|
|
|||||
At December 31, 2022, there was $4,143,000 of unrecognized compensation expense related to RSUs, which will be recognized over the weighted average remaining vesting period of approximately 1.7 years.The Company’s unrecognized compensation expense includes restricted stock awards at
the target performance level as deemed probable at quarter-end.
Performance Stock Units (“PSUs”)
During the nine months ended December 31, 2022 and 2021, the Company granted 126,028 and 84,593 PSUs (at target
performance levels), respectively, which typically cliff vest after three-years subject to continued employment. These awards
are contingent and granted separately for each of the following metrics: adjusted EBITDA, net sales, and relative total shareholder return (“TSR”). Compensation cost is determined at the grant date and recognized on a straight-line basis over the
requisite service period to the extent the conditions are deemed probable. The number of shares earned at the end of the three-year period will vary, based only on actual performance, from 0 % to 150 % of the target number of PSUs granted. PSUs are not
considered issued or outstanding ordinary shares of the Company.
Adjusted EBITDA and net sales are considered performance conditions. The Company will reassess the probability of achieving each performance condition
separately each reporting period. TSR is considered a market condition because it measures the Company’s return against the performance of the Russell 3000, excluding companies classified as financials and real estate, over a given period of
time. Compensation cost related to the TSR award will not be adjusted even if the market condition is not met.
The Company calculated the fair value of the PSUs for each component individually. The fair value of PSUs subject to performance conditions is equal to
the closing stock price on the grant date. The fair value of PSUs subject to the market condition is determined using the Monte Carlo valuation model.
The following table summarizes the assumptions used in determining the fair value of the TSR awards:
|
Nine Months Ended
December 31,
|
||||||||
|
|
2022
|
2021 |
||||||
|
Risk free interest rate
|
|
|
%
|
% | ||||
|
Expected life in years
|
|
|||||||
|
Expected volatility of MPA common stock
|
|
%
|
% | |||||
|
Expected average volatility of peer companies
|
|
%
|
% | |||||
|
Average correlation coefficient of peer companies
|
|
%
|
||||||
|
Expected dividend yield
|
|
|||||||
|
Grant date fair value
|
$
|
|
$ | |||||
The following is a summary of non-vested PSUs:
|
|
Number of
Shares
|
Weighted Average
Grant Date Fair
Value
|
||||||
|
Outstanding at March 31, 2022
|
|
$
|
|
|||||
|
Granted
|
|
$
|
|
|||||
|
Vested
|
|
$
|
|
|||||
|
Forfeited
|
(
|
)
|
$
|
|
||||
|
Outstanding at December 31, 2022
|
|
$
|
|
|||||
At December 31,
2022, there was $2,231,000 of unrecognized
compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 2.1 years.
16. Commitments and Contingencies
Warranty Returns
The Company allows its customers to return goods that their consumers have returned to them, whether or not the returned item is 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 unit sales. Amounts charged to expense for these warranty returns are considered in
arriving at the Company’s net sales.
The following summarizes the changes in the warranty return accrual:
|
|
Three Months Ended
December 31,
|
Nine Months
Ended
December 31,
|
||||||||||||||
|
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Balance at beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Charged to expense
|
|
|
|
|
||||||||||||
|
Amounts processed
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Balance at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Contingencies
The Company is subject to various lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct
periodic examinations of and administrative proceedings regarding the Company’s business. Following an audit in fiscal 2019, the U.S. Customs and Border Protection stated that it believed that the Company owed additional duties of approximately $17 million from 2011 through mid-2018 relating to products that it imported from Mexico. The Company does not believe that this amount is correct and
believes that it has numerous defenses and intends to dispute this amount vigorously. The Company cannot assure that the U.S. Customs and Border Protection will agree or that it will not need to accrue or pay additional amounts in the future.
17. Share Repurchases
In August 2018, the Company’s board of directors approved an increase in its share repurchase program
from $20,000,000 to $37,000,000
of its common stock. During the three and nine months ended December 31, 2022, the Company did no 18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in the Company’s Credit Facility. The Company retired the 837,007 shares repurchased under this program through December 31, 2022. The Company’s share repurchase program does not obligate it to acquire any
specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.
18. Related Party
Transactions
Operating Lease
In December 2022, the Company entered into an
operating lease for its 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by
a member of management. The lease, commencing January 1, 2023, has an initial term of one year with a base rent of approximately $27,000 per month and includes options to renew for up to four years .
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis presents factors that Motorcar Parts of America, Inc. and its subsidiaries (“our,” “we” or “us”) 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, 2022 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on
June 14, 2022.
Disclosure Regarding Private Securities Litigation Reform Act of 1995
This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our future performance that involve risks and uncertainties. All
statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about our strategic initiatives, operational plans and objectives, expectations for economic conditions and recovery and
future business and financial performance, as well as statements regarding underlying assumptions related thereto. They include, among others, factors related to the timing and implementation of strategic initiatives, the highly
competitive nature of our industry, demand for our products and services, complexities in our inventory and supply chain, challenges with transforming and growing our business and factors related to the current global COVID-19 pandemic. Except as
required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason. Therefore, you should not place undue reliance on those statements. Please refer to “Item
1A. Risk Factors” of our most recent Annual Report on Form 10-K filed with the SEC on June 14, 2022, as updated by our subsequent filings with the SEC, for a description of these and other
risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements.
Management Overview
We have a multi-pronged platform for growth within the automotive aftermarket for non-discretionary replacement hard parts and test solutions. In addition, we offer diagnostic equipment applications focused on the fast-evolving electric mobility
markets. Our investments in infrastructure and human resources during the past few years reflects the significant expansion of manufacturing capacity to support multiple product lines and continues to be transformative and scalable. These
investments included (i) a 410,000 square foot distribution center, (ii) two buildings totaling 372,000 square feet for remanufacturing and core sorting of brake calipers, and (iii) the realignment of production at our initial 312,000 square foot
facility in Mexico. New products introduced through our growth strategies include brake pads and rotors, which were formally introduced during the first quarter of fiscal 2023.
Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for segment reporting, we have identified our chief operating decision maker (“CODM”),
reviewed the documents used by the CODM, and understand how such documents are used by the CODM to make financial and operating decisions. We have determined through this review process that our business comprises three separate operating segments.
The operating segments meet all the criteria to be aggregated and are presented as such.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic continues to adversely impact the U.S. and global economies – creating uncertainty regarding the potential effects on the supply chain disruptions, rate of inflation, increasing interest rates, and
customer demand. We incurred costs related to the COVID-19 pandemic, which are included in cost of goods sold and operating expenses in the condensed consolidated statements of operations, of $396,000 and $764,000 during the three months ended
December 31, 2022 and 2021, respectively, and $1,873,000 and $2,573,000 during the nine months ended December 31, 2022 and 2021, respectively.
Results of Operations for the Three Months Ended December 31, 2022 and 2021
The following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein.
The following summarizes certain key operating data:
|
Three Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Cash flow (used in) provided by operations
|
$
|
(4,474,000
|
)
|
$
|
2,165,000
|
|||
|
Finished goods turnover (annualized) (1)
|
3.1
|
4.0
|
||||||
| (1) |
Annualized finished goods turnover for the fiscal quarter is calculated by multiplying cost of goods sold 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 our inventory into revenues. Our finished goods turnover ratio for the three months ended December 31, 2022 was impacted by our investment in inventory
to address disruptions related to the global supply chain and logistics challenges to meet higher anticipated future sales.
|
Net Sales and Gross Profit
The following summarizes net sales and gross profit:
|
Three Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Net sales
|
$
|
151,819,000
|
$
|
161,810,000
|
||||
|
Cost of goods sold
|
130,826,000
|
129,235,000
|
||||||
|
Gross profit
|
20,993,000
|
32,575,000
|
||||||
|
Gross profit percentage
|
13.8
|
%
|
20.1
|
%
|
||||
Net Sales. Our net sales for the three months ended December 31, 2022 were $151,819,000, which represents a decrease of $9,991,000, or 6.2%, from the three months ended December 31, 2021 of $161,810,000.
Sales for the three months ended December 31, 2022 were impacted by (i) inventory reduction initiatives from one of our largest customers, (ii) changes in the purchasing and return patterns of certain customers, (iii) disruptions with global supply
chain and logistics services, and (iv) general economic conditions including extreme weather.
Gross Profit. Our gross profit was $20,993,000, or 13.8% of net sales, for the three months ended December 31, 2022 compared with $32,575,000, or 20.1% of net sales, for the
three months ended December 31, 2021. Our gross margin for the three months ended December 31, 2022 reflects (i) higher inflationary costs— including disruptions with the global supply chain, logistics services, higher wages, (ii) lower
absorption of overhead costs as we manage our inventory levels, and (iii) changes in product mix.
Our gross profit for the three months ended December 31, 2022 and 2021 was impacted by (i) additional expenses of $2,370,000 and $3,006,000, respectively, primarily due to certain costs for disruptions in the supply
chain, (ii) amortization of core and finished goods premiums paid to customers related to new business of $3,075,000 and $3,146,000, respectively, and (iii) the non-cash quarterly revaluation of cores that
are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $863,000 and $846,000, respectively.
Additionally, our gross margin was impacted for the three months ended December 31, 2021 by higher freight costs, net of certain price increases, of approximately $1,338,000.
Operating Expenses
The following summarizes operating expenses:
|
Three Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
General and administrative
|
$
|
13,599,000
|
$
|
14,605,000
|
||||
|
Sales and marketing
|
5,634,000
|
6,274,000
|
||||||
|
Research and development
|
2,547,000
|
2,635,000
|
||||||
|
Foreign exchange impact of lease liabilities and forward contracts
|
(4,313,000
|
)
|
385,000
|
|||||
|
Percent of net sales
|
||||||||
|
General and administrative
|
9.0
|
%
|
9.0
|
%
|
||||
|
Sales and marketing
|
3.7
|
%
|
3.9
|
%
|
||||
|
Research and development
|
1.7
|
%
|
1.6
|
%
|
||||
|
Foreign exchange impact of lease liabilities and forward contracts
|
(2.8
|
)%
|
0.2
|
%
|
||||
General and Administrative. Our general and administrative expenses for the three months ended December 31, 2022 were $13,599,000, which represents a decrease of $1,006,000, or 6.9%, from the three months
ended December 31, 2021 of $14,605,000. This decrease was primarily due to (i) $1,060,000 of decreased employee incentives and (ii) $1,009,000 of decreased share-based compensation in connection with equity grants made to employees. These decreases
were partially offset by (i) $723,000 of increased severance expense due to headcount reduction and (ii) $375,000 of increased employee-related expense at our offshore locations.
Sales and Marketing. Our sales and marketing expenses for the three months ended December 31, 2022 were $5,634,000, which represents a decrease of $640,000, or 10.2%, from the three months ended December
31, 2021 of $6,274,000. This decrease was primarily due to (i) $325,000 of decreased marketing and advertising expenses, (ii) $325,000 of decreased commissions due to lower sales, and (iii) $289,000 of decreased employee-related expenses due to our
cost-cutting measures. These decreases were partially offset by $265,000 for increased trade shows as normal business expenses resumed.
Research and Development. Our research and development expenses for the three months ended December 31, 2022 were $2,547,000, which represents a decrease of $88,000, or 3.3%, from the three months ended
December 31, 2021 of $2,635,000. This decrease was primarily due to our cost-cutting measures.
Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts for the three months ended December 31, 2022 was a non-cash gain
of $4,313,000 compared with a non-cash loss of $385,000 for the three months ended December 31, 2021. This change was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in a non-cash gain of
$3,129,000 compared with a non-cash loss of $985,000 for the three months ended December 31, 2022 and 2021, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in
non-cash gains of $1,184,000 and $600,000 for the three months ended December 31, 2022 and 2021, respectively, due to the changes in their fair values.
Interest Expense
Interest Expense, net. Our interest expense for the three months ended December 31, 2022 was $11,471,000, which represents an increase of $7,522,000, or 190.5%, from interest
expense for the three months ended December 31, 2021 of $3,949,000. Of this increase in interest expense, approximately 98% resulted from higher interest rates and approximately 73% of this increase resulted from our accounts receivable discount
programs utilized by our customers. Our borrowing and receivable discount programs have interest costs that vary with interest rate movements. In addition, our average borrowing under our credit facility increased during the three months ended
December 31, 2022 as compared with the three months ended December 31, 2021.
Provision for Income Taxes
Income Tax. We recorded an income tax benefit of $8,971,000, or an effective tax rate of 112.9%, and income tax expense of $1,588,000, or an effective tax rate of 33.6%, for the
three months ended December 31, 2022 and 2021, respectively. Effective tax rates are based on current annual projections and any changes in future periods could result in an effective tax rate that is materially different from the current estimate.
The effective tax rate for the three months ended December 31, 2022, was primarily impacted by (i) foreign income taxed at rates that are different from the federal statutory rate and (ii) non-deductible executive compensation under Internal
Revenue Code Section 162(m).
Results of Operations for the Nine Months Ended December 31, 2022 and 2021
The following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein.
The following summarizes certain key operating data:
|
Nine Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Cash flow used in operations
|
$
|
(21,428,000
|
)
|
$
|
(22,174,000
|
)
|
||
|
Finished goods turnover (annualized) (1)
|
3.3
|
4.2
|
||||||
| (1) |
Annualized finished goods turnover for the fiscal period is calculated by multiplying cost of goods sold for the period by 1.33 and dividing the result by the average between beginning and ending non-core finished goods inventory values
for the fiscal period. We believe this provides a useful measure of our ability to turn our inventory into revenues. Our finished goods turnover ratio for the nine months ended December 31, 2022 was impacted by our investment in inventory
to address disruptions related to the global supply chain and logistics challenges to meet higher anticipated future sales.
|
Net Sales and Gross Profit
The following summarizes net sales and gross profit:
|
Nine Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Net sales
|
$
|
488,347,000
|
$
|
486,392,000
|
||||
|
Cost of goods sold
|
410,536,000
|
394,295,000
|
||||||
|
Gross profit
|
77,811,000
|
92,097,000
|
||||||
|
Gross profit percentage
|
15.9
|
%
|
18.9
|
%
|
||||
Net Sales. Our net sales for the nine months ended December 31, 2022 were $488,347,000, which represents an increase of $1,955,000, or 0.4%, from the nine months ended December 31, 2021 of $486,392,000,
which was positively impacted by $13,327,000 in core revenue due to a realignment of inventory at certain customer distribution centers. Excluding the core revenue in the prior year, net sales increased $15,282,000, or 3.2%, for the nine months
ended December 31, 2022, reflecting increasing sales of our growing brake-related product lines. This increase in sales for the nine months ended December 31, 2022 were partially offset by inventory reduction initiatives from one of our largest
customers and disruptions with global supply chain and logistics services.
Gross Profit. Our gross profit was $77,811,000, or 15.9% of net sales, for the nine months ended December 31, 2022 compared with $92,097,000, or 18.9% of net sales, for the nine
months ended December 31, 2021. Our gross margin for the nine months ended December 31, 2022 reflects (i) higher inflationary costs— including disruptions with the global supply chain, logistics services, related higher freight costs, higher
wages, (ii) impact of core revenue in the prior period due to a realignment of inventory at certain customer distribution centers, and (iii) changes in product mix.
Our gross margin for the nine months ended December 31, 2022 and 2021 was impacted by (i) higher freight costs, net of certain price increases, of $3,290,000, and $7,413,000, respectively, (ii) additional expenses due
to certain costs for disruptions in the supply chain of $5,282,000 and $7,144,000, respectively, (iii) amortization of core and finished goods premiums paid to customers related to new business of $9,183,000 and
$9,013,000, respectively.
In addition, gross margin was impacted by non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net
realizable value, which resulted in a write-down of $2,704,000 for the nine months ended December 31, 2022.
For the nine months ended December 31, 2021, gross margin was impacted by non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to
the lower of cost or net realizable value and gain due to realignment of inventory at customer distribution centers, which resulted in a net gain of $1,229,000. Gross margin for the nine months ended December 31, 2021 was further impacted by
transition expenses in connection with the expansion of our brake-related operations in Mexico of $2,744,000.
Operating Expenses
The following summarizes operating expenses:
|
Nine Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
General and administrative
|
$
|
42,079,000
|
$
|
41,556,000
|
||||
|
Sales and marketing
|
17,242,000
|
17,162,000
|
||||||
|
Research and development
|
8,330,000
|
7,631,000
|
||||||
|
Foreign exchange impact of lease liabilities and forward contracts
|
(2,553,000
|
)
|
1,769,000
|
|||||
|
Percent of net sales
|
||||||||
|
General and administrative
|
8.6
|
%
|
8.5
|
%
|
||||
|
Sales and marketing
|
3.5
|
%
|
3.5
|
%
|
||||
|
Research and development
|
1.7
|
%
|
1.6
|
%
|
||||
|
Foreign exchange impact of lease liabilities and forward contracts
|
(0.5
|
)%
|
0.4
|
%
|
||||
General and Administrative. Our general and administrative expenses for the nine months ended December 31, 2022 were $42,079,000, which represents an increase of $523,000, or 1.3%, from the nine months
ended December 31, 2021 of $41,556,000. This increase was primarily due to (i) $1,722,000 of increased expense resulting from foreign currency transactions, (ii) $1,071,000 of increased severance expense due to headcount reduction, (iii) $491,000
of increased employee-related expense at our offshore locations, (iv) $436,000 of increased information technology costs in connection with cybersecurity and other productivity tools, (v) $301,000 of increased professional services, (vi) $299,000
of increased employee-related expense, and (vii) $282,000 of increased general insurance expense. These increases were partially offset by (i) $2,129,000 of decreased employee incentives and (ii) $1,936,000 of decreased share-based compensation in
connection with equity grants made to employees.
Sales and Marketing. Our sales and marketing expenses for the nine months ended December 31, 2022 were $17,242,000, which represents an increase of $80,000, or 0.5%, from the nine months ended December
31, 2021 of $17,162,000. This increase was primarily due to (i) $424,000 for increased trade shows as normal business expenses resumed, (ii) $366,000 of increased travel costs as some business travel resumed, and (iii) $93,000 of increased
commissions due to higher sales. These increases were partially offset by $592,000 of decreased marketing and advertising expenses and $139,000 of decreased employee-related expenses due to our cost-cutting measures.
Research and Development. Our research and development expenses for the nine months ended December 31, 2022 were $8,330,000, which represents an increase of $699,000, or 9.2%, from the nine months ended
December 31, 2021 of $7,631,000. This increase was primarily due to (i) $356,000 of increased employee-related expenses, primarily due to our electric vehicle testing system initiatives, (ii) $271,000 of increased samples for our core library and
other research and development supplies, and (iii) $55,000 of increased outside services primarily due to development projects.
Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts for the nine months ended December 31, 2022 was a non-cash gain
of $2,553,000 compared with a non-cash loss of $1,769,000 for the nine months ended December 31, 2021. This change was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in non-cash gains of
$2,108,000 and $64,000 for the nine months ended December 31, 2022 and 2021, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash gain of $445,000
compared with a non-cash loss of $1,833,000 for the nine months ended December 31, 2022 and 2021, respectively, due to the changes in their fair values.
Interest Expense
Interest Expense, net. Our interest expense for the nine months ended December 31, 2022 was $27,675,000, which represents an increase of $16,165,000, or 140.4%, from interest
expense for the nine months ended December 31, 2021 of $11,510,000. Of this increase in interest expense, approximately 96% resulted from higher interest rates and approximately 76% of this increase resulted from our accounts receivable discount
programs utilized by our customers. Our borrowing and receivable discount programs have interest costs that vary with interest rate movements. During the nine months ended December 31, 2022, utilization of our accounts receivable discount programs
and our average borrowing under our credit facility increased.
Provision for Income Taxes
Income Tax. We recorded an income tax benefit of $9,296,000, or an effective tax rate of 62.1%, and income tax expense of $4,786,000, or an effective tax rate of 38.4%, for the
nine months ended December 31, 2022 and 2021, respectively. Effective tax rates are based on current annual projections and any changes in future periods could result in an effective tax rate that is materially different from the current estimate.
The effective tax rate for the nine months ended December 31, 2022, was primarily impacted by (i) specific jurisdictions that we do not expect to recognize the benefit of losses, (ii) foreign income taxed at rates that are different from the
federal statutory rate, and (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m).
Liquidity and Capital Resources
Overview
We had working capital (current assets minus current liabilities) of $122,892,000 and $110,580,000, a ratio of current assets to current liabilities of 1.3:1.0, at December 31, 2022 and March 31, 2022, respectively. The increase in working
capital reflects our investment in inventory to address disruptions related to the global supply chain and logistics challenges to meet higher anticipated sales.
Our primary source of liquidity was from the use of our receivable discount programs and credit facility during the nine months ended December 31, 2022. In addition, we have access to our existing cash, as well as our available credit facilities
to meet short-term liquidity needs. We believe our cash and cash equivalents, short-term investments, use of receivable discount programs, amounts available under our credit facility, and other sources are sufficient to satisfy our expected future
working capital needs, repayment of the current portion of our term loans, and lease and capital expenditure obligations over the next 12 months.
As of December 31, 2022, we identified certain defaults with respect to the Credit Facility, which arose from non-compliance with certain financial covenants. On February 3, 2023, we entered into a fifth
amendment to the Credit Facility (the “Fifth Amendment”). The Fifth Amendment, among other things, (i) waived certain existing defaults and events of defaults arising from non-compliance with the fixed charge coverage ratio and senior leverage
ratio financial covenants as of the end of the fiscal quarter ended December 31, 2022, (ii) modified the fixed charge coverage ratio and senior leverage ratio financial covenant levels for the quarters ending March 31, 2023 and June 30, 2023, (iii)
modified the definitions of “Applicable Margin” and “Consolidated EBITDA”, and (iv) added a new minimum undrawn availability financial covenant.
Share Repurchase Program
In August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock. As of December 31, 2022, $18,745,000 was utilized and $18,255,000 remains available to repurchase
shares under the authorized share repurchase program, subject to the limit in our credit facility. We retired the 837,007 shares repurchased under this program through December 31, 2022. Our share repurchase program does not obligate us to acquire
any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.
Cash Flows
The following summarizes cash flows as reflected in the condensed consolidated statements of cash flows:
|
Nine Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Cash flows (used in) provided by:
|
||||||||
|
Operating activities
|
$
|
(21,428,000
|
)
|
$
|
(22,174,000
|
)
|
||
|
Investing activities
|
(3,855,000
|
)
|
(5,426,000
|
)
|
||||
|
Financing activities
|
14,898,000
|
19,770,000
|
||||||
|
Effect of exchange rates on cash and cash equivalents
|
(52,000
|
)
|
76,000
|
|||||
|
Net decrease in cash and cash equivalents
|
$
|
(10,437,000
|
)
|
$
|
(7,754,000
|
)
|
||
|
Additional selected cash flow data:
|
||||||||
|
Depreciation and amortization
|
$
|
9,322,000
|
$
|
9,591,000
|
||||
|
Capital expenditures
|
3,607,000
|
5,111,000
|
||||||
Net cash used in operating activities was $21,428,000 and $22,174,000 during the nine months ended December 31, 2022 and 2021, respectively. The change in our operating activities reflects a more significant build-up of inventory in the prior
year as compared with the current year partially offset by lower net income and lower accounts payable. We continue to manage our working capital to maximize our operating cash flow.
Net cash used in investing activities was $3,855,000 and $5,426,000 during the nine months ended December 31, 2022 and 2021, respectively. The change in our investing activities primarily resulted from decreased capital expenditures due to the
completion of our expansion of our brake-related operations in Mexico during the second quarter of fiscal 2022.
Net cash provided by financing activities was $14,898,000 and $19,770,000 during the nine months ended December 31, 2022 and 2021, respectively. The change in our financing activities resulted from lower borrowing and higher repayments under our
credit facility during the nine months ended December 31, 2022. In addition, we repurchased 106,486 shares of our common stock for $1,914,000 during the nine months ended December 31, 2021.
Capital Resources
Credit Facility
We are party to a $268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $238,620,000 revolving
loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term
Loans”). The loans under the Credit Facility mature on May 28, 2026. The Credit Facility currently permits the payment of up to $29,043,000 of dividends and share repurchases for fiscal year 2022, subject to pro forma compliance with financial
covenants. In connection with the Credit Facility, the lenders have a security interest in substantially all of our assets.
The Term Loans require quarterly principal payments of $937,500. The Credit Facility bears interest at rates equal to either SOFR (as defined below) plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or
1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on
the Company’s Term Loans and Revolving Facility was 6.98% and 7.16% respectively, at December 31, 2022, and 2.99% and 3.13% respectively, at March 31, 2022.
The Credit Facility, among other things, requires us to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. In addition, the Credit Facility places
limits on our ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem, or repurchase capital stock, alter the business conducted by us and our
subsidiaries, transact with affiliates, prepay, redeem, or purchase subordinated debt, and amend or otherwise alter debt agreements.
On November 3, 2022, we entered into a fourth amendment to the Credit Facility (the “Fourth Amendment”). The Fourth Amendment, among other things, (i) modified the fixed charge coverage ratio financial covenant for the
fiscal quarters ending September 30, 2022 and December 31, 2022, (ii) modified the total leverage ratio financial covenant for the quarter ending September 30, 2022, (iii) modified the definition of “Consolidated EBITDA”, and (iv) replaced LIBOR
as the benchmark rate with a replacement benchmark based on the Secured Overnight Financing Rate (“SOFR”) effective November 3, 2022. The modifications to the financial covenants were effective as of September 30, 2022.
As of December 31, 2022, we identified certain defaults with respect to the Credit Facility, which arose from non-compliance with certain financial covenants. On February 3,
2023, we entered into the Fifth Amendment, which among other things, (i) waived certain existing defaults and events of defaults arising from non-compliance with the fixed charge coverage ratio and senior leverage ratio financial covenants as of
the end of the fiscal quarter ended December 31, 2022, (ii) modified the fixed charge coverage ratio and senior leverage ratio financial covenant levels for the quarters ending March 31, 2023 and June 30, 2023, (iii) modified the definitions of
“Applicable Margin” and “Consolidated EBITDA”, and (iv) added a new minimum undrawn availability financial covenant.
We had $175,000,000 and $155,000,000 outstanding under the Revolving Facility at December 31, 2022 and March 31, 2022, respectively. In addition, $6,370,000 was outstanding for letters of credit at December 31, 2022. At
December 31, 2022, after certain contractual adjustments, $57,250,000 was available under the Revolving Facility.
Receivable Discount Programs
We use receivable discount programs with certain customers and their respective banks. Under these programs, we have options to sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are
sold. These discount arrangements allow us to accelerate receipt of payment on customers’ receivables. While these arrangements have reduced our working capital needs, there can be no assurance that these programs will continue in the future.
Interest expense resulting from these programs would increase if interest rates rise, if utilization of these discounting arrangements expands, if customers extend their payment to us, or if the discount period is extended to reflect more favorable
payment terms to customers.
The following is a summary of the receivable discount programs:
|
Nine Months Ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Receivables discounted
|
$
|
428,868,000
|
$
|
418,044,000
|
||||
|
Weighted average number of days collection was accelerated
|
323
|
335
|
||||||
|
Annualized weighted average discount rate
|
5.0
|
%
|
1.7
|
%
|
||||
|
Amount of discount recognized as interest expense
|
$
|
19,131,000
|
$
|
6,798,000
|
||||
Capital Expenditures and Commitments
Capital Expenditures
Our total capital expenditures, including finance leases and non-cash capital expenditures were $3,632,000 and $5,248,000 for the nine months ended December 31, 2022 and 2021, respectively. These capital expenditures primarily include the
purchase of equipment for our current operations. We completed the expansion of our operations in Mexico during the second quarter of fiscal 2022. We expect to incur approximately $1,500,000 of capital expenditures primarily to support our current
operations, including purchases of equipment, during the remainder of fiscal 2023. We fund these expenditures primarily from our working capital and leasing.
Related Party Transactions
Operating Lease
In December 2022, we entered into an operating lease for our 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management. The lease, commencing January 1, 2023, has an
initial term of one year with a base rent of approximately $27,000 per month and includes options to renew for up to four years.
Litigation
There have been no material changes to our litigation matters that are presented in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed on June 14, 2022.
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, 2022, which was filed on June 14, 2022.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
There have been no material changes in market risk from the information provided in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K as of March 31, 2022, which was filed with the SEC on
June 14, 2022.
| Item 4. |
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including our chief executive officer, chief financial officer, and
chief accounting officer, as appropriate to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of management, including our chief executive officer, chief financial officer, and chief accounting officer, we have conducted an evaluation of the effectiveness of our
disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our chief executive officer, chief financial officer, and chief accounting officer concluded that MPA’s disclosure controls and
procedures were effective as of December 31, 2022.
Inherent Limitations on Effectiveness of Controls
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America, applying certain estimates and judgments as required.
Internal control over financial reporting includes those policies and procedures that:
1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the Company; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the three months ended
December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
| Item 1. |
Legal Proceedings
|
There have been no material changes to our litigation matters that are presented in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed on June 14, 2022.
| Item 1A. |
Risk Factors
|
There have been no material changes in the risk factors set forth in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed on June 14, 2022.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
Limitation on Payment of Dividends and Share Repurchases
The Credit Facility currently permits the payment of up to $29,043,000 of dividends and share repurchases for fiscal year 2023, subject to pro forma compliance with financial covenants.
Purchases of Equity Securities by the Issuer
Shares repurchased during the three months ended December 31, 2022 were as follows:
|
Periods
|
Total Number of Shares Purchased
|
Average Price Paid Per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs (1)
|
||||||||||||
|
October 1 - October 31, 2022:
|
||||||||||||||||
|
Open market and privately negotiated purchases
|
-
|
$
|
-
|
-
|
$
|
18,255,000
|
||||||||||
|
November 1 - November 30, 2022:
|
||||||||||||||||
|
Open market and privately negotiated purchases
|
-
|
$
|
-
|
-
|
18,255,000
|
|||||||||||
|
December 1 - December 31, 2022:
|
||||||||||||||||
|
Open market and privately negotiated purchases
|
-
|
$
|
-
|
-
|
18,255,000
|
|||||||||||
|
Total
|
0
|
0
|
$
|
18,255,000
|
||||||||||||
| (1) |
As of December 31, 2022, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our Credit Facility. We retired the 837,007 shares
repurchased under this program through December 31, 2022. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.
|
| Item 3. |
Defaults Upon Senior Securities
|
As of December 31, 2022, the Company was in default under its financial covenants in its Loan Agreement with PNC Bank, National Association. As of February 3, 2023, the Company entered into the Fifth Amendment to the Loan Agreement that waived
the defaults and amended the applicable margin, financial covenants and other terms. A copy of the Fifth Amendment is attached to this Form 10-Q as Exhibit 10.2.
| Item 5. |
Other Information
|
None.
| Item 6. |
Exhibits
|
| (a) |
Exhibits:
|
|
Number
|
Description of Exhibit
|
Method of Filing
|
||
|
3.1
|
Certificate of Incorporation of the Company
|
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 declared effective on March 22, 1994 (the “1994 Registration Statement”).
|
||
|
3.2
|
Amendment to Certificate of Incorporation of the Company
|
Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No. 33-97498) declared effective on November 14, 1995.
|
||
|
3.3
|
Amendment to Certificate of Incorporation of the Company
|
|||
|
3.4
|
Amendment to Certificate of Incorporation of the Company
|
|||
|
3.5
|
Amendment to Certificate of Incorporation of the Company
|
|||
|
3.6
|
Amended and Restated By-Laws of Motorcar Parts of America, Inc.
|
|||
|
3.7
|
Certificate of Amendment of the Certificate of Incorporation of the Company
|
|||
|
3.8
|
Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on June 9, 2016
|
|||
|
3.9
|
Amendment to the Amended and Restated By-Laws of the Company
|
|||
|
3.10
|
Third Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on January 26, 2022
|
|||
|
4.1
|
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
|
|||
|
4.2
|
2004 Non-Employee Director Stock Option Plan
|
|||
|
4.3
|
2010 Incentive Award Plan
|
|||
|
4.4
|
Amended and Restated 2010 Incentive Award Plan
|
|
Number
|
Description of Exhibit
|
Method of Filing
|
||
|
4.5
|
Second Amended and Restated 2010 Incentive Award Plan
|
|||
|
4.6
|
2014 Non-Employee Director Incentive Award Plan
|
|||
|
4.7
|
Third Amended and Restated 2010 Incentive Award Plan
|
|||
|
4.8
|
Fourth Amended and Restated 2010 Incentive Award Plan
|
|||
|
4.9
|
2022 Incentive Award Plan
|
|||
|
10.1
|
Fourth Amendment to Amended and Restated Loan Agreement, dated as of November 3, 2022, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party
thereto, and PNC Bank, National Association, as administrative agent
|
|||
|
Fifth Amendment to Amended and Restated Loan Agreement, dated as of February 3, 2023, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party
thereto, and PNC Bank, National Association, as administrative agent
|
Filed herewith
|
|||
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
|
Filed herewith.
|
|||
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
|
Filed herewith.
|
|||
|
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
|
Filed herewith.
|
|||
|
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.
|
|||
|
Number
|
Description of Exhibit
|
Method of Filing
|
||
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document).
|
|||
|
101.SCM
|
Inline XBRL Taxonomy Extension Schema Document
|
|||
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|||
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|||
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|||
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|||
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
MOTORCAR PARTS OF AMERICA, INC.
|
||
|
Dated: February 9, 2023
|
By:
|
/s/ David Lee
|
|
David Lee
|
||
|
Chief Financial Officer
|
||
|
Dated: February 9, 2023
|
By:
|
/s/ Kamlesh Shah
|
|
Kamlesh Shah
|
||
|
Chief Accounting Officer
|
||
35
Exhibit 10.2
FIFTH AMENDMENT TO AMENDED AND RESTATED
LOAN AGREEMENT
This FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, dated as of February 3, 2023 (this “Fifth Amendment”) to that certain Amended and Restated Revolving Credit, Term Loan and Security Agreement,
dated as of June 5, 2018 (as amended, restated, amended and restated, refinanced, replaced, supplemented, modified or otherwise changed from time to time, the “Loan Agreement”), by and among Motorcar Parts of America, Inc., a corporation
organized under the laws of the State of New York (“MPA”, and together with each Person organized under the laws of a State of the United States joined thereto as a borrower from time to time (other than Dixie US), collectively, the “US
Borrowers”, and each, a “US Borrower”), D & V Electronics Ltd., a corporation amalgamated and existing under the laws of the Province of British Columbia (“D&V”), Dixie Electric Ltd., a corporation amalgamated under
the laws of Ontario (“Dixie Canada”), Dixie Electric Inc., a Delaware corporation (“Dixie US” and together with D&V, Dixie Canada and each Person organized under the laws of Canada joined thereto as a borrower from time to
time, collectively, the “Canadian Borrowers”, and each, a “Canadian Borrower”; the Canadian Borrowers and the US Borrowers are referred to therein each as a “Borrower” and collectively as “Borrowers”), each Person
joined thereto as a guarantor from time to time, the financial institutions which are now or which thereafter become a party thereto (collectively, the “Lenders” and each individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION
(“PNC”), as agent for the Lenders (in such capacity, the “Agent”).
BACKGROUND
Borrowers, Agent and the Lenders are party to the Loan Agreement pursuant to which Agent and Lenders provide Borrowers with certain financial accommodations.
Borrowers have requested that Agent and Lenders (i) waive the Specified Events of Default (as defined below) and (ii) make certain amendments to the Loan Agreement, and Agent and Lenders agree
to do so on the terms and conditions hereafter set forth.
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto hereby agree as follows:
1. Defined Terms. Any capitalized term used herein and not defined shall have the meaning assigned to it in the Loan Agreement.
2. Waiver. Subject to satisfaction of the conditions precedent set forth in Section 4 below, Agent and the Lenders hereby waive the following Events of Default: (a) any existing Event of Default
arising under Section 10.5 of the Loan Agreement resulting from the failure to comply with the minimum Fixed Charge Coverage Ratio level required pursuant to Section 6.5(a) of the Loan Agreement as of the end of the fiscal quarter ending
December 31, 2022, (b) any existing Event of Default arising under Section 10.5 of the Loan Agreement resulting from the failure to comply with the maximum Total Leverage Ratio required pursuant to Section 6.5(b) of the Loan Agreement as of the
end of the fiscal quarter ending December 31, 2022, and (c) solely relating to any Default or Event of Default described in clauses (a) and (b) above or resulting from the same, any existing Event of Default arising under Section 10.2 of the
Loan Agreement resulting from any representation, warranty, certification, or other statement made by the Borrowers that no Default or Event of Default has occurred and is continuing (collectively, the “Specified Events of Default”).
Notwithstanding the foregoing waivers, the Borrowers hereby agree that Agent and the Lenders are not obligated to waive any future Event of Default under the Loan Agreement.
3. Amendments.
(a) Section 1.2 of the Loan Agreement is hereby amended by inserting the following new defined terms in appropriate alphabetical order:
“Extraordinary Freight Costs” shall mean extraordinary and non-recurring freight costs above the freight surcharge Borrowers have passed on to Customers.
“Fifth Amendment” shall mean that certain Waiver and Fifth Amendment to Amended and Restated Loan Agreement dated as of February 3, 2023, by and among Borrowers, Agent and the Lenders
party thereto.
“Fifth Amendment Effective Date” shall mean the date on which the conditions precedent to the effectiveness of the Fifth Amendment are fulfilled or waived.
“Fifth Amendment Fee Letter” shall mean the fee letter dated February 3, 2023 between Agent and Borrowing Agent.
“Unsuppressed Undrawn Availability” at a particular date shall mean an amount equal to (a) the sum of the US Formula Amount plus the Canadian Formula Amount, minus (b) the sum of (i) the
outstanding amount of Advances (other than the Maximum Undrawn Amount of all outstanding Letters of Credit and the Term Loan) plus (ii) all amounts due and owing to any Loan Party’s trade creditors which are outstanding sixty (60) days
or more past their due date that are not otherwise (x) on formal extended terms which have been approved by Agent or (y) subject to a good faith dispute.
(b) Section 1.2 of the Loan Agreement is hereby further amended by amending and restating the following defined terms in their entirety:
“Applicable Margin” shall mean for Revolving Advances, Swing Loans, and the Term Loan commencing July 1, 2018 (using the March 31, 2018 financials), and thereafter
until the Fifth Amendment Effective Date, effective as of the first day of the month following the month in which the quarterly financial statements of the Loan Parties on a Consolidated Basis and related Compliance Certificate required under
Section 9.8 for the most recently completed fiscal quarter are due to be delivered (each day on which an adjustment is to be made, an “Adjustment Date”), the Applicable Margin for each type of Advance shall be adjusted from that in
effect prior to such date, if necessary, to the applicable percent per annum set forth in the pricing table below corresponding to the Total Leverage Ratio for the trailing four quarter period ending on the last day of the most recently
completed fiscal quarter prior to the applicable Adjustment Date:
2
|
TOTAL
LEVERAGE
RATIO
|
APPLICABLE MARGINS FOR
DOMESTIC RATE LOANS
|
APPLICABLE MARGINS FOR
TERM SOFR RATE LOANS
|
||
|
Revolving Advances, Swing Loans
|
Term Loan
|
Revolving Advances
|
Term Loan
|
|
|
Less than or equal to 0.50 to 1.00
|
1.25%
|
1.25%
|
2.25%
|
2.25%
|
|
Greater than 0.50 to 1.00 but less than 1.50 to 1.00
|
1.50%
|
1.50%
|
2.50%
|
2.50%
|
|
Greater than or equal to 1.50 to 1.00
|
1.75%
|
1.75%
|
2.75%
|
2.75%
|
Commencing on the Fifth Amendment Effective Date the Applicable Margin shall be as set forth in the pricing table below, based upon a Total Leverage Ratio which is greater
than or equal to 1.50 to 1.00, and thereafter on each Adjustment Date, the Applicable Margin for each type of Advance shall be adjusted, if necessary, to the applicable percent per annum set forth in the pricing table below corresponding to the
Total Leverage Ratio for the trailing four quarter period ending on the last day of the most recently completed fiscal quarter prior to the applicable Adjustment Date:
|
TOTAL
LEVERAGE
RATIO
|
APPLICABLE MARGINS FOR
DOMESTIC RATE LOANS
|
APPLICABLE MARGINS FOR
TERM SOFR RATE LOANS
|
||
|
Revolving Advances, Swing Loans
|
Term Loan
|
Revolving Advances
|
Term Loan
|
|
|
Less than or equal to 0.50 to 1.00
|
1.75%
|
1.75%
|
2.75%
|
2.75%
|
|
Greater than 0.50 to 1.00 but less than 1.50 to 1.00
|
2.00%
|
2.00%
|
3.00%
|
3.00%
|
|
Greater than or equal to 1.50 to 1.00
|
2.25%
|
2.25%
|
3.25%
|
3.25%
|
3
If Loan Parties shall fail to deliver the financial statements, certificates and/or other information required under Section 9.8 by the date required pursuant to such
section, each Applicable Margin shall be conclusively presumed to equal the highest Applicable Margin specified in the pricing table set forth above until the date of delivery of such financial statements, certificates and/or other information,
at which time the rate will be adjusted based upon the Total Leverage Ratio reflected in such statements. Notwithstanding anything to the contrary contained herein, no downward adjustment in any Applicable Margin shall be made on any
Adjustment Date on which any Event of Default shall have occurred and be continuing. Notwithstanding anything to the contrary contained herein, immediately and automatically upon the occurrence of any Event of Default under Sections 10.1,
10.5(i) (solely with respect to a failure to comply with Section 6.5) or 10.7, each Applicable Margin shall increase to and equal the highest Applicable Margin specified in the pricing table set forth above, until the date (if any) on which
such Event of Default shall be waived in accordance with the provisions of this Agreement, at which time the rate will be adjusted based upon the Total Leverage Ratio reflected on the most recently delivered financial statements and Compliance
Certificate delivered by the Loan Parties to Agent pursuant to Section 9.8. Any increase in interest rates and/or other fees payable by the Loan Parties under the Loan Documents pursuant to the provisions of the foregoing sentence shall be in
addition to and independent of any increase in such interest rates and/or other fees resulting from the occurrence of any Event of Default (including, if applicable, any Event of Default arising from a breach of Section 9.8 hereof) and/or the
effectiveness of the Default Rate provisions of Section 3.1 hereof or the default fee rate provisions of Section 3.2 hereof.
If, as a result of any restatement of, or other adjustment to, the financial statements of the Loan Parties on a Consolidated Basis or for any other reason, Agent
determines that (a) the Total Leverage Ratio as previously calculated as of any applicable date for any applicable period was inaccurate, and (b) a proper calculation of the Total Leverage Ratio for any such period would have resulted in
different pricing for such period, then (i) if the proper calculation of the Total Leverage Ratio would have resulted in a higher interest rate and/or fees (as applicable) for such period, automatically and immediately without the necessity of
any demand or notice by Agent or any other affirmative act of any party, the interest accrued on the applicable outstanding Advances and/or the amount of the fees accruing for such period under the provisions of this Agreement and the Other
Documents shall be deemed to be retroactively increased by, and Loan Parties shall be obligated within three (3) days to pay to Agent for the ratable benefit of Lenders an amount equal to the excess of the amount of interest and fees that
should have been paid for such period over the amount of interest and fees actually paid for such period; and (ii) if the proper calculation of the Total Leverage Ratio would have resulted in a lower interest rate and/or fees (as applicable)
for such period, then the interest accrued on the applicable outstanding Advances and the amount of the fees accruing for such period under the provisions of this Agreement and the Other Documents shall be deemed to remain unchanged, and Agent
and Lenders shall have no obligation to repay interest or fees to the Loan Parties; provided, that, if as a result of any restatement or other event or other determination by Agent a proper calculation of the Total Leverage Ratio would
have resulted in a higher interest rate and/or fees (as applicable) for one or more periods and a lower interest rate and/or fees (as applicable) for one or more other periods (due to the shifting of income or expenses from one period to
another period or any other reason), then the amount payable by the Loan Parties pursuant to clause (i) above shall be based upon the excess, if any, of the amount of interest and fees that should have been paid for all applicable periods over
the amounts of interest and fees actually paid for such periods.
4
“Consolidated EBITDA” shall mean, with respect to any Person for any period, (a) the Consolidated Net Income of such Person and its Subsidiaries for such period,
plus (b) without duplication, the sum of the following amounts of such Person and its Subsidiaries for such period and to the extent deducted in determining Consolidated Net Income of such Person for such period: (i) Consolidated Net Interest
Expense, (ii) income tax expense, (iii) depreciation expense, (iv) amortization expense, (v) severance charges in an aggregate amount not to exceed (A) $1,000,000 for the fiscal year of Borrowers ending on March 31, 2021, (B) $500,000 for the
fiscal year of Borrowers ending on March 31, 2022, (C) $2,000,000 for the fiscal year of Borrowers ending on March 31, 2023, (D) $2,250,000 for the fiscal year of Borrowers ending on March 31, 2024, and (E) $100,000 for any fiscal year of
Borrowers thereafter, (vi) any non-cash expenses incurred in connection with stock options and other equity-based compensation, (vii) non-cash charges reducing Consolidated Net Income (excluding any non-cash charge that results in an accrual of
a reserve for cash charges in any future period) for such period, (viii) standard inventory revaluation write-downs and write-ups; provided, that, commencing with the fiscal quarter ending
June 30, 2019, such amounts which may be added back pursuant to this clause (viii) with respect to Eligible Inventory which are not subject to a Repurchase Contract or which are at an MPA location shall be an aggregate amount not to exceed
$1,000,000 for each fiscal quarter (any portion of such amount not fully used in any given fiscal quarter may be rolled over to a subsequent fiscal quarter during any four quarter period); provided, further, that, commencing with the fiscal
quarter ending March 31, 2020, in no event shall the aggregate amount which may be added back pursuant this proviso to this clause (viii) exceed $4,000,000 for any trailing four quarter period, (ix) non-cash losses on Hedging Agreements, (x)
any expenses incurred in connection with stock offerings, (xi) the amount of all costs, fees and expenses incurred in connection with the Transactions, (xii) costs and expenses incurred as a result of any step up accounting adjustments, (xiii)
all transactional costs, expenses and charges payable in connection with, any acquisition (whether or not consummated) in an amount not to exceed $700,000 for any fiscal year of Borrowers, (xiv) total of Premium To Inventory Purchases and
amortization of Core Premium Asset in an aggregate amount not to exceed (I) $30,000,000 during the period April 1, 2018 through June 30,2021, and (II) $30,000,000 during the term of this Agreement for all periods starting on or after July 1,
2021, (xv) non-capitalized transaction expenses related to the Mexico Business Expansion in an aggregate amount not to exceed $32,000,000 for any periods ending on or prior to September 30, 2021, (xvi) specified investments in Customers which
are expensed during such period; provided, however, that commencing April 1, 2018 the aggregate amount of such expense which may be added back pursuant to this clause (xvi) shall not exceed $10,855,000 during the term of
this Agreement, (xvii) Extraordinary Freight Costs (i) for the fiscal quarter ending on June 30, 2022 not to exceed $1,749,000, and (ii) for the fiscal quarter ending September 30, 2022, not to exceed $1,541,000 and (xviii) for the period
commencing on April 1, 2020 and ending on March 31, 2022, costs and expenses incurred as a result of increased operating costs in connection with the COVID-19 pandemic; provided, that, the aggregate amount which may be added
back pursuant to this subclause (xviii) for any given period shall not exceed the aggregate amount disclosed for such costs and expenses in the corresponding 10-Q or 10-K filing (as applicable) for MPA for any such period; provided further,
that, notwithstanding the preceding proviso, the aggregate amount which may be added back pursuant to this subclause (xviii) shall not exceed $13,000,000, minus (c) without duplication, the sum of the following amounts of such Person and
its Subsidiaries for such period and to the extent included in determining Consolidated Net Income of such Person for such period: (i) non-cash items increasing Consolidated Net Income (other than the accrual of revenue or recording of
Receivables in the Ordinary Course of Business) for such period and (ii) non-cash gains on Hedging Agreements, plus (d) without duplication and to the extent not included in determining Consolidated Net Income of such Person for such period,
Internal Revenue Service refunds not to exceed $5,103,000 in the aggregate with respect to any employee retention credits.
5
(c) Section 4.6 of the Loan Agreement is hereby amended by deleting “one (1) such visit” and inserting “two (2) such visits” in its place and stead.
(d) Section 4.7 of the Loan Agreement is hereby amended by deleting the reference to “one (1) appraisal in any fiscal year” and inserting “two (2) appraisals in any fiscal year” in its
place and stead.
(e) Section 6.5 of the Loan Agreement is hereby amended in its entirety to provide as follows:
“6.5. Financial Covenants.
| (a) |
Fixed Charge Coverage Ratio. Cause to be maintained as of the end of each fiscal quarter, (i) beginning with the fiscal quarter ended March 31, 2018, a Fixed Charge
Coverage Ratio of not less than 1.15 to 1.0, (ii) commencing with the fiscal quarter ended June 30, 2018, a Fixed Charge Coverage Ratio of not less than 1.1 to 1.0, (iii) for the fiscal quarter ended June 30, 2022, a Fixed Charge
Coverage Ratio of not less than 1.15 to 1.0, (iv) for the fiscal quarter ended September 30, 2022, a Fixed Charge Coverage Ratio of not less than 1.01 to 1.0, (v) for the fiscal quarter ended December 31, 2022, a Fixed Charge Coverage
Ratio of not less than 1.05 to 1.0, (vi) for the fiscal quarters ending March 31, 2023 and June 30, 2023, a Fixed Charge Coverage Ratio of not less than 1.01 to 1.0, and (vii) for the fiscal quarter ending September 30, 2023 and
thereafter, a Fixed Charge Coverage Ratio of not less than 1.15 to 1.0, in each case, measured on a rolling four (4) quarter basis.
|
6
| (b) |
Total Leverage Ratio. Maintain as of end of each fiscal quarter, (i) beginning with the fiscal quarter ended March 31, 2018, a Total Leverage Ratio of not greater than
2.5 to 1.0, (ii) commencing with the fiscal quarter ended June 30, 2018, a Total Leverage Ratio of not greater than 3.0 to 1.0, (iii) for the fiscal quarter ended September 30, 2022, a Total Leverage Ratio of not greater than 3.25 to
1.0, (iv) for the fiscal quarter ended December 31, 2022, a Total Leverage Ratio of not greater than 3.0 to 1.0, (v) for the fiscal quarter ending March 31, 2023, a Total Leverage Ratio of not greater than 3.50 to 1.0, (vi) for the
fiscal quarter ending June 30, 2023, a Total Leverage Ratio of not greater than 3.25 to 1.0 and (vii) for the fiscal quarter ending September 30, 2023 and thereafter, a Total Leverage Ratio of not greater than 3.0 to 1.0, in each
case, measured on a rolling four (4) quarter basis.
|
| (c) |
Minimum Undrawn Availability. Maintain at all times Unsuppressed Undrawn Availability of not less than 17.5% of the Maximum Revolving Advance Amount which, as of the
Fifth Amendment Effective Date, equals $41,758,500; provided, however, that compliance with this covenant shall cease to be required if the Compliance Certificates for the fiscal quarters ended March 31, 2023 and June
30, 2023 show compliance with the requirements of Sections 6.5 and 7.7 as of the end of such fiscal quarters.”
|
(f) Section 11.5(a) of the Loan Agreement is amended by amending clauses “SEVENTH” and “EIGHTH” in their entirety to provide as follows:
“SEVENTH, to the payment of the outstanding principal amount of the US Obligations (other than principal in respect of US Swing Loans paid pursuant to clause FIFTH above)
arising under this Agreement (other than Cash Management Liabilities and Hedge Liabilities) (including the payment or Cash Collateralization of any outstanding Letters of Credit in accordance with Section 3.2(b) hereof);
EIGHTH, to all other US Obligations arising under this Agreement (including Cash Management Liabilities and Hedge Liabilities) which shall have become due and payable
(hereunder, under the Other Documents or otherwise) and not repaid pursuant to clauses “FIRST” through “SEVENTH” above;”
(g) Exhibit 1.2A is hereby amended in its entirety and replaced by Exhibit 1.2A annexed to the Fifth Amendment.
7
4. Conditions to Effectiveness. The effectiveness of this Fifth Amendment is subject to the fulfillment of each of the following conditions precedent (the date such conditions are fulfilled or
are waived by Agent is hereinafter referred to as the “Fifth Amendment Effective Date”):
(a) Representations and Warranties; No Event of Default. After giving effect to this Fifth Amendment, including the waiver of the Specified Events of Default pursuant to
Section 2 hereof, the following statements shall be true and correct: (i) the representations and warranties contained in this Fifth Amendment, ARTICLE V of the Loan Agreement and in each Other Document, certificate, or other writing delivered
to Agent or any Lender pursuant hereto or thereto on or prior to the Fifth Amendment Effective Date are true and correct in all material respects (and in all respects if such representation and warranty is already qualified by materiality or by
reference to a Material Adverse Effect) on and as of the Fifth Amendment Effective Date as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which
case such representation or warranty shall be true and correct in all material respects (and in all respects if such representation and warranty is already qualified by materiality or by reference to a Material Adverse Effect) on and as of such
earlier date) and (ii) no Default or Event of Default (other than the Specified Events of Default) shall have occurred and be continuing on the Fifth Amendment Effective Date or would result from the Fifth Amendment becoming effective in
accordance with its terms.
(b) Execution of Amendment. Agent and the Lenders shall have executed this Fifth Amendment and shall have received a counterpart to this Fifth Amendment, duly executed by each
Loan Party.
(c) Payment of Fees. Borrowers shall have paid, on or before the Fifth Amendment Effective Date, (i) the amounts set forth in the Fifth Amendment Fee Letter, and (ii) all fees
and invoiced costs and expenses (to the extent invoiced at least two (2) Business Days prior to the Fifth Amendment Effective Date) then payable by Borrowers pursuant to the Loan Documents, including, without limitation, Section 16.9 of the
Loan Agreement. All fees under this Section 4(c) shall be fully earned and payable as of the Fifth Amendment Effective Date, and may be charged by Agent to the U.S. Borrower’s Account.
(d) Secretary’s Certificate and Authorizing Resolutions. Agent shall have received a certificate of the Secretary or Assistant Secretary (or other equivalent officer, partner or
manager) of each Loan Party dated as of the date of this Fifth Amendment which shall certify (i) copies of resolutions of such Loan Party, of the board of directors (or other equivalent governing body, member or partner) of such Loan Party
authorizing (x) the execution, delivery and performance of this Fifth Amendment and each Other Document executed in connection with this Fifth Amendment to which such Loan Party is a party, and (y) the reaffirmation of the grant by such Loan
Party of the security interests in and liens upon the Collateral to secure all of the Obligations (and such certificate shall state that such resolutions have not been amended, modified, revoked or rescinded as of the date of such certificate),
(ii) the incumbency and signature of the officers of such Loan Party authorized to execute this Fifth Amendment and such Other Documents, (iii) that the copies of the Organizational Documents delivered to Agent on the Third Amendment Effective
Date remain true, correct and complete as of the date of this Amendment (or, to the extent amended after the Third Amendment Effective Date, attaching true, correct and complete copies of such amended Organizational Documents), and (iv) the
good standing (or equivalent status) of such Loan Party in its jurisdiction of organization dated not more than thirty (30) days prior to the date of this Fifth Amendment, issued by the Secretary of State or other appropriate official of each
such jurisdiction.
8
5. Representations and Warranties. Each Loan Party represents and warrants as follows:
(a) Organization, Good Standing, Etc. Each Loan Party (i) is a corporation, limited liability company or limited partnership duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its organization, (ii) has all requisite power and authority to conduct its business as now conducted and as presently contemplated, and to execute and deliver this Fifth Amendment, and to
consummate the transactions contemplated hereby and by the Loan Agreement, as amended hereby, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it
or in which the transaction of its business makes such qualification necessary, except (solely for the purposes of this subclause (iii)) where the failure to be so qualified or in good standing could not reasonably be expected to result in a
Material Adverse Effect.
(b) Authorization, Etc. The execution, delivery and performance by each Loan Party of this Fifth Amendment, and the performance of the Loan Agreement, as amended hereby, (i)
have been duly authorized by all necessary action, (ii) do not and will not contravene any of its Organizational Documents or any Applicable Law in any material respect or any material Contractual Obligation binding on or otherwise affecting it
or any of its properties, (iii) do not and will not result in or require the creation of any Lien (other than pursuant to any Loan Document) upon or with respect to any of its properties, and (iv) do not and will not result in any default,
noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties.
(c) Governmental Approvals. No authorization or approval or other action by, and no notice to or filing with, any Governmental Body is required in connection with the due
execution, delivery and performance of this Fifth Amendment by the Loan Parties, and the performance of the Loan Agreement, as amended hereby.
(d) Enforceability of this Fifth Amendment. This Fifth Amendment and the Loan Agreement, as amended hereby, when delivered hereunder, will be a legal, valid and binding
obligation of each Loan Party, enforceable against such Loan Party in accordance with the terms thereof, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting
creditors’ rights generally.
(e) Representations and Warranties; No Event of Default. The statements in Section 4(a) of this Fifth Amendment are true and correct.
9
6. Release. Each Loan Party hereby acknowledges and agrees that: (a) neither it nor any of its Affiliates has any claim or cause of action against Agent
or any Lender (or any of their respective Affiliates, officers, directors, employees, attorneys, consultants or agents) and (b) Agent and each Lender has heretofore properly performed and satisfied in a timely manner all of its obligations to
the Loan Parties and their Affiliates under the Loan Agreement and the Other Documents that are required to have been performed on or prior to the date hereof. Notwithstanding the foregoing, Agent and the Lenders wish (and the Loan Parties
agree) to eliminate any possibility that any past conditions, acts, omissions, events or circumstances would impair or otherwise adversely affect any of Agent and the Lenders’ rights, interests, security and/or remedies under the Loan Agreement
and the Other Documents. Accordingly, for and in consideration of the agreements contained in this Fifth Amendment and other good and valuable consideration, each Loan Party (for itself and its Affiliates and the successors, assigns, heirs and
representatives of each of the foregoing) (collectively, the “Releasors”) does hereby fully, finally, unconditionally and irrevocably release and forever discharge Agent, each Lender and each of their respective Affiliates, officers,
directors, employees, attorneys, consultants and agents (collectively, the “Released Parties”) from any and all debts, claims, obligations, damages, costs, attorneys’ fees, suits, demands, liabilities, actions, proceedings and causes of
action, in each case, whether known or unknown, contingent or fixed, direct or indirect, and of whatever nature or description, and whether in law or in equity, under contract, tort, statute or otherwise, which any Releasor has heretofore had
or now or hereafter can, shall or may have against any Released Party by reason of any act, omission or thing whatsoever done or omitted to be done on or prior to the Fifth Amendment Effective Date directly arising out of, connected with or
related to this Fifth Amendment, the Loan Agreement or any Other Document, or any act, event or transaction related or attendant thereto, or the agreements of Agent or any Lender contained therein, or the possession, use, operation or control
of any of the assets of any Loan Party, or the making of Advances, or the management of such Advances or the Collateral.
7. No Novation; Reaffirmation and Confirmation.
(a) This Fifth Amendment does not extinguish the obligations for the payment of money outstanding under the Loan Agreement or discharge or release the lien or priority of any mortgage,
security agreement, pledge agreement or any other security therefore. Nothing herein contained shall be construed as a substitution or novation of the Obligations outstanding under the Loan Agreement or instruments securing the same, which
shall remain in full force and effect, except as modified hereby or by instruments executed concurrently herewith. Nothing expressed or implied in this Fifth Amendment shall be construed as a release or other discharge of the Loan Parties
under the Loan Agreement, or the Other Documents, as amended hereby, from any of its obligations and liabilities as “Borrowers” thereunder.
(b) Each Borrower hereby (i) acknowledge and reaffirm its obligations as set forth in each Loan Document, as amended hereby, (ii) agrees to continue to comply with, and be subject to,
all of the terms, provisions, conditions, covenants, agreements and obligations applicable to it set forth in each Loan Document, as amended hereby, which remain in full force and effect, and (iii) confirms, ratifies and reaffirms that the
security interest granted to Agent, for the benefit of Agent and the Lenders, pursuant to the Loan Documents, as amended hereby, in all of its right, title, and interest in all then existing and thereafter acquired or arising Collateral in
order to secure prompt payment and performance of the Obligations, is continuing and is and shall remain unimpaired and continue to constitute a first priority security interest (subject to Permitted Liens) in favor of Agent, for the benefit of
Agent and the Lenders, with the same force, effect and priority in effect both immediately prior to and after entering into this Fifth Amendment.
10
8. Miscellaneous.
(a) Continued Effectiveness of the Loan Agreement and the Other Documents. Except as otherwise expressly provided herein, the Loan Agreement and the other Loan Documents are,
and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects, except that on and after the Fifth Amendment Effective Date (i) all references in the Loan Agreement to “this Agreement”, “hereto”,
“hereof”, “hereunder” or words of like import referring to the Loan Agreement shall mean the Loan Agreement as amended by this Fifth Amendment and (ii) all references in the Other Documents to the “Loan Agreement”, “thereto”, “thereof”,
“thereunder” or words of like import referring to the Loan Agreement shall mean the Loan Agreement as amended by this Fifth Amendment. To the extent that the Loan Agreement or any Other Document purports to pledge to Agent, or to grant to
Agent, a security interest or lien, such pledge or grant is hereby ratified and confirmed in all respects. Except as expressly provided herein, the execution, delivery and effectiveness of this Fifth Amendment shall not operate as an amendment
of any right, power or remedy of Agent and the Lenders under the Loan Agreement or any Other Document, nor constitute an amendment of any provision of the Loan Agreement or any Other Document.
(b) Counterparts. This Fifth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to
be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Fifth Amendment by fax or electronic mail shall be equally as effective as delivery of an original
executed counterpart of this Fifth Amendment. Original signature pages shall promptly be provided to Agent.
(c) Headings. Section headings herein are included for convenience of reference only and shall not constitute a part of this Fifth Amendment for any other purpose.
(d) Costs and Expenses. Borrowers agree to pay on demand all fees, costs and expenses of Agent and the Lenders in connection with the preparation, execution and delivery of
this Fifth Amendment.
(e) Fifth Amendment as Other Document. Each Loan Party hereby acknowledges and agrees that this Fifth Amendment constitutes an “Other Document” under the Loan Agreement.
Accordingly, it shall be an Event of Default under the Loan Agreement if (i) any representation or warranty made by any Loan Party under or in connection with this Fifth Amendment, which representation or warranty is (A) subject to a
materiality or a Material Adverse Effect qualification, shall have been incorrect in any respect when made or deemed made, or (B) not subject to a materiality or a Material Adverse Effect qualification, shall have been incorrect in any material
respect when made or deemed made or (ii) any Loan Party shall fail to perform or observe any term, covenant or agreement contained in this Fifth Amendment (subject to any applicable notice or grace periods under the Loan Agreement).
(f) Severability. Any provision of this Fifth Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
11
(g) Governing Law. This Fifth Amendment shall be governed by and construed in accordance with, the laws of the State of New York.
(h) Waiver of Jury Trial. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS FIFTH AMENDMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
[Remainder of page intentionally left blank. Signature pages follow.]
12
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be executed
and delivered by their respective duly authorized officers as of the date first written above.
|
US BORROWER:
|
||
|
MOTORCAR PARTS OF AMERICA, INC.
|
||
|
By:
|
/s/ Selwyn Joffe
|
|
|
Name:
|
Selwyn Joffe
|
|
|
Title:
|
President and Chief Executive Officer
|
|
CANADIAN BORROWERS:
|
||
|
D & V ELECTRONICS LTD.
|
||
|
By:
|
/s/ Kalina Loukanov
|
|
|
Name:
|
Kalina Loukanov
|
|
|
Title:
|
Acting Chief Executive Officer
|
|
DIXIE ELECTRIC LTD.
|
||
|
By:
|
/s/ Selwyn Joffe
|
|
|
Name:
|
Selwyn Joffe
|
|
|
Title:
|
Chief Executive Officer
|
|
|
DIXIE ELECTRIC INC.
|
||
|
By:
|
/s/ Selwyn Joffe
|
|
Name:
|
Selwyn Joffe
|
|
|
Title:
|
Chief Executive Officer
|
|
AGENT AND LENDER:
|
||
|
PNC BANK, NATIONAL ASSOCIATION
|
||
|
By:
|
/s/ Albert Sarkis
|
|
|
Name:
|
Albert Sarkis
|
|
|
Title:
|
Senior Vice President
|
|
WEBSTER BUSINESS CREDIT, A
DIVISION OF WEBSTER BANK, N.A.
|
||
|
By:
|
/s/ John R. Saffioti
|
|
|
Name:
|
John R. Saffioti
|
|
|
Title:
|
Director
|
|
BANK HAPOALIM B.M.
|
||
|
By:
|
/s/ John Yoler
|
|
|
Name:
|
John Yoler
|
|
|
Title:
|
EVP
|
|
|
By:
|
/s/ Michael Gorman III
|
|
Name:
|
Michael Gorman III
|
|
|
Title:
|
FVP
|
|
CATHAY BANK
|
||
|
By:
|
/s/ James Campbell
|
|
|
Name:
|
James Campbell
|
|
|
Title:
|
First Vice President
|
|
ISRAEL DISCOUNT BANK OF NEW YORK
|
||
|
By:
|
/s/ Frank Mancini
|
|
|
Name:
|
Frank Mancini
|
|
|
Title:
|
First Vice President
|
|
|
By:
|
/s/ Richard Miller
|
|
Name:
|
Richard Miller
|
|
|
Title:
|
Senior Vice President
|
Exhibit 31.1
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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s
internal control over financial reporting.
|
Date: February 9, 2023
|
/s/ Selwyn Joffe
|
|
Selwyn Joffe
|
|
|
Chief Executive Officer
|
Exhibit 31.2
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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s
internal control over financial reporting.
|
Date: February 9, 2023
|
/s/ David Lee
|
|
David Lee
|
|
|
Chief Financial Officer
|
Exhibit 31.3
CERTIFICATIONS
I, Kamlesh Shah, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s
internal control over financial reporting.
|
Date: February 9, 2023
|
/s/ Kamlesh Shah
|
|
Kamlesh Shah
|
|
|
Chief Accounting Officer
|
Exhibit 32.1
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 December 31, 2022 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
|
|
|
February 9, 2023
|
In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2022 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
|
|
|
February 9, 2023
|
In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2022 as filed with the Securities
and Exchange Commission on the date hereof (the “Quarterly Report”), I, Kamlesh Shah, 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/ Kamlesh Shah
|
|
|
Kamlesh Shah
|
|
|
Chief Accounting Officer
|
|
|
February 9, 2023
|
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.