SEC Company Response from MOTORCAR PARTS OF AMERICA INC (MPAA) (CIK 0000918251) (MPAA) — Mar 2, 2020
MOTORCAR PARTS OF AMERICA INC (MPAA) (CIK 0000918251)
Date: March 2, 2020 · CIK: 0000918251 · Accession: 0001140361-20-004548
AI Filing Summary & Sentiment
File numbers found in text: 001-33861
Letter
VIA EDGAR United States Securities and Exchange Commission Division of Corporation Finance Office of Real Estate & Construction Form 10-K for the Fiscal Year Ended March 31, 2019 Form 10-Q for the Period Ended September 30, 2019 Form 8-K filed November 12, 2019 File No. 001-33861
Re:
Dear Ms. Gilmore and Mr. James:
On behalf of Motorcar Parts of America, Inc. (the “Company”), we are submitting this letter in response to comments received from the staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”) contained in its letter, dated February 5, 2020, relating to the Company’s Form 10-K for the Fiscal Year Ended March 31, 2019 (the “Form 10-K”), Form 10-Q for the Period Ended September 30, 2019 (the “Form 10-Q”) and Form 8-K filed November 12, 2019 (the “Form 8-K”).
The Company has carefully considered the Commission’s guidance, and, for ease of review, we have set forth below the numbered comments of your letter in bold type followed by the Company’s response thereto.
Comments:
Form 10-K for the Fiscal Year Ended March 31, 2019
Management's Annual Report on Internal Control over Financial Reporting, page 39
1.
We note that your assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of D&V Electronics which was acquired in July 2017. Tell us how you considered the guidance in Question 3 of the SEC's Frequently Asked Questions on Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports in concluding it was appropriate to omit an assessment of D&V Electronics. That guidance indicates that “the period in which management may omit an assessment of an acquired business' internal control over financial reporting from its assessment of the registrant's internal control may not extend beyond one year from the date of acquisition, nor may such assessment be omitted from more than one annual management report on internal control over financial reporting.”
March 2, 2020
Page 2
Response:
As explained in Item 7, Business Acquisitions Section, we acquired Mechanical Power Conversion, LLC on December 21, 2018, which operates using the DBA of D&V Electronics USA.
As we stated in Item 9A, Management’s Annual Report on Internal Control Over Financial Reporting, we excluded D&V Electronics USA due to the timing of the acquisition being within the fiscal year ended March 31, 2019:
Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of recently acquired D&V Electronics USA and Dixie Electric, Ltd, which are included in the 2019 consolidated financial statements of the Company and constituted 2% and 2% of total and net assets, respectively, as of March 31, 2019, and 1% and 10% of revenues and net loss, respectively, for the year then ended.
The entity we acquired in July 2017 was D&V Electronics based in Canada. This entity is included in our internal controls report for the fiscal year ended March 31, 2019. Both D&V Electronics and D&V Electronics USA will be included in our internal controls report for the year ended March 31, 2020.
2.
Similarly, please explain to us how your auditors considered the guidance in Question 3 of the SEC's Frequently Asked Questions on Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports in concluding not to include an evaluation of the internal control over financial reporting of D&V Electronics in their audit.
Response:
As discussed under the response to Question #1, the exclusion of D&V Electronics USA was permissible under the guidance in Question 3 of the SEC's Frequently Asked Questions on Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports as the acquisition was within one year of March 31, 2019.
Form 10-Q for the Period Ended September 30, 2019
Notes to Condensed Consolidated Financial Statements
17. Commitments and Contingencies
Contingencies, page 22
March 2, 2020
Page 3
3.
Please revise your disclosure relating to the U.S. Customs and Border Protection claim in future filings to also clearly disclose (i) the nature of any accrual you recorded, and (ii) an estimate of the reasonably possible loss or range of loss in addition to any amounts accrued or a statement that such an estimate cannot be made. Refer to ASC 450-20-50.
Response:
We determined as of September 30, 2019 a reasonable estimate of loss relating to the U.S. Customs and Border Protection (“CBP”) claim and accrued that amount as a loss contingency, as it is estimable and probable. We have determined, and respectfully request that the Staff consider, that (1) the amount is not material to our financial statements or investors and (2) the disclosure of such an amount would put us at a disadvantage in our negotiation with the CBP and therefore that such disclosure is not necessary. The Company will continue to consider the requirements of ASC 450-20-50 to ensure appropriate disclosure of its accruals.
Form 8-K filed November 12, 2019
Exhibit 99.1
4.
You present non-GAAP measures for adjusted net sales, adjusted net income, adjusted gross profit and adjusted EBITDA that reflect adjustments for return and stock adjustment accruals as well as customer allowances related to new business, the impact of sales price increases related to tariffs, the core sales and cost (recovery) related to a cancelled contract, and new product line costs. Your non-GAAP measures appear to substitute individually tailored recognition and measurement methods for those of GAAP. Please tell us how you considered the guidance in Question 100.04 of the Compliance and Disclosure Interpretation on non-GAAP measures in concluding that each adjustment was appropriate.
Response:
The Company presents adjustments to our GAAP measures and the disclosure related to them in response to questions previously asked by investors, and solely to provide additional information to them to help understand the Company’s business and results of operations. The Company does not intend to, and does not, substitute individually tailored recognition and measurement methods for those of GAAP and does not disclose that it is doing so. Rather it is providing additional disclosure about the impact of various matters on our business. The Company advises the Staff that it has carefully considered the guidance in Question 100.04 of the Compliance and Disclosure Interpretation on non-GAAP measures (the “CD&I”) and concluded that each adjustment is appropriate. In each case, Exhibit B describes the adjustment and why it is appropriate.
•
Return and stock adjustment accruals related to new business and product line expansion. Please reference Items 1a in the Press Release attached as Exhibit A, Item 1b in the Form 8-K attached as Exhibit B and Item 1c in the Form 10-Q attached as Exhibit C.
March 2, 2020
Page 4
•
Customer allowances related to new business. Please reference Items 2a in the Press Release attached as Exhibit A, Item 2b in the Form 8-K attached as Exhibit B and Item 2c in the Form 10-Q attached as Exhibit C.
•
Impact of sales price increases related to tariffs and Tariff costs paid for products sold before price increases were effective. Please reference Items 3a in the Press Release attached as Exhibit
A, Item 3b in the Form 8-K attached as Exhibit B and Item 3c in the Form 10-Q attached as Exhibit C.
•
Core sales and cost (recovery) in connection with a cancelled contract. Please reference Items 4a in the Press Release attached as Exhibit A, Item 4b in the Form 8-K attached as Exhibit
B and Item 4c in the Form 10-Q attached as Exhibit C.
•
New product line start-up and ramp-up costs, and transition expenses. Please reference Items 5a in the Press Release attached as Exhibit A, Item 5b in the Form 8-K attached as Exhibit
B and Item 5c in the Form 10-Q attached as Exhibit C.
•
Revaluation – cores on customers shelves and inventory step-up amortization. Please reference Items 6a in the Press Release attached as Exhibit A, Item 6b in the Form 8-K attached as Exhibit
B and Items 6c in the Form 10-Q attached as Exhibit C.
5.
We note that you adjust several of your non-GAAP measures for “acquisition, financing, transition, severance, new business, earn-out accruals from acquisitions, restatement related fees and other costs.” In addition, these items appear to be recurring in nature since you reported similar costs in several comparable periods. Please address the following:
•
Describe to us each of the items and quantify each category of costs included in the adjustment.
•
Tell us how the amounts reflected in the adjustments reconcile to the amounts discussed in the MD&A of your Form 10-Q for the period ended September 30, 2019.
•
Tell us how you considered the guidance in Item 10(e) of Regulation S-K which prohibits adjusting a non-GAAP financial performance measure to eliminate or smooth items identified as unusual when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years. Otherwise, revise your presentations in future filings to comply.
Response:
Similar to the response to comment 4, the Company presents these adjustments and the disclosure related to them in response to questions by investors, and solely to provide additional information to them to help understand our business. Please reference Item 7a in the Press Release attached as Exhibit A and Item 7b in the Form 8-K attached as Exhibit B. The Company provides supplemental information on these adjustments and their location in the Form 10-Q in Exhibit D. Finally, the Company advises the Staff that it has carefully considered the guidance in Item 10(e) of Regulation S-K, including question 102.03 of the CD&I, and confirms that it does not identify any of these items as unusual or non-recurring.
March 2, 2020
Page 5
* * * *
We hope the foregoing answers are responsive to your comments. Please do not hesitate to contact me at (310) 972-4046 or jstone@motorcarparts.com with any questions or comments regarding this correspondence.
Very truly yours,
/s/ Juliet Stone
Show Raw Text
CORRESP
1
filename1.htm
March 2, 2020
VIA EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Real Estate & Construction
100 F Street, NE
Washington, D.C. 20549
Re:
Motorcar Parts of America, Inc.
Form 10-K for the Fiscal Year Ended March 31, 2019
Form 10-Q for the Period Ended September 30, 2019
Form 8-K filed November 12, 2019
File No. 001-33861
Dear Ms. Gilmore and Mr. James:
On behalf of Motorcar Parts of America, Inc. (the “Company”), we are submitting this letter in response to comments received from the staff (the “Staff”) of the Division of Corporation Finance of the Securities and
Exchange Commission (the “Commission”) contained in its letter, dated February 5, 2020, relating to the Company’s Form 10-K for the Fiscal Year Ended March 31, 2019 (the “Form 10-K”), Form 10-Q for the Period Ended September 30, 2019 (the “Form
10-Q”) and Form 8-K filed November 12, 2019 (the “Form 8-K”).
The Company has carefully considered the Commission’s guidance, and, for ease of review, we have set forth below the numbered comments of your letter in bold type followed by the Company’s response thereto.
Comments:
Form 10-K for the Fiscal Year Ended March 31, 2019
Management's Annual Report on Internal Control over Financial Reporting, page 39
1.
We note that your assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of D&V Electronics which was acquired in July 2017.
Tell us how you considered the guidance in Question 3 of the SEC's Frequently Asked Questions on Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports in
concluding it was appropriate to omit an assessment of D&V Electronics. That guidance indicates that “the period in which management may omit an assessment of an acquired business' internal control over financial reporting from its
assessment of the registrant's internal control may not extend beyond one year from the date of acquisition, nor may such assessment be omitted from more than one annual management report on internal control over financial reporting.”
March 2, 2020
Page 2
Response:
As explained in Item 7, Business Acquisitions Section, we acquired Mechanical Power Conversion, LLC on December 21, 2018, which operates using the DBA of D&V Electronics USA.
As we stated in Item 9A, Management’s Annual Report on Internal Control Over Financial Reporting, we excluded D&V Electronics USA due to the timing of the acquisition being within the fiscal year ended March 31,
2019:
Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of recently
acquired D&V Electronics USA and Dixie Electric, Ltd, which are included in the 2019 consolidated financial statements of the Company and constituted 2% and 2% of total and net assets, respectively, as of March 31, 2019, and 1% and 10% of
revenues and net loss, respectively, for the year then ended.
The entity we acquired in July 2017 was D&V Electronics based in Canada. This entity is included in our internal controls report for the fiscal year ended March 31, 2019. Both D&V Electronics and D&V
Electronics USA will be included in our internal controls report for the year ended March 31, 2020.
2.
Similarly, please explain to us how your auditors considered the guidance in Question 3 of the SEC's Frequently Asked Questions on Management's Report on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports in concluding not to include an evaluation of the internal control over financial reporting of D&V Electronics in their audit.
Response:
As discussed under the response to Question #1, the exclusion of D&V Electronics USA was permissible under the guidance in Question 3 of the SEC's Frequently Asked Questions on Management's Report on Internal
Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports as the acquisition was within one year of March 31, 2019.
Form 10-Q for the Period Ended September 30, 2019
Notes to Condensed Consolidated Financial Statements
17. Commitments and Contingencies
Contingencies, page 22
March 2, 2020
Page 3
3.
Please revise your disclosure relating to the U.S. Customs and Border Protection claim in future filings to also clearly disclose (i) the nature of any accrual you recorded, and (ii) an estimate of the
reasonably possible loss or range of loss in addition to any amounts accrued or a statement that such an estimate cannot be made. Refer to ASC 450-20-50.
Response:
We determined as of September 30, 2019 a reasonable estimate of loss relating to the U.S. Customs and Border Protection (“CBP”) claim and accrued that amount as a loss contingency, as it is estimable and probable. We
have determined, and respectfully request that the Staff consider, that (1) the amount is not material to our financial statements or investors and (2) the disclosure of such an amount would put us at a disadvantage in our negotiation with the CBP
and therefore that such disclosure is not necessary. The Company will continue to consider the requirements of ASC 450-20-50 to ensure appropriate disclosure of its accruals.
Form 8-K filed November 12, 2019
Exhibit 99.1
4.
You present non-GAAP measures for adjusted net sales, adjusted net income, adjusted gross profit and adjusted EBITDA that reflect adjustments for return and stock adjustment accruals as well as customer
allowances related to new business, the impact of sales price increases related to tariffs, the core sales and cost (recovery) related to a cancelled contract, and new product line costs. Your non-GAAP measures appear to substitute
individually tailored recognition and measurement methods for those of GAAP. Please tell us how you considered the guidance in Question 100.04 of the Compliance and Disclosure Interpretation on non-GAAP measures in concluding that each
adjustment was appropriate.
Response:
The Company presents adjustments to our GAAP measures and the disclosure related to them in response to questions previously asked by investors, and solely to provide additional information to them to help understand
the Company’s business and results of operations. The Company does not intend to, and does not, substitute individually tailored recognition and measurement methods for those of GAAP and does not disclose that it is doing so. Rather it is providing
additional disclosure about the impact of various matters on our business. The Company advises the Staff that it has carefully considered the guidance in Question 100.04 of the Compliance and Disclosure Interpretation on non-GAAP measures (the
“CD&I”) and concluded that each adjustment is appropriate. In each case, Exhibit B describes the adjustment and why it is appropriate.
•
Return and stock adjustment accruals related to new business and product line expansion. Please reference Items 1a in the Press Release attached as Exhibit A, Item 1b in the Form 8-K
attached as Exhibit B and Item 1c in the Form 10-Q attached as Exhibit C.
March 2, 2020
Page 4
•
Customer allowances related to new business. Please reference Items 2a in the Press Release attached as Exhibit A, Item 2b in the Form 8-K attached as Exhibit B and Item 2c in
the Form 10-Q attached as Exhibit C.
•
Impact of sales price increases related to tariffs and Tariff costs paid for products sold before price increases were effective. Please reference Items 3a in the Press Release attached as Exhibit
A, Item 3b in the Form 8-K attached as Exhibit B and Item 3c in the Form 10-Q attached as Exhibit C.
•
Core sales and cost (recovery) in connection with a cancelled contract. Please reference Items 4a in the Press Release attached as Exhibit A, Item 4b in the Form 8-K attached as Exhibit
B and Item 4c in the Form 10-Q attached as Exhibit C.
•
New product line start-up and ramp-up costs, and transition expenses. Please reference Items 5a in the Press Release attached as Exhibit A, Item 5b in the Form 8-K attached as Exhibit
B and Item 5c in the Form 10-Q attached as Exhibit C.
•
Revaluation – cores on customers shelves and inventory step-up amortization. Please reference Items 6a in the Press Release attached as Exhibit A, Item 6b in the Form 8-K attached as Exhibit
B and Items 6c in the Form 10-Q attached as Exhibit C.
5.
We note that you adjust several of your non-GAAP measures for “acquisition, financing, transition, severance, new business, earn-out accruals from acquisitions, restatement related fees and other costs.” In
addition, these items appear to be recurring in nature since you reported similar costs in several comparable periods. Please address the following:
•
Describe to us each of the items and quantify each category of costs included in the adjustment.
•
Tell us how the amounts reflected in the adjustments reconcile to the amounts discussed in the MD&A of your Form 10-Q for the period ended September 30, 2019.
•
Tell us how you considered the guidance in Item 10(e) of Regulation S-K which prohibits adjusting a non-GAAP financial performance measure to eliminate or smooth items identified as unusual when the nature
of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years. Otherwise, revise your presentations in future filings to comply.
Response:
Similar to the response to comment 4, the Company presents these adjustments and the disclosure related to them in response to questions by investors, and solely to provide additional information to them to help
understand our business. Please reference Item 7a in the Press Release attached as Exhibit A and Item 7b in the Form 8-K attached as Exhibit B. The Company provides supplemental information on these adjustments and their location in
the Form 10-Q in Exhibit D. Finally, the Company advises the Staff that it has carefully considered the guidance in Item 10(e) of Regulation S-K, including question 102.03 of the CD&I, and confirms that it does not identify any of these
items as unusual or non-recurring.
March 2, 2020
Page 5
* * * *
We hope the foregoing answers are responsive to your comments. Please do not hesitate to contact me at (310) 972-4046 or jstone@motorcarparts.com with any questions or comments regarding this correspondence.
Very truly yours,
/s/ Juliet Stone
Juliet Stone
Vice President, General Counsel and Secretary
cc: David Lee, Chief Financial Officer
EXHIBIT A
Select Pages from Press Release dated November 12, 2019 (attached as Exhibit 99.1 to Form 8-K filed November 12, 2019)
Reconciliation of Non-GAAP Financial Measures Exhibit
2 2019 2018 2019 2018 GAAP net sales $ 150,374,000 $ 127,939,000 $ 259,522,000 $ 219,607,000 Adjustments: Net sales Return and stock adjustment accruals related to
new business - - 159,000 - 1a Customer allowances related to new business 1,351,000 2,213,000 2,459,000 4,355,000 2a Impact of sales price increases related to tariffs - - (2,280,000) - 3a (Recovery) cost in connection with a
cancelled contract (293,000) - 133,000 - 4a Three Months Ended September 30, Six Months Ended September 30, Adjusted net sales $ 151,432,000 $ 130,152,000 $ 259,993,000 $ 223,962,000
Reconciliation of Non-GAAP Financial Measures Exhibit 3 $ Per DilutedShare $ Per
DilutedShare GAAP net income $ 6,189,000 $ 0.32 $ 3,513,000 $ 0.18 Adjustments: Acquisition, financing, transition, severance, new business, earn-out accruals from acquisitions, restatement-related fees and other
costs 18,000 $ 0.00 1,144,000 $ 0.06 Customer allowances related to new business 1,351,000 $ 0.07 2,213,000 $ 0.11 2a Cost recovery in connection with a cancelled contract (293,000) $ (0.02) - $ - 4a Cost of goods
sold New product line start-up and ramp-up costs, and transition expenses 2,327,000 $ 0.12 1,833,000 $ 0.09 5a Revaluation - cores on customers' shelves 2,908,000 $ 0.15 6,221,000 $ 0.32 6a Three Months Ended
September 30, 2019 2018 Net sales (a) Adjusted net income is calculated by applying an income tax rate of 25.0% to adjusted pre-tax income for the three months ended September 30, 2019 and 2018; this rate may differ from the period's actual
income tax rate Operating expenses 7a Share-based compensation expenses 1,053,000 $ 0.05 1,180,000 $ 0.06 Mark-to-market losses (gains) 1,802,000 $ 0.09 (1,898,000) $ (0.10) Tax effected
(a) (2,354,000) $ (0.12) (2,666,000) $ (0.14) Adjusted net income $ 13,001,000 $ 0.68 $ 11,540,000 $ 0.60
Reconciliation of Non-GAAP Financial Measures Exhibit
4 $ Per DilutedShare $ Per DilutedShare GAAP net income (loss) $ 38,000 $ 0.00 $ (1,982,000) $ (0.10) Adjustments: Write-off of debt issuance costs - $ - 303,000 $ 0.02 Tax effected
(a) (4,642,000) $ (0.24) (5,118,000) $ (0.27) Adjusted net income $ 14,677,000 $ 0.76 $ 14,557,000 $ 0.75 Acquisition, financing, transition, severance, new business, earn-outaccruals from acquisitions, restatement-related
fees and other costs 1,063,000 $ 0.06 1,675,000 $ 0.09 Six Months Ended September 30, 2019 2018 Net sales Operating expenses Share-based compensation expenses 2,041,000 $ 0.11 2,121,000 $ 0.11 Mark-to-market losses
(gains) 1,265,000 $ 0.07 768,000 $ 0.04 Interest (a) Adjusted net income is calculated by applying an income tax rate of 25.0% to adjusted pre-tax income for the six months ended September 30, 2019 and 2018; this rate may differ from
the period's actual income tax rate 7a Return and stock adjustment accruals related to new business 159,000 $ 0.01 - $ - 1a Customer allowances related to new business 2,459,000 $ 0.13 4,355,000 $ 0.23 2a Impact of
sales price increases related to tariffs (2,280,000) $ (0.12) - $ - 3a Cost in connection with a cancelled contract 133,000 $ 0.01 - $ - 4a Cost of goods sold