Edgar Filing: MOTORCAR PARTS AMERICA INC

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2013

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-33861

MOTORCAR PARTS OF AMERICA, INC.

(Exact name of registrant as specified in its charter)

New York		11-2153962
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2929 California Street, Torrance, California		90503
(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: common stock, $0.01 par value per share

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

As of September 30, 2012, which was the last business day of the registrant’s most recently completed fiscal second quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $66,158,263 based on the closing sale price as reported on the NASDAQ Global Market.

There were 14,460,979 shares of common stock outstanding as of June 10, 2013.

DOCUMENTS INCORPORATED BY REFERENCE:

In accordance with General Instruction G(3) of Form 10-K, the information required by Part III hereof will either be incorporated into this Form 10-K by reference to the registrant’s Definitive Proxy Statement for the registrant’s next Annual Meeting of Stockholders filed within 120 days of March 31, 2013 or will be included in an amendment to this Form 10-K filed within 120 days of March 31, 2013.

TABLE OF CONTENTS

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	Mine Safety Disclosures	16

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 8.	Financial Statements and Supplementary Data	48
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	48
Item 9A.	Controls and Procedures	48
Item 9B.	Other Information	50

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	51
Item 11.	Executive Compensation	51
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51
Item 13.	Certain Relationships and Related Transactions and Director Independence	51
Item 14.	Principal Accounting Fees and Services	51

PART IV
Item 15.	Exhibits, Financial Statement Schedules	52

SIGNATURES		61

Table of Contents

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 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 program. Our customers receive these Used Cores from consumers who deliver a Used Core to obtain credit from our customers upon the purchase of a newly remanufactured automobile part. When sufficient Used Cores cannot be obtained from our customers, we will purchase Used Cores from core brokers, who are in the business of buying and selling Used Cores. The Used Cores purchased from core brokers or returned to us by our customers under the core exchange program, and which have been physically received by us, are part of our raw material or work in process inventory included in long-term core inventory.

“Remanufactured Core” — The Used Core underlying an 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 are included in our on-hand finished goods inventory and in the remanufactured finished good product held for sale at customer locations. Used Cores returned by consumers to our customers but not yet returned to us continue to be classified as Remanufactured Cores until we physically receive these Used Cores. All Remanufactured Cores are included in our long-term core inventory or in our long-term core inventory deposit.

Table of Contents

MOTORCAR PARTS OF AMERICA, INC.

Unless the context otherwise requires, all references in this Annual Report on Form 10-K to “the Company,” “we,” “us,” “MPA” and “our” refer to Motorcar Parts of America, Inc. and its subsidiaries. This Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties. Our actual results may differ significantly from the results discussed in any forward-looking statements. Discussions containing such forward-looking statements may be found in the material set forth under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as within this Form 10-K generally.

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available free of charge to the public over the Internet at the SEC’s website at www.sec.gov. Our SEC filings are also available free of charge on our website www.motorcarparts.com. You may also read and copy any document we file with the SEC at its Public Reference Room at 100 F. Street, NE, Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information on the operation of the Public Reference Room.

PART I

Item 1. Business

General

We are a leading manufacturer, remanufacturer, and distributor of aftermarket automobile parts. We have two reportable segments, rotating electrical and undercar product line.

Within the rotating electrical segment, we manufacture and remanufacture alternators and starters for import and domestic cars, light trucks, heavy duty, agricultural and industrial applications.

Within the undercar product line segment, Fenco (as defined herein) remanufactures and distributes new and remanufactured steering components including rack and pinion, pumps and gears, brake calipers, master cylinders, and hub assembly and bearings for virtually all passenger and truck vehicles.

The current population of vehicles in North America is approximately 247 million and the average age of these vehicles is approximately 10 years. We believe the market for replacement parts is primarily driven by the age of vehicles and the miles driven. While an aged vehicle population is favorable today, miles driven continues to fluctuate primarily based on fuel prices.

The aftermarket for automobile parts is divided into two markets. The first market is the do-it-yourself (“DIY”) market, which is generally serviced by the large retail chain outlets. Consumers who purchase parts from the DIY channel generally install parts into their vehicles themselves. In most cases, this is a less expensive alternative than having the repair performed by a professional installer. The second market is the professional installer market, commonly known as the do-it-for-me (“DIFM”) market. This market is serviced by the traditional warehouse distributors, the dealer networks, and the commercial divisions of retail chains. Generally, the consumer in this channel is a professional parts installer.

Our products are distributed to both the DIY and DIFM markets and are distributed predominantly throughout North America. We sell our products to the largest auto parts retail and traditional warehouse chains and to major automobile manufacturers for both their aftermarket programs and their warranty replacement programs (“OES”). Demand and replacement rates for aftermarket remanufactured automobile parts generally increase with the age of vehicles and increases in miles driven.

Historically, the largest share of our business was in the DIY market. While that is still the case, our DIFM business is now a significant part of our business. In difficult economic times, we believe consumers are more likely to purchase lower cost replacement parts in both the DIY and DIFM markets. We focus on supplying both these channels with the most cost efficient replacement parts for the consumer to purchase.

Table of Contents

Within the rotating electrical segment, the DIFM market is an attractive opportunity for growth. We are positioned to benefit from this market opportunity in two ways: (1) our auto parts retail customers are expanding their efforts to target the DIFM market and (2) we sell our products under private label and our own brand names directly to suppliers that focus on professional installers. In addition, we sell our products to OE manufacturers for distribution to the professional installer both for warranty replacement and their general aftermarket channels. We have been successful in growing sales in our rotating electrical segment to this market.

Financial information regarding our operating segments is included under “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report on Form 10-K.

Recent Developments

In May 2011, we purchased (i) all of the outstanding equity of Fenwick Automotive Products Limited (“FAPL”), (ii) all of the outstanding equity of Introcan, Inc., a Delaware corporation (“Introcan”), and (iii) 1% of the outstanding equity of Fapco S.A. de C.V., a Mexican variable capital company (“Fapco”) (collectively, “Fenco”). Since FAPL owned 99% of Fapco prior to these acquisitions, the Company now owns 100% of Fapco.

Since our acquisition of Fenco on May 6, 2011, we have been implementing our undercar product line turnaround plan and our top priority continued to be improvement of the financial performance of our undercar product line business. The implementation of our undercar product line turnaround plan has taken longer and cost more than initially anticipated. Revenues generated by our undercar product line segment have not been sufficient to enable us to meet our operating expenses and otherwise implement our undercar product line turnaround plan. Fenco has incurred net losses of $135,260,000 and $62,814,000 for the years ended March 31, 2013 and 2012, respectively, and has an accumulated deficit of approximately $198,074,000 at March 31, 2013. Fenco continues to face capital and liquidity concerns. The Parent Company Financing Agreement (as defined herein) only permitted the Company to invest up to an additional $20,000,000 in Fenco, which it had done as of December 31, 2012. As of March 31, 2013, the Company had invested in Fenco $4,946,000 of equity, $52,631,000 of debt, $27,382,000 of accounts receivable in connection with our March 2011 consignment arrangement to provide goods in order to maintain the service levels for Fenco’s customers, and $1,782,000 of net inter-company balances. At March 31, 2013, the Company has established a specific charge-off accrual for the debt, accounts receivable and inter-company balances. Fenco has been unable to refinance its credit agreement or obtain additional sufficient capital to implement its turnaround plan. The report of our independent registered public accounting firm on our financial statements for the year ended March 31, 2013 contains an explanatory paragraph raising substantial doubt as to our ability to continue as a going concern.

During May 2013, Fenco appointed a new board of independent directors, hired an independent chief restructuring officer and all its previously existing officers resigned from FAPL. As a result of the loss of control of Fenco, we will likely deconsolidate the financial statements of Fenco from our consolidated financial statements during the first quarter of fiscal 2014. On June 10, 2013, each of FAPL, Introcan and Introcan’s subsidiaries, Flo-Pro Inc., LH Distribution Inc., Rafko Logistics Inc., Rafko Holdings Inc. and Rafko Enterprises Inc., filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware. As of March 31, 2013, Fenco’s financial statements are included in the consolidated financial statements of the Company. Our consolidated financial statements are prepared assuming we will continue as a going concern. The financial statements do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

As a result of these challenges with Fenco, management has adjusted its focus. Going forward MPA’s focus will not include Fenco but will continue to be on its rotating electrical business and evaluating other opportunities. The outlook for rotating electrical continues to be strong with over 240 million vehicles on the road with an average age of over 10 years. Vehicles older than 7 years generally experience higher replacement rates for the alternators and starters. As such these metrics indicate an ongoing growth opportunity for rotating electrical. MPA’s rotating electrical business has continued to have strong liquidity which will be further enhanced by the tax benefits associated with the write-off of the Fenco investments.

Table of Contents

Products

Our products are manufactured to meet or exceed OE manufacturer specifications. Remanufacturing generally creates a supply of parts at a lower cost to the end user than newly manufactured parts and makes available automotive parts which are no longer manufactured as new. Our remanufactured parts are sold at competitively lower prices than most new replacement parts.

We recycle nearly all materials in keeping with our focus of positively impacting the environment. Nearly all parts, including metal from the Used Cores, and corrugated packaging are recycled.

We remanufacture automobile parts for virtually all import and domestic vehicles sold in North America. We believe most of our automobile parts are non-elective replacement parts in all makes and models of vehicles because they are required for a vehicle to operate.

The increasing complexity of cars and light trucks and the number of different makes and models of these vehicles have resulted in a significant increase in the number of different alternators and starters required to service import and domestic cars and light trucks. We carry over 4,200 stock keeping units (“SKUs”) for alternators and starters which cover applications for most import and domestic cars and light trucks and over 4,100 SKUs for heavy duty and a variety of agricultural and industrial applications. These products are sold under our customers’ widely recognized private label brand names and our Quality-Built^®, Xtreme^®, Reliance™and other brand names.

Prior to its bankruptcy filing, Fenco remanufactured and distributed new and remanufactured steering components including rack and pinion, pumps and gears, brake calipers, master cylinders, and hub assembly and bearings for virtually all passenger and truck vehicles. Fenco sold remanufactured products under the Fenco™ brand name and new products under the Dynapak^® brand name. Fenco carried over 16,000 SKUs for virtually all passenger and truck vehicles. We do not undertake to update any developments in the business of Fenco following its bankruptcy.

Customers: Customer Concentration

We serve all of the largest retail automotive chain stores including AutoZone, Advance, Genuine Parts (NAPA), O’Reilly, Pep Boys, with an aggregate of approximately 14,000 retail outlets as well as a diverse group of automotive warehouse distributors and OES customers.

While we continually seek to diversify our customer base, we currently derive, and have historically derived, a substantial portion of our sales from a small number of large customers. During fiscal 2013, 2012 and 2011, sales to our three largest customers constituted approximately 72%, 64% and 71%, respectively, of our consolidated net sales, and sales to our largest customer, AutoZone, constituted approximately 41%, 41% and 48%, respectively, of our consolidated net sales, including products in both our segments. Any meaningful reduction in the level of sales to any of these customers, deterioration of any customer’s financial condition or the loss of a customer in our rotating electrical product line could have a materially adverse impact upon us.

Customer Arrangements; Impact on Working Capital

We have or are renegotiating long-term agreements with many of our major customers. Under these agreements, which in most cases have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified categories of our products. Because of the very competitive nature of the market and the limited number of customers for these products, our customers have sought and obtained price concessions, significant marketing allowances and more favorable delivery and payment terms in consideration for our designation as a customer’s exclusive or primary supplier. These incentives differ from contract to contract and can include (i) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (ii) support for a particular customer’s research or marketing efforts provided on a scheduled basis, (iii) discounts granted in connection with each individual shipment of product, and (iv) other marketing, research, store expansion or product development support. These contracts typically require that we meet ongoing standards related to fulfillment, price, and quality. Our contracts with major customers expire at various dates through March 2019.

Table of Contents

These longer-term agreements strengthen our customer relationships and business base. The increased demand for product as a result of entering into these longer-term agreements often requires that we increase our inventories, accounts payable and personnel. Customer demands that we purchase their Remanufactured Core inventory have also been a significant and an additional strain on our available working capital. The marketing and other allowances we typically grant our customers in connection with our new or expanded customer relationships adversely impact the near-term revenues, profitability and associated cash flows from these arrangements. However, we believe the investment we make in these new or expanded customer relationships will improve our overall liquidity and cash flow from operations over time.

Competition

The aftermarket automotive parts market is highly competitive. We compete with several large and medium sized remanufacturers and a large number of smaller regional and specialty remanufacturers. We also compete with overseas manufacturers, particularly those located in China, who are increasing their operations and could become a significant competitive force in the future.

We believe that the reputations for quality and customer service that a supplier provides are significant factors in our customers’ purchase decisions. We believe that our ability to provide quality replacement automotive products, rapid and reliable delivery capabilities as well as promotional support distinguishes us from many of our competitors and provides a competitive advantage. In addition, we believe favorable price and extended payment terms are also very important competitive factors in customers’ purchase decisions.

We seek to protect our proprietary processes and other information by relying on trade secret laws and non-disclosure and confidentiality agreements with certain of our employees and other persons who have access to that information.

Operations

Production Process. Our remanufacturing process begins with the receipt of Used Cores from our customers or core brokers. The Used Cores are evaluated for inventory control purposes and then sorted by part number. Each Used Core is completely disassembled into its fundamental components. The components are cleaned in a process that employs customized equipment and cleaning materials in accordance with the required specifications of the particular component. All components known to be subject to major wear and those components determined not to be reusable or repairable are replaced by new components. Non-salvageable components of the Used Core are sold as scrap.

After the cleaning process is complete, the salvageable components of the Used Core are inspected and tested as prescribed by our ISO TS 16949 approved quality control program, which is implemented throughout the production process. ISO TS 16949 is an internationally recognized, world class, automotive quality system. Upon passage of all tests, which are monitored by designated quality control personnel, all the component parts are assembled in a work cell into a finished product. Inspection and testing are conducted at multiple stages of the remanufacturing process, and each finished product is inspected and tested on equipment designed to simulate performance under operating conditions. Finished products are either stored in our warehouse facility or packaged for immediate shipment. To maximize remanufacturing efficiency, we store component parts ready for assembly in our warehousing facilities.

Our remanufacturing processes combine product families with similar configurations into dedicated factory work cells. This remanufacturing process, known as “lean manufacturing,” replaced the more traditional assembly line approach we had previously utilized and eliminated a large number of inventory moves and the need to track inventory movement through the remanufacturing process. This lean manufacturing process has been fully implemented at all of our production facilities. This lean manufacturing approach enables us to significantly reduce the time it takes to produce a finished product. We continue to explore opportunities for improving efficiencies in our remanufacturing process.

Table of Contents

Offshore Remanufacturing. The majority of our remanufacturing operations are now conducted at our facilities in Mexico and Malaysia. For our rotating electrical products, we continue to maintain production of certain remanufactured units that require specialized service and/or rapid turnaround in our U.S. facilities. We also operate technical centers within our U.S. facilities which provide recertification of finished goods returns, rework including testing, kitting and packaging, and some small scale production. In addition, we operate a shipping and receiving warehouse and testing facility in Singapore for our rotating electrical products.

Used Cores. The majority of our Used Cores are obtained from customers using our core exchange program. The core exchange program consists of the following steps:

•

Our customers purchase from us a remanufactured unit to be sold to their consumer.

•

Our customers offer their consumers a credit to exchange their used unit (Used Core) at the time the consumer purchases a remanufactured unit.

•

We, in turn, offer our customers a credit to send us these Used Cores. The credit reduces our accounts receivable.

Our customers are not obligated to send us all the Used Cores exchanged by their consumers. We have historically purchased Used Cores in the open market from core brokers who specialize in buying and selling Used Cores. Although the open market is not a primary source of Used Cores, it is a critical source for meeting our raw material demands. Remanufacturing consumes, on average, more than one Used Core for each remanufactured unit produced since not all Used Cores are reusable. The yield rates depend upon both the product and customer specifications.

The price of a finished product sold to our customers is generally comprised of an amount for remanufacturing (“unit value”) and an amount separately invoiced for the Remanufactured Core included in the product (“Remanufactured Core charge”). The Remanufactured Core charge is equal to the credit we offer to induce the customer to use our core exchange program and send back the Used Cores to us. The ability to obtain Used Cores, materials and components of the types and quantities we need is essential to our ability to meet demand.

Return Rights. Under our customer agreements and general industry practice, our customers are allowed stock adjustments when their inventory of certain product lines exceeds the inventory necessary to support sales to end-user consumers. Customers have various contractual rights for stock adjustments which are typically in the range of 3%-5% of total consolidated units sold. In some instances, we allow a higher level of returns in connection with a significant update order. In addition, we allow customers to return goods to us that their end-user consumers have returned to them. We allow this general right of return regardless of whether the returned item is defective. We seek to limit the aggregate of stock adjustment and other customer returns, including general right of return, to less than 20% of unit sales. Stock adjustment returns do not occur at any specific time during the year.

As is standard in the industry, we only accept returns from on-going customers. If a customer ceases doing business with us, we have no further obligation to accept additional product returns from that customer. Similarly, we accept product returns and grant appropriate credits from new customers from the time the new customer relationship is established. This obligation to accept returns from new customers does not result in decreased liquidity or increased expenses since we only accept one returned product for each unit sold to the new customer. In each case, the return must be received by us in the original box of the unit sold.

Supplier Relationships. We purchase new products from suppliers for resale, primarily by Fenco in our undercar product line segment. We have entered into a long-term strategic relationship with Wanxiang America Corporation (the “Supplier”) wherein it has the right to supply new automotive parts and components required by Fenco from third party suppliers, provided that the Supplier matches or betters pricing and other material terms of third party suppliers for all parts of comparable quality that Fenco requires.

Table of Contents

Sales, Marketing and Distribution. We have one of the widest varieties of automotive products available to the market, and we market and distribute our products throughout North America. Our products for the automotive retail chain market are primarily sold under our customers’ widely recognized private labels. We have expanded our sales efforts beyond automotive retail chains to include warehouse distribution centers serving professional installers. We ship our products from our facilities and fee warehouses located in North America.

We publish, for print and electronic distribution, a catalog with part numbers and applications for our products along with a detailed technical glossary and informational database. We believe that we maintain one of the most extensive catalog and product identification systems available to the market.

Employees. We had 2,756 employees at March 31, 2013, compared to 3,340 employees at March 31, 2012. Of these 457 employees were located in the U.S., 56 in Canada, 1,998 in Mexico, and 245 at our Singapore and Malaysian facilities, at March 31, 2013. Approximately 298 of these employees were administrative personnel, of which 24 were engaged in sales. A union represents approximately 1,861 employees at our Mexico facilities. All other employees are non-union. We consider our relations with our employees to be satisfactory.

As of June 10, 2013, Fenco filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware and terminated employment of its 904 employees.

Governmental Regulation

Our operations are subject to federal, state and local laws and regulations governing, among other things, emissions to air, discharge to waters, and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. We believe that our businesses, operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. Potentially significant expenditures, however, could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future.

Table of Contents

Item 1A. Risk Factors

While we believe the risk factors described below are all the material risks currently facing our business, additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business operations. Our financial condition or results of operations could be materially and adversely impacted by these risks, and the trading price of our common stock could be adversely impacted by any of these risks. In assessing these risks, you should also refer to the other information included in or incorporated by reference into this Form 10-K, including our consolidated financial statements and related notes thereto appearing elsewhere or incorporated by reference in this Form 10-K.

We rely on a few major customers for a significant majority of our business, and the loss of any of these customers, significant changes in the prices, marketing allowances or other important terms provided to any of our major customers or adverse developments with respect to the financial condition of any of our major customers would reduce our net income and operating results.

Our consolidated net sales are concentrated among a small number of large customers. During fiscal 2013, sales to our three largest customers constituted approximately 72% of our consolidated net sales, and sales to our largest customer constituted approximately 41% of our consolidated net sales. We are under ongoing pressure from our major customers to offer lower prices, extended payment terms, increased marketing allowances and other terms more favorable to these customers because our sales to these customers are concentrated, and the market in which we operate is very competitive. These customer demands have put continued pressure on our operating margins and profitability, resulted in periodic contract renegotiation to provide more favorable prices and terms to these customers and significantly increased our working capital needs. In addition, this customer concentration leaves us vulnerable to any adverse change in the financial condition of any of our major customers. The loss or significant decline of sales to any of our major customers could adversely affect our business, results of operations and financial condition.

The bankruptcy process relating to Fenco may disrupt our relationships with customers, which could harm our business.

We have attempted to minimize the adverse effect of the bankruptcy of Fenco on our relationships with our customers, some of whom are also customers of Fenco. Nonetheless, the full extent to which the bankruptcy process relating to Fenco will impact our relationships with our customers may not be known for some time. Our relationships with our customers may be adversely impacted, and our operations could be materially and adversely affected.

We may be required to issue shares of our common stock or pay cash pursuant to the terms of our guarantee of obligations to a supplier of Fenco, which could result in dilution or reduce our liquidity.

In August 2012, we entered into an agreement with a supplier of Fenco that provided credit up to $22,000,000 related to the purchase of automotive parts and components by Fenco. After July 1, 2014, the supplier has the right to exercise an option under which the supplier may settle up to $8,000,000 of Fenco’s obligations in exchange, at our option, for (i) shares of our common stock valued at $7.75 per share, subject to certain adjustments, or (ii) cash in an amount equal to 135% of the amount of the outstanding obligations. The supplier also has the right to sell accrued interest to us for shares of our common stock at a price, subject to certain adjustments, that is the lower of (i) $7.75 per share and (ii) 105% of the market value of our common stock, which market value is defined in the terms of the guarantee. As a result of these obligations, we could be liable for up to $22,000,000 of cash and issue an aggregate of 2,604,600 shares of common stock. This liability could reduce our liquidity if we do not refinance it, and could also be dilutive to shareholders if such shares are issued. The principal amount is due under the Fenco credit agreement but payment is subordinated to the Parent Company Financing Agreement (as defined herein).

Table of Contents

Our offshore remanufacturing and logistic activities expose us to increased political and economic risks and place a greater burden on management to achieve quality standards.

Our overseas operations, especially our operations in Mexico, increase our exposure to political, criminal or economic instability in the host countries and to currency fluctuations. Risks are inherent in international operations, including:

·	exchange controls and currency restrictions;

·	currency fluctuations and devaluations;

·	changes in local economic conditions;

·	repatriation restrictions (including the imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries);

·	global sovereign uncertainty and hyperinflation in certain foreign countries;

·	laws and regulations relating to export and import restrictions;

·	exposure to government actions; and

·	exposure to local political or social unrest including resultant acts of war, terrorism or similar events.

These and other factors may have a material adverse effect on our offshore activities and on our business, results of operations and financial condition. Our overall success as a business depends, in part, upon our ability to manage our foreign operations. We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business, and failure to do so could adversely affect our business, results of operations and financial condition.

Interruptions or delays in obtaining component parts could impair our business and adversely affect our operating results.

In our remanufacturing processes, we obtain Used Cores, primarily through the core exchange program with our customers, and component parts from third-party manufacturers. Historically, the Used Cores returned from customers together with purchases from core brokers have provided us with an adequate supply of Used Cores. If there was a significant disruption in the supply of Used Cores, whether as a result of increased Used Core acquisitions by existing or new competitors or otherwise, our operating activities would be materially and adversely impacted. In addition, a number of the other components used in the remanufacturing process are available from a very limited number of suppliers. We are, as a result, vulnerable to any disruption in component supply, and any meaningful disruption in this supply would materially and adversely impact our operating results.

Increases in the market prices of key component raw materials could negatively impact our profitability.

In light of the long-term, continuous pressure on pricing which we have experienced from our major customers, we may not be able to recoup the higher prices which raw materials, particularly aluminum and copper, may command in the marketplace. We believe the impact of higher raw material prices, which is outside our control, is mitigated to some extent because we recover a substantial portion of our raw materials from Used Cores returned to us by our customers through the core exchange program. However, we are unable to determine what adverse impact, if any, sustained raw material price increases may have on our profitability.

Substantial and potentially increasing competition could reduce our market share and significantly harm our financial performance.

While we believe we are well-positioned in the aftermarket for remanufactured products, this market is very competitive. In addition, other overseas manufacturers, particularly those located in China, are increasing their operations and could become a significant competitive force in the future. We may not be successful competing against other companies, some of which are larger than us and have greater financial and other resources at their disposal. Increased competition could put additional pressure on us to reduce prices or take other actions which may have an adverse effect on our operating results.

Table of Contents

Our financial results are affected by automotive parts failure rates that are outside our control.

Our operating results are affected by automotive parts failure rates. These failure rates are impacted by a number of factors outside our control, including product designs that have resulted in greater reliability, consumers driving fewer miles as a result of both high gasoline prices and the slowdown in the U.S. economy, and the average age of vehicles on the road. A reduction in the failure rates of automotive parts would adversely affect our sales and profitability.

Our operating results may continue to fluctuate significantly.

We have experienced significant variations in our annual and quarterly results of operations. These fluctuations have resulted from many factors, including shifts in the demand and pricing for our products and general economic conditions, including changes in prevailing interest rates. Our gross profit percentage fluctuates due to numerous factors, some of which are outside our control. These factors include the timing and level of marketing allowances provided to our customers, differences between the level of projected sales to a particular customer and the actual sales during the relevant period, pricing strategies, the mix of products sold during a reporting period, fluctuations in the level of Used Core returns during the period, and general market and competitive conditions.

Our lenders may not waive future defaults under our credit agreements.

Over the past several years, we have violated a number of the financial and other covenants contained in our credit agreements. To this point, our lenders have been willing to waive these covenant defaults and to do so without imposing any significant cost or penalty on us. If we fail to meet the financial covenants or the other obligations set forth in our credit agreements in the future, there is no assurance that our lenders will waive any such defaults.

Our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position.

Our indebtedness may increase substantially from time to time for various reasons, including fluctuations in operating results, marketing allowances provided to customers, capital expenditures and possible acquisitions. Our indebtedness could materially affect our business because (i) a portion of our cash flow must be used to service debt rather than finance our operations, (ii) it may eventually impair our ability to obtain financing in the future, and (iii) it may reduce our flexibility to respond to changes in business and economic conditions or take advantage of business opportunities that may arise.

Our stock price may be volatile and could decline substantially.

Our stock price may decline substantially as a result of the volatile nature of the stock market and other factors beyond our control. The stock market has, from time to time, experienced extreme price and volume fluctuations. Many factors may cause the market price for our common stock to decline, including (i) our operating results failing to meet the expectations of securities analysts or investors in any quarter, (ii) downward revisions in securities analysts’ estimates, (iii) market perceptions concerning our future earnings prospects, (iv) public or private sales of a substantial number of shares of our common stock, and (v) adverse changes in general market conditions or economic trends. Our stock price has ranged from $3.96 to $15.86 per share since the acquisition of Fenco on May 6, 2011.

Table of Contents

Unfavorable currency exchange rate fluctuations could adversely affect us.

We are exposed to market risk from material movements in foreign exchange rates between the U.S. dollar and the currencies of the foreign countries in which we operate. As a result of our extensive operations in Mexico, our primary risk relates to changes in the rates between the U.S. dollar and the Mexican peso. To mitigate this currency risk, we enter into forward foreign exchange contracts to exchange U.S. dollars for Mexican pesos. We also enter into forward foreign exchange contracts to exchange U.S. dollars for Chinese yuan in order to mitigate risk related to our purchases and payments to our Chinese vendors. The extent to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates. We do not engage in currency speculation or hold or issue financial instruments for trading purposes. These contracts expire in a year or less. Any change in the fair value of foreign exchange contracts is accounted for as an increase or decrease to general and administrative expenses in current period earnings.

We may continue to make strategic acquisitions of other companies or businesses and these acquisitions introduce significant risks and uncertainties, including risks related to integrating the acquired businesses and achieving benefits from the acquisitions.

In order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, strategic acquisitions that involve significant risks and uncertainties. These risks and uncertainties include: (i) the difficulty in integrating newly-acquired businesses and operations in an efficient and effective manner, (ii) the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions, (iii) the potential loss of key employees of the acquired businesses, (iv) the risk of diverting the attention of senior management from our operations, (v) risks associated with integrating financial reporting and internal control systems, (vi) difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses, and (vii) future impairments of goodwill of an acquired business.

Continuing weakness in conditions in the global credit markets and macroeconomic factors could adversely affect our financial condition and results of operations.

The ongoing weakness in the financial condition of financial institutions has resulted in significant constraints on liquidity and availability in global credit markets and more stringent borrowing terms. Modest economic growth in most major industrial countries in the world and uncertain prospects for continued growth threaten to cause further tightening of the credit markets, more stringent lending standards and terms, and higher volatility in interest rates. The persistence of these conditions could have a material adverse effect on our borrowings and the availability, terms and cost of such borrowings. In addition, deterioration in the U.S. economy could adversely affect our corporate results, which could adversely affect our operating results.

Our reliance on foreign suppliers for certain automotive parts poses various risks.

A significant portion of certain automotive parts are imported from suppliers located outside the U.S., including various countries in Asia. As a result, we are subject to various risks of doing business in foreign markets and importing products from abroad, such as:

●

significant delays in the delivery of cargo due to port security considerations;

●

imposition of duties, taxes, tariffs or other charges on imports;

●

imposition of new legislation relating to import quotas or other restrictions that may limit the quantity of our product that may be imported into the U.S. from countries or regions where we do business;

●

financial or political instability in any of the countries in which our product is manufactured;

●

potential recalls or cancellations of orders for any product that does not meet our quality standards;

●

disruption of imports by labor disputes and local business practices;

●

political or military conflict involving the U.S., which could cause a delay in the transportation of our products and an increase in transportation costs;

●

heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods;

●

natural disasters, disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;

●

inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and

●

our ability to enforce any agreements with our foreign suppliers.

Table of Contents

Any of the foregoing factors, or a combination of them, could increase the cost or reduce the supply of products available to us and adversely affect our business, financial condition, results of operations or liquidity.

In addition, because we depend on independent third parties to manufacture a significant portion of certain automotive products, we cannot be certain that we will not experience operational difficulties with such manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality controls and failure to meet production deadlines or increases in manufacturing costs.

We have identified a material weakness in our internal control over financial reporting resulting from our acquisition of Fenco and cannot assure that additional material weaknesses will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in material misstatements in our financial statements which could require us to restate financial statements, cause investors to lose confidence in our reported financial information and have a negative effective on our stock price.

Management has identified a material weakness in our internal control over financial reporting at Fenco that affected our financial statements for the first two quarters of fiscal 2013. This material weakness in our internal control over financial reporting was related to the following factors: the inadequacy of systems required to segregate and account for certain transactions accurately; the failure of financial policies and procedures at Fenco to provide for effective oversight and review of the reconciliation of accounts at month or quarter ends; and the inadequacy of the overall accounting skill set at Fenco for diligent and consistent performance of key accounting controls. These factors resulted in Fenco’s inability to complete the financial closing process on a timely and accurate basis. As a result of our failure to meet our periodic reporting obligations in a timely manner, we had received notices from the National Association of Securities Dealers Automated Quotation ("NASDAQ”) regarding our failure to maintain the listing standards for our common stock. We were in full compliance with the NASDAQ listing standards in connection with the filing of the quarterly report on Form 10-Q with the SEC for the second quarter of fiscal 2013 in December 2012.

We cannot assure that additional significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional significant deficiencies or material weaknesses, cause us to fail to meet our periodic reporting obligations (which may result in our failure to maintain the listing standards for our common stock) or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated under Section 404. The existence of a material weakness could result in errors in our financial statements that could result in a restatement of financial statements, cause us to fail to meet our reporting obligations (which may result in our failure to maintain the listing standards for our common stock) and cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.

Impairment of charges relating to goodwill and long-lived assets may have a material adverse effect on our earnings and results of operations.

We regularly monitor our goodwill and long-lived assets for impairment indicators. In conducting our goodwill impairment testing, we compare the fair value of each our business segments to the related net book value. In conducting our impairment analysis of long-lived assets, we compare the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. Changes in economic or operating conditions impacting our estimates and assumptions could result in the impairment of our goodwill or long-lived assets. In the event that we determine our goodwill or long-lived assets are impaired, we may be required to record a significant charge to earnings in our financial statements that could have a material adverse effect on our results of operations. We may also incur charges in connection with the sale of assets or operations, or revaluations of assets as we change our operations.

Table of Contents

As of March 31, 2013, we identified the following impairment indicators in our undercar product line segment: (i) continued losses from Fenco operations, (ii) lower forecasted future revenues, (iii) negative working capital position, (iv) additional financing needs, and (v) the anticipated filing for bankruptcy. As a result of the annual goodwill impairment analysis and intangible asset impairment analysis performed during the fourth quarter of fiscal 2013, we concluded that goodwill and intangible assets for our undercar product line segment were fully impaired, therefore, we recorded a non-cash goodwill and intangible asset impairment charge of $68,356,000 and $16,330,000 during fiscal 2013, respectively.

An increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales and profits.

Merchandise manufactured overseas represents a part of our total product purchases. A disruption in the shipping or cost of such merchandise may significantly decrease our sales and profits. In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands. Merchandise from alternative sources may also be of lesser quality and more expensive than those we currently import. Risks associated with our reliance on imported merchandise include disruptions in the shipping and importation or increase in the costs of imported products. For example, common risks may be:

·	raw material shortages;

·	work stoppages;

·	strikes and political unrest;

·	problems with oceanic shipping, including shipping container shortages;

·	increased customs inspections of import shipments or other factors causing delays in shipments;

·	economic crises;

·	international disputes and wars;

·	loss of “most favored nation” trading status by the United States in relations to a particular foreign country;

·	import duties;

·	import quotas and other trade sanctions; and

·	increases in shipping rates.

Products manufactured overseas and imported into the U.S. and other countries are subject to import restrictions and duties.

Our auditors have included an explanatory paragraph expressing substantial doubt as to the ability of the consolidated companies (as defined herein) to continue as a going concern as of March 31, 2013 as a result of losses from its Fenco operations.

During May 2013, Fenco appointed a new board of independent directors, hired an independent chief restructuring officer and all its previously existing officers resigned from FAPL. As a result of the loss of control of Fenco, we will likely deconsolidate the financial statements of Fenco from our consolidated financial statements during the first quarter of fiscal 2014. On June 10, 2013, Fenco filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. As of March 31, 2013, Fenco’s financial statements are included in the consolidated financial statements of the Company. Our consolidated financial statements are prepared assuming we will continue as a going concern. The financial statements do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

Table of Contents

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table sets forth the location, type of facility, square footage and ownership interest in each of our facilities.

		Approx.		Leased	Date of
		Square		or	Lease
Location	Type of Facility	Feet		Owned	Expiration
Rotating Electrical
Torrance, CA	Remanufacturing, Warehouse, Administrative, and Office		231,000	Leased	March 2022
Tijuana, Mexico (1)	Remanufacturing, Warehouse, and Office		311,000	Leased	April 2015
Singapore & Malaysia	Remanufacturing, Warehouse, and Office		60,000	Leased	Various through November 2014
Shanghai, China	Warehouse and Office		27,000	Leased	March 2016
Undercar Product Line (2)
Lock Haven, PA (1)	Warehouse and Distribution		320,000	Leased	November 2014
Lock Haven, PA	Technical Center		50,000	Owned	-
Monterrey, Mexico (1)	Industrial and Office		183,000	Leased	July 2021
Toronto, Canada	Office and Warehouse		45,000	Leased	December 2013

(1) We have an option to extend the lease term for two additional 5-year periods.

(2) During May 2013, Fenco appointed a new board of independent directors, hired an independent chief restructuring officer and all its previously existing officers resigned from FAPL. As a result of the loss of control of Fenco, we will likely deconsolidate the financial statements of Fenco from our consolidated financial statements during the first quarter of fiscal 2014.

We believe the above mentioned facilities are sufficient to satisfy our foreseeable warehousing, production, distribution and administrative office space requirements for our current operations.

Item 3. Legal Proceedings

We are subject to various legal proceedings arising in the normal course of conducting business. Management does not believe that the outcome of these matters will have a material adverse impact on its financial position or future results of operations.

Item 4. Mine Safety Disclosures

Not applicable.

Table of Contents

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the NASDAQ Global Select Market under the trading symbol MPAA. The following table sets forth the high and low sale prices for our common stock during fiscal 2013 and 2012.

	Fiscal 2013				Fiscal 2012
	High		Low		High		Low
1st Quarter	$	10.00	$	4.04	$	15.86	$	12.95
2nd Quarter	$	5.16	$	3.96	$	15.75	$	8.12
3rd Quarter	$	6.85	$	4.22	$	10.42	$	6.70
4th Quarter	$	7.30	$	5.30	$	10.10	$	6.33

As of June 10, 2013, there were 14,460,979 shares of common stock outstanding held by 36 holders of record. We have never declared or paid dividends on our common stock. The declaration of any prospective dividends is at the discretion of the Board of Directors and will be dependent upon sufficient earnings, capital requirements and financial position, general economic conditions, state law requirements and other relevant factors. Additionally, our agreement with our lenders prohibits the payment of dividends, except stock dividends, without the lenders’ prior consent.

Share Repurchase Program

In March 2010, our Board of Directors authorized a share repurchase program of up to $5,000,000 of our outstanding common stock from time to time in the open market and in private transactions at prices deemed appropriate by management. The program does not have an expiration date. Under this program, we have repurchased and retired a total of 67,347 shares at a total cost of approximately $389,000 up to the year ended March 31, 2013. Our credit agreements currently prohibit such repurchases.

Equity Compensation Plan Information

The following table summarizes our equity compensation plans as of March 31, 2013:

	(a)			(b)		(c)
Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted-average exercise price of outstanding options warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by securities holders		1,970,084	(1)	$	8.73		1,135,033	(2)
Equity compensation plans not approved by security holders		N/A			N/A		N/A

Total		1,970,084		$	8.73		1,135,033

(1)	Consists of options issued pursuant to our 1994 Employee Stock Option Plan, 1996 Employee Stock Option Plan, 1994 Non-Employee Director Stock Option Plan, 2003 Long-Term Incentive Plan, 2004 Non-Employee Director Stock Option Plan, and 2010 Incentive Award Plan.

(2)	Consists of options available for issuance under our 2010 Incentive Award Plan and 2004 Non-Employee Director Stock Option Plan.

Table of Contents

Performance Graph

The following graph compares the cumulative return to holders of our common stock for the five years ending March 31, 2013 with the NASDAQ Composite Index and the Zacks Retail and Wholesale Auto Parts Index. The comparison assumes $100 was invested at the close of business on March 31, 2008 in our common stock and in each of the comparison groups, and assumes reinvestment of dividends.

Comparison of 5 Year Cumulative Total Return

Assumes Initial Investment of $100

March 2013

Table of Contents

Item 6. Selected Financial Data

The following selected historical consolidated financial information for the periods indicated below has been derived from and should be read in conjunction with our consolidated financial statements and related notes thereto. The acquisition of Fenco on May 6, 2011, has had a significant impact on the comparability of results.

	Fiscal Years Ended March 31,
Income Statement Data	2013			2012			2011		2010		2009

Net sales	$	406,266,000		$	363,687,000		$	161,285,000	$	147,225,000	$	134,866,000
Operating (loss) income		(88,825,000	)		(27,487,000	)		25,384,000		18,307,000		10,642,000
Net (loss) income		(91,511,000	)		(48,514,000	)		12,220,000		9,646,000		3,857,000
Basic net (loss) income per share	$	(6.39	)	$	(3.90	)	$	1.01	$	0.80	$	0.32
Diluted net (loss) income per share	$	(6.39	)	$	(3.90	)	$	0.99	$	0.80	$	0.32

	March 31,
Balance Sheet Data	2013			2012			2011		2010		2009

Total assets	$	367,074,000		$	501,898,000		$	191,865,000	$	163,480,000	$	159,588,000
Working capital		(67,142,000	)		(2,188,000	)		1,395,000		3,399,000		(3,569,000	)
Revolving loan		-			48,884,000			-		-		21,600,000
Term loan		84,010,000			85,000,000			7,500,000		9,500,000		-
Capital lease obligations		398,000			662,000			834,000		1,398,000		3,022,000
Other long term liabilities		70,573,000			124,228,000			9,984,000		7,056,000		7,364,000
Shareholders’ equity	$	(3,514,000	)	$	73,619,000		$	117,177,000	$	103,620,000	$	93,083,000

Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Disclosure Regarding Private Securities Litigation Reform Act of 1995

This report contains certain forward-looking statements with respect to our future performance that involve risks and uncertainties. Various factors could cause actual results to differ materially from those projected in such statements. These factors include, but are not limited to: the bankruptcy of Fenco, concentration of sales to certain customers, changes in our relationship with any of our major customers, the increasing customer pressure for lower prices and more favorable payment and other terms, the increasing demands on our working capital, the significant strain on working capital associated with large Remanufactured Core inventory purchases from customers, our ability to obtain any additional financing we may seek or require, our ability to achieve positive cash flows from operations, potential future changes in our previously reported results as a result of the identification and correction of errors in our accounting policies or procedures or the potential material weaknesses in our internal controls over financial reporting, lower revenues than anticipated from new and existing contracts, our failure to meet the financial covenants or the other obligations set forth in our credit agreements and the lenders’ refusal to waive any such defaults, any meaningful difference between projected production needs and ultimate sales to our customers, increases in interest rates, changes in the financial condition of any of our major customers, the impact of high gasoline prices, the potential for changes in consumer spending, consumer preferences and general economic conditions, increased competition in the automotive parts industry, including increased competition from Chinese and other offshore manufacturers, difficulty in obtaining Used Cores and component parts or increases in the costs of those parts, political, criminal or economic instability in any of the foreign countries where we conduct operations, currency exchange fluctuations, unforeseen increases in operating costs, the strategic cooperation agreement, and other factors discussed herein and in our other filings with the SEC.

Management Overview

We are a leading manufacturer, remanufacturer, and distributor of aftermarket automobile parts. We have two reportable segments, rotating electrical and undercar product line.

Within the rotating electrical segment, we manufacture and remanufacture alternators and starters for import and domestic cars, light trucks, heavy duty, agricultural and industrial applications.

Within the undercar product line segment, Fenco remanufactures and distributes new and remanufactured steering components including rack and pinion, pumps and gears, brake calipers, master cylinders, and hub assembly and bearings for virtually all passenger and truck vehicles.

The aftermarket for automobile parts is divided into two markets. The first market is the DIY market, which is generally serviced by the large retail chain outlets. Consumers who purchase parts from the DIY channel generally install parts into their vehicles themselves. In most cases, this is a less expensive alternative than having the repair performed by a professional installer. The second market is the professional installer market, commonly known as the DIFM market. This market is serviced by the traditional warehouse distributors, the dealer networks, and the commercial divisions of retail chains. Generally, the consumer in this channel is a professional parts installer.

Our products are distributed to both the DIY and DIFM markets and are distributed predominantly throughout North America. We sell our products to the largest auto parts retail and traditional warehouse chains and to major automobile manufacturers for both their aftermarket programs and their OES program. Demand and replacement rates for aftermarket remanufactured automobile parts generally increase with the age of vehicles and increases in miles driven.

Table of Contents

Recent Developments

Since our acquisition of Fenco on May 6, 2011, we have been implementing our undercar product line turnaround plan and our top priority continued to be improvement of the financial performance of our undercar product line business. The implementation of our undercar product line turnaround plan has taken longer and cost more than initially anticipated. Revenues generated by our undercar product line segment have not been sufficient to enable us to meet our operating expenses and otherwise implement our undercar product line turnaround plan. Fenco has incurred net losses of $135,260,000 and $62,814,000 for the years ended March 31, 2013 and 2012, respectively, and has an accumulated deficit of approximately $198,074,000 at March 31, 2013. Fenco continues to face capital and liquidity concerns. The Parent Company Financing Agreement only permitted the Company to invest up to an additional $20,000,000 in Fenco, which it had done as of December 31, 2012. As of March 31, 2013, the Company had invested in Fenco $4,946,000 of equity, $52,631,000 of debt, $27,382,000 of accounts receivable in connection with our March 2011 consignment arrangement to provide goods in order to maintain the service levels for Fenco’s customers, and $1,782,000 of net inter-company balances. At March 31, 2013, the Company has established a specific charge-off accrual for the debt, accounts receivable and inter-company balances. Fenco has been unable to refinance its credit agreement or obtain additional sufficient capital to implement its turnaround plan. The report of our independent registered public accounting firm on our financial statements for the year ended March 31, 2013 contains an explanatory paragraph raising substantial doubt as to our ability to continue as a going concern.

During May 2013, Fenco appointed a new board of independent directors, hired an independent chief restructuring officer and all its previously existing officers resigned from FAPL. As a result of the loss of control of Fenco, we will likely deconsolidate the financial statements of Fenco from our consolidated financial statements during the first quarter of fiscal 2014. On June 10, 2013, each of FAPL, Introcan and Introcan’s subsidiaries, Flo-Pro Inc., LH Distribution Inc., Rafko Logistics Inc., Rafko Holdings Inc. and Rafko Enterprises Inc., filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. As of March 31, 2013, Fenco’s financial statements are included in the consolidated financial statements of the Company. Our consolidated financial statements are prepared assuming we will continue as a going concern. The financial statements do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

Table of Contents

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, in the United States. Our significant accounting policies are discussed in detail below and in Note 2 in the Notes to Consolidated Financial Statements.

In preparing our consolidated financial statements, we use estimates and assumptions for matters that are inherently uncertain. We base our estimates on historical experiences and reasonable assumptions. Our use of estimates and assumptions affect the reported amounts of assets, liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period. Actual results may differ from our estimates.

Our remanufacturing operations require that we acquire Used Cores, a necessary raw material, from our customers and offer our customers marketing and other allowances that impact revenue recognition. These elements of our business give rise to accounting issues that are more complex than many businesses our size or larger. In addition, the relevant accounting standards and issues continue to evolve.

Segment Reporting

Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), we have two reportable segments, rotating electrical and undercar product line, based on the way we manage, evaluate and internally report our business activities.

Inventory

Non-core Inventory

Non-core inventory is comprised of non-core raw materials, the non-core value of work in process and the non-core value of finished goods. Used Cores, the Used Core value of work in process and the Remanufactured Core portion of finished goods are classified as long-term core inventory as described below under the caption “Long-term Core Inventory.”

Non-core inventory is stated at the lower of cost or market. The cost of non-core inventory approximates average historical purchase prices paid, and is based upon the direct costs of material and an allocation of labor and variable and fixed overhead costs. The cost of non-core inventory is evaluated at least quarterly during the fiscal year and adjusted as necessary to reflect current lower of cost or market levels. These adjustments are determined for individual items of inventory within each of the three classifications of non-core inventory as follows:

•

Non-core raw materials are recorded at average cost, which is based on the actual purchase price of raw materials on hand. The average cost is updated quarterly. This average cost is used in the inventory costing process and is the basis for allocation of materials to finished goods during the production process.

•

Non-core work in process is in various stages of production and is valued at the average cost of materials issued to the open work orders. Historically, non-core work in process inventory has not been material compared to the total non-core inventory balance.

•

Finished goods cost includes the average cost of non-core raw materials and allocations of labor and variable and fixed overhead. The allocations of labor and variable and fixed overhead costs are determined based on the average actual use of the production facilities over the prior twelve months which approximates normal capacity. This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production. In addition, we exclude certain unallocated overhead such as severance costs, duplicative facility overhead costs, and spoilage from the calculation and expense these unallocated overhead as period costs. For the fiscal years ended March 31, 2013, 2012, and 2011, costs of approximately $1,561,000, $1,410,000, and $1,378,000, respectively, were considered unallocated overhead and thus excluded from the finished goods cost calculation and charged directly to cost of sales for our rotating electrical product line.

Table of Contents

We record an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory. We periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand. Any part numbers with quantities identified during this process are reserved for at rates based upon management’s judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part.

The quantity thresholds and reserve rates are subjective and are based on management’s judgment and knowledge of current and projected industry demand. The reserve estimates may, therefore, be revised if there are changes in the overall market for our products or market changes that in management’s judgment, impact our ability to sell or liquidate potentially excess or obsolete inventory.

We record vendor discounts as reductions of inventories that are recognized as reductions to cost of sales as the inventories are sold.

Inventory Unreturned

Inventory unreturned represents our estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that we expect to be returned, under our general right of return policy, after the balance sheet date. Because all cores are classified separately as long-term assets, the inventory unreturned balance includes only the added unit value of a finished good. The return rate is calculated based on expected returns within the normal operating cycle of one year. As such, the related amounts are classified in current assets.

Inventory unreturned is valued in the same manner as our finished goods inventory.

Long-term Core Inventory

Long-term core inventory consists of:

•

Used Cores purchased from core brokers and held in inventory at our facilities,

•

Used Cores returned by our customers and held in inventory at our facilities,

•

Used Cores returned by end-users to customers but not yet returned to us which are classified as Remanufactured Cores until they are physically received by us,

•

Remanufactured Cores held in finished goods inventory at our facilities; and

•

Remanufactured Cores held at customer locations as a part of the finished goods sold to the customer. For these Remanufactured Cores, we expect the finished good containing the Remanufactured Core to be returned under our general right of return policy or a similar Used Core to be returned to us by the customer, in each case, for credit.

Long-term core inventory is recorded at average historical purchase prices determined based on actual purchases of inventory on hand. The cost and market value of Used Cores for which sufficient recent purchases have occurred are deemed the same as the purchase price for purchases that are made in arm’s length transactions.

Long-term core inventory recorded at average historical purchase prices is primarily made up of Used Cores for newer products related to more recent automobile models or products for which there is a less liquid market. We must purchase these Used Cores from core brokers because our customers do not have a sufficient supply of these newer Used Cores available for the core exchange program.

Table of Contents

Used Cores obtained in core broker transactions are valued based on average purchase price. The average purchase price of Used Cores for more recent automobile models is retained as the cost for these Used Cores in subsequent periods even as the source of these Used Cores shifts to our core exchange program.

Long-term core inventory is recorded at the lower of cost or market value. In the absence of sufficient recent purchases, we use core broker price lists to assess whether Used Core cost exceeds Used Core market value on an item by item basis. The primary reason for the insufficient recent purchases is that we obtain most of our Used Core inventory from the customer core exchange program.

We classify all of our core inventories as long-term assets. The determination of the long-term classification is based on our view that the value of the cores is not consumed or realized in cash during our normal operating cycle, which is one year for most of the cores recorded in inventory. According to guidance provided under the FASB ASC, current assets are defined as “assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.” We do not believe that core inventories, which we classify as long-term, are consumed because the credits issued upon the return of Used Cores offset the amounts invoiced when the Remanufactured Cores included in finished goods were sold. We do not expect the core inventories to be consumed, and thus we do not expect to realize cash, until our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience.

However, historically for a portion of finished goods sold, our customer will not send us a Used Core to obtain the credit we offer under our core exchange program. Therefore, based on our historical estimate, we derecognize the core value for these finished goods upon sale, as we believe they have been consumed and we have realized cash.

We realize cash for only the core exchange program shortfall. This shortfall represents the historical difference between the number of finished goods shipped to customers and the number of Used Cores returned to us by customers. We do not realize cash for the remaining portion of the cores because the credits issued upon the return of Used Cores offset the amounts invoiced when the Remanufactured Cores included in finished goods were sold. We do not expect to realize cash for the remaining portion of these cores until our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience.

For these reasons, we concluded that it is more appropriate to classify core inventory as long-term assets.

Long-term Core Inventory Deposit

The long-term core inventory deposit account represents the value of Remanufactured Cores we have purchased from customers, which are held by the customers and remain on the customers’ premises. The purchase is made through the issuance of credits against that customer’s receivables either on a one time basis or over an agreed-upon period. The credits against the customer’s receivable are based upon the Remanufactured Core purchase price previously established with the customer. At the same time, we record the long-term core inventory deposit for the Remanufactured Cores purchased at its cost, determined as noted under Long-term Core Inventory. The long-term core inventory deposit is stated at the lower of cost or market. The cost is established at the time of the transaction based on the then current cost, determined as noted under Long-term Core Inventory. The difference between the credit granted and the cost of the long-term core inventory deposit is treated as a sales allowance reducing revenue. When the purchases are made over an agreed-upon period, the long-term core inventory deposit is recorded at the same time the credit is issued to the customer for the purchase of the Remanufactured Cores.

At least annually, and as often as quarterly, reconciliations and confirmations are performed to determine that the number of Remanufactured Cores purchased, but retained at the customer locations, remains sufficient to support the amounts recorded in the long-term core inventory deposit account. At the same time, the mix of Remanufactured Cores is reviewed to determine that the aggregate value of Remanufactured Cores in the account has not changed during the reporting period. We evaluate the cost of Remanufactured Cores supporting the aggregate long-term core inventory deposit account each quarter. If we identify any permanent reduction in either the number or the aggregate value of the Remanufactured Core inventory mix held at the customer location, we will record a reduction in the long-term core inventory deposit account during that period.

Table of Contents

Customer Core Returns Accrual

The estimated fair value of the customer core return liabilities assumed by us in connection with the Fenco acquisition is included in customer core returns accrual. We classify the portion of core liability related to the core inventory purchased and on the shelves of our customers as long-term liabilities. Upon the sale of a Remanufactured Core, a core liability is created to record the obligation to provide our customer with a credit upon the return of a like core by the customer. Since the return of a core is based on the sale of a remanufactured automobile part to an end user of our customer, the offset to this core liability generated by its return to us by our customer is usually followed by the sale of a replacement remanufactured auto part, and thus a portion of the core liability is continually outstanding and is recorded as long-term. The amount we have classified as long-term is the portion that management projects will remain outstanding for an uninterrupted period extending one year from the balance sheet date.

Revenue Recognition

We recognize revenue when our performance is complete, and all of the following criteria have been met:

•

Persuasive evidence of an arrangement exists,

•

Delivery has occurred or services have been rendered,

•

The seller’s price to the buyer is fixed or determinable, and

•

Collectability is reasonably assured.

For products shipped free-on-board (“FOB”) shipping point, revenue is recognized on the date of shipment. For products shipped FOB destination, revenues are recognized on the estimated or actual date of delivery. We include shipping and handling charges in the gross invoice price to customers and classify the total amount as revenue. Shipping and handling costs are recorded in cost of sales.

Revenue Recognition; Net-of-Core-Value Basis

The price of a finished product sold to customers is generally comprised of separately invoiced amounts for the Remanufactured Core included in the product (“Remanufactured Core value”) and the unit value. The unit value is recorded as revenue based on our then current price list, net of applicable discounts and allowances. Based on our experience, contractual arrangements with customers and inventory management practices, a significant portion of the remanufactured automobile parts we sell to customers are replaced by similar Used Cores sent back for credit by customers under our core exchange program. In accordance with our net-of-core-value revenue recognition policy, we do not recognize the Remanufactured Core value as revenue when the finished products are sold. We generally limit the number of Used Cores sent back under the core exchange program to the number of similar Remanufactured Cores previously shipped to each customer.

Table of Contents

Revenue Recognition and Deferral — Core Revenue

Full price Remanufactured Cores: When we ship a product, we invoice certain customers for the Remanufactured Core value portion of the product at full Remanufactured Core sales price but do not recognize revenue for the Remanufactured Core value at that time. For these Remanufactured Cores, we recognize core revenue based upon an estimate of the rate at which our customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under our core exchange program.

Nominal price Remanufactured Cores: We invoice other customers for the Remanufactured Core value portion of product shipped at a nominal Remanufactured Core price. Unlike the full price Remanufactured Cores, we only recognize revenue from nominal Remanufactured Cores not expected to be replaced by a similar Used Core sent back under the core exchange program when we believe that we have met all of the following criteria:

•

We have a signed agreement with the customer covering the nominally priced Remanufactured Cores not expected to be sent back under the core exchange program, and the agreement must specify the number of Remanufactured Cores our customer will pay cash for in lieu of sending back a similar Used Core under our core exchange program and the basis on which the nominally priced Remanufactured Cores are to be valued (normally the average price per Remanufactured Core stipulated in the agreement).

•

The contractual date for reconciling our records and customer’s records of the number of nominally priced Remanufactured Cores not expected to be replaced by similar Used Cores sent back under our core exchange program must be in the current or a prior period.

•

The reconciliation must be completed and agreed to by the customer.

•

The amount must be billed to the customer.

Deferral of Core Revenue. As noted previously, we have in the past and may in the future agree to buy back Remanufactured Cores from certain customers. The difference between the credit granted and the cost of the Remanufactured Cores bought back is treated as a sales allowance reducing revenue. As a result of the ongoing Remanufactured Core buybacks, we have now deferred core revenue from these customers until there is no expectation that sales allowances associated with Remanufactured Core buybacks from these customers will offset core revenues that would otherwise be recognized once the criteria noted above have been met.

Revenue Recognition; General Right of Return

We allow our customers to return goods to us that their end-user customers have returned to them, whether the returned item is or is not defective (warranty returns). In addition, under the terms of certain agreements with our customers and industry practice, our customers from time to time are allowed stock adjustments when their inventory of certain product lines exceeds the anticipated sales to end-user customers (stock adjustment returns). We seek to limit the aggregate of customer returns, including warranty and stock adjustment returns, to less than 20% of unit sales. In some instances, we allow a higher level of returns in connection with a significant update order.

We provide for such anticipated returns of inventory by reducing revenue and the related cost of sales for the units estimated to be returned.

Our allowance for warranty returns is established based on a historical analysis of the level of this type of return as a percentage of total unit sales. Stock adjustment returns do not occur at any specific time during the year, and the expected level of these returns cannot be reasonably estimated based on a historical analysis. Our allowance for stock adjustment returns is based on specific customer inventory levels, inventory movements and information on the estimated timing of stock adjustment returns provided by our customers.

Table of Contents

Sales Incentives

We provide various marketing allowances to our customers, including sales incentives and concessions. Marketing allowances related to a single exchange of product are recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered. Other marketing allowances, which may only be applied against future purchases, are recorded as a reduction to revenues in accordance with a schedule set forth in the relevant contract. Sales incentive amounts are recorded based on the value of the incentive provided.

Goodwill

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized, but rather is tested for impairment at least annually or more frequently if there are indicators of impairment present.

We perform the annual goodwill impairment analysis in the fourth quarter of each fiscal year. We evaluate whether goodwill has been impaired at the reporting unit level by first determining whether the estimated fair value of the reporting unit is less than its carrying value and, if so, by determining whether the implied fair value of goodwill within the reporting unit is less than the carrying value. As of March 31, 2013, we identified the following impairment indicators in our undercar product line segment: (i) continued losses from Fenco operations, (ii) lower forecasted future revenues, (iii) negative working capital position, (iv) additional financing needs, and (v) the anticipated filing for bankruptcy.

We determined the fair value of the undercar product line reporting unit using a liquidation scenario. For determining the fair value under the liquidation scenario, we used total assets minus estimated liquidation expenses to arrive to the proceeds available for senior secured creditors. Based on the results of the goodwill impairment test, the reporting unit’s carrying value exceeded its fair value, indicating an impairment of goodwill at March 31, 2013. We determined that goodwill was fully impaired as the implied fair value of goodwill within the reporting unit was zero and recorded a non-cash goodwill impairment charge of $68,356,000 as disclosed in the consolidated statement of operations. After recording the impairment charge, the undercar product line segment had no goodwill remaining in the consolidated balance sheet at March 31, 2013.

Intangible Assets

Our intangible assets other than goodwill are finite–lived and amortized on a straight line basis over their respective useful lives, and are analyzed for impairment when and if indicators of impairment exist. As of March 31, 2013, there were no indicators of impairment for our rotating electrical product line. However, we noted impairment indicators for our undercar product line segment as described above. Therefore, we performed an impairment test of the undercar product line segment’s intangible assets and concluded that such intangible assets were fully impaired as of March 31, 2013.

Income Taxes

We account for income taxes using the liability method, which measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The resulting asset or liability is adjusted to reflect changes in the tax laws as they occur. A valuation allowance is provided to reduce deferred tax assets when it is more likely than not that a portion of the deferred tax asset will not be realized.

The primary components of our income tax provision (benefit) are (i) the current liability or refund due for federal, state and foreign income taxes and (ii) the change in the amount of the net deferred income tax asset, including the effect of any change in the valuation allowance.

Table of Contents

Realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income. Management reviews the Company’s deferred tax assets on a jurisdiction by jurisdiction basis to determine whether it is more likely than not that the deferred tax assets will be realized. As a result of Fenco’s cumulative losses in certain jurisdictions, a determination was made to establish a valuation allowance against the related deferred tax assets as it is not more likely than not that such assets will be realized. For all other jurisdictions, management believes that it is more likely than not that future taxable income will be sufficient to realize the recorded deferred tax assets. In evaluating this ability, management considers long-term agreements and Remanufactured Core purchase obligations with our major customers that expire at various dates through March 2019. Management also periodically compares the forecasts to actual results. Even though there can be no assurance that the forecasted results will be achieved, the history of income in all other jurisdictions provides sufficient positive evidence that no valuation allowance is needed.

Financial Risk Management and Derivatives

We are exposed to market risk from material movements in foreign exchange rates between the U.S. dollar and the currencies of the foreign countries in which we operate. As a result of our significant operations in Mexico, our primary risk relates to changes in the rates between the U.S. dollar and the Mexican peso. To mitigate this currency risk, we enter into forward foreign exchange contracts to exchange U.S. dollars for Mexican pesos. We also enter into forward foreign exchange contracts to exchange U.S. dollars for Chinese yuan in order to mitigate risk related to our purchases and payments to our Chinese vendors. The extent to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates. We do not engage in currency speculation or hold or issue financial instruments for trading purposes. These contracts generally expire in a year or less. Any changes in the fair value of foreign exchange contracts are accounted for as an increase or decrease to general and administrative expenses in current period earnings.

Share-based Payments

In accounting for share-based compensation awards, we follow the accounting guidance for equity-based compensation, which requires that we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost associated with stock options is estimated using the Black-Scholes option-pricing model. The cost of equity instruments is recognized in the consolidated statement of operations on a straight-line basis (net of estimated forfeitures) over the period during which an employee is required to provide service in exchange for the award. Also, excess tax benefits realized are reported as a financing cash inflow.

New Accounting Pronouncements

Comprehensive Income

In June 2011, the FASB issued guidance which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. This guidance eliminates the option to present components of other comprehensive income as a part of the statement of equity. This guidance should be applied, retrospectively, for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. Other than the change in presentation, we have determined the changes from the adoption of this guidance on April 1, 2012 did not have an impact on our consolidated financial position and the results of operations.

Table of Contents

Testing Goodwill for Impairment

In September 2011, the FASB issued an amendment which gives an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step goodwill impairment test is unnecessary. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then it is required to perform the first step of the two-step goodwill impairment test. If the carrying value of the reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this guidance on April 1, 2012 did not have any impact on our consolidated financial position and results of operations.

Subsequent Events

During May 2013, Fenco appointed a new board of independent directors, hired an independent chief restructuring officer and all its previously existing officers resigned from FAPL. As a result of the loss of control of Fenco, we will likely deconsolidate the financial statements of Fenco from our consolidated financial statements during the first quarter of fiscal 2014. On June 10, 2013, Fenco filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. As of March 31, 2013, Fenco’s financial statements are included in the consolidated financial statements of the Company. Our consolidated financial statements are prepared assuming we will continue as a going concern. The financial statements do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

Results of Operations

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. The acquisition of Fenco on May 6, 2011 has had a significant impact on the comparability of results as discussed below. As a result of this acquisition, we reassessed and revised our segment reporting to reflect two reportable segments, rotating electrical and undercar product line, based on the way we manage, evaluate and internally report our business activities.

Table of Contents

The following table summarizes certain key operating data for the periods indicated:

	Rotating			Undercar
Fiscal Years Ended March 31,	Electrical			Product Line			Consolidated
2013
Gross profit percentage		32.5	%		(7.0	)%		13.7	%
Cash flow used in operations	$	(4,969,000	)	$	(26,092,000	)	$	(31,061,000	)
Finished goods turnover (1)		7.7			5.0			5.8
Return on equity (2)		-			-			(119.9	)%

2012
Gross profit percentage		31.8	%		(16.0	)%		7.6	%
Cash flow provided by (used in) operations	$	15,464,000		$	(53,952,000	)	$	(38,488,000	)
Finished goods turnover (1)		6.5			3.7			4.4
Return on equity (2)		-			-			(41.4	)%

2011
Gross profit percentage		31.9	%		-			31.9	%
Cash flow provided by operations	$	10,735,000		$	-		$	10,735,000
Finished goods turnover (1)		5.2			-			5.2
Return on equity (2)		-			-			11.8	%

(1)	Finished goods inventory turnover is calculated by dividing the cost of goods sold for the year by the average between beginning and ending non-core finished goods inventory values, for each fiscal year. We believe that this provides a useful measure of our ability to turn production into revenues.

(2)	Return on equity is computed as net income for the fiscal year divided by shareholders’ equity at the beginning of the fiscal year and measures our ability to invest shareholders’ funds profitably.

Table of Contents

Fiscal 2013 Compared to Fiscal 2012

Net Sales and Gross Profit

The following table summarizes net sales and gross profit by segment for fiscal 2013 and fiscal 2012:

	Rotating			Undercar
Fiscal Years Ended March 31,	Electrical			Product Line			Eliminations			Consolidated

2013
Net sales to external customers	$	213,151,000		$	193,115,000		$	-		$	406,266,000
Cost of goods sold		143,810,000			206,728,000			-			350,538,000
Gross profit (loss)		69,341,000			(13,613,000	)		-			55,728,000
Cost of goods sold as a percentage of net sales		67.5	%		107.0	%		-			86.3	%
Gross profit (loss) percentage		32.5	%		(7.0	)%		-			13.7	%

2012
Net sales	$	178,551,000		$	185,136,000		$	-		$	363,687,000
Intersegment revenue, net of cost		1,853,000			-			(1,853,000	)		-
Cost of goods sold		123,072,000			214,761,000			(1,853,000	)		335,980,000
Gross profit (loss)		57,332,000			(29,625,000	)		-			27,707,000
Cost of goods sold as a percentage of net sales		68.2	%		116.0	%		-			92.4	%
Gross profit (loss) percentage		31.8	%		(16.0	)%		-			7.6	%

Net Sales. Our consolidated net sales for fiscal 2013 increased by $42,579,000, or 11.7%, to $406,266,000 compared to consolidated net sales for fiscal 2012 of $363,687,000.

Rotating electrical product line

The net sales in our rotating electrical product line segment increased by $34,600,000 or 19.4%, to $213,151,000 for fiscal 2013 compared to net sales of $178,551,000 for fiscal 2012. The increase in net sales in our rotating electrical product line segment was the result of (i) new business awarded by one of our major customers, (ii) certain new customers acquired during fiscal 2013, and (iii) overall increase in net sales to our other existing customers.

Undercar product line

The net sales in our undercar product line segment increased by $7,979,000 or 4.3%, to $193,115,000 for fiscal 2013 compared to net sales of $185,136,000 for fiscal 2012. This increase in net sales was due entirely to the recognition of approximately $50,783,000 in revenue from the reduction in Fenco’s obligation to provide a credit for a major customer’s Remanufactured Cores. This increase was offset by (i) decreased sales resulting from the transition out of a certain customer relationship, (ii) vendor support allowances of $1,145,000, (iii) a $751,000 allowance Fenco provided to one of its major customers, (iv) $665,000 in allowances granted to a major customer as Fenco transitioned out of the relationship, and (v) a $355,000 allowance to a customer in connection with a return of certain products.

We also posted an accrual for $4,244,000 to accommodate the additional expense required based on the agreement with certain customers to evaluate their inventory offerings and, in partnership with them, develop a new mix of products to be offered by these customers. In addition, during the fourth quarter of fiscal year 2013, Fenco net sales were favorably impacted by $1,854,000 in connection with our general right of return accruals due to the transition out of a certain customer relationship.

Fill rate penalties during fiscal 2013 and 2012 were $1,671,000 and $4,795,000, respectively. The $1,671,000 fill rate penalty expense, however, was the result of actual fill rate fines of $3,212,000 offset by the reduction of $1,541,000 in the accrued fill rate fines related primarily to a major customer with whom Fenco discontinued its relationship during the quarter ending December 31, 2012.

Table of Contents

Cost of Goods Sold/Gross Profit. Our consolidated cost of goods sold as a percentage of consolidated net sales decreased during fiscal 2013 to 86.3% from 92.4% for fiscal 2012, resulting in a corresponding increase in our consolidated gross profit percentage of 6.1% to 13.7% for fiscal 2013 from 7.6% for fiscal 2012.

Rotating electrical product line

The gross profit percentage in our rotating electrical product line during fiscal 2013 increased to 32.5% from 31.8% during fiscal 2012. This increase in gross profit percentage in our rotating electrical product line for fiscal 2013 is a result of lower per unit manufacturing costs, partially offset by $1,665,000 of marketing and certain other allowances made in connection with the purchase of inventory from a new customer we acquired in the first quarter of fiscal 2013.

Undercar product line

The gross profit percentage in our undercar product line was negative 7.0% and negative 16.0% for fiscal 2013 and 2012, respectively. Our gross profit for fiscal 2013 was positively impacted by the recognition of $19,134,000 gross profit related to the recognition of revenue and costs of goods sold from the reduction of Fenco’s obligation to provide a credit for a major customer’s Remanufactured Cores. This increase in our gross profit was partly offset by significant under-absorption of manufacturing, warehousing and distribution costs resulting from lower production levels due to the loss of a major customer in the third quarter of fiscal 2013.

During the fiscal year ended March 31, 2013, we also had additional cost of goods sold of $2,285,000 related to the agreement with certain customers to evaluate their inventory offerings and, in partnership with them, develop a new mix of products to be offered by these customers.

In addition, our gross profit in our undercar product line during fiscal 2013 was further impacted by (i) $13,208,000 of increased provision for inventory reserves, (ii) losses of $7,115,000 related to certain unprofitable product lines Fenco stopped selling and supporting, (iii) termination fees of $1,402,000 related to an agreement to terminate services with one of Fenco’s third-party logistics service providers, (iv) severance costs related to Fenco’s production workforce of $1,272,000, and (v) premium freight cost of $367,000.

Table of Contents

Operating Expenses

The following table summarizes operating expenses by segment for the fiscal 2013 and 2012:

	Rotating			Undercar
Fiscal Years Ended March 31,	Electrical			Product Line			Eliminations			Consolidated

2013
General and administrative	$	107,602,000		$	18,719,000		$	(81,795,000	)	$	44,526,000
Sales and marketing		7,290,000			5,423,000			-			12,713,000
Research and development		1,930,000			698,000			-			2,628,000
Impairment of goodwill and intangible assets		-			84,686,000			-			84,686,000

Percent of net sales

General and administrative		50.5	%		9.7	%		-			11.0	%
Sales and marketing		3.4	%		2.8	%		-			3.1	%
Research and development		0.9	%		0.4	%		-			0.6	%
Impairment of goodwill and intangible assets		-	%		43.9	%		-			20.8	%

2012
General and administrative	$	20,621,000		$	18,260,000		$	-		$	38,881,000
Sales and marketing		7,659,000			5,145,000			-			12,804,000
Research and development		1,765,000			-			-			1,765,000
Impairment of plant and equipment		-			1,031,000			-			1,031,000
Acquisition costs		713,000			-			-			713,000

Percent of net sales

General and administrative		11.5	%		9.9	%		-			10.7	%
Sales and marketing		4.3	%		2.8	%		-			3.5	%
Research and development		1.0	%		-			-			0.5	%
Impairment of plant and equipment		-			0.6	%		-			0.3	%
Acquisition costs		0.4	%		-			-			0.2	%

General and Administrative. Our consolidated general and administrative expenses for fiscal 2013 were $44,526,000, which represents an increase of $5,645,000, or 14.5%, from general and administrative expenses for fiscal 2012 of $38,881,000.

Rotating electrical product line

Our general and administrative expenses for rotating electrical product line segment increased from $20,621,000 in fiscal 2012 to $107,602,000 in fiscal 2013, which represents an increase of $86,981,000. This increase in our general and administrative expenses was due primarily to (i) the establishment of a $52,631,000 specific charge-off accrual for the long-term note receivable and accrued interest due from Fenco, (ii) the establishment of a $27,382,000 specific charge-off accrual for the receivable due from Fenco in connection with our March 2011 consignment agreement to provide goods in order to maintain the service levels for Fenco’s customers, (iii) the establishment of a $1,782,000 specific charge-off accrual for the net inter-company receivable due from Fenco, and (iv) $350,000 in professional fees incurred in connection with the restructuring of Fenco. Our prior year general and administrative expenses included $1,292,000 of professional services and travel incurred in connection with our Fenco operations.

In addition, our fiscal 2013 general and administrative expenses increased due to (a) $1,031,000 of increased share-based compensation expense, (b) $822,000 of increased legal fees, (c) $675,000 for liquidated damages paid in connection with our April 2012 private placement, (d) $658,000 of increased general and administrative expenses at our offshore locations, (e) $650,000 of accrual established related to the termination of our consulting agreement with Mel Marks, (f) $514,000 of increased salaries and wages, (g) $481,000 of increased consulting expenses primarily related to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, (h) $389,000 recorded due to the change in the fair value of the warrants during fiscal 2013, (i) $369,000 of increased expenses for work related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002, (j) $332,000 of incentives paid to certain executives, and (k) $215,000 of increased expenses in connection with our income tax planning work. During fiscal 2013, we also recorded a gain of $804,000 due to the change in the value of the forward foreign currency exchange contracts subsequent to entering into the contracts compared to a loss of $476,000 recorded during fiscal 2012.

Table of Contents

Undercar product line

Our general and administrative expenses for undercar product line segment increased from $18,260,000 in fiscal 2012 to $18,719,000 in fiscal 2013, which represents an increase of $459,000. This increase of $459,000 in general and administrative expenses was primarily attributable to (i) $1,812,000 of increased professional services fees and other consulting fees, (ii) $1,429,000 of severance incurred in connection with the reduction in workforce in the second quarter of fiscal 2013 at Fenco’s office located in Canada, and (iii) $546,000 of increased bad debt expense. These increases in general and administrative expenses were partly offset by lower employee-related expenses and general office expenses due to the reduction in workforce at Fenco’s office located in Canada.

During fiscal 2013, we changed a certain inter-segment allocation as described below.

During the third quarter of fiscal 2013, our general and administrative expenses for our rotating electrical segment were negatively impacted by $982,000 of expenses incurred in connection with the undercar product line segment’s initial implementation work related to the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002. These expenses were previously recorded by our undercar product line segment. This inter-segment allocation did not have any impact on our consolidated general and administrative expenses for fiscal 2013.

Sales and Marketing. Our consolidated sales and marketing expenses for fiscal 2013 decreased $91,000, or 0.7%, to $12,713,000 from $12,804,000 for fiscal 2012. The decrease of $369,000 from our rotating electrical product line was due primarily to (i) $238,000 of decreased travel and professional services incurred in connection with our Fenco operations and (ii) $114,000 of decreased employee-related expenses.

Sales and marketing expenses for our undercar product line increased $278,000 due primarily to $747,000 of severance due to the reduction in workforce, partly offset by $454,000 of decreased sales commissions and agent fees.

Research and Development. Our consolidated research and development expenses increased by $863,000, or 48.9%, to $2,628,000 for fiscal 2013 from $1,765,000 for fiscal 2012. The increase of $165,000 in research and development expenses from our rotating electrical product line was due primarily to increased employee-related expenses in fiscal 2013.

Research and development expenses for our undercar product line segment increased $698,000 due primarily to (i) $604,000 of increased employee-related expense and (ii) $54,000 of increased travel.

Impairment of goodwill and intangible assets. During fiscal 2013, our undercar product line segment recorded a non-cash goodwill and intangible asset impairment charge of $68,356,000 and $16,330,000, respectively. After recording the impairment charge, we had no goodwill or intangible assets attributable to our undercar product line segment remaining on our consolidated balance sheet at March 31, 2013.

Impairment of Plant and Equipment. During fiscal 2012, Fenco discontinued the CV axle product line and shut down the related facility located in Bedford, New Hampshire. As a result Fenco recorded an impairment loss of approximately $1,031,000, which represents the write-off of the carrying amount of plant and equipment.

Acquisition Costs. During fiscal 2012, we incurred $713,000 of legal and professional fees in connection with the acquisition of Fenco.

Table of Contents

Interest Expense

Interest Expense. Our interest expense reflects our increased leverage as a result of the acquisition of Fenco and the increase in the size of our business, and net consolidated interest expense for fiscal 2013 increased $10,151,000, or 71.2%, to $24,406,000 from $14,255,000 for fiscal 2012. This increase in net interest expense was attributable to (i) increased outstanding loan balances and higher interest rates incurred primarily by the rotating electrical product line segment during fiscal 2013 as compared to fiscal 2012, (ii) a contingent fee payable in connection with the third amendment and waiver to the Parent Company Financing Agreement (the “Third Amendment”), (iii) interest expense in connection with the purchase of consignment inventory from the Supplier for Fenco, and (iv) interest on certain vendor payable balances owed by the undercar product line segment.

Provision for Income Taxes

Income Tax. Our income tax expense was ($21,720,000) and $6,772,000 during fiscal 2013 and 2012, respectively, an effective rate of 19% and (16%) for fiscal 2013 and 2012, respectively. The primary change in the effective tax rate was due to the tax benefits of the specific charge-off accrual for the debt, accounts receivable, and inter-company balances from Fenco. Income tax expense, excluding the net losses of the Fenco operations, reflect income tax rates higher than the federal statutory tax rates primarily due to state income taxes, which were partially offset by the benefit of lower statutory tax rates in other foreign taxing jurisdictions.

In addition, any potential future income tax benefits associated with the net loss we incurred from Fenco operations during fiscal 2013 was not recognized due primarily to our assessment of the recoverability of these tax benefits. We have provided a valuation allowance against these net operating loss carryforwards as we determined that it is not more likely than not that the deferred asset will be realized.

Fiscal 2012 Compared to Fiscal 2011

Net Sales and Gross Profit

The following table summarizes net sales and gross profit by segment for fiscal 2012 and fiscal 2011:

	Rotating			Under-the-Car
Fiscal Years Ended March 31,	Electrical			Product Line			Eliminations			Consolidated

2012
Net sales to external customers	$	178,551,000		$	185,136,000		$	-		$	363,687,000
Intersegment revenue, net of cost		1,853,000			-			(1,853,000	)		-
Cost of goods sold		123,072,000			214,761,000			(1,853,000	)		335,980,000
Gross profit (loss)		57,332,000			(29,625,000	)		-			27,707,000
Cost of goods sold as a percentage of net sales		68.2	%		116.0	%		-			92.4	%
Gross profit (loss) percentage		31.8	%		(16.0	)%		-			7.6	%

2011
Net sales	$	161,285,000		$	-		$	-		$	161,285,000
Cost of goods sold		109,903,000			-			-			109,903,000
Gross profit		51,382,000			-			-			51,382,000
Cost of goods sold as a percentage of net sales		68.1	%		-			-			68.1	%
Gross profit percentage		31.9	%		-			-			31.9	%

Net Sales. Our consolidated net sales for fiscal 2012 increased by $202,402,000, or 125.5%, to $363,687,000 compared to consolidated net sales for fiscal 2011 of $161,285,000. The increase in consolidated net sales was due primarily to (i) our May 6, 2011 acquisition of Fenco which resulted in additional net sales of $185,136,000 or 114.8%, and (ii) an increase in sales to customers of $17,266,000 or 10.7%, primarily to the existing customers in our rotating electrical product line.

Table of Contents

Cost of Goods Sold/Gross Profit. Our consolidated cost of goods sold as a percentage of consolidated net sales increased during fiscal 2012 to 92.4% from 68.1% for fiscal 2011, resulting in a corresponding decrease in our consolidated gross profit percentage of 24.3% to 7.6% for fiscal 2012 from 31.9% for fiscal 2011.

Rotating Electrical product line

The gross profit percentage in our rotating electrical product line remained relatively flat at 31.8% during fiscal 2012 compared to 31.9% during fiscal 2011.

Undercar product line

The gross profit percentage in our undercar product line was negative 16.0% for fiscal 2012 representing a negative gross profit of $29,625,000. This negative gross profit was due in part to low net sales prices and in part to higher production, warehousing and distribution costs. The net sales prices were lower primarily due to higher customer allowances and fill rate performance penalties. Higher production, warehousing and distribution costs were due to the increase in under-absorption of manufacturing overhead on lower sales and production levels and the additional premium purchase and freight costs expended in the improving of our fill rates and ability to service our customers.

Our gross profit was also significantly impacted by our decision to discontinue the CV axle product line. We substantially reduced sales and support in December 2011, and closed the main production facility for this product line in February 2012. The negative gross profit impact of the discontinued line was $10,850,000 including (i) the negative contribution from the product line in the period of $5,332,000 and (ii) the recording of the additional reserve of $4,861,000 for the core and raw material inventory to reduce the cost to net realizable value.

In addition, our gross profit during fiscal 2012, was further impacted by (i) negative contribution of $1,074,000 related to certain additional product lines we stopped selling and supporting in December 2011, (ii) additional costs of approximately $928,000 that were incurred in connection with the modification of a product for a new customer program, (iii) contractual customer penalties of $4,795,000, (iv) a one-time pricing allowance of $1,851,000, and (v) sales allowance associated with the buy-back of certain products of $1,283,000.

We also incurred additional expenses that impacted our gross profit percentage as follows:

We replaced and trained a large number of personnel at Fenco’s production facilities at Monterrey, Mexico at an approximate cost of $4,198,000

We made certain inventory purchases above our normal cost for $2,519,000 for inventory that was sold during fiscal 2012, and we incurred increased inbound freight expenses of $785,000

Finally, in connection with the Fenco acquisition, $3,746,000 was charged to cost of goods sold in our undercar product line related to the entire amount of fair value step-up of inventory acquired which was sold during the year ended March 31, 2012.

Table of Contents

Operating Expenses

The following table summarizes operating expenses by segment for the fiscal 2012 and 2011:

	Rotating			Under-the-Car
Fiscal Years Ended March 31,	Electrical			Product Line			Eliminations		Consolidated

2012
General and administrative	$	20,621,000		$	18,260,000		$	-	$	38,881,000
Sales and marketing		7,659,000			5,145,000			-		12,804,000
Research and development		1,765,000			-			-		1,765,000
Impairment of plant and equipment		-			1,031,000			-		1,031,000
Acquisition costs		713,000			-			-		713,000

Percent of net sales

General and administrative		11.5	%		9.9	%		-		10.7	%
Sales and marketing		4.3	%		2.8	%		-		3.5	%
Research and development		1.0	%		-	%		-		0.5	%
Impairment of plant and equipment		-	%		0.6	%		-		0.3	%
Acquisition costs		0.4	%		-	%		-		0.2	%

2011
General and administrative	$	17,033,000		$	-		$	-	$	17,033,000
Sales and marketing		6,537,000			-			-		6,537,000
Research and development		1,549,000			-			-		1,549,000
Acquisition costs		879,000			-			-		879,000

Percent of net sales

General and administrative		10.6	%		-			-		10.6	%
Sales and marketing		4.1	%		-			-		4.1	%
Research and development		1.0	%		-			-		1.0	%
Acquisition costs		0.5	%		-			-		0.5	%

General and Administrative. Our consolidated general and administrative expenses for fiscal 2012 were $38,881,000, which represents an increase of $21,848,000, or 128.3%, from general and administrative expenses for fiscal 2011 of $17,033,000. The increase of $3,588,000 in general and administrative expenses for our rotating electrical product line during fiscal 2012 was primarily due to (i) $1,292,000 of professional services and travel incurred in connection with our Fenco operations, (ii) $780,000 of incentive payments made to certain employees in connection with our Fenco acquisition, (iii) $393,000 of increased professional services , (iv) a loss of $476,000 recorded due to the changes in the fair value of forward foreign currency exchange contracts, compared to a loss of $162,000 recorded during fiscal 2011, and (v) $303,000 of decreased amortization of the deferred gain on sale-leaseback transactions.

General and administrative expenses for the undercar product line during fiscal 2012 were $18,260,000, and were primarily attributable to (i) $7,856,000 of employee-related expenses, (ii) $4,496,000 of professional services fees and other consulting fees, (iii) $1,965,000 of depreciation and amortization of intangible assets, (iv) $325,000 of bank financing charges, and (v) $97,000 for legal and professional fees incurred in connection with the Fenco Credit Agreement (as defined herein).

Sales and Marketing. Our consolidated sales and marketing expenses for fiscal 2012 increased $6,267,000, or 95.9%, to $12,804,000 from $6,537,000 fiscal 2011. The increase of $1,122,000 from our rotating electrical product line was due primarily to (i) $343,000 of increased commissions due to increased sales, (ii) $314,000 of increased employee-related expenses, (iii) $238,000 of increased travel and professional services incurred in connection with our Fenco operations, (iv) the benefit from the reversal of $193,000 of commission expenses during the prior year in connection with our August 2009 acquisition as certain sales thresholds were not met, and (v) $104,000 of increased trade show expense.

Table of Contents

Sales and marketing expenses for the undercar product line were $5,145,000 and primarily include (i) $1,796,000 of employee-related expenses, (ii) $1,482,000 of advertising expenses, (iii) $980,000 of sales commissions and agent fees, and (iv) $873,000 of travel expenses.

Research and Development. Our consolidated research and development expenses increased by $216,000, or 13.9%, to $1,765,000 for fiscal 2012 from $1,549,000 for fiscal 2011. The increase in research and development expenses in our rotating electrical product line was due primarily to (i) $128,000 of increased supplies expense, (ii) $61,000 of increased travel, and (iii) $39,000 of increased employee-related expenses during fiscal 2012.

Impairment of Plant and Equipment. Represents the write-off of the carrying amount of fixed assets as we discontinued the CV axle product line and shut-down the related facility located in Bedford, New Hampshire during fiscal 2012.

Acquisition Costs. We incurred $713,000 of legal and professional fees in connection with the Fenco acquisition during fiscal 2012.

Interest Expense

Interest Expense. Reflecting our increased leverage as a result of the acquisition of Fenco and the increase in the size of our business, net consolidated interest expense for fiscal 2012 increased $8,900,000, or 166.2%, to $14,255,000 from $5,355,000 fiscal 2011. This increase in net interest expense was primarily attributable to (i) interest expense incurred on the outstanding loan balances and the cost of receivables being discounted under the receivable discount programs by the undercar product line since our acquisition on May 6, 2011 and (ii) increased outstanding loan balances and higher interest rates incurred by the rotating electrical product line during fiscal 2012.

Provision for Income Taxes

Income Tax. Our income tax expense was $6,772,000 and $7,809,000 during fiscal 2012 and 2011, respectively, an effective rate of (16%) and 39% for fiscal 2012 and 2011, respectively. The primary change in the effective tax rate was due to not recognizing income tax benefits related to the net losses of the Fenco operations. Income tax expense, excluding the net losses of the Fenco operations, reflect income tax rates higher than the federal statutory tax rates primarily due to state income taxes, which were partially offset by the benefit of lower statutory tax rates in other foreign taxing jurisdictions.

In addition, any potential future income tax benefits associated with the net loss we incurred from Fenco operations during fiscal 2012 were not recognized due primarily to our assessment of the recoverability of these tax benefits. We have provided a valuation allowance against these net operating loss carryforwards as we determined that it is not more likely than not that the deferred asset will be realized. During fiscal 2012, we recorded $165,000 of income tax expense specifically related to the Fenco subsidiaries located in Mexico, a separate tax jurisdiction.

Liquidity and Capital Resources

The following is a discussion of the Company on a consolidated basis, including Fenco. However, the Company has separate loan agreements and accounts payable and manages its cash for its rotating electrical segment separately from Fenco.

Overview

At March 31, 2013, we had consolidated negative working capital of $67,142,000, a ratio of current assets to current liabilities of 0.7:1, and cash of $19,434,000, compared to negative working capital of $2,188,000, a ratio of current assets to current liabilities of 1:1, and cash of $32,617,000 at March 31, 2012. At March 31, 2013, our rotating electrical segment had working capital of $32,676,000, a ratio of current assets to current liabilities of 1.5:1, and cash of $19,346,000 compared to working capital of $15,332,000, a ratio of current assets to current liabilities of 1.2:1, and cash of $32,379,000 at March 31, 2012.

Table of Contents

During fiscal 2013, we used cash generated from the use of our receivable discount programs with certain of our major customers, from the private placement of our common stock, and our loans as our primary sources of liquidity. These sources were primarily used to pay down our accounts payable balances, towards the integration of our Fenco acquisition, and pay for the capital expenditure obligations.

For our rotating electrical business, we believe our cash on hand, short-term investments, use of receivable discount programs with certain of our major customers, amounts available under our credit agreement, and other sources are sufficient to satisfy our expected future working capital needs, repayment of the current portion of our term loans, capital lease commitments, and capital expenditure obligations over the next twelve months.

Recent Developments

Since our acquisition of Fenco on May 6, 2011, we have been implementing our undercar product line turnaround plan and our top priority continued to be improvement of the financial performance of our undercar product line business. The implementation of our undercar product line turnaround plan has taken longer and cost more than initially anticipated. Revenues generated by our undercar product line segment have not been sufficient to enable us to meet our operating expenses and otherwise implement our undercar product line turnaround plan. Fenco has incurred net losses of $135,260,000 and $62,814,000 for the years ended March 31, 2013 and 2012, respectively, and has an accumulated deficit of approximately $198,074,000 at March 31, 2013. Fenco continues to face capital and liquidity concerns. The Parent Company Financing Agreement only permitted the Company to invest up to an additional $20,000,000 in Fenco, which it had done as of December 31, 2012. As of March 31, 2013, the Company had invested in Fenco $4,946,000 of equity, $52,631,000 of debt, $27,382,000 of accounts receivable in connection with our March 2011 consignment arrangement to provide goods in order to maintain the service levels for Fenco’s customers, and $1,782,000 of net inter-company balances. At March 31, 2013, the Company has established a specific charge-off accrual for the debt, accounts receivable and inter-company balances. Fenco has been unable to refinance its credit agreement or obtain additional sufficient capital to implement its turnaround plan. The report of our independent registered public accounting firm on our financial statements for the year ended March 31, 2013 contains an explanatory paragraph raising substantial doubt as to our ability to continue as a going concern.

As of March 31, 2013, the undercar product line segment had cash of $88,000, accounts payable of $74,601,000, total debt and capital lease obligations of $59,461,000, a net working capital deficit of $104,502,000. As of March 31, 2013, the undercar product line segment had exceeded its borrowing capacity by $5,795,000 on the Fenco Credit Facility (as defined herein).

During May 2013, Fenco appointed a new board of independent directors, hired an independent chief restructuring officer and all its previously existing officers resigned from FAPL. As a result of the loss of control of Fenco, we will likely deconsolidate the financial statements of Fenco from our consolidated financial statements during the first quarter of fiscal 2014. On June 10, 2013, Fenco filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. As of March 31, 2013, Fenco’s financial statements are included in the consolidated financial statements of the Company. Our consolidated financial statements are prepared assuming we will continue as a going concern. The financial statements do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

Table of Contents

Cash Flows

Net cash used in operating activities was $31,061,000 and $38,488,000 during fiscal 2013 and 2012, respectively. The rotating electrical segment used cash from operations of $4,969,000 during fiscal 2013 compared to cash provided from operations of $15,464,000 during fiscal 2012. The significant changes in our operating activities for the rotating electrical segment were due primarily to the pay-down of accounts payable balances incurred in connection with the inventory provided to Fenco in fiscal 2012 to provide goods in order to maintain the service levels for Fenco’s customers, an increase in long-term core inventory due to higher sales, and a decrease in accounts receivable balances due to a higher balance of receivables discounted during fiscal 2013 compared to fiscal 2012. The undercar product line segment used cash from operations of $26,092,000 and $53,952,000 during fiscal 2013 and 2012, respectively. The significant changes in our undercar product line segment were due primarily to decreases in non-core inventory as Fenco continued to normalize its operations and reduced its inventory levels. In addition, Fenco’s core inventory levels and core returns accrual were decreased as it recognized approximately $50,783,000 in revenue from the reduction in it’s obligation to provide a credit for a major customer’s Remanufactured Cores which were previously recorded as a long-term core liability and $31,649,000 of the related long-term core inventory previously recorded in the consolidated balance sheet were recognized as cost of goods sold during fiscal 2013. Additionally, there was an increase in accounts receivables and a decrease in our accounts payable balances in our undercar product line segment.

Net cash used in investing activities was $4,069,000 and $1,591,000 during fiscal 2013 and 2012, respectively. Our capital expenditures for our rotating electrical segment during fiscal 2013 and 2012 were $2,330,000 and $1,010,000, respectively, primarily related to the purchase of equipment for our manufacturing facilities, improvements to our California facility, and software. Our capital expenditures for our undercar product line segment were $1,698,000 and $544,000 during fiscal 2013 and 2012, respectively, primarily related to the conversion of Fenco’s financial and operating systems to the application used at our corporate headquarters in Torrance, California and purchase of equipment for Fenco facilities.

Net cash provided by financing activities was $21,902,000 and $70,182,000 during fiscal 2013 and 2012, respectively. The rotating electrical segment provided cash from financing activities of $21,639,000 and $61,060,000 during fiscal 2013 and 2012, respectively. This decrease was due to decreased borrowings compared to fiscal 2012 partly offset by the net proceeds received from our private placement during fiscal 2013. The net cash provided by financing activities was used primarily to finance Fenco. The undercar product line segment provided cash from financing activities of $263,000 and $9,122,000 during fiscal 2013 and 2012, respectively. The decrease is due primarily to borrowing $393,000 under the Fenco Revolving Facility (as defined herein) during fiscal 2013 compared to the repayment of amounts outstanding under the Fenco Revolving Facility and borrowing $10,000,000 under the Fenco Term Loan (as defined herein) during fiscal 2012.

Capital Resources

Debt

We have the following outstanding credit agreements.

Parent Company Credit Agreement

We have a financing agreement (the “Parent Company Financing Agreement”) with a syndicate of lenders, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association, as administrative agent (the “Parent Company Loans”). The Parent Company Loans consist of: (i) term loans aggregating $75,000,000 (the “Parent Company Term Loans”) and (ii) revolving loans of up to $20,000,000, subject to borrowing base restrictions and a $10,000,000 sublimit for letters of credit (the “Parent Company Revolving Loans,”). The Parent Company Loans mature on January 17, 2017. The lenders hold a security interest in substantially all of the assets of our rotating electrical segment. The Parent Company Financing Agreement only permits us to invest up to $20,000,000 in Fenco, which we had done as of December 31, 2012.

Table of Contents

In May 2012, we entered into a second amendment to the Parent Company Financing Agreement (the “Second Amendment”) and borrowed an additional $10,000,000, for an aggregate of $85,000,000 (the “Amended Parent Company Term Loans”) in term loans. The Second Amendment, among other things, modified the interest rates per annum applicable to the Amended Parent Company Term Loans. The Amended Parent Company Term Loans will bear interest at rates equal to, at our option, either LIBOR plus 8.5% or a base rate plus 7.5%. The Amended Parent Company Term Loans require quarterly principal payments of $250,000 beginning on October 1, 2012 and increase to $600,000 per quarter on April 1, 2013 and to $1,350,000 on October 1, 2013 until the final maturity date. Among other things, the Second Amendment provides for certain amended financial covenants, and requires that we maintain cash and cash equivalents of up to $10,000,000 in the aggregate until our obligations with respect to a significant supplier have ceased.

In connection with the Second Amendment, we issued a warrant (the “Cerberus Warrant”) to Cerberus Business Finance, LLC. Pursuant to the Cerberus Warrant, Cerberus Business Finance, LLC, may purchase up to 100,000 shares of our common stock for an initial exercise price of $17.00 per share for a period of five years. The exercise price is subject to adjustments, among other things, for sales of common stock by us at a price below the exercise price. As a result of the issuance of the Supplier Warrant (as defined herein) in August 2012 at an initial exercise price of $7.75 per share, the exercise price of the Cerberus Warrant was reduced to $7.75 per share. As the exercise price of the Cerberus Warrant was reduced, the number of shares of our common stock that may be purchased upon the exercise of the Cerberus Warrant was increased to 219,355 so that the aggregate exercise price of the Cerberus Warrant after the adjustment is the same as the aggregate exercise price prior to the adjustment. The fair value of the Cerberus Warrant using the Monte Carlo simulation model was $607,000 at May 24, 2012 and $375,000 at March 31, 2013. This amount was recorded as a warrant liability which is included in other liabilities in the consolidated balance sheet at March 31, 2013. During fiscal 2013, a gain of $232,000 was recorded in general and administrative expenses due to the change in the fair value of the Cerberus Warrant.

In August 2012, we entered into the Third Amendment which, among other things, (i) permitted us to enter into the Fenco Credit Line, (ii) to make additional investments in Fenco in an aggregate amount not to exceed $20,000,000 at any time outstanding, (iii) added additional reporting requirements regarding financial reports and material notices under the Fenco Credit Line, and (iv) removed the Second Amendment requirement that we maintain cash and cash equivalents of up to $10,000,000.

In December 2012, we entered into a fourth amendment to the Parent Company Financing Agreement which, among other things, permitted us to repurchase shares pursuant to the stock repurchase agreement with Mel Marks, our founder, a member of our Board of Directors and consultant to the Company, and Melmarks Enterprises LLLP, a limited liability limited partnership controlled by Mr. Marks.

In connection with the option purchase agreement, we entered into a fifth amendment to the Parent Company Financing Agreement, which among other things, permitted us to purchase Mr. Joffe’s stock options pursuant to the option purchase agreement.

On June 14, 2013, we entered into a sixth amendment to the Parent Company Financing Agreement (the “Sixth Amendment”), under the terms of which the agents and lenders agreed to waive any event of default that would otherwise arise under the Parent Company Financing Agreement due to the qualification in the opinion by the Company’s certified public accountants with respect to the financial statements for the fiscal year ended March 31, 2013. In addition, the Sixth Amendment (i) added a reporting requirement with respect to the Company’s liquidity levels and certain inventory purchases and (ii) added a financial covenant under which the Company must maintain the following levels of liquidity on the following dates unless otherwise consented to by the lenders: on June 28, 2013, an aggregate amount of at least $25,000,000, subject to certain adjustments; on July 31, 2013, an aggregate amount of at least $26,000,000, subject to certain adjustments; and on August 30, 2013, an aggregate amount of at least $27,000,000, subject to certain adjustments.

The Parent Company Financing Agreement, as amended, among other things, requires us to maintain certain financial covenants including a maximum senior leverage ratio, a minimum fixed charge coverage ratio, and minimum consolidated EBITDA. We were in compliance with all financial covenants and reporting requirements under the Parent Company Financing Agreement, as amended, as of March 31, 2013.

Table of Contents

The following table summarizes the financial covenants required under the Parent Company Financing Agreement as of March 31, 2013:

	Calculation as of March 31, 2013		Financial covenants required per the Parent Company Financing Agreement
Maximum senior leverage ratio		2.10		3.05
Minimum fixed charge coverage ratio		1.53		1.15
Minimum consolidated EBITDA	$	40,243,000	$	29,750,000

There was no outstanding balance on the Parent Company Revolving Loans at March 31, 2013 and 2012. As of March 31, 2013, $18,878,000 was available under the Parent Company Revolving Loans. We had reserved $626,000 of the Parent Company Revolving Loans for standby letters of credit for workers’ compensation insurance and $1,179,000 for commercial letters of credit as of March 31, 2013.

Fenco Credit Agreement

Our wholly-owned subsidiaries, FAPL and Introcan, as borrowers (the “Fenco Borrowers”), entered into an amended and restated credit agreement, dated May 6, 2011 (the “Fenco Credit Agreement”) with Manufacturers and Traders Trust Company as lead arranger, M&T Bank as lender and administrative agent and the other lenders from time to time party thereto (the “Fenco Lenders”). Pursuant to the Fenco Credit Agreement, the Fenco Lenders have made available to the Fenco Borrowers a revolving credit facility in the maximum principal amount of $50,000,000 (the “Fenco Revolving Facility”) and a term loan in the principal amount of $10,000,000 (the “Fenco Term Loan”). The availability of the Fenco Revolving Facility is subject to a borrowing base calculation consisting of eligible accounts receivable and eligible inventory.

In August 2012, Fenco entered into a second amendment to the Fenco Credit Agreement with the Fenco Lenders which, among other things, (i) extended the maturity date to October 6, 2014, (ii) amended the maximum amount of the Fenco Revolving Facility to (y) $55,000,000 for the period up to and including December 31, 2012 and (z) $50,000,000 for the period on or after January 1, 2013 through October 6, 2014, (iii) replaced the repayment schedule and the amounts for the Fenco Term Loan to require quarterly principal payments of $500,000 beginning on June 30, 2013 and increasing to $1,000,000 per quarter beginning December 31, 2013 through September 30, 2014, with the remaining unpaid principal amount being due on the final maturity date, (iv) provided for certain mandatory prepayments of the Fenco Term Loan, and (v) revised certain financial covenants regarding minimum EBITDA, minimum fixed charge coverage, unused borrowing availability under the Fenco Revolving Credit Facility, and maximum capital expenditures. The maturity dates may be accelerated upon the occurrence of an insolvency event or event of default under the Fenco Credit Agreement.

In February 2013, Fenco entered into a third amendment to the Fenco Credit Agreement with the Fenco lenders which, among other things, (i) amended the maximum amount of the revolving facility available after February 1, 2013 from $50,000,000 to $50,712,000, (ii) removed the excess availability requirement, and (iii) amended the revolving facility margin limit.

The outstanding balance on the Fenco Revolving Facility was $49,277,000 and $48,884,000 at March 31, 2013 and 2012, respectively. As of March 31, 2013, approximately $712,000 was reserved for standby commercial letters of credit and $118,000 was reserved for certain expenses. In addition, $300,000 of this Fenco Revolving Facility was reserved for Canadian operations use. As of March 31, 2013, Fenco had exceeded its borrowing capacity by $5,795,000 on the Fenco Credit Facility. The Fenco Lenders hold a security interest in substantially all of the assets of Fenco.

The Fenco Borrowers may receive advances under the Fenco Revolving Facility by any one or more of the following options: (i) swingline advances in Canadian or US dollars; (ii) Canadian dollar prime-based loans; (iii) US dollar base rate loans; (iv) LIBOR loans; or (v) letters of credits.

Table of Contents

The Fenco Term Loan bears interest at the LIBOR plus an applicable margin. Outstanding advances under the Fenco Revolving Facility bear interest as follows:

(i)

in respect of swingline advances in Canadian dollars and Canadian dollar prime-based loans, at the reference rate announced by the Royal Bank of Canada plus an applicable margin;

(ii)

in respect of swingline advances in US dollars and US dollar base rate loans, at a base rate (which shall be equal to the highest of (x) M&T Bank’s prime rate, (y) the Federal Funds Rate plus ½ of 1%, or (z) the one month LIBOR) plus an applicable margin;

(iii)

in respect of LIBOR loans, at the LIBOR plus an applicable margin.

The Fenco Credit Agreement, among other things, requires the Fenco Borrowers to maintain a minimum EBITDA of not less than $6,100,000 for the period from September 1, 2012 to March 31, 2013. As of March 31, 2013, the Fenco Borrowers were not in compliance with this financial covenant under the Fenco Credit Agreement. As a result, the Fenco Revolving Facility and the Fenco Term Loan have been classified as debt in default within current liabilities in the consolidated balance sheet at March 31, 2013.

During May 2013, Fenco appointed a new board of independent directors, hired an independent chief restructuring officer and all its previously existing officers resigned from FAPL. As a result of the loss of control of Fenco, we will likely deconsolidate the financial statements of Fenco from our consolidated financial statements during the first quarter of fiscal 2014. On June 10, 2013, Fenco filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. As of March 31, 2013, Fenco’s financial statements are included in the consolidated financial statements of the Company. Our consolidated financial statements are prepared assuming we will continue as a going concern. The financial statements do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

Neither the Parent Company Financing Agreement nor the Fenco Credit Agreement contain any cross default provisions with respect to the other agreement.

Strategic Cooperation Agreement

In August 2012, we entered into a revolving agreement (the “Agreement”) with the Supplier and Fenco. Under the terms of the Agreement, the Supplier agreed to provide a revolving credit line for purchases of automotive parts and components by Fenco in an aggregate amount not to exceed $22,000,000 (the “Fenco Credit Line”) of which $2,000,000 would only be available for accrued interest and other amounts payable (the “Obligation”). Payment for all purchases would be due and payable 120 days after the date of the bill of lading. Any amounts remaining unpaid following the due date would bear interest at a rate of 1% per month. The Fenco Credit Line will mature on July 31, 2017. Among other things, the Agreement requires that Fenco on an annual basis, purchase at least approximately $33,000,000 of new automotive parts and components. After July 1, 2014, the Supplier has the right to exercise the Receivable Sale Option under which the Supplier may settle up to $8,000,000 (the “Receivable Sale Option”) of our outstanding Obligations in exchange, at our option, for (i) shares of our common stock valued at $7.75 per share, subject to certain adjustments, or (ii) cash in an amount equal to 135% of the amount of the outstanding Obligations sold to us. Any outstanding Obligations settled by the Supplier would reduce the Fenco Credit Line. The Obligations under the Agreement are guaranteed by us and certain of our subsidiaries. As of March 31, 2013, we had approximately $19,000,000 outstanding under the Fenco Credit Line which was recorded in accounts payable in the consolidated balance sheet at March 31, 2013. Under the terms of the guarantee, the Supplier also has the right to sell accrued interest to us for shares of our common stock (the “Unpaid Interest Sale Option”) at a price, subject to certain adjustments, that is the lower of (i) $7.75 per share and (ii) 105% of the market value of our common stock, which market value is defined in the terms of the guarantee.

Table of Contents

In connection with this Agreement, we also issued a warrant (the “Supplier Warrant”) to the Supplier to purchase up to 516,129 shares of our common stock for an initial exercise price of $7.75 per share exercisable at any time after two years from August 22, 2012 and on or prior to September 30, 2017. The exercise price is subject to adjustments, among other things, for sales of common stock by us at a price below the exercise price. Any outstanding Obligations settled by the Supplier will reduce the Fenco Credit Line. We are obligated to issue no more than an aggregate of 1,032,258 shares of our common stock in connection with the Receivable Sale Option and Supplier Warrant, and no more than an aggregate of 1,572,342 shares of our common stock in connection with the Unpaid Interest Sale Option. The Obligations under this Agreement are subordinated to our obligations under the Parent Company Financing Agreement. The fair value of the Supplier Warrant using the Monte Carlo simulation model was $1,018,000 at August 22, 2012, and $1,639,000 at March 31, 2013. This amount was recorded as a warrant liability which is included in other liabilities in the consolidated balance sheet at March 31, 2013. During fiscal 2013, a loss of $621,000 was recorded in general and administrative expenses due to the change in the fair value of the Supplier Warrant.

Our ability to comply in future periods with the financial covenants in the Parent Company Financing Agreement will depend on our ongoing financial and operating performance, which, in turn, will be subject to economic conditions and to financial, business and other factors, many of which are beyond our control and will be substantially dependent on the selling prices and demand for our products, customer demands for marketing allowances and other concessions, raw material costs, and our ability to successfully implement our overall business strategy. If a violation of any of the covenants in the Parent Company Financing Agreement occurs in the future, we would attempt to obtain a waiver or an amendment from our lenders. No assurance can be given that we would be successful in this regard.

Investment in Fenco

As of March 31, 2013, we had invested in Fenco $4,946,000 of equity, $52,631,000 of debt, $27,382,000 of accounts receivable in connection with our March 2011 consignment arrangement to provide goods in order to maintain the service levels for Fenco’s customers, and $1,782,000 of net inter-company balances. All of the debt and intercompany balances owed by Fenco to us are subordinated to the Fenco Revolving Facility, which is secured. We do not expect to recover any of this investment as a result of the Fenco bankruptcy. At March 31, 2013, we had established a specific charge-off accrual for the debt, accounts receivable and inter-company balances.

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 collection of 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 or if the discount period is extended to reflect more favorable payment terms to customers. There can be no assurance that we will be able to continue these receivable discount programs with Fenco’s customers.

The following is a summary of the consolidated receivable discount programs:

	Years Ended March 31,
	2013			2012

Receivables discounted	$	289,529,000		$	280,278,000
Weighted average days		319			313
Weighted average discount rate		2.7	%		2.9	%
Amount of discount as interest expense	$	6,914,000		$	7,072,000

Table of Contents

Off-Balance Sheet Arrangements

At March 31, 2013, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually narrow or limited purposes.

Multi-year Customer Agreements

We have or are renegotiating long-term agreements with many of our major customers. Under these agreements, which in most cases have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified categories of remanufactured alternators and starters. In consideration for our designation as a customer’s exclusive or primary supplier, we typically provide the customer with a package of marketing incentives. These incentives differ from contract to contract and can include (i) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (ii) support for a particular customer’s research or marketing efforts provided on a scheduled basis, (iii) discounts granted in connection with each individual shipment of product, and (iv) other marketing, research, store expansion or product development support. These contracts typically require that we meet ongoing standards related to fulfillment, price, and quality. Our contracts with major customers expire at various dates through March 2019.

The longer-term agreements both reflect and strengthen our customer relationships and business base. However, they also result in a continuing concentration of our revenue sources among a few key customers and require a significant increase in our use of working capital to build inventory and increase production. This increased production causes significant increases in our inventories, accounts payable and employee base, and customer demands that we purchase their Remanufactured Core inventory can be a significant strain on our available capital. In addition, the marketing and other allowances that we typically grant to our customers in connection with these new or expanded relationships adversely impact the near-term revenues and associated cash flows from these arrangements. However, we believe this incremental business will improve our overall liquidity and cash flow from operations over time.

Share Repurchase Program

Capital Expenditures and Commitments

Our capital expenditures were $4,028,000 during fiscal 2013. A significant portion of these expenditures relate to the purchase of equipment for our manufacturing and warehousing facilities and improvements to our California facility and software. We expect our fiscal 2014 capital expenditure for our current operations to be in the range of approximately $2,000,000 to $3,000,000. We expect to use our working capital and incur additional capital lease obligations to finance these capital expenditures.

Table of Contents

Contractual Obligations

Rotating Electrical Product Line

The following summarizes our contractual obligations and other commitments as of March 31, 2013 for our rotating electrical product line and the effect such obligations could have on the cash flows of our rotating electrical product line in future periods:

	Payments Due by Period
			Less than		2 to 3		4 to 5		More than 5
Contractual Obligations	Total		1 year		years		years		years

Capital Lease Obligations (1)	$	217,000	$	186,000	$	16,000	$	15,000	$	-
Operating Lease Obligations (2)		13,058,000		2,855,000		3,974,000		2,054,000		4,175,000
Term Loan		84,500,000		3,900,000		10,800,000		69,800,000		-
Other Long-Term Obligations (3)		43,177,000		14,956,000		14,105,000		8,375,000		5,741,000

Total	$	140,952,000	$	21,897,000	$	28,895,000	$	80,244,000	$	9,916,000

(1)	Capital Lease Obligations represent amounts due under capital leases for various types of machinery and computer equipment.

(2)	Operating Lease Obligations represent amounts due for rent under our leases for office and warehouse facilities in North America and Asia and for our Company automobile.

(3)

Other Long-Term Obligations represent commitments we have with certain customers to provide marketing allowances in consideration for long-term agreements to provide products over a defined period. We are not obligated to provide these marketing allowances should our business relationships end with these customers.

We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, $1,116,000 of income taxes payable has been excluded from the table above. However, future tax payment accruals related to uncertain tax positions are included in our balance sheets, reduced by the associated federal deduction for state taxes.

Table of Contents

Undercar Product Line

The following summarizes our contractual obligations and other commitments as of March 31, 2013 for our undercar product line, and the effect such obligations could have on the cash flows of our undercar product line in future periods:

	Payments Due by Period
			Less than		2 to 3		4 to 5		More than 5
Contractual Obligations	Total		1 year		years		years		years

Capital Lease Obligations (1)	$	206,000	$	93,000	$	65,000	$	48,000	$	-
Operating Lease Obligations (2)		9,874,000		1,670,000		2,339,000		2,109,000		3,756,000
Revolving Loan		49,277,000		49,277,000		-		-		-
Term Loan		10,000,000		10,000,000		-		-		-
Other Long-Term Obligations (3)		503,000		341,000		162,000		-		-

Total	$	69,860,000	$	61,381,000	$	2,566,000	$	2,157,000	$	3,756,000

(1)	Capital Lease Obligations represent amounts due under capital leases for various types of machinery and computer equipment.

(2)	Operating Lease Obligations represent amounts due for rent under Fenco’s leases for office and warehouse facilities in North America and for Fenco’s Company automobiles.

(3)

Other Long-Term Obligations represent commitments we have with certain customers to provide marketing allowances in consideration for long-term agreements to provide products over a defined period. Fenco is not obligated to provide these marketing allowances should its business relationships end with these customers.

We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, $1,480,000 of income taxes payable has been excluded from the table above. However, future tax payment accruals related to uncertain tax positions are included in our balance sheets, reduced by the associated federal deduction for state taxes.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk relates to changes in interest rates and foreign currency exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. As our overseas operations expand, our exposure to the risks associated with foreign currency fluctuations will continue to increase.

Interest rate risk

We are exposed to changes in interest rates primarily as a result of our borrowing and receivable discount programs, which have interest costs that vary with interest rate movements. Our credit facilities bear interest at variable base rates, plus an applicable margin. At March 31, 2013, our consolidated debt obligations totaled $143,287,000. If interest rates were to increase 1%, our net annual interest expense would have increased by approximately $1,433,000. In addition, for each $10,000,000 of accounts receivable we discount over a period of 180 days, a 1% increase in interest rates would increase our interest expense by $50,000.

Table of Contents

Foreign currency risk

We are exposed to foreign currency exchange risk inherent in our anticipated purchases and expenses denominated in currencies other than the U.S. dollar. We transact business in the following foreign currencies; Mexican pesos, Malaysian ringit, Singapore dollar, Chinese yuan, and the Canadian dollar. Our primary currency risk results from fluctuations in the value of the Mexican peso. To mitigate this risk, we enter into forward foreign currency exchange contracts to exchange U.S. dollars for Mexican pesos. The Company also enters into forward foreign currency exchange contracts to exchange U.S. dollars for Chinese yuan in order to mitigate the risk related to its purchases and payments to its Chinese vendors. The extent to which we use forward foreign currency exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in exchange rates. These contracts generally expire in a year or less. Any changes in the fair values of our forward foreign currency exchange contracts are reflected in current period earnings. Based upon our forward foreign currency exchange contracts related to these currencies, an increase of 10% in exchange rates at March 31, 2013 would have increased our general and administrative expenses by approximately $1,657,000. During fiscal 2013 and 2012, a gain of $804,000 and a loss of $476,000, respectively, were recorded in general and administrative expenses due to the change in the value of the forward foreign currency exchange contracts subsequent to entering into the contracts.

Item 8. Financial Statements and Supplementary Data

The information required by this item is set forth in the consolidated financial statements, commencing on page F-1 included herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures 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 made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors 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(b) and 15d-15(e). Based on this evaluation – and that the Company has remediated the prior year material weakness in internal control over financial reporting described below under Changes in Internal Control Over Financial Reporting – our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that the MPA’s disclosure controls and procedures were effective as of March 31, 2013.

Management’s Report on Internal Control Over Financial Reporting

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.

Table of Contents

Internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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

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.

Under the supervision and with the participation of management, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation – and that the Company has remediated the prior year material weakness in internal control over financial reporting described below under Changes in Internal Control Over Financial Reporting –- management concluded that the Company’s internal control over financial reporting was effective as of March 31, 2013.

The effectiveness of our internal control over financial reporting as of March 31, 2013 has been audited by the Company’s independent registered public accounting firm, Ernst & Young LLP. Their assessment is included in the accompanying Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.

Changes in Internal Control Over Financial Reporting

Other than the items noted immediately below, there were no changes in MPA’s internal control over financial reporting during the fourth quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, MPA’s internal control over financial reporting.

Initial Assessment of Acquired Business

On May 6, 2011, MPA acquired Fenco, a privately-owned Toronto-based manufacturer, remanufacturer and distributor of new and remanufactured aftermarket auto parts. As permitted by SEC guidance, which allows for a one-year integration period, management excluded the operations related to Fenco from its assessment of MPA internal control over financial reporting as of March 31, 2012.

Over the course of fiscal year 2013, the execution of Fenco’s internal control over financial reporting was completed and the initial annual assessment of internal controls over financial reporting was conducted.

Accounting Application Conversion and Centralization

On October 1, 2012, the Fenco financial and operating systems were converted to the applications used at MPA. In conjunction with this system conversion, Fenco accounting was also centralized at MPA headquarters in Torrance, California.

Remediation of Prior Year Material Weakness

During the fiscal year ended March 31, 2012, the Company reported the existence of a material weakness in its internal control over financial reporting relating to Fenco, a business acquired by MPA on May 6, 2011.

Table of Contents

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements would not be prevented or detected on a timely basis.

Since the acquisition of Fenco, we were unable to timely file our Quarterly Reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the second, third and fourth quarters of our fiscal year 2012, and first and second quarters of our fiscal year 2013. As a result, we concluded that our internal control over financial reporting was not effective because of the existence of a material weakness in our financial statement close process at Fenco. In response to the material weakness, we conducted a review of the internal control over financial reporting at Fenco and began putting in place appropriate oversight and remediating controls. These changes were expected to permit more timely reporting of consolidated financial results going forward.

For additional information regarding the material weakness and remediating controls, refer to Item 9A, Controls and Procedures in the Company’s report on Form 10-K for the fiscal year ended March 31, 2012, and Item 4, Controls and Procedures in the Company’s subsequent quarterly reports on Form 10-Q for the fiscal 2013 quarters ended June 30, 2012, September 30, 2012, and December 31, 2012.

Over the course of fiscal year 2013, the aforementioned remediating controls were evaluated as part of the initial assessment of internal controls over financial reporting for the acquired business. The results of that assessment are reported above in Management’s Report on Internal Control Over Financial Reporting, which found no material weakness in our financial statement close process at Fenco.

Item 9B. Other Information

None.

Table of Contents

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference to our Definitive Proxy Statement in connection with our next Annual Meeting of Stockholders (“ the Proxy Statement”).

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners And Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Proxy Statement.

Table of Contents

PART IV

Item 15.

Exhibits, Financial Statement Schedules.

a.	Documents filed as part of this report:

(1)

Index to Consolidated Financial Statements:

Reports of Independent Registered Public Accounting Firm	63
Consolidated Balance Sheets	F-1
Consolidated Statements of Operations	F-2
Consolidated Statements of Comprehensive (Loss) Income	F-3
Consolidated Statement of Shareholders’ Equity	F-4
Consolidated Statements of Cash Flows	F-5
Notes to Consolidated Financial Statements	F-6

(2) Schedules:

Schedule II — Valuation and Qualifying Accounts

S-1

(3)

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 (the “1995 Registration Statement”).

3.3	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997 (the “1997 Form 10-K”).

3.4	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the “1998 Form 10-K”).

3.5	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003.

3.6	Amended and Restated By-Laws of the Company	Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on August 24, 2010.

4.1	Specimen Certificate of the Company’s common stock	Incorporated by reference to Exhibit 4.1 to the 1994 Registration Statement.

4.2	Form of Underwriter’s common stock purchase warrant	Incorporated by reference to Exhibit 4.2 to the 1994 Registration Statement.

4.3	1994 Stock Option Plan	Incorporated by reference to Exhibit 4.3 to the 1994 Registration Statement.

Table of Contents

Number	Description of Exhibit	Method of Filing

4.4	Form of Incentive Stock Option Agreement	Incorporated by reference to Exhibit 4.4 to the 1994 Registration Statement.

4.5	1994 Non-Employee Director Stock Option Plan	Incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended March 31, 1995.

4.6	1996 Stock Option Plan	Incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-2 (No. 333-37977) declared effective on November 18, 1997 (the “1997 Registration Statement”).

4.7	2003 Long Term Incentive Plan	Incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed with the SEC on April 2, 2004.

4.8	2004 Non-Employee Director Stock Option Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting.

4.9	Registration Rights Agreement among the Company and the investors identified on the signature pages thereto, dated as of May 18, 2007	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on May 18, 2007.

4.10	Form of Warrant to be issued by the Company to investors in connection with the May 2007 Private Placement	Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on May 18, 2007.

4.11	2010 Incentive Award Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on December 15, 2010.

4.12	Amended and Restated 2010 Incentive Award Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 5, 2013.

10.1	Amendment to Lease, dated October 3, 1996, by and between the Company and Golkar Enterprises, Ltd. relating to additional property in Torrance, California	Incorporated by reference to Exhibit 10.17 to the December 31, 1996 Form 10-Q.

10.2	Lease Agreement, dated September 19, 1995, by and between Golkar Enterprises, Ltd. and the Company relating to the Company’s facility located in Torrance, California	Incorporated by reference to Exhibit 10.18 to the 1995 Registration Statement.

10.3	Agreement and Plan of Reorganization, dated as of April 1, 1997, by and among the Company, Mel Marks, Richard Marks and Vincent Quek relating to the acquisition of MVR and Unijoh	Incorporated by reference to Exhibit 10.22 to the 1997 Form 10-K.

10.4	Form of Indemnification Agreement for officers and directors	Incorporated by reference to Exhibit 10.25 to the 1997 Registration Statement.

Table of Contents

Number	Description of Exhibit	Method of Filing

10.5	Second Amendment to Lease, dated March 15, 2002, between Golkar Enterprises, Ltd. and the Company relating to property in Torrance, California	Incorporated by reference to Exhibit 10.44 to the 2003 10-K.

10.6*	Addendum to Vendor Agreement, dated May 8, 2004, between AutoZone Parts, Inc. and the Company	Incorporated by reference to Exhibit 10.15 to the 2004 10-K.

10.7	Form of Orbian Discount Agreement between the Company and Orbian Corp.	Incorporated by reference to Exhibit 10.17 to the 2004 10-K.

10.8	Form of Standard Industrial/Commercial Multi-Tenant Lease, dated May 25, 2004, between the Company and Golkar Enterprises, Ltd for property located at 530 Maple Avenue, Torrance, California	Incorporated by reference to Exhibit 10.18 to the 2004 10-K.

10.9	Build to Suit Lease Agreement, dated October 28, 2004, among Motorcar Parts de Mexico, S.A. de CV, the Company and Beatrix Flourie Geoffroy	Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on November 2, 2004.

10.10	Amendment No. 3 to Pay-On-Scan Addendum, dated August 22, 2006, between AutoZone Parts, Inc. and the Company	Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on August 30, 2006.

10.11*	Amendment No. 1 to Vendor Agreement, dated August 22, 2006, between AutoZone Parts, Inc. and Motorcar Parts of America, Inc.	Incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K filed on August 30, 2006.

10.12	Lease Agreement Amendment, dated October 12, 2006, between the Company and Beatrix Flourie Geffroy	Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on October 20, 2006.

10.13	Third Amendment to Lease Agreement, dated as of November 20, 2006, between Motorcar Parts of America, Inc. and Golkar Enterprises, Ltd.	Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on November 27, 2006.

10.14	Securities Purchase Agreement among the Company and the investors identified on the signature pages thereto, dated as of May 18, 2007	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 18, 2007.

10.15	Amended and Restated Employment Agreement, dated as of December 31, 2008, by and between the Company and Selwyn Joffe	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed January 7, 2009.

10.16*	Vendor Agreement dated as of March 31, 2009, between the Company and AutoZone Parts, Inc.	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed May 5, 2009.

Table of Contents

Number	Description of Exhibit	Method of Filing

10.17*	Core Amendment to Vendor Agreement, dated as of March 31, 2009, between the Company and AutoZone Parts, Inc.	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed May 5, 2009.

10.18 *	Vendor Agreement Addendum, dated as of March 31, 2009, between the Company and AutoZone Parts, Inc.	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K/A filed on December 23, 2009.

10.19 *	Core Amendment to Vendor Agreement Addendum, dated as of March 31, 2009, between the Company and AutoZone Parts, Inc.	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K/A filed on December 23, 2009.

10.20 *	Master Vendor Agreement, dated as of April 1, 2009, between the Company and O’Reilly Automotive, Inc.	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 13, 2010.

10.21 *	Letter Agreement, dated as of April 1, 2009, between the Company and O’Reilly Automotive, Inc.	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on January 13, 2010.

10.22 *	Vendor Agreement Addendum, dated as of April 1, 2009 between the Company and O’Reilly Automotive, Inc.	Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on January 13, 2010.

10.23	Debenture, dated August 24, 2010, issued by Fenwick Automotive Products Limited to Motorcar Parts of America, Inc.	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on August 30, 2010.

10.24	Addendum to Unanimous Shareholders Agreement, dated August 24, 2010, between Motorcar Parts of America, Inc., Fenwick Enterprises Inc., Escal Holdings Inc., Fencity Holdings Inc., Jofen Holdings Inc., Gordon Fenwick, Paul Fenwick, Joel Fenwick, Stanley Fenwick, Karen Fenwick, Jack Shuster and FAPL Holdings Inc.	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on August 30, 2010.

10.25	Amended and Restated Debenture, dated December 15, 2010, issued by Fenwick Automotive Products Limited to Motorcar Parts of America, Inc.	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on December 21, 2010.

10.26	Amended and Restated Addendum to Unanimous Shareholders Agreement, dated December 15, 2010, between Motorcar Parts of America, Inc., Fenwick Enterprises Inc., Jack Shuster, Gordon Fenwick, Paul Fenwick, Joel Fenwick, FAPL, Fenwick Automotive Products Limited, Introcan Inc., Escal Holdings Inc., Fencity Holdings Inc. and Jofen Holdings Inc.	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on December 21, 2010.

Table of Contents

Number	Description of Exhibit	Method of Filing

10.27*	Consignment Agreement, dated as of March 1, 2011, among Motorcar Parts of America, Inc., Rafko Logistics Inc., Fenwick Automotive Products Limited and FAPL Holdings Inc.	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on March 7, 2011.

10.28	Purchase Agreement, dated May 6, 2011, by and among Motorcar Parts of America, Inc., FAPL Holdings Inc., Jack Shuster, Gordon Fenwick, Paul Fenwick and Joel Fenwick	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 12, 2011.

10.29	Hold Agreement, dated May 6, 2011, between Motorcar Parts of America, Inc. and FAPL Holdings Inc.	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on May 12, 2011.

10.30	Escrow Agreement, dated May 6, 2011, by and among Motorcar parts of America, Inc., FAPL Holdings Inc., Jack Shuster, Gordon Fenwick, Paul Fenwick, Joel Fenwick and Strikeman Elliott LLP	Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on May 12, 2011.

10.31	Amended and Restated Credit Agreement, dated May 6, 2011, by and among Fenwick Automotive Products Limited, Introcan Inc., Manufactures and Traders Trust Company, M&T Bank and such other lenders from time to time as may become a party thereto	Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on May 12, 2011.

10.32	Core Amendment No. 3 to Vendor Agreement, dated as of May 31, 2011, by and between Motorcar Parts of America, Inc. and AutoZone Parts, Inc.	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on June 16, 2011.

10.33	Core Amendment No. 4 to Vendor Agreement, dated as of May 31, 2011, by and between Motorcar Parts of America, Inc. and AutoZone Parts, Inc.	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on June 16, 2011.

10.34	Addendum No. 2 to Amendment No. 1 to Vendor Agreement, dated as of May 31, 2011, by and between Motorcar Parts of America, Inc. and AutoZone Parts, Inc.	Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on June 16, 2011.

10.35	Purchase Agreement, dated May 6, 2011, by and among Motorcar Parts of America, Inc., FAPL Holdings Inc., Jack Shuster, Gordon Fenwick, Paul Fenwick and Joel Fenwick	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 12, 2011.

10.36	Hold Agreement, dated May 6, 2011, between Motorcar Parts of America, Inc. and FAPL Holdings Inc.	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on May 12, 2011.

Table of Contents

Number	Description of Exhibit	Method of Filing

10.37	Escrow Agreement, dated May 6, 2011, by and among Motorcar Parts of America, Inc., FAPL Holdings Inc., Jack Shuster, Gordon Fenwick, Paul Fenwick, Joel Fenwick and Stikeman Elliott LLP	Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on May 12, 2011.

10.38	Amended and Restated Credit Agreement, dated May 6, 2011, by and among Fenwick Automotive Products Limited, Introcan Inc., Manufacturers and Traders Trust Company, M&T Bank and such other lenders from time to time as may become a party thereto	Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on May 12, 2011.

10.39	Fifth Amendment, dated as of November 17, 2011, to that certain Standard Industrial Commercial Single Tenant Lease-Gross, dated as of September 19, 1995, between Golkar Enterprises, Ltd and Motorcar Parts of America, Inc., as amended	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 25, 2011.

10.40	Financing Agreement, dated as of January 18, 2012,among Motorcar Parts of America, Inc., each lender from time to time party thereto, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association, as administrative agent	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 24, 2012.

10.41	Subscription Agreement, dated April 20, 2012	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 23, 2012.

10.42	Registration Rights Agreement, dated April 20, 2012	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on April 23, 2012.

10.43	Right of First Refusal Agreement, dated May 3, 2012	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 7, 2012.

10.44	Employment Agreement, dated as of May 18, 2012, between Motorcar Parts of America, Inc., and Selwyn Joffe	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 24, 2012.

10.45	Second Amendment to the Financing Agreement, dated as of May 24, 2012, among Motorcar Parts of America, Inc., each lender from time to time party thereto, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association, as administrative agent	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 31, 2012.

Table of Contents

Number	Description of Exhibit	Method of Filing

10.46	Warrant to Purchase Common Stock, dated May 24, 2012, issued by Motorcar Parts of America, Inc. to Cerberus Business Finance, LLC in connection with the Second Amendment to the Financing Agreement	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on May 31, 2012.

10.47	Revolving Credit/Strategic Cooperation Agreement, dated as of August 22, 2012, by and among Motorcar Parts of America, Inc. (solely for purposes of provisions specified thereto), Fenwick Automotive Products Limited and Wanxiang America Corporation	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on August 28, 2012.

10.48	Guaranty, dated as of August 22, 2012, by Motorcar Parts of America, Inc. for the benefit of Wanxiang America Corporation	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on August 28, 2012.

10.49	Warrant to Purchase Common Stock, dated as of August 22, 2012, issued by Motorcar Parts of America, Inc. to Wanxiang America Corporation	Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on August 28, 2012.

10.50	Third Amendment and Waiver to the Financing Agreement, dated as of August 22, 2012, among Motorcar Parts of America, Inc., each lender from time to time party thereto, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association as administrative agent	Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on August 28, 2012.

10.51	Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of August 22, 2012, by and among Fenwick Automotive Products Limited, Introcan Inc., Manufacturers and Traders Trust Company, as lead arranger, and M&T Bank, as administrative agent and a lender	Incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed on August 28, 2012.

10.52	Stock Repurchase Agreement, dated as of December 3, 2012, by and among Motorcar Parts of America, Inc., Mel Marks and Melmarks Enterprises LLLP	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on December 6, 2012.

10.53	Fourth Amendment to Financing Agreement, dated as of December 3, 2012, among Motorcar Parts of America, Inc., each lender from time to time party thereto, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association, as administrative agent	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on December 6, 2012.

Table of Contents

Number	Description of Exhibit	Method of Filing

10.54	Option Purchase Agreement, dated as of January 16, 2013, by and between Motorcar Parts of America, Inc. and Selwyn Joffe	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 17, 2013.

10.55	Fifth Amendment to Financing Agreement, dated as of January 16, 2013, among Motorcar Parts of America, Inc., each lender from time to time party thereto, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association, as administrative agent	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on January 17, 2013.

10.56	Amendment No. 3 to the Amended and Restated Credit Agreement, dated as of February 13, 2013, by and among Fenwick Automotive Products Limited, Introcan Inc., Manufacturers and Traders Trust Company, as lead arranger, and M&T Bank, as administrative agent and a lender	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February 20, 2013.

10.57	Mel Marks Agreement, dated and effective as of March 31, 2013, among Motorcar Parts of America, Inc., Mel Marks and Mel Marks Enterprises LLLP	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 16, 2013.

10.58	Sixth Amendment to Financing Agreement, dated as of June 14, 2013, among Motorcar Parts of America, Inc., each lender from time to time party thereto, Cerberus Business Finance, LLC, as collateral agent, and PNC Bank, National Association, as administrative agent	Filed herewith.

14.1	Code of Business Conduct and Ethics	Incorporated by reference to Exhibit 10.48 to the 2003 Form 10-K.

21.1	List of Subsidiaries	Filed herewith.

23.0	Consent of Independent Registered Public Accounting Firm Ernst & Young LLP	Filed herewith.

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith.

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith.

31.3	Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith.

Table of Contents

Number	Description of Exhibit	Method of Filing

32.1	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.

101.1	The following financial information from Motorcar Parts of America, Inc.’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013, formatted in Extensible Business Reporting Language (“XBRL”) and furnished electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive (Loss) Income, (iv) the Consolidated Statement of Shareholders’ Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements	Furnished herewith.

* Portions of this exhibit have been granted confidential treatment by the SEC.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 15(d) 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: June 17, 2013	By:	/s/ David Lee
		David Lee
		Chief Financial Officer

Dated: June 17, 2013	By:	/s/ Kevin Daly
		Kevin Daly
		Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated:

/s/ Selwyn Joffe	Chief Executive Officer and Director	June 17, 2013
Selwyn Joffe	(Principal Executive Officer)

/s/ David Lee	Chief Financial Officer	June 17, 2013
David Lee	(Principal Financial Officer)

/s/ Kevin Daly	Chief Accounting Officer	June 17, 2013
Kevin Daly	(Principal Accounting Officer)

/s/ Mel Marks	Director	June 17, 2013
Mel Marks

/s/ Scott Adelson	Director	June 17, 2013
Scott Adelson

/s/ Rudolph Borneo	Director	June 17, 2013
Rudolph Borneo

/s/ Philip Gay	Director	June 17, 2013
Philip Gay

/s/ Duane Miller	Director	June 17, 2013
Duane Miller

/s/ Jeffrey Mirvis	Director	June 17, 2013
Jeffrey Mirvis

Table of Contents

MOTORCAR PARTS OF AMERICA, INC.

AND SUBSIDIARIES

CONTENTS

	Page
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	63
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS	F-1
CONSOLIDATED STATEMENTS OF OPERATIONS	F-2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME	F-3
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY	F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS	F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-6
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS	S-1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Motorcar Parts of America, Inc.

We have audited Motorcar Parts of America, Inc. and subsidiaries’ internal control over financial reporting as of March 31, 2013 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Motorcar Parts of America, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s 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 generally accepted accounting principles. A company’s 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.

In our opinion, Motorcar Parts of America, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2013, based on COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Motorcar Parts of America, Inc. and subsidiaries as of March 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended March 31, 2013 and our report dated June 17, 2013 expressed an unqualified opinion thereon that included an explanatory paragraph regarding Motorcar Parts of America, Inc. and subsidiaries’ ability to continue as a going concern.

	/s/ Ernst & Young LLP

Los Angeles, California
June 17, 2013

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Motorcar Parts of America, Inc.

We have audited the accompanying consolidated balance sheets of Motorcar Parts of America, Inc. and subsidiaries (the “Company” or “Consolidated Companies”) as of March 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended March 31, 2013. Our audits also included the financial statement schedule listed in the index at Item 15(a)(2). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Motorcar Parts of America, Inc. and subsidiaries at March 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming that Motorcar Parts of America, Inc. and subsidiaries will continue as a going concern. As more fully described in Note 1 to the financial statements, the Company’s wholly owned subsidiary Fenwick Automotive Products Limited (“Fenco”) has recurring operating losses since the date of acquisition and has a working capital and an equity deficiency. In addition, Fenco has not complied with certain covenants of its loan agreements with its bank. These conditions relating to Fenco coupled with the significance of Fenco to the Consolidated Companies, raise substantial doubt about the Consolidated Companies’ ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 1. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Motorcar Parts of America, Inc.'s internal control over financial reporting as of March 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 17, 2013 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP

Los Angeles, California
June 17, 2013

Table of Contents

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

March 31,

	2013			2012
ASSETS
Current assets:
Cash	$	19,434,000		$	32,617,000
Short-term investments		411,000			342,000
Accounts receivable — net		14,311,000			20,036,000
Inventory— net		61,090,000			95,071,000
Inventory unreturned		12,150,000			9,819,000
Deferred income taxes		34,885,000			3,793,000
Prepaid expenses and other current assets		10,350,000			6,553,000
Total current assets		152,631,000			168,231,000
Plant and equipment — net		14,083,000			12,738,000
Long-term core inventory — net		158,476,000			194,406,000
Long-term core inventory deposits		27,610,000			26,939,000
Long-term deferred income taxes		2,546,000			1,857,000
Goodwill		-			68,356,000
Intangible assets — net		3,983,000			22,484,000
Other assets		7,745,000			6,887,000
TOTAL ASSETS	$	367,074,000		$	501,898,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	113,753,000		$	126,100,000
Accrued liabilities		14,856,000			19,379,000
Customer finished goods returns accrual		24,978,000			21,695,000
Other current liabilities		3,009,000			2,745,000
Current portion of term loan		3,900,000			500,000
Revolving loan - in default		49,277,000			-
Term loan - in default		10,000,000			-
Total current liabilities		219,773,000			170,419,000
Term loan, less current portion		80,110,000			84,500,000
Revolving loan		-			48,884,000
Deferred core revenue		12,014,000			9,775,000
Customer core returns accrual		50,414,000			113,702,000
Other liabilities		8,277,000			999,000
Total liabilities		370,588,000			428,279,000
Commitments and contingencies
Shareholders' equity:
Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issued		-			-
Series A junior participating preferred stock; par value $.01 per share, 20,000 shares authorized; none issued		-			-
Common stock; par value $.01 per share, 20,000,000 shares authorized; 14,460,979 and 12,533,821 shares issued; 14,460,979 and 12,519,421 outstanding at March 31, 2013 and 2012, respectively		145,000			125,000
Treasury stock, at cost, none at March 31, 2013 and 14,400 shares of common stock at March 31, 2012		-			(89,000	)
Additional paid-in capital		114,737,000			98,627,000
Additional paid-in capital-warrant		-			1,879,000
Accumulated other comprehensive loss		(846,000	)		(884,000	)
Accumulated deficit		(117,550,000	)		(26,039,000	)
Total shareholders' (deficit) equity		(3,514,000	)		73,619,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	367,074,000		$	501,898,000

The accompanying notes to consolidated financial statements are an integral part hereof.

F-1

Table of Contents

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years Ended March 31,

	2013			2012			2011

Net sales	$	406,266,000		$	363,687,000		$	161,285,000
Cost of goods sold		350,538,000			335,980,000			109,903,000
Gross profit		55,728,000			27,707,000			51,382,000
Operating expenses:
General and administrative		44,526,000			38,881,000			17,033,000
Sales and marketing		12,713,000			12,804,000			6,537,000
Research and development		2,628,000			1,765,000			1,549,000
Impairment of goodwill and intangible assets		84,686,000			-			-
Impairment of plant and equipment		-			1,031,000			-
Acquisition costs		-			713,000			879,000
Total operating expenses		144,553,000			55,194,000			25,998,000
Operating (loss) income		(88,825,000	)		(27,487,000	)		25,384,000
Interest expense, net		24,406,000			14,255,000			5,355,000
(Loss) income before income tax (benefit) expense		(113,231,000	)		(41,742,000	)		20,029,000
Income tax (benefit) expense		(21,720,000	)		6,772,000			7,809,000

Net (loss) income	$	(91,511,000	)	$	(48,514,000	)	$	12,220,000
Basic net (loss) income per share	$	(6.39	)	$	(3.90	)	$	1.01
Diluted net (loss) income per share	$	(6.39	)	$	(3.90	)	$