FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO THE
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 3, 1994
Commission file number: 1-7807
Champion Parts, Inc.
(Exact name of registrant as specified in its charter)
Illinois 36-2088911
(State or other jurisdiction of (I.R.S. Employer Identifi-
incorporation or organization) cation No.)
2525 22nd Street, Oak Brook, Illinois
(Address of principal executive offices)
60521
(Zip Code)
708-573-6600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at September 12, 1995
Common Shares - $.10 par value 3,655,266
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<TABLE>
PART I
CHAMPION PARTS, INC. AND SUBSIDIARIES
AMENDED CONSOLIDATED BALANCE SHEETS (CONDENSED)
<CAPTION>
July 3, January 2,
1994 1994
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents 126,000 78,000
Accounts Receivable,
less allowance for uncollectible
accounts 10,167,000 6,993,000
Inventories 35,093,000 31,536,000
Prepaid expenses and other 4,468,000 3,340,000
---------- ----------
Total current assets 49,854,000 41,947,000
Property, plant, and equipment (net) 11,401,000 12,767,000
Other assets 1,320,000 1,433,000
---------- ----------
TOTAL ASSETS 62,575,000 56,147,000
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY:
Current Liabilities
Accounts Payable 7,553,000 3,652,000
Accrued expenses and other payables 12,017,000 9,261,000
Current maturities on long-term debt 19,284,000 1,206,000
---------- ----------
Total current liabilities 38,854,000 14,119,000
Deferred income taxes 1,550,000 1,550,000
Long-term debt, less current maturities
ESOP loan agreement 514,000 1,029,000
Notes payable to banks and other 2,550,000 18,252,000
---------- ----------
Total liabilities 43,468,000 34,950,000
Stockholders Equity
Preferred stock - no par value
authorized 10,000,000 shares:
issued and outstanding, none 0 0
Common shares - $.10 par value
authorized 50,000,000 shares
issued and outstanding
3,655,266 shares 366,000 366,000
Additional paid-in capital 15,578,000 15,578,000
Cumulative translation adjustment (274,000) (136,000)
Debt guarantee for ESOP (514,000) (1,029,000)
Retained earnings 3,951,000 6,418,000
---------- ----------
Total Stockholders equity 19,107,000 21,197,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 62,575,000 56,147,000
========== ==========
<FN>
<F1> See notes to condensed consolidated financial statements
</FN>
</TABLE>
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<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
<CAPTION>
Six Months Ended Three Months Ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $48,255,000 $50,957,000 $24,131,000 $25,036,000
----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold 38,543,000 39,758,000 18,857,000 19,634,000
Selling, distribution and administration 8,224,000 8,649,000 4,184,000 4,129,000
Special charge 3,400,000 0 0 0
----------- ----------- ----------- -----------
50,167,000 48,407,000 23,041,000 23,763,000
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INTEREST AND INCOME TAXES (1,912,000) 2,550,000 1,090,000 1,273,000
INTEREST 1,189,000 1,137,000 629,000 587,000
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (3,101,000) 1,413,000 461,000 686,000
INCOME TAXES (BENEFIT) (634,000) 141,000 84,000 68,000
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) ($2,467,000) $1,272,000 $377,000 618,000
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 3,655,266 3,655,266 3,655,266 3,655,266
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE ($0.67) $0.35 $0.10 $0.17
=========== =========== =========== ===========
<FN>
<FN1> See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
<CAPTION>
Six Months Ended
July 3, July 4,
1994 1993
----------- -----------
UNAUDITED
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ($2,467,000) $1,272,000
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 892,000 804,000
Provision for losses on accounts receivable 192,000 187,000
Special charge 3,400,000 0
Change in assets and liabilities:
Accounts receivable (3,366,000) (1,507,000)
Inventories (3,557,000) 1,716,000
Accounts payable 3,901,000 861,000
Accrued expenses and other (966,000) 273,000
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,971,000) 3,606,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (357,000) (400,000)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (357,000) (400,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit
agreement 3,000,000 (2,600,000)
Principal payments on long-term debt (624,000) (608,000)
------------ -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,376,000 (3,208,000)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 48,000 (2,000)
CASH AND CASH EQUIVALENTS, beginning of period 78,000 1,412,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $126,000 $1,410,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $1,224,000 $1,218,000
Income Taxes 324,000 37,000
<FN>
<FN1> See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
_____________________________________
NOTES TO AMENDED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
_______________________________________________________________________________
1. The accompanying condensed financial statements have been
prepared in accordance with the accounting policies described
and set forth in the Company's annual report to the Securities and
Exchange Commission on Form 10-K for the twelve months ended January 2, 1994.
The consolidated balance sheet at January 2, 1994 has been
taken from the audited financial statements at that date and condensed.
2. The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and a one-time special charge as more
fully described in Note 6) which are, in the opinion of management, necessary
for a fair presentation of the results of operations for the interim period.
Results of operations for the six months ended July 3, 1994 are not
necessarily indicative of results to be expected for the entire year.
3. Inventories are valued at the lower of cost (first in,
first out method) or market. A summary of the inventories follows:
July 3, 1994 January 2, 1994
Raw Materials $11,906,000 $11,634,000
Work in Process 6,826,000 4,641,000
Finished Goods 16,361,000 15,261,000
----------- -----------
$35,093,000 $31,536,000
=========== ===========
Included in inventory above were cores of $17,544,000 (July 3,
1994) and $14,584,000 (January 2, 1994).
4. For reporting purposes, product and core returns are offset
against gross sales in arriving at net sales. For the six months ended
July 3, 1994 and July 4, 1993 returns were $31,461,000 and $35,527,000,
respectively.
5. In this amendment, the Company has reclassified $18.2 million under
its bank credit facility to short term liabilities from long-term debt. The
Company's current credit facility expired on April 1, 1995. The Company had
shown amounts under this facility as short-term in its financial statements
filed with the January 1, 1995 annual report on Form 10-K.
6. In March, 1994 the Company recorded a one-time special charge
of $3.4 million to record the cost of a planned relocation and consolidation
of production capacity. Approximately $2.0 million of the charge relates
primarily to termination and personnel related costs. The remaining $1.4
million reflects fixed asset write downs to estimated net realizable values
and other facility shutdown costs. The remaining reserve at October 2, 1994
was approximately $1.2 million. This amount primarily represents future
severance and personnel related costs and facility shutdown expenditures yet
to be incurred.
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended July 3, 1994 Compared to Three Months Ended July 4, 1993.
Net sales for the quarter ended July 3, 1994 were $24.1
million, 4% less than net sales of $25.0 million for the same
period last year. Lower sales volume to existing customers in
the automotive and heavy duty electrical market sectors were
the primary factors for the decreased sales. Higher carburetor
sales due to increased market share and favorable product mix,
as well as continued expansion of the Company's front wheel
driveshaft product line, somewhat offset the overall sales
decrease.
Carburetor sales were 27% of net sales in the second quarter of
1994 compared to 22% in the same quarter of 1993. The Company
has increased its carburetor market share due to its ability to
continue to supply a broad line of quality carburetors while
competitors with more limited line coverage have exited the
market. Over the longer term, the Company expects net
carburetor sales to decline as a result of reduced carburetor
installations in new vehicles.
Product and core returns, reflected as reductions in net sales,
were 37% of sales in 1994 and 40% in 1993.
Cost of products sold for the quarter ended July 3, 1994 was
78.1% of net sales compared to 78.4% for the same period in
1993. The slight decrease of costs as a percentage of sales was
due to gains on disposing excess inventory and on reduced
inventory valuation provisions due to improved inventory
management programs put in place in 1993. These gains were
offset by an increase in the value of net cores sold and an
increase in the Company's material costs compared to the prior
year. Material cost increases were driven primarily by higher
costs to supply later model electrical and carburetor products.
Selling, distribution and administrative expenses were $4.2
million in the current quarter, or 2% higher than the $4.1
million in the prior year. Increased selling expenses over the
prior year was the primary factor for this slight increase.
Interest expense was 7% higher in the second quarter of 1994
compared to 1993. Higher average outstanding borrowings and
increases in the prime lending rates are the principal reasons
for this increase. The Company's effective income tax rate was
18% in the second quarter of 1994, compared to 10% in the year
earlier period. The higher effective rate is due to 1993
benefiting from the use of previously unrecognized net
operating loss carryforwards.
Six Months Ended July 3, 1994 Compared to Six Months Ended July 4, 1993.
Net sales for the six months ended July 3, 1994 were $48.3
million, 5.3% less than net sales of $51.0 million for the same
period in 1993. Lower sales volume to existing customers in the
automotive and heavy duty electrical and water pump market
sectors were the primary factors for the decrease. The
Company's carburetor and front wheel driveshaft net sales were
higher in 1994 than in 1993 due to the Company increasing its
market share in these product lines.
Carburetor sales were 26% of net sales in the first half of
1994 compared to 21% in the first half of 1993. The Company has
increased its market share in this product line due to its
ability to supply a broad line of quality carburetors. Over the
longer term, the Company expects net carburetor sales to
decline.
Product and core returns, reflected as reductions in net sales,
were 39% of sales in 1994 and 40% in 1993.
Cost of product sold was 79.9% of net sales in the first six
months of 1994 compared to 78.0% in the first half of 1993.
This increase was due primarily to higher labor costs driven by
product mix and lower efficiencies driven by overall lower
production volumes in 1994. Material costs have also been
higher in 1994 due to higher costs to supply later model
electrical and carburetor products. Offsetting these increases
were lower inventory valuation provisions as a result of the
implementation of improved inventory management procedures
during 1993.
Selling, distribution and administrative expenses were $8.2
million in the first half of 1994, 6% lower than the $8.7
million incurred in the prior year. Lower distribution and
administrative costs accounted for the decrease.
In the first quarter of 1994, the Company recorded a one-time
special pre-tax charge of $3.4 million as a result of an
announced plan to consolidate manufacturing capacity.
Approximately $2.0 million of the charge relates to termination
and other personnel related costs. The remaining $1.4 million
reflects fixed asset write downs to estimated realizable values
and other facility shut down costs. The plan is to be
substantially completed before the end of the third quarter of
1994. Charges against the reserve have not been significant to
date. The Company expects to begin benefiting from a reduction
in manufacturing costs in the second half of 1994.
Interest expense was comparable to the prior year. The
Company's effective income tax rate was 20% for the first half
of 1994 compared to 10% in the year earlier period. The lower
effective rate in 1993 was due to use of previously unrecognized
net operating loss carryforwards.
Liquidity and Capital Resources
Working Capital
Net working capital at July 3, 1994 was $11.0 million, or $16.8
million lower than the $27.8 million level at January 2, 1994.
In this amendment, the Company reclassified $18.2 million of
outstanding debt obligations under its bank credit facility as
short term due to its maturity on April 1, 1995. A significant
increase in net accounts receivable of $3.2 million resulted
from higher sales in the second quarter of 1994 than in the
fourth quarter of 1993. Inventories increased $3.6 million in
the first half of 1994 primarily as a result of planned growth
of certain inventory levels during the Company's manufacturing
plant consolidation process. Prepaid expenses increased due to
payments for annual insurance programs early in the year.
Accounts payable increased $3.9 million reflecting the higher
inventory purchasing activity during the most recent quarter.
Accrued liabilities increased primarily as a result of the
recording of the one-time special charge in the first quarter.
Debt
In March 1994, the Company amended its bank credit agreement
to extend its maturity until April 1995; removed one of the
participating banks; reduced the commitment level to $23
million; reset certain prospective financial covenants in
anticipation of the 1994 special charge for the plan to realign
the Company's manufacturing capacity; and allowed the Company
additional borrowing capability against accounts receivable and
inventories. The Company feels that the amended credit
agreement provides sufficient liquidity to meet operating and
capital requirements through the term of the agreement.
At July 3, 1994, the Company had available $20.8 million under
the Company's credit agreement of which $18.2 million was
borrowed.
The Company has shown, within this amendment, outstanding
borrowings under this facility as short-term at July 3, 1994.
While there can be no assurances such an agreement can be
reached, the Company intends to extend or refinance this
facility into a new long-term agreement.
The Company has a direct guarantee of Canadian $500,000 of the
bank debt of a joint venture and is joint and several guarantor
of Canadian $1,500,000 with its venture partner. In 1992, the
Company provided a reserve for a contingent liability to the
venture's bank. The venture was not in default of its debt
facility at July 3, 1994.
Cash Flow
The Company increased its debt, net of cash, by $2.3 million in
the first half of 1994. This increase was primarily the result
of bank borrowings to finance increased inventories that were
planned during the plant consolidation process, and accounts
receivable and prepaid expenses due to seasonal factors. The
following table summarizes significant items affecting the
change in total debt (amounts in thousands):
July 3, July 4,
1994 1993
Net income (loss),
changes in working
capital, other $ (2,863) $ 2,802
Depreciation and
Amortization 892 804
Capital Expenditures (357) (400)
---------- -----------
(Increase) Decrease in
total debt, net
of cash $ (2,328) $ 3,206
========== ===========
The Company has generally financed major capital additions
through medium and long-term borrowing, including the use of
industrial revenue bond financing. Working capital requirements
have generally been financed by internally generated funds and
bank borrowings. The Company has an interest rate swap
agreement, which fixes the effective interest rate on
$12,000,000 of borrowings at 8.3% , that expired in October of
1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CHAMPION PARTS, INC.
(Registrant)
DATE: September 12, 1995 By: /s/ Mark Smetana
Mark Smetana
Vice President Finance &
Secretary
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