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: October 2, 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>
October 2, January 2,
1994 1994
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents 243,000 78,000
Accounts Receivable,
less allowance for uncollectible
accounts 10,101,000 6,993,000
Inventories 31,846,000 31,536,000
Prepaid expenses and other 3,870,000 3,340,000
---------- ----------
Total current assets 46,060,000 41,947,000
Property, plant, and equipment (net) 11,403,000 12,767,000
Other assets 1,397,000 1,433,000
---------- ----------
TOTAL ASSETS 58,860,000 56,147,000
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY:
Current Liabilities
Accounts Payable 7,348,000 3,652,000
Accrued expenses and other payables 9,448,000 9,261,000
Current maturities on long-term debt 18,330,000 1,206,000
---------- ----------
Total current liabilities 35,126,000 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 2,502,000 18,252,000
---------- ----------
Total liabilities 39,692,000 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 (275,000) (136,000)
Debt guarantee for ESOP (514,000) (1,029,000)
Retained earnings 4,013,000 6,418,000
---------- ----------
Total Stockholders equity 19,168,000 21,197,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 58,860,000 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>
Nine Months Ended Three Months Ended
October 2, October 3, October 2, October 3,
1994 1993 1994 1993
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $73,172,000 $78,429,000 $24,917,000 $27,472,000
----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold 59,479,000 61,125,000 20,936,000 21,367,000
Selling, distribution and administration 11,523,000 13,141,000 3,299,000 4,492,000
Special charge 3,400,000 0 0 0
----------- ----------- ----------- -----------
74,402,000 74,266,000 24,235,000 25,859,000
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INTEREST AND INCOME TAXES (1,230,000) 4,163,000 682,000 1,613,000
INTEREST 1,783,000 1,666,000 594,000 529,000
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (3,013,000) 2,497,000 88,000 1,084,000
INCOME TAXES (BENEFIT) (608,000) 250,000 26,000 109,000
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) ($2,405,000) $2,247,000 $62,000 975,000
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 3,655,266 3,655,266 3,655,266 3,655,266
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE ($0.66) $0.61 $0.02 $0.27
=========== =========== =========== ===========
<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>
Nine Months Ended
October 2, October 3,
1994 1993
----------- -----------
UNAUDITED
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ($2,405,000) $2,247,000
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,313,000 1,206,000
Provision for losses on accounts receivable 163,000 280,000
Special charge 3,400,000 0
Change in assets and liabilities:
Accounts receivable (3,271,000) (1,472,000)
Inventories (310,000) (722,000)
Accounts payable 3,696,000 1,788,000
Accrued expenses and other (3,021,000) (699,000)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (435,000) 2,628,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (774,000) (517,000)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (774,000) (517,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit
agreement 2,300,000 (2,100,000)
Principal payments on long-term debt (926,000) (913,000)
------------ -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,374,000 (3,013,000)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 165,000 (902,000)
CASH AND CASH EQUIVALENTS, beginning of period 78,000 1,412,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $243,000 $510,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $1,754,000 $1,813,000
Income Taxes 328,000 45,000
<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 nine months ended October 2, 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:
October 2, 1994 January 2, 1994
Raw Materials $13,882,000 $11,634,000
Work in Process 5,906,000 4,641,000
Finished Goods 12,058,000 15,261,000
----------- -----------
$31,846,000 $31,536,000
=========== ===========
Included in inventory above were cores of $16,989,000 (October 2,
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 nine months ended
October 2, 1994 and October 3, 1993 returns were $46,521,000 and $52,367,000,
respectively.
5. In this amendment, the Company has reclassified $17.5 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 October 2, 1994 Compared to Three Months Ended
October 3, 1993.
Net sales for the quarter ended October 2, 1994 were $24.9
million, 9% less than net sales of $27.4 million for the same
period last year. Lower sales volume to existing customers in
the carburetor and automotive and heavy duty electrical market
sectors were the primary factors for the decreased sales.
Continued expansion of the Company's front wheel driveshaft
product line somewhat offset the overall sales decrease.
Carburetor sales were 20% of net sales in the third quarter of
1994 compared to 20% in the same quarter of 1993.
Product and core returns, reflected as reductions in net sales,
were 37% of sales in 1994 and in 1993.
Cost of products sold for the quarter ended October 2, 1994 was
84% of net sales compared to 78% for the same period in 1993.
The increase of costs as a percentage of sales was due to lower
absorption of plant overhead costs as the company reduced
finished goods inventory levels 26% in the quarter on lower
sales volume than in the prior year. The Company's recent plant
consolidation efforts reduced plant overhead costs, softening
the impact of these factors. Also, net core sales, which are
reflected as a component of both net sales and cost of products
sold, were 9% of net sales in 1994 versus 4.5% in 1993 due to
the inventory reduction. Somewhat offsetting these factors was
reduced inventory valuation provisions due to improved inventory
management programs put in place in 1993. The company expects
that costs of products sold will return to more historical
levels with increased absorption on higher production levels and
lower spending as a result of the plant consolidation.
Selling, distribution and administrative expenses were $3.3
million in the current quarter, or 27% lower than the $4.5
million in the prior year. Decreased selling expenses, primarily
discretionary advertising costs and lower commission expense,
and lower accounts receivable provisions resulted in the
decrease.
Interest expense was 12% higher in the third quarter of 1994
compared to 1993. Higher average outstanding borrowings to
support higher working capital and increases in the prime
lending rates are the principal reasons for this increase. The
Company's effective income tax rate was 30% in the third 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.
Nine Months Ended October 2, 1994 Compared to Nine Months Ended
October 3, 1993.
Net sales for the nine months ended October 2, 1994 were $73.2
million, 6.7% less than net sales of $78.4 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 24% of net sales in the first nine months
of 1994 compared to 21% in the first nine months 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 38% of sales in 1994 and 39% in 1993.
Cost of products sold was 81% of net sales in the first nine
months of 1994 compared to 78% in the first nine months of 1993.
This increase was due primarily to higher material costs
resulting from higher costs to supply later model electrical and
front wheel drive shafts products. Lower burden cost absorption
as a result of lower production volumes in 1994 also
contributed. The Company's plant consolidation lowered year to
date spending softening the impact of lower absorption. The
Company recorded lower inventory valuation provisions as a
result of the implementation of improved inventory management
procedures during 1993.
Selling, distribution and administrative expenses were $11.5
million in the first nine months of 1994, 12% lower than the
$13.1 million incurred in the prior year. Lower distribution
costs and selling 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 transfer of certain
production from the Beech Creek, Pennsylvania plant to the Hope,
Arkansas plant was completed in the third quarter of 1994.
Additional consolidations at the Beech Creek plant and related
infrastructure will be completed in early 1995. The Company has
charged approximately $1 million to the restructuring reserves.
The Company expects to see additional benefits in reductions in
manufacturing costs.
Interest expense was 7% higher than in the prior year due to
higher average outstanding borrowings and higher prime interest
rates. The Company's effective income tax rate was a 20%
benefit for the first nine months of 1994 compared to a 10%
provision in the prior year.
Liquidity and Capital Resources
Working Capital
Net working capital at October 2, 1994 was $10.9 million, or
$16.9 million lower than the $27.8 million level at January 2,
1994. In this amendment, the Company reclassified $17.5 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 $3.1 million
resulted from higher sales in the third quarter of 1994 than in
the fourth quarter of 1993. Accounts payable increased $3.7
million reflecting the higher inventory levels.
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 October 2, 1994, the Company had available $20.5 million
under the Company's credit agreement of which $17.5 million was
borrowed.
The Company has shown, within this amendment, outstanding
borrowings under this facility as short-term at October 2, 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 October 2, 1994.
Cash Flow
The Company increased its debt, net of cash, by $ 0.7 million
in the first nine months 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):
October 2, October 3,
1994 1993
Net income (loss),
changes in working
capital, other $ (1,233) $ 1,936
Depreciation and
Amortization 1,313 1,206
Capital Expenditures (774) (517)
---------- -----------
(Increase) Decrease in
total debt, net
of cash $ (694) $ 2,625
========== ===========
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.
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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, 199 By: /s/ Mark Smetana
Mark Smetana
Vice President Finance &
Secretary
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