UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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 Identification No.
incorporation or organization)
2005 West Avenue B, Hope, Arkansas 71801
(Address of principal executive offices)
870-777-8821
(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 as of June 30, 2002
Common Shares - $0.10 Par Value 3,655,266
#
Champion Parts, Inc.
Form 10-Q
Cross Reference Index
PART I | FINANCIAL INFORMATION | PAGE |
ITEM 1. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | |
Balance Sheet - Assets | 3 | |
Balance Sheet - Liabilities & Stockholders' Equity | 4 | |
Statement of Income | 5 | |
Statement of Stockholders' Equity | 6 | |
Statement of Comprehensive Income | 7 | |
Statement of Cash Flows | 8 | |
Notes to Financial Statements | 9-10 | |
ITEM 2. | MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL | |
CONDITION AND RESULTS OF OPERATIONS | ||
Overview of Recent Events | 11 | |
Results of Operations | ||
Three Months Ended June 30, 2002 | 11-12 | |
Six Months Ended June 30, 2002 | 12-13 | |
Critical Accounting Policies and Estimates | 13-14 | |
Recent Accounting Pronouncements | 14 | |
Liquidity and Capital Resources | ||
Working Capital | 14-15 | |
Debt | 15 | |
Seasonality | 15 | |
Future Outlook | 15 | |
Factors Which May Affect Future Results | 16 |
PART II | OTHER INFORMATION | |
ITEM 1. | LEGAL PROCEEDINGS | 17 |
ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K | 17 |
SIGNATURE PAGE | 18 | |
#
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| June 30, 2002 | December 31, 2001 |
(Unaudited) | (Audited) | |
ASSETS | ||
CURRENT ASSETS: | ||
Cash | $ 173,000 | $ 139,000 |
Accounts receivable, less allowance for uncollectibles of $494,000 and $338,000 in 2002 and 2001, respectively | 9,634,000 | 7,574,000 |
Other receivables | 188,000 | 342,000 |
Inventories, net of reserves | 9,659,000 | 10,730,000 |
Prepaid expenses and other assets | 663,000 | 673,000 |
Deferred income tax asset | 75,000 | 75,000 |
|
| |
TOTAL CURRENT ASSETS | 20,392,000 | 19,533,000 |
PROPERTY, PLANT AND EQUIPMENT: | ||
Land | 197,000 | 197,000 |
Buildings | 7,837,000 | 7,837,000 |
Machinery and equipment | 13,853,000 | 13,821,000 |
Gross property, plant & equipment | 21,887,000 | 21,855,000 |
Less: Accumulated depreciation | 17,966,000 | 17,705,000 |
| ||
NET PROPERTY, PLANT & EQUIPMENT | 3,921,000 | 4,150,000 |
OTHER ASSETS | 297,000 | 297,000 |
TOTAL ASSETS | $24,610,000 | $23,980,000 |
The accompanying notes are an integral part of these statements.
#
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY | June 30, 2002 | December 31, 2001 |
(Unaudited) | (Audited) | |
CURRENT LIABILITIES: | ||
Accounts payable | $7,463,000 | $6,845,000 |
Accrued expenses: | ||
Salaries, wages and employee benefits | 338,000 | 669,000 |
Other accrued expenses | 3,761,000 | 3,453,000 |
Taxes other than income | 151,000 | 121,000 |
Current maturities of long-term debt: | ||
Current maturities – term notes | 463,000 | 463,000 |
Current maturities – subordinated debt | 191,000 | 192,000 |
Current maturities – acquisition note | 333,000 | 417,000 |
Total current maturities of long-term debt | 987,000 | 1,072,000 |
TOTAL CURRENT LIABILITIES | 12,700,000 | 12,160,000 |
DEFERRED INCOME TAXES | 75,000 | 75,000 |
LONG-TERM DEBT: | ||
Long-term notes payable – revolver | 7,431,000 | 7,045,000 |
Long-term notes payable – term notes | 1,833,000 | 2,065,000 |
Long-term notes payable – subordinated debt | 2,112,000 | 2,207,000 |
Long-term note payable – acquisition | -0- | 83,000 |
TOTAL LONG-TERM DEBT | 11,376,000 | 11,400,000 |
STOCKHOLDERS' EQUITY: | ||
Preferred stock - No par value; authorized 10,000,000 | ||
shares; issued and outstanding, none | -0- | -0- |
Common stock - $.10 par value; auth. 50,000,000 shs; | ||
issued and outstanding, 3,655,266 shs | 366,000 | 366,000 |
Additional paid-in capital | 15,578,000 | 15,578,000 |
Accumulated (deficit) | (15,070,000) | (15,184,000) |
Accumulated other comprehensive (loss) | (415,000) | (415,000) |
TOTAL STOCKHOLDERS’ EQUITY | 459,000 | 345,000 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $24,610,000 | $23,980,000 |
The accompanying notes are an integral part of these statements.
#
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (CONDENSED)
FOR THE PERIODS ENDED
(Unaudited)
Six Months June 30, 2002 | Six Months July 1, 2001 | Three Months June 30, 2002 | Three Months July 1, 2001 | |
Net Sales | $13,996,000 | $11,365,000 | $7,156,000 | $5,269,000 |
Costs and Expenses: | ||||
Cost of products sold | 12,101,000 | 9,707,000 | 5,866,000 | 4,528,000 |
Selling, distribution & administrative | 1,650,000 | 1,221,000 | 898,000 | 608,000 |
Total costs and expenses | 13,751,000 | 10,928,000 | 6,764,000 | 5,136,000 |
Operating income | 245,000 | 437,000 | 392,000 | 133,000 |
Non-operating (income)/expense: | ||||
Interest expense | 282,000 | 231,000 | 149,000 | 98,000 |
Other non-operating (income) | (155,000) | (160,000) | (136,000) | (140,000) |
Total non-operating (income)/expense | 127,000 | 71,000 | 13,000 | (42,000) |
Earnings before income taxes and extraordinary loss | 118,000 | 366,000 | 379,000 | 175,000 |
Income taxes | 4,000 | -0- | 2,000 | -0- |
Earnings before extraordinary loss | 114,000 | 366,000 | 377,000 | 175,000 |
Extraordinary (loss) | -0- | (124,000) | -0- | -0- |
Net income | $ 114,000 | $ 242,000 | $ 377,000 | $ 175,000 |
Weighted Average Common Shares Outstanding at June 30, 2002: | ||||
Basic | 3,655,266 | 3,655,266 | 3,655,266 | 3,655,266 |
Diluted | 3,655,975 | 3,709,063 | 3,655,266 | 3,709,063 |
Earnings Per Common Share - Basic: | ||||
Earnings before extraordinary (loss) per common share | $ 0.03 | $ 0.10 | $ 0.10 | $ 0.05 |
Extraordinary (loss) per common share | 0.00 | (0.03) | 0.0 | 0.00 |
Net income per common share - basic | $ 0.03 | $ 0.07 | $ 0.10 | $ 0.05 |
Earnings Per Common Share - Diluted: | ||||
Earnings before extraordinary (loss) per common share | $ 0.03 | $ 0.10 | $ 0.10 | $ 0.05 |
Extraordinary (loss) per common share | 0.00 | (0.03) | 0.00 | 0.00 |
Net income per common share - diluted | $ 0.03 | $ 0.07 | $ 0.10 | $ 0.05 |
The accompanying notes are an integral part of these statements
#
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated (Deficit) | Accumulated Comprehensive Income/(Loss) | |
BALANCE – December 31, 2001 | 3,655,266 | $ 366,000 | $15,578,000 | ($15,184,000) | $(415,000) |
Net Income | -0- | -0- | -0- | 114,000 | -0- |
BALANCE – June 30, 2002 | 3,655,266 | $ 366,000 | $15,578,000 | ($15,070,000) | $(415,000) |
The accompanying notes are an integral part of these statements
#
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Six Months June 30, 2002 | Six Months July 1, 2001 | Three Months June 30, 2002 | Three Months July 1, 2001 | |
Net income & other comprehensive income | $ 114,000 | $ 242,000 | $ 377,000 | $ 175,000 |
The accompanying notes are an integral part of these statements.
#
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months June 30, 2002 | Six Months July 1, 2001 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net (Loss)/Income | $ 114,000 | $ 242,000 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Extraordinary write off | -0- | 124,000 |
Depreciation and amortization | 261,000 | 215,000 |
Provision for inventory write offs (Net) | 235,000 | 422,000 |
Changes in assets and liabilities: | ||
Accounts receivable (net trade) | (2,060,000) | (149,000) |
Other accounts receivable | 154,000 | 644,000 |
Inventories (gross) | 836,000 | (217,000) |
Accounts payable | 618,000 | (575,000) |
Accrued liabilities and other | 17,000 | (747,000) |
NET CASH PROVIDED BY/(USED IN) OPERATIONS | 175,000 | (41,000) |
CASH FLOW FROM INVESTING ACTIVITIES: | ||
Capital expenditures | (32,000) | (12,000) |
NET CASH USED IN INVESTING ACTIVITIES | (32,000) | (12,000) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Net borrowings/(payments) under revolving loan agreement | 386,000 | (1,630,000) |
Net (payments)/ borrowings on term note obligations | (232,000) | 1,154,000 |
(Payments) under long-term subordinate debt obligations | (96,000) | (95,000) |
(Payments) under long-term acquisition note obligation | (167,000) | -0- |
NET CASH USED IN FINANCING ACTIVITIES | (109,000) | (571,000) |
NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS | 34,000 | (624,000) |
CASH AND CASH EQUIVALENTS - Beginning of period | 139,000 | 691,000 |
CASH AND CASH EQUIVALENTS - End of period | $ 173,000 | $ 67,000 |
The accompanying notes are an integral part of these statements.
#
CHAMPION PARTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_________________________________________________________________
Note 1.
The accompanying financial statements for the three and six months ending June 30, 2002 and July 1, 2001 have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements and these notes should be read in conjunction with the consolidated financial statements of the Company included in the Company's Annual Report submitted on Form 10-K for the year ended December 31, 2001.
The consolidated balance sheet at December 31, 2001 has been derived from the audited financial statements at that date.
Certain amounts relating to July 1, 2001, have been reclassified to conform to the current year's presentation.
The Company previously adopted Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Following the provisions of SFAS No. 131, the Company reported two operating business segments in the same format as reviewed by the Company’s senior management. With the consolidation of the Pennsylvania and Arkansas manufacturing facilities in 2002, Management now views the previous two business segments as one.
Note 2.
The information furnished herein reflects all adjustments (consisting only of normal recurring accruals), 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 ending June 30, 2002 are not necessarily indicative of results to be expected for the entire year.
Note 3.
Inventories are valued at the lower of cost (first-in, first-out method) or market. A summary of the net inventories follows:
June 30, 2002 | December 31, 2001 | |
Raw materials | $ 3,541,000 | $ 3,526,000 |
Work-in-process | 3,317,000 | 3,265,000 |
Finished goods | 2,801,000 | 3,939,000 |
Total Inventories | $ 9,659,000 | $ 10,730,000 |
Included in inventory above were net cores of $4.2 million (June 30, 2002) and $5.1 million (December 31, 2001).
Note 4.
For reporting purposes, product and core returns are offset against gross sales in arriving at net sales. Total returns for the three months ended June 30, 2002 were $1,157,000 compared to $2,392,000 at July 1, 2002. For the six months ended June 30, 2002, total returns were $3,195,000 compared to $4,551,000 during the same period last year.
#
NOTES (Continued):
Note 5.
The income tax expense attributable to operations for the six months ended June 30, 2002 and July 1, 2001, differed from the amounts computed by applying the federal income tax rate of 34% principally as a result of tax benefits recognized related to the carry forward of net operating losses.
Note 6.
Long Term Debt - On February 8, 2001, the Company entered into a new credit facility with Congress Financial Corporation (Southern), a subsidiary of First Union Bank. Maximum credit available under the new facility is $14,000,000, including letter of credit accommodations of $1,750,000, and term loans totaling $2,913,000 on fixed assets and real properties. Interest rates on the facility are for revolving debt; bank prime (4.75% at June 30, 2002) plus 3/4 %, for term debt; bank prime plus 1%, and for letters of credit; 2% per annum on the daily outstanding balance.
The carrying amount of long-term debt (excluding the subordinated debt) approximates fair market value because the interest rates on substantially all the debt fluctuate based on changes in market rates.
A $124,000 extraordinary write-off was required when the Company entered into the new, three-year, loan facility with Congress Financial Corporation. The extraordinary write-off was for loan acquisition costs associated with securing the Bank of America loan facility in 1998. These costs were being amortized over the four-year life of that loan facility.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF RECENT EVENTS
FACILITY CLOSING