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[FORM-TYPE]10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 1-7807
________CHAMPION PARTS, INC._________
(Exact name of Registrant as specified in its charter)
Illinois
___________ 36-2088911__________
(State or other jurisdiction of
(IRS Employer Identification Number)
incorporation or organization)
2525 22nd Street, Oak Brook, Illinois 60521______________
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: 708/573-6600
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Shares, $.10 Par Value
(Title of Class)
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 by check mark if disclosure of delinquent filers
pursuant 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. [ ]
As of April 2, 1996, 3,655,266 Common Shares were outstanding and the
aggregate market value of the Common Shares held by non-affiliates of
the Registrant (based on the closing price as reported on NASDAQ) was
approximately $1,479,000. For information as to persons considered
to be affiliates for purposes of this calculation, see "Item 5.
Market for the Company's Common Shares and Related Shareholder
Matters".
PART I
Item 1. Business
Unless the context indicates otherwise, the term "Company" as
used herein means Champion Parts, Inc. and its subsidiaries.
Products
The Company remanufactures and sells replacement fuel systems
(carburetors and diesel fuel injection systems) and constant
velocity drive assemblies for substantially all makes and models of
domestic and foreign automobiles and trucks. It also remanufactures
and sells electrical and mechanical products to certain passenger
car, agricultural and heavy duty truck original equipment
manufacturers.
In 1995, the Company announced that it would be exiting the manufacture
and sale of passenger car electrical (alternators and starters) and
mechanical (clutches and water pumps) products sold to traditional
warehouse distributors and retailers. Sales of these product lines
accounted for approximately 46% of the Company's 1995 net sales.
During the fiscal years ended December 31, 1995, January 1, 1995 and
January 2, 1994, the Company's sales of parts for automobiles (including
light duty trucks) accounted for approximately 89%, 92% and 89%,
respectively, of the Company's net sales, and sales of parts for heavy duty
trucks and farm equipment accounted for approximately 11%, 8% and 11%,
respectively, of such net sales. The Company expects that the percentage
of passenger car part sales will decrease as compared to total sales in
the future.
Marketing and Distribution
The Company's products are marketed throughout the continental United
States and in a limited manner in Canada. The Company sells carburetors
and constant velocity drive assemblies to automotive warehouse
distributors, which in turn sell to jobber stores and through them to
service stations, automobile repair shops and individual motorists.
In addition, the Company sells to aftermarket retail chains that distribute
products through their stores. The Company sells electrical and mechanical
products to manufacturers of automobiles, trucks and farm equipment, which
purchase the company's products for resale through their dealers.
Of the Company's net sales in the year ended December 31, 1995,
approximately 51% were to automotive warehouse distributors; approximately
17% were to manufacturers of automobiles, trucks and farm equipment and
heavy duty fleet specialists; and approximately 32% were to retailers and
other customers.
The Company exhibits its products at trade shows. The Company also
prepares and publishes catalogs of its products, including a guide with
information as to the various vehicle models for which the Company's
products may be used and a pictorial product identification guide to assist
customers in the return of used units. The Company's salespersons and
sales agents call on selected customers of warehouse distributors which
carry the Company's products to familiarize these customers with the
Company's products and the application of its products to varied
automotive equipment.
During the fiscal year ended December 31, 1995, the four largest
customers of the Company accounted for approximately 14% (Genuine
Parts Company), 13% (Northern Automotive Corporation), 12% (APS, Inc.)
and 11% (AutoZone) respectively, of net sales, and no other customer
accounted for more than 8% of net sales. As a result of its decision
to exit the automotive electrical and mechanical product lines, the
Company no longer sells to Genuine Parts Company or Northern Automotive
and has significantly reduced its sales to APS, Inc.
The Company makes available to its customers the MEMA TransnetTM
computerized order entry system which is administered by the Motor
Equipment Manufacturers Association. The MEMA TransnetTM system enables
a customer in any area of the United States to place orders into the
Company's central computer, which transmits the orders to the Company's
plant servicing that customer's geographic area.
As of December 31, 1995, sales were made by two direct salesmen and
11 sales agencies.
The Company does not consider its business to be highly seasonal.
Typically, fourth quarter sales are lower than those in prior quarters
due to customer ordering patterns.
Materials
In its remanufacturing operations, the Company obtains used units,
commonly known as "cores". A majority of the units remanufactured by
the Company are purchased from customers as trade-ins, which are
encouraged by the Company in the sale of remanufactured units.
The price of a finished product is comprised of a separately invoiced
amount for the core included in the product ("core value") and an amount
for remanufacturing. Upon receipt of a core as a trade-in, credit is
given to the customer for the then current core value of the part returned.
The Company limits trade-ins to cores for units included in its sales
catalogs and in rebuildable condition, and credit for cores is allowed
only against purchases by a customer of similar remanufactured products
within a specified time period. A customer's total allowable credit
fotr core trade-ins is further limited by the dollar volume of the
custonmer's purchases of similar products within such time period.
In addition to allowing core returns, the Company permits warranty and
stock adjustment returns (generally referred to as "product returns")
pursuant to established policies. The Company's core return policies
are consistent with industry practice, whereby remanufacturers accept
product returns from current customers regardless of whether the
remanufacturer actually sold the products. the Company has no
obligation to accept product returns from customers that no longer
purchase from the Company.
Other materials and component parts used in remanufacturing, and some
cores, are purchased in the open market. When cores are not available in
sufficient supply for late models of automobiles, trucks and farm
equipment or for foreign model automobiles, new units sometimes are
purchased and sold as remanufactured units. To market a full line of
products, the Company also purchases certain remanufactured and new
automotive parts which it does not produce.
Patents, Trademarks, Etc.
The Company has no material patents, trademarks, licenses, franchises
or concessions.
Backlog
The Company did not have a significant order backlog at any time during
the fiscal years 1995 or 1994.
Competition
The remanufactured automotive parts industry is highly competitive as
the Company competes with a number of other companies (including certain
original equipment manufacturers) which sell remanufactured automotive
parts. The Company competes with several large regional remanufacturers
and with remanufacturers which are franchised by certain original equipment
manufacturers to remanufacture their products for regional distribution.
The Company also competes with numerous remanufacturers which serve
comparatively local areas. In addition, sales of remanufactured parts
compete with sales of similar new replacement parts. Manufacturers of
kits used by mechanics to rebuild carburetors may also be deemed to be
competitors of the Company.
The Company competes in a number of ways, including price, quality,
product performance, prompt order fill, service and warranties.
The Company believes its technical expertise in the niche product
lines it sells has been an important factor in enabling the Company
to compete effectively.
Engineering
Each of the Company's main product lines are supported by product
engineer(s). Engineers participate in product planning, product line
structuring, cataloging and engineering of the Company's products and
in developing manufacturing processes. The primary activities of the
engineers are improving the quality of existing products, formulating
specifications and procedures for adapting particular remanufactured
products for use on makes and models of vehicles in addition to those
for which originally designed, converting cores from earlier makes and
models for use on later models and developing specifications, supplies
and procedures for remanufacturing additional products.
The Company maintains a Director of Quality who conducts periodic
quality audits of the Company's plants under its quality improvement
program to test product quality and compliance with specifications.
The Company believes such activities improve the Company's ability to
serve the needs of its customers. The engineers also design and build
new tools, machines and testing equipment for use in all the Company's
plants, and develop specifications for certain components manufactured
by the Company for use in its remanufacturing operations. The engineers
design and test new methods of reassembling components and cleaning parts
and cores.
Environmental Matters
The Company is subject to various Federal, state and local environmental
laws and regulations incidental to its business. The Company continues to
modify, on an ongoing basis, processes that may have an environmental
impact. Management believes that the effects of compliance with
environmental laws that have been enacted or adopted will not have a
material effect on capital expenditures, earnings or competitive position.
See Item 3, Legal Proceedings - Environmental Matters for additional
discussion.
Employees
As of December 31, 1995, the Company employed approximately 495 persons,
including 62 salaried employees at corporate headquarters and plant
locations; and approximately 433 production, warehouse and maintenance
employees all of whom were subject to union collective bargaining
agreements.
The Collective Bargaining Agreement between the Company and the United
Auto Workers at the Company's Hope, Arkansas facility expired on
April 26, 1991. At the expiration of the contract, the Company
implemented its final offer with respect to workers at the facility.
The union went on strike effective September 4, 1991. Since the
commencement of the strike, the plant has been operating with employees
who opted to continue working, as well as with permanent replacements.
There have been no significant interrups in production as a result of the
strike, and management anticipates no significant interruptions
in the future as a result of the strike.
The Collective Bargaining Agreement between the Company and the
International Brotherhood of Electrical Workers at the Company's
Pennsylvania facilities was renewed for a three year term beginning
September 1, 1993.
Item 2. Properties
The Company's corporate headquarters are located at 2525 22nd Street,
Oak Brook, Illinois, a one-story building which has approximately
91,500 square feet of space, and was leased under a sublease which
expired in February 1996. The Company has continued to sublease 6,000
square feet of office space at that location under a lease which expires
in February 1997. The facility houses the Company's corporate office
functions, including administration, finance, and data processing.
The following table sets forth certain information with respect to each
of the Company's remanufacturing, warehousing and service facilities other
than the corporate headquarters:
Warehouse Remanufacturing
Area Area
Location (sq. ft.) (sq. ft.)
OWNED:
Fresno, California 50,000 110,000
Lock Haven, Pennsylvania --- 50,000
Beech Creek, Pennsylvania 40,000 160,000
HELD UNDER INDUSTRIAL
REVENUE FINANCING ARRANGEMENTS:
Lock Haven, Pennsylvania --- 55,000
Hope, Arkansas 55,000 221,000
LEASED:
Maple, Ontario,
Canada 30,000 16,000
Hope, Arkansas 18,000 ---
In connection with the Company's plant consolidation plan announced in
March, 1994, the facilities in Lock Haven, Pennsylvania are currently
idle. It is the Company's present intention to sell these properties.
The Company's Fresno, CA plant continues to distribute fuel system and
front wheel drive assembly products. However, the Company has offered
the facility for sale.
The Company's plants are well maintained and are in good condition and
repair. A substantial portion of the machinery and equipment has been
designed by the Company for its particular purposes and, in many
instances, has been built by it.
Item 3. Legal Proceedings
Environmental Matters
Spectron/Galaxy Site
The Company was notified in 1989 by the United States Environmental
Protection Agency ("EPA") that it was a "potentially responsible party"
("PRP") with respect to the removal of hazardous substances from the
Spectron, Inc. site in Elkton, Maryland (the "Spectron Site").
The Company has admitted to sending about 102,000 gallons of liquid
substances to the Spectron Site. There are about 30 million gallons of
materials sent to the site that have been accounted for.
A PRP Group known as the Spectron Steering Committee ("SSC") was formed
and in August, 1989, an Administrative Order by Consent ("Phase I Order"),
authorizing the SSC to conduct the surface removal, and a Consent
Agreement under which the PRPs became obligated to reimburse the EPA for
its past costs in connection with the site, were entered into by the EPA
and approximately ten PRPs, including several major industrial corporations.
The Company entered into an agreement with the Company's waste
transporter, which selected the Spectron Site, pursuant to which the
transporter paid one-half of the cost attributed to surface removal
for the Company's waste sent to the Spectron Site. The Company has
paid approximately $17,000 for its portion of the removal.
On September 20, 1995, EPA notified the Company (along with several
hundred other companies) of potential liability for response actions
at the Spectron Site. The EPA letter asks the Company and the other
PRPs to negotiate with EPA for their performance of a remedial
investigation/feasibility study at the Spectron site.
In addition to the EPA letter, the Company received a letter from a
group of other PRPs at the Site. Based on the allegations on the
quantity of materials sent to the Spectron Site from the Company,
the allegations on materials sent to the Spectron Site by other PRPs,
and the Steering Committee PRPs' prediction of total costs of
investigation and cleanup at the Spectron Site, the Company's share of
the liability would be approximately $158,000. This amount would be
payable over several years. In addition, the Steering Committe PRPs
appear to be offering a quick de minimis settlement option. Pursuit of
the de minimis settlement option would cost the company $229,471 to
$305,961, depending on reopener provisions.
The Company has demanded defense and indemnity from its insurance
carriers for any liability at the Spectron Site. The Company plans to
vigorously pursue its claims against its insurance carriers. Further,
the Company believes that its former solvent supplier and waste solvent
transporter is responsible for a share of any liability the Company
incurs for the Spectron Site cleanup.
Fort Smith, Arkansas
Until 1984 the Company operated a leased facility in Fort Smith,
Arkansas. The lessor was a trust for the benefit of, among others,
members of the Gross family, including two present directors of the
Company. In 1989, the Company, along with the owner of the property,
retained a consultant to perform a limited environmental investigation.
The preliminary investigation revealed the possibility of soil
contamination, consisting of petroleum hydrocarbons and heavy metals.
The results of this limited investigation warrant further investigation.
The Company may have liability for environmental conditions at the
property. Until a more extensive investigation is conducted, the
Company cannot evaluate the extent of the contamination or the
appropriate remedial response, if any, or the ultimate cost of responding
to the contamination.
Double Eagle Site, Oklahoma City
In 1991, the Company received an information request from the EPA under
CERCLA with respect to the Double Eagle site to which it responded.
Information available to the Company indicates that the facility recycled
used oil into finished lubricating oil, and began operating as early as
1929. The Double Eagle site has been identified as a wetland, and the EPA
has placed the site on the National Priorities List.
The Company has not yet received any general or special notice letters
indicating that the EPA views it as a potentially responsible party at
this site. In 1992 conversations with the Assistant Regional Counsel
of the EPA, it was indicated that the EPA did not view the Company as a
major contributor of waste to the site and that most of the contamination
at the site had occurred prior to 1985. The Company's records indicate
that it began shipping waste mineral spirits and blend oil to Double Eagle
in 1985 and continued shipments until 1988.
At this time no formal proceedings have been initiated by the EPA
against the Company, and the Company has not paid, nor has it been billed
for, any amount. The Company cannot estimate the liability, if any,
which might result with respect to the Double Eagle Site, and believes
that it may qualify for treatment as a de minimis party.
City of Industry, California
In June, 1992, the Company was notified that contamination was
discovered in soil at a site at 825 Lawson Street, City of Industry,
California at which the Company conducted operations from 1969 to 1981.
Solvents of the type used by the Company in its operations had impacted
the soil and shallow groundwater at the site. These same solvents are
found in the soil and groundwater at numerous other sites in the City of
Industry and surrounding Puente Valley. To date, the Company's response
to the matter has been one of cooperation with the authorities and other
potentially responsible parties.
The potentially responsible parties with respect to the 825 Lawson
Street property are the Company, the current landowner, another prior
operator at the site, and a prior landowner. The Company, the other
prior operator and the prior landowner ("The 825 PRP group") have
conducted a subsurface investigation of the site at the request of the
California Regional Water Quality Control Board (the "Water Board"),
a state agency to which the EPA has delegated CERCLA enforcement
authority for any soil contamination at this site. The site assessment
completed in July, 1994, revealed volatile organic compounds in the
soil and shallow groundwater beneath the Lawson Street property.
The Water Board has not yet responded to the Site Assessment Report, but
the Water Board has indicated it will require cleanup of the property.
It is too early to predict the cleanup methodology to be required by the
Water Board, or the cost of the cleanup. The Company has interviewed
consultants who have proposed cleanup approaches, however, which would
cost in the range of $500,000 to $750,000. There is no agreement between
the 825 PRP group to share the remediation costs. The 825 PRP group is
actively pursuing the current property owner for its share of the cleanup
costs. Under the Cost Sharing Agreement with the other two parties who
funded the Site Assessment Report, the Company paid one-third of the cost.
On a related matter, in April, 1993, the Company was named by the EPA as
one of 57 potentially responsible parties from whom the EPA would solicit
an offer to investigate and clean up groundwater contamination in the
Puente Valley operable unit of the San Gabriel Valley, where the City of
Industry is located. The other three 825 Lawson parties referred to above
also received this "special notice" letter. The Company, the other prior
operator and the prior land owner have joined the Puente Valley Steering
Committee ("PVSC"), which includes approximately 42 of the special notice
recipients. The group's members include several large industrial
corporations.
On September 30, 1993, this group of potentially responsible parties
entered into an administrative Consent Order (the "Consent Decree") with
EPA, pursuant to which the participants would perform a remedial
investigation and feasibility study (RI/FS) for the Puente Valley operable
unit. The participants also executed an allocation agreement covering the
payments required by the Consent Decree, under which the 825 Lawson Street
property was assigned approximately 3.75 percent of the cost. The Company
has agreed to pay one-third of this amount.
The Company was responsible for paying approximately $50,000 toward the
RI/FS, most of which was reimbursed by the Company's insurance carriers.
While it is too early to know if cleanup of the Puente Valley aquifer
will be required, or the cost of any cleanup, the investigation work to
date does set forth possible alternatives and associated costs. Based
on a report submitted to the EPA in 1995, the estimates for the cost for
the various alternatives range from $1.9 million to $19 million total
cleanup costs, payable over approximately 10 years. It is impossible
to predict the Company's ultimate share of the potential cleanup costs.
Beech Creek, Pennsylvania TCE Contamination
In May, 1991 the Pennsylvania Department of Environmental Resources
(PADER) notified the Company that there was evidence of trichloroethylene
and trichloroethane in the soil, and possibly the groundwater under the
Company's Beech Creek facility. PADER requested that the Company conduct
an investigation to determine the source and extent of the contamination,
and perform any required cleanup.
The Company retained a qualified environmental consultant to prepare a
site investigation plan. In June of 1992, PADER approved the investigation
plan. The plan included extensive soil testing and ground water
monitoring. The consultant has now completed the investigation and
reported the findings to PADER.
Cleanup has now commenced at the Beech Creek plant. Cleanup consists of
the venting of volatile organic gases from soil, and the pumping and
treating of groundwater. While there are always uncertainties in
predicting future cleanup costs, the Company's consultant has predicted
cleanup costs will be approximately $72,000 during 1996, and approximately
another $6,000 per month of operation thereafter. The consultant
currently is unable to predict how long the groundwater pump and treat
system will have to operate.
The Company is, therefore, presently considering alternative approaches
to the Beech Creek remediation. An alternative approach of excavating
and disposing of contaminated soil offsite would provide quicker cleanup
of both soil and groundwater, and cost between $451,000 and $537,000,
according to environmental consultants. Of this cost, approximately
one-half would be incurred up front, and the remainder would be incurred
over a five year period.
Insurance Coverage Litigation
The Company has filed a complaint in Illinois State Court, in DuPage
County, against its insurance carriers for a declaration that the
insurance carriers are liable for all the Company's defense, investigation
and cleanup costs at the Beech Creek, City of Industry, Puente Valley and
Spectron sites.
In February 1995, the Company entered into a partial settlement
agreement with certain carriers regarding payment of past defense costs
through January, 1995 and certain future defense costs through
November, 1995 with respect to the Beech Creek and City of Industry sites.
The Company received approximately $300,000 in reimbursement from the
carriers in 1995 under this agreement. The Company has agreed to
temporarily stay future litigation against the insurers on
indemnification costs pending additional developments at the site.
Summary
Although the ultimate outcome of its environmental matters is not
determinable, given the Company's current financial condition management
believes that the resolution of these matters could have a material impact
on the Company's financial condition and operating results.
Other Litigation
The Company is a defendant in four lawsuits from trade creditors and two
former insurance providers seeking payment of outstanding amounts. Other
trade vendors have asserted that they may take legal action to collect
outstanding balances. Should the Company not be successful in defending
itself against these lawsuits or other lawsuits subsequently filed, it
would not have sufficient unsecured assets to satisfy these claims.
See Management's Discussion and Analysis Part II, (Item 7) for further
discussion of the company' financial condition.
Item 4. Submission of Matters to a Vote of Shareholders
On November 16, 1995 the Company held its Annual Meeting of
Shareholders. The shareholders elected directors of the Company to serve
until the next Annual Meeting at which directors are elected. The
following table lists the nominees elected and the respective voting
results.
Nominee Affirmative Vote Negative Vote Abstentions
Thomas W. Blashill 3,075,002 0 229,455
John R. Gross 3,076,865 0 229,218
Raymond F. Gross 3,076,764 0 229,319
Gary S. Hopmayer 3,063,426 0 242,189
Barry L. Katz 2,474,561 0 830,064
Edward R. Kipling 3,081,663 0 228,218
Raymond G. Perelman 2,476,268 0 828,615
There were 349,319 shares not voted.
The shareholders also voted on the adoption of the Champion Parts, Inc.
1995 Stock Option Plan. The results of the voting were 3,048,260
affirmative votes, 228,830 negatives votes and 28,857 abstentions.
PART II
Item 5. Market for the Company's Common Shares and Related
Shareholder Matters
The Company's Common Shares are traded on The NASDAQ Small Cap Stock
Market under the symbol "CREB". As of April 3, 1996, there were 823
holders of record of the Company's Common Shares. This number does not
include beneficial owners of Common Shares whose shares are held in the
name of banks, brokers, nominees or other fiduciaries.
The information appearing in the following table on the range of high
and low trade prices for the Company's Common Shares was obtained from
NASDAQ quotations in the NASD's Monthly Statistical Reports.
Fiscal Fiscal
Year Year
December 31, 1995 January 1, 1995
Quarter Low High Low High
Ended: Price Price Price Price
March 31 3-1/8 3-5/8 3-3/4 4-5/8
June 30 7/8 1-1/2 2-7/8 4-1/2
September 30 3/4 1-1/8 4 5
December 31 1/4 5/8 3 4-5/8
Under the Company's amended and restated credit agreement, the Company
is not permitted to pay dividends.
Only for purposes of the calculation of aggregate market value of the
Common Shares held by non-affiliates of the Company as set forth on the
cover page of this report, the Common Shares held by Echlin Inc.,
RGP Holding, Inc., the Company's Employee Stock Ownership Plan and
Profit Sharing and Thrift Plan, and shares held by members of the families
of the children of Elizabeth Gross, the mother of two of the Company's
directors, were included in the shares held by affiliates. Certain of
such persons and entities may not be affiliated.
Item 6.
Selected Financial Data (Note 1)
(Data in thousands, except per share data)
1995 1994 1993 1992 1991
NET SALES (Note 2) $52,954 $95,337 $100,040 $96,743 $111,741
COSTS AND EXPENSES:
Operating costs (Note 3) 69,454 99,050 95,769 103,923 108,501
Interest - net 2,339 2,423 2,282 2,248 3,397
Sub Total 71,793 101,473 98,051 106,171 111,898
EARNINGS (LOSS) BEFORE INCOME
TAXES AND
EXTRAORDINARY ITEM (18,839) (6,136) 1,989 (9,428) (157)
INCOME TAXES (BENEFIT) 1 (297) 176 (1,644) 77
EARNINGS (LOSS) BEFORE EXTRA-
ORDINARY ITEM (18,840) (5,839) 1,813 (7,784) (234)
EXTRAORDINARY ITEM (net of
income taxes) (Note 5) (419)
NET EARNINGS (LOSS) $(18,840) $(5,839) $1,813 $(7,784) $(653)
AVERAGE COMMON SHARES OUT-
OUTSTANDING AND COMMON SHARE
EQUIVALENTS 3,655,266 3,655,266 3,655,266 3,655,266 3,655,266
EARNINGS (LOSS) PER COMMON SHARE:
Primary and fully diluted:
Earnings (loss) before
extraordinary item $(5.15) $(1.60) $.50 $(2.13) $(.06)
Extraordinary item, net of income
taxes (.12)
NET EARNINGS (LOSS) $(5.15) $(1.60) $.50 $(2.13) $(.18)
AT YEAR-END
Total assets (Note 4) $28,565 $55,312 $56,147 $59,895 $68,902
Long-term obligations
(Note 4) $701 $1,451 $19,281 $24,802 $29,332
Note 1: Results for 1992 reflect the reclassification of a foreign joint
venture.
Note 2: In 1995 the Company adopted a plan to refocus its business and exit
the manufacture and sale of passenger car electrical products.
Sales to those customers affected by the Company's announcement
accounted for approximately 56% of sales in 1995.
Note 3: Special Charges and Restructuring Charges of $1,602 in 1995,
$3,400 in 1994, and $3,223 in 1992, are included in
operating costs.Included in 1995 results are $6.1 million in
write downs of inventory due to the Company's decision to exit
certain product lines. Included in 1994 results were $2.2 million
in inventory provisions to revalue the Company's inventory.
Note 4: In 1994 and 1995, long term obligations reflect amounts due on
the bank credit agreement and other maturities. See Note 3 to
the Company's Consolidated Financial Statements.
Note 5: In November, 1991, the Company redeemed $12,160 of its
subordinated debt resulting in an extra-ordinary charge, net of
income taxes, of $419 for unamortized discount and bond
issuance costs.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Significant Developments
In 1995 the Company announced that it had adopted a plan to refocus
its business and exit the manufacture and sale of passenger car
electrical (alternators and starters) and mechanical (clutches and water
pumps) products to the traditional wholesale distributor and retail
markets in the United States and Canada. Subsequent to the announcement,
the Company's two largest customers, which did business with the Company
throughout the United States and in multiple product lines, informed
the Company that they would be changing to other suppliers for their
carburetor and constant velocity joint purcahses. Sales to the
company's two largest customers and those customers affected by the
company's announcement accounted for approximately 56% of sales in 1995.
The Company retains its carburetor and constant velocity joint product
lines and continues to supply its original equipment manufacturer
aftermarket customers.
In August the Company announced that it had come to terms with its
lending banks on an extension to its credit facility through
January 8, 1996. The extension, which supported the Company's
restructuring plan, initially provided for additional financing for
working capital and general business needs followed by a declining
facility commensurate with the Company's plan to downsize its
operations. For the additional financing, the Company granted
the banks a partial collateral interest in its Beech Creek,
Pennsylvania and Fresno, California plants limited to $2.5 million
plus accrued interest and certain other costs related to the pledged
real estate in addition to other collateral previously pledged.
In January, 1996 this agreement was extended to March 31, 1996.
The Company is currently in discussions with its banks on an
extension or replacement facility. See the Liquidity and Capital
Resources section for additional discussion on the credit extension.
The restructuring plan will have a significant impact on the Company's
future operations and financial position. The Company recorded $1.6
million in special charges in 1995 to reflect its decision. These
charges included $0.7 million in estimated write-downs of equipment,
goodwill and wind-down costs, $0.7 million in termination benefits
and $0.2 million in estimated costs related to contractual
liabilities. It also wrote down inventory approximately $6.1
million to estimated net realizable value in connection with this
decision. These provisions are necessarily estimates based on the
Company's judgment at this time. Adjustments to these provisions
may be necessary in future periods based on further development of
restructuring related costs.
The Company's equity has been reduced to a $2.9 million deficit on
December 31, 1995, due to losses from operations and special charges
related to its decision. The Company reduced its bank and other
debt by $7.3 million in 1995 due to funds generated from the overall
reduction of working capital, sales of discontinued inventory, and
collections on accounts receivable without replacement sales. The
Company's trade accounts payable decreased $0.9 million in 1995
primarily due to payments in the first quarter of 1995 without
replacement purchases. However, since April there has been no
significant change in trade debt as the Company has been paying
only for current purchases. The Company intends to discuss plans
with its creditors in 1996 to restructure its outstanding debts.
Given the Company's current operating levels, there can be no
assurance that the Company will be able to generate sufficient
funds from operations, asset sales and collections to cover
continuing operations and wind-down costs and satisfy debt
obligations or that it will be able to restructure outstanding
debt in a manner satisfactory to its creditors.
1995 Compared to 1994
Net sales for 1995 were $53 million, 44% less than net sales
of $95.3 million for 1994. The Company experienced lower sales in all
of its major product lines due to its decision to exit the sale of
passenger car electrical and mechanical products to traditional
warehouse distributors and retailers. The Company also lost its
two largest carburetor customers in the third quarter and two large
constant velocity customers in the second and third quarters. Sales
to the customers affected by the Company's decision accounted for
approximately 56% of 1995 sales. The Company began to experience
higher product and core returns at the end of the second quarter,
which are reflected as deductions to net sales, as lost customers
made final returns in a period of declining sales. Total product
and core returns, reflected as reductions in net sales, were 44%
in 1995 compared to 38% in 1994.
Carburetor sales were 35% of net sales in 1995 compared to 25%
in 1994. In the second and third quarters of 1995, the Company was
informed by two major carburetor customers that they were changing to
other carburetor suppliers. These customers accounted for 22% of 1995
net carburetor sales. However, in the third and fourth quarters another
major carburetor customer informed the Company that it was increasing
its annual carburetor purchases by approximately $5 million. This
incremental business began contributing in the fourth quarter of 1995
and first quarter of 1996. The Company believes it continues to be a
significant supplier of carburetors to the aftermarket. Since the
mid-1980's, carburetors have been installed in fewer new vehicles
sold in the United States due to the increased use of fuel injection
systems. However, the Company continues to sell replacement units
for older vehicles, many of which use carburetors. The Company
expects that carburetor sales will decline in future years. In
addition, carburetor margins may be negatively impacted in the
future as customers seek to return product during periods of
declining demand. The Company has a customer product return policy
to mitigate this effect. The Company has also established reserves
against expected future declinig core values.
At the end of the first quarter of 1995, one of the Company's primary
constant velocity joint customers changed to a competitor. The other
primary constant velocity joint customer, which was the Company's
largest customer, changed to a competitor in the third quarter of
1995 as disclosed above. These customers accounted for approximately
65% of 1995 constant velocity joint net sales and 3% of total 1995
net sales. The Company is making efforts to replace this business
with new customers. The Company anticipates continued overall market
volume growth in the constant velocity joint product line as the
number of front wheel drive vehicles entering the prime repair age
increases. However, there can be no assurances the Company will be
able to replace the lost constant velocity joint business.
Cost of products sold was 106% of net sales in 1995 compared to 84.4%
in 1994. The Company experienced labor inefficiencies and underabsorbed
plant overhead costs resulting from the 45% decrease in 1995 unit volume
as compared to 1994. 1995 cost of products sold were also impacted by
$6.1 million in inventory write-downs as described above. In 1994,
cost of products sold was impacted by $2.2 million of fourth quarter
provisions to reflect adjustments to the Company's constant velocity
drive assembly inventory and a change in inventory management practices.
Selling, distribution and administrative expenses were $11.9
million in 1995 compared to $15.2 million in 1994. The Company
recorded $0.7 million in legal and professional fees related to a
proposed equity infusion in the first quarter and the restructuring
plan and bank credit agreement in the second quarter of 1995.
These expenses offset decreases in distribution costs due to lower
unit sales and in selling and administrative costs resulting from
1995 headcount reductions.
1995 results reflect a $1.6 million pretax special charge to
earnings reflecting the Company's decision to exit the manufacture
and sale of passenger car electrical and mechanical products to
wholesale distributors and retailers. In 1994 the Company reported
a $3.4 million pretax charge reflecting a plan to consolidate plant
capacity.
Interest expense was $2.3 million in 1995 and $2.4 million in
1994. Lower average outstanding borrowings in 1995 were offset by
a 2% increase in the rate the Company's banks charged the Company
since April 1995. The Company did not record any tax benefit on
1995 losses due to limited carryback availability.
The net loss for 1995 was $18.8 million versus $5.8 million
loss in 1994.
1994 Compared to 1993
Net sales for the year ended January 1, 1995 (referred to as
"1994") were $95.3 million or $4.7 million (4.7%) less than net sales
for the year ended January 2, 1994 (referred to as "1993") of
$100 million. In the fourth quarter of 1993, the Company experienced
a significant decrease in sales volume compared with prior quarters.
This lower volume continued throughout 1994. The decreased sales
resulted primarily from lower sales to existing automotive and one heavy
duty customers.
The Company's carburetor sales volume in 1994 was higher than
that in 1993. Sales of the Company's automotive and heavy duty
electrical products (starters, alternators and generators) and
mechanical products (water pumps and clutches) were lower in 1994
than in 1993. The Company's sales of front wheel drive constant
velocity joints increased significantly during the year, primarily as
a result of volume from initial stocking orders for new customers.
Product and core returns, reflected as reduction in net sales,
were 38% in 1994 and 40% in 1993.
Net carburetor sales were $23.9 million in 1994 versus $21.9
million in 1993. Carburetor sales represented approximately 25% of
net sales for 1994 compared to 22% in 1993. The increase in carburetor
sales in 1994 was due to the Company increasing its market share as
the number of competitors in the carburetor market decreased.
Costs of products sold were 84.4% of net sales in 1994 compared
to 79.1% in 1993. 1994 results were significantly impacted by
a $2.2 million fourth quarter provision to revalue the Company's
inventory. Of this incremental provision, approximately $1 million
related to an adjustment to the Company's constant velocity joint
inventory to reflect current estimated values. Because of improved
inventory management systems initiated in the second half of the year,
the Company was able to more definitively evaluate this inventory
in the fourth quarter. The remainder of the inventory provision
was recorded to reflect a change in the Company's management of
component and core inventories which should result in carrying
lower quantities than it historically has.
Overall margins were negatively impacted during the year due
to the lower sales volume and related lower absorption of manufacturing
overhead costs. Modestly favorable labor costs in the fourth quarter,
attributed to the efficiencies gained from the plant consolidation,
somewhat offset increases in material costs during the year which
resulted from procuring higher cost components to satisfy demand for
late model applications.
Also negatively impacting the Company's margins during the year
was a significant decrease in sales to a customer in the high margin
heavy duty product line. These losses were only partially offset by an
increase in carburetor and late model sales.
Selling, distribution and administrative expenses decreased
$1.4 million (8.4%) to $15.2 million in 1994 from $16.6 million in 1993.
Lower distribution and selling costs resulting from lower sales volume
and reductions in discretionary spending were the primary items
affecting the decrease.
In the first quarter of 1994, the Company recorded a pretax
special charge of $3.4 million to reflect a plan to consolidate
manufacturing capacity. Of the total charge, $2.5 million related to
reserves for personnel and plant closure costs and $0.9 million
related to write-downs of property, plant and equipment. The Company
charged approximately $1.8 million to reserves for actual personnel
and plant closure related costs during 1994.
Interest expense was $2.4 million in 1994 compared to $2.3
million in 1993. The increase reflected higher average borrowings
and increases in variable interest rates.
The Company's effective tax rate was a 5% benefit in 1994
versus a 9% provision in 1993. The Company was not able to benefit
from the 1994 losses due to limited tax carryback availability.
In 1993 the effective tax rate was lowered due to utilization of net
operating loss carryforwards and recognition of deferred tax assets
not previously recognized.
Factors Which May Affect Future Results
This annual report contains forward looking statements that are
subject to risks and uncertainties, including but not limited to the
following.
The Company expects the existing over-capacity in the automotive
aftermarket and consolidation within its distribution channels to cause
continued selling price pressure for the foreseeable future. The
present competitive environment is causing change in traditional
aftermarket distribution channels resulting in retailers gaining
additional market presence at the expense of traditional wholesalers.
In response, the Company has diversified its customer base and
currently serves all major segments, including automotive warehouse
distributors and jobbers, original equipment manufacturers of
automotive equipment and large volume automotive retailers. The
anticipated decline in sales from the profitable carburetor product
line over the longer term will impact future results. The Company
will seek to offset these impacts through development of niche
product markets, improvements in its manufacturing processes and
cost containment with a strong focus on capacity utilization.
The Company had three customers which accounted for an
aggregate of 39% of the Company's total sales in 1995. The Company
does not currently sell to the top two customers which accounted
for 27% of 1995 sales and significantly reduced sales to the third
largest customer which accounted for another 12% of 1995 sales.
Given the Company's current financial condition and its
manufacturing cost structure, the loss of a significant portion of
the sales to its remaining customer base could have a materially
adverse impact on the Company's results and could affect the Company's
ability to remain a going concern.
The Company's credit agreement expired March 31, 1996.
The Company is in dicussions with its banks on an extension or
replacement facility. The banks have continued to fund the Company
under terms of the prior agreement. There is no assurance that the
banks will continue to fund the Company nor is there assurance that
the Company can secure a new facility with its banks. If the Company
cannot obtain a new facility from its current banks or other sources,
it would have to consider other alternatives, including legal protection
from creditors.
The Company deferred payment on a significant amount of trade
debt as a result of a proposed equity infusion transaction failing to
take place in April 1995, the resulting default by the Company of its
bank debt and the Company's negative cash flow from operations.
Several trade creditors have initiated legal actions against the
Company seeking payment. Currently, the Company does not have the
financial wherewithal to satisfy trade liabilities with unsecured
assets and operating cash flow. It intends to discuss plans with its
trade creditors in 1996 to restructure these outstanding debts. If
the Company is not successful in defending itself in the current
litigation or in obtaining a satisfactory restructuring plan with
its trade creditors, it may have seek legal protection. The
Company believes this action could have a material adverse impact on
its results from operations due to increased legal and professional fees
and possible loss of business.
While the Company has established reserves for potential
environmental liabilities that it believes to be adequate, there can
be no assurance that the reserves will be adequate to cover actual costs
incurred or that the Company will not incur additional environmental
liabilities in the future. See "Legal Proceedings" for additional
information.
Accordingly, actual results may differ materially from those
set forth in the forward looking statements. Attention is also
directed to other risk factors set forth in documents filed by the
Company with the Securities and Exchange Commission.
Liquidity and Capital Resources
Working Capital
Working capital at December 31, 1995, was ($11.2) million,
down from $5.6 million at the end of 1994. This decrease was primarily
attributable to operating losses and inventory write downs.
Accounts receivable at the end of 1995 were $4.7 million,
down $8.2 million, or 63%, from the previous year-end balance of
$12.9 million. The decrease was directly attributable to the lower
sales volume in 1995 as the Company exited certain product lines and
collected receivables from discontinuing customers.
Inventory at the end of 1995 decreased to $10.7 million,
from $26.9 million at the end of the prior year as the Company reduced
overall inventory levels, particularly in its discontinued product
lines, and wrote down the value of remaining discontinued products to
net realizable value.
Accounts payable and interest and other accrued expenses
decreased $1.2 million as a result of the decline in business
activities.
Debt
In January 1996, the Company amended its bank credit agreement
to extend its maturity until March 31, 1996; reduce loan commitment
levels to $11.5 million at January 31, 1996 and $9.8 million at
February 29, 1996; and set certain prospective financial covenants.
The banks have a security interest in accounts receivable, inventories,
equipment, certain real estate and certain other assets. The Company
agreed to pay interest on outstanding borrowings at the Prime Rate
plus 3-1/2% and an annual commitment fee of 1/2% of the facility.
At December 31, 1995, the Company had available $12.1 million
under the Company's credit agreement of which $11.5 million was borrowed.
The Company has been in default of various covenants of its
bank credit agreement and, by cross default, reimbursement agreements
supporting letters of credit throughout 1995 and to date in 1996.
The Company's banks had agreed to forebear from declaring a default on
the Company's credit facility through March 31, 1996. The Company is
currently in discussion with its lending banks regarding an extension of
the credit agreement. The banks have continued to fund the Company
under the terms of the prior agreement. There can be no assurance
the banks will continue to do so. In addition, there can be no
assurances that the Company will be able to secure a new facility
with the banks. As a result, the Company has reflected outstanding
amounts under the credit agreement and a $1,500,000 capitalized
lease obligation as current maturities in its 1995 financial
statements. If the Company is not able to obtain a new facility,
it will have to consider other alternatives, including legal
protection from creditors.
Without an extension of the current credit agreement or a
replacement facility, the Company would not have sufficient funds to
pay its debts should the lenders demand payment and would not be able
to continue as a going concern.
The Company is also indebted to various unsecured creditors,
including current and former trade vendors. Given the Company's
current financial situation and the lack of a long-term financing
agreement, it currently does not have the ability to pay these debts
should the creditors demand payment. It is the Company's intention to
begin discussions with these creditors on an agreement to restructure
these obligations. There can be no assurances that the Company and
its creditors will be able to reach an agreement.
The Company's financial statements have been prepared on a
going concern basis and do not contain adjustments which may be
necessary should the Company be forced to liquidate assets or take
other actions to satisfy debt payments or discontinue its business.
The Company made a $100,000 payment on a final installment
of $200,000 on a scheduled payment to Echlin Inc. due April 8, 1995
pursuant to a promissory note agreement. Echlin Inc. has notified
the Company that it is in default on the note.
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 of bank debt with its venture partner.
As part of the 1992 restructuring charge, the Company provided a
reserve for a contingent liability to the venture's bank. In
September 1995 the Company received notice from the venture's lending
bank that it had demanded payment on its outstanding demand loans.
It also notified the Company that it was demanding payment from the
Company on its guarantee. The amount of the loan plus accrued and
unpaid interest was Canadian $1,700,000 at December 31, 1995. The
venture is in discussions with another lender on a replacement facility
and with its lending bank on continued funding until a replacement
facility can be obtained.
Cash Flow
The Company decreased its debt, net of cash, by $7.3
million in 1995, including scheduled payments of $1.2 million on
long term debt obligations. These payments and the cash required to
fund operations increased the Company's borrowings under its bank
credit facility of $2.7 million in 1995. The following summarizes
significant items affecting the change in total debt (amounts
in thousands).
December 31, January 1,
1995 1995
Net income (loss),
changes in working capital, other $ (10,921) $ (4,878)
Special Charge 1,602 3,400
Depreciation and Amortization 1,476 1,587
Capital Expenditures 122 (831)
Decrease in total debt, net of cash $ (7,721) $ (722)
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data called for
by this item are listed in the accompanying table of contents for
consolidated financial statements and financial statement schedule
and are filed herewith.
Item 9. Changes in and Disagreements with Accountants and
Accounting and Financial Disclosure
Report on Form 8-K dated November 3, 1995, reporting a change
in Certifying Accountant is hereby incorporated by reference.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors and Executive Officers of Registrant
Persons elected as directors of the Company hold office until
the next annual meeting of shareholders at which directors are elected.
The by-laws of the Company provide that officers shall be
elected by the board of directors at its first meeting after each
annual meeting of shareholders, to hold office until their successors
have been elected and have qualified.
Principal Occupation Served as
and Positions with a Director
Name (Age) the Company Since
Thomas W. Blashill (36) Director, President and CEO of the Company 1993
John R. Gross (64) Owner, Chaney Auto Parts, Inc., Crest Hill,
Illinois 1966
Raymond F. Gross (57) Vice President, Erecta Shelters, Inc.,
Ft. Smith, Arkansas;
consultant to the Company 1968
Gary S. Hopmayer (56) Director, Original American Scones, Inc., 1987
Chicago, Illinois
Barry L. Katz (44) President and General Counsel, RGP Holding,Inc. 1993
Edward R. Kipling (64) Retired 1987
Raymond G. Perelman (78) Chairman of the Board and Chief Executive 1988
Officer, RGP Holding, Inc., Philadelphia,
Pennsylvania and General Refractories
Company, Bala Cynwyd, Pennsylvania
Mark Smetana (35) Vice-President - Finance and
Corporate Secretary
Richard B. Hebert (55) Treasurer of the Company
Mr. Blashill joined the Company in August, 1992 as Director of
Financial Operations. He has held the position of President and CEO
from September 1995. From March 1993 to September 1995, he was
Executive Vice President, Secretary and Treasurer. He was Vice
President and Treasurer of Washington Steel Corporation from 1991
to 1992. He was Director of Finance of Washington Steel Corporation
from 1988 to 1991.
Mr. John R. Gross is currently the owner of Chaney Auto Parts,
Inc., a retailer of auto parts. John R. Gross is the brother of
Raymond F. Gross.
Mr. Raymond F. Gross has been the Vice President of Erecta
Shelters Inc., a manufacturer and distributor of metal buildings,
since 1985. He has also been a consultant to the Company since
June, 1984. Prior to June, 1984 he was a Vice President of the Company.
Raymond F. Gross is the brother of John R. Gross.
Mr. Hopmayer was President of Original American Scones, Inc.,
a privately owned specialty baker, from 1987 to 1993. He is currently
a Director of Original American Scones, Inc. Prior to that time he
was President of Mega International, Inc. a manufacturer and
distributor of automotive electrical parts. Mega International, Inc.,
founded by Mr. Hopmayer, was sold to Echlin Inc. in October, 1986.
Mr. Katz has served as a director of the Company since
December 1993. From December 16, 1992 to January 19, 1993 he held
the position of Senior Vice President of the Company. Since 1993
Mr. Katz has been President and General Counsel for RGP Holding,
Inc., and its operating subsidiaries, and was its Senior Vice
President and General Counsel since May 1992. From March 1990
to 1994, he served as Senior Vice President and General Counsel
for General Refractories Company, and since that time has been
its President.
Mr. Kipling was Vice President and General Manager of the
Rayloc Division of Genuine Parts Company, a remanufacturer of
automotive parts, for more than five years prior to January, 1987,
and has since been retired.
Mr. Perelman had served as Chairman of the Board from
December 16, 1992 until November 1995 and was President and Chief
Executive Officer from December 16, 1992 to January 19, 1993.
He has been Chairman of the Board of RGP Holding, Inc., a
privately-held holding company with subsidiaries operating in
manufacturing businesses, since May 1992. Since 1985, he was
the Chairman of the Board and Chief Executive Officer of General
Refractories Company.
Mr. Smetana joined the Company in July 1993 as its Director
of Finance and Corporate Controller. In September 1995 he was
appointed to Vice President - Finance and Secretary. Prior to
joining the Company, Mr. Smetana held a number of positions
with Arthur Andersen LLP.
Mr. Hebert was appointed Treasurer of the Company in
September 1995. He joined the Company in 1977 and has held various
positions with the Company.
(b) Arrangements Concerning the Board of Directors
Except for directors who are officers of the Company,
and except as indicated below, each director received a fee
of $10,000 for service as a director during the Company's fiscal
year ended December 31, 1995. In addition, directors are reimbursed
for their reasonable travel expenses incurred in attending meetings
and in connection with Company business.
The Company has an indemnification agreement with each director
of the Company that provides that the Company shall indemnify the
director against certain claims that may be asserted against him by
reason of serving on the Board of Directors.
The Company and Raymond F. Gross, a director of the Company, are
parties to an agreement that provided for his engagement as a
consultant to the Company for the period ended December 31, 1995.
The agreement provided for annual compensation of $10,000 through
December 31, 1995 plus certain insurance and other benefits.
Mr. Gross received $7,000 in directors' fees in 1995.
Messrs. John Gross, Raymond Gross, Gary Hopmayer and Edward
Kipling served on a Special Committee of the Board which was formed
in January 1995 to, among other things, evaluate an offer by
Mr. Perelman to infuse equity into the Company. For their services,
they received $500 compensation for each meeting of the Special
Committee. There were eight meetings held through April 17, 1995.
Messrs. Hopmayer and Kipling serve as directors pursuant to
a Stock Purchase Agreement dated March 18, 1987 between the Company
and Echlin Inc. Under that Agreement, the Company agreed to nominate
not fewer than two persons designated by Echlin Inc. for director,
provided that if Echlin Inc. disposes of Common Shares of the Company,
the Company and Echlin Inc. shall modify the number of persons
designated by Echlin Inc. to be nominated by the Company. See
"Ownership of Voting Securities" below for additional information
concerning Echlin Inc. and transactions between the company and
Echlin Inc.
Mr. Katz serves as a director at the request of Mr. Perelman
and pursuant to an agreement between Mr. Perelman, RGP Holdings, Inc.
and the Company. (See Item 12, Note 2 regarding this agreement.)
ITEM 11: EXECUTIVE COMPENSATION
(a) Executive Officer Compensation and Arrangements
Executive Compensation
The following table sets forth information with respect to all
cash compensation paid to the Company's chief executive officer at
the end of the Company's 1995 fiscal year, and the two former
executive officers of the Company, whose annual compensation in
the Company's 1995 fiscal year exceeded $100,000 for services rendered
in all capacities to the Company, during the fiscal years indicated.
Annual Compensation
(a) (b) (c) (d) (e)
Name Other
and Year Salary Bonus Annual
Principal
Position # $ $ $
Thomas W. Blashill 1995 $137,126 0 ---
President and
Chief Executive Officer 1994 $128,173 0 ---
1993 $108,321 0 ---
Donald G. Santucci 1995 $124,535 0 ---
Resigned 1994 $133,300 0 ---
1993 $115,000 $70,000 ---
Long Term Compensation
Awards Payouts
(a) (b) (f) (g) (h) (i)
Name Restricted Securities LTIP All
and Year Stock Underlying Payouts Other
Principal Award(s) Options/SAR's Compen-
Position sation(2)
# $ (#) $ $
Thomas W. Blashill 1995 0 50,000 0 $700
President and
Chief Executive Officer 1994 0 0 0 $3,000
1993 0 0 0 0
Donald G. Santucci 1995 0 0 --- 0
Resigned 1994 0 0 0 300
1993 0 0 0 0
(1) The amounts for Messrs. Blashill and Santucci are
below threshold reporting requirements.
(2) The amounts reported are allocations under its Employee
Stock Ownership Plan.
(3) Mr. Santucci resigned as President of the Company in
July 1995.
(4) Mr. Blashill was elected President and CEO in September 1995.
Mr. Blashill has a severance compensation agreement with the
Company that provides for severance pay equal to six months
salary following his termination from the Company .
The by-laws of the Company provide that officers shall be
elected annually by the board of directors at its first meeting after
each annual meeting of shareholders, to hold office until their
successors have been elected and have qualified.
The Company also has an indemnification agreement with each
officer of the Company that provides that the Company shall
indemnify the officer against certain claims which may be asserted
against him by reason of serving as a officer of the Company.
Shown below is information with respect to stock options granted
during the year ended December 31, 1995.
Option Grants and Year End Values -- 1995 Option Grants
Percentage of
Option Total
Granted Options Granted Exercise
(in common to or Base Price
Name shares) Employees in 1995 per Share
Thomas W. 25,000
Blashill (a) 19% $1.00
25,000
(b) 19% $0.625
Potential
Realizable
Value at Assumed
Rates of Stock
Price Appreciation
Expiration for Option
Name Date Term ($) (c)
5% 10%
Thomas W. 08/22/00 $6,900 $15,260
Blashill 11/01/05 $6,900 $15,260
(a) The grant was made on August 22, 1995 with an exercise
price equal to the market price at that time. These
options are immediately exercisable.
(b) The grant was made November 1, 1995 with an exercise
price equal to the market price at that time. The options
vest ratably over a five year period from the grant date.
(c) Under the rules and regulations of the SEC, the potential
realizable value of a grant is the product of (i) the
difference between (x) the product of the per share
market price at the time of grant and the sum of 1 plus
the adjusted stock price appreciation rate (the assumed
rate of appreciation compounded annually over the term
of the option) and (y) the per share exercise price of
the option and (ii) the number of securities underlying
the grant at year-end. Assumed annual rates of stock
price appreciation of 5% and 10% are specified by the
SEC are not intended to forecast possible future
appreciation, if any, of the price of the shares of Common
Stock of the Company. (For example, if the price of
shares of Common Stock remained at the exercise price of
the options, (i.e. a 0% appreciation rate), the potential
realized value of the grant would be $0.) The actual
performance of such shares may be significantly different
from the rates specified by the SEC.
The following table provides certain information with
respect to the number and value of unexercised options
outstanding as of December 31, 1995. (No options were
exercised by the named executive officers during 1995.)
Aggregated 1995 Option Exercises and December 31, 1995 Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
Thomas W.
Blashill, CEO 0 0 25,000/25,000 $0/$0
All outstanding options were out of the money at
December 31, 1995.
Compensation Committee Interlocks and Insider Participation
Messrs. Perelman, Kipling and John Gross presently serve as
members of the Compensation Committee. During 1995, Calvin A.
Campbell, a former director, also served as a member of the
Compensation Committee. None of these members was an officer or
employee of the Company, a former officer of the Company, or a
party to any relationship requiring disclosure under Item 404 of
SEC Regulation S-K during 1995, except for Mr. Perelman, who
served as President and CEO of the Company from December 16, 1992
to January 19, 1993 and was Chairman of the Borad until
November 1995, and who entered into a Preferred Stock Purchase
Agreement with the Company.
On March 23, 1995, the Company entered into a Preferred Stock
Purchase Agreement (the "Agreement") with RGP Holding, Inc.
("RGP"), an affiliate of Mr. Raymond G. Perelman, a director,
the Chairman of the Board of Directors and the beneficial owner
of 18.1% of the outstanding Common Shares of the Company.
Pursuant to the Agreement RGP agreed, subject to the terms and
conditions of the agreement, to purchase 1,666,667 shares of
the Company's newly authorized Series A Redeemable Cumulative
Convertible Voting 9% Preferred Shares (the "Preferred Shares"),
at a purchase price of $3.00 per share or an aggregate purchase
price of $5,000,001. On April 17, 1995 RGP notofied the Company
that it had determined not to consumate the purchase. RGP
stated that the Company failed to satisfy certain conditions
for closing. The Company notified RGP that it was reserving
its rights.
(b) Director Compensation Arrangements
Information regarding director compensation is set forth
under Item 10(b) above.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following tabulation shows, as of March 15, 1996, (a) the
name, address and Common Share ownership for each person known by
the Company to be the beneficial owner of more than five percent of
the Company's outstanding Common Shares, (b) the Common Share
ownership of each director (c) the Common Share ownership for each
executive officer named in the compensation table, and (d) the
Common Share ownership for all directors and executive officers
as a group.
Beneficial Owner Number of Common Percent of Common
Shares Shares
Beneficially Owned(1) Outstanding
RGP Holding, Inc.
225 City Line Avenue
Bala Cynwyd, Pennsylvania 19004 661,600 (2) 18.1% (2)
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405 600,000 (3) 16.4% (3)
John R. Gross,
Director (7) 118,212 3.2%
Champion Parts, Inc.
Employee Stock Ownership Plan
c/o Champion Parts, Inc.
2525 22nd Street
Oak Brook, Illinois 60521 93,237 (4) 2.6% (4)
Raymond F. Gross,
Director (7) 31,164 *
Gary S. Hopmayer,
Director (3) ---- ----
Barry L. Katz,
Director (2) 7,500 *
Edward R. Kipling,
Director (3) 2,000 *
Raymond G. Perelman,
Director 661,600 (2) 18.1% (2)
Thomas W. Blashill,
Director, President and CEO 5,383 (5) *
Richard B. Hebert
Treasurer 3,138 (5) *
Mark Smetana
Vice President - Finance and Secretary 2,483(5) *
All directors and executive officers
as a group (9 persons) (6) 821,237 22.5%
* Not greater than 1%.
(1) Information with respect to beneficial ownership is based
on information furnished to the Company or contained in
filings made with the Securities and Exchange Commission.
(2) RGP Holding, Inc. is indirectly controlled by Mr. Perelman.
Pursuant to an agreement between the Company, Mr. Raymond
G. Perelman and RGP Holding, Inc. dated September 20, 1993
and amended October 9, 1995 Mr. Perelman and RGP granted
to the proxy holders appointed by the Board of Directors of
the Company the proxy to vote all shares beneficially owned
by them, including shares held by any affiliates
(the "Perelman Shares"), for the election of certain
nominees. Mr. Perelman and RGP have also agreed, among other
things, not to solicit proxies in opposition to nominees. The
Company and the Board have agreed that if shareholders of the
Company vote shares in person or by proxy for nominees other
than such nominees, the proxy holders appointed by the Company
will cumulate their votes in such manners as to attempt to
elect Mr. Katz prior to the election to Mr. Blashill.
(3) All shares owned by Echlin Inc. ("Echlin") are subject
to a Stock Purchase Agreement dated March 18, 1987
between the Company and Echlin. Under the Stock
Purchase Agreement, Echlin may vote its shares in
its discretion. During the fiscal year ended
December 31, 1995, the Company purchased
approximately $2.0 million of components used
in the remanufacture of automotive parts from Echlin.
On March 9, 1992, Echlin notified the Company that
it was exercising its limited market protection
rights under the Stock Purchase Agreement.
Accordingly, the Company issued a $2,400,000
promissory note to Echlin which has been and
is to continue to be paid to Echlin in quarterly
installments of $200,000. The note carries an
interest rate of 1% above prime. In April 1995,
the Company defaulted on the final installment
of this note. It subsequently paid $100,000
and $100,000 remains outstanding.
Messrs. Hopmayer and Kipling serve as directors
pursuant to the Stock Purchase Agreement.
(4) Shares held by this plan are voted by Messrs. Blashill
and Smetana as trustees. Employees participating in
the Stock Ownership Plan are entitled to direct the
trustees as to the voting of shares allocated to their
accounts. Unallocated Stock Ownership Plan shares
will be voted in the same manner, proportionately,
as the allocated Stock Ownership Plan shares for
which voting instructions are received from employees.
For more information concerning the ownership and
voting of shares held by the Stock Ownership Plan
and the trustees, see note (7) below.
(5) Includes 2,383, 3,138 and 983 shares allocated to
Messrs. Blashill's, Hebert's and Smetana's accounts,
respectively, under the Employee Stock Ownership Plan.
(6) Includes a total of 6,504 shares allocated to the
accounts of executive officers under the Employee
Stock Ownership Plan (the "Stock Ownership Plan").
Does not include 86,733 shares allocated to the
accounts of employees other than executive officers.
Each of the participants in the Stock Ownership Plan
(approximately 76 employees) is entitled to direct the
trustees as to the voting of shares allocated to his
or her account.
(7) As of March 15, 1996 Elizabeth Gross, her children
and members of their immediate families beneficially
owned 209,794 Common Shares, or approximately 5.7% of
the Common Shares outstanding. John R. Gross and
Raymond F. Gross, children of Elizabeth Gross, are
directors of the Company.
Item 13. Certain Relationships and Related Transactions
Information required under this Item 13 is set forth above
under and Part III, Item 12, Notes (2) and (3) and in Part III,
Item 12, Compensation Committee Interlocks and Insider Participation.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) Consolidated Financial Statements and Schedule and Exhibits:
(1. and 2.) The consolidated financial statements and schedule
listed in the accompanying table of contents for consolidated
financial statements are filed herewith.
(3.) The exhibits required by Item 601 of Regulation S-K
and filed herewith are listed in the exhibit index which follows
the consolidated financial statements and financial statement
schedule and immediately precedes the exhibits filed. Pursuant
to Regulation S-K, Item 601(b)(4)(iii), the Company has not filed
with Exhibit (4) any instrument with respect to long-term debt
(including individual bank lines of credit, mortgages and instruments
relating to industrial revenue bond financing) where the total amount
of securities authorized thereunder does not exceed 10% of the total
assets of the registrant and its subsidiaries on a consolidated
basis. The Company agrees to furnish a copy of each such instrument
to the Securities and Exchange Commision on request.
(b) Reports on Form 8-K:
The Company filed a Report on Form 8-K on November 3, 1995.
The Form 8-K reported a change in independent public accountants.
The Company filed a Report on Form 8-K on January 8, 1996.
The Form 8-K reported the Company's extension of its bank credit
agreement.
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
CHAMPION PARTS, INC.
Date: ___April 16, 1996___ By: /s/ Mark Smetana
Mark Smetana
Vice President - Finance
and Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on
April 16, 1996.
By: /s/ Thomas W. Blashill By: /s/ Gary S. Hopmayer
Thomas W. Blashill, President Gary S. Hopmayer, Director
and Director
By: ____________________________ By: /s/ Edward R. Kipling
Raymond G. Perelman, Director Edward R. Kipling, Director
By: ___________________________ By: /s/ Raymond F. Gross
Barry L. Katz, Director Raymond F. Gross, Director
By: /s/ Mark Smetana By: /s/ John R.Gross
Mark Smetana John R. Gross, Director
Vice President - Finance and
Secretary
CHAMPION PARTS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Financial Statement
Schedule comprising Item 8 and Items 14(a)(1) and (2) for
the Years Ended December 31, 1995, January 1, 1995, and
January 2, 1994 and Reports of Independent Public Accountants.
CHAMPION PARTS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Reports of Independent Public Accountants
Consolidated Financial Statements (Item 14(a)(1)):
The following consolidated financial statements of
Champion Parts, Inc. and subsidiaries are included in
Part II, Item 8:
Consolidated balance sheets - December 31, 1995 and
January 1, 1995
Consolidated statements of operations - years ended
December 31, 1995, January 1, 1995, and January 2, 1994
Consolidated statements of stockholders' equity - years ended
December 31, 1995, January 1, 1995, and January 2, 1994
Consolidated statements of cash flows - years ended
December 31, 1995, January 1, 1995, and January 2, 1994
Notes to consolidated financial statements
Consolidated Financial Statement Schedule (Item 14(a)(2)):
Schedule VIII - Valuation and qualifying accounts
All other schedules are omitted because they are not applicable,
not required, or because the required information is included
in the consolidated financial statements or notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Champion Parts, Inc.
Oak Brook, Illinois
We have audited the accompanying consolidated balance sheet
of Champion Parts, Inc. and Subsidiaries as of December 31, 1995
and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended. We have also audited
the 1995 schedule listed in the accompanying index. These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and schedule. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the financial statement and schedule. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Champion Parts, Inc. and Subsidiaries at
December 31, 1995, and the results of their operations and their
cash flows for the year then ended in conformity with generally
accepted accounting principles.
Also, in our opinion, the 1995 schedule presents fairly, in all
material respects, the information set forth therein.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 3 to the financial statements, the Company has suffered recurring
losses from operations and has a deficiency in stockholders' equity.
In addition, the Company has violated various covenants of its bank
credit agreement and has not paid various unsecured creditors under
the terms of sales. The Company does not have the ability to pay
these debts should the lenders demand payment. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
discussed in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
Chicago, Illinois
April 4, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of
Champion Parts, Inc.
We have audited the accompanying consolidated balance sheet
of Champion Parts, Inc. (an Illinois corporation) and subsidiaries
as of January 1, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the two years
ended January 1, 1995 and January 2, 1994. 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 generally accepted
auditing standards. 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Champion Parts, Inc. and subsidiaries as of January 1,
1995, and the results of its operations and its cash flows for
the years ended January 1, 1995 and January 2, 1994, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule
listed in the Table of Contents of the consolidated financial
statements is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements
taken as a whole.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
The Company is in violation of certain covenants of its loan
agreements that give the lenders the right to accelerate the due
date of their loans, which raises substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
/s/ Arthur Andersen LLP
Chicago, Illinois,
February 21, 1995
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, January 1,
1995 1995
ASSETS
CURRENT ASSETS:
Cash $ 874,000 $ 346,000
Accounts receivable, less
allowance for uncollectible
accounts of $1,715,000 and
$465,000 in 1995 and 1994,
respectively 4,737,000 12,864,000
Inventories 10,700,000 26,866,000
Prepaid expenses and other assets 294,000 740,000
Deferred income tax asset 1,536,000 1,907,000
Total current assets 18,141,000 42,723,000
PROPERTY, PLANT AND EQUIPMENT:
Land 475,000 475,000
Buildings 13,067,000 13,067,000
Machinery and equipment 16,524,000 17,265,000
Leasehold improvements 754,000 746,000
30,820,000 31,553,000
Less: Accumulated depreciation 20,986,000 20,059,000
9,834,000 11,494,000
Other Assets 590,000 1,095,000
$ 28,565,000 $ 55,312,000
The accompanying notes are an integral part of these statements.
_____________________________________________________________________________
December 31, January 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
CURRENT LIABILITIES:
Accounts payable $7,320,000 $8,167,000
Accrued expenses:
Salaries, wages and employee benefits 808,000 1,871,000
Other accrued expenses 7,704,000 6,808,000
Taxes other than income 76,000 232,000
Current maturities of long-term debt 13,462,000 20,026,000
Total current liabilities 29,370,000 37,104,000
DEFERRED INCOME TAXES 1,403,000 1,393,000
LONG-TERM DEBT - Less current maturities 701,000 1,451,000
STOCKHOLDERS' EQUITY:
Preferred stock - No par value;
authorized, 10,000,000 shares:
issued and outstanding, none --- ---
Common stock - $.10 par value;
authorized, 50,000,000 shares:
issued and outstanding, 3,655,266 366,000 366,000
Additional paid-in capital 15,578,000 15,578,000
Retained earnings (18,261,000) 579,000
Cumulative translation adjustment (592,000) (645,000)
Guarantee of Employee Stock
Ownership Plan borrowings --- (514,000)
(2,909,000) 15,364,000
$ 28,565,000 $ 55,312,000
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED_____________________________________________________________________
December 31, January 1, January 2,
1995 1995 1994
NET SALES $ 52,954,000 $ 95,337,000 $ 100,040,000
COST AND EXPENSES:
Cost of products sold 55,920,000 80,424,000 79,133,000
Selling, distribution and
administration 11,932,000 15,226,000 16,636,000
Special charges 1,602,000 3,400,000 ---
$ 69,454,000 $ 99,050,000 $ 95,769,000
EARNINGS (LOSS) BEFORE
INTEREST AND INCOME TAXES (16,500,000) (3,713,000) 4,271,000
INTEREST EXPENSE - Net 2,339,000 2,423,000 2,282,000
EARNINGS (LOSS) BEFORE
INCOME TAXES (18,839,000) (6,136,000) 1,989,000
INCOME TAXES (BENEFIT) 1,000 (297,000) 176,000
NET EARNINGS (LOSS) $ (18,840,000) $ (5,839,000) $ 1,813,000
AVERAGE COMMON SHARES
OUTSTANDING AND COMMON
STOCK EQUIVALENTS 3,655,266 3,655,266 3,655,266
EARNINGS (LOSS) PER SHARE
OF COMMON STOCK $ (5.15) $ (1.60) $ .50
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, JANUARY 1, 1995, AND JANUARY 2, 1994_______
(Data in thousands)
Additional Cumulative Guarantee
Common Paid-in Retained Translation of ESOP
Stock Capital Earnings Adjustment Borrowings
BALANCE, JANUARY 3, 1993 $ 366 $ 15,578 $ 4,605 $ 63 $ (1,543)
Net earnings 1,813
Exchange rate changes (199)
Contribution to ESOP to
fund ESOP debt 514
BALANCE, JANUARY 2, 1994 366 15,578 6,418 (136) (1,029)
Net loss (5,839)
Exchange rate changes (509)
Contribution to ESOP to
fund ESOP debt 515
BALANCE, JANUARY 1, 1995 366 15,578 579 (645) (514)
Net loss (18,840)
Exchange rate change 53
Contribution to ESOP to
fund ESOP debt 514
BALANCE, DECEMBER 31, 1995 $ 366 $15,578 $ (18,261) $(592) $ 0
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED__________________________________________________________________
(Data in thousands)
Dec. 31, Jan. 1, Jan. 2,
1995 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(18,840) $(5,839) $ 1,813
Adjustments to reconcile net earnings
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 1,477 1,587 1,793
Provision for losses on accounts
receivable 704 80 3
Provision for Inventory Write Offs 6,100 2,200 ---
Special charges 1,602 3,400 ---
Deferred income taxes 379 (448) (195)
Changes in assets and liabilities:
Accounts receivable 7,424 (5,975) 4,450
Inventories 10,049 2,107 (2,352)
Accounts payable (848) 4,176 658
Accrued expenses and other (667) (1,863) (1,676)
Net cash provided (used) by
operating activities 7,380 (575) 4,494
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (122) (831) (916)
Proceeds from sale of property,
ant and equipment 42 184 116
Net cash used by investing activities (80) (647) (800)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line
of credit agreement (6,271) 2,700 (3,800)
Principal payments on long-term debt
obligations (529) (1,195) (1,222)
Net cash provided (used) by
financing activities (6,800) 1,505 (5,022)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 28 (15) (6)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 528 268 (1,334)
CASH AND CASH EQUIVALENTS - Beginning
of year 346 78 1,412
CASH AND CASH EQUIVALENTS - End of year $ 874 $ 346 $ 78
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, JANUARY 1, 1995,
AND JANUARY 2, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company operates on a 52 week fiscal calendar.
Consolidation Policy - The consolidated financial statements include
the accounts of Champion Parts, Inc. and its subsidiaries (the
"Company"). All significant intercompany transactions and balances
have been eliminated in consolidation.
Accounts Receivable - From time to time the Company's customers may
be in a net credit balance position due to the timing of sales and
core returns. At December 31, 1995 and January 1, 1995 customers
in a net credit balance position totaled approximately $2,500,000
and $2,000,000, respectively, and are reported as a component of
accounts payables. Merchandise purchases are normally used to
offset net credit balances. 1994 amounts have been reclassified
for consistency.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market. Inventory consists of material, labor
and overhead costs.
Property, Plant and Equipment - Property, plant and equipment are
carried at cost, less accumulated depreciation. The assets are
being depreciated over their estimated useful lives, principally
by the straight-line method. The range of useful lives of the
various classes of assets is 10-40 years for buildings and 4-10
years for machinery and equipment. Leasehold improvements are
amortized over the terms of the leases or their useful lives,
whichever is shorter.
When properties are retired or otherwise disposed of, their
cost and accumulated depreciation are removed from the accounts
and any gain or loss is included in operations. Expenditures
for maintenance and repairs are charged to operations; major
expenditures for renewals and betterments are capitalized and
depreciated over their estimated useful lives.
Excess of Purchase Price Over Net Assets Acquired - The
Company is amortizing the excess of purchase price over net
assets acquired over a 25-year period. The unamortized amount
of goodwill was $30,000 and $152,000 in 1995 and 1994, respectively.
The accumulated amortization was $24,000 in 1995 and $300,000 in
1994. In 1995 the Company wrote off $104,000 of the remaining
unamortized goodwill associated with its acquisition of a Canadian
distributor. (See Note 6)
Deferred Charges - Costs of issuing long-term debt are deferred
and amortized over the terms of the related issues.
Line of Business - The Company remanufactures and distributes
replacement fuel systems, constant velocity joint assemblies,
charging and starting components and other functional replacement
parts principally for the passenger car, agricultural and heavy
duty aftermarket industry in the United States and Canada, which
is considered to be a single line of business.
Revenue Recognition - The Company recognizes sales when products
are shipped. Net sales reflect deductions for cores (used units)
returned for credit and other customary returns and allowances.
Such deductions and returns and allowances are recorded currently
based upon continuing customer relationships and other criteria.
The Company's customers are encouraged to trade-in rebuildable
cores for products which are included in the Company's current
product line.
Credits for cores are allowed only against purchases of similar
remanufactured products. Total available credits are further
limited by the dollar volume of purchases. Product and core
returns, reflected as reductions in net sales, were $43,500,000
(1995), $61,234,000 (1994) and $67,209,000 (1993).
Earnings (Loss) Per Share of Common Stock - Earnings (loss) per
share of common stock are computed by dividing net income (loss)
by the weighted average number of common shares outstanding.
No dilution results from outstanding stock options and therefore
they are not considered.
Estimates - The accompanying financial statements include estimated
amounts and disclosures based on management's assumptions about
future events. Actual results may differ from these estimates.
2. INVENTORIES
Inventories consist of the following:
December 31, January 1,
1995 1995
Raw materials $ 4,806,000 $ 10,870,000
Work in process 2,529,000 5,028,000
Finished goods 3,365,000 10,968,000
$ 10,700,000 $ 26,866,000
Included in inventories were cores of $3,638,080 (1995) and $14,139,000
(1994).
In 1995 the Company recorded a $6,100,000 provision in cost of products
sold to reflect the Company's decision to exit the manufacturing and sale
of automotive electrical and mechanical products to traditional warehouse
distributors and retailers. Writedowns reflect losses realized and
expected to be realized on liquidating the inventory made excess by this
decision. Included in 1995 inventories above were reserves of $5,475,000
related to discontinued product lines.
The Company recorded $2,200,000 of provisions in cost of products sold
in the fourth quarter of 1994 to revalue the Company's inventory.
Approximately $1,000,000 of the amount related to write-downs of the
Company's constant velocity joint inventory to reflect current values.
The remaining amount was recorded to reflect changes in the Company's
inventory policies.
3. DEBT
Debt consists of the following:
December 31, January 1,
1995 1995
Bank loan, revolving credit
agreement at prime
(8.5% at 12/31/95)
plus 3-1/2%
due March 31, 1996 secured
by receivables, inventory
and certain other assets $ 11,629,000 $ 17,900,000
Note payable, past due
. Interest
at prime plus 1%. (See Note 11) 100,000 400,000
ESOP loan guarantee, 8-1/2%
due in varying semiannual
installments to 1995 0 514,000
Mortgage, 12%, due in monthly
installments of $21,803 (including
interest) to 2001 (secured by property
having a book value of $2,396,470 at
December 31, 1995) 682,000 851,000
Capitalized lease obligations under
Industrial Revenue Bonds, at
approximately 60% of prime rate, due
in 2001, varying annual sinking fund
payments commencing in 1998 1,500,000 1,500,000
Capitalized building lease obligations
under Industrial Revenue Bonds, 7%,
due in 1995 7,000
Other 251,000 305,000
14,163,000 21,477,000
Less portion due within one year 13,462,000 20,026,000
$ 701,000 $ 1,451,000
Long-term debt maturities (including obligations under capital leases)
are $13,462,000 (1996), $258,000 (1997), $285,000 (1998), $79,000 (1999),
and $23,000 (2000).
The Company entered into a Credit Agreement on August 8, 1990. In
January 1996, the Company amended its bank credit agreement to extend
its maturity until March 31, 1996; reduced loan commitment levels
to $11.5 million at January 31, 1996 and $9.8 million at February 29,
1996; and set certain prospective financial covenants. The Company
gave a security interest to the participating banks in its accounts
receivable, inventories, certain real estate and other assets. The
Company agreed to pay interest on outstanding borrowings at the
Prime Rate plus 3-1/2% and an annual commitment fee of 1/2% of the
facility.
At December 31, 1995, the Company had available $12.1 million under
the Company's credit agreement of which $11.6 million was borrowed.
The Company has been in default of various covenants of its bank
credit agreement throughout 1995 and to date in 1996. The Company's
banks had agreed to forebear from declaring a default on the Company's
credit facility through March 31, 1996. The Company is currently in
discussion with its lending banks regarding an extension of the credit
agreement. There can be no assurances that the Company will be able
to secure a new facility with the banks. As a result, the Company has
reflected outstanding amounts under the credit agreement and a
$1,500,000 capitalized lease obligation as current maturities in its
financial statements.
Without an extension of the current credit agreement or a replacement
facility, the Company would not have sufficient funds to pay its debts
should the lenders demand payment and would not be able to continue as
a going concern.
The Company is indebted to various unsecured creditors, including
current and former trade vendors. The Company has not paid these
creditors under the terms of sale. Several trade creditors have
initiated legal actions against the Company seeking payment. Given
the Company's current financial situation and the lack of a long-term
financing agreement, it currently does not have the ability to pay
these debts should the creditors demand payment. It is the Company's
intention to begin discussions with these creditors on an agreement
to satisfy these obligations. There can be no assurances that the
Company and its creditors will be able to reach an agreement.
The Company's financial statements have been prepared on a going
concern basis and do not contain adjustments which may be necessary
should the Company be forced to liquidate assets or take other actions
to satisfy debt payments.
The Company made a $100,000 payment on a final installment of
$200,000 on a scheduled payment to Echlin Inc. due April 8, 1995
pursuant to a promissory note agreement. Echlin Inc. has notified
the Company that it is in default on the note.
The carrying amount of long-term debt approximates fair value
because the interest rates on substantially all the debt fluctuate
based on changes in market rates.
In February 1988, the Employee Stock Ownership Plan ("ESOP"),
established by the Company in 1986 (Note 8), borrowed $3,600,000
from a bank and used a contribution of $100,000 from the Company
to purchase 400,000 shares of the Company's common stock at the
market price of $9.25 per share. The Company guaranteed the
repayment of the 8-1/2% bank loan. The loan was paid in April
1995.
4. INCOME TAXES
The Company uses an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
The income tax provision (benefit) consists of the following:
CURRENT 1995 1994 1993
Federal $(379,000) $ (181,000) $ 660,000
Foreign 0 (27,000) (75,000)
State and local 1,000 (33,000) 171,000
$(378,000) $ (241,000) $ 756,000
DEFERRED
Federal $ 379,000 $ (67,000) $ (640,000)
Foreign 0 11,000 75,000
State and local 0 --- (15,000)
379,000 (56,000) (580,000)
Total $1,000 $ (297,000) $ 176,000
The Company has provided a valuation reserve to write-down deferred tax
assets due to limited ability to carryback tax losses.
At December 31, 1995 the Company had federal, state and foreign net
operating loss carryforwards of $10,614,000, $557,000 and $548,000,
respectively. Federal loss carryforwards begin to expire in 2010.
The Company also had $500,000 of tax credits which can be carried
forward indefinitely.
The effective tax rate differs from the U.S. statutory federal income
tax rate of 34% as described below:
1995 1994 1993
Income tax (benefit)
at statutory rate $ (6,406,000) $ (2,086,000) $ 676,000
Utilization of net operating
loss (NOL) carryforward --- --- (566,000)
Valuation allowance 6,406,000 1,884,000 (45,000)
State income taxes
net of federal income tax 1,000 (22,000) 25,000
Effect of foreign operations --- (55,000) 66,000
Other --- (18,000) 20,000
$ 1,000 $ (297,000) $ 176,000
Deferred tax assets and liabilities are comprised of the following at
December 31, 1995 and January 1, 1995
(Data in thousands)
1995 1994
Assets Liabilities Assets Liabilities
Inventory reserves $ 3,437 $1,470
Accrued vacation 167 427
Fringe benefits 1,596 1,093
Depreciation $1,372 $1,350
Bad debts 417 531
Write-off of foreign
subsidiary 231 215
Restructuring Reserves 1,210 565
Environmental Contingency 248 163
Net operating loss
carryforward 4,713 ---
Tax credit
carryforward 500 623
Valuation allowance (11,049) (3,180)
Other 65 31 0 43
$1,536 $ 1,403 $ 1,907 $1,393
5. DEFERRED COMPENSATION
In 1984, the Company entered into a deferred compensation agreement with
a former officer which is to be funded with the benefits from whole-life
insurance policies. Under the agreement, the Company's obligation for
future payments could be reduced if the Company did not receive benefits
expected from the policies.
In November 1993 the Company and the former officer entered into a
Settlement Agreement which, in part, provided for the guaranteed payment
of one-half of the deferred compensation benefit irrespective of the
proceeds from the life insurance policies. The remaining deferred
compensation benefit is payable subject to available policy proceeds.
The Company agreed to keep two of the policies in force to fund the
obligation and is entitled to reimbursement for annual policy payments
and its annual guaranteed deferred compensation payment from policy
proceeds if they are sufficient.
6. SPECIAL CHARGES
In 1995, the Company recorded a special charge of $1,602,000 to reflect
its decision to exit the manufacture and sale of automotive electrical
(alternators and starters) and mechanical (clutches and water pumps)
products to warehouse distributors and retailers in the United States
and Canada. These charges included $710,000 in write downs of equipment,
goodwill and recognition of wind down costs, $662,000 in termination
benefits and $230,000 in estimated costs to exit contractual liabilities.
The Company also recorded $6,100,000 in inventory adjustments as a
component of cost of products sold to write down the inventory in
these product lines to estimated net realizable values. Adjustments
to these provisions may be necessary in future periods based on further
development of restructuring costs. At December 31, 1995 the Company
had $500,000 of reserves remaining to cover future costs. The Company
expects these costs to be incurred in 1996. Sales to customers affected
by the Company's decision accounted for approximately 56% of 1995 sales.
In the first quarter of 1994 the Company provided a pretax special
charge of $3,400,000 to reflect a plan to reduce excess manufacturing
capacity in an effort to increase operating efficiencies and reduce costs.
Of the total provision, $2,500,000 related to accruals for personnel and
plant closure costs. The remaining $900,000 was recorded to reflect
write-downs of fixed assets affected by the plan to estimated net
realizable values. At December 31, 1995, approximately $100,000 of
reserves remain to cover remaining estimated plant closure costs.
7. EMPLOYEE STOCK OPTION AND AWARD PLANS
1995 Stock Option Plan - On November 16, 1995, the Company's
shareholders approved a 1995 Stock Option Plan. This plan
provides for options to purchase up to 100,000 shares.
Participants in the plan shall be those employees selected
by the Compensation Committee of the Board of Directors.
Options shall be granted at the fair market value of the Company's
Common Stock at the date of grant. No option may be exercised until
six months after the grant date or after 10 years after the grant date.
The options vest ratably over a period not to exceed five years.
Information with respect to stock options outstanding under this plan
is as follows:
Average
Number Option Price
of Shares Per Share
Balance, January 1, 1995 0
Granted 55,000 $ 0.625
55,000
1982 Incentive Stock Option Plan - During 1982, the stockholders
approved the 1982 Incentive Stock Option Plan. The plan provided
options to purchase 93,750 shares at prices equivalent to the fair
market value at the date of grant for officers and other key employees.
Options became exercisable, in whole or part, one year from the date of
the grant. No options were exercised under this plan in 1995, 1994
and 1993 and all options outstanding have expired.
On August 22, 1995 (the "Grant Date"), the Company granted its
president and chief executive officer an option to purchase 25,000
Common Shares at a price of $1.00 per share. The option may be
exercised immediately and will expire in five years from the Grant
Date, subject to earlier termination of his employment. As of
December 31, 1995 he had not exercised any of these options.
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS
Salaried employees with one or more years of service are eligible
to participate in an Employee Stock Ownership Plan ("ESOP"), which
was established in 1986. The plan provides for graduated vesting
of participants' interests with full vesting upon completion of the
fifth year of service. The aggregate expense of the ESOP charged
to operations was $532,000, $573,000 and $622,000 for 1995, 1994
and 1993, respectively.
Salaried employees with one year of service are eligible to
participate in a 401(k) plan ("Thrift Program"). Under this program,
contributions are 100% vested.
Hourly employees of three facilities are covered under the
Company's noncontributory pension plans or under a union-sponsored
plan to which the Company contributes. The benefits are based
upon years of service. The Company's contribution consists of
an amount to annually fund current service costs and to fund past
service costs over 30 years. The Company's funding policy for
these plans is to meet, at a minimum, the annual contributions
required by applicable regulations.
In connection with the Company's 1995 and 1994 restructuring
plans (See Note 6), curtailment losses of $40,000 and $220,000,
respectively, were included in the special charges.
The following table sets forth the plans' funded status and
amounts recognized in the Company's balance sheets for its pension plans:
December 31, 1995 January 1, 1995
Accumulated Assets Exceed Accumulated
Benefits Accumulated Benefits
Exceed Assets Benefits Exceed Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation $6,491,000 $ 1,819,000 $3,013,000
Nonvested benefit obligation 43,000 41,000 25,000
Accumulated benefit obligation 6,534,000 1,860,000 3,038,000
Plan assets at fair value,
primarily equity funds 5,584,000 1,995,000 2,483,000
Projected benefit obligations in
excess of plan assets (950,000) 135,000 (555,000)
Unrecognized net (gain) from
past experience different from that
assumed and effects of changes in
assumptions (263,000) (433,000) (255,000)
Unrecognized prior service cost 91,000 82,000 61,000
Unrecognized net (obligation) asset at
January 1, 1988 being recognized
over 18 to 26 years 0 (61,000) 60,000
Adjustment to recognize minimum
liability (99,000) 0 (59,000)
Accrued pension cost included in
accrued expenses $(1,221,000) $ (277,000) $ (748,000)
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligation at December 31, 1995,
and January 1, 1995, were 7.5% and 8.75% respectively. The expected rate of
return on assets was 8%. No projected wage increases are included in the
calculation of the projected benefit obligation as the pension plan benefits
are not based upon wage levels.
Pension cost for 1995, 1994 and 1993 consists of the following:
1995 1994 1993
Service cost - benefits earned
during the period $ 149,000 $ 236,000 $ 253,000
Interest cost on projected
benefit obligation 432,000 401,000 359,000
Actual return on plan assets (1,192,000) (19,000) (524,000)
Net amortization and deferral 790,000 (331,000) 262,000
$ 179,000 $ 287,000 $ 350,000
9. LEASES
The Company leases certain plants and offices, trucks and trailers,
automobiles and computer equipment. Certain of the real estate leases,
constituting non-financing leases, have provisions for renewal. These
lease renewals are primarily for five years. Obligations under capital
leases are included as a part of long-term debt.
Total rental expense charged to operations was $621,000 (1995),
$1,927,000 (1994) and $2,307,000 (1993).
The lease cost for trucks and trailers is comprised of a fixed amount
plus a usage charge based on mileage. Operating costs including licenses,
use taxes, maintenance and fuel are primarily borne by the lessor. Minimum
commitments under all noncancelable operating leases at December 31, 1995,
are as follows:
1996 $ 278,000
1997 259,000
1998 231,000
1999 221,000
2000 15,000
TOTAL $1,004,000
10. SALES TO MAJOR CUSTOMERS
In 1995, sales to the Company's four largest customers were approximately
14%, 13%, 12% and 11% of net sales. In 1994 sales to the Company's three
largest customers were approximately 20%, 15% and 13% of net sales.
In 1993 sales to the three largest customers were approximately 23%, 13% and
12%, respectively. At December 31, 1995 accounts receivable balances of
the Company's four largest customers were approximately 22%, 17%, 7% and
3% of total gross receivables. At January 1, 1994 accounts receivable
balances of the Company's four largest customers were 28%, 18%, 10% and
6% of total trade receivables.
As of December 31, 1995, the Company does not sell to the two largest
customers and had significantly lower sales to its third largest customer.
11. RELATED PARTY TRANSACTIONS
On March 9, 1992, Echlin, Inc. exercised its market value rights under
a 1992 stock purchase agreement with the Company. The Company reduced
its Additional Paid-In Capital by $2,400,000 and recorded a note payable
of the same amount which is being paid to Echlin in quarterly installments
of $200,000. The note carries an interest rate of 1% above prime.
See Note 3 regarding a discussion of the status of the Echlin note payments.
Total purchases from Echlin approximated $2,030,000, $2,606,000, and
$3,686,000 in 1995, 1994 and 1993, respectively, of which $631,000,
$450,000, and $308,000 were unpaid at year end 1995, 1994 and 1993,
respectively.
12. ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state and local environmental
laws and regulations incidental to its business. The Company continues to
modify, on an ongoing basis, processes that may have an environmental impact.
The Company has been named, along with a number of other companies, as a
Potentially Responsible Party in several Federal and state sites where the
Company had operations or where byproducts from the Company's manufacturing
processes were disposed. Three of the sites are currently active, and the
others have been settled or are dormant. The Company also has undertaken
voluntary actions at its current plant sites ranging from periodic testing
to modest amounts of soil and water remediation and storage tank removal.
The Company has $995,000 in reserves for anticipated future costs of pending
environmental matters at December 31, 1995. Such costs include the Company's
estimated allocated share of remedial investigation/feasibility studies and
clean-up and disposal costs. No recoveries from insurance policy coverage or
other third parties has been recorded. The Company's ultimate costs are
subject to further development of existing studies and possible readjustment
of the Company's pro rata share of total costs.
13. INVESTMENTS
The Company has a 50% equity investment in a foreign joint venture.
The Company has a direct guarantee of Canadian $500,000 of the venture's
bank debt and is joint and several guarantor on Canadian $1,500,000 of bank
debt with its venture partner. In 1992, the Company wrote off its investment
in the venture and provided a reserve for a contingent liability to exit
this venture. The Company accounts for this venture using the equity method.
Given the venture's current financial situation and the pending guarantees
from the Company, the Company has continued to record its investment at a
zero estimated net realizable value and maintain a reserve for additional
contingent financial exposure.
In September 1995 the Company received notice from the venture's lending
bank that it had demanded payment on its outstanding demand loans. It also
notified the Company that it was demanding payment from the Company on its
guarantee. The amount of the loan plus accrued and unpaid interest was
Canadian $1,700,000 at December 31, 1995.
The venture is in discussions with another lender on a replacement facility
and with its lending bank on continued funding until a replacement facility
can be obtained.
Approximately $400,000 in charges were recorded against the reserve in 1994
to reflect the costs to exit the Company's distribution operation which was
exclusively supplied by the joint venture.
14. OTHER ACCRUED EXPENSES.
Other accrued expenses consist of the following:
December 31, January 1,
1995 1995
Interest $ 212,000 $ 224,000
Workers' compensation 1,834,000 1,278,000
Pension (See Note 8) 1,221,000 1,025,000
Medical insurance 533,000 536,000
Deferred compensation 575,000 444,000
Rebates 423,000 785,000
Environmental costs 995,000 434,000
Restructuring 626,000 667,000
Joint venture 802,000 802,000
Other items 483,000 613,000
$ 7,704,000 $ 6,808,000
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest and income taxes was as follows:
1995 1994 1993
Interest $ 2,237,000 $ 2,363,000 $ 2,377,000
Income taxes 86,000 330,000 294,000
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
Net
Net earnings
Net Gross earnings (loss)
sales margin (loss) per share
1995 $ 52,954 $ (2,966) $ (18,840) $ (5.15)
Quarters:
Fourth (1) 6,613 (2,735) (4,946) (1.35)
Third (1 8,729 (796) (3,281) (0.90)
Second (1) 16,308 (2,339) (8,494) (2.32)
First 21,304 2,904 (2,119) (0.58)
1994 $ 95,337 $ 14,913 $ (5,839) (1.60)
Quarters:
Fourth (2) 22,165 1,220 (3,434) (.94)
Third 24,917 3,981 62 .02
Secon 24,131 5,274 377 .10
First (3) 24,124 4,438 (2,844) (.78)
(1) The second, third and fourth quarters reflect special charges and
inventory provisions related to the Company's decisions to exit the
manufacture and sale of passenger car electrical (alternators and starters)
and mechanical (clutches and water pumps) products to warehouse distributors
and retailers in the United States and Canada. The following table sets
forth the amounts by period.
Special Inventory
Charge Provision
Fourth Quarter $ 339,000 $ 2,600,000
Third Quarter 130,000 500,000
Second Quarter 1,133,000 3,000,000
(2) The fourth quarter includes a $2,200,000 write-down of inventory
(See Note 2).
(3) The first quarter reflects a special pretax charge of $3,400,000
related to the consolidation of production facilities.
CHAMPION PARTS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions to/
(Deductions)
Balance at Charged Balance
Beginning to From at End of
of Period Operations Reserves Period
ALLOWANCE FOR
UNCOLLECTIBLE
ACCOUNTS:
Year Ended
January 2, 1994 $ 454,000 $ 3,000 $ (51,000) $ 406,000
Year Ended
January 1, 1995 $ 406,000 $ 80,000 $ (21,000) $ 465,000
Year Ended
December 31, 1995 $ 465,000 $704,000 $ 546,000 (1) $1,715,000
(1) Represents a reclassification of previously established reserves.
CHAMPION PARTS, INC.
EXHIBIT INDEX
__________
(Pursuant to Item 601 of Regulation S-K)
NO. DESCRIPTION AND PAGE OR INCORPORATION REFERENCE
Articles of Incorporation and By-Laws
(3)(a) Articles of Incorporation (incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1988)
(3)(b) By-Laws (incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended January 2, 1994).
Instruments Defining the Rights of Security
Holders, Including Indentures
(4)(a) Stock Purchase Agreement dated March 18, 1987 between
the Registrant and Echlin Inc. (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1986)
(4)(b) Agreed Final Judgment Order dated January 5, 1988 entered
by the United States District Court for the Northern District
of Illinois, Case No. 86 C 8906 (incorporated by reference
to Registrant's Current Report on Form 8-K dated December 29,
1987)
(4)(c) Agreement dated December 29, 1987 by and among the Company,
Nicole M. Cormier, Claude A. Cormier and Daniel O. Cormier
(incorporated by reference to Registrant's Current Report on
Form 8-K dated December 29, 1987)
(4)(d) Agreement dated April 28, 1987 between the Registrant and
Scott Hodes (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987)
(4)(e) Specimen of Common Share Certificate (incorporated by
reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988)
(4)(f) Articles of Incorporation (see Exhibit (3)(a) above)
(4)(g) By-Laws (see Exhibit (3)(b) above).
(With respect to long-term debt instruments, see
"Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K".)
(4)(h) Term of Series A Redeemable Cumulative Convertible
Voting 9% Preferred Shares (Incorporated by reference
to Registrant's Form 8-K filing dated March 23, 1995.)
Material Contracts
(10)(a) Continuing Unconditional Guaranty dated February 12, 1988 by
the Company of indebtedness of Charles P. Schwartz, Jr. and
Leonard D. O'Brien (now Kevin J. O'Connor), as trustees
of the Champion Parts, Inc. Employee Stock Ownership Trust,
to the Exchange National Bank of Chicago (now LaSalle National
Bank) (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987)
(10)(b) Amended and Restated Indemnification Agreement dated as of
August 17, 1989 between the Registrant and Charles P. Schwartz, Jr.
(incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989) (1)
(10)(c) Agreement dated as of December 28, 1983 between Registrant
and Raymond F. Gross (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1983) (1)
(10)(d) 1984 Stock Bonus Plan, amended as of October 20, 1988
(incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988) (1)
(10)(e) 1982 Incentive Stock Option Plan, as amended November 19,
1987 (incorporated by reference to Registrant's Current
Report on Form 8-K dated November 19, 1987) (1)
(10)(f) Form of Incentive Stock Option Agreement and Schedule of
Incentive Stock Option Agreements executed by executive
officers of the Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988) (1)
(10)(g) Amended and Restated Employment and Deferred Compensation
Agreement dated as of June 7, 1989, between Registrant and
Charles P. Schwartz, Jr. (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1991) (1)
(10)(h) Agreement dated as of June 7, 1989 between the Registrant
and Robert C. Mikolashek (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1991) (1)
(10)(i) Agreement dated December 16, 1992 between the Registrant
and Charles P. Schwartz, Jr. (incorporated by reference to
Registrant's Current Report on Form 8-K dated December 16,
1992) (1)
(10)(j) Amended and Restated Credit Agreement dated as of
March 31, 1993 among the Registrant, LaSalle National Bank
(the successor to Exchange National Bank of Chicago), NBD
Bank, N.A., American National Bank and Trust Company of
Chicago, and Harris Trust and Savings Bank (assignee of
The Northern Trust Company) (Incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal
year ended January 3, 1993.)
(10)(k) Security Agreement dated as of March 31, 1993 by and
between the Registrant and LaSalle National Bank acting
as collateral agent for NBD Bank, N.A., American National
Bank and Trust Company of Chicago, and Harris Trust and
Savings Bank (Incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 3, 1993.)
(10)(l) Settlement Agreement dated November 23, 1993 between
Registrant and Charles P. Schwartz, Jr. (Incorporated by
reference to Registrant's current report on Form 8-K dated
November 23, 1993). (1)
(10)(m) Form of Letter from Registrant to LaSalle National Bank
(the successor of Exchange National Bank of Chicago),
NBD Bank, N.A., and Harris Trust and Savings Bank
(assignee of The Northern Trust Company) dated March 14,
1994 (incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended January 2, 1994).
(10)(n) First Amendment to Amended and Restated Credit Agreement
dated March 30, 1994 among Registrant, LaSalle National
Bank (the successor of Exchange National Bank of Chicago),
NBD Bank, N.A., and Harris Trust and Savings Bank
(assignee of The Northern Trust Company). (Incorporated
by reference to Registrant's Annual Report on Form 10-K
for the year ended January 2, 1994).
(10)(o) Indemnification Agreement dated as of March 8, 1994 between
the Registrant and Donald G. Santucci and Schedule of
Indemnification Agreements executed by directors and
executive officers of the Registrant. (Incorporated by
reference to Registrant's Annual Report on Form 10-K for
the year ended January 2, 1994). (1)
(10)(p) Agreement, as amended, between Registrant and Raymond
G. Perelman dated September 20, 1993 (incorporated by
reference to Registrant's current Report on Form 8-K
dated March 7, 1994.)
(10)(q) Supply Agreement dated March 18, 1987 between the Registrant
and Echlin Inc. (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988)
(10)(s) Settlement Agreement between Registrant and Charles
P. Schwartz, Jr. (Incorporated by reference to the Registrant's
Current Report on Form 8-K dated November 23, 1993.)
(10)(t) Agreement between Registrant and Raymond G. Perelman dated
September 20, 1993. (Incorporated by reference to the
Registrant's Current Report on Form 8-K dated March 7, 1994.)
(10)(u) Second Amendment to Amended and Restated Credit Agree-
ment dated March 31, 1995 among Registrant, LaSalle National
Bank (the successor of Exchange National Bank of Chicago),
NBD Bank, N.A., and Harris Trust and Savings Bank (assignee
of The Northern Trust Company). (Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year ended
January 1, 1995).
(10)(v) Letter Agreement between the Registrant and Mr. Raymond G.
Perelman dated February 21, 1995 (incorporated by reference
to the Registrant's Current Report on Form 8-K filed February 21,
1995).
(10)(w) Preferred Stock Purchase Agreement between the Registrant
and Mr. Raymond G. Perelman dated March 23, 1995 (incorporated
by reference to the Registrant's Current Report on Form 8-K
dated March 23, 1995).
(10)(x) Third Amendment to the Amended and Restated Credit Agreement
dated August 4, 1995 among Registrant, LaSalle National Bank
(the successor of Exchange National Bank of Chicago), NBD
Bank, N.A., and Harris Trust and Savings Bank (assignee of
The Northern Trust Company). (Incorporated by reference to
Form 10-Q filed August 23, 1995)
(10)(y) Stock Option Agreement dated August 22, 1995 between
Registrant and Thomas W. Blashill. (Included herein on
page 58.) (1)
(10)(z) Letter Agreement dated October 9, 1995 between Registrant
and RGP Holding, Inc. (Incorporated by reference to
Form 10-Q filed November 24, 1995.)
(10)(aa) 1995 Stock Option Plan as of November 1, 1995. (Incorporated
by reference to Registrant's 1995 Proxy). (1)
(10)(bb) Severance Agreement dated November 13, 1995 between the
Registrant and Richard B. Hebert. (Included herein on
page 64.) (1)
(10)(cc) Severance Agreement dated August 9, 1994 between Registrant
and Mark Smetana. (Included herein on page 69,) (1)
(10)(dd) Fourth Amendment to Amended and Restated Credit Agreement
dated January 8, 1996 among Registrant, LaSalle National Bank,
(the successor of Exchange National Bank of Chicago), NBD Bank,
N.A., and Harris Trust and Savings Bank (assignee of The
Northern Trust Company). (Incorporated by reference to
Current Report on Form 8-K filed January 25, 1996.)
Subsidiaries
(21) List of Subsidiaries of Registrant (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 1991)
Consents of Experts and Counsel
Additional Exhibits
(27) Financial Data Schedules
Note:
(1) Denotes management contract or compensatory plan or arrangement
required to be filed as an Exhibit to this report pursuant to
item 601 of Regulation S-K.
________
Champion Parts, Inc. will furnish any of the above exhibits for
which total number of pages is indicated above, to requesting
security holders upon payment of a photocopying charge of $.10
per page, and a postage charge of $.32 for the first seven pages
or fewer and $.23 for each additional seven pages or fewer,
subject to adjustment for changes in postal rates.
SIGNATURES
CHAMPION PARTS, INC.