Item 1. Business
Unless context indicates otherwise, the term “Company" as used herein means Champion Parts, Inc. and its subsidiaries.
Recent Development
On November 6, 2006, the Company acquired from TAP Holdings, LLC d/b/a Tomco Auto Parts (“Tomco”) the inventory and certain intellectual property rights utilized in Tomco’s business of remanufacturing, distributing and selling carburetors and throttle body injectors, as well as the customer lists and related records of the Tomco business. As payment for the acquired assets, the Company paid $1.3 million in cash at closing. In addition, the Company will pay monthly earn-out payments over an eleven year period equal to (i) 7.5% of the net sales of carburetors and throttle body injectors sold by the Company during the three year period following the closing date of the transaction and (ii) 5.0% of the net sales of carburetors and throttle body injectors sold by the Company during the remaining eight years. The earn-out payments are subject to a $9.5 million cap and other adjustments. Tomco’s earn-out obligations are represented by a non-negotiable note secured by a security interest in the inventory acquired from Tomco. This security interest and Tomco’s rights under the note are subordinate to the rights of PNC Bank, National Association under its Revolving Credit, Loan and Security Agreement with the Company. See Note 2 to the Financial Statements for additional information on the Tomco acquisition.
The results of the Company’s operations after November 6, 2006 include revenues attributable to the business acquired from Tomco.
Products
The Company remanufactures and sells replacement fuel system components (carburetors and diesel fuel injection components) and air conditioning compressors for substantially all makes and models of domestic and foreign automobiles, trucks and marine applications. It also remanufactures and sells replacement constant velocity drive assemblies, electrical and mechanical products for certain passenger cars, agricultural, marine and heavy-duty truck original equipment applications. The Company is reporting one operating business segment in the same format as reviewed by the Company's senior management.
During the fiscal years ended December 31, 2006, 2005 and 2004, the Company's net sales of parts for automobiles (including light duty trucks) accounted for 91%, 80% and 86%, respectively, of the Company's total net sales. Sales of parts for heavy-duty trucks, farm equipment and marine applications accounted for 9%, 20% and 14%, respectively, of total net sales. Sales in 2006 were affected by the acquisition of Tomco and loss of a major customer.
The Company's largest product line is remanufactured carburetors, which accounted for 60% of 2006 net sales compared to 45% in 2005. The Company's main distribution channel is through large retailers who accounted for 88% of net carburetor sales in 2006. In 2005 large retailers accounted for 90% of net carburetor sales. The balance of the carburetor sales was to original equipment aftermarket customers and traditional warehouse distributors.
Marketing and Distribution
The Company's products are marketed throughout the continental United States and, in a limited way, in Canada and other countries. The Company sells carburetors to aftermarket retail chains that distribute products through their stores. In addition, the Company sells its products to OEM’s for resale through their dealers. The Company also sells carburetors, air conditioning compressors, electrical and mechanical products to automotive and marine warehouse distributors, which in turn sell to jobber stores and through them to service stations, automobile and marine repair shops and individual motorists.
Of the Company's net sales in the year ended December 31, 2006, approximately 42% were to retailers; approximately 30% were to manufacturers of automobiles, trucks and farm equipment and heavy duty fleet specialists; and approximately 28% were to automotive warehouse distributors, marine distributors and other customers.
The Company exhibits its products at trade shows. The Company also 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 sales representatives and sales agents call on customers and prospective customers to familiarize them with the Company's products and the applications of its products.
During the fiscal year ended December 31, 2006, the four largest customers of the Company (Advance Auto, AutoZone, Visteon, and John Deere) accounted for approximately 73% of net sales. In 2005, the four largest customers accounted for approximately 72% of net sales, and in 2004, the four largest customers accounted for approximately 74% of net sales.
The Company has various methods available to its customers to place orders into the Company's order entry system. The Company also utilizes direct Electronic Data Interchange with its largest customers.
The Company's business is seasonal in nature, primarily as a result of the impact of weather conditions and the agricultural cycle on the demand for certain automotive parts and as a result of the very seasonal nature of demand for air conditioning compressors agricultural replacement parts. Historically, the Company's sales and profits are generally the highest in the first and second quarters, and then declining through the summer months.
The Company's largest product line is remanufactured carburetors, which accounted for 60% of 2006 net sales compared to 45% in 2005. The Company's main distribution channel is through large retailers who accounted for 88% of net carburetor sales in 2006 and 90% in 2005. The balance of the carburetor sales was to original equipment aftermarket customers and traditional warehouse distributors.
A reduction in the level of sales to or the loss of one or more of these customers would have a material adverse effect on the Company’s financial condition and results of operations.
Materials
In its remanufacturing operations, the Company obtains and utilizes used units, commonly known as "cores". A majority of the units remanufactured by the Company are acquired from customers as trade-ins, generally referred to as "core returns", which are encouraged by the Company in the sale of remanufactured units. Purchasing cores on the open market fills the remainder of the core requirements.
The price of a finished product is usually 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 return, credit is given to the customer for the then current core value of the part returned. The Company limits core returns to units included in its sales catalogs and units that can be rebuilt. Credit for cores is allowed only against purchases by the customer of similar remanufactured products within 12 months. The dollar volume of the core sales further limits a customer's total allowable credit for core trade-ins. The Company also permits warranty and stock adjustment returns (generally referred to as "product returns") pursuant to established policies. The Company's product return policies are consistent with industry practice, whereby remanufacturers accept product returns from current customers regardless of whether the remanufacturer actually sold the product. The Company has no obligation to accept product returns from customers that no longer purchase units from the Company.
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 December 31, 2006 and 2005.
Competition
The remanufactured automotive parts industry is highly competitive as the Company competes with a number of other companies, including certain original equipment manufacturers that sell remanufactured automotive parts. The Company competes with several large regional remanufacturers and with remanufacturers that are franchised by certain original equipment manufacturers to remanufacture their products for regional distribution. The Company also competes with numerous remanufacturers that serve 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 warranty policy. The Company believes its product availability and technical expertise in product lines it sells has been an important factor in enabling the Company to compete effectively.
Engineering
Product engineers support each of the Company’s main product lines. 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 product engineers include improving the quality of existing products, formulating specifications and procedures for remanufactured products for use on makes and models of vehicles for which they were originally designed, converting cores for use amongst different makes and models and developing specifications, supplies and procedures for remanufacturing newly introduced products.
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. Additionally, the engineer’s design and test new methods of reassembling components and cleaning parts and cores. The Company believes such activities improve
the Company's ability to serve the needs of its customers.
Quality Assurance personnel conduct periodic quality audits of the Company's plants under its quality improvement program to test product quality and compliance with specifications.
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. Although management believes that the current level of environmental reserves are adequate to satisfy the future compliance with the environmental laws, the ultimate outcome of its environmental matters and potential insurance settlements are undeterminable. Accordingly, there can be no assurance that these reserves will be adequate. See Item 3, "Legal Proceedings - Environmental Matters" for additional discussion.
Employees
As of December 31, 2006, the Company’s manufacturing plants employed 232 people in Arkansas and 59 people in Florida.
There are no collective bargaining agreements in place at any of the Company’s present facilities. The Company considers its employee relations to be satisfactory.
Risk Factors
We may selectively pursue strategic opportunities like acquisitions or joint ventures, but we may not be able to successfully do so or realize the intended benefits of such transactions.
We continually evaluate potential acquisitions and joint ventures. There can be no assurance that suitable acquisition candidates may be identified and acquired in the future, that the financing or necessary consents for any such acquisitions will be available on satisfactory terms or that we will be able to accomplish our strategic objectives in making any such acquisition. We will encounter various risks if we acquire other companies, including the possible inability to integrate successfully an acquired business into our operations and unanticipated problems or liabilities, whether or not known at the time of acquisition. We could incur additional indebtedness in connection with our acquisition strategy and increase our leverage.
As described above under Recent Development (page 3), we have recently acquired certain assets of Tomco . We may encounter various risks as a result of this acquisition, including the possible inability to integrate successfully this business into our operations and unanticipated problems or liabilities.
Our pension plans are currently under-funded and we may have to make cash payments to the plans, reducing the cash availability.
We sponsor defined benefit pension plans covering certain active and retired union employees in the United States that are under-funded and require future cash payments. Additionally, if the performance of the assets in our pension plans does not meet our expectations, or if other actuarial assumptions are modified, our required contributions may be higher than we expect. If our cash flow from operations is
insufficient to fund our pension liability, we may be forced to reduce or delay capital expenditures, seek additional capital, or seek to restructure or refinance our indebtedness.
During 2006, we made contributions, including employee contributions and benefit payments made directly by the Company of $377,000 to the defined benefit plans. The under funded status at December 31, 2006 was $2,346,000. Our pension expense was $95,000 for 2006 and $245,000 for 2005. For 2007, we expect the pension expense to be $18,000.
We are dependent on certain key customers, and the loss of one or more customers could have a material adverse effect on our business.
A substantial portion of our business results from sales to key customers. In 2006, our four largest customers in aggregate accounted for 73% of net sales. If one or several of these key customers were to reduce their orders substantially or terminate purchases, we would suffer a decline in revenue and profits, and those declines could be material and adverse.
We are highly dependent on certain key personnel.
We are highly dependent on the services of Jerry A. Bragiel, our Chief Executive Officer. Were we to lose the services of Mr. Bragiel, we could face a significant risk of declining revenue and/or operating income.
The success of our business also requires that we retain other qualified management personnel.
Our success is also dependent upon our ability to hire and retain qualified management, marketing, technical, financial and other personnel, including our chief financial officer. Competition for qualified personnel is intense, and there can be no assurance that we will be able to hire or retain additional qualified personnel. Any inability to attract and retain qualified management and other personnel would have a material adverse effect on us.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
Our credit facility and other debt agreements contain a number of significant covenants that, among other things, restrict our ability to:
· incur additional indebtedness or issue redeemable preferred stock
· pay dividends and repurchase our capital stock
· make certain investments
· transfer or sell assets
· incur liens
· engage in mergers
· make capital expenditures
In addition, under the credit facility, we are required to satisfy specified financial tests. Our ability to comply with those provisions may be affected by events beyond our control, and we may not be able to meet those tests.
Increasing costs for or reduced availability of components and raw materials may adversely affect our profitability.
The principal raw materials we purchase include cores, components and other raw materials. Raw materials comprise a large component of our costs, representing approximately 33% of our total costs during the year ended December 31, 2006. A significant increase in the price of these items could materially increase our operating costs and materially and adversely affect our profit margins. For example, we have experienced significant price increases in raw material as a result of petroleum prices and limited competition for specialized components.
We could be adversely affected if we are unable to continue to compete successfully in the highly competitive automotive parts industry.
The automotive parts industry is highly competitive. We face numerous competitors in each of the product lines we serve. In general, there are three or more significant competitors for most of the products offered by our company and numerous smaller competitors. We also face increased competition for certain of our products from suppliers producing in lower-cost countries such as Mexico. We may not be able to continue to compete favorably and increased competition in our markets may have a material adverse effect on our business.
We may incur material losses and costs as a result of product liability and warranty and recall claims that may be brought against us.
We may be exposed to product liability and warranty claims in the event that our products actually or allegedly fail to perform as expected or the use of our products results, or is alleged to result, in bodily injury and/or property damage. Accordingly, we could experience material warranty or product liability losses in the future and incur significant costs to defend these claims.
In addition, if any of our products are, or are alleged to be, defective, we may be required to participate in a recall of that product if the defect or the alleged defect relates to automotive safety. Our costs associated with providing product warranties could be material. Product liability, warranty, and recall costs would have a material adverse effect on our business, results of operations, and financial condition.
We are subject to a broad range of environmental, health, and safety laws and regulations, which could adversely affect our business and results of operations.
We are subject to a broad range of federal, state, and local environmental and occupational safety and health laws and regulations, including those governing emissions to air, discharges to water, noise and odor emissions; the generation, handling, storage, transportation, treatment, and disposal of waste materials; the cleanup of contaminated properties; and human health and safety. We may incur substantial costs associated with hazardous substance contamination or exposure, including cleanup costs, fines, and civil or criminal sanctions, third party property or natural resource damage, or personal injury claims, or costs to upgrade or replace existing equipment, as a result of violations of or liabilities under environmental laws or non-compliance with environmental permits required at our locations. In addition, many of our current and former facilities are located on properties with long histories of industrial or
Commercial operations and some of these properties have been subject to certain environmental investigations and remediation activities. Because some environmental laws (such as the Comprehensive Environmental Response, Compensation and Liability Act) can impose liability for the entire cost of cleanup upon any of the current or former owners or operators, retroactively and regardless of fault, we could become liable for investigating or remediate contamination at these or other properties (including offsite locations). We may not always be in complete compliance with all applicable requirements of environmental law or regulation, and we may incur material costs or liabilities in connection with such requirements. In addition, new environmental requirements or changes to existing requirements, or in their enforcement, could have a material adverse effect on our business, results of operations, and financial condition. We have made and will continue to make expenditures to comply with environmental requirements. While our costs to defend and settle claims arising under environmental laws in the past have not been material, such costs may be material in the future. For more information about our environmental compliance and potential environmental liabilities, see “Item 1. Business - Environmental Matters.”
We are dependent on a mature product line whose volume continues to shrink.
Approximately 55% of our net sales for 2006 involve the sale of remanufactured carburetors. The increase in the percentage of net sales involving the remanufactured carburetors was due to the Tomco acquisition and would have otherwise declined. We expect sales to decline in the future. Sales have and most likely will continue to decline for two reasons. First, the availability of acceptable carburetor cores continues to shrink due to age or damage to used carburetors. Secondly, the number of vehicles using carburetors continues to decline since the last domestic carbureted production vehicle was manufactured in 1988. Management is pursuing other new products and new markets for existing products; however, there is no assurance that new product lines or new markets will offset the continual carburetor sales erosion.
Directors and officers indemnification.
Our by-laws require us to indemnify any of our directors, officers, employees or agents to the full extent permitted by Illinois law. This may reduce the likelihood of shareholders instituting derivative litigation against directors and officers and may discourage or deter shareholders from suing our directors, officers, employees and agents for breaches of their duty of care, even though such an action, if successful, might otherwise benefit us and our shareholders .
The price of our common shares has been, and may continue to be, volatile.
The market price of our common shares has fluctuated, and it is likely that the price of our common shares will fluctuate in the future. Since January 1, 2006, the sale price for our common shares, as reported by OTC Market Report published by the National Quotations Bureau, has fluctuated from a low of $0.61 to a high of $1.01 per share. The market price of our common shares could be impacted by a variety of factors, including:
· the shares are traded on the NASD Bulletin Board under the symbol “CREB” and are not
listed on a stock exchange;
· because of the low price of the shares, they may not be purchased by most institutional investors,
and the volume of shares traded is generally low;
·
Only 1,472,228 shares are held by non-affiliates and available for public trading.
In addition, the stock market continues to experience price and volume fluctuations. These broad market fluctuations may negatively affect the market price of our common stock.
We have the discretion to issue additional shares of preferred shares with rights and preferences superior to those granted to holders of our common shares.
Our Articles of Incorporation authorizes our board of directors to issue up to 10,000,000 shares of preferred shares, from time to time, in one or more series. Our board of directors is authorized, without further approval of our shareholders, to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges and restrictions applicable to each new series of preferred shares. The issuance of such shares could adversely affect the voting power of the holders of common shares and, under certain circumstances, make it more difficult for a third party to gain control of us, discourage bids for our common stock at a premium, or otherwise adversely affect the market price of our common shares.
Item 2.
Item 2. Properties
The Company's corporate headquarters occupies office space at the Hope Division facility, 2005 West Avenue B, Hope, Arkansas. This facility houses the Company's corporate office functions, including executive, administration, finance and data processing. This facility is subject to a mortgage securing a loan with a balance of $655,000 at December 31, 2006. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Debt” on page 18.
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:
The Company's facilities currently operating 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.
Item 3. Legal Proceedings
1. Beech Creek, Pennsylvania Facility Soil and Groundwater Contamination
In May 1991, the Pennsylvania Department of Environmental Protection ("PADEP") notified the Company that there was evidence of trichloroethylene and trichloroethane in the soil, and possibly the groundwater under the Beech Creek facility. Further, PADEP was concerned that the contamination had
migrated off site. PADEP demanded 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, PADEP approved the investigation plan. The plan, which included extensive soil testing and groundwater monitoring, was completed in 1995.
Cleanup commenced in 1995 at the Beech Creek plant. Cleanup activities consist of the venting of volatile organic gases from soil, and the pumping and treating of groundwater. The maintenance and operation of the system has been approximately $26,000 per year. In November 1998, the Company submitted a plan to PADEP to monitor groundwater and to stop operation of the remediation system under Pennsylvania's "Act Two." PADEP approved the plan. In January 2001, PADEP indicated that a minimum of eight quarterly rounds of sampling would be needed before an Act Two liability release could be considered by PADEP.
In June 2004, the Company entered into a consent order agreement with PADEP and the purchaser of the Beech Creek property, whereby the Company agreed to the remediation of the property under Pennsylvania’s Act 2 Program. A $200,000 escrow account was established at the closing of the sale of the property to cover cost of remediation. See note 3 to Item 15 “Exhibits, Financial Statements Schedules and Reports on Form 8-K.”
The Company also has demanded indemnity from its insurance carriers regarding this matter. One of its carriers settled with the Company. The Company plans to vigorously pursue all remaining applicable coverage.
2. Spectron, Maryland Superfund Proceeding
On September 20, 1995, the United States Environmental Protection Agency (USEPA) notified the Company (along with several hundred other companies) of potential liability for response actions at the Spectron Superfund Site. The USEPA letter asks the Company and the other potentially responsible persons (PRPs) to negotiate with USEPA for their performance of a remedial investigation/feasibility study at the Spectron Site.
In August 2002, the Company received a de minimis settlement offer from the USEPA for approximately $154,000. The Company did not accept the settlement offer.
The Company has demanded defense and indemnity from its insurance carriers for any liability at the Spectron Site, and one of the carriers has settled with the Company. The Company plans to vigorously pursue all remaining applicable coverage, if necessary. Further, the Company believes that its former solvent supplier and waste solvent transporter are responsible for a share of any liability the Company incurs for the Spectron Site cleanup. The Company plans to vigorously pursue the transporter for this claim.
3. Double Eagle Superfund Proceeding
In January 2003, the Company received a "Notice of Liability" letter from the former owner and PRP at the Double Eagle Refinery Superfund Site (DER Site). The former owner is liable for remediation costs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). According to DER Site records, the Company sent approximately 46,000 gallons of waste oil to the DER
Site from 1985 through 1988 and, as such, also faces potential PRP liability for DER Site remediation
costs. The Company has been informed that 4,500 PRPs have been identified at the DER Site accounting
for 8.5 million gallons of waste. Many of these PRPs apparently are small companies which sent relatively small quantities of waste to the DER Site, but approximately 100 PRPs have been identified who sent more than 10,000 gallons each. The USEPA has threatened the former owner and several other PRPs with whom USEPA has a tolling agreement with a $21-22 million cost recovery action concerning the USEPA's remediation of soil and groundwater contamination of the DER Site. (The USEPA is barred from pursuing the Company, and many other PRPs, by the applicable statute of limitations.) In response to the threatened cost recovery action, the former owner sent Notice of Liability letters to approximately 100 PRPs and hosted a February 25, 2003 meeting asking the PRPs to form a PRP Group to negotiate with the USEPA and allocate liability. The stated intent, in the absence of the formation of such a group, is to pursue, when appropriate, a private party contribution action against the PRPs. To date, no PRP Group has been formed and private party contribution action has not been initiated. The Company's liability at the DER Site, if any, will likely be based on an as yet undetermined volume allocation.
The Company has put its insurance carriers on notice of this potential claim. The primary carrier has denied coverage but the Company plans to vigorously pursue the carrier for coverage.
4.
Fresno, CA
The California Regional Water Quality Control Board (the “Board”) has notified the Company that the Company’s operations at its former Fresno, California facility may have caused groundwater contamination in the vicinity of that facility. The Board demanded that the Company and the present owner of the property submit a work plan for assessment of soil and groundwater conditions under the Fresno facility.
The Company retained a qualified environmental consultant to help respond to the Board’s demands. Based on the consultant’s findings, the Company declined to submit a work plan because there was no basis to believe that the Company was in any way responsible for the groundwater contamination.
The Board then ordered the Company and the current property owner to submit a soil and groundwater assessment work plan for the Fresno facility and its surrounding areas. The current property owner subsequently agreed to perform the requested investigation (the Company did not participate). The investigation concluded that the former Fresno facility is not a source of groundwater contamination in the vicinity of that facility.
In November 2006, the Board informed the current property owner that more investigation and remediation of the onsite source of groundwater contamination was necessary, and demanded an additional submittal. The submittal must address the Board’s comments and contain a work plan for further delineation of contaminants in soil vapors and subsequent remediation, and a work plan for additional groundwater investigation. The current property owner must provide this additional submittal to the Board by March 30, 2007. The Board did not request that the Company provide any further submittals, and the Company does not know if the current property owner plans to comply with the Board’s demand. If the Board orders the Company to participate in the cleanup of groundwater contamination identified by the Board, however, the costs of such a cleanup could be substantial. In addition, there is a risk that the current property owner will demand that the Company pay the costs of its investigation and cleanup. The Company has demanded defense and indemnity from its insurance carriers for any liability associated with the Fresno facility. The Company plans to vigorously pursue all applicable coverage.
Summary
From time to time, the Company may be named in lawsuits during the normal course of its business. Management intends to vigorously defend any lawsuits that may arise. In the opinion of Management, the environmental legal matters now pending will not have a material adverse effect on the consolidated financial position of the Company.
The Company has available established reserves of $100,000 of December 31, 2006, for potential environmental and other legal liabilities that it believes to be adequate. However, 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 or other legal liabilities in the future.
Item 4.
Item 4. Submission of Matters to a Vote of Shareholders
None
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The Company's Common Shares are traded over the counter on the NASD Electronic Bulletin Board under the symbol "CREB.OB". As of December 31, 2006, there were 610 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 provided in the OTC Market Report published by the National Quotation Bureau. Such high and low bids reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.
Under the Company's 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 RGP Holding, Inc., the Company's Employee Stock Ownership, and shares held by three of the Company's directors were included in the shares held by affiliates. Certain of such individuals and entities may not be affiliates.
Item 6.
Item 6. Selected Financial Data
Selected Financial Data - Notes
Note 1: At the end of May 2004, the Company closed its warehouse distribution location in suburban Toronto, Ontario, Canada. A continual decline in sales revenues and profitability over the past several years did not warrant keeping the operation open.
Note 2:
In 2002, the Company incurred expenses totaling $582,000 for inventory and equipment relocation, severance and other restructuring costs, which could not be accrued in 2001, as they did not qualify as “exit costs”. All restructuring expenditures were completed in 2002.
It was determined in the second quarter of 2002 that the estimated restructuring charge was higher than needed, and consequently, a reversal of $127,000 was recorded in May 2002.
Note 3:
For this schedule, the current maturities of long-term debt are included in long-term debt obligations in order to reflect comparable numbers with all periods presented.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management Overview
Net sales for 2006 of $18,061,000 were 16.58% lower than 2005 reflecting weaker sales of constant velocity axles, heavy duty and agricultural products, air conditioning products, and carburetors. Costs of products sold in 2006 were also lower versus last year by $3,335,000, or 17.91%, more than proportional with the net sales decrease. Operating expenses were $356,000, or 14.61%, lower than the 2005 level. Operating income in 2006 was $690,000, a $101,000 increase versus a $463,000 decline in 2005, primarily as a result of the decreased cost of products sold. Interest expense for the year increased
$39,000 over 2005, as a result of a higher credit facility revolving balance. The Company’s net income for 2006 was $10,000, a decrease of $27,000, compared to $37,000 reported in 2005.
August 10, 2004 the Company entered into a three-year credit facility with PNC Bank, National Association. Maximum credit available under the PNC facility is $14,000,000, including available letter of credit accommodations of $1,000,000. The interest rate on the revolving debt facility was lender prime plus 1/4 % or LIBOR plus 2%, and for letters of credit, the rate is 3.25% per annum on the daily outstanding balance.
On August 31, 2006, the Company entered into an amendment extending the loan maturity date to August 10, 2008.
Also on August 10, 2004, the Company entered into a commercial property loan on the Hope, Arkansas property with Elk Horn Bank and Trust Company acting as lead bank for a group of five lending institutions. The loan with Elk Horn is for $900,000, with seven-year amortization and an interest rate of New York prime plus 2% adjusted quarterly.
Management believes that the Company will be able to finance its working capital needs in the current year and the foreseeable future through the use of borrowings and cash flows generated from operations.
The Company's largest product line is remanufactured carburetors, which accounted for 60% of 2006 net sales compared to 45% in 2005. The Company's main distribution channel is through large retailers who accounted for 88% of net carburetor sales in 2006 and 90% in 2005. The balance of the carburetor sales was to original equipment aftermarket customers and traditional warehouse distributors.
A reduction in the level of sales to or the loss of one or more of these customers would have a material adverse effect on the Company’s financial condition and results of operations.
Results of Operations
2006 Compared to 2005
Net sales for the year ending December 31, 2006 were $18,061,000 versus net sales of $21,651,000 in 2005. The $3,590,000, or 16.58%, decrease in net sales reflects weaker sales of constant velocity axles, heavy duty and agricultural products, air conditioning products, and carburetors. Total product and core returns, which are accounted for as reductions to gross sales, were 29% and 26% of gross sales for 2006 and 2005, respectively.
Carburetor net sales were 60% and 45.2% of total net sales for the year of 2006 and 2005, respectively. The increase reflects sales to new customers resulting from the acquisition of Tomco in November 2006 (See Note 2 of Notes to Consolidated Financial Statements). Even though new vehicles sold in the United States and Canada is no longer equipped with carburetors, the Company continues to sell replacement units for older vehicles that predominantly use carburetors. Carburetor net sales declined moderately in 2006. The Company expects that the trend in carburetor sales will continue to be a steady decline in future periods. In addition, margins on carburetors may be negatively impacted in the future as customers accelerate product returns during periods of declining demand.
Cost of products sold were $15,290,000, or 85%, of net sales for 2006 as compared to $18,625,000, or 86%, for 2005. The $3,335,000, or 18% decrease over 2005 is partially attributed to the net sales decrease. Costs of products sold also reflect changes in product mix compared to 2005.
Selling, distribution and administrative expenses for 2006 were $2,081,000 compared to $2,437,000 in 2005. Distribution spending was lower in 2006 as a result of lower sales. Overall operating expenses were proportionately higher due to increased freight costs compared to the decrease in sales.
Operating income for the year was $690,000 compared to $589,000 in 2005, a $101,000, or 17% increase.
Interest expense of $621,000 for the year was higher by $39,000 compared to 2005, reflecting a higher revolving loan balance. This increase was due to higher average outstanding loan balances in 2006 and higher interest rates.
Non-operating expense was $68,200 compared to income of $113,000 in 2005.
Net income was $10,000 versus $37,000 in 2005, a decrease of $27,000. As discussed earlier, higher costs of products sold combined with higher costs of servicing the company’s debt accounted for the decrease in net income over 2005.
2005 Compared to 2004
Net sales for the year ending December 31, 2005 were $21,651,000 versus net sales of $19,998,000 in 2004. The $1,653,000, or 8.3%, increase in net sales reflects stronger sales of constant velocity axles, heavy duty and agricultural products, and air conditioning products. Partially offsetting these increases were lower sales of carburetors. Total product and core returns, which are accounted for as reductions to gross sales, were 27.0% and 23.7% of gross sales for 2005 and 2004, respectively. The higher percentage for the year of 2005 reflects the impact of product return credits issued declining less than the decrease in gross sales of carburetors.
Carburetor net sales were 45.2% and 54.6% of total net sales for the year of 2005 and 2004, respectively. Even though new vehicles sold in the United States and Canada are no longer equipped with carburetors, the Company continues to sell replacement units for older vehicles that predominantly use carburetors. Carburetor net sales declined moderately in 2005. The Company expects that the trend in carburetor sales will continue to be a steady decline in future periods. In addition, margins on carburetors may be negatively impacted in the future as customers accelerate product returns during periods of declining demand.
Cost of products sold were $18,625,000, or 86%, of net sales for 2005 as compared to $16,588,000, or 83%, for 2004. The $2,037,000, or 12.3% increase over 2004 is partially attributed to the net sales increase. Costs of products sold were also impacted by significant increases in the price of materials.
Selling, distribution and administrative expenses for 2005 were $2,437,000 compared to $2,358,000 in 2004. Distribution spending was slightly higher than 2004 reflecting higher sales. Overall operating expenses were proportionately lower compared to the increase in sales.
Operating income for the year was $589,000 compared to $1,052,000 in 2004, a $463,000, or 44% decline.
Interest expense of $582,000 for the year was lower by $24,000 compared to 2004, reflecting a lower revolving loan balance. This decrease was partially offset by higher interest rates.
Non-operating income decrease was $113,000 compared to $424,000 in 2004. Two non-reoccurring items in 2004 accounted for the difference. The Company met job expansion incentives under the City of Hope, Arkansas note agreement, whereby the city forgave the $250,000 note. During 2004, the Company also received $151,000 in rebates from the State of Arkansas for meeting job expansion incentives under the State’s create rebate program.
Net income was $37,000 versus $715,000 in 2004, a decrease of $678,000 primarily reflecting the higher cost of products sold.
Liquidity and Capital Resources
Liquidity Overview
August 10, 2004 the Company entered into a three-year credit facility with PNC Bank, National Association. Maximum credit available under the PNC facility is $14,000,000, including available letter of credit accommodations of $1,000,000. The interest rate on the revolving debt facility is lender prime plus 1/4 % or LIBOR plus 2%, and for letters of credit, the rate is 3.25% per annum on the daily outstanding balance. On August 31, 2006, the Company entered into an amendment extending the loan maturity date to August 10, 2008.
Also on August 10, 2004, the Company entered into a commercial property loan on the Hope, Arkansas property with Elk Horn Bank and Trust Company acting as lead bank for a group of five lending institutions. The loan with Elk Horn is for $900,000, with seven-year amortization and an interest rate of New York prime plus 2% adjusted quarterly. The balance of the mortgage note at December 31, 2006 is $655,000.
Management believes that the Company will be able to finance its working capital needs in the current year and the foreseeable future through the use of borrowings and cash flows generated from operations.
Working Capital
Net working capital at December 31, 2006 was $11,908,000 compared to $6,925,000 at December 31, 2005. The current ratio at December 31, 2006 was 2.2 versus 1.5 at December 31, 2005. The increase in working capital primarily reflects lower trade accounts payable and an increase in inventories.
Net trade accounts receivable at December 31, 2006 were $5,615,000, a decrease of $1,529,000 versus the year-end 2005 balance of $7,144,000. The decrease in the Company's accounts receivable balance at year-end was attributable to an increase in the allowance for uncollectible accounts of $963,000.
Net inventories of $15,685,000 at December 31, 2006 were $3,865,000 higher compared to the year-end 2005 balance of $11,820,000. The increase in net inventory is the result of the purchase of a major competitor and the inventory reserve adjustments as noted in Note 14 to the Consolidated Financial Statements.
Accounts payable at December 31, 2006 were $5,106,000 compared to a balance at year-end 2005 of $6,485,000. The $1,379,000 decrease in accounts payable is primarily due to a reclassification made to accounts payable in the amount of $1,318,000 at December 31, 2005 to offset outstanding credit memos against outstanding debit memos in order to conform to the December 31, 2006 presentation.
Accrued expenses of $4,521,000 were $1,332,000 less than the fiscal year-end 2005 balance of $5,853,000, principally reflecting customer return credit accruals.
Indebtedness for Borrowed Money
On August 10, 2004, the Company entered into a three-year secure revolving credit facility with PNC Bank, National Association, replacing the Congress Financial Corporation credit facility. On August 31, 2006, the Company entered into an amendment extending the loan maturity date to August 10, 2008. Maximum credit available under the PNC facility is $14,000,000, including available letter of credit accommodations of $1,000,000. The interest rate on the revolving debt facility was lender prime plus 1/4 % or LIBOR plus 2%, and for letters of credit, the rate is 3.25% per annum on the daily outstanding balance.
On August 10, 2004, the Company entered into a commercial property loan on its Hope, Arkansas properties with Elk Horn Bank and Trust Company acting as lead bank for a group of five lending institutions. The loan with Elk Horn is for $900,000, with seven-year amortization and an interest rate of New York prime plus 2% adjusted quarterly.
At December 31, 2006, the balance outstanding on the Company’s revolving loan facility with PNC Bank, National Association was $8,326,000 and letter of credit accommodations were $40,000. Also at December 31, 2006, the balance outstanding on the Company’s commercial mortgage loan with Elk Horn Bank was $655,000. The total of the loan balances was $8,981,000, which compares to a total loan balance at December 31, 2005 of $6,955,000 and letter of credit accommodations of $40,000. At December 31, 2006, the Company was in compliance with the amended fixed charge coverage ratio covenant.
Other Debt
The Company is also indebted under a note relating to the acquisition of a business competitor. The Non-Interest Bearing Promissory Acquisition Note is capped at $9.5 million with an earn-out for 11 years, payable in monthly installments of 7.5% of net sales for the first three years and 5.0% of net sales for the remaining eight years. The balance of the Note at December 31, 2006 is $3,236,000.
The company has other debt related to a settlement with general creditors executed in 1997. The note is contingent to the availability of defined free cash flow, payable up to $500,000 annually in the years 2005-2009. The balance of the note at December 31, 2006 is $1,793,000. (see “Earn-out Non-Interest Bearing note in Note 3 in the Notes to Consolidated Financial Statements).
The company has other debt related to an acquisition in 2004. The note is contingent on attaining certain sales levels. The balance of the note at December 31, 2006 is $130,000 (see “Asset Purchase Promissory Note” in Note 3 in the Notes to Consolidated Financial Statements).
Future Outlook
The additional revenue from the sales of air conditioning products has partially mitigated the declining carburetor product line sales during the past three years. Management is pursuing other new products and new markets for existing products. Management’s strategy includes internal new product development as well as acquisition opportunities.
The Company's cash flow generated from operations together with borrowings is expected to provide sufficient working capital to meet our needs over the next fiscal year and beyond.
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 statements under "Future Outlook" and to the following:
The competitive environment has caused and is continuing to cause changes in the distribution channels between volume retailers and traditional warehouse/distributors. The Company has diversified its customer base and currently serves all major aftermarket segments, including large volume automotive retailers, original equipment manufacturers of automotive equipment and automotive warehouse distributors. The decline in carburetor product sales over the longer term could impact future results.
During 2006, the fourth largest customer of the company advised the Company that it is purchasing its products from one of its affiliates. The Company is exploring its options to retain some or all of this business.
The Company’s six largest customers accounted for a total of 80.6% of the Company’s net sales in the year ending December 31, 2006, with the four largest customers aggregating 73% of the total. For the same period in 2005, the Company’s six largest customers accounted for a total of 83% of the Company’s
net sales, with the four largest customers comprising 72% of the total. The loss of a large customer could have a materially adverse impact on the Company’s financial condition and results of operations.
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 Item 3 “Legal Proceedings” for additional information.
Accordingly, actual results may differ materially from those set forth in forward-looking statements.
Contractual Obligations
The following table provides a summary of our contractual obligations at December 31, 2006.
Notes to Contractual Obligations:
(1) The nature of our long-term debt obligations is described more fully in “Note 3 of the Consolidated Financial Statements.”
(2) The pension plan funding was determined by the Company's actuary using the expected return on plan
assets, the relative weighting of the plan assets, and the historical performance of the plan assets and other economic indicators of future performance. Based on the uncertainty of the economic indicators, future period obligations have not been estimated at this time.
Off Balance Sheet Transactions
As part of its ongoing business, the Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities ("SPE's"), or SPE's which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 31, 2006, the Company is not involved in any unconsolidated SPE transactions.
Critical Accounting Policies and Estimates
The Company's financial statements reflect the selection and application of accounting policies that require management to make significant estimates and assumptions. Management believes that the following points are some of the more critical judgment areas in the application of accounting policies that currently affect the Company's financial condition and results of operations. Preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues, and expenses and related contingent liabilities. On an on-going basis, the Company evaluates its estimates for propriety, including those related to revenues, accounts receivable and inventory reserves, income taxes, and contingencies and litigation. The Company bases its reserve estimates on historical experience, current market and operating trends, and on various assumptions that are believed to be reasonable under current operating circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The Company recognizes sales when products are shipped. Net sales reflect deductions for cores 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 cores that may be rebuilt for products that are included in the Company's current product line.
Deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. At December 31, 2006, the Company’s deferred tax asset consisted principally of net inventory reserves and net operating loss carry forwards. The Company’s deferred tax asset has been reduced by a valuation allowance to the extent such benefits are not expected to be fully utilized.
Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, Inventory Costs (“SFAS No. 151”). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of the statement did not have a material effect on its consolidated financial statements.
In June 2006, the FASB issued Interpretation No 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes. FIN 48 prescribes detailed guidance for the financial statement recognition, measurement, and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years beginning after December 15, 2006 and will become effective for us beginning with the first quarter of 2007, and the provisions of FIN 48 will be applied to all tax positions under Statement No 109 upon initial adoption. The cumulative effect of applying the provision of this interpretation will be reported as an adjustment to the opening balance of retained earning for that fiscal year. The company is currently evaluating the potential impact of FIN 48 on its consolidated financial statements.
In September 2006, the SEC issued Staff Bulletin No 108 (“SAB No 108”). SAB No 108 addresses the process and diversity in practice of quantifying financial statement misstatements resulting in the potential build up of improper amounts on the balance sheet. The Company was required to adopt the provisions of SAB No 108 in fiscal 2006. The adoption of SAB No 108 did not have a material impact on its consolidated financial statements.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.” SFAS 157 establishes a framework for measuring fair valued and expands disclosures about fair value measurements. The changes to current practice, resulting from the application of this Statement relates to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2007 and will become effective beginning in the first quarter of 2008. The Company has not yet determined the impact of the adoption of SFAS No 157 on its financial statement and footnote disclosures.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, an amendment of SFAS 87, 88, 106, and 132R. Statement No. 158 requires the recognition of the over funded or under funded status of a defined benefit postretirement plan as an asset or a liability on the balance sheet and recognition of changes in that funded status in the year in which the changes occur through comprehensive income. Statement No. 158 also requires the employer to measure the funded status of a plan as of the date of its year-end balance sheet. Statement No. 158 was adopted as of December 31, 2006.
In February 2007, the FASB issued SFAS No 159, The Fair Value Option for Financial Assets and Financial Liabilities. This statement permits entities to choose to measure many financial instruments and certain other item at fair value that are not currently required to be measured at fair value. The objective
is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earning caused by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become for the fiscal years beginning with the first quarter of 2008. The Company has not yet determined the impact of the adoption of SFAS No 159 on its financial statements and footnote disclosures.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company has a credit facility and mortgage, which bears interest at various rates that are based on the bank prime rate. Interest on $8,981,000, or 64%, of the Company's debt is variable based on the lender’s prime rate. Consequently, a general increase of 1% in the lender’s prime rate would result in additional interest cost of approximately $90,000 on an annual basis if the same debt level and structure were to be maintained.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data called for by this item are listed in the accompanying for consolidated financial statements and financial statement schedule and are filed herewith (See page 33).
Item 9.
Item 9. Changes in and Disagreements with Accountants and Accounting and
Financial Disclosure
None
Item 9a.
Item 9a. Controls and Procedures
(a)
The Company's certifying officers have concluded based on their evaluation of the Company's disclosure controls and procedures that the disclosure controls and procedures as of the fiscal year ended December 31, 2006 are effective in ensuring that material information relating to the Company, including its consolidated subsidiaries, is made known to the certifying officers by others within those entities, as appropriate to allow timely decisions regarding required disclosure, particularly during the period in which this Form 10-K was being prepared, and that information required to be disclosed by the Company in its reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b)
There was no change in internal control over financial reporting during the fourth quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART III
Item 10.
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 last annual meeting of shareholders was held on September 4, 2003.
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.
Name (Age)
Directors of the Company
Served as Director Since
John R. Gross (75)
Owner, Chaney Auto Parts, Inc. Crest Hill, Illinois
Raymond F. Gross (68)
Vice President, Erecta Shelters, Inc. Ft. Smith, Arkansas
W. Jason Guzek (33)
Vice President of Operations, Belmont Holdings Corporation, Wilmington, Delaware
Barry L. Katz (55)
President and General Counsel, Belmont Holdings
Corporation, Wilmington, Delaware
Raymond G. Perelman (89)
Chairman of the Board and CEO RGP Holding, Inc. and
Belmont Holdings Corporation, Wilmington, Delaware
Name (Age)
Officers of the Company
Jerry A. Bragiel (55)
President and CEO
Kevin J. Cain (43)
Secretary and CFO
Jerry A. Bragiel joined the Company in May 1997 as President and CEO of the Company. He held the positions of General Manager and Vice President of Business Development of IPM Products Corporation from 1994 to 1997. Prior to 1994, Mr. Bragiel had 20 years of employment with the Company in various capacities. His final position prior to his resignation from the Company in 1994 was Vice President and General Manager of Operations.
Kevin J. Cain joined the Company in February 2007 and was appointed as Vice President of Finance and Chief Financial Officer on February 19, 2007. Prior to joining the Company, Mr. Cain held the following positions: Controller, Vice President of Finance, and Chairman of the Finance Committee of Carter Federal Credit Union from January 2005 until February 2007; Tax Collector and Administrator for City of Bossier City and Bossier Parish from July 2001 until April 2004.
John R. Gross is the owner of Chaney Auto Parts, Inc., a retailer of auto parts. John R. Gross is the brother of Raymond F. Gross.
Raymond F. Gross has been the Vice President of Erecta Shelters Inc., a manufacturer and distributor of metal buildings, since 1985. Prior to 1985, he was a Vice President of the Company. Raymond F. Gross is the brother of John R. Gross.
Jason Guzek has been the Vice President of Operations of Belmont Holdings Corporation since 2000. From 1999 to 2000, Mr. Guzek was Operations Manager of Belmont Holdings Corporation. From 1996 to 1998, Mr. Guzek worked as an accountant for Belmont Holdings Corporation. Mr. Guzek is also a Vice President of RPG Holding, Inc., and serves on the Board of Directors at the request of Mr. Perelman.
Barry L. 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., which owns 35.5% of our outstanding shares, and has been its Senior Vice President and General Counsel since May 1992. Since 1994 Mr. Katz has been President and General Counsel for Belmont Holdings, Corp., a Company with subsidiaries operating mining and processing businesses. Mr. Katz serves on the Board of Directors at the request of Mr. Perelman.
Raymond G. Perelman served as Chairman of the Board from December, 1992 until November 1995 and was President and Chief Executive Officer from December, 1992 to January, 1993. He has been Chairman of the Board of RGP Holding, Inc., a privately held holding company, since May 1992. Since 1994, Mr. Perelman has been Chairman of the Board and CEO of Belmont Holdings Corp., a company with subsidiaries operating mining and processing businesses.
(b) Arrangements Concerning the Board of Directors
Directors received a fee of $10,000 for service as a director during the Company's fiscal year ended December 31, 2006. 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.
Board Committees
The Board of Directors currently has the following committees:
Audit Committee - The Audit Committee oversees and monitors the Company's financial reporting process and internal control system, and reviews the audit performed by the Company's outside auditors. The Audit Committee is also directly responsible for the appointment, compensation and oversight of the work of the Company's independent auditors. In addition, the committee performs such other duties as are specified in the Audit Committee Charter. The members of the audit committee are Messrs. Raymond Gross and Jason Guzek. The Company's Board of Directors believes that the members of the Audit Committee, by virtue of their experience in managing or operating businesses, are capable of analyzing and evaluating the Company's financial statements without the assistance of an "audit committee financial
expert", as defined in Item 401(h) of SEC Regulation S-K. The Audit Committee Charter is incorporated by reference to Registrant's December 31, 2004 Form 10-K Annual Report as Exhibit 99.
Compensation Committee - The Compensation Committee is responsible for establishing, administering and reviewing compensation programs for the Company’s officers, subject to approval of the Board of Directors as a whole. At present, the entire Board of Directors performs the function of this committee.
Code of Ethics
The Company has a Code of Ethics for its Chief Executive Officer and its Chief Financial Officer. The Code of Ethics is incorporated by reference to Registrant's December 31, 2003 Form 10-K Annual Report as Exhibit 14.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Securities Exchange Commission reports of ownership of Company securities and changes in reported
ownership. Officers, directors, and greater than 10% shareholders are required by SEC rules to furnish the Company with copies of all Section 16(a) reports filed.
Based solely upon oral confirmations from reporting persons that all reportable transactions were reported, the Company believes that during 2005 the Company's officers, directors and greater than 10% owners timely filed all reports they were required to file under Section 16(a).
Item 11.
Item 11. Executive Compensation
(a) Executive Officer Compensation and Arrangements
Executive Compensation
The following table sets forth information with respect to all compensation paid to the Company's Chief Executive Officer. There were no other executives whose compensation exceeded $100,000 for services rendered in all capacities to the Company, during fiscal 2006.
Mr. Bragiel has a severance compensation agreement with the Company that provides for severance pay equal to six months salary following 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 could be asserted against him by reason of serving as an officer of the Company.
The following table provides certain information with respect to the number and value of unexercised options outstanding as of December 31, 2006. (No options were granted to or exercised by the named executive officer during 2006.)
Aggregated 2006 Option Exercises and December 31, 2006 Option Values
Compensation Committee Interlocks and Insider Participation
The entire Board of Directors performs the functions of the compensation committee. See Item 10 above for details.
(b) Director Compensation Arrangements
Information regarding director compensation is set forth under Item 10(b) above.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following tabulation shows, as of December 31, 2006, (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 Shares Beneficially Owned (Note 1)
Percent of Common Shares Outstanding
RGP Holding, Inc. Wilmington, Delaware (Note 2)
1,296,612
35.5%
Champion Parts, Inc. ESOP (Notes 3 & 4)
21,111
**
DIRECTORS & OFFICERS AS A GROUP
John R. Gross, Director
165,313
4.5%
Raymond F. Gross, Director
31,164
**
W. Jason Guzek, Director
---
---
Barry L. Katz, Director (Note 2)
**
Raymond G. Perelman, Director (Note 2)
1,296,612
35.5%
Jerry A. Bragiel, President & CEO (Note 5)
138,984
3.8%
Total directors and executive officers as a group (6 persons)
1,646,323
45.0%
** Not greater than 1%.
(1)
Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of 1934. Information with respect to beneficial ownership is based on information furnished to the Company or contained in filings made with the Securities Exchange Commission.
(2)
RGP Holding, Inc. has sole voting and dispositive power with respect to all 1,296,612 shares. Mr. Perelman is the Chairman and Chief Executive Officer of RGP Holding, Inc. and directly or indirectly owns or controls all of the common stock of RGP Holding, Inc. Accordingly, Mr. Perelman may be deemed to be the beneficial owner of the shares owned by RGP Holding, Inc. Mr. Katz is the President and
General Counsel of RGP Holding, Inc. Accordingly, Mr. Katz may also be deemed to be the beneficial owner of the 1,296,612 shares owned by RGP Holding, Inc. Mr. Katz disclaims beneficial ownership of shares of shares owned by RPG Holding, Inc. The business address of Mr. Perelman and Mr. Katz is 225 City Avenue, Suite 14, Bala Cynwyd, PA 19004.
(3)
Mr. Jerry A. Bragiel votes on behalf of shares held in trust for employees by this plan as trustee.
Employees participating in the Stock Ownership Plan are entitled to direct the trustees as to the voting of the 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.
(4)
Does not include shares allocated to the accounts of employees other than executive officers under the Stock Ownership Plan. Each of the participants in the Stock Ownership Plan is entitled to direct the trustees as to the voting of shares allocated to his or her account.
(5)
Shares shown as beneficially owned for Mr. Bragiel include shares available through exercisable options: Mr. Bragiel, 125,000 shares; all executive officers as a group, 125,000 shares.
Equity Compensation Plans
The following table sets forth the equity compensation plan information for the Company's Stock Option Plans:
Plan Category
Number of Securities to be issued upon exercise of Outstanding options Column A
Weighted-average exercise price of outstanding options Column B
No. of securities remaining avail. for future issuance under equity compensation plans (excluding securities reflected in Column B
Equity compensation plans approved by security holders
167,000
$ 0.5293
-
Equity compensation plans not approved by security holders
-
-
-
Total
167,000
$ 0.5293
-
See Note 5 to the Financial Statements for further discussion of the Stock Option Plans.
Item 13.
Item 13.
Certain Relationships and Related Transactions
None
Item 14.
Item 14.
Principal Accountant Fees and Services
The following table summarizes the total fees paid to the Company's Independent Certified Public Accountants, Morison Cogen, LLP and BDO Seidman, LLP for professional services provided during the twelve month period ended:
(1) Audit fees consist of fees for professional services rendered for the audit of the Company’s consolidated financial statements and review of financial statements included in the quarterly reports and services normally provided by the independent auditor in connection with statutory
and regulatory filings or engagements.
(2) Audit-related pension plan fees are fees billed for assurance and related services that are reasonably related to the performance of the Company’s four pension plan statements, but not included in audit fees for the Company.
(3) Tax services fees consist of professional fees billed for services rendered by Morison Cogen, LLP for tax compliance, tax advice and tax planning.
Pursuant to the Company's Audit Committee Charter, all of the audit and non-audit fees listed above were approved by the Audit Committee prior to their performance.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)
Consolidated Financial Statements and Schedule and Exhibits:
1-2.The consolidated financial statements and schedules listed in the accompanying for consolidated financial statements are filed herewith.
3.
The exhibits required by Item 601 of Regulation S-K 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 and mortgages) where the total amount of securities authorized there under 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 Commission on request.
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 17, 2007
By: /s/ Jerry A. Bragiel
Jerry A. Bragiel
President & CEO
Date: April 17, 2007
By: /s/ Kevin J. Cain
Kevin J. Cain
CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons have signed this report below on April 17, 2006.
By: /s/ Raymond F. Gross
By: /s/ W. Jason Guzek
By : /s/ Barry L. Katz
Raymond F. Gross, Director
W. Jason Guzek, Director
Barry L. Katz, Director
By : /s/ Raymond G. Perelman
By: /s/ John R. Gross
Raymond G. Perelman, Director
John R. Gross, Director
Exhibit 31.1
SECTION 302 OFFICERS CERTIFICATION
I, Jerry A. Bragiel, President, Chief Executive Officer, certify that:
1.
I have reviewed this annual report on Form 10-K of Champion Parts, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 17, 2007
/s/ Jerry A. Bragiel
Jerry A. Bragiel
President, Chief Executive Officer
Exhibit 31.2
SECTION 302 OFFICERS CERTIFICATION
I, Kevin Cain, Chief Financial Officer, certify that:
1.
I have reviewed this annual report on Form 10-K of Champion Parts, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 17, 2007
/s/ Kevin Cain
Kevin Cain
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PERSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003
In connection with the Annual Report of Champion Parts, Inc., (the “Company”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Champion Parts, Inc. and will be retained by Champion Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PERSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003
In connection with the Annual Report of Champion Parts, Inc., (the “Company”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin Cain, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Champion Parts, Inc. and will be retained by Champion Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
CHAMPION PARTS, INC. AND SUBSIDIARIES
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements and Financial Statement Schedule comprising Item 8 and Items 14(a)(1) and (2) for the Years Ended December 31, 2006, December 31, 2005, and December 31, 2004 and Reports of Independent Registered Public Accounting Firms.
CHAMPION PARTS, INC. AND SUBSIDIARIES
Page
Report of Independent Registered Public Accounting Firm
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
Years Ended December 31, 2006 and December 31, 2005
Consolidated Statements of Income
Years Ended December 31, 2006, December 31, 2005 and December 31, 2004
Consolidated Statements of Stockholders Equity
Years ended December 31, 2006, December 31, 2005 and December 31, 2004
Consolidated Statements of Comprehensive Income/(loss)
Years Ended December 31, 2006, December 31, 2005 and December 31, 2004
Consolidated Statements of Cash Flows
December 31, 2006 and December 31, 2005
Notes to Consolidated Financial Statements
40-56
Consolidated Financial Statement Schedule - Item 14(a)(2)
Schedule II - Valuation and Qualifying Accounts
Exhibit Index
58-60
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 REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Champion Parts, Inc.
Hope, Arkansas
We have audited the accompanying consolidated balance sheets of Champion Parts, Inc. and Subsidiaries (the "Company") as of December 31, 2006 and 2005 the related consolidated statements of income, stockholders’ equity, comprehensive income (loss) and cash flow for each of the three years in the period ended December 31,2006. We have also audited the accompanying Schedule II, “Valuation and Qualifying Accounts.” 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). 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 statements and schedules. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 9, 73% of the Company’s net sales in the year ended December 31, 2006 are concentrated in four customers. A reduction in the level of net sales to or the loss of one or more of these customers could have a material adverse effect on the Company’s financial condition and results of operations.
As discussed in Note 7, the Company adopted the provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, as of December 31, 2006.
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, 2006 and 2005, the results of their operations and their cash flow for each of the three years in the period ended December 31,2006 in conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the 2006, 2005 and 2004 schedules present fairly, in all material respects, the information set forth therein.
/s/ Morison Cogen, LLP
Bala Cynwyd, Pennsylvania
April 13, 2007
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR YEARS ENDED DECEMBER 31
The accompanying notes are an integral part of these statements
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY/(DEFICIT)
THREE YEARS ENDED DECEMBER 31, 2006
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
THREE YEARS ENDED DECEMBER 31, 2006
Components of accumulated other comprehensive income/(loss), included in the Company’s consolidated balance sheet, consists of the minimum pension liability.
The accompanying notes are an integral part of these statements
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED
The accompanying notes are an integral part of these statements.
CHAMPION PARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED
DECEMBER 31, 2006, DECEMBER 31, 2005, AND DECEMBER 31, 2004
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy - The consolidated financial statements include the accounts of Champion Parts, Inc. and its subsidiaries (the "Company"). All significant inter-company transactions and balances have been eliminated in consolidation.
Fair Value of Financial Instruments - The Company’s financial instruments consist of cash, receivables, and accounts payable and accrued expenses. The carrying values of cash, receivables, and accounts payable and accrued expenses approximate fair value because of their short maturities.
The carrying value of the term loans and demand note payable approximates fair value since the interest rate associated with the debt approximates the current market interest rate.
Accounts Receivable - Accounts receivables are customer obligations due under trade terms. The Company sells remanufactured products to retailers, original equipment manufacturers and warehouse distributors. The Company performs continuing credit evaluations of its customers' financial condition and generally does not require collateral.
Senior management reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in its overall allowance for doubtful accounts. Based on the information available, the Company believes its allowance for doubtful accounts as of December 31, 2006 is adequate. However, actual write-offs could exceed the recorded allowance.
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, 2006 and December 31, 2005 customers in a net credit balance position totaled approximately $3,730,000 and $3,411,865, respectively, and are reported as a component of accounts payable. The Company periodically reviews the aging of unused credits and from time to time may reduce this balance on account of unclaimed credits or when otherwise appropriate.
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, depending on whichever is shorter.
Expenditures for maintenance and repairs are charged to operations. Major expenditures for renewals and betterments are capitalized and depreciated over their estimated useful lives.
Long-Lived Assets - The Company reviews the carrying values of its long-lived assets and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Any long-lived assets held for disposal are
reported at the lower of their carrying amounts or fair value less cost to sell. As of December 31, 2006, there has been no impairment of long-lived assets.
Deferred Charges - Costs of issuing long-term debt are deferred and amortized over the terms of the related issues.
Business Segments - The Company previously adopted Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Management views the entire corporation as one business segment.
Revenue Recognition - In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, the company recognizes revenue when (i) persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, (ii) a retailer, distributor or wholesaler receives the goods, (iii) the price is fixed or determinable, and (iv) collectibility of the sales revenue is reasonably assured. Subject to these criteria, the Company will generally recognize revenue when products are shipped. Net sales reflect deductions for cores 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 product included in the Company's current product line.
Credits for cores are allowed only against purchases of similar remanufactured products. The dollar volume of purchases further limits total available credits. Product and core returns, reflected as reductions in net sales, were $8,900,000 (2006), $10,551,000 (2005) and $10,900,000 (2004).
Net Income per common share - The Company follows Financial Accounting Standards Board Statement of Financial Accounting Standards (“SFAS”) No.128 “Earnings Per Share”, which requires disclosure of basic and diluted earnings per share. Basic EPS is calculated by dividing the income available to common shareholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. “Diluted” EPS gives effect to all dilutive potential common shares outstanding for the period.
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.
Reclassification - A reclassification has been made to accounts receivable and accounts payable in the amount of $1,318,000 at December 31, 2005 to offset the outstanding credit memos against the outstanding debit memos in order to conform to the December 31, 2006 presentation.
Shipping and Handling Fees and Costs - The Company follows EITF No. 00-10, “Accounting for Shipping and Handling Fees and Costs.” The Company classifies shipping and handling fees as part of net revenue and the related cost as operating expenses. For the years ended December 31, 2006, 2005 and 2004 shipping and handling fees were $278,000, $291,000 and $325,000, respectively.
Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, Inventory Costs (“SFAS No. 151”). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of the statement did not have a material effect on its consolidated financial statements.
In June 2006, the FASB issued Interpretation No 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes. FIN 48 prescribes detailed guidance for the financial statement recognition, measurement, and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years beginning after December 15, 2006 and will become effective for us beginning with the first quarter of 2007, and the provisions of FIN 48 will be applied to all tax positions under Statement No 109 upon initial adoption. The cumulative effect of applying the provision of this interpretation will be reported as an adjustment to the opening balance of retained earning for that fiscal year. The company is currently evaluating the potential impact of FIN 48 on its consolidated financial statements.
In September 2006, the SEC issued Staff Bulletin No 108 (“SAB No 108”). SAB No 108 addresses the process and diversity in practice of quantifying financial statement misstatements resulting in the potential build up of improper amounts on the balance sheet. The Company is required to adopt the provisions of SAB No 108 in fiscal 2006. The adoption of SAB No 108 did not have a material impact on its consolidated financial statements.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.” SFAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practices, resulting from the application of this Statement relates to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2007 and will become effective beginning in the first quarter of 2008. The Company has not yet determined the impact of the adoption of SFAS No 157 on its financial statements and footnote disclosures.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, an amendment of SFAS 87, 88, 106, and 132R. Statement No. 158 requires the recognition of the over-funded or under-funded status of a defined benefit postretirement plan as an asset or a liability on the balance sheet and recognition of changes in that funded status in the year in which the changes occur
through comprehensive income. Statement No. 158 also requires the employer to measure the funded status of a plan as of the date of its year-end balance sheet. Statement No. 158 was adopted as of December 31, 2006.
In February 2007, the FASB issued SFAS No 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This Statement permit entities to choose to measure many financial instruments and certain other item at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earning caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become for the fiscal years beginning with the first quarter of 2008. The Company has not yet determined the impact of the adoption of SFAS No 159 on its financial statements and footnote disclosures.
Note 2. ACQUISITION
On November 6, 2006, the Company acquired the assets of a business in the remanufacturing, distribution and sale of carburetors and throttle body injections. The purchase price was $174,000 cash net of cash received for salvage value of $1,170,000 and a note payable with an earn-out for 11 years equal to 7.5% of net sales for three years and 5.0% of net sales for the remaining eight years. The earn out payments are subject to a $9.5 million cap and other adjustments. The note payable was recorded at $3,236,000, the present value of the projected earn-out. Inventory acquired was recorded at its estimated fair value. The fair value of the assets acquired were as follows:
Inventory
$ 2,227,000
Equipment
473,000
Customer Lists
710,000
The unaudited condensed pro forma statement of operations assuming the acquisition occurred as of January 1, 2005 are as follows:
Note 3. DEBT
Debt at December 31 consist of the following:
1. Revolving credit at lender prime rate (8.25%) at December 31, 2006 plus 0.25%, interest payable monthly. Secured by receivables and inventory. Amendment No. 2 to the Loan Agreement extends the loan maturity date to August 10, 2008.
$ 8,326,000
$ 6,193,000
2. $900,000 mortgage note secured by Hope, Arkansas property. Monthly principal payments of $13,687. Monthly interest due at bank prime (8.25%) plus 2% on unpaid principal balance. Term of note, 7 years.
655,000
762,000
3. Earn-out notes payable, non-interest bearing, Contingent to the availability of defined Free Cash Flow, payable up to $500,000 Annually in years 2005-2009.
1,793,000
1,793,000
4. Asset purchase promissory note payable. Payable Monthly contingent on attaining certain sales levels.
130,000
130,000
5. Non-Interest Bearing Promissory Acquisition Note Payable capped at $9.5 million with an earn-out for 11 years, payable in monthly installments of 7.5% of net sales for the first three years and 5.0% of net sales for the remaining eight years.
3,236,000
-
Total Debt
$ 14,140,000
$ 8,878,000
Less Portion Due Within One Year
114,000
109,000
Total Long-Term Debt
$ 14,026,000
$ 8,769,000
Long-Term Debt Maturities at December 31, 2006 are listed below:
On August 10, 2004, the Company entered into a three-year secure revolving credit facility with PNC Bank, National Association, replacing the Congress Financial Corporation credit facility. On August 31, 2006, the Company entered into an amendment extending the loan maturity date to August 10, 2008. Maximum credit available under the PNC facility is $14,000,000, including available letter of credit accommodations of $1,000,000. The interest rate on the revolving debt facility was lender prime plus 1/4 % or LIBOR plus 2%, and for letters of credit, the rate is 3.25% per annum on the daily outstanding balance.
On March 18, 2005, the Company entered into an amendment to the Credit, Loan and Security Agreement dated August 10, 2004 with PNC Bank, National Association. The Amendment No. 1 set forth the terms for temporary modification of the revolving interest rate to 1.25% above bank prime through April 12, 2005, the terms for temporary over-formula advances resulting from a change in the Lender’s interpreting the formula for calculating Eligible Receivables, definition of collateral monitoring fees and
redefinition of the fixed charge coverage ratio covenant from a quarterly basis to a rolling twelve-month basis.
At December 31, 2006, the balance outstanding on the Company’s revolving loan facility with PNC Bank, National Association was $ 8,326,000 and letter of credit accommodations were $40,000. Also at December 31, 2006, the balance outstanding on the Company’s commercial mortgage loan with Elk Horn
Bank was $655,000. The total of the loan balances were $8,981,000, which compares to a total loan balance at December 31, 2005 of $6,955,000 and letter of credit accommodations of $40,000. At December 31, 2006, the Company is in compliance with the amended fixed charge coverage ratio covenant.
At March 28, 2004, the Company met job expansion incentives and the $250,000 City of Hope, Arkansas note was forgiven. The forgiveness of the debt was taken into non-operating income in March.
On June 28, 2004, the Company consummated the sale of its Beech Creek facility and property. The plant was vacated after consolidating operations in March of 2002. The gross value of the transaction was $1.5 million and the net proceeds were used to reduce property term debt and revolving loan debt in July. The net difference between sales proceeds received, assets held for sale and other costs of approximately $118,000 was recorded against the asset restructuring reserve provided for this transaction. A $200,000 escrow account was established at the closing of the sale of the property to cover future EPA issues. Sale of the Beech Creek property has allowed the Company to proceed with replacing the Congress loan facility with new lenders.
August 10, 2004, the Company entered into a commercial property loan on its Hope, Arkansas properties with Elk Horn Bank and Trust Company acting as lead bank for a group of five lending institutions. The loan with Elk Horn is for $900,000, with seven-year amortization and an interest rate of New York prime plus 2% adjusted quarterly.
Note 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 expense (benefit) consists of the following:
The Company has provided a valuation reserve to write-down deferred tax assets due to the uncertainty of its ability to utilize them in future periods. The valuation allowance decreased $1,245,000 and $153,000 for the years ended December 31, 2006 and 2005.
At December 31, 2006, the Company had Federal, State, and Foreign Net Operating Loss Carry Forwards of approximately $6,430,000, $2,569,000 and $0, respectively. At the end of 2005, Net Operating Loss Carry Forwards were Federal $6,407,000, State $820,000, and Foreign $0. Federal Loss Carry Forwards begin to expire in 2011. The Company also had $362,000 of tax credits.
The effective tax rate differs from the U.S. statutory federal income tax rate of 34% as described below:
Deferred tax assets and liabilities are comprised of the following at December 31, 2006 and December 31, 2005.
Note 5. 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. There are no available options under the Plan at December 31, 2005.
On August 13, 1999 (the "Grant Date"), the Company granted its Chief Financial Officer and other key management non-qualifying options to purchase 52,000 Common Shares at a price of $.75 per share. The options vest ratably at the rate of 20% of the shares granted per year, will expire in ten years from the
Grant Date and are subject to the continuation of their employment. During 2005, 10,000 shares of these options were cancelled.
On March 28, 1997 (the "Grant Date"), the Company granted its President and Chief Executive Officer an option to purchase 100,000 Common Shares at a price of $.4375 per share under the 1995 Stock Option Plan. In 1998, an additional 25,000 non-qualifying options, at a price of $.4375 per share, were granted to the President and are available for exercise. The options vest ratably at the rate of 25,000 shares per year and will expire in ten years from the Grant Date, subject to earlier termination of his employment. As of December 31, 2005 he had not exercised any of these options. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share Based Payments” using the modified prospective method. The adoption of SFAS No. 123(R) had no effect on the financial statements.
On January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective method as permitted under SFAS 123(R). Under this transition method, compensation cost to be recognized in 2006 includes compensation cost for all share-base payments granted prior to but not yet vested as of December 31,2005, based on the grant-date fair value estimated in accordance with the provisions for SFAS 123. There were no unvested options at December 31, 2005.
Had compensation cost for the Company’s stock option plan been determined on the fair value of the Company’s common stock at the dates of awards under the fair value method of SFAS No. 123, the change to the Company’s 2005 and 2004 net income and net income per common share would have been de minimis.
Information with respect to stock options outstanding is as follows:
Note 6. EMPLOYEE SAVINGS PLANS
Salaried employees and Group Leader hourly employees with one year of service are eligible to participate in a 401(k) plan ("Thrift Program"). Under this program, contributions are 100% vested.
Note 7. EMPLOYEE RETIREMENT PLANS
The Company sponsors defined pension benefit plans that cover hourly employees of the Hope facility and three former operating facilities. The benefits are based upon years of service.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, an amendment of SFAS 87, 88, 106, and 132R. Under SFAS 158 companies must: a) recognized a net liability or asset to report the funded status of their plans on their statement of financial position, b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employers fiscal year, and c) recognize changes in the funded status of a defined benefit post retirement plan in the year which the changes occur in comprehensive income. Since all the defined benefit plans were frozen, the projected benefit obligation and the previously recorded accumulated benefit obligation was the same. The effect of applying SFAS 158 on the Consolidated Balance Sheet at December 31, 2006 is as follows:
The Company uses a December 31 measurement date for pension plans. The following table presents additional details about the pension plans at December 31, 2006 and December 31, 2005:
Information for pension plans with an accumulated benefit obligation in excess of plan assets at December 31 is summarized below:
The following table provides the components of net periodic benefit cost for the plans for fiscal years 2006, 2005, and 2004:
The following amounts have been recognized in accumulated other comprehensive loss and net periodic benefit cost at December 31, 2006:
The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic pension expenses in 2007 are as follows:
The assumptions used in the measurement of the Company’s benefit obligation are shown in the following tables:
Weighted-average assumptions used to determine benefit obligations at December 31 are:
Weighted-average assumptions used to determine net periodic benefit costs for years ended December 31 are:
In determining the expected return on plan assets, the Plan Trustees consider relative weighting of the plan assets, the historical performance of the plan assets, and other economic indicators of future performance. In addition, the Plan Trustees consult with and consider the opinion of the trust management advisors and other professionals in developing appropriate return benchmarks.
Pension Plan Assets
The Company's pension plan weighted-average asset allocations at December 31, 2006, and December 31, 2005, by asset category are as follows:
Asset management objectives include maintaining an adequate level of diversification to reduce interest rate and market risk and provide liquidity to meet present and future benefit payment requirements. Plan assets are reviewed for performance and rebalanced to the target asset allocation objective periodically as needed.
Plan Contributions
The Company expects to contribute $1,003,000 to its four pension plans in 2007.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, expected to be paid:
Note 8. LEASES
The Company leases certain plants and offices 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.
Total rental expense charged to operations was $247,000 (2006), $204,000 (2005), and $267,000 (2004).
The company has no non-cancellable operating lease commitments at December 31, 2006.
Note 9. SALES TO MAJOR CUSTOMERS
In 2006, net sales to the Company's four largest customers were approximately 73% of total net sales. In 2005, net sales to the Company's four largest customers were approximately 72% of total net sales. For the year ending December 31, 2006, net sales of the Company's four largest customers were approximately 26%, 25%, 11% and 11% of total net sales.
The Company's largest product line is remanufactured carburetors, which accounted for 60% of 2006 net sales compared to 45% in 2005. The Company's main distribution channel is through large retailers who accounted for 88% of net carburetor sales in 2006 and 90% in 2005. The balance of the carburetor sales was to original equipment aftermarket customers and traditional warehouse distributors.
A reduction in the level of sales to or the loss of one or more of these customers would have a material adverse effect on the Company’s financial condition and results of operations.
Note 10. COMMITMENTS AND CONTINGENCIES
A. 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. Two sites currently have active litigation, while the others have been settled or are dormant. The Company has undertaken voluntary actions at its closed plant site ranging from periodic testing to modest amounts of soil and water remediation and storage tank removal.
The Company has $100,000 in reserves for anticipated future costs of pending environmental matters at December 31, 2006. Also, a $200,000 escrow account was established at the closing of the sale the Beech Creek, Pennsylvania property to cover future EPA issues. Future costs include the Company's estimated allocated share of remedial investigation/feasibility studies and clean up and disposal costs. 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. The Company believes that it has adequate insurance to cover these costs.
In 2004 and certain prior years, the Company was one of numerous defendants named in suits for personal injuries caused by exposure to products containing asbestos. There are no cases pending or open at December 31, 2006.
B. OTHER
From time to time the Company may be named in lawsuits during the normal course of its business. Management intends to defend any lawsuits that may arise. In the opinion of Management, legal matters now pending will not have a material adverse effect on the consolidated financial position of the Company.
Note 11. OTHER ACCRUED EXPENSES.
Other accrued expenses consist of the following at December 31:
Note 12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest and income taxes was as follows:
Supplemental Schedule of Non-cash Investing and Financing Activities:
There was an adjustment for additional minimum pension liability charged (credited) to "Other Comprehensive Loss" of ($615,000), $245,000 and $222,000 for the years 2006, 2005 and 2004, respectively.
On November 6, 2006, the Company acquired the assets of another company, see Note 2 to the Consolidated Financial Statements. The purchase price was $174,000 cash, net of cash received for salvage value of $1,170,000, and a note payable recorded at $3,236,000, which represents the present value of the projected earn out period. The fair value of the assets acquired were inventory at $2,227,000, equipment of $473,000 and customer lists at $710,000.
Note 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands, except per share data)
Note 14. INVENTORIES
Inventories at December 31 consist of the following:
Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventory consists of material, labor, and overhead costs.
Note 15. OTHER ASSETS
Other Assets consisted of the following at December 31:
CHAMPION PARTS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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 "File No. 1-07807", for the quarter ended June 30, 1998).
(3)(b)
By Laws (incorporated by reference to Registrant’s current report on Form 8-K "File No. 1-07807", filed June 5, 1997).
Instruments Defining the Rights of Security Holders, Including Indentures
(4)(a)
Specimen of Common Share Certificate
(4)(b)
Articles of Incorporation (see Exhibit (3)(a) above).
(4)(c)
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").
Material Contracts
(10)(a)
Agreement, as amended, between Registrant and Raymond G. Perelman dated September 20, 1993 (incorporated by reference to Registrant's annual Report on Form 10-K "File No. 1-07807", year ended December 31, 1998).
(10)(b)
Letter Agreement dated October 9, 1995 between Registrant and RGP Holding, Inc. (Incorporated by reference to Registrant’s quarterly report on Form 10-Q "File No.1-07807", filed November 24, 1995).
(10)(c) 1995 Stock Option Plan as of November 1, 1995 (Incorporated by reference to the Registrant's Definitive Proxy Statement for the 1995 Annual Meeting of Shareholders).
(10)(d) Severance Agreement dated March 28, 1997 between the Registrant and Jerry A. Bragiel (Incorporated by reference to the Registrant’s annual report on Form 10-K "File No. 1-07807", year ended December 28, 1997).
CHAMPION PARTS, INC.
EXHIBIT INDEX
Material Contracts (Continued)
(10)(e) Employment and Stock Option Agreement between the Registrant and Jerry A. Bragiel dated March 28, 1997 (Incorporated by reference to the Registrant’s annual report on Form 10-K "File No. 1-07807", year ended December 28, 1997). (Note 1)
(10)(f) Stock Option Agreement between the Registrant and key management personnel dated August 13, 1999. (Incorporated by reference to the Registrant’s annual report on Form 10-K "File No. 1-07807", year ended December 31, 2000). (Note 1)
(10)(g) Settlement Agreement dated July 1, 1997 between the Registrant and Unsecured Trade Creditors (Incorporated by reference to Current Report on Form 8-K "File No. 1-07807" quarter ended July 30, 1997).
(10)(h) Loan and Security Agreement dated February 8, 2001 between the Registrant and Congress Financial Corporation (Southern), a subsidiary of First Union Bank (incorporated by reference to Registrant’s Annual Report on Form 10-K "File No. 1-07807", year ended December 31, 2000).
(10)(i) First Amendment to Loan and Security Agreement dated February 8, 2001 between the Registrant and Congress Financial Corporation extending maturity date to May 8, 2004, (incorporated by reference to Registrant’s Current Report on Form 8-K "File No. 1-07807", dated February 6, 2004).
(10)(j) Second Amendment to Loan and Security Agreement dated February 8, 2001 between the Registrant and Congress Financial Corporation extending maturity date to June 8, 2004, (incorporated by reference to Registrant’s Current Report on Form 8-K "File No. 1-07807", dated May 7, 2004).
(10)(k) Third Amendment to Loan and Security Agreement dated February 8, 2001 between the Registrant and Congress Financial Corporation extending maturity date to August 8, 2004, (incorporated by reference to Registrant’s Current Report on Form 8-K "File No. 1-07807", dated June 7, 2004).
(10)(l) Sale agreement dated June 28, 2004 between the Registrant and Your Business Centers, Inc. for sale of Beech Creek, Pennsylvania plant and property (incorporated by reference to Registrant’s Current Report on Form 8-K "File No. 1-07807", dated July 6, 2004).
(10)(m) Secured Revolving Credit facility dated August 10, 2004 between the Registrant and PNC Bank, National Association, and Commercial Property Loan dated August 10, 2004 between the Registrant and Elk Horn Bank and Trust Company (incorporated by reference to Registrant’s Current Report on Form 8-K "File No. 1-07807", dated August 11, 2004).
CHAMPION PARTS, INC.
EXHIBIT INDEX
Material Contracts (Continued)
(10)(n) Amendment No. 1 to dated March 18, 2005 to Revolving Credit, Loan and Security Agreement dated August 10, 2004 between the Registrant and PNC Bank, National Association (incorporated by reference to Registrant’s Current Report on Form 8-K "File No. 1-07807", dated March 22, 2005).
(10)(o) Amendment No. 2, Consent and Limited Waiver dated as of August 31, 2006 to Revolving Credit, Loan and Security Agreement dated as of August 10, 2004 between the Registrant and PNC Bank, National Association (incorporated by reference to Registrant’s Current Report on Form 8-K "File No. 1-07807", dated September 5, 2006).
(10)(p) Asset Purchase Agreement dated as of August 31, 2006 between the Registrant and TAP Holdings, LLC (incorporated by reference to Registrant’s Current Report on Form 8-K "File No. 1-07807", dated September 5, 2006).
Additional Exhibits
(14)
Officers Code of Ethics (incorporated by reference to Registrant's Annual Report on Form 10-K "File No. 1-07807", for the year ended December 31, 2003).
(21)
List of Subsidiaries of Registrant (incorporated by reference to Registrant's Annual Report on Form 10-K "File No. 1-07807", for the year ended December 31, 2001).
(21)
List of Subsidiaries of Registrant (incorporated by reference to Registrant's Annual Report on Form 10-K "File No. 1-07807", for the year ended December 31, 2001).
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
(99)
Audit Committee Charter (incorporated by reference to Registrant's Annual Report on Form 10-K "File No. 1-07807", for the year ended December 31, 2004).
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.