FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 2, 1995
Commission file number: 1-7807
Champion Parts, Inc.
(Exact name of registrant as specified in its charter)
Illinois 36-2088911
(State or other jurisdiction of (I.R.S. Employer Identifi-
incorporation or organization) cation No.)
2525 22nd Street, Oak Brook, Illinois 60521
(Address of principal executive offices)
(Zip Code)
708-573-6600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at May 12, 1995
Common Shares - $.10 par value 3,655,266
<PAGE>
PART I
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
April 2, January 1,
1995 1995
---------- ----------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents 395,000 346,000
Accounts Receivable,
less allowance for uncollectible
accounts 10,688,000 10,864,000
Inventories 25,520,000 26,866,000
Prepaid expenses and other 2,918,000 2,647,000
---------- ----------
Total current assets 39,521,000 40,723,000
Property, plant, and equipment (net) 11,250,000 11,494,000
Other assets 1,077,000 1,095,000
---------- ----------
TOTAL ASSETS 51,848,000 53,312,000
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY:
Current Liabilities
Accounts Payable 7,404,000 6,167,000
Accrued expenses and other payables 9,772,000 8,911,000
Current maturities on long-term debt 18,614,000 20,026,000
---------- ----------
Total current liabilities 35,790,000 35,104,000
Deferred income taxes 1,393,000 1,393,000
Long-term debt, less current maturities
ESOP loan agreement 514,000 514,000
Notes payable to banks and other 884,000 937,000
---------- ----------
Total liabilities 38,581,000 37,948,000
Stockholders Equity
Preferred stock - no par value
authorized 10,000,000 shares:
issued and outstanding, none 0 0
Common shares - $.10 par value
authorized 50,000,000 shares
issued and outstanding
3,655,266 shares 366,000 366,000
Additional paid-in capital 15,578,000 15,578,000
Cumulative translation adjustment (623,000) (645,000)
Debt guarantee for ESOP (514,000) (514,000)
Retained earnings (1,540,000) 579,000
---------- ----------
Total Stockholders equity 13,267,000 15,364,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 51,848,000 53,312,000
========== ==========
See notes to condensed consolidated financial statements
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
Three Months Ended
April 2, April 3,
1995 1994
----------- -----------
(Unaudited)
NET SALES $21,304,000 $24,124,000
----------- -----------
Cost and expenses:
Cost of products sold 18,400,000 19,686,000
Selling, distribution and administration 4,424,000 4,040,000
Special charge 0 3,400,000
----------- -----------
22,824,000 27,126,000
----------- -----------
EARNINGS (LOSS) BEFORE INTEREST AND INCOME TAXES (1,520,000) (3,002,000)
INTEREST 598,000 560,000
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (2,118,000) (3,562,000)
INCOME TAXES (BENEFIT) 1,000 (718,000)
----------- -----------
NET EARNINGS (LOSS) ($2,119,000) ($2,844,000)
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING 3,655,266 3,655,266
=========== ===========
NET EARNINGS PER COMMON SHARE ($0.58) ($0.78)
=========== ===========
See notes to condensed consolidated financial statements.
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
Three Months Ended
April 2, April 3,
1995 1994
----------- -----------
UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ($2,119,000) ($2,844,000)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 378,000 448,000
Provision for losses on accounts receivable (2,000) 96,000
Special charge 0 3,400,000
Change in assets and liabilities:
Accounts receivable 174,000 (3,959,000)
Inventories 1,350,000 (1,198,000)
Accounts payable 1,261,000 2,366,000
Accrued expenses and other 589,000 (1,167,000)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,631,000 (2,858,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (117,000) (119,000)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (117,000) (119,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit
agreement (1,200,000) 2,800,000
Principal payments on long-term debt (265,000) (303,000)
------------ -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,465,000) 2,497,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 49,000 (480,000)
CASH AND CASH EQUIVALENTS, beginning of period 346,000 78,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $395,000 ($402,000)
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $559,000 $595,000
Income Taxes 0 320,000
See notes to condensed consolidated financial statements.
<PAGE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
_____________________________________
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
_______________________________________________________________________________
1. The accompanying condensed financial statements have been
prepared in accordance with the accounting policies described
and set forth in the Company's annual report to the Securities
and Exchange Commission on Form 10-K for the twelve
months ended January 1, 1995.
The consolidated balance sheet at January 1, 1995 has been
derived from the audited financial statements at that date and
condensed.
2. The information furnished herein reflects all adjustments
(consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the
results of operations for the interim period. Results of
operations for the three months ended April 2, 1995 are not
necessarily indicative of results to be expected for the entire
year.
3. Inventories are valued at the lower of cost (first in, first
out method) or market. A summary of the inventories follows:
April 2, 1995 January 1, 1995
Raw Materials $ 9,475,000 $ 10,870,000
Work in Process 5,433,000 5,028,000
Finished Goods 10,612,000 10,968,000
__________ __________
$ 25,520,000 $ 26,866,000
========== ==========
Included in inventory above were cores of $14,422,000 (April 2,
1995) and $14,139,000 (January 1, 1995).
4. For reporting purposes, product and core returns are offset
against gross sales in arriving at net sales. For the three
months ended April 2, 1995 and April 3, 1994 returns were
$17,499,000 and $16,587,000 respectively.
5. The Company amended its bank Credit Agreement on April 1,
1995. This amendment waived the Company's noncompliance with
certain financial covenants in the first quarter of 1995 and
extended the agreement to July 1, 1995, provided the Company
consummated a proposed $5 million sale of Preferred Stock. The
Company did not complete the sale and was notified by the banks
that it was in default of the agreement. The Company continues
to borrow against eligible collateral based on the terms of the
agreement.
As a result of the default, the Company is in default of a
$1,100,000 standby letter of credit and a $1,500,000 capitalized
lease obligation under a cross default provision under a letter
of credit which services the obligation. The Company has
reflected outstanding amounts under the credit agreement and the
$1,500,000 capitalized lease obligation as current in its
financial statements.
The Company and the banks are in discussions on a revised
agreement. There can be no assurances that the Company and its
lenders can reach such an agreement.
Without an extension of the credit agreement or a replacement
credit facility, the Company would not have sufficient funds to
pay its debt should the lenders demand payment. The Company's
financial statements are prepared on a going concern basis and
do not contain adjustments which may be necessary should the
Company be forced to liquidate assets or take other actions to
satisfy debt payments.
In April, 1995 the Company deferred the final $200,000
principal payment on a promissory note to Echlin Inc. In May,
1995 the Company paid $100,000 of the outstanding remaining
principal.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results
Net sales for the quarter ended April 2, 1995 were $21.3
million, 11.6% less than net sales of $24.1 million for the same
period in 1994. The Company experienced lower sales in all of
its major product lines with the exception of heavy duty
electrical products during the quarter. This decrease reflected
a downturn in the automotive aftermarket during the first
calendar quarter of 1995 due in part to a mild winter which
impacted automotive electrical product sales. Also, the
Company's first quarter 1994 results were favorably impacted by
an initial stocking order to a new constant velocity joint
customer. The first quarter 1995 results reflected higher
product returns than in the year earlier quarter, particularly
in the carburetor product line. The higher carburetor returns
are attributed to customers returning units without replacement
sales in an effort to reduce their stock. Total product and
core returns, reflected as reductions in net sales, were 44% in
1995 compared to 40% in 1994.
Carburetor sales were 25% of net sales in the first quarter of
1995 and 1994. The Company believes it continues to be a
significant supplier of carburetors to the aftermarket. Since
the mid-1980's, carburetors have been installed in fewer new
vehicles sold in the United States and Canada due to the
increased use of fuel injection systems. However, the Company
continues to sell replacement units for older vehicles, many of
which use carburetors. The Company expects that carburetor
sales will decline in future years. In addition, carburetor
margins may be negatively impacted in the future as customers
seek to return product during periods of declining demand. The
Company has a customer product return policy and has established
reserves to mitigate this effect.
The Company continues to receive pressure from its customers to
modify pricing and increase services. If the Company cannot
reach mutual agreements from its customers on these items, it
risks the loss of sales which could have an adverse impact on
the Company. At the end of the first quarter of 1995, one of
the Company's primary constant velocity joint customers changed
to a competitor. This business accounted for approximately 3%
of 1994 annual net sales. The Company is making efforts to
replace this business with new customers. The Company
anticipates continued overall market volume growth in the
constant velocity joint product line as the number of front
wheel drive vehicles entering the prime repair age increases.
However, there can be no assurances the Company will be able to
replace the lost constant velocity joint business.
Cost of products sold was 86.4% of net sales in the first
quarter of 1995 compared to 81.6% in the first quarter of 1994.
The Company's labor and overhead cost per unit sold decreased in
1995 compared to 1994 as a result of plant consolidation and
cost reduction actions taken in 1994. The Company's material
costs increased over the prior year due to increases in
component part prices and an increase in mix of sales of heavy
duty electrical product which carries higher material costs than
the Company's other product lines. The quarter was also
impacted by an unfavorable customer core pricing adjustment.
The Company continues to experience soft sales volume in the
second quarter. It has taken actions to reduce costs, including
reducing its hourly and salaried workforce, shortening
production work weeks and controlling variable operating
expenses. The Company is also exploring additional alternatives
aimed at restoring operating profitability.
Selling, distribution and administrative expenses were $4.4
million in the first quarter of 1995 compared to $4 million in
the first quarter of 1994. Administrative expenses were
approximately $300,000 higher in 1995 than in 1994. In 1995,
the Company recorded $450,000 of charges related to the proposed
sale of $5 million of Preferred Stock to an entity controlled by
one of its principal shareholders and Chairman of the Board.
The Company did not complete the sale. These charges offset
lower personnel costs resulting from 1994 production
consolidation and cost reduction actions.
1994 first quarter results reflected a $3.4 million pretax
charge to earnings reflecting the Company's decision to
consolidate production capacity and restructure operations.
Interest expense was $598,000 in the quarter compared to
$560,000 in the prior year. The Company did not record any tax
benefit on 1995 losses due to limited carryback availability.
The net loss for the 1995 first quarter was $2.1 million versus
$2.8 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Net working capital at April 2, 1995 was $3.7 million compared
to $5.6 million at January 1, 1995. The decrease was primarily
attributed to reductions in the Company's net inventory by $1.3
million and an increase in accounts payable of $1.3 million.
The Company has reflected outstanding loans under its bank
credit agreement as short-term obligations due to the Company
being in default of the agreement. The amount of outstanding
loans under the bank lines were $16.7 million at April 2, 1995
and $17.9 million at January 1, 1995. The Company has also
classified as short-term obligations the outstanding principal
on a $1.5 million capitalized lease obligation due to the
Company being in default of its bank credit agreement which
causes a cross default under a letter of credit which services
this obligation.
Debt
The Company amended its bank credit agreement on April 1,
1995. This amendment waived the Company's noncompliance with
certain financial covenants in the first quarter of 1995 and
extended the credit agreement to July 1, 1995, provided the
Company consummated a proposed $5 million sale of Preferred
Stock. The Company did not complete the sale and was notified
by the banks that it was in default of the agreement. The
Company continues to borrow against eligible collateral based on
the terms of the agreement.
As a result of the default, the Company is in default of a $1.1
million standby letter of credit and a $1.5 million capitalized
lease obligation under a cross default provision under a letter
of credit which services the obligation. The Company has
reflected outstanding amounts under the credit agreement and the
$1.5 million capitalized lease obligation as current in its
financial statements.
The Company and the banks are in discussions on a revised
agreement. There can be no assurances that the Company and its
lenders will reach such an agreement.
Without an extension of the credit agreement or a replacement
credit facility, the Company would not have sufficient funds to
pay its debt should the lenders demand payment. The Company's
financial statements are prepared on a going concern basis and
do not contain adjustments which may be necessary should the
Company be forced to liquidate assets or take other actions to
satisfy debt payments.
In April, 1995 the Company deferred the final $200,000
principal payment on a promissory note to Echlin Inc. In May,
1995 the Company paid $100,000 of the outstanding remaining
principal.
Cash Flow
The Company decreased its long-term debt, net of cash, by $1.5
million in the quarter ended April 2, 1995. This decrease was
primarily the result of reductions of borrowings under the
Company's bank credit facility and scheduled principal payments
on long-term debt. Funds generated by reducing Company
inventories and increasing vendor payables funded the debt
payments. The following summarizes significant items affecting
the change in total debt (amounts in thousands).
April 2, April 3,
1995 1994
Net income (loss),
changes in working capital, other $ 1,259 $ (2,791)
Depreciation and Amortization 378 448
Capital Expenditures (126) (119)
______ ______
(Increase) Decrease in total debt,
net of cash $ 1,511 $ (2,462)
====== ======
The Company has generally funded major capital additions
through medium and long-term borrowing, including the use of
industrial revenue bond financing. Working capital requirements
have generally been financed by internally generated funds and
bank borrowings.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedules
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on January 17, 1995. The
Form 8-K reported a proposal by Mr. Raymond G. Perelman to
infuse equity into the Company.
The Company file a Report on Form 8-K on February 21, 1995. The
Form 8-K reported a Letter of Intent signed between the Company
and Mr. Raymond G. Perelman.
The Company filed a Report on Form 8-K on March 23, 1995. The
Form 8-K reported a Preferred Stock Purchase Agreement between
the Company and RGP Holding, Inc.
The Company filed a Report on Form 8-K on April 18, 1995. The
Form 8-K reported RPG's decision not to consummate the Preferred
Stock Agreement; the Company's default of its bank agreement;
and notification of its auditor's going concern qualification on
its 1994 financial statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CHAMPION PARTS, INC.
(Registrant)
DATE: May 16, 1995 By: /s/ Thomas W. Blashill
Thomas W. Blashill
Executive Vice President,
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE QUARTER ENDED APRIL 2, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
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