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 October 1, 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 November 10,
1994_
Common Shares - $.10 par value 3,655,266
<PAGE>
<TABLE>
PART I
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
<CAPTION>
October 1 January 1,
1995 1995
Unaudited
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $216,000 $346,000
Accounts Receivable,
less allowance for uncollectible accounts 6,133,000 12,857,000
Inventories 14,274,000 26,866,000
Prepaid expenses and other 2,509,000 2,647,000
------------------------
Total current assets 23,132,000 65,848,000
Property, plant, and equipment (net) 10,199,000 11,494,000
Other assets 970,000 1,095,000
------------------------
TOTAL ASSETS $34,301,000 $55,305,000
========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Accounts Payable $4,976,000 $6,167,000
Accrued expenses and other payables 11,331,000 10,904,000
Current maturities on long-term debt 13,745,000 20,026,000
------------------------
Total current liabilities 30,052,000 37,097,000
Deferred income taxes 1,390,000 1,393,000
Long-term debt, less current maturities
ESOP loan agreement 0 514,000
Notes payable to banks and other 777,000 937,000
------------------------
Total liabilities 32,219,000 39,941,000
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 (547,000) (645,000)
Debt guarantee for ESOP 0 (514,000)
Retained earnings (13,315,000) 579,00
------------------------
Total Stockholders equity 2,082,000 15,364,000
------------------------
Total Liabilities and Stockholders Equity $34,301,000 $55,305,000
========================
<FN>
<F1> See notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
<CAPTION>
Nine Months Ended
October1, October 2
1995 1994
------------------------
UNAUDITED
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(13,894,000) ($2,405,000)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,129,000 1,313,000
Provision for losses on accounts receivable 663,000 163,000
Special charge 1,263,000 3,400,000
Change in assets and liabilities:
Accounts receivable 6,086,000 (3,271,000)
Inventories 12,657,000 (310,000)
Accounts payable (1,190,000) 3,696,000
Accrued expenses and other 254,000 (3,021,000)
------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES: 6,968,000 (435,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (162,000) 774,000
Proceeds from sales of property, plant & equipment 10,000 0
------------------------
NET CASH USED IN INVESTING ACTIVITIES (152,000) 774,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under credit agreements (5,965,000) 2,300,000
Principal payments on long-term debt (990,000) (926,000)
------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (6,955,000) 1,374,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH 9,000 0
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (130,000) 165,000
CASH AND CASH EQUIVALENTS, beginning of period 346,000 78,000
------------------------
CASH AND CASH EQUIVALENTS, end of period $216,000 $243,000
========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $1,104,000 $1,224,000
Income Taxes 0 324,000
<FN>
<FN1> See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
<CAPTION>
Nine Months Ended Three Months Ended
October 1 October 2 October 1, October 2,
1995 1994 1995 1994
--------------------------- ---------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $46,341,000 $73,172,000 $8,697,000 $24,917,000
Cost and expenses
Cost of products sold 46,572,000 59,479,000 9,525,000 20,936,000
Selling, distribution and administration 10,614,000 11,523,000 1,788,000 3,299,000
Special charge 1,263,000 3,400,000 130,000 0
-------------------------- --------------------------
58,449,000 74,402,000 11,443,000 24,235,000
EARNINGS (LOSS) BEFORE INTEREST AND INCOME TAX (12,108,000) (1,230,000) (2,746,000) 682,000
INTEREST 1,785,000 1,783,000 533,000 594,000
-------------------------- ----------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (13,893,000) (3,013,000) (3,279,000) 88,000
INCOME TAXES (BENEFIT) 1,000 (608,000) 0 26,000
NET EARNINGS (LOSS) ($13,894,000) ($2,405,000) ($3,279,000) $62,000
============================ ============================
AVERAGE COMMON SHARES OUTSTANDING 3,655,266 3,655,266 3,655,266 3,655,266
=========================== ============================
NET EARNINGS PER COMMON SHARE ($3.80) ($0.66) ($0.90) $0.02
=========================== ============================
<FN>
<FN1>
</FN>
</TABLE>
<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. Certain reclassifications have been made to the
January 1, 1995 financial statements for consistency of
presentation.
2. The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and certain other
operating and special charges as more fully described in Note 5)
which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim
period. Results of operations for the nine months ended October
1, 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:
October 1, 1995 January 1, 1995
Raw Material $5,462,000 $10,870,000
Work In Process 3,924,000 5,028,000
Finished Goods 4,888,000 10,968,000
--------------------------------
$14,274,000 $26,866,000
================================
Included in inventory above were cores of $7,058,000 (October 1, 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 nine
months ended October 1, 1995 and October 2, 1994 returns were
$38,573,000 and $46,521,000 respectively.
5. In June 1995, the Company recorded a pre-tax special charge
of $1.1 million to reflect the decision to exit the manufacture
and sale of passenger car electrical (alternators and starters)
and mechanical (clutches and water pumps) products to
traditional market customers in the eastern United States. The
charge consists of $0.7 million for fixed asset write-downs to
estimated net realizable values and other facility wind-down
costs related to downsizing the Company's Hope, Arkansas
production facility, $0.2 million in termination benefits, and
$0.2 million in estimated costs to exit contractual liabilities.
The downsizing is expected to be substantially completed by the
end of the fourth quarter of 1995.
In September 1995 the Company recorded an additional special
charge of $130,000 to reflect the decision to cease production
at the Company's Fresno, California plant. This provision
reflects severance and direct costs to close the facility.
Associated with the decision to exit the manufacture and sale
of passenger car electrical and mechanical products to
traditional market customers in the eastern United States and
the loss of certain business in the western United States, the
Company recorded a $3 million write-down of inventory to
estimated net realizable values in the second quarter of 1995.
An additional $500,000 was recorded in the third quarter as a
result of the decision to close the Fresno, California plant.
These provisions are estimates based on the Company's judgment
at this time.
Adjustments to the provisions may be necessary in future
periods based on further development of restructuring related
costs.
6. In August 1995, the Company announced that it had reached an
agreement with its banks to amend and extend the credit facility
to January 8, 1996. The banks conditionally waived the defaults
which existed under the previous credit agreement. The
amendment reduced the commitment level to $16.0 million until
September 14, 1995, to $14.8 million from September 15 to
December 30 and to $9.5 million until the expiration date. This
declining commitment level is commensurate with the Company's
planned downsizing and reduction in operating assets. The
amendment provides the Company with $2 million of additional
borrowing availability within the commitment levels. In
exchange for the additional availability, the Company granted
the banks a collateral interest in its Beech Creek, Pennsylvania
and Fresno, California plants limited to $2.5 million plus
accrued interest and certain other costs related to the pledged
real estate.
The Company agreed to pay interest at 3.5% above prime for the
duration of the extension. The commitment fee remains at .5% of
the facility. Certain financial covenants were conditionally
eliminated under the extension.
On October 1, 1995, the Company had $13.2 million available
under those provisions in the credit agreement of which $11.9
million was borrowed. The Company has reflected outstanding
amounts under the credit agreement and a $1.5 million
capitalized lease obligation as current liabilities in its
financial statements due to the short term maturity of the
credit facility.
The Company's ability to remain a going concern is dependent
upon it being able to restore operations to profitability and
sell assets from the discontinued product lines with sufficient
proceeds to remain within the credit agreement structure, reduce
outstanding trade debt and fund wind-down costs. There is no
assurance that the Company can achieve these results. If the
Company cannot extend or replace the current credit facility
when it matures, the Company would not have sufficient funds to
pay outstanding amounts under the facility. Additional equity
or debt financing, would be necessary for the Company to remain
a going concern. There is no assurance that the Company will be
able to obtain additional equity or debt financing. The
Company's financial statements are prepared on a going concern
basis and do not contain adjustments which may be necessary if
the Company were not to remain as a going concern.
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.
7. In September 1995 the Company received notice from the
lending bank of its fifty percent owned Canadian engine
remanufacturer that it had demanded payment on its outstanding
demand loans. It also notified the Company that it was also
demanding payment from the Company on a CDN $500,000 guarantee
and a CDN $1,500,000 joint and several guarantee between the
Company and its joint venture partner. The amount of the loan
plus accrued and unpaid interest was CDN $1,700,000 at October
1, 1995.
The Company has had communications with the lending bank and
its partner with respect to seeking an extension to or a
replacement of the credit facility.
The Company does not carry any investment on its books related
to the joint venture and it has an $800,000 contingent reserve
to reflect the estimated exposure, if any, related to the
guarantees.
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Significant Developments
In June 1995 the Company announced that it had adopted a plan
to refocus its business and exit the manufacture and sale of
passenger car electrical (alternators and starters) and
mechanical (clutches and water pumps) products to the
traditional wholesale distributor and retail markets in the
eastern United States. Sales to these markets ended in
mid-July. Subsequent to the announcement, the Company's three
largest customers, which did business with the Company across
the United States and in multiple product lines, informed the
Company that they would be changing to other suppliers in the
third quarter. The Company also experienced significant losses
in sales during the third quarter from other passenger car
electrical and mechanical customers in the western United
States. In November, the Company decided to exit the sales and
production of passenger car electrical and mechanical products
in the western United States from its Fresno, California plant.
Sales to the Company's three largest customers and those
customers affected by the Company's announcement accounted for
approximately 57% of sales in the first nine months of 1995.
The Company retains its carburetor and constant velocity joint
product lines and continues to supply its original equipment
manufacturer aftermarket customers.
In August the Company announced that it had come to terms with
its lending banks on an extension to its credit facility through
January 8, 1996. The extension, which supports the Company's
restructuring plan, initially provides for additional financing
for working capital and general business needs followed by a
declining facility commensurate with the Company's plan to
downsize its operations. For the additional financing, the
Company granted the banks a partial collateral interest in its
Beech Creek, Pennsylvania and Fresno, California plants limited
to $2.5 million plus accrued interest and certain other costs
related to the pledged real estate. See the Liquidity and
Capital Resources section for additional discussion on the
credit extension.
The restructuring plan will have a pervasive impact on the
Company's future operations and financial position. The Company
recorded $1.3 million in pretax restructuring charges in the
second and third quarters of 1995 to reflect the exit from the
traditional markets in the eastern United States. These charges
included $0.7 million in estimated write downs of equipment and
wind-down costs, $0.4 million in termination benefits and $0.2
million in estimated costs to exit contractual liabilities. It
also wrote down inventory approximately $3.5 million to
estimated net realizable value. These provisions are
necessarily estimates based on the Company's judgment at this
time. Adjustments to these provisions may be necessary in
future quarters based on further development of restructuring
related costs.
Beginning in the third quarter, sales have significantly
declined from previous levels. Carburetor sales and sales to
original equipment manufacturer aftermarket customers accounted
for 63% of the Company's sales volume in the third quarter.
There can be no assurance that the Company will be able to
generate sufficient funds from operating profits, asset sales
and collections to cover continuing operations and wind-down
costs and satisfy debt obligations.
Results of Operations
Three Months Ended October 1, 1995 Compared to Three Months
Ended October 2, 1994
Net sales for the quarter ended October 1, 1995 were $8.7
million, 65% less than net sales of $24.9 million for the same
period in 1994. This decrease reflected the loss of business
due to the Company exiting the passenger car electrical and
mechanical aftermarket in the eastern United States in July. It
also lost a significant portion of its passenger car electrical
and mechanical business in the western United States through
customer attrition. The Company experienced higher product and
core returns as a proportion of sales, which are reflected as
deductions to net sales, as lost customers made final returns in
a period of declining sales. Third quarter returns were
$450,000 higher than in 1994. Total product and core returns,
reflected as reductions in net sales were 45% in 1995 compared
to 37% in 1994.
Carburetor sales were 39% of net sales in the third quarter of
1995 compared to 20% in 1994. In the third quarter of 1995, the
Company lost two major carburetor customers to other carburetor
suppliers. These customers accounted for 6% of third quarter
1995 net carburetor sales. However, in the third and fourth
quarters another major carburetor customer informed the Company
that it was increasing its annual purchases by approximately $5
million. This incremental business will begin contributing in
the fourth quarter of 1995 and first quarter of 1996. The
Company believes it continues to be a significant supplier of
carburetors to the aftermarket. Since the mid-1980's,
carburetors have been installed in fewer new vehicles sold in
the United States 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.
Cost of products sold was 110% of net sales in the third
quarter of 1995 compared to 84% in the third quarter of 1994.
The Company's cost per unit sold was 56% higher in 1995 than in
the third quarter of 1994. The Company incurred significant
labor inefficiencies and underabsorbed plant overhead costs
resulting from the 44% decrease in 1995 third quarter unit
volume as compared to 1994 third quarter. 1995 costs of
products sold were also impacted by a $500,000 write down of
inventories described above.
Selling, distribution and administrative expenses were $1.8
million in the third quarter of 1995 compared to $3.3 million in
the third quarter of 1994. The Company benefited from decreases
in selling and administrative costs resulting from 1995
headcount reductions and the elimination of costs supporting the
automotive electrical and mechanical product lines.
1995 third quarter results reflected a $130,000 pretax special
charge to earnings reflecting the Company's decision to exit the
manufacture and sale of passenger car electrical and mechanical
products to wholesale distributors and retailers in the western
United States.
Interest expense was $533,000 in the quarter compared to
$594,000 in the prior year. Lower average outstanding
borrowings were offset by a 2% increase in the spread between
the prime rate and the rate the Company's banks charge the
Company and an increase in the prime rate. The Company did not
record any tax benefit on 1995 losses due to limited carryback
availability.
The net loss of the 1995 third quarter was $3.3 million versus
$62,000 income in 1994.
Nine Months Ended October 1, 1995 Compared to Nine Months Ended
October 2, 1994
Net sales for the nine months of 1995 were $46.3 million, 37%
less than net sales of $73.2 million for the first nine months
of 1994. The Company experienced lower sales in all of its
major product lines due to its decision to exit the sale of
passenger car electrical and mechanical products to traditional
warehouse distributors and retailers. The Company also lost its
two largest carburetor customers in the third quarter and two
large constant velocity customers in the second and third
quarters. The Company began to experience higher product and
core returns at the end of the second quarter, which are
reflected as deductions to net sales, as lost customers made
final returns in a period of declining sales. Returns in the
first nine months of 1995 were $2 million higher than in 1994.
Total product and core returns, reflected as reductions in net
sales, were 45% in 1995 compared to 37% in 1994.
Carburetor sales were 30% of net sales in the first nine months
of 1995 compared to 24% in 1994. In the second and third
quarters of 1995, the Company was informed by two major
carburetor customers that they were changing to other carburetor
suppliers. These customers accounted for 28% of 1995 net sales.
However, in the third and fourth quarters another major
carburetor customer informed the Company that it was increasing
its annual carburetor purchases by approximately $5 million.
This incremental business will begin contributing in the fourth
quarter of 1995 and first quarter of 1996. The Company believes
it continues to be a significant supplier of carburetors to the
aftermarket. Since the mid-1980's, carburetors have been
installed in fewer new vehicles sold in the United States 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.
At the end of the first quarter of 1995, one of the Company's
primary constant velocity joint customers changed to a
competitor. The other primary constant velocity joint customer,
which was the Company's largest customer, changed to a
competitor in the third quarter of 1995 as disclosed above.
These customers accounted for approximately 70% of 1995
year-to-date constant velocity joint net sales and 4% of total
1995 year-to-date 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 101% of net sales in 1995 compared to
81% in 1994. The Company's cost per unit sold was 28% higher in
the first nine months of 1995 than in the first nine months of
1994. The Company experienced labor inefficiencies and
underabsorbed plant overhead costs resulting from the 35%
decrease in 1995 unit volume as compared to 1994. 1995 costs of
products sold were also impacted by the $3.5 million in second
and third quarter write downs of inventories described above.
Selling, distribution and administrative expenses were $10.6
million in the first nine months of 1995 compared to $11.5
million in the first nine months of 1994. The Company recorded
$0.7 million in legal and professional fees related to the
proposed equity infusion in the first quarter and the
restructuring plan and bank credit agreement in the second
quarter of 1995. These expenses offset decreases in selling and
administrative costs resulting from 1995 headcount reductions.
1995 results reflected a $1.3 million pretax special charge to
earnings reflecting the Company's decision to exit the
manufacture and sale of automotive electrical and mechanical
products to wholesale distributors and retailers. In 1994 the
company reported a $3.4 million charge reflecting a plan to
consolidate plant capacity.
Interest expense was $1.8 million in 1995 and 1994. Lower
average outstanding borrowings in 1995 were offset by a 2%
increase in the spread between the prime rate and the rate the
Company's banks charge the Company. The Company did not record
any tax benefit on 1995 losses due to limited carryback
availability.
The net loss for 1995 was $13.9 million versus $2.4 million
loss in 1994.
Liquidity and Capital Resources
Working Capital
Net working capital at October 1, 1995 was $(6.9) million
compared to $5.6 million at January 1, 1995. The decrease was
primarily attributable to its $13.9 million year-to-date loss of
which $3.5 million was due to second and third quarter write
downs of inventory and $1.3 million pretax special charges
described above. Accounts payable and accrued liabilities
decreased $3.3 million due primarily to lower purchases and the
permanent paydown of payroll related liabilities. The Company
has reflected outstanding loans under its bank credit agreement
as short-term obligations at the end of the third quarter. The
Company entered into an amendment to its bank credit agreement
in the third quarter which conditionally waived the defaults and
extended the credit facility to January 1996. The amount of
outstanding loans under the bank lines were $11.9 million at
October 1, 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.
The Company has a net deferred tax asset of $0.5 million as of
October 1, 1995. The Company believes this asset is realizable
due to its ability to obtain tax refunds on future tax losses.
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 continued
to borrow against eligible collateral based on the terms of the
agreement.
As a result of the default, the Company was 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 liabilities in its financial statements.
In August 1995 the Company reached an agreement with its banks
to amend and extend the credit facility to January 8, 1996. The
banks conditionally waived the defaults which existed under the
previous credit agreement. The amendment reduced the commitment
level to $16 million until September 14, 1995; $14.8 million
from September 15 to December 30 and $9.5 million after December
30. This declining commitment is commensurate with the
Company's planned downsizing and reduction in operating assets.
The amendment provides the Company with $2 million of additional
borrowing availability within the commitment levels. In
exchange for the additional availability, the Company granted
the banks a collateral interest in its Beech Creek, Pennsylvania
and Fresno, California plants limited to $2.5 million plus
accrued interest and certain other costs related to the pledged
real estate.
The Company agreed to pay interest at 3.5% above prime for the
duration of the extension. The commitment fee remains at .5% of
the facility. Certain financial covenants were conditionally
eliminated under the extension.
The Company's ability to remain a going concern is dependent
upon it being able to restore operations to profitability and
sell assets from the discontinued product lines with sufficient
proceeds to remain within the credit agreement structure, pay
down outstanding trade debt to current terms and fund wind-down
costs. There is no assurance that the Company can achieve these
results. If the Company cannot extend or replace the current
credit facility when it matures, the Company would not have
sufficient funds to pay outstanding amounts under the facility.
Additional equity or debt financing would be necessary for the
Company to remain a going concern. There is no assurance that
the Company will be able to obtain additional equity or debt
financing. The Company's financial statements are prepared on a
going concern basis and do not contain adjustments which may be
necessary if the Company were not to remain as a going concern.
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.
In September 1995 the Company received notice from the lending
bank of its fifty percent owned Canadian engine remanufacturer
that it had demanded payment on its outstanding demand loans.
It also notified the Company that it was also demanding payment
from the Company on a CDN $500,000 guarantee and a CDN
$1,500,000 joint and several guarantee between the Company and
its joint venture partner. The amount of the loan plus accrued
and unpaid interest was CDN $1,700,000 at October 1, 1995.
The Company has had communications with the lending bank and
its partner with respect to seeking an extension to or a
replacement of the credit facility.
The Company does not carry any investment on its books related
to the joint venture and it has an $800,000 contingent reserve
to reflect the estimated exposure, if any, related to the
guarantees.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Spectron, Inc. - In September 1995, the Company received a
Special Notice for Negotiations for Remedial
Investigation/Feasability Study with respect to the Spectron,
Inc. site from the U.S. EPA. The notice which was mailed to the
Company and several hundred additional potentially responsible
parties requested the Company to engage in a good faith proposal
to conduct or finance the study. The Company is involved in the
site through a former waste hauler who selected the site. The
Company believes that it may be a de minimis contributor to the
site based on previous estimates of waste contributed to the
site.
The PRP Steering Committee has informed the Company that it
believes the cost of the RI/FS will be about $1 million and that
the cost of remediation will be $40 to $45 million.
The Company is currently evaluating the U.S. EPA's request. It
has also engaged in preliminary discussions with the former
waste hauler with whom the Company had an agreement to share
one-half of the past costs related to this site. The Company
also intends to notify its insurance carriers of this action.
Beech Creek, Pennsylvania - The Company commenced remediation
in late 1994. The estimated costs ranged from approximately
$500,000 to $900,000 depending on the remediation method used.
The Company's environmental consultant provided updated cost
estimates for the remediation of soil and ground water
contamination at this current Company site in the third quarter.
The Company is evaluating the consultants' report. It has also
engaged in settlement discussions with the insurance carriers
that have coverage on this site. The Company has provided
reserves to cover the estimated costs to remediate. These
reserves do not include any amounts for insurance recoveries.
Item 5. Other Information
On October 9, 1995 the Company and RGP Holding, Inc. and Raymond
G. Perelman, the Company's Chairman and a principal stockholder,
amended the letter agreement dated September 20, 1993, as
amended on March 11, 1994, relating to the election of directors
of the Company. The amendment addressed the resignation of two
of the Company's directors in 1995. It also provided that the
Company would cumulate proxies to vote for Mr. Katz as a
director of the Company before Mr. Blashill in the event that
persons vote Common Shares for nominees other than the Company's
nominees.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(10) Letter Agreement dated October 9, 1995 between the
Company, RGP Holding, Inc. and Raymond G. Perelman.
(27) Financial Data Schedules.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on November 3,
1995 reporting the dismissal of Arthur Andersen LLP and
appointment of BDO Seidman LLP as the Company's independent
public accountants.
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: __November 20, 1995___ By:____/s/ Mark Smetana_____
Mark Smetana
Vice President - Finance and Corporate Secretary
EXHIBIT 10
October 9, 1995
RGP Holding, Inc. Mr. Raymond G. Perelman
225 City Avenue 1820 Rittenhouse Square
Bala Cynwyd, PA 19103 Philadelphia, PA 19103
Gentlemen:
This letter will amend the letter agreement dated September 20,
1993, as amended on March 11, 1994, between Raymond G. Perelman,
RGP Holding, Inc. and Champion Parts, Inc. (the "Company) (the
"Agreement") relating to the election of directors of the
Company.
1. Paragraph 2 of the Agreement is deleted and the following
inserted in lieu thereof:
"The Company's board of directors will consist of nine
members. The 1995 Annual Meeting of Shareholders will be held
on November 16, 1995 or as soon thereafter as practicable. At
the 1995 Annual Meeting, the Board's nominees will be:
Thomas W. Blashill
John R. Gross
Raymond F. Gross
Gary S. Hopmayer
Barry L. Katz
Edward R. Kipling
Raymond G. Perelman."
Calvin A. Campbell, Jr. and Donald G. Santucci have resigned as
directors. The vacancies created by their resignations will not
be filled at the 1995 Annual Meeting of Shareholders. If either
vacancy is intended to be filled in the future, it shall be
filled by a nominee selected by the Board (other than Mr.
Perelman and Mr. Katz) and reasonably acceptable to Mr.
Perelman.
If Perelman and/or Katz is unable or unwilling to serve as a
director of the Company, then in filling the resulting vacancy
or in selecting replacement nominees, Katz and/or Perelman shall
be replaced by a nominee selected by Perelman or his executor or
administrator and reasonably acceptable to the Board.
3. The first sentence of paragraph 3 of the Agreement is hereby
modified to read as follows:
"In an election of directors, to the extent that other persons
vote Company Common Shares, in person or by proxy, for nominees
other than those referred to, or selected in accordance with,
paragraph 2 of the Agreement, as amended, the Company will cause
the holders of proxies solicited by the Board of Directors to
cumulate the votes they may cast for Mr. Katz before Mr.
Blashill."
4. If for any reason the 1995 Annual Meeting of Shareholders is
held after November 21, 1995 and the by-laws of the Company are
not amended prior to such time to reduce the size of the Board
of Directors to seven members, then RGP Holding, Inc. and
Perelman may elect to terminate this Agreement, such termination
to be effective immediately upon notice.
If you are in agreement with the terms of this Amendment,
please sign the enclosed copy of this letter and return it to
the Company.
Very truly yours,
CHAMPION PARTS, INC.
By: ___/s/ Thomas W. Blashill______
Thomas W. Blashill, President
AGREED TO AND ACCEPTED THIS
_27th_ DAY OF OCTOBER, 1995.
__/s/ Raymond G. Perelman___
Raymond G. Perelman
RGP Holding, Inc.
By: ___/s/ Raymond G. Perelman___
Its:
THOMAS W. BLASHILL
President
October 9, 1995
RGP Holding, Inc. Mr. Raymond G. Perelman
225 City Avenue 1820 Rittenhouse Square
Bala Cynwyd, PA 19103 Philadelphia, PA 19103
Gentlemen:
This letter will amend the letter agreement dated September 20,
1993, as amended on March 11, 1994, between Raymond G. Perelman,
RGP Holding, Inc. and Champion Parts, Inc. (the "Company) (the
"Agreement") relating to the election of directors of the
Company.
1. Paragraph 2 of the Agreement is deleted and the following
inserted in lieu thereof:
"The Company's board of directors will consist of nine
members. The 1995 Annual Meeting of Shareholders will be held
on November 16, 1995 or as soon thereafter as practicable. At
the 1995 Annual Meeting, the Board's nominees will be:
Thomas W. Blashill
John R. Gross
Raymond F. Gross
Gary S. Hopmayer
Barry L. Katz
Edward R. Kipling
Raymond G. Perelman."
Calvin A. Campbell, Jr. and Donald G. Santucci have resigned as
directors. The vacancies created by their resignations will not
be filled at the 1995 Annual Meeting of Shareholders. If either
vacancy is intended to be filled in the future, it shall be
filled by a nominee selected by the Board (other than Mr.
Perelman and Mr. Katz) and reasonably acceptable to Mr.
Perelman.
If Perelman and/or Katz is unable or unwilling to serve as a
director of the Company, then in filling the resulting vacancy
or in selecting replacement nominees, Katz and/or Perelman shall
be replaced by a nominee selected by Perelman or his executor or
administrator and reasonably acceptable to the Board.
3. The first sentence of paragraph 3 of the Agreement is hereby
modified to read as follows:
"In an election of directors, to the extent that other persons
vote Company Common Shares, in person or by proxy, for nominees
other than those referred to, or selected in accordance with,
paragraph 2 of the Agreement, as amended, the Company will cause
the holders of proxies solicited by the Board of Directors to
cumulate the votes they may cast for Mr. Katz before Mr.
Blashill."
4. If for any reason the 1995 Annual Meeting of Shareholders is
held after November 21, 1995 and the by-laws of the Company are
not amended prior to such time to reduce the size of the Board
of Directors to seven members, then RGP Holding, Inc. and
Perelman may elect to terminate this Agreement, such termination
to be effective immediately upon notice.
If you are in agreement with the terms of this Amendment,
please sign the enclosed copy of this letter and return it to
the Company.
Very truly yours,
CHAMPION PARTS, INC.
By:__/s/ Thomas W. Blashill___
Thomas W. Blashill, President
AGREED TO AND ACCEPTED THIS
_27th_ DAY OF OCTOBER, 1995.
__/s/ Raymond G. Perelman____
Raymond G. Perelman
RGP Holding, Inc.
By: __/s/ Raymond G. Perelman__
Its:
