FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 1-7807
Champion Parts, Inc.
(Exact name of registrant as specified in its charter)
Illinois 36-2088911
(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
2525 22nd Street, Oak Brook, Illinois 60521
(Address of principal executive offices)
630-573-6600
(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 August 13, 1996
Common Shares - $.10 par value 3,655,266
<PAGE>
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
June 30, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
ASSETS
Current Assests
Cash and cash equivalents $ 958,000 $ 874,000
Accounts Receivable, less
allowance for uncollectible accounts 4,251,000 4,737,000
Inventories 8,191,000 10,700,000
Prepaid expenses and other 1,731,000 1,830,000
----------- ------------
Total current assets 15,131,000 18,141,000
Property, plant and equipment (net) 8,619,000 9,834,000
Other assets 633,000 590,000
------------ ------------
Total Assets $ 24,383,000 $ 28,565,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 7,546,000 $ 7,320,000
Accrued expenses and other payables 7,865,000 8,588,000
Current maturities on long-term debts 10,097,000 13,462,000
------------ ------------
Total current liabilities $ 25,508,000 $ 29,370,000
Deferred income taxes 1,376,000 1,403,000
Long-term debt, less current maturities
Notes payable to banks and other 587,000 701,000
------------ ------------
Total liabilities $ 27,471,000 $ 31,474,000
Stockholders' Equity
Preferred stock - no par value
Authorized 10,000,000 shares
issued and outstanding, none
Common stock - $.10 par value 366,000 366,000
Authorized 50,000,000 shares
issued and outstanding 3,655,266
shares
Additional paid-in capital 15,578,000 15,578,000
Cumulative translation adjustment (601,000) (592,000)
Retained earnings (18,431,000) (18,261,000)
------------ -----------
Total stockholders' equity $(3,088,000) $(2,909,000)
Total Liabilities and Stockholders' Equity $24,383,000 $28,565,000
============ ===========
See notes to condensed consolidated financial statements.
</PAGE>
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
(Amounts in thousands)
Six Months Ended Three Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
--------- -------- --------- --------
(Unaudited) (Unaudited)
Net Sales $ 15,434 $ 37,612 $ 7,222 $ 16,308
--------- -------- --------- --------
Cost and Expenses
Cost of product sold 12,384 37,047 6,040 18,647
Selling, distributing and
administration 2,345 8,792 1,154 4,368
Special charges 0 1,133 0 1,133
--------- -------- --------- --------
14,729 46,972 7,194 24,148
--------- -------- --------- --------
Earnings (loss) before interest
and income taxes 705 (9,360) 28 (7,840)
Interest 868 1,252 404 654
--------- -------- -------- --------
Earnings (loss) before income taxes (163) (10,612) (376) (8,494)
Income Tax 7 1 0 0
--------- -------- -------- --------
Net earnings (loss) $ (170) $(10,613) $ (376) $ (8,494)
========= ======== ======== ========
Average shares outstanding 3,655,266 3,655,266 3,255,266 3,655,266
Net earnings (loss) per common share $ (0.05) $ (2.90) $ (0.10) $ (2.32)
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30, July 2,
1996 1995
--------------- ----------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (170,000) $ (10,613,000)
Adjustments to reconcile net earnings
(loss) to net
Cash provided by operating activities:
Depreciation and amortization 503,000 754,000
Provision for losses on accounts
receivable 42,000 646,000
Special charges 0 1,133,000
Deferred income taxes (1,000) 0
Changes in assets and liabilities:
Accounts Receivable 444,000 3,668,000
Inventories 2,509,000 9,929,000
Accounts payable and accrued expenses (497,000) (509,000)
Other 24,000 1,421,000
---------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,854,000 6,429,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (47,000) (150,000)
Proceeds from sales of property,
plant & equipment 765,000 10,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES 718,000 (140,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under
credit agreements (3,365,000) (5,200,000)
Principal payments on long-term debt (114,000) (948,000)
----------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,479,000) (6,148,000)
----------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (9,000) 8,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 84,000 149,000
CASH AND CASH EQUIVALENTS, beginning of period 874,000 346,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period 958,000 495,000
=========== ===========
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
________________________
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
________________________________________________________________
1. The accompanying financial statements for the six months ended
June 30, 1996 have been prepared, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. The
condensed consolidated financial statements and these notes should be
read in conjunction with the consolidated financial statements of the
Company included in the Company's Annual Report on Form 10K for the
year ended December 31, 1995.
The consolidated balance sheet at December 31, 1995 has been derived
from the audited financial statements at that date and condensed.
2. The information furnished herein reflects, except as discussed in
Note 5, all adjustments (consisting only of normal recurring accruals)
which are, in the opinion of management, necessary for a fair
presentation of the results of operation for the interim period.
Results of operations for the six months ended June 30, 1996 are not
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:
June 30, December 31,
1996 1995
-------------- -------------
Raw Materials $ 2,518,000 $ 4,806,000
Work-in-Process 2,711,000 2,529,000
Finished Goods 2,962,000 3,365,000
------------- ------------
$ 8,191,000 $ 10,700,000
============= ============
Included in inventory above were cores of $3.0 million (June 30, 1996)
and $3.6 million (December 31, 1995).
4. For reporting purposes, product and core returns are offset against
gross sales in arriving at net sales. For the six months ended
June 30, 1996 and July 2, 1995 returns were $9,829,000, and
$31,088,000 respectively.
5. The Company amended its bank Credit Agreement in May 1996. This
amendment expired on June 30, 1996.
The Company is attempting to secure a long-term financing agreement or
obtain an interim extension from its banks. There can be no assurances
that the Company can obtain long-term financing. 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 is indebted to various unsecured creditors, including current
and former trade vendors. The Company has not paid these creditors.
Given the Company's current financial situation and the lack of a
long-term financing agreement, it currently does not have the ability
to pay these debts should the creditors demand payment. The Company is
having discussions with a representative group of creditors regarding
settlement of these obligations. There can be no assurances that the
Company and its creditors will be able to reach an agreement.
The Company's financial statements 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.
As previously reported, the Company received notice in September 1995
that the lending bank to its 50% owned Canadian joint venture had
demanded payment on its loan and guarantees from the Company.
In July 1996, the joint venture's debt was refinanced with another lender.
The Company continues to provide a guarantee on the outstanding debt
with its joint venture partner.
6. In August, the Company sold its former Fresno, California manufacturing
facility and certain related equipment for $2,800,000 less expenses.
The net proceeds of the transaction were used to pay off an existing
mortgage ($560,000) and real estate advances from its banks ($2,100,000).
Net proceeds from the sale approximated the net book value of the assets
sold.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results
Three Months Ended June 30, 1996 Compared to July 2, 1995
Net sales for the quarter ended June 30, 1996 were $7.2 million, 56% less
than net sales of $16.3 million for the same period of 1995. In the second
half of 1995, the Company exited the manufacture and sale of passenger car
electrical and mechanical products to traditional warehouse distributors and
retailers. Also, the Company's two largest carburetor customers and two
large constant velocity joint assembly customers changed to other suppliers
in the second and third quarters of 1995. Second quarter 1995 sales without
the discontinued product lines and lost customer business were $5.4 million.
In the second quarter of 1996, the Company benefited from increased sales
volume to two large carburetor customers and original equipment dealers
relative to the second quarter of 1995.
1995 results reflected higher core returns which are reflected as
reductions to arrive at net sales. In 1995, higher core returns were due
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 39% of gross sales in 1996 compared to 44%
in 1995.
Carburetor sales were 59% and 33% of net sales in the second quarter of
1996 and 1995, respectively. 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 84% of net sales in the second quarter of 1996
compared to 114% in the second quarter of 1995. The reduction in costs of
products sold is attributed to the Company's 1995 decision to exit lower
margin passenger car electrical and mechanical product lines. 1995
second quarter results also included $3 million of provisions to write down
inventory affected by this decision.
Selling, distribution and administrative expenses were $1.2 million in
the second quarter of 1996 compared to $4.4 million in the second quarter
of 1995. Cost reductions resulting from the Company's second quarter 1995
decision to exit certain markets, close one manufacturing facility
and downsize another manufacturing facility accounted for the decrease.
Operating earnings in the second quarter of 1995 were negatively impacted
by $1.1 million in special charges related to the Company's restructuring.
Interest expense was $404,000 in the second quarter of 1996 compared to
$654,000 in the prior year due to lower average outstanding borrowings.
The Company reduced borrowings primarily through sales of assets related to
the discontinued business lines.
Net loss for the 1996 second quarter was $376,000 versus an $8.5 million
net loss in 1995.
Without additional new business, the Company expects sales in the second
half of 1996 to be lower than in the first half due to lower seasonal demand
for carburetors and heavy duty and agricultural products. Given the
Company's current cost structure, net earnings are expected to also be lower
in these periods. The Company is attempting to develop new business
opportunities and continues to examine further cost reduction opportunities
to mitigate these factors. There can be no assurances that the Company will
be successful in these efforts.
Six Months Ended June 30, 1996 Compared to Six Months Ended July 2, 1995
Net sales for the first half of 1996 were $15.4 million, 59% less than
net sales of $37.6 million for the first half of 1995. In the second half
of 1995, the Company exited the manufacture and sale of passenger car
electrical and mechanical products to traditional warehouse distributors and
retailers. Also, the Company's two largest carburetor customers and two
large constant velocity joint assembly customers changed to other suppliers
in the second and third quarters of 1995. First half 1995 sales without
the discontinued product lines and lost customers were $12.4 million. In
the first half of 1996 the Company has benefited from increased sales from
two large carburetor customers, and its OEM customer segment relative to
the first half of 1995.
1995 results reflected higher core returns which are reflected as
reductions to arrive at net sales. The higher core returns were
due 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 39% in 1996 compared to 44% in 1995.
Carburetor sales were 60% of net sales in the first half of 1996 compared
to 28% in 1995.
Cost of products sold was 80% of net sales in 1996 compared to 99% in
1995. The reduction in cost of products sold is attributed to the Company's
1995 decision to exit lower margin passenger car electrical and mechanical
product lines. 1995 first half results were also impacted by a $3 million
second quarter write down of inventories described above.
Selling, distribution and administrative expenses were $2.3 million in
the first half of 1996 compared to $8.8 million in the first half of 1995.
Cost reductions resulting from the Company's second quarter 1995 decision to
exit certain markets, close one manufacturing facility and downsize another
manufacturing facility accounted for the decrease.
1995 results reflected a $1.1 million pretax special charge to earnings
reflecting the Company's decision to exit the manufacture and sale of
passenger car electrical and mechanical products to wholesale distributors
and retailers.
Interest expense was $0.9 million in 1996 compared to $1.3 million in the
prior year due to lower average outstanding borrowings. The Company reduced
borrowings primarily through sales of assets related to the discontinued
business lines. Income tax provisions in 1996 and 1995 were minimal due to
the Company's net operating loss carryforward position.
Liquidity and Capital Resources
Working Capital
Net working capital on June 30, 1996 was negative $(10.4) million compared
to negative $(11.2) million on December 31, 1995.
The Company classifies outstanding loans under its bank credit agreement
as short-term obligations due to their maturity. The amount of outstanding
loans under the bank lines were $8.3 million on June 30, 1996 and $11.6
million on December 31, 1995. The Company has also classified as short-term
obligations the outstanding principal on a $1.5 million capitalized lease
obligation which is supported with a letter of credit issued by one of the
Company's banks.
The Company continues to sell excess assets related to its discontinued
product lines to pay down secured bank debt. In August 1996 the Company
completed the sale of its former Fresno, California facility resulting in a
$2.1 million reduction of outstanding bank debt. The Company expects asset
sales, primarily discontinued inventory, to continue throughout the remainder
of the year.
The Company has had discussions with a representative group of its trade
creditors regarding an agreement to settle their unsecured claims. The
Company cannot predict the results of these discussions. The result of these
discussions could have a significant impact on the future operations and the
balance of net working capital.
Debt
The Company amended its bank credit agreement in May 1996. This amendment
expired on June 30, 1996.
The Company is attempting to secure long-term financing or obtain an
interim extension from its banks. There can be no assurances that the
Company can obtain long-term financing. 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 is indebted to various unsecured creditors, including current
and former trade vendors. The Company has not paid these creditors. Given
the Company's current financial situation and the lack of a long-term
financing agreement, it currently does not have the ability to pay these
debts should the creditors demand payment. The Company is having discussions
with a representative group of creditors regarding settlement of its trade
obligations. There can be no assurances that the Company and its creditors
will be able to reach an agreement.
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.
As previously reported, the Company received notice in September 1995 that
the lending bank to its 50% owned Canadian joint venture had demanded payment
on its loan and guarantees from the Company. In July 1996, the joint
venture's debt was refinanced with another lender. The Company continues to
provide a guarantee on the outstanding debt with its joint venture partner.
Cash Flow
The Company decreased its long-term debt, net of cash, by $3.6 million in
the six months ended June 30, 1996. Funds generated by operations and sales
of inventories and equipment related to discontinued product lines account
for the decrease in debt. The following summarizes significant items
affecting the change in total debt, (amounts in thousands).
June 30, July 2,
1996 1995
----------- ------------
Net income (loss)
Changes in working capital, other $ 2,342 $ 5,683
Depreciation and Amortization 503 754
Capital Expenditures (47) (150)
Proceeds from fixed asset sales 765 10
----------- ------------
(Increase) Decrease in total debt, net of cash $ 3,563 $ 6,297
=========== ============
As previously noted, in August 1996 the Company sold its former Fresno,
California facility. The net proceeds were used to pay off an existing
mortgage on the facility ($560,000) and real estate advances from its
lending banks ($2.1 million).
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedules
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: August 20, 1996 By: /s/ Mark Smetana
Mark Smetana
Vice President - Finance
Corporate Secretary
<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 SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
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<BONDS> 587000
<COMMON> 366000
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