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 September 28, 1997
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)
751 Roosevelt Road, #7-110, Glen Ellyn, IL 60137
__________________________________________________
(Address of principal executive offices)
630-942-8317
____________________________________________________
(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 September 28, 1997
____________________________ _________________________________
Common Shares-$.10 par value 3,655,266
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
September 28, December 29,
1997 1996
_____________ ____________
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and cash equivalents $ 252,000 $ 707,000
Accounts Receivable,
less allowance for
uncollectible accounts 3,252,000 5,129,000
Inventories 7,137,000 7,040,000
Prepaid expenses and other 948,000 813,000
____________ ___________
Total current assets 11,589,000 13,689,000
Property, plant and equipment (net) 5,298,000 5,509,000
Other assets 63,000 468,000
___________ ___________
Total Assets $16,950,000 $19,666,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 4,677,000 $ 8,047,000
Accrued expenses and other payables 6,821,000 8,033,000
Current maturities on long-term debts 6,624,000 7,550,000
___________ ___________
Total current liabilities $18,122,000 $23,630,000
Deferred income taxes 478,000 478,000
Notes payable 2,494,000 43,000
___________ ___________
Total liabilities $21,094,000 $24,151,000
Stockholders' Equity
Preferred stock - no par value 0 0
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 (682,000) (701,000)
Retained earnings (19,406,000) (19,728,000)
____________ ____________
Total stockholders' equity $ (4,144,000) $ (4,485,000)
Total Liabilities and Stockholders'
Equity $ 16,950,000 $ 19,666,000
============ ============
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
(Amounts in thousands)
Nine Months Ended Three Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
_________ _________ _________ _________
(Unaudited) (Unaudited)
Net Sales $ 18,464 $ 20,744 $ 4,847 $ 5,310
_________ _________ _________ _________
Cost and Expenses
Cost of product sold 15,352 17,115 4,276 4,771
Selling, distribution and
administration 2,639 3,408 704 1,023
_________ _________ _________ _________
17,991 20,523 4,980 5,794
_________ _________ _________ _________
Earnings (loss) before interest,
income taxes, extraordinary gain 473 221 (133) (484)
Interest Expense 743 1,200 235 332
_________ _________ _________ _________
Earnings (loss) before income
taxes and extraordinary gain (270) (979) (368) (816)
Income taxes 7
_________ _________ _________ _________
Earnings (loss) before
Extraordinary Gain (270) (986) (368) (816)
Extraordinary Gain 592 592
________ _________ _________ _________
Net earnings (loss) $ 322 $ (986) $ 224 $ (816)
Average Shares Outstanding 3,655,266 3,655,266 3,655,266 3,655,266
========= ========= ========= =========
Net Earnings (loss) from
operations per common share $ (0.07) $ (0.27) $ (0.10) $ (0.22)
======== ========= ========= =========
Extraordinary Gain per
common share $ 0.16 $ 0 $ 0.16 $ 0
======== ========= ========= =========
Net Earnings (loss) per
common share $ 0.09 $ (0.27) $ 0.06 $ (0.22)
======== ========= ========= =========
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
Sept. 28, Sept. 29,
1997 1996
_____________ ____________
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 322,000 $ (986,000)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Extraordinary Gain (592,000)
Depreciation and amortization 613,000 729,000
Provision for losses on accounts receivable 130,000 (25,000)
Change in assets and liabilities:
Accounts receivable 1,747,000 979,000
Inventories (97,000) 3,254,000
Accounts payable and accrued expenses (1,496,000) (983,000)
Other 272,000 14,000
_____________ ____________
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 899,000 2,982,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (473,000) (47,000)
Proceeds from sales of property,
plant & equipment 69,000 3,677,000
_____________ ____________
NET CASH USED IN INVESTING ACTIVITIES (404,000) 3,630,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under
credit agreements (926,000) (5,761,000)
Principal payments (borrowings)
on long-term debt (43,000) (871,000)
_____________ _____________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (969,000) (6,632,000)
_____________ _____________
EFFECT OF EXCHANGE RATE CHANGES ON CASH 19,000 (34,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (455,000) (54,000)
CASH AND CASH EQUIVALENTS, beginning of period 707,000 874,000
____________ ____________
CASH AND CASH EQUIVALENTS, end of period $ 252,000 $ 820,000
============ ============
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 nine months ended
September 28, 1997 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 10-K for the year ended December 29, 1996.
The consolidated balance sheet at December 29, 1996 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 operations for the interim period. Results of operations for the nine
months ended September 28, 1997 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:
September 28, December 29,
1997 1996
_____________ _____________
Raw Materials $ 2,222,000 $ 1,753,000
Work in Process 2,362,000 2,622,000
Finished Goods 2,553,000 2,665,000
_____________ _____________
$ 7,137,000 $ 7,040,000
Included in inventory above were cores of $3.0 million on both
September 28,1997 and December 29, 1996.
4. For reporting purposes, product and core returns are offset against gross
sales in arriving at net sales. For the nine months ended September 28, 1997
and September 29, 1996 returns were $10,786,000, and $13,174,000 respectively.
5. The Company's banks have extended the $6.0 million facility for short term
periods during the third quarter. The Company had used $5.1 million of the
available facility at September 28, 1997. The current facility expired on
August 31, 1997, however, the Company's banks have continued advancing
funds after the expiration. The Company has been asked to replace the
current facility with another credit facility.
The Company is in the process of seeking a replacement borrowing facility;
however, there is no assurance that the Company will secure a replacement
facility. Without a replacement facility or additional advances, the Company
will not have sufficient funds to continue as a going concern and would have
to consider available alternatives, including seeking protection under
bankruptcy laws.
The Company's financial statements have been prepared on a going concern
basis and do not contain adjustments which may be necessary should the
Company be forced to liquidate assets or take other actions to satisfy debt
payments or discontinue its business.
6. On July 1, 1997, the Company reached a composition agreement with
approximately 90% of its unsecured trade creditors with past due balances to
restructure approximately $3.4 million. Under the terms of this agreement,
the Company made a cash distribution in the amount of 10% of the total
restructured indebtedness, issued approximately $1.0 million in non-interest
bearing promissory notes and issued other obligations entitling the trade
creditors to a portion of the Company's defined free cash flow in years
2005 to 2009 of up to an aggregate of approximately $1.5 million. This
resulted in an extraordinary gain of $592,000 for the quarter ended
September 28, 1997. Discussions are continuing with unsecured trade
creditors with past due balances of approximately $275,000.
In addition, the Company is continuing discussions with other unsecured
creditors to restructure $1.8 million of associated indebtedness upon
substantially the same terms as the settlement with the trade creditors.
There is no assurance that any of these creditors will accept the proposal.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
_____________________________________________________________________________
Recent Events
_____________
As previously disclosed, on July 1, 1997 the Company reached a composition
agreement with approximately 90% of its unsecured trade creditors with past
due balance to restructure approximately $3.4 million. Under the terms of
this agreement, the company made a cash distribution in the amount of 10% of
the total restructured indebtedness, issued approximately $1.0 million in
non-interest bearing promissory notes and issued other obligations entitling
the trade creditors to a portion of the company's defined free cash flow in
years 2005 to 2009 of up to an aggregate of approximately $1.5 million.
This resulted in an extraordinary gain of $592,000 for the quarter ended
September 28, 1997. Discussions are continuing with unsecured trade
creditors with past due balances of approximately $275,000.
In addition, the Company is continuing discussions with other unsecured
creditors to restructure $1.8 million of associated indebtedness upon
substantially the same terms as the settlement with the trade creditors.
There is no assurance that any of these creditors will accept the proposal.
Results of Operations
_____________________
Three Months Ended September 28, 1997 Compared to September 29, 1996
_____________________________________________________________________
Net sales for the quarter ended September 28, 1997 were $4.8 million, 9% less
than net sales of $5.3 million for the same period of 1996. This decline was
primarily due to slow O.E. heavy duty product sales to two major customers.
One of these customers switched to a dealer direct shipment program. The
program had a slow start, the other implemented an inventory reduction
program. Stronger than projected carburetor sales partially offset the
shortfall of O.E. heavy duty product sales. Total product and core returns,
which are reflected in reductions in net sales, were 39% and 38% of gross
sales in the third quarters of 1997 and 1996, respectively.
Carburetor sales were 76% and 65% of net sales in the third quarter of 1997
and 1996, 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 injections 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. The Company has a customer return policy and
has established reserves in order to mitigate the loss of margins during
periods of declining demand.
The cost of product sold was 88% of net sales in the third quarter of 1997
compared to 90% in the third quarter of 1996. The reduction in the cost of
products sold is attributed to the product mix and favorable material
utilization during the quarter.
Selling, distribution and administrative expenses were $0.7 million in the
third quarter of 1997 compared to $1.0 million in the third quarter of 1996.
Reductions due to downsizing of operations since early 1996 accounted for
the decrease.
Interest expense was $235,000 in the third quarter of 1997 compared to
$332,000 in the prior year due to lower average outstanding borrowings
in 1997 compared to 1996.
Net income for the 1997 third quarter was $224,000 versus a net loss of
$816,000 in 1996. The net income for 1997 included an extraordinary gain of
$592,000 resulting from the vendor debt restructuring. Without the
extraordinary gain, the Company would have reported a net loss of $368,000.
Nine Months Ended September 28, 1997 Compared to Nine Months Ended
September 29, 1996
_____________________________________________________________________________
Net sales for the nine months of 1997 were $18.5 million, 11% less than net
sales of $20.7 million for the nine months of 1996. This decline was
primarily due to lower heavy duty product sales in 1997 than in 1996.
Carburetor sales were 65% of net sales in the first nine months of 1997
compared to 62% in 1996.
The average cost of products sold percentage was, 83% of the net sales, the
same as 1996.
Selling, distribution and administrative expenses were $2.6 million in the
first nine months of 1997 compared to $3.4 million for the nine months
in 1996. Cost reductions resulted from downsizing and cost control efforts.
Interest expense was $743,000 in the first nine months of 1997 compared to
$1.2 million in the prior year due to lower average outstanding borrowings
in 1997 compared to 1996.
Net income for the first nine months of 1997 was $322,000 compared to a net
loss of $986,000 in the prior year. Net income in 1997 included an
extraordinary gain of $592,000 as a result of the vendor debt settlement.
Without the extraordinary gain, the Company would have reported a net loss
of $270,000.
The Company continues to seek new business; however, without an increase in
the customer base, the Company expects sales in the final quarter of 1997 to
continue to be lower than the previous year due to lower seasonal demand for
carburetors, heavy duty and agricultural products.
Liquidity and Capital Resources
_______________________________
Working Capital
_______________
Net working capital on September 28, 1997 was negative $(6.5) million
compared to negative $(9.9) million on December 29, 1996. This improvement
was mostly due to the vendor debt restructuring of $3.4 million in July 1997.
Inventories were up about $100,000 in the first nine months of 1997 compared
to December 29, 1996 balances primarily due to higher core returns. A
decline in receivables of approximately $1.9 million resulted from higher
collections and lower sales.
In the first nine months of 1997, accrued expenses and other payables
declined approximately $1.2 million primarily due to a release of the
deferred compensation obligation on insurance policies of a former CEO of
the Company and a reduction in workers' compensation accruals.
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 was $5.1 million on September 28, 1997 and
$5.9 million on December 29, 1996. The decline in bank debt can be
attributed to the higher receivable collections during the nine months
of 1997. 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.
As indicated above, the Company has reached an agreement with approximately
90% of its unsecured trade creditors with past due balances to restructure
approximately $3.4 million. The Company is also continuing discussions with
other unsecured creditors to restructure the associated indebtedness upon
substantially the same terms as that settlement.
Debt
____
The Company's banks have extended the $6.0 million facility for short term
periods during the third quarter. The Company had used $5.1 million of the
available facility at September 28, 1997. The current facility expired on
August 31, 1997, however, the Company's banks have continued advancing
funds after the expiration. The Company has been asked to replace the
current facility with another credit facility.
The Company is in the process of seeking a replacement borrowing facility
with another lender; however, there is no assurance that the Company will
secure a replacement facility. Without a replacement facility or additional
advances, the Company will not have sufficient funds to continue as a going
concern and would have to consider available alternatives, including seeking
protection under bankruptcy laws.
The Company's financial statements have beem prepared on a going concern
basis and do not contain adjustments which may be necessary should the
Company be forced to liquidate assets or take other actions to satisfy debt
payments or discontinue its business.
Cash Flow
_________
The Company increased its long-term debt, net of cash, by $2.0 million in the
nine months ended September 28, 1997. The following summarizes significant
items affecting the change in total debt, (amounts in thousands).
Sept. 28, Sept. 29,
1997 1996
__________ __________
Net Income (Loss),
Changes in working capital, other ($ 2,189) $2,214
Depreciation and Amortization 613 729
Capital Expenditures (473) (47)
Proceeds from fixed asset sales 69 3,677
__________ _________
(Increase) Decrease in total debt, net of cash ($1,980) $6,573
========== =========
The increase resulted from the reclassification of $2.5 million of short term
payables as long term liabilities due to debt restructuring.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedules
<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:
_____________________________
By: /s/ Roland H. Millington
______________________________
Ronald H. Millington
Corporate Secretary and Treasurer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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