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 March 30, 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, Building 7, Suite 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 May 1, 1997
Common Shares - $.10 par value 3,655,266
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
March 30, 1997 December 29, 1996
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 621,000 $ 707,000
Accounts Receivable,
less allowance for uncollectible
accounts 4,756,000 5,129,000
Inventories 7,273,000 7,040,000
Prepaid expenses and other 796,000 813,000
-------------- --------------
Total current assets 13,446,000 13,689,000
Property, plant and equipment (net) 5,431,000 5,509,000
Other assets 469,000 468,000
-------------- --------------
Total Assets $ 19,346,000 $ 19,666,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 7,823,000 $ 8,047,000
Accrued expenses and other payables 7,616,000 8,033,000
Current maturities on long-term
debts 7,652,000 7,550,000
-------------- --------------
Total current liabilities $ 23,091,000 $ 23,630,000
Deferred income taxes 478,000 478,000
Long-term debt, less current maturities
Notes payable to banks and other 35,000 43,000
-------------- --------------
Total liabilities $ 23,604,000 $ 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 (674,000) (701,000)
Retained earnings (19,528,000) (19,728,000)
-------------- --------------
Total stockholders' equity $ (4,258,000) $ (4,485,000)
Total Liabilities and Stockholders'
Equity $ 19,346,000 $ 19,666,000
============== ==============
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (CONDENSED)
Three Months Ended
March 30, March 31,
1997 1996
-------------- --------------
(Unaudited)
NET SALES $ 7,638,000 $ 8,212,000
Cost and Expenses:
Cost of products sold 6,182,000 6,344,000
Selling, distribution and
administration 998,000 1,191,000
------------- --------------
7,180,000 7,535,000
EARNINGS BEFORE INTEREST AND INCOME TAXES 458,000 677,000
INTEREST 258,000 464,000
------------- --------------
EARNINGS BEFORE INCOME TAXES 200,000 213,000
INCOME TAX --- 7,000
------------- --------------
NET EARNINGS $ 200,000 $ 206,000
============= ==============
AVERAGE SHARES OUTSTANDING 3,655,266 3,655,266
============= ==============
NET EARNINGS PER COMMON SHARE $0.06 $0.06
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 30, March 31,
1997 1996
-------------- --------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 200,000 $ 206,000
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 201,000 256,000
Provision for losses on accounts
receivable 0 37,000
Deferred income taxes 1,000 0
Change in assets and liabilities:
Accounts receivable 373,000 (1,072,000)
Inventories (233,000) 1,514,000
Accounts payable and accrued expenses (641,000) 664,000
Other 20,000 (6,000)
------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (79,000) 1,599,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (146,000) (41,000)
Proceeds from sales of property,
plant & equipment 18,000 864,000
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (128,000) 823,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under
bank credit agreements 102,000 (2,402,000)
Principal payments on long-term debt (8,000) (41,000)
------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 94,000 (2,443,000)
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 27,000 6,000
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (86,000) (15,000)
CASH AND CASH EQUIVALENTS, beginning of
period 707,000 874,000
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 621,000 $ 859,000
============ =============
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 three months ended March 30,
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 10K 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 operation for the interim period. Results of operations for the three
months ended March 30, 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:
March 30, December 29,
1997 1996
---------------- ----------------
Raw Materials $ 2,009,000 $ 1,753,000
Work-in-Process 2,588,000 2,622,000
Finished Goods 2,676,000 2,665,000
---------------- ----------------
$ 7,273,000 $ 7,040,000
================ ================
Included in inventory above were cores of $2.9 million (March 30, 1997) and
$3.0 million (December 29, 1996).
4.For reporting purposes, product and core returns are offset against gross
sales in arriving at net sales. For the three months ended March 30, 1997
and March 31, 1996 returns were $3,852,000, and $5,239,000, respectively.
5.The Company's banks have extended the $6.4 million facility for short term
periods during the first quarter. The Company had used $6 million of the
available facility at March 30, 1997. The current extension expires on
May 19, 1997. The Company and banks initiated discussions regarding the
continued extension of the facility in light of the currently proposed
creditor settlement and recapitalization plan. (See Footnote 6)
There can be no assurance that the banks will continue to extend the facility
beyond the current expiration date.
The Company is also indebted to various unsecured creditors, including
current and former trade vendors. 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.
As indicated in Footnote 6, the Company is in negotiations with an ad hoc
panel representing certain of its unsecured creditors. There can be no
assurances that the Company and the panel will be able to reach agreement.
Without an extension of the current credit agreement or a replacement
facility, the Company would not have sufficient funds to pay its debts should
the lenders demand payment and would not be able to continue as a going
concern.
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.The Company's previously disclosed negotiations are continuing with a
panel representing certain of its unsecured trade creditors and
Raymond G. Perelman, a principal shareholder and director, to recapitalize
the Company and settle certain unsecured obligations. The Company cannot
predict when such negotiations will conclude. The current proposed terms
would provide for the company to pay the holders of certain specified
unsecured claims ("settlement class") 31 cents on the dollar in full
settlement of such claims. The settlement class consists of about 40 current
and former trade vendors holding approximately $4 million in unsecured
claims against the Company. The settlement is subject to ratification by
members of the settlement class representing at least 90% of the total claims
of the class, settlement of certain insurance obligations, which the Company
values at approximately $1.5 million, and certain other conditions.
It is currently contemplated that the settlement would be made with existing
Company funds and a $1.175 million cash infusion from Raymond G. Perelman,
or an entity affiliated with him. Mr. Perelman would pay $760,000 for
1.9 million common shares plus warrants to purchase an additional 1.1 million
common shares, $140,000 for non-voting cumulative redeemable 7% preferred
shares, and to make a $275,000 partially secured loan carrying an interest
rate of 7%. For a three year period, the Company would have the right to
repurchase all the warrants for $550,000 or if the warrants have been
exercised the outstanding common shares at $550,000 plus the exercise price.
Upon the closing of these transactions, Mr. Perelman would obtain control of
the Company's Board and the Board of Directors would be reduced to five
members. It is anticipated that prior to closing a date would be set to hold
the next meeting of shareholders, and Mr. Perelman would designate a slate of
directors for election. In connection with his equity infusion, Mr. Perelman
has designated a new operating officer for the corporation. The three
current executive officers have entered into agreements providing for certain
termination benefits subject to their remaining with the Company through a
specified transition period.
These transactions would close when the requisite percentage of the
settlement class approves the agreement and the other conditions are met.
Mr. Perelman's performance would be guaranteed with a standby letter of
credit. This plan would require the acceptance of a high percentage of
unsecured creditors in the class. There is no assurance that the Company
would be able to complete this process.
If the Company cannot reach agreement with the vendor panel and Mr.
Perelman, it would seek other options which may include court protection
from creditors under Chapter 11 of the Bankruptcy Code.
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
Recent Events
- --------------
The Company's previously disclosed negotiations are continuing with a panel
representing certain of its unsecured trade creditors and Raymond
G. Perelman, a principal shareholder and director, to recapitalize the
Company and settle certain unsecured obligations. The Company cannot predict
when such negotiations will conclude. The current proposed terms would
provide for the company to pay the holders of certain specified unsecured
claims ("settlement class") 31 cents on the dollar in full settlement of such
claims. The settlement class consists of about 40 current and former trade
vendors holding approximately $4 million in unsecured claims against the
Company. The settlement is subject to ratification by members of the
settlement class representing at least 90% of the total claims of the class,
settlement of certain insurance obligations, which the Company values at
approximately $1.5 million, and certain other conditions.
It is currently contemplated that the settlement would be made with existing
Company funds and a $1.175 million cash infusion from Raymond G. Perelman,
or an entity affiliated with him. Mr. Perelman would pay $760,000 for
1.9 million common shares plus warrants to purchase an additional 1.1 million
common shares, $140,000 for non-voting cumulative redeemable 7% preferred
shares, and to make a $275,000 partially secured loan carrying an interest
rate of 7%. For a three year period, the Company would have the right to
repurchase all the warrants for $550,000 or if the warrants have been
exercised the outstanding common shares at $550,000 plus the exercise price.
Upon the closing of these transactions, Mr. Perelman would obtain control of
the Company's Board and the Board of Directors would be reduced to five
members. It is anticipated that prior to closing a date would be set to hold
the next meeting of shareholders, and Mr. Perelman would designate a slate of
directors for election. In connection with his equity infusion, Mr. Perelman
has designated a new operating officer for the corporation. The three
current executive officers have entered into agreements providing for certain
termination benefits subject to their remaining with the Company through a
specified transition period.
These transactions would close when the requisite percentage of the
settlement class approves the agreement and the other conditions are met.
Mr. Perelman's performance would be guaranteed with a standby letter of
credit. This plan would require the acceptance of a high percentage of
unsecured creditors in the class. There is no assurance that the Company
would be able to complete this process.
If the Company cannot reach agreement with the vendor panel and Mr. Perelman,
it would seek other options which may include court protection from creditors
under Chapter 11 of the Bankruptcy Code.
Results
Net sales for the quarter ended March 30, 1997 were $7.6 million, 7% less
than net sales of $8.2 million for the same period of 1996. This decline
was primarily due to 1996 benefiting from initial stocking sales to a major
carburetor customer and to lower heavy duty product sales than in 1996.
Total product and core returns, which are reflected in reductions in net
sales, were 33% and 38% of gross sales in 1997 and 1996, respectively.
Carburetor sales were 65% and 61% of net sales in the first 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 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 82% of net sales in the first quarter of 1997
compared to 77% in the first quarter of 1996. The increase in costs of
products sold is attributed primarily to the higher labor cost during the
quarter.
Selling, distribution and administrative expenses were $1.0 million in the
first quarter of 1997 compared to $1.2 million in the first quarter of 1996.
Reductions due to downsizing of operations in early 1996 accounted for the
decrease.
Interest expense was $258,000 in the first quarter of 1997 compared to
$464,000 in the prior year due to lower average outstanding borrowings
in 1997 compared to 1996.
Net income for the 1997 first quarter was $200,000 versus $206,000 in 1996.
The Company continues to seek new business; however, without an increase in
the customer base, the Company expects sales in 1997 subsequent quarters to
be lower than in the first quarter due to lower seasonal demand for
carburetors and heavy duty and agricultural products.
Liquidity and Capital Resources
Working Capital
Net working capital on March 30, 1997 was negative $(9.6) million compared to
negative $(9.9) million on December 29, 1996.
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 $6.0 million on March 30, 1997 and
$5.9 million on December 29, 1996. 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.
Debt
The Company's banks have extended the $6.4 million facility on short term
periods during the first quarter. The Company had used $6 million of the
available facility at March 30, 1997. The current extension expires on
May 19, 1997. The Company and banks initiated discussions regarding the
continued extension of the facility in light of the currently proposed
creditor settlement and recapitalization plan. There can be no assurance
that the banks will continue to extend the facility beyond the current
expiration date.
The Company is also indebted to various unsecured creditors, including
current and former trade vendors. 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. As previously disclosed, the Company is in negotiations with an
ad hoc panel representing certain of its unsecured creditors. There can be
no assurances that the Company and the panel will be able to reach agreement.
Without an extension of the current credit agreement or a replacement
facility, the Company would not have sufficient funds to pay its debts should
the lenders demand payment and would not be able to continue as a going
concern. 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.
Cash Flow
The Company decreased its long-term debt, net of cash, by $180,000 in the
quarter ended March 30, 1997. The following summarizes significant items
affecting the change in total debt, (amounts in thousands).
March 30, March 31,
1997 1996
------------- -------------
Net Income
Changes in working capital, other $ 107 $ 1,349
Depreciation and Amortization 201 256
Proceeds from Sales of Assets 18 864
Capital Expenditures (146) (41)
------------- -------------
Increase (Decrease) in total debt,
net of cash $ 180 $ 2,428
============= =============
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: May 14, 1997 By: /s/ Mark Smetana
______________ _______________________________
Mark Smetana
Vice President - Finance
Corporate Secretary
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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 THREE MONTHS ENDED MARCH 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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