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 29, 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, Illinois 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 June 29, 1997
______________________________ ____________________________
Common Shares - $.10 par value 3,655,266
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
Pro Forma
June 29, December 29, Balance Sheet
1997 1996 June 29, 1997
____________ ____________ _____________
(Unaudited) (Audited) (Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 611,000 $ 707,000 $ 264,000
Accounts Receivable,
less allowance for
uncollectible accounts 3,514,000 5,129,000 3,514,000
Inventories 7,181,000 7,040,000 7,181,000
Prepaid expenses and other 811,000 813,000 811,000
___________ ____________ ____________
Total current assets 12,117,000 13,689,000 11,770,000
Property, plant and
equipment (net) 5,381,000 5,509,000 5,381,000
Other assets 68,000 468,000 68,000
____________ ____________ ____________
Total Assets $ 17,566,000 $ 19,666,000 $ 17,219,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 7,926,000 $ 8,047,000 $ 4,492,000
Accrued expenses and
other payables 7,043,000 8,033,000 7,043,000
Current maturities on
long-term debts 6,485,000 7,550,000 6,485,000
____________ ____________ ____________
Total current liabilities $ 21,454,000 $ 23,630,000 $ 18,020,000
Deferred income taxes 478,000 478,000 478,000
Notes payable to banks and other 0 43,000 2,495,000
____________ ____________ ____________
Total liabilities $ 21,932,000 $ 24,151,000 $ 20,993,000
Stockholders' Equity
Preferred stock - no par value 0 0 0
Authorized 10,000,000 shares
issued and outstanding, none
Common stock - $.10 par value 366,000 366,000 366,000
Authorized 50,000,000 shares
issued and outstanding
3,655,266 shares
Additional paid-in capital 15,578,000 15,578,000 15,578,000
Cumulative translation adjustment (680,000) (701,000) (680,000)
Retained earnings (19,630,000) (19,728,000) (19,038,000)
____________ ____________ ____________
Total stockholders' equity $ (4,366,000) $ (4,485,000) $ (3,774,000)
Total Liabilities and
Stockholders' Equity $ 17,566,000 $ 19,666,000 $ 17,219,000
============ ============ ============
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
(Amounts in thousands)
Six Months Ended Three Months Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
__________ _________ _________ _________
(Unaudited) (Unaudited)
Net Sales $ 13,617 $ 15,434 $ 5,980 $ 7,222
__________ _________ _________ _________
Cost and Expenses
Cost of products sold 11,077 12,384 4,894 6,040
Selling, distribution and
administration 1,934 2,345 938 1,154
__________ _________ _________ _________
13,011 14,729 5,832 7,194
Earnings before interest
and income taxes 606 705 148 28
Interest 508 868 250 404
__________ _________ _________ _________
Earnings (loss) before
income taxes 98 (163) (102) (376)
Income Tax 7
__________ _________ _________ _________
Net earnings (loss) $ 98 $ (170) $ (102) (376)
========== ========= ========= =========
Average Shares Outstanding 3,655,266 3,655,266 3,655,266 3,655,266
Net Earnings (loss)
per common share $ 0.03 $ (0.05) $ (0.03) $ (0.10)
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 29, June 30,
1997 1996
_____________ ____________
(Unaudited) (Audited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 98,000 $ (170,000)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 407,000 503,000
Provision for losses on accounts receivable 155,000 42,000
Change in assets and liabilities:
Accounts receivable 1,460,000 444,000
Inventories (141,000) 2,509,000
Accounts payable and accrued expenses (1,111,000) (497,000)
Other 406,000 25,000
___________ ___________
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,274,000 2,854,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (332,000) (47,000)
Proceeds from sales of property, plant &
equipment 49,000 765,000
__________ ____________
NET CASH USED IN INVESTING ACTIVITIES (283,000) 718,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under credit
agreements (1,065,000) (3,365,000)
Principal payments (borrowings) on
long-term debt (43,000) (114,000)
___________ ____________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,108,000) (3,479,000)
___________ ____________
EFFECT OF EXCHANGE RATE CHANGES ON CASH 21,000 (9,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (96,000) 84,000
CASH AND CASH EQUIVALENTS, beginning of period 707,000 874,000
___________ ____________
CASH AND CASH EQUIVALENTS, end of period $ 611,000 $ 958,000
=========== ============
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 29, 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 conjuntion with the consolidated financial
statements of 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 operation for the interim period. Results of operations for the six months
ended June 29, 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:
June 29, December 29,
1997 1996
_____________ _______________
Raw Materials $ 2,238,000 $ 1,753,000
Work-in-Process 2,342,000 2,622,000
Finished Goods 2,601,000 2,665,000
_____________ ______________
$ 7,181,000 $ 7,040,000
============= ==============
Included in inventory above were cores of $2.9 million (June 29, 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 six months ended June 29, 1997
and June 30, 1996 returns were $7,586,000, and $9,829,000 respectively.
5. The Company's banks have extended the $6.4 million facility for short
term periods during the second quarter. The Company had used $5.0 million
of the available facility at June 29, 1997. The bank facility has been
extended to August 31, 1997 with a $6.0 million limit. The Company has been
informed by its banks that the current facility is being reviewed and a
decision will be made regarding further loan extensions. There can be no
assurance that the banks will provide additional extensions on this facility.
Without an extension of the current credit agreement or a replacement
facility, 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. Previously disclosed negotiations between the Company, an ad hoc panel
representing certain unsecured creditors and Mr. Raymond G. Perelman, a
principal shareholder and director, to settle certain unsecured obligations
and recapitalize the Company were discontinued in May 1997. On
July 1, 1997, the Company reached a separate composition agreement with
approximately 90% of its unsecured trade creditors to restructure
approximately $3.4 million in past due obligations. 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.
(The impact of this agreement is presented in pro forma format on the
Company's Consolidated Balance Sheet.) Discussions are continuing with the
remaining of the unsecured trade creditors with a balance of approximately
$275,000.
The Company is also 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 these creditors will accept the proposal.
The Company also settled a deferred compensation agreement with a former CEO
of the Company. Under the agreement, Champion Parts has received $195,000 in
cash and a release of the deferred compensation obligation from the former
CEO in exchange for assignment of two policies insuring the former CEO.
Management's Discussion and Analysis of Financial Condition and Results of
___________________________________________________________________________
Operations
__________
Recent Events
Previously disclosed negotiations between the Company, an ad hoc panel
representing certain unsecured creditors and Mr. Raymond G. Perelman, a
principal shareholder and director, to settle certain unsecured obligations
and recapitalize the Company were discontinued in May 1997. On July 1, 1997,
the Company reached a separate composition agreement with approximately 90%
of its unsecured trade creditors to restructure approximately $3.4 million
in past due obligations. 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. (The impact of this
agreement is presented in pro forma format on the Company's Consolidated
Balance Sheet.) Discussions are continuing with the remaining unsecured
trade creditors with a balance of approximately $275,000.
In conjunction with the restructuring, the Company is also 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 these creditors will
accept the proposal.
The Company also settled a deferred compensation agreement with a former CEO
of the Company. Under the agreement, Champion Parts has received $195,000 in
cash and a release of the deferred compensation obligation from the former
CEO in exchange for assignment of two policies insuring the former CEO.
Results of Operations
_____________________
Three Months Ended June 29, 1997 Compared to June 30, 1996
__________________________________________________________
Net sales for the quarter ended June 29, 1997 were $6.0 million, 17% less
than net sales of $7.2 million for the same period of 1996. This decline was
primarily due to a benefit in 1996 of initial stocking sales to a major
carburetor customer and to lower heavy duty product sales to another major
customer in 1997 than in 1996. Total product and core returns, which are
reflected in reductions in net sales, were 35% and 38% of gross sales in 1997
and 1996, respectively.
Carburetor sales were 68% and 59% of net sales in the second 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 product sold was 82% of net sales in the second quarter of 1997
compared to 84% in the second quarter of 1996. The reduction in the cost of
products sold is attributed to the favorable material utilization during the
quarter.
Selling, distribution and administrative expenses were $0.9 million in the
second quarter of 1997 compared to $1.2 million in the second quarter
of 1996. Reductions due to downsizing of operations since early 1996
accounted for the decrease.
Interest expense was $250,000 in the second quarter of 1997 compared to
$404,000 in the prior year due to lower average outstanding borrowings in
1997 compared to 1996.
Net loss for the 1997 second quarter was $102,000 versus a net loss of
$376,000 in 1996.
Six Months Ended June 29, 1997 Compared to Six Months Ended June 30, 1996
_________________________________________________________________________
Net sales for the first half of 1997 were $13.6 million, 12% less than net
sales of $15.4 million for the first half of 1996. This decline was
primarily due to the Company benefiting from increased sales from two large
carburetor customers in 1996, and to lower heavy duty product sales in 1997
than in 1996.
Carburetor sales were 68% of net sales in the first half of 1997 compared to
60% in 1996.
Cost of product sold was 81% of net sales in 1997 compared to 80% in 1996.
This slight increase in cost of product sold is attributed to higher labor
costs than during the first half of 1996.
Selling, distribution and administrative expenses were $1.9 million in the
first half of 1997 compared to $2.3 million in the first half of 1996. Cost
reductions resulted from downsizing and cost control efforts.
Interest expenses was $508,000 in the first half of 1997 compared to $868,000
in the prior year due to lower average outstanding borrowings in 1997
compared to 1996.
Net income for the first half of 1997 was $98,000 compared to a net loss of
$170,000 in the prior year.
The Company continues to seek new business; however, without an increase in
the customer base, the Company expects sales in 1997 subsequent quarters to
continue to be lower than in the first quarter due to lower seasonal demand
for carburetors, heavy duty and agricultural products.
Liquidity and Capital Resources
_______________________________
Working Capital
_______________
Net working capital on June 29, 1997 was negative $(9.3) million compared to
negative $(9.9) million on December 29, 1996.
Inventories were up about $140,000 in the first half of 1997 primarily due to
higher core returns and purchases. A decline in receivables of approximately
$1.6 million resulted from higher collections than sales in the same period.
In the first half of 1997, accrued expenses and other payables declined
approximately $1.0 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 expense.
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 $5.0 million on June 29, 1997 and $5.9
million on December 29, 1996. The decline in bank debt can be attributed
to the higher receivable collections during the first half 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 certain of its
trade creditors to restructure approximately $3.4 million in past due
obligations. 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 $6.4 million facility for short term
periods during the second quarter. The Company had used $5.0 million of the
available facility at June 29, 1997.
The bank facility has been extended to August 31, 1997 with a $6.0 million
limit. The Company has been informed by its banks that the current facility
is being reviewed and a decision will be made regarding further loan
extensions. There can be no assurance that the banks will provide additional
extensions on this facility.
Without an extension of the current credit agreement or a replacement
facility, the Company would not have sufficient funds to be able to continue
as a going concern and would have to consider available alternatives,
including seeking protection under bankruptcy laws. There is no assurance
that the credit agreement will be extended or that replacement financing
would be available. 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. The Company
needs to generate new business and continue its cost containment efforts in
order to be able to return to profitability. However, there is no assurance
that the Company will be able to return to profitability in the near future.
Cash Flow
_________
The Company decreased its long-term debt, net of cash, by $1.0 million in the
six months ended June 29, 1997. The following summarizes significant items
affecting the change in total debt, (amounts in thousands).
June 29, June 30,
1997 1996
______________ ______________
Net income (loss)
Changes in working capital, other $ 888 $ 2,342
Depreciation and Amortization 407 503
Proceeds from fixed asset sales 49 (47)
Capital Expenditures (332) 765
____________ ____________
Decrease in total debt, net of cash $ 1,012 $ 3,563
============ ============
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 13, 1997 By: /s/ Roland H. Millington
________________________
Roland H. Millington
Corporate Secretary and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 611000
<SECURITIES> 0
<RECEIVABLES> 3987000
<ALLOWANCES> 473000
<INVENTORY> 7181000
<CURRENT-ASSETS> 12117000
<PP&E> 20531000
<DEPRECIATION> 15150000
<TOTAL-ASSETS> 17566000
<CURRENT-LIABILITIES> 21454000
<BONDS> 0
0
0
<COMMON> 366000
<OTHER-SE> (4732000)
<TOTAL-LIABILITY-AND-EQUITY> 17566000
<SALES> 13617000
<TOTAL-REVENUES> 13617000
<CGS> 11077000
<TOTAL-COSTS> 11077000
<OTHER-EXPENSES> 1934000
<LOSS-PROVISION> 155000
<INTEREST-EXPENSE> 508000
<INCOME-PRETAX> 98000
<INCOME-TAX> 0
<INCOME-CONTINUING> 98000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98000
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
