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 29, 1998
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
or 1934 during the preceeding 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 No X
_____ _____
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, 1998
______________________________ ______________________________
Common Shares - $.10 par value 3,655,266
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
March 29, 1998 December 28, 1997
______________ _________________
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 447,000 $ 488,000
Accounts Receivable, less allowance
for uncollectible accounts 5,594,000 4,497,000
Inventories 6,601,000 6,192,000
Prepaid expenses and other 760,000 759,000
_____________ ______________
Total current assets 13,402,000 11,936,000
Property, plant and equipment (net) 5,113,000 5,282,000
Other assets 53,000 58,000
_____________ ______________
Total Assets $ 18,568,000 $ 17,276,000
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable 5,919,000 5,479,000
Accrued expenses and other payables 7,342,000 6,868,000
Current maturities on long-term debts 6,773,000 6,773,000
_____________ _____________
Total current liabilities 20,034,000 19,120,000
Deferred income taxes 351,000 351,000
Long-term debt,
less current maturities 2,377,000 2,377,000
_____________ _____________
Total liabilities 22,762,000 21,848,000
Stockholders' Equity
Preferred stock - no par value
Authorized 10,000 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 (564,000) (628,000)
Retained earnings (19,574,000) (19,888,000)
_____________ ______________
Total stockholders' equity (4,194,000) ( 4,572,000)
Total Liabilities and
Stockholders' Equity $ 18,568,000 $ 17,276,000
============= ==============
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (CONDENSED)
Three Months Ended
________________ ________________
March 29, 1998 March 30, 1997
(Unaudited)
NET SALES $ 7,009,000 $ 7,638,000
Cost and Expenses:
Cost of products sold 5,677,000 6,182,000
Selling, distribution and administration 770,000 998,000
_______________ ______________
6,447,000 7,180,000
EARNINGS BEFORE INTEREST AND INCOME TAXES 562,000 458,000
INTEREST 248,000 258,000
EARNINGS BEFORE INCOME TAXES 314,000 200,000
INCOME TAXES --- ---
_______________ _______________
NET EARNINGS $ 314,000 $ 200,000
=============== ===============
AVERAGE SHARES OUTSTANDING 3,655,266 3,655,266
=============== ===============
NET EARNINGS PER COMMON SHARE 0.09 0.06
=============== ===============
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
______________ ______________
March 29, 1998 March 30, 1997
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 314,000 $ 200,000
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 174,000 201,000
Provision for loses on accounts receivable 0 0
Deferred income taxes 0 1,000
Change in assets and liabilities:
Accounts receivable (1,097,000) 373,000
Inventories (409,000) (233,000)
Accounts payable and accrued expenses 914,000 (641,000)
Other 4,000 20,000
_____________ ______________
NET CASH USED IN OPERATING ACTIVITIES (100,000) (79,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (10,000) (146,000)
Proceeds from sales of equipment 5,000 18,000
_____________ ______________
NET CASH USED IN INVESTING ACTIVITIES (5,000) (128,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under bank
credit agreements 0 102,000
Principal payments on long - term debt 0 (8,000)
_____________ ______________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 0 94,000
_____________ ______________
EFFECT OF EXCHANGE RATE CHANGES ON CASH 64,000 27,000
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (41,000) (86,000)
CASH AND CASH EQUIVALENTS, beginning of period 488,000 707,000
______________ ______________
CASH AND CASH EQUIVALENTS, end of period $ 447,000 $ 621,000
============== ==============
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 29 , 1998 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 28, 1997.
The consolidated balance sheet at December 28, 1997 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 29, 1998 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 29, December 28,
1998 1997
______________ _______________
Raw Materials $ 2,774,000 $ 1,867,000
Work-in-Process 2,106,000 2,641,000
Finished Goods 1,721,000 1,684,000
______________ ______________
$ 6,601,000 $ 6,192,000
============== ==============
Included in inventory above were cores of $3.4 million (March 29, 1998)
and $2.5 million (December 28, 1997).
4. For reporting purposes, product and core returns are offset against
gross sales in arriving at net sales. For the three months ended
March 29, 1998 and March 30, 1997 returns were $4,489,000 and $3,852,000,
respectively.
5. As previously reported, the Company's revolving credit facility expired
on August 31, 1997 and the Company's banks requested the Company to
secure a credit facility with another lender. On July 7, 1998, the
Company entered into a letter of commitment with another lender for a
four year credit facility. The Company also entered into an agreement
with its present banks which, among other things, would grant banks a
greater collateral interest in the Company's Beech Creek facility,
extend the expiration date of the credit facility to August 6, 1998 and
reduce the credit facility to $5.2 million. The Company has since
April, 1998 been limiting its borrowings under the credit facility to
$5.2 million. There can be no assurance that the new credit facility
will be closed. Without a new facility, the Company would not likely
be able to continue as a going concern and will likely have to seek
court protection under the Bankruptcy Code
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.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results
Net sales for the quarter ended March 29, 1998 were $7.0 million, 7.9 %
less than net sales of $7.6 million for the same period of 1997. The decline
of the net sales can be attributed to higher product stock adjustment returns
in the quarter and accruals for future returns compared to the like quarter
of the prior year. Total product and core returns, which are reflected in
reductions in net sales, were 39% and 38% of gross sales in 1998 and 1997,
respectively.
Carburetor sales were 75% and 65% of net sales in the first quarter of 1998
and 1997, respectively. The Company 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 81% of net sales in the first quarter of 1998
compared to 82% in the first quarter of 1997. This slight decline in the
cost of product sold is primarily attributed to the cost control efforts
over labor inefficiencies.
Selling, distribution and administrative expenses were $770,000 in the first
quarter of 1998 compared to $1.0 million in the first quarter of 1997.
Corporate-wide cost control efforts were primarily responsible for the
improvement.
Interest expense was $248,000 in the first quarter of 1998 compared to
$258,000 in the prior year due to lower average outstanding borrowings
in 1998 compared to 1997.
Net income for the 1998 first quarter was $314,000 versus $200,000 in 1997.
The Company continues to seek new business; however, without an increase in
the customer base, the Company expects sales in 1998 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 29, 1998 was negative $(6.6) million compared
to negative $(7.2) million on December 28, 1997.
Accounts receivable at the end of the first quarter of 1998 were $5.6
million, $1.1 million or 24% higher than the year end balance of $4.5
million. The increase was due to higher sales volume than collections.
Accounts receivable was also higher ($850,000) compared to the first quarter
of 1997.
Net inventories increased $400,000 in the first quarter due to higher
requirements for cores and production materials. However, inventories were
$670,000 lower than the first quarter of 1997.
Accounts payable at the end of first quarter was $440,000 higher than year
end 1997. The increase reflects higher purchases of production materials.
Accounts payable at the end of the first quarter was $2.4 million less than
the prior year due to reclassification in July 1997 of $2.4 million unsecured
debt as long term resulting from the composition agreement (see Debt section
below).
The Company classifies outstanding loans to its banks as short-term
obligations due to their maturity. The amount of outstanding loans under the
bank lines were $5.2 million on both March 29, 1998 and on December 28, 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.
Debt
As previously reported, the Company's revolving credit facility expired on
August 31,1997 and the Company's banks requested the Company to secure a
credit facility with another lender. On July 7, 1998, the Company entered
into a letter of commitment with another lender for a four year credit
facility. The Company also entered into an agreement with its present banks
which, among other things, would grant banks a greater collateral interest
in the Company's Beech Creek facility, extend the expiration date of the
credit facility to August 6, 1998 and reduce the credit facility to $5.2
million. The Company has since April, 1998 been limiting its borrowings
under the credit facility to $5.2 million. There can be no assurance that
the new credit facility will be closed. Without a new facility, the Company
would not likely be able to continue as a going concern and will likely have
to seek court protection under the Bankruptcy Code.
On July 1, 1997, the Company reached a composition agreement with over 90%
of its unsecured trade creditors with past due balances of 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. Discussions are continuing with
the remaining unsecured trade creditors.
In addition, the Company is continuing discussions with other unsecured
creditors to restructure approximately $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.
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's long-term debt position did not change during the first
Quarter 1998.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No Form 8-K report was filed by the Company during the most recently
completed fiscal quarter.
(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: June 29, 1998 By: /s/ Jerry A. Bragiel
________________________________
Jerry A. Bragiel
President and Chief Executive Officer
and Principal Financial Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 29, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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