UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2000
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)
2005 West Avenue B, Hope, Arkansas 71801
-----------------------------------------
(Address of principal executive offices)
870-777-8821
----------------------------------------------------
(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 April 2, 2000
------------------------------ -----------------------------
Common Shares - $.10 par value 3,655,266
<PAGE> -1-
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 2, 2000 December 31, 1999
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,018,000 $ 1,330,000
Accounts receivable, less allowance
for uncollectible accounts of
$361,000 and $337,000 in 2000 and
1999, respectively 5,007,000 3,891,000
Inventories 8,923,000 9,240,000
Prepaid expenses and other assets 384,000 335,000
Deferred income tax asset 413,000 413,000
----------- -----------
Total current assets 15,745,000 15,209,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 197,000 197,000
Buildings 7,834,000 7,834,000
Machinery and equipment 13,071,000 13,042,000
----------- -----------
Gross property, plant & equipment 21,102,000 21,073,000
Less: Accumulated depreciation 16,883,000 16,726,000
----------- -----------
Net Property, plant & equipment 4,219,000 4,347,000
----------- -----------
Other assets 14,000 19,000
----------- -----------
TOTAL ASSETS $19,978,000 $19,575,000
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> -2-
<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 2, 2000 December 31, 1999
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 6,990,000 $ 7,094,000
Accrued expenses:
Salaries, wages and benefits 728,000 634,000
Other accrued expenses 5,191,000 5,417,000
Taxes other than income 110,000 106,000
Current maturities of L-T debt:
Current mat. - term notes 601,000 601,000
Current mat. - vendor debt 202,000 192,000
Current mat. - IRB Loan 300,000 300,000
---------- ----------
Total current maturities 1,103,000 1,093,000
---------- ----------
Total current liabilities 14,122,000 14,344,000
---------- ----------
DEFERRED INCOME TAXES 351,000 351,000
---------- ----------
LONG-TERM DEBT:
L-T notes payable - revolver 1,414,000 1,229,000
L-T notes payable - term notes 1,453,000 1,603,000
L-T notes payable - vendors 2,536,000 2,553,000
Industrial revenue bond (IRB) 700,000 700,000
---------- ----------
Total long-term debt 6,103,000 6,076,000
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock - No par value;
authorized, 10,000,000 shares:
issued and outstanding, none -0- -0-
Common stock - $.10 par value;
authorized, 50,000,000 shares:
issued and outstanding 3,655,266 366,000 366,000
Additional paid-in capital l5,578,000 15,578,000
(Accumulated deficit) (16,052,000) (16,654,000)
Accum. other comp.(loss) (490,000) (486,000)
---------- ----------
Total Stockholders' Equity/(Def.) (598,000) (1,196,000)
---------- ----------
Total Liabilities and
Stockholders' Equity/(Deficit) $ 19,978,000 $ 19,575,000
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> -3-
<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONDENSED)
<CAPTION>
Three Months Ended
------------------
April 2, 2000 March 28, 1999
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales $ 7,454,000 $ 7,005,000
Costs and Expenses:
Cost of products sold 5,992,000 5,869,000
Selling, distribution and admin. 699,000 716,000
---------- ----------
Total costs and expenses 6,691,000 6,585,000
---------- ----------
Operating income 763,000 420,000
---------- ----------
Non-operating (income) expense:
Interest expense 151,000 155,000
Other non-operating income (14,000) (2,000)
---------- ----------
Total non-operating expense 137,000 153,000
---------- ----------
Earnings before income taxes 626,000 267,000
Income Taxes 24,000 -0-
---------- ----------
Net Income $ 602,000 $ 267,000
=========== ===========
Weighted Average Common Shares
Outstanding at April 2, 2000
Basic 3,655,266 3,655,266
----------- -----------
Diluted 3,709,063 3,655,266
----------- -----------
Earnings per Common Share - Basic
Net Income per Common Share-Basic $ 0.16 $ 0.07
=========== ===========
Earning per Common Share - Diluted
Net Income per Common Share-Diluted $ 0.16 $ 0.07
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> -4-
<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)
(Unaudited)
<CAPTION>
Accum.
Additional Other
Common Stock Paid-in (Accum.) Compreh.
Shares Amount Capital (Deficit) Inc/(Loss)
--------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE,
Jan. 1, 2000 3,655,266 $ 366,000 $ 15,578,000 $(16,654,000) $(486,000)
Net Income - - - 602,000 -
Foreign currency
translation adj. - - - - (4,000)
BALANCE,
April 2, 2000 3,655,266 $ 366,000 $ 15,578,000 $(16,052,000) $(490,000)
--------- -------- ----------- ----------- --------
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> -5-
<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
<CAPTION>
Three Months Ended
------------------
April 2, 2000 March 28, 1999
-------------- --------------
<S> <C> <C>
Net Income $ 602,000 $ 267,000
Other comprehensive income:
Foreign currency translation adj. (4,000) 47,000
------------ ------------
Comprehensive income $ 598,000 $ 314,000
============ ============
<FN>
Components of accumulated other comprehensive income, included in the
Company's consolidated balance sheet, consist of the foreign currency
translation adjustments.
The accompanying notes are an integral part of these statements
</TABLE>
<PAGE> -6-
<TABLE>
CHAMPION PARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD ENDED MARCH 28, 1999
<CAPTION>
Three Months Ended
------------------
April 2, 2000 March 28, 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 602,000 $ 267,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 162,000 171,000
Provision for inventory write-offs 77,000 27,000
Changes in assets and liabilities:
Accounts receivable (1,116,000) 143,000
Inventories (gross) 240,000 99,000
Accounts payable, accrued
expenses and other (238,000) (26,000)
---------- ----------
Net cash provided/(used)
in operating activities (273,000) 681,000
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (29,000) (87,000)
Proceeds from the sale of assets -0- -0-
---------- ----------
NET CASH (USED) BY INVESTING ACT. (29,000) (87,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (pmt's) - revolver 194,000 (150,000)
Payments on term note obligations (150,000) (150,000)
Payments - vendor note obligations (50,000) (42,000)
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (6,000) (342,000)
---------- ----------
EFFECTS OF EXCHANGE RATE CHANGES
ON CASH (4,000) 47,000
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (312,000) 299,000
---------- ----------
CASH AND CASH EQUIVALENTS:
Beginning of Period 1,330,000 784,000
---------- ----------
CASH AND CASH EQUIVALENTS:
End of Period $ 1,018,000 $ 1,083,000
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> -7-
CHAMPION PARTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. The accompanying financial statements for the three months
ended April 2, 2000 and March 28, 1999 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 31, 1999.
The consolidated balance sheet at December 31, 1999 has been
derived from the audited financial statements at that date and
condensed.
Note 2. The information furnished herein reflects 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 three months ended April 2, 2000 and
March 28, 1999 are not necessarily indicative of results to
be expected for the entire year.
Note 3. Inventories are valued at the lower of cost (first-in, first-out
method) or market. A summary of the inventories follows:
April 2, 2000 December 31, 1999
-------------- -----------------
Raw materials $ 3,048,000 $ 3,130,000
Work-in-process 3,347,000 3,536,000
Finished goods 2,528,000 2,574,000
----------- -----------
Total Inventories $ 8,923,000 $ 9,240,000
=========== ===========
Included in inventory above were cores of $3.1 million
(April 2, 2000) and $2.9 million (December 31, 1999).
Note 4. For reporting purposes, product and core returns are offset
against gross sales in arriving at net sales. Net returns
for the quarter ending April 2, 2000 were $2,473,000 versus
$3,105,000 during the same period in 1999.
Note 5. The income tax (benefit) expense attributable to operatons
for the period ended April 2, 2000 differed from the amounts
computed by applying the federal income tax rate of 34%
principally as a result of tax benefits recognized related
to the carryforward of net operating losses.
<PAGE> -8-
Note 6. Business Segments - The Company has adopted Statement of
Financial Accounting Standards (SFAS) No. 131," Disclosures
About Segments of an Enterprise and Related Information."
Following the provisions of SFAS No. 131, the Company is
reporting two operating business segments in the same format
as reviewed by the Company's senior management. Segment one,
Fuel Systems & C.V. Assemblies, remanufactures and sells
replacement fuel system components (carburetors and diesel
fuel injection components) and constant velocity drive
assemblies for substantially all makes and models of domestic
and foreign automobiles and trucks. Segment two, Electrical
& Mechanical Products, remanufactures and sells replacement
electrical and mechanical products for passenger car,
agricultural and heavy-duty truck original equipment
applications. Management uses operating income as the measure
of profit or loss by business segment. Segment assets include
amounts specifically identified with each operation. Corporate
assets consist primarily of property and equipment. Business
segment information is as follows:
Three Months Ended
---------------------------------
April 2, 2000 March 28, 1999
-------------- --------------
Revenues:
Fuel Systems & C.V. Assy's $ 5,419,000 $ 5,497,000
Elect. & Mech. Products 2,035,000 1,508,000
----------- -----------
Total Revenues $ 7,454,000 $ 7,005,000
=========== ===========
Depr. & Amort. Expense:
Fuel Systems & C.V. Assy's $ 55,000 $ 59,000
Elect. & Mech. Products 84,000 92,000
Corporate 23,000 20,000
----------- -----------
Total depr. & amort. $ 162,000 $ 171,000
=========== ===========
Net Income/(Loss):
Fuel Systems & C.V. Assy's $ 1,134,000 $ 1,016,000
Elect .& Mech. Products (126,000) (337,000)
Corporate (406,000) (412,000)
----------- -----------
Total Income $ 602,000 $ 267,000
=========== ===========
Capital Additions:
Fuel Systems & C.V. Assy's $ -0- $ 73,000
Elect. & Mech. Products -0- 4,000
Corporate 29,000 10,000
----------- -----------
Total Capital Additions $ 29,000 $ 87,000
=========== ===========
Total Assets:
Fuel Systems & C.V. Assy's $ 9,682,000 $ 8,153,000
Elect. & Mech. Products 8,209,000 7,661,000
Corporate 2,087,000 1,481,000
----------- -----------
Total assets $19,978,000 $17,295,000
=========== ===========
<PAGE> -9-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 2, 2000 COMPARED TO THREE MONTHS ENDED
MARCH 28, 1999
For the first quarter ending April 2, 2000, net sales were $7,454,000,
an increase of $449,000, 6.4%, over net sales of $7,005,000 for the
same period in 1999. The sales gain over 1999 primarily reflects a
significant rebound in heavy-duty business with existing agricultural
equipment customers. In particular, major gains were exhibited in
heavy-duty starters, alternators and water pumps. Carburetor sales
were 4% lower than first quarter 1999. First quarter 1999 carburetor
sales included significant new stocking orders for stores acquired by
the Company's two large retail customers. Total product and core
returns, which are reflected in reductions to net sales, were 24.3%
and 30.8% of gross sales in the first three months 2000 and 1999,
respectively. Lower warranty returns account for the first quarter
percentage decline from 1999.
Carburetor sales were 67% and 74% of net sales in the first three months
of 2000 and 1999, respectively. The significant gain in heavy-duty sales
accounted for the percentage drop versus total sales. Net sales of
carburetors were only slightly lower than 1999. Although new vehicles
sold in the United States and Canada are no longer equipped with
carburetors, 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.
Cost of products sold were $5,992,000, or 80.4% of net sales in the
first quarter of 2000 as compared to $5,869,000, or 83.8% for the first
quarter of 1999. The decrease in cost of products sold as a percent of
net sales is primarily attributed to lower direct labor. Also,
manufacturing overhead expenses did not increase proportionally with
the overall sales increase. Both manufacturing operations exhibited
improved materials utilization and controlled overhead spending.
Selling, distribution and administrative expenses were $699,000 for
the first quarter of 2000 as compared to $716,000 in the first quarter
of 1999. Primarily contributing to the 2.4% spending decrease were lower
administrative costs reflecting the reduction in Corporate overhead
realized by moving the Corporate offices to the Hope Division.
Interest expense was $151,000 for the first quarter of 2000 versus
$155,000 in the same period of 1999.
For the first quarter of 2000, net income was $602,000 compared to
$267,000 for the same period of 1999. This $335,000, or 125.5%,
increase primarily reflects the increase in net sales and resultant
gross margins, together with lower administrative spending versus 1999.
<PAGE> -10-
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Net working capital at April 2, 2000 was a positive $1,623,000,
compared to a positive $865,000 at the end of 1999, and a negative
$840,000 for March 28, 1999. The $758,000 improvement in working
capital over the year-end is principally a result of higher accounts
receivable combined with a decrease in accrued liabilities. The
significant increase of $2.5 million over March 1999 reflects
substantially higher inventories and accounts receivable versus a
nominal increase in current liabilities.
Net accounts receivable at April 2, 2000, were $5,007,000, or $1,116,000,
29%, higher versus the year-end 1999 balance of $3,891,000 reflecting
higher sales combined with slow payments by a major customer. Net
receivables increased $449,000 compared to the March 28, 1999 balance
for the same reasons cited above.
Net inventories of $8,923,000 at April 2, 2000, were lower by $317,000,
compared to the year-end fiscal 1999 balances. Reductions were achieved
in all inventory categories as a result of a Company wide program to
reduce inventories. Net inventories increased by $2,635,000 versus March
1999 reflecting higher parts, raw core and work-in-process inventories
for the ramp-up of carburetor production at the Hope facility.
Accounts payable at the end of the first quarter 2000 were $104,000
lower than year-end 1999, but $2.5 million higher than March 1999. The
decline from year-end is due to lower raw materials spending, while the
increase over the same period last year reflects higher raw materials
spending for the increased production of carburetors at the Hope
Division.
Accrued expenses at the end of the quarter were $128,000 lower than the
fiscal year-end 1999 balances because of reductions to several year-end
accruals related to vendor debt settlements. Compared to March 1999,
accrued expenses were lower by $2.0 million as a result of lower salary,
wage and benefits accruals(timing difference between quarters), and lower
sales deduction accruals which are predicated primarily on carburetor net
sales which declined from last year.
DEBT
At April 2, 2000, the balance outstanding on the Bank America loan
facility was $2,867,000 plus letter of credit accomodations of
$1,693,000. This compares to a loan balance at Decenber 31, 1999 of
$3,424,000 and accomodations of $1,993,000, and a loan balance at
March 28, 1999 of $3,203,000 and accomodations of $1,993,000.
SEASONALITY
The Company's business is slightly seasonal in nature, primarily as a
result of the impact of weather conditions on the demand for certain
automotive replacement parts. Historically, the Company's sales and
profits have been slightly higher in the first and fourth quarters of
each year than in the second and third quarters.
<PAGE> -11-
FACTORS WHICH MAY AFFECT FUTURE RESULTS
This quarterly report contains forward-looking statements that are
subject to risks and uncertainties, including but not limited to the
following:
The Company expects the existing over-capacity in the automotive
aftermarket and consolidation within its distribution channels to
cause continued selling price pressure for the foreseeable future.
The present competitive environment is causing change in traditional
aftermarket distribution channels resulting in volume retailers gaining
additional market presence at the expense of traditional wholesalers.
In response, the Company has attempted to diversify its customer base
and currently serves all major segments, including automotive warehouse
distributors and jobbers, original equipment manufacturers of automotive
equipment and large volume automotive retailers. The anticipated
decline in sales from the profitable carburetor product line over the
longer term will impact future results. The Company intends to offset
these impacts through development of niche product markets, new product
development, improvements in its manufacturing processes and cost
containment with a strong focus on capacity utilization. There is
no assurance that the Company's efforts will be successful.
The Company's three largest customers accounted for an aggregate of
90% of the Company's total sales in first quarter of 2000. Given
the Company's current financial condition and its manufacturing cost
structure, the loss of a large customer would have a materially adverse
impact on the Company's financial condition and results of operations.
While the Company has established reserves for potential environmental
liabilities that it believes to be adequate, there can be no assurance
that the reserves will be adequate to cover actual costs incurred or
that the Company will not incur additional environmental liabilities
in the future.
Accordingly, actual results may differ materially from those set forth
in the forward-looking statements.
<PAGE> -12-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedules
(b) No Form 8-K report was filed by the Company during
the most recently completed fiscal quarter.
<PAGE> -13-
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: March 17, 2000 By: /s/ Jerry A. Bragiel
-------------- -------------------------
Jerry A. Bragiel
President, Chief Executive Officer
By: /s/ Richard W. Simmons
--------------------------
Richard W. Simmons
Vice President Finance, Chief
Financial Officer and Secretary
<PAGE> -14-
<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 THREE MONTHS ENDED APRIL 2, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> APR-02-2000
<CASH> 1018000
<SECURITIES> 0
<RECEIVABLES> 5368000
<ALLOWANCES> (361000)
<INVENTORY> 8923000
<CURRENT-ASSETS> 15745000
<PP&E> 21102000
<DEPRECIATION> 16883000
<TOTAL-ASSETS> 19978000
<CURRENT-LIABILITIES> 14122000
<BONDS> 0
0
0
<COMMON> 366000
<OTHER-SE> (598000)
<TOTAL-LIABILITY-AND-EQUITY> 19978000
<SALES> 7454000
<TOTAL-REVENUES> 7454000
<CGS> 5992000
<TOTAL-COSTS> 6691000
<OTHER-EXPENSES> 137000
<LOSS-PROVISION> 361000
<INTEREST-EXPENSE> 151000
<INCOME-PRETAX> 626000
<INCOME-TAX> 24000
<INCOME-CONTINUING> 602000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 602000
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
