-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Km4DBLpkrb0H33msZns3vxSQ8JmdFBQ06HKhp8PZMnEk1+Lvbh9+MlQggaOumXsp UkeujyIhlv6xpIQhmYKiOA== /in/edgar/work/20000612/0000950133-00-002563/0000950133-00-002563.txt : 20000919 0000950133-00-002563.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950133-00-002563 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000612 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPION INDUSTRIES INC CENTRAL INDEX KEY: 0000019149 STANDARD INDUSTRIAL CLASSIFICATION: [2750 ] IRS NUMBER: 550717455 STATE OF INCORPORATION: WV FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21084 FILM NUMBER: 653715 BUSINESS ADDRESS: STREET 1: 2450 FIRST AVE STREET 2: P O BOX 2968 CITY: HUNTINGTON STATE: WV ZIP: 25728 BUSINESS PHONE: 3045282791 MAIL ADDRESS: STREET 1: 2450 FIRST AVENUE STREET 2: P O BOX 2968 CITY: HUNTINGTON STATE: WV ZIP: 25728 10-Q 1 0001.txt QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 30, 2000 Commission File No. 0-21084
------------------- CHAMPION INDUSTRIES, INC. (Exact name of Registrant as specified in its charter)
West Virginia 55-0717455 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.)
Route 2 Kyle Industrial Park Industrial Lane P. O. Box 2968 Huntington, West Virginia 25728 (Address of principal executives offices) (Zip Code) (304) 528-2700 (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 . ----- ----- 9,713,913 shares of common stock of the Registrant were outstanding at April 30, 2000. 2 CHAMPION INDUSTRIES, INC. INDEX
PAGE NO. Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets..............................................2 Consolidated Income Statements...........................................4 Consolidated Statements of Cash Flows....................................5 Notes to Consolidated Financial Statements...............................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............................................11 Part II. Other Information Item 2. Changes in Securities..................................................16 Item 4. Submission of Matters to a Vote of Security Holders....................16 Item 6. Exhibits and Reports on Form 8-K.......................................16 Signatures.............................................................................17 Exhibit Index..........................................................................18
1 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS APRIL 30, OCTOBER 31, 2000 1999 ------------------------------------------------ Current assets: Cash and cash equivalents $ 1,151,736 $ 2,463,554 Accounts receivable, net of allowance of $1,625,000 and $1,414,000 22,064,600 24,041,919 Inventories 14,443,578 14,072,694 Other current assets 1,126,880 828,189 Deferred income tax assets 849,181 849,181 ------------------------------------------------ Total current assets 39,635,975 42,255,537 Property and equipment, at cost: Land 984,889 984,889 Buildings and improvements 6,403,551 6,308,530 Machinery and equipment 33,941,641 32,861,577 Equipment under capital leases 1,600,000 1,600,000 Furniture and fixtures 2,250,082 2,353,191 Vehicles 2,805,364 2,621,696 ------------------------------------------------ 47,985,527 46,729,883 Less accumulated depreciation (22,400,703) (20,667,666) ------------------------------------------------ 25,584,824 26,062,217 Cash surrender value of officers' life insurance 967,569 956,769 Goodwill, net of accumulated amortization 3,536,853 3,317,849 Other assets 850,214 728,833 ------------------------------------------------ 5,354,636 5,003,451 ------------------------------------------------ Total assets $70,575,435 $73,321,205 ================================================
See notes to consolidated financial statements. 2 4 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY APRIL 30, OCTOBER 31, 2000 1999 ------------------------------------------------- Current liabilities: Accounts payable $2,354,710 $3,521,282 Accrued payroll 1,600,485 1,768,345 Taxes accrued and withheld 1,133,961 905,854 Accrued income taxes 487,651 677,119 Accrued expenses 844,696 885,864 Current portion of long-term debt: Notes payable 3,656,616 3,607,354 Capital lease obligations 332,932 316,598 ------------------------------------------------- Total current liabilities 10,411,051 11,682,416 Long-term debt, net of current portion: Notes payable 7,751,177 9,222,191 Capital lease obligations 506,800 710,433 Deferred income tax liability 4,318,571 4,318,571 Other liabilities 807,734 827,725 ------------------------------------------------- Total liabilities 23,795,333 26,761,336 Shareholders' equity: Common stock, $1 par value, 20,000,000 shares authorized; 9,713,913 shares issued and outstanding 9,713,913 9,713,913 Additional paid-in capital 22,242,047 22,242,047 Retained earnings 14,824,142 14,603,909 ------------------------------------------------- Total shareholders' equity 46,780,102 46,559,869 ------------------------------------------------- Total liabilities and shareholders' equity $70,575,435 $73,321,205 =================================================
See notes to consolidated financial statements. 3 5 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited)
THREE MONTHS ENDED APRIL 30, 2000 1999 ------------------------------------------------------ Revenues: Printing $24,619,383 $24,016,130 Office products and office furniture 7,414,421 6,858,145 ------------------------------------------------------ Total revenues 32,033,804 30,874,275 Cost of sales: Printing 17,099,075 16,598,910 Office products and office furniture 4,954,558 4,467,978 ------------------------------------------------------ Total cost of sales 22,053,633 21,066,888 ------------------------------------------------------ Gross profit 9,980,171 9,807,387 Selling, general and administrative expenses 8,190,656 7,698,332 ------------------------------------------------------ Income from operations 1,789,515 2,109,055 Other income (expense): Interest income 11,995 32,828 Interest expense (246,743) (306,610) Other 37,915 39,352 ------------------------------------------------------ (196,833) (234,430) ------------------------------------------------------ Income before income taxes 1,592,682 1,874,625 Income taxes (653,010) (738,299) ------------------------------------------------------ Net income $ 939,672 $ 1,136,326 ====================================================== Earnings per share Basic $0.10 $0.12 ====================================================== Diluted 0.10 0.12 ====================================================== Weighted average shares outstanding: Basic 9,714,000 9,714,000 ====================================================== Diluted 9,714,000 9,714,000 ====================================================== Dividends per share $0.05 $0.05 ======================================================
SIX MONTHS ENDED APRIL 30, 2000 1999 -------------------------------------------------- Revenues: Printing $48,461,366 $45,927,863 Office products and office furniture 15,204,964 14,176,878 -------------------------------------------------- Total revenues 63,666,330 60,104,741 Cost of sales: Printing 34,862,934 32,305,283 Office products and office furniture 10,190,034 9,370,786 -------------------------------------------------- Total cost of sales 45,052,968 41,676,069 -------------------------------------------------- Gross profit 18,613,362 18,428,672 Selling, general and administrative expenses 16,226,477 14,590,831 -------------------------------------------------- Income from operations 2,386,885 3,837,841 Other income (expense): Interest income 22,724 90,996 Interest expense (482,725) (674,493) Other 86,269 66,687 -------------------------------------------------- (373,732) (516,810) -------------------------------------------------- Income before income taxes 2,013,153 3,321,031 Income taxes (821,529) (1,329,538) -------------------------------------------------- Net income $1,191,624 $ 1,991,493 ================================================== Earnings per share Basic $0.12 $0.21 ================================================== Diluted 0.12 0.21 ================================================== Weighted average shares outstanding: Basic 9,714,000 9,714,000 ================================================== Diluted 9,715,000 9,714,000 ================================================== Dividends per share $0.10 $0.10 ==================================================
See notes to consolidated financial statements. 4 6 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED APRIL 30, 2000 1999 ---------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,191,624 $1,991,493 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 2,067,818 1,892,738 Loss on sale of assets (10,533) 2,148 Other (19,991) (10,800) Bad debt expense 372,163 164,223 Changes in assets and liabilities: Accounts receivable 1,747,466 1,276,013 Inventories (295,884) (830,789) Other current assets (267,341) (514,447) Accounts payable (1,262,125) (731,973) Accrued payroll (167,860) 142,311 Taxes accrued and withheld 217,877 85,094 Accrued income taxes (189,468) 117,377 Accrued expenses (41,168) (200,976) ---------------------------------------------------- Net cash provided by operations 3,342,578 3,382,412 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,095,570) (2,244,996) Proceeds from sales of property 105,750 64,804 Business acquisitions, net of cash received (463,477) -- Other assets (177,710) 43,578 ---------------------------------------------------- Net cash used in investing activities (1,631,007) (2,136,614) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from term debt and leases -- 45,615 Principal payments on long-term debt (2,051,998) (2,718,393) Dividends paid (971,391) (971,391) ---------------------------------------------------- Net cash used in financing activities (3,023,389) (3,644,169) ---------------------------------------------------- Net decrease in cash (1,311,818) (2,398,371) Cash and cash equivalents, beginning of period 2,463,554 9,773,193 ---------------------------------------------------- Cash and cash equivalents, end of period $1,151,736 $7,374,822 ====================================================
See notes to consolidated financial statements. 5 7 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2000 1. BASIS OF PRESENTATION AND BUSINESS OPERATIONS The foregoing financial information has been prepared in accordance with generally accepted accounting principles and rules and regulations of the Securities and Exchange Commission for interim financial reporting. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended October 31, 1999, and related notes thereto contained in the Champion Industries, Inc.'s Form 10-K dated January 28, 2000. The accompanying interim financial information is unaudited. The accompanying consolidated financial statements of the Company include the accounts of The Chapman Printing Company, Inc., Stationers, Inc., Bourque Printing, Inc., Dallas Printing Company, Inc., Carolina Cut Sheets, Inc., U.S. Tag & Ticket Company, Inc., Donihe Graphics, Inc., The Merten Company, Smith & Butterfield Co., Inc., Interform Corporation, Rose City Press, Capitol Business Equipment, Inc. d.b.a. Capitol Business Interiors, Thompson's of Morgantown, Inc., Independent Printing Service, Inc. and Diez Business Machines. 2. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average shares of common stock outstanding for the period and excludes any dilutive effects of stock options. Diluted earnings per share is computed by dividing net income by the weighted average shares of common stock outstanding for the period plus the shares that would be outstanding assuming the exercise of dilutive stock options. The effect of dilutive stock options increased weighted average shares outstanding by 0 and 2,000 for the three and six months ended April 30, 2000. Stock options outstanding for the three and six months ended April 30, 1999 were anti-dilutive. 3. INVENTORIES Inventories are principally stated at the lower of first-in, first-out cost or market. Manufactured finished goods and work in process inventories include material, direct labor and overhead based on standard costs, which approximate actual costs. The Company utilizes an estimated gross profit method for determining cost of sales in interim periods. 6 8 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. INVENTORIES (CONTINUED) Inventories consisted of the following:
APRIL 30, OCTOBER 31, 2000 1999 --------------------------- -------------------------- Printing: Raw materials $ 3,460,567 $ 3,267,880 Work in process 2,496,884 2,357,856 Finished goods 4,453,007 4,205,061 Office products and office furniture 4,033,120 4,241,897 --------------------------- -------------------------- $14,443,578 $14,072,694 =========================== ==========================
4. LONG-TERM DEBT Long-term debt consisted of the following:
APRIL 30, October 31, 2000 1999 --------------------------- ------------------------- Unsecured term note payable $7,142,858 $8,035,714 Installment notes payable to banks 2,338,172 2,444,181 Mortgage note payable to a bank 1,926,763 2,349,650 Capital lease obligations 839,732 1,027,031 ------------------------------------------------------- 12,247,525 13,856,576 Less current portion 3,989,548 3,923,952 ------------------------------------------------------- Long-term debt, net of current portion $8,257,977 $9,932,624 =======================================================
The Company has an unsecured revolving line of credit with a bank for borrowings to a maximum of $10,000,000 with interest payable monthly at interest rates at LIBOR plus 1% to 1.5%. This line of credit expires in April 2002 and contains certain restrictive financial covenants. There were no borrowings outstanding under this facility at April 30, 2000. 5. SHAREHOLDERS' EQUITY The Company declared a dividend of five cents per share to be paid on June 26, 2000 to stockholders of record on June 9, 2000. 7 9 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. ACQUISITIONS On November 30, 1999, the Company acquired all of the issued and outstanding common stock of Diez Business Machines, Inc. of Gonzales, Louisiana. This transaction was accounted for under the purchase method of accounting. On July 16, 1999, the Company acquired certain assets and assumed certain liabilities of AIM Printing of Knoxville, Tennessee. On June 1, 1999, the Company acquired all of the issued and outstanding common stock of Independent Printing Service, Inc. of Evansville, Indiana. These transactions were accounted for under the purchase method of accounting. Pro forma financial information related to these acquisitions has not been presented because such information would not be materially different than that reported herein. 7. INDUSTRY SEGMENT INFORMATION In 1999, the Company adopted SFAS 131. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies." The Company evaluates the performance of its segments based on an operating profit basis prior to interest expense, interest income or other income. The Company operates principally in two industry segments organized on the basis of product lines: the production, printing and sale, principally to commercial customers, of printed materials (including brochures, pamphlets, reports, tags, continuous and other forms); and the sale of office products and office furniture including interior design services. 8 10 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) The table below presents information about reported segments for the three and six months ending April 30:
OFFICE PRODUCTS 2000 QUARTER 2 PRINTING & FURNITURE TOTAL - -------------- --------------------------------------------------------------------------------------- Revenues $ 27,036,082 $ 8,253,619 $ 35,289,701 Elimination of intersegment revenue (2,416,699) (839,198) (3,255,897) --------------------------------------------------------------------------------------- Consolidated revenues $ 24,619,383 $ 7,414,421 $ 32,033,804 ======================================================================================= Operating income 1,465,522 323,993 1,789,515 Depreciation & amortization 916,322 72,510 988,832 Capital expenditures 941,409 21,619 963,028 Identifiable assets 57,254,636 13,320,799 70,575,435 OFFICE PRODUCTS 1999 QUARTER 2 PRINTING & FURNITURE TOTAL - -------------- --------------------------------------------------------------------------------------- Revenues $ 26,406,892 $ 7,299,761 $ 33,706,653 Elimination of intersegment revenue (2,390,762) (441,616) (2,832,378) --------------------------------------------------------------------------------------- Consolidated revenues $ 24,016,130 $ 6,858,145 $ 30,874,275 ======================================================================================= Operating income 1,826,435 282,620 2,109,055 Depreciation & amortization 849,614 85,545 935,159 Capital expenditures 1,166,759 200,000 1,366,759 Identifiable assets 60,915,068 11,622,478 72,537,546 OFFICE PRODUCTS 2000 YEAR TO DATE PRINTING & FURNITURE TOTAL - ----------------- --------------------------------------------------------------------------------------- Revenues $ 53,015,316 $ 17,085,310 $ 70,100,626 Elimination of intersegment revenue (4,553,950) (1,880,346) (6,434,296) --------------------------------------------------------------------------------------- Consolidated revenues $ 48,461,366 $ 15,204,964 $ 63,666,330 ======================================================================================= Operating income 1,706,647 680,238 2,386,885 Depreciation & amortization 1,928,730 139,088 2,067,818 Capital expenditures 1,467,452 71,065 1,538,517 Identifiable assets 57,254,636 13,320,799 70,575,435
9 11 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
OFFICE PRODUCTS 1999 YEAR TO DATE PRINTING & FURNITURE TOTAL - ----------------- --------------------------------------------------------------------------------------- Revenues $ 50,317,374 $ 15,119,137 $ 65,436,511 Elimination of intersegment revenue (4,389,511) (942,259) (5,331,770) --------------------------------------------------------------------------------------- Consolidated revenues $ 45,927,863 $ 14,176,878 $ 60,104,741 ======================================================================================= Operating income 3,255,466 582,375 3,837,841 Depreciation & amortization 1,719,514 173,224 1,892,738 Capital expenditures 1,744,996 500,000 2,244,996 Identifiable assets 60,915,068 11,622,478 72,537,546
A reconciliation of total segment revenues and of total segment operating income to income before income taxes, for the three and six months ended April 30, 2000 and 1999 is as follows:
THREE MONTHS ------------------------------------------------ 2000 1999 ------------------------------------------------ Revenues: Total segment revenues $ 35,289,701 $ 33,706,953 Elimination of intersegment revenue (3,255,897) (2,832,378) ------------------------------------------------ Consolidated revenue $ 32,033,804 $ 30,874,575 ================================================ Operating Income: Total segment operating income $ 1,789,515 $ 2,109,055 Interest income 11,995 32,828 Interest expense (246,743) (306,610) Other income 37,915 39,352 ------------------------------------------------ Consolidated income before income taxes $ 1,592,682 $ 1,874,625 ================================================ Identifiable assets: Total segment identifiable assets $ 70,575,435 $ 72,537,546 Elimination of intersegment assets - - ------------------------------------------------ Total consolidated assets $ 70,575,435 $ 72,537,546 ================================================
SIX MONTHS ------------------------------------------------------------- 2000 1999 ------------------------------------------------------------- Revenues: Total segment revenues $ 70,100,626 $ 65,436,511 Elimination of intersegment revenue (6,434,296) (5,331,770) ------------------------------------------------------------- Consolidated revenue $ 63,666,330 $ 60,104,741 ============================================================= Operating Income: Total segment operating income $ 2,386,885 $ 3,837,841 Interest income 22,724 90,996 Interest expense (482,725) (674,493) Other income 86,269 66,687 ------------------------------------------------------------- Consolidated income before income taxes $ 2,013,153 $ 3,321,031 ============================================================= Identifiable assets: Total segment identifiable assets $ 70,575,435 $ 72,537,546 Elimination of intersegment assets - - ------------------------------------------------------------- Total consolidated assets $ 70,575,435 $ 72,537,546 =============================================================
10 12 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, information derived from the Consolidated Income Statements as a percentage of total revenues.
PERCENTAGE OF TOTAL REVENUES THREE MONTHS ENDED APRIL 30, 2000 1999 --------------------------------------------- Revenues: Printing 76.9% 77.8% Office products and office furniture 23.1 22.2 --------------------------------------------- Total revenues 100.0 100.0 Cost of sales: Printing 53.3 53.8 Office products and office furniture 15.5 14.5 --------------------------------------------- Total cost of sales 68.8 68.3 --------------------------------------------- Gross profit 31.2 31.7 Selling, general and administrative expenses 25.6 24.9 --------------------------------------------- Income from operations 5.6 6.8 Interest income 0.1 0.1 Interest (expense) (0.8) (1.0) Other income 0.1 0.1 --------------------------------------------- Income before taxes 5.0 6.0 Income tax expense (2.1) (2.3) --------------------------------------------- Net income 2.9% 3.7% =============================================
PERCENTAGE OF TOTAL REVENUES SIX MONTHS ENDED APRIL 30, 2000 1999 ------------------------------------------------------ Revenues: Printing 76.1% 76.4% Office products and office furniture 23.9 23.6 ------------------------------------------------------ Total revenues 100.0 100.0 Cost of sales: Printing 54.8 53.7 Office products and office furniture 16.0 15.6 ------------------------------------------------------ Total cost of sales 70.8 69.3 ------------------------------------------------------ Gross profit 29.2 30.7 Selling, general and administrative expenses 25.5 24.3 ------------------------------------------------------ Income from operations 3.7 6.4 Interest income 0.1 0.1 Interest (expense) (0.8) (1.1) Other income 0.2 0.1 ------------------------------------------------------ Income before taxes 3.2 5.5 Income tax expense (1.3) (2.2) ------------------------------------------------------ Net income 1.9% 3.3% ======================================================
THREE MONTHS ENDED APRIL 30, 2000 COMPARED TO THREE MONTHS ENDED APRIL 30, 1999 Revenues Total revenues increased 3.8% in the second quarter of 2000 compared to the same period in 1999 from $30.9 million to $32.0 million. Printing revenue increased 2.5% in the second quarter of 2000 to $24.6 million from $24.0 million in the second quarter of 1999. Office products and office furniture revenue increased 8.1% in the second quarter of 2000 to $7.4 million from $6.9 million in the second quarter of 1999. The increase in revenues for the printing segment was due to the impact of the Independent Printing Service acquisition in June 1999 and the AIM Printing acquisition in July 1999. The increase in revenues for the office products and office furniture segment was primarily attributable to the Diez Business Machines acquisition in late November 1999. Cost of Sales Total cost of sales increased 4.7% in the second quarter of 2000 to $22.1 million from $21.1 million in the second quarter of 1999. Printing cost of sales increased 3.0% in the second quarter of 2000 to $17.1 11 13 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) million from $16.6 million in the second quarter of 1999, due primarily to an increase in printing sales noted above. Office products and office furniture cost of sales increased 10.9% in the second quarter of 2000 to $5.0 million from $4.5 million in the second quarter of 1999. The increase in office products and office furniture cost of sales is directly attributable to the higher sales discussed above. Operating Expenses In the second quarter of 2000, selling, general and administrative expenses increased as a percentage of sales to 25.6% from 24.9% reported in the second quarter of 1999 primarily due to higher corporate overhead expenses, expenses related to acquisitions and higher health insurance costs. Total selling, general and administrative expenses increased $500,000 to $8.2 million in the second quarter of 2000 from $7.7 million in the second quarter of 1999. Income from Operations and Other Income and Expenses Income from operations decreased 15.2% in the second quarter of 2000 to $1.8 million from $2.1 million in the second quarter of 1999. This decrease is primarily the result of increased selling, general and administrative expenses during the second quarter of 2000. Interest income declined $21,000 as a result of lower investable funds. These funds have been used to make debt payments, acquire equipment and fund other operational needs. Interest expense on a comparative basis decreased $60,000 as a result of the reduction in debt. Income Taxes The Company's effective income tax rate was 41.0% for the second quarter of 2000, up from 39.4% in the second quarter of 1999. The effective income tax rate approximates the combined federal and state, net of federal benefit, statutory income tax rate. Net Income Net income for the second quarter of 2000 decreased 17.3% to $940,000 from $1.1 million in the second quarter of 1999 due to the reasons discussed above. Basic and diluted earnings per share for the three months ended April 30, 2000 and 1999 were $0.10 and $0.12, respectively. SIX MONTHS ENDED APRIL 30, 2000 COMPARED TO SIX MONTHS ENDED APRIL 30, 1999 Revenues Total revenues increased 5.9% in the first six months of 2000 compared to the same period in 1999 to $63.7 million from $60.1 million. Printing revenue increased 5.5% in the six month period ended April 30, 2000 to $48.5 million from $45.9 million in the same period in 1999. Office products and office furniture revenue increased 7.3% in the six month period ended April 30, 2000 to $15.2 million from $14.2 million in the same period in 1999. The increase in revenues for the printing segment was due to a mix of internal growth and the impact of the Independent Printing Service acquisition in June 1999 and the AIM Printing acquisition in July 1999. The increase in revenues for the office products and office 12 14 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) furniture segment was primarily attributable to the Diez Business Machines acquisition in late November 1999. Cost of Sales Total cost of sales increased 8.1% in the six months ended April 30, 2000 to $45.1 million from $41.7 million in the six months ended April 30, 1999. Printing cost of sales increased 7.9% in the six months ended April 30, 2000 to $34.9 million from $32.3 million in the six months ended April 30, 1999, due primarily to the increase in printing sales noted above. Office products and office furniture cost of sales increased 8.7% in the six months ended April 30, 2000 to $10.2 million from $9.4 million in the six months ended April 30, 1999. The increase in office products and office furniture cost of sales is primarily attributable to the increase in office products and office furniture sales. Operating Expenses During the six months ended April 30, 2000 compared to the same period in 1999, selling, general and administrative expenses increased as a percentage of sales to 25.5% from 24.3% primarily due to higher corporate overhead expenses, expenses related to acquisitions, higher health insurance costs, and an increase in the allowance for doubtful accounts. Income from Operations and Other Income and Expenses Income from operations decreased 37.8% in the six month period ended April 30, 2000 to $2.4 million from $3.8 million in the same period of 1999. This decrease is primarily the result of higher selling, general and administrative expenses and lower gross profit percentages. Interest income decreased $68,000 as a result of lower investable funds. Interest expense on a comparative basis decreased $192,000 as a result of a reduction in debt. Income Taxes The Company's effective income tax rate was 40.8% for the six months ended April 30, 2000, up from 40.0% in the same period of 1999. The effective income tax rate approximates the combined federal and state, net of federal benefit, statutory income tax rate. Net Income Net income for the first six months of 2000 decreased 40.2% to $1.2 million from $2.0 million in the same period of 1999 due to the reasons discussed above. Basic and diluted earnings per share for the six months ended April 30, 2000 and 1999, were $0.12 and $0.21. INFLATION AND ECONOMIC CONDITIONS Management believes that the effect of inflation on the Company's operations has not been material and will continue to be immaterial for the foreseeable future. The Company does not have long-term sales and purchase contracts; therefore, to the extent permitted by competition, it has the ability to pass through to the customer most cost increases resulting from inflation, if any. 13 15 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEASONALITY Historically, the Company has experienced a greater portion of its annual sales and net income in the second and fourth quarters than in the first and third quarters. The second quarter generally reflects increased orders for printing of corporate annual reports and proxy statements. A post-Labor Day increase in demand for printing services and office products coincides with the Company's fourth quarter. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations for the six months ended April 30, 2000 was $3.3 million compared to $3.4 million during the same period in 1999. This change in net cash from operations is due primarily to lower net income and timing changes in assets and liabilities. Net cash used in investing activities for the six months ended April 30, 2000 was $1.6 million compared to $2.1 million during the same period in 1999. The decrease in net cash used in investing activities during the first half of 2000 compared to 1999 is primarily the result of lower equipment purchases partially offset by the acquisition of a business acquired, net of cash received in 2000. Net cash used in financing activities for the six months ended April 30, 2000 was $3.0 million compared to cash used in financing activities of $3.6 million during the same period in 1999. This change is primarily due to lower debt repayments in 2000. Working capital on April 30, 2000 was $29.2 million, a decrease of $1.3 million from October 31, 1999. The decrease in working capital was primarily from the use of available funds to reduce long-term debt, acquire property and equipment, and fund the purchase of a business. Management believes that working capital and operating ratios remain at acceptable levels. The Company expects that the combination of funds available from working capital, borrowings available under the Company's credit facility and anticipated cash flows from operations, will provide sufficient capital resources for the foreseeable future. In the event the Company seeks to accelerate internal growth or make acquisitions beyond these sources, additional financing would be necessary. ENVIRONMENTAL REGULATION The Company is subject to the environmental laws and regulations of the United States, and the states in which it operates, concerning emissions into the air, discharges into the waterways and the generation, handling and disposal of waste materials. The Company's past expenditures relating to environmental compliance have not had a material effect on the Company. These laws and regulations are constantly evolving, and it is impossible to predict accurately the effect they may have upon the capital expenditures, earnings, and competitive position of the Company in the future. Based upon information currently available, management believes that expenditures relating to environmental compliance will not have a material impact on the financial position of the Company. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Form 10-Q, including without limitation statements including the word "believes," "anticipates," "intends," "expects" or words of similar import, constitute "forward- 14 16 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements of the Company expressed or implied by such forward-looking statements. Such factors include, among others, general economic conditions, changes in business strategy or development plans, and other factors referenced in this Form 10-Q. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. 15 17 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of shareholders held March 20, 2000, the following matters were voted upon: a. Fixing the number of directors at eight (8) and election of the following nominees as directors, with votes "for" and "withheld," as well as broker non-votes, as follows:
DIRECTOR VOTES "FOR" VOTES "WITHHELD" BROKER NON-VOTES Robert H. Beymer 9,157,699 41,424 -0- Philip E. Cline 9,165,065 34,058 -0- Harley F. Mooney, Jr. 9,164,015 35,108 -0- Todd L. Parchman 9,159,245 39,878 -0- A. Michael Perry 9,166,165 32,958 -0- Marshall T. Reynolds 9,140,912 58,211 -0- Neal W. Scaggs 9,164,284 34,839 -0- Glenn W. Wilcox, Sr. 9,164,915 34,208 -0-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) The exhibits listed on the Exhibit Index on page 18 of this Form 10-Q are filed herewith. b) The following reports on Form 8-K were filed during the quarter for which this report is filed: None. 16 18 SIGNATURES Pursuant to the requirement 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 INDUSTRIES, INC. Date: June ____, 2000 /s/ Marshall T. Reynolds --------------------------------------------- Marshall T. Reynolds President and Chief Executive Officer Date: June ____, 2000 /s/ Todd R. Fry --------------------------------------------- Todd R. Fry Chief Financial Officer 17 19 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT INDEX EXHIBIT PAGE TITLE 27 electronic Financial Data Schedule EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 6-MOS OCT-31-2000 NOV-01-1999 APR-30-2000 1151736 0 23689600 1625000 14443578 39635975 47985527 22400703 70575435 10441051 0 0 0 9713913 37066189 70575435 63666330 63666330 45052968 45052968 15854314 372163 482725 2013153 821529 1191624 0 0 0 1191624 0.12 0.12
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