-----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, Vdrf0lyg/mMgC/YCs92xOAYWfGaRkTxKYCM6yiOJ9sDG8l3n7JUjHVvuGfzVH390 QO4dpmemz9mmz5MjX8LIKQ== 0000950133-02-003215.txt : 20020913 0000950133-02-003215.hdr.sgml : 20020913 20020913160803 ACCESSION NUMBER: 0000950133-02-003215 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020731 FILED AS OF DATE: 20020913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPION INDUSTRIES INC CENTRAL INDEX KEY: 0000019149 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 550717455 STATE OF INCORPORATION: WV FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21084 FILM NUMBER: 02763839 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 w63877e10vq.txt FORM 10-Q 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 July 31, 2002 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 (I.R.S. Employer of incorporation or Identification organization) No.)
2450-90 1st Avenue P.O. Box 2968 Huntington, WV 25728 (Address of principal executive 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 July 31, 2002. CHAMPION INDUSTRIES, INC. INDEX
PAGE NO. Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets.............................................................2 Consolidated Statements of Operations...................................................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 ........................................................13 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K..................................................18 Signatures......................................................................................19
1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS JULY 31, OCTOBER 31, 2002 2001 -------------------------------- Current assets: Cash and cash equivalents $ 3,815,968 $ 5,764,716 Accounts receivable, net of allowance of $1,705,000 and $1,432,000 18,269,426 19,165,773 Inventories 11,156,552 11,764,195 Other current assets 790,049 769,034 Deferred income tax assets 1,111,018 1,111,018 Income tax receivable - 279,271 -------------------------------- Total current assets 35,143,013 38,854,007 Property and equipment, at cost: Land 1,028,372 825,220 Buildings and improvements 6,104,818 5,562,762 Machinery and equipment 34,714,989 34,421,518 Equipment under capital leases 2,583,407 2,583,407 Furniture and fixtures 2,813,917 2,480,050 Vehicles 3,935,733 3,031,861 -------------------------------- 51,181,236 48,904,818 Less accumulated depreciation (30,564,050) (27,743,183) -------------------------------- 20,617,186 21,161,635 Assets held for sale 675,316 1,057,216 Cash surrender value of officers' life insurance 947,955 885,852 Goodwill, net of accumulated amortization 1,349,368 1,334,183 Other assets 587,521 657,021 -------------------------------- 3,560,160 3,934,272 -------------------------------- Total assets $59,320,359 $63,949,914 ================================
See notes to consolidated financial statements. 2 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY JULY 31, OCTOBER 31, 2002 2001 ------------------------------ Current liabilities: Accounts payable $ 2,730,495 $ 4,343,291 Accrued payroll 1,912,997 2,107,377 Taxes accrued and withheld 1,567,999 1,289,560 Accrued income taxes 58,520 - Accrued expenses 880,568 1,218,575 Current portion of long-term debt: Notes payable 2,841,883 3,329,627 Capital lease obligations 254,885 524,316 ------------------------------ Total current liabilities 10,247,347 12,812,746 Long-term debt, net of current portion: Notes payable 2,274,363 3,994,555 Capital lease obligations 409,262 554,514 Deferred income tax liability 3,554,169 3,554,169 Other liabilities 430,351 433,044 ------------------------------ Total liabilities 16,915,492 21,349,028 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 10,448,907 10,644,926 ------------------------------ Total shareholders' equity 42,404,867 42,600,886 ------------------------------ Total liabilities and shareholders' equity $59,320,359 $63,949,914 ==============================
See notes to consolidated financial statements. 3 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, 2002 2001 2002 2001 ---------------------------------------------------------------- Revenues: Printing $23,132,608 $23,430,094 $70,632,037 $72,491,601 Office products and office furniture 7,715,023 6,806,446 20,675,164 20,438,265 ---------------------------------------------------------------- Total revenues 30,847,631 30,236,540 91,307,201 92,929,866 Cost of sales: Printing 16,802,540 17,835,322 50,816,294 53,160,188 Office products and office furniture 5,604,388 4,827,742 14,713,491 14,247,969 ---------------------------------------------------------------- Total cost of sales 22,406,928 22,663,064 65,529,785 67,408,157 ---------------------------------------------------------------- Gross profit 8,440,703 7,573,476 25,777,416 25,521,709 Selling, general and administrative expenses 7,943,061 8,342,357 23,388,093 24,266,227 Restructuring and other charges - 2,052,692 - 2,052,692 Asset impairment charges - 3,060,706 - 3,060,706 ---------------------------------------------------------------- Income (loss) from operations 497,642 (5,882,279) 2,389,323 (3,857,916) Other income (expense): Interest income 1,927 8,208 11,712 54,692 Interest expense (84,833) (183,056) (315,392) (683,206) Other 15,355 32,537 71,938 503,394 ---------------------------------------------------------------- (67,551) (142,311) (231,742) (125,120) ---------------------------------------------------------------- Income (loss) before income taxes 430,091 (6,024,590) 2,157,581 (3,983,036) Income (taxes) benefit (177,368) 1,778,188 (896,512) 953,505 ---------------------------------------------------------------- Net income (loss) $ 252,723 ($ 4,246,402) 1,261,069 ($ 3,029,531) ================================================================ Earnings (loss) per share Basic $0.03 ($0.44) $0.13 ($0. 31) ================================================================ Diluted $0.03 ($0.44) $0.13 ($0. 31) ================================================================ Weighted average shares outstanding: Basic 9,714,000 9,714,000 9,714,000 9,714,000 ================================================================ Diluted 9,728,000 9,714,000 9,730,000 9,714,000 ================================================================ Dividends per share $0.05 $0.05 $0.15 $0.15 ================================================================
See notes to consolidated financial statements. 4 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED JULY 31, 2002 2001 -------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $1,261,069 ($3,029,531) Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 3,115,570 3,360,089 Loss (gain) on sale of assets 8,523 (16,849) Gain on sale of division - (407,515) Other 13,404 16,531 Restructuring and other charges - 3,030,592 Asset impairment charges - 3,060,706 Bad debt expense 404,087 421,451 Changes in assets and liabilities: Accounts receivable 492,260 3,768,155 Inventories 607,643 265,510 Other current assets (35,931) (32,194) Accounts payable (1,612,796) (1,202,022) Accrued payroll (194,380) (701,948) Taxes accrued and withheld 278,439 232,846 Accrued income taxes 337,791 (1,874,592) Accrued expenses (338,007) 211,716 Other liabilities (16,097) (16,625) -------------------------------- Net cash provided by operating activities 4,321,575 7,086,320 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,558,792) (1,072,001) Deposit on asset purchase (875,000) -- Proceeds from sales of property 443,908 158,062 Proceeds from sale of division - 264,700 Business acquisitions, net of cash received - (1,169,722) Decrease (increase) in other assets 26,333 (8,600) Other assets (62,103) 35,188 -------------------------------- Net cash used in investing activities (2,025,654) (1,792,373) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on line of credit 500,000 1,500,000 Payments on line of credit (500,000) (1,500,000) Proceeds from term debt and leases - 1,192,397 Principal payments on long-term debt (2,787,581) (3,441,017) Dividends paid (1,457,088) (1,457,088) -------------------------------- Net cash used in financing activities (4,244,669) (3,705,708) -------------------------------- Net (decrease) increase in cash (1,948,748) 1,588,239 Cash and cash equivalents, beginning of period 5,764,716 3,173,587 -------------------------------- Cash and cash equivalents, end of period $3,815,968 $4,761,826 ================================
See notes to consolidated financial statements. 5 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JULY 31, 2002 1. BASIS OF PRESENTATION AND BUSINESS OPERATIONS The foregoing financial information has been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and rules and regulations of the Securities and Exchange Commission for interim financial reporting. The preparation of the financial statements in accordance with GAAP 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 GAAP. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended October 31, 2001, and related notes thereto contained in the Champion Industries, Inc.'s Form 10-K dated January 25, 2002. The accompanying interim financial information is unaudited. 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 dilutive effect of stock options was 14,000 and 16,000 shares for the three and nine months ended July 31, 2002. Stock options outstanding for the three and nine months ended July 31, 2001 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 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. INVENTORIES (CONTINUED) Inventories consisted of the following:
JULY 31, OCTOBER 31, 2002 2001 ---------------- ---------------- Printing: Raw materials $ 2,376,887 $ 2,460,218 Work in process 1,640,848 1,698,374 Finished goods 3,790,653 3,923,549 Office products and office furniture 3,348,164 3,682,054 --------------------------------- $11,156,552 $11,764,195 =================================
4. ASSET HELD FOR SALE The Company has a building in Charleston, West Virginia currently being held for sale. This building was used in the Company's printing segment and is classified as assets held for sale. The building is being held for sale as a result of certain initiatives implemented by the Company in 2001. This asset was sold in August 2002, at its approximate carrying value. 5. LONG-TERM DEBT Long-term debt consisted of the following:
JULY 31, OCTOBER 31, 2002 2001 ---------------- --------------- Unsecured term note payable $ 3,125,161 $ 4,464,449 Installment notes payable to banks 1,991,085 2,859,733 Capital lease obligations 664,147 1,078,830 --------------------------------- 5,780,393 8,403,012 Less current portion 3,096,768 3,853,943 --------------------------------- Long-term debt, net of current portion $ 2,683,625 $ 4,549,069 =================================
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% for a total rate of 3.28% at July 31, 2002. This line of credit was renewed for a three year period, expiring in April 2005 and contains certain restrictive financial covenants. The Company had no outstanding borrowings under this facility at July 31, 2002. The Company has an unsecured revolving line of credit with a bank for borrowings to a maximum of $1,000,000 with interest payable monthly at the Wall Street Journal prime rate. The line of credit 7 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) expires in October 2002 and contains certain financial covenants. There were no borrowings outstanding under this facility at July 31, 2002. The Company's non-cash activities for the nine months ended July 31, 2002 and 2001 included vehicle purchases of approximately $165,000 and $659,000 which were financed by a bank. 6. SHAREHOLDERS' EQUITY The Company declared a dividend of five cents per share to be paid on September 23, 2002 to stockholders of record on September 6, 2002. 7. RELATED PARTY TRANSACTION In the first quarter of 2002, the Company made a deposit to purchase a fractional ownership in an aircraft from an entity controlled by its Chief Executive Officer for approximately $1.2 million of which $875,000 had been paid as of July 31, 2002. The Company believes that the terms of its related party transactions are no less favorable to the Company than could be obtained with an independent third party. The company anticipates the transaction to be completed and the airplane be available for use under the terms of this agreement during the fourth quarter of 2002. 8. COMMITMENTS AND CONTINGENCIES On February 16, 2002 a jury verdict was rendered against the Company in a civil action brought against the Company in state court in Jackson, Mississippi. The plaintiffs in this civil action asserted that the Company and its Dallas Printing Company, Inc. subsidiary had engaged in unfair competition and other wrongful acts in hiring certain of its employees. The jury awarded the plaintiffs $1,745,000 in actual damages and $750,000 in punitive damages. The Company has been advised that it has no insurance coverage for this award. The Company under Mississippi law has a guaranteed right to appeal. The Company has been advised by counsel that it has multiple grounds for an appeal and a reasonable basis for believing that an appeal would be successful in eliminating the jury award. However, there can be no assurance that the jury award will be overturned upon appeal. If the verdict is not overturned, the impact on the operating results of the Company could be material. On March 1, 2002 the plaintiffs in the civil action filed a motion for attorney's fees and costs in the amount of $889,401. On July 16, 2002, the court entered an order granting plaintiff $645,119 in attorney fees and expenses, and ordered that interest on the amount of the jury award accrue from February 22, 2002. 8 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) On July 17, 2002 the company filed a notice of appeal from the jury verdict. The appeal involves both the jury award and the attorney's fee and expense award. If the company is not successful on appeal, Mississippi law provides that it is liable for an additional 15% of the total award. 9. NEW ACCOUNTING PRONOUNCEMENTS AND SIGNIFICANT ACCOUNTING POLICY UPDATES Business Combinations, Goodwill and Other Intangible Assets In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets (FAS 142), effective for fiscal years beginning after December 15, 2001. The Company adopted these standards with its fiscal year beginning November 1, 2001 in accordance with the provisions of the standards. Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements except in the year of adoption where companies are required to complete a two step process. The first step is a screen for potential impairment and is required to be completed within six months of adopting FAS 142. The second step measures the amount of impairment, if any. The Company completed step 1 of the process during the 2nd quarter of 2002 and the adoption did not have a significant impact on the Company's financial position and results of operations. Other intangible assets will continue to be amortized over their useful lives. Application of the nonamortization provisions of the Statement will result in an increase in net income of $50,000 or approximately $0.01 per share per year. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company adopted FAS 144 as of November 1, 2001 and the adoption did not have a significant impact on the Company's financial position and results of operations. 10. RESTRUCTURING CHARGE, ASSET IMPAIRMENT CHARGE AND OTHER CHARGES In the third quarter of 2001, the Company recorded charges related to a restructuring and profitability enhancement plan. This plan was implemented to effectuate certain key initiatives including plant and office consolidations, headcount reductions, asset impairment issues and a general response to a deteriorating economic environment. The third quarter of 2001 pre-tax charge resulting from these actions was $6.1 million ($4.3 million after-tax or $0.44 per share on a basic and diluted basis.) The charge related to approximately $3.1 million from asset impairments including goodwill, facility and equipment write-downs. The Company recorded charges for restructuring and other special charges of $3.0 million comprised primarily of severance payments, charge-offs related to duplicative facility leases, increases in allowance for doubtful accounts and inventory obsolescence and valuation reserves, costs related to the impairment of the Company's information systems hardware and software, charges related to termination and related fees of a pension plan of an acquired Company, and other charges and expenses related to plant consolidations and restructuring. 9 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) As a result of the Company's restructuring plan, approximately 35 employees were terminated from the Company primarily as a result of plant and office consolidations at the Company's Carolina Cut Sheets operation, Chapman Printing Lexington location and the Garrison Brewer division of Stationers. In addition, the Company anticipates the elimination of additional positions resulting from retirements and normal attrition within the next twelve to eighteen months. As of October 31, 2001 35 employees were notified of their termination and one retired position was eliminated. The cash and non-cash elements of the Company's restructuring charge, asset impairment charge, and other unusual charges approximated $1.5 million in cash and $4.6 million non-cash. The printing segment charges approximated $3.5 million and the office products and furniture segment charges approximated $2.6 million. Details of the approximated charges and the status of the related obligations are as follows as of July 31, 2002:
Utilized Ended balance Original accrual Cash Noncash July 31, 2002 ---------------- ---- ------- ------------- Write-down of goodwill, facilities and equipment $ 3,060,000 $ 168,000 $ 2,892,000 $ -- Employee severance and termination benefits 55,000 25,000 -- 30,000 Inventory obsolescence and valuation reserves 978,000 -- 978,000 -- Restructuring and other charges 1,998,000 760,000 768,000 470,000 ---------------------------------------------------------------------------- Total $ 6,091,000 $ 953,000 $ 4,638,000 $ 500,000 ============================================================================
11. INDUSTRY SEGMENT INFORMATION 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. 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 nine months ending July 31:
OFFICE PRODUCTS 2002 QUARTER 3 PRINTING & FURNITURE TOTAL -------------- ---------------------------------------------------- Revenues $ 25,311,734 $ 8,715,975 $ 34,027,709 Elimination of intersegment revenue (2,179,126) (1,000,952) (3,180,078) ---------------------------------------------------- Consolidated revenues $ 23,132,608 $ 7,715,023 $ 30,847,631 ==================================================== Operating income 164,102 333,540 497,642 Depreciation & amortization 1,008,713 32,761 1,041,474 Capital expenditures 378,357 76,155 454,512 Identifiable assets 47,541,234 11,779,125 59,320,359
OFFICE PRODUCTS 2001 QUARTER 3 PRINTING & FURNITURE TOTAL -------------- ---------------------------------------------------- Revenues $ 25,554,645 $ 7,475,187 $ 33,029,832 Elimination of intersegment revenue (2,124,551) (668,741) (2,793,292) ---------------------------------------------------- Consolidated revenues $ 23,430,094 $ 6,806,446 $ 30,236,540 ==================================================== Operating income (loss) (3,339,896) (2,542,383) (5,882,279) Depreciation & amortization 1,061,964 68,483 1,130,447 Capital expenditures 559,440 22,854 582,294 Identifiable assets 53,508,288 10,955,338 64,463,626
OFFICE PRODUCTS 2002 YEAR TO DATE PRINTING & FURNITURE TOTAL ----------------- ---------------------------------------------------- Revenues $ 77,244,035 $ 23,227,228 $100,471,263 Elimination of intersegment revenue (6,611,998) (2,552,064) (9,164,062) ---------------------------------------------------- Consolidated revenues $ 70,632,037 $ 20,675,164 $ 91,307,201 ==================================================== Operating income 1,768,844 620,479 2,389,323 Depreciation & amortization 3,034,438 81,132 3,115,570 Capital expenditures 2,462,541 136,211 2,598,752 Identifiable assets 47,541,234 11,779,125 59,320,359
11 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
OFFICE PRODUCTS 2001 YEAR TO DATE PRINTING & FURNITURE TOTAL ----------------- ---------------------------------------------------- Revenues $ 79,345,532 $ 22,601,150 $101,946,682 Elimination of intersegment revenue (6,853,931) (2,162,885) (9,016,816) ---------------------------------------------------- Consolidated revenues $ 72,491,601 $ 20,438,265 $ 92,929,866 ==================================================== Operating income (loss) (1,604,275) (2,253,641) (3,857,916) Depreciation & amortization 3,159,647 200,442 3,360,089 Capital expenditures 1,652,136 78,567 1,730,703 Identifiable assets 53,508,288 10,955,338 64,463,626
A reconciliation of total segment revenues and of total segment operating income to income before income taxes, for the three and nine months ended July 31, 2002 and 2001, is as follows:
THREE MONTHS NINE MONTHS 2002 2001 2002 2001 ----------------------------------------------------------------- Revenues: Total segment revenues $ 34,027,709 $ 33,029,832 $100,471,263 $101,946,682 Elimination of intersegment revenue (3,180,078) (2,793,292) (9,164,062) (9,016,816) ----------------------------------------------------------------- Consolidated revenue $ 30,847,631 $ 30,236,540 $ 91,307,201 $ 92,929,866 ================================================================= Operating Income (loss): Total segment operating income (loss) $ 497,642 $ (5,882,279) $ 2,389,323 $ (3,857,916) Interest income 1,927 8,208 11,712 54,692 Interest expense (84,833) (183,056) (315,392) (683,206) Other income 15,355 32,537 71,938 503,394 ----------------------------------------------------------------- Consolidated income (loss) before income taxes $ 430,091 $ (6,024,590) $ 2,157,581 $ (3,983,036) ================================================================= Identifiable assets: Total segment identifiable assets $ 59,320,359 $ 64,463,626 $ 59,320,359 $ 64,463,626 Elimination of intersegment assets -- -- -- -- ----------------------------------------------------------------- Total consolidated assets $ 59,320,359 $ 64,463,626 $ 59,320,359 $ 64,463,626 =================================================================
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 NINE MONTHS ENDED JULY 31, JULY 31, 2002 2001 2002 2001 ------------------------------------------------------------ Revenues: Printing 75.0% 77.5% 77.4% 78.0% Office products and office furniture 25.0 22.5 22.6 22.0 ------------------------------------------------------------ Total revenues 100.0 100.0 100.0 100.0 Cost of sales: Printing 54.5 59.0 55.7 57.2 Office products and office furniture 18.1 16.0 16.1 15.3 ------------------------------------------------------------ Total cost of sales 72.6 75.0 71.8 72.5 ------------------------------------------------------------ Gross profit 27.4 25.0 28.2 27.5 Selling, general and administrative expenses 25.8 27.6 25.6 26.1 Restructuring and other charges 6.5 2.2 Asset impairment charges 10.4 3.4 ------------------------------------------------------------ Income (loss) from operations 1.6 (19.5) 2.6 (4.2) Interest income 0.0 0.1 0.1 0.1 Interest (expense) (0.3) (0.6) (0.4) (0.7) Other income 0.1 0.1 0.1 0.5 ------------------------------------------------------------ Income (loss) before taxes 1.4 (19.9) 2.4 (4.3) Income tax expense (0.6) 5.9 (1.0) 1.0 ------------------------------------------------------------ Net income (loss) 0.8% (14.0%) 1.4% (3.3%) ============================================================
THREE MONTHS ENDED JULY 31, 2002 COMPARED TO THREE MONTHS ENDED JULY 31, 2001 Revenues Total revenues increased 2.0% in the third quarter of 2002 compared to the same period in 2001 from $30.2 million to $30.8 million. Printing revenue decreased 1.3% in the third quarter of 2002 to $23.1 million from $23.4 million in the third quarter of 2001. Office products and office furniture revenue increased 13.4% in the third quarter of 2002 to $7.7 million from $6.8 million in the third quarter of 2001. The decrease in revenues for the printing segment was due primarily to a weakened economic outlook in many of the geographic regions served by the company. The increase in revenues for the office products and office furniture segment was primarily attributable to an increase in office furniture sales during the third quarter primarily in one of the company's geographic regions. 13 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Cost of Sales Total cost of sales decreased 1.1% in the third quarter of 2002 to $22.4 million from $22.7 million in the third quarter of 2001. Printing cost of sales decreased 5.8% in the third quarter of 2002 to $16.8 million from $17.8 million in the third quarter of 2001. Office products and office furniture cost of sales increased 16.1% in the third quarter of 2002 to $5.6 million from $4.8 million in the third quarter of 2001. The increase in office products and office furniture cost of sales is directly attributable to the increased sales discussed above. The decrease in the printing cost of sales is attributable to inventory obsolescence and valuation reserves recorded by the company in 2001 resulting from the company's adoption of a corporate-wide restructuring and profitability enhancement plan. Operating Expenses In the third quarter of 2002, selling, general and administrative expenses decreased as a percentage of sales from 27.6% for the three months ended July 31, 2001 to 25.8% for the three months ended July 31, 2002. Total selling, general and administrative expenses decreased $399,000 to $7.9 million in the third quarter of 2002 from $8.3 million in the third quarter of 2001. The decrease in selling, general and administrative expenses is a result of the Company's adoption of a restructuring and profitability enhancement plan in the third quarter of 2001. In addition, the Company adopted SFAS No. 142, which resulted in an increase in net income of approximately $12,500, net of tax, per quarter in 2002. Income (loss) from Operations and Other Income and Expenses Income from operations increased 6.4 million in the third quarter of 2002 to $500,000 from a loss of ($5.9) million in the third quarter of 2001. This increase is primarily the result of charges related to asset impairment and restructuring charges recorded in the third quarter of 2001. Other income increased $75,000 due primarily to lower interest expense. Income Taxes The Company's effective income tax rate was 41.2% for the third quarter of 2002, up from a tax benefit of 29.5% in the third quarter of 2001. The effective income tax rate in 2002 approximates the combined federal and state, net of federal benefit, statutory income tax rate and is partially impacted by the geographic profitability mix of the Company's operations. The company recorded a tax benefit in the third quarter of 2001 as a result of restructuring and asset impairment charges. The rate in 2001 is reflective of certain tax attributes of non-deductible goodwill resulting from asset impairment charges. Net Income (loss) Net income for the third quarter of 2002 was $253,000 compared to a net loss of ($4,246,000) in the third quarter of 2001. Basic and diluted earnings (loss) per share for the three months ended July 31, 2002 and 2001 were $0.03 and ($0.44), respectively. 14 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NINE MONTHS ENDED JULY 31, 2002 COMPARED TO NINE MONTHS ENDED JULY 31, 2001 Revenues Total revenues decreased 1.7% in the first nine months of 2002 compared to the same period in 2001 to $91.3 million from $92.9 million. Printing revenue decreased 2.6% in the nine month period ended July 31, 2002 to $70.6 million from $72.5 million in the same period in 2001. Office products and office furniture revenue increased 1.2% in the nine month period ended July 31, 2002 to $20.7 million from $20.4 million in the same period in 2001. The revenues in the printing segment decreased primarily due to an overall sluggish market in most of the geographic regions served by the Company. The office products and office furniture segment recorded a modest increase in revenues primarily due to an increase in furniture sales during the third quarter of 2002. Cost of Sales Total cost of sales decreased 2.8% in the nine months ended July 31, 2002 to $65.5 million from $67.4 million in the nine months ended July 31, 2001. Printing cost of sales decreased 4.4% in the nine months ended July 31, 2002 to $50.8 million from $53.2 million in the nine months ended July 31, 2001, due primarily to the decrease in printing sales noted above and the recording of inventory obsolescence and valuation reserves in the third quarter of 2001. Office products and office furniture cost of sales increased 3.3% in the nine months ended July 31, 2002 to $14.7 million from $14.2 million in the nine months ended July 31, 2001. The increase in office products and office furniture cost of sales is attributable to an increase in office products and office furniture sales coupled with lower gross margin percentages. Operating Expenses During the nine months ended July 31, 2002 compared to the same period in 2001, selling, general, and administrative expenses decreased as a percentage of sales to 25.6% from 26.1%. Total selling, general and administrative expenses decreased $878,000 to $23.4 million in 2002 from $24.3 million in 2001. The decrease in selling, general and administrative expenses is a result of the Company's adoption of a restructuring and profitability enhancement plan in the third quarter of 2001. In addition, the Company adopted SFAS No. 142, which resulted in an increase in net income of approximately $12,500, net of tax, per quarter in 2002. Income (loss) from Operations and Other Income and Expenses Income from operations increased $6.2 million in the nine month period ended July 31, 2002 to $2.4 million from a loss of ($3.9) million in the same period of 2001. This increase is primarily the result of charges related to asset impairment and restructuring charges in the third quarter of 2001. Other income decreased approximately $100,000 primarily due to a gain resulting from the strategic alliance with Xpedx in 2001, partially offset by a reduction in interest expense. Income Taxes The Company's effective income tax rate was 41.6% for the nine months ended July 31, 2002, down from a benefit of 23.9% in the same period of 2001. The effective income tax rate in 2002 approximates 15 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) the combined federal and state, net of federal benefit, statutory income tax rate and is partially impacted by the geographic profitability mix of our operations. The company recorded a tax benefit in the third quarter of 2001 as a result of restructuring and asset impairment charges. The rate is reflective of certain tax attributes of non-deductible goodwill resulting from asset impairment charges. Net Income (loss) Net income for the first nine months of 2002 increased $4.3 million to $1,261,069 from a net loss of ($3,029,531) in the same period of 2001 due to the reasons discussed above. Basic and diluted earnings (loss) per share for the nine months ended July 31, 2002 and 2001, were $0.13 and ($0.31). 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. 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 third 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 nine months ended July 31, 2002, was $4.3 million compared to $7.1 million during the same period in 2001. This change in net cash from operations is due primarily to timing changes in assets and liabilities, and the impact of the Company's, restructuring and profitability enhancement plan in the nine months ended July 31, 2001. Net cash used in investing activities for the nine months ended July 31, 2002 was $2.0 million compared to $1.8 million during the same period in 2001. The net cash used in investing activities during 2002 primarily related to equipment purchases including a deposit to purchase a fractional ownership of an aircraft from an entity controlled by its Chief Executive Officer of which $875,000 had been paid as of July 31, 2002 and the purchase of a building, previously leased by the company, for approximately $600,000. The equipment and building purchases were partially offset by the sale of a building held for sale near Huntington, WV for approximately $360,000, net of selling expenses. In 2001, the net cash used in investing activities primarily related to equipment purchases and cash used for the purchase of certain assets of Cordage partially offset with proceeds from a strategic alliance with Xpedx. Net cash used in financing activities for the nine months ended July 31, 2002 was $4.2 million compared to net cash used in financing activities of $3.7 million during the same period in 2001. This change is primarily due to a decrease in debt borrowings in 2002. 16 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Working capital on July 31, 2002 was $24.9 million, a decrease of $1.1 million from October 31, 2001. 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 including through fiscal 2004 when most of the Company's interest bearing obligations are due. The Company renewed its revolving line of credit with a bank for $10.0 million for a three year period, expiring in April 2005. 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-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. 17 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 99.1 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Marshall T. Reynolds 99.2 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Todd R. Fry b) The following reports on Form 8-K were filed during the quarter for which this report is filed: Form 8-K dated July 16, 2002, filed July 17, 2002 regarding Champion's announcement of an appeal of a jury verdict and fee award in a civil action against the Company. 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: September 13, 2002 /s/ Marshall T. Reynolds ------------------------------------------- Marshall T. Reynolds Chief Executive Officer Date: September 13, 2002 /s/ Kirby J. Taylor ------------------------------------------- Kirby J. Taylor President and Chief Operating Officer Date: September 13, 2002 /s/ Todd R. Fry ------------------------------------------- Todd R. Fry Vice President and Chief Financial Officer 19 CERTIFICATIONS I, Marshall T. Reynolds, Chairman of the Board of Directors and Chief Executive Officer of Champion Industries, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Champion Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 13, 2002 /s/ Marshall T. Reynolds ------------------------------------------- Marshall T. Reynolds Chairman of the Board of Directors Chief Executive Officer 20 CERTIFICATIONS I, Kirby J. Taylor, President and Chief Operating Officer of Champion Industries, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Champion Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 13, 2002 /s/ Kirby J. Taylor ------------------------------------------- Kirby J. Taylor President and Chief Operating Officer 21 CERTIFICATIONS I, Todd R. Fry, Vice President and Chief Financial Officer of Champion Industries, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Champion Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 13, 2002 /s/ Todd R. Fry ------------------------------------------- Todd R. Fry Vice President and Chief Financial Officer 22 EX-99.1 3 w63877exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Champion Industries, Inc. (the Company) on Form 10-Q for the period ending July 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Marshall T. Reynolds, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented. /s/ Marshall T. Reynolds ------------------------------------------------ Marshall T. Reynolds, Chief Executive Officer Date: September 13, 2002 23 EX-99.2 4 w63877exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Champion Industries, Inc. (the Company) on Form 10-Q for the period ending July 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Todd R. Fry, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented. /s/ Todd R. Fry ------------------------------------------------ Todd R. Fry, Chief Financial Officer Date: September 13, 2002 24 -----END PRIVACY-ENHANCED MESSAGE-----