<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(D) of
The Securities Exchange Act of 1934
For the quarterly period ended January 31, 1997 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 (I.R.S. Employer
incorporation or organization) Identification No.)
2450 First Avenue, P. O. Box 2968
Huntington, West Virginia 25728
(Address of principal executives offices)
(Zip Code)
(304) 528-2791
(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 .
____ ____
8,104,714 shares of common stock of the Registrant were outstanding at
January 31, 1997.
<PAGE>
Champion Industries, Inc.
INDEX
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Income Statements ............................... 2
Consolidated Balance Sheets................................... 3
Consolidated Statements of Cash Flows......................... 5
Notes to the Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................... 10
Signatures............................................................ 10
Exhibit 11............................................................ 11
1
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Income Statements
(Unaudited)
THREE MONTHS ENDED
JANUARY 31,
1997 1996
------------- ------------
Revenues:
Printing........................................ $ 14,419,396 $ 9,909,871
Office products and office furniture............ 4,978,470 4,189,665
------------- ------------
Total revenues................................ 19,397,866 14,099,536
Cost of sales:
Printing........................................ 10,796,910 6,932,479
Office products and office furniture............ 3,332,299 2,843,057
------------- ------------
Total cost of sales........................... 14,129,209 9,775,536
Selling, general and administrative expenses...... 4,269,160 3,197,866
------------- ------------
Income from operations............................ 999,497 1,126,134
Other income (expense):
Interest income................................. 7,397 1,298
Interest expense................................ (181,100) (60,776)
Other........................................... 454,846 12,746
------------- ------------
281,143 (46,732)
------------- ------------
Income before income taxes........................ 1,280,640 1,079,402
Income taxes.................................... (539,392) (443,000)
------------- ------------
Net income........................................ $ 741,248 $ 636,402
------------- ------------
------------- ------------
Earnings per share................................ $ .09 $ .08
------------- ------------
------------- ------------
Weighted average shares outstanding............... 8,161,104 8,039,486
------------- ------------
------------- ------------
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 1,596,479 $ 2,336,764
Accounts receivable, net of allowance of$886,000 and $514,000. 15,297,665 11,037,897
Inventories................................................... 9,861,499 7,156,466
Other current assets.......................................... 748,850 383,282
Deferred tax assets........................................... 329,339 340,334
------------- -------------
Total current assets........................................ 27,833,832 21,254,743
Property and equipment, at cost:
Land.......................................................... 647,340 647,340
Buildings and improvements.................................... 3,125,873 3,125,873
Machinery and equipment....................................... 18,938,690 13,802,972
Equipment under capital leases................................ 2,801,928 2,801,928
Furniture and fixtures........................................ 1,433,859 1,311,368
Vehicles...................................................... 1,454,107 1,246,624
------------- -------------
28,401,797 22,936,105
Less accumulated depreciation............................... (9,426,668) (8,917,373)
------------- -------------
18,975,129 14,018,732
Asset held for sale............................................. 300,000 --
Cash surrender value of officer's life insurance................ 430,907 425,507
Goodwill, net of accumulated amortization....................... 3,687,323 2,565,287
Other assets.................................................... 314,056 318,233
------------- -------------
4,732,286 3,309,027
------------- -------------
Total assets................................................ $ 51,541,247 $ 38,582,502
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Current liabilities:
Notes payable................................................ $ 2,250,000 $ 1,300,000
Accounts payable............................................. 2,711,927 1,542,102
Accrued payroll.............................................. 1,328,868 1,030,523
Taxes accrued and withheld................................... 647,171 725,614
Accrued income taxes......................................... 513,528 1,295,188
Accrued expenses............................................. 1,740,780 336,314
Current portion of long-term debt
Notes payable.............................................. 2,309,369 1,238,423
Capital lease obligations.................................. 536,487 724,615
------------- -------------
Total current liabilities................................ 12,038,130 8,192,779
Long-term debt, net of current portion
Notes payable................................................ 11,619,569 3,750,841
Capital lease obligations.................................... 1,646,305 1,535,176
Deferred income tax liability.................................. 2,728,277 1,677,624
Deferred gain.................................................. -- 330,443
------------- -------------
Total liabilities.......................................... 28,032,231 15,486,863
Commitments and contingencies.................................. -- --
Shareholders' equity and net assets:
Common stock, $1 par value, 10,000,000 shares authorized;
8,104,714 and 8,104,907 shares issued and outstanding...... 8,104,714 8,104,907
Additional paid-in capital................................... 7,711,294 7,714,777
Retained earnings............................................ 7,693,008 7,275,955
------------- -------------
Total shareholders' equity................................... 23,509,016 23,095,639
------------- -------------
Total liabilities and shareholders' equity................. $ 51,541,247 $ 38,582,502
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 741,248 $ 636,402
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation, amortization and accretion......................... 825,561 355,884
Deferred gain on sale of assets.................................. (330,443) (4,500)
Changes in assets and liabilities:
Accounts receivable............................................ 171,232 (1,010,511)
Inventories.................................................... (650,033) 368,676
Other current assets........................................... (45,568) (220,395)
Accounts payable............................................... 284,825 (538,786)
Accrued payroll................................................ 298,345 (360,890)
Taxes accrued and withheld..................................... 9,557 (245,341)
Accrued income taxes........................................... (901,062) (8,633)
Accrued expenses............................................... (1,454,534) 149,475
----------- -----------
Net cash (used in) provided by operations.......................... (1,050,872) (878,619)
Cash flows from investing activities:
Purchase of property and equipment................................. (326,692) (205,369)
Business acquisitions, net of cash received........................ 305,000 97,182
Cash surrender value of officer's life insurance................... (5,400) 5,700
Other assets....................................................... 4,177 (36,655)
----------- -----------
Net cash (used in) provided by investing activities................ (22,915) (139,142)
Cash flows from financing activities:
Net borrowings (payments) of notes payable......................... 950,000 1,000,000
Proceeds from term debt and leases................................. 281,344 --
Principal payments on long term debt............................... (569,970) (183,569)
Dividends paid..................................................... (327,872) (259,415)
----------- -----------
Net cash provided by (used in) financing activities................ 333,502 557,016
----------- -----------
Net (decrease) increase in cash.................................... (740,285) (460,745)
Cash and cash equivalents, beginning of period..................... 2,336,764 1,350,806
----------- -----------
Cash and cash equivalents, end of period........................... $ 1,596,479 $ 890,061
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BUSINESS OPERATIONS AND BASIS OF PRESENTATION
The foregoing financial information is unaudited and has been prepared from
the records of Champion Industries, Inc., ("Champion" or the "Company"). 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 financial statements
for the year ended October 31, 1996 and related notes thereto contained in the
Company's Form 10-K dated January 28, 1997. The accompanying unaudited financial
statements are presented in accordance with generally accepted accounting
principles and instructions to the Securities and Exchange Commission Form 10-Q.
The accompanying consolidated financial statements of Champion Industries,
Inc. and Subsidiaries (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.
and Interform Corporation.
2. INVENTORIES
Inventories are 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.
INVENTORIES CONSISTED OF THE FOLLOWING:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Printing:
Raw materials............................................... $ 3,583,982 $ 2,276,070
Work in process............................................. 2,363,487 1,473,021
Finished goods.............................................. 918,147 572,228
Office products and office furniture.......................... 2,995,883 2,835,147
------------ ------------
$ 9,861,499 $ 7,156,466
------------ ------------
------------ ------------
</TABLE>
3. EARNINGS PER SHARE
Earnings per share were computed based upon 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 Company had
8,161,104 and 8,039,486 weighted average shares issued and outstanding for the
quarters ended January 31, 1997 and 1996, as adjusted for a 25% stock dividend
(see Note 4).
6
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
4. SHAREHOLDERS' EQUITY
The Company paid a 25% stock dividend, accounted for as a 5 for 4 stock
split, on January 27, 1997 to stockholders of record on January 6, 1997.
1,620,981 shares were issued in the split of which 193 fractional shares were
repurchased.
The Company declared a dividend of five cents to be paid on March 28, 1997,
to stockholders of record on March 7, 1997.
5. ACQUISITIONS
On December 31, 1996, the Company acquired all the issued and outstanding
common shares of Interform Corporation ("Interform"), a business forms printer
located in Bridgeville, Pennsylvania, for $2.5 million. Champion utilized the
proceeds of a loan from a bank to provide the cash consideration and to
refinance the existing long term debt of Interform. The transaction was
accounted for under the purchase method. As of September 30, 1996, Interform had
total assets of $14.9 million and total liabilities of $9.6 million.
The following summarizes the unaudited consolidated pro forma results of
operations for the quarters ended January 31, 1997 and 1996, assuming the
acquisition had been consummated at the beginning of each quarter presented.
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Revenues................................................... $ 25,286,000 $ 26,389,000
Net income................................................. $ 657,000 $ 390,000
Net income per share....................................... $ .08 $ .05
Common outstanding shares.................................. 8,161,104 8,161,104
</TABLE>
7
<PAGE>
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.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
REVENUES
THREE MONTHS ENDED
JANUARY 31,
1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Printing.................................................................. 74.3% 70.3%
Office products and office furniture...................................... 25.7 29.7
--- ---
Total revenues.......................................................... 100.0 100.0
Cost of sales:
Printing.................................................................. 55.7 49.2
Office products and office furniture...................................... 17.1 20.1
--- ---
Total cost of sales..................................................... 72.8 69.3
Selling, general and administrative expenses................................ 22.0 22.7
--- ---
Income from operations...................................................... 5.2 8.0
Interest income........................................................... .0 .0
Interest expense.......................................................... (.9) (.4)
Other income.............................................................. 2.3 .1
--- ---
Income before taxes......................................................... 6.6 7.7
Income tax expense........................................................ (2.8) (3.2)
--- ---
Net income.................................................................. 3.8% 4.5%
--- ---
--- ---
</TABLE>
Three Months Ended January 31, 1997 Compared to Three Months Ended January
31, 1996
Total revenues increased 37.6% in the first quarter 1997 to $19.4 million from
$14.1 million in the first quarter 1996. Printing revenue increased 45.5% in the
first quarter 1997 to $14.4 million from $9.9 million in the first quarter 1996.
Office products and office furniture revenue increased 18.8% in the first
quarter 1997 to $5.0 million from $4.2 million in the first quarter 1996. This
was achieved through new acquisitions which accounted for increased printing
sales of $ 5.2 million and increased office products and office furniture sales
of $1.2 million. Revenues at an existing printing division were reduced by
approximately $600,000 from the prior quarter by the non-recurring loss of a
state printing contract and sales force turnover. The existing office products
and office furniture divisions also experienced a sales decline from the prior
quarter reflecting a one time furniture sale totaling $500,000 in the first
quarter of 1996.
Total cost of sales increased 44.5% in the first quarter 1997 to $14.1 million
from $9.8 million in the first quarter 1996. Printing cost of sales increased
55.7% in the first quarter 1997 to $10.8 million from $6.9 million in the first
quarter 1996, due primarily to sales volume and the addition of newly acquired
divisions with lower sales margins. Office products and office furniture cost of
sales increased 17.2% in the first quarter 1997 to $3.3 million from $2.8
million in the first quarter 1996, primarily due to increased sales volume.
Selling, general & administrative expenses declined as a percentage of sales in
first quarter 1997 to 22.0% from 22.7% in the first quarter 1996 due to cost
controls implemented by management and spreading overhead expenses over
increasing revenues.
8
<PAGE>
Income from operations decreased 11.3% in the first quarter 1997 to $1.0 million
from $1.1 million in the first quarter 1996. This decrease was a result of the
revenue decrease at an existing division mentioned above and increased hiring
and training expenses in newly acquired divisions.
On August 30, 1991, Stationers, Inc. sold the assets of its retail bookstore
consisting primarily of inventory and fixtures. Stationers, Inc. unconditionally
guaranteed a bank loan of the purchaser. Accordingly, the original gain from the
sale was deferred and recognized as the purchaser made payments on the bank
loan. Stationers, Inc. is no longer guaranteeing this bank loan. Accordingly,
the remaining deferred gain of $330,000 was recognized in other income during
the three months ended January 31, 1997.
Interest expense on a comparative basis increased $120,000 as a result of
increased debt. Income taxes are running at 42% for the first quarter 1997 which
is up slightly from the 41% in the first quarter 1996. Net income for the first
quarter 1997 increased 16.5% to $700,000 from $600,000 in the first quarter
1996.
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
Champion's primary sources of funding for the first quarter 1997 were net
income and borrowings. Funds were used primarily for principal payments on debt,
the purchase of equipment, the funding of increases in accounts receivable and
inventories, the payment of payroll taxes and income taxes and the payment of
regular cash dividends.
Working capital on January 31, 1997 was $15.8 million, an increase of $4.2
million from a year ago. The Company's cash balance was $1.6 million on January
31, 1997, a portion of which was invested in highly liquid instruments with
maturities of 90 days or less.
The Company has short term credit facilities with banks permitting aggregate
borrowings of $2.8 million. On January 31, 1997, $2.3 million had been drawn
under these facilities. The Company's president personally guarantees a credit
facility of $800,000. There is no assurance that he will continue to do so.
The Company expects that the combination of funds available from working
capital, borrowings available under the Company's credit facilities (including
leases as required) 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.
9
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the quarter for which
this report is filed:
1) Form 8-K dated January 14, 1997, filed January 15, 1997, describing
the completion of the Company's acquisition of Interform Corporation,
of Bridgeville, Pennsylvania.
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: March 17, 1997 /s/ Marshall T. Reynolds
------------------------------------------
Marshall T. Reynolds
President and Chief Executive Officer
Date: March 17, 1997 /s/ Joseph C. Worth, III
-------------------------------------------
Joseph C. Worth, III
Vice President and Chief Financial Officer
10
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1997 1996
---------- ----------
<S> <C> <C>
Primary:
Average shares outstanding........................................ 8,104,714 8,006,834
Net effect of dilutive stock options -
based on treasury stock method
using average market price....................................... 56,390 32,652
---------- ----------
Totals............................................................ 8,161,104 8,039,486
---------- ----------
---------- ----------
Net income.......................................................... $ 741,248 $ 636,402
---------- ----------
---------- ----------
Per share amount.................................................... $ 0.09 $ 0.08
---------- ----------
---------- ----------
Fully diluted:
Average shares outstanding........................................ 8,104,714 8,006,834
Net effect of dilutive stock options -
based on treasury stock method using
period end market price, if greater
than the average market price................................... 56,390 32,652
---------- ----------
Totals............................................................ 8,161,104 8,039,486
---------- ----------
---------- ----------
Net income.......................................................... $ 741,248 $ 636,402
---------- ----------
---------- ----------
Per share amount.................................................... $ 0.09 $ 0.08
---------- ----------
---------- ----------
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidate financial statements of Champion Industries, Inc.
and Subsidiaries for the period ending January 31, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 1,596,479
<SECURITIES> 0
<RECEIVABLES> 16,183,665
<ALLOWANCES> 886,000
<INVENTORY> 9,861,499
<CURRENT-ASSETS> 27,833,832
<PP&E> 28,401,797
<DEPRECIATION> 9,426,668
<TOTAL-ASSETS> 51,541,247
<CURRENT-LIABILITIES> 12,038,130
<BONDS> 0
0
0
<COMMON> 8,104,714
<OTHER-SE> 15,404,302
<TOTAL-LIABILITY-AND-EQUITY> 51,541,247
<SALES> 0
<TOTAL-REVENUES> 19,397,866
<CGS> 0
<TOTAL-COSTS> 14,129,209
<OTHER-EXPENSES> 4,269,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,100
<INCOME-PRETAX> 1,280,640
<INCOME-TAX> 539,392
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 741,248
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
