<PAGE> 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
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<S> <C>
For the quarterly period ended April 30, 2000 Commission File No. 0-21084
</TABLE>
-------------------
CHAMPION INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
West Virginia 55-0717455
<S> <C>
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
</TABLE>
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.
<PAGE> 2
CHAMPION INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
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
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS APRIL 30, OCTOBER 31,
2000 1999
------------------------------------------------
<S> <C> <C>
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
================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY APRIL 30, OCTOBER 31,
2000 1999
-------------------------------------------------
<S> <C> <C>
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
=================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
2000 1999
------------------------------------------------------
<S> <C> <C>
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
======================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
2000 1999
--------------------------------------------------
<S> <C> <C>
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
==================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
2000 1999
----------------------------------------------------
<S> <C> <C>
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
====================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 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
<PAGE> 8
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVENTORIES (CONTINUED)
Inventories consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
--------------------------- --------------------------
<S> <C> <C>
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
=========================== ==========================
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, October 31,
2000 1999
--------------------------- -------------------------
<S> <C> <C>
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
=======================================================
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
OFFICE PRODUCTS
2000 QUARTER 2 PRINTING & FURNITURE TOTAL
-------------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
<CAPTION>
OFFICE PRODUCTS
1999 QUARTER 2 PRINTING & FURNITURE TOTAL
-------------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
<CAPTION>
OFFICE PRODUCTS
2000 YEAR TO DATE PRINTING & FURNITURE TOTAL
----------------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
9
<PAGE> 11
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
OFFICE PRODUCTS
1999 YEAR TO DATE PRINTING & FURNITURE TOTAL
----------------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
THREE MONTHS
------------------------------------------------
2000 1999
------------------------------------------------
<S> <C> <C>
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
================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
-------------------------------------------------------------
2000 1999
-------------------------------------------------------------
<S> <C> <C>
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
=============================================================
</TABLE>
10
<PAGE> 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.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
THREE MONTHS ENDED
APRIL 30,
2000 1999
---------------------------------------------
<S> <C> <C>
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%
=============================================
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
SIX MONTHS ENDED
APRIL 30,
2000 1999
------------------------------------------------------
<S> <C> <C>
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%
======================================================
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
DIRECTOR VOTES "FOR" VOTES "WITHHELD" BROKER NON-VOTES
<S> <C> <C> <C>
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-
</TABLE>
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
<PAGE> 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
<PAGE> 19
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT PAGE TITLE
27 electronic Financial Data Schedule
