<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
For the quarterly period ended July 31, 2000 Commission File No. 0-21084
-------------------
CHAMPION INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
West Virginia 55-0717455
(State or other jurisdiction of (I.R.S. Employer
incorporation 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 July 31,
2000.
<PAGE> 2
CHAMPION INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <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. Change in Securities...............................................................17
Item 6. Exhibits and Reports on Form 8-K...................................................17
Signatures..........................................................................................18
Exhibit Index.......................................................................................19
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,504,967 $ 2,463,554
Accounts receivable, net of allowance of $1,698,000 and $1,448,000 19,372,241 24,041,919
Inventories 13,720,694 14,072,694
Other current assets 1,115,230 828,189
Prepaid income taxes 207,076 -
Deferred income tax assets 849,181 849,181
----------- -----------
Total current assets 39,769,389 42,255,537
PROPERTY AND EQUIPMENT, AT COST:
Land 984,889 984,889
Buildings and improvements 6,432,096 6,308,530
Machinery and equipment 34,439,828 32,861,577
Equipment under capital leases 1,600,000 1,600,000
Furniture and fixtures 2,278,992 2,353,191
Vehicles 2,826,733 2,621,696
----------- -----------
48,562,538 46,729,883
Less accumulated depreciation (23,301,280) (20,667,666)
----------- -----------
25,261,258 26,062,217
Cash surrender value of officers' life insurance 972,969 956,769
Goodwill, net of accumulated amortization 3,483,418 3,317,849
Other assets 831,669 728,833
----------- -----------
5,288,056 5,003,451
----------- -----------
Total assets $70,318,703 $73,321,205
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 2,789,901 $ 3,521,282
Accrued payroll 1,763,981 1,768,345
Taxes accrued and withheld 1,059,727 905,854
Accrued income taxes - 677,119
Accrued expenses 795,140 885,864
CURRENT PORTION OF LONG-TERM DEBT:
Notes payable 3,802,769 3,607,354
Capital lease obligations 332,932 316,598
----------- -----------
Total current liabilities 10,544,450 11,682,416
LONG-TERM DEBT, NET OF CURRENT PORTION:
Notes payable 7,469,086 9,222,191
Capital lease obligations 431,957 710,433
Deferred income tax liability 4,318,571 4,318,571
Other liabilities 808,335 827,725
----------- -----------
Total liabilities 23,572,399 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 14,790,344 14,603,909
----------- -----------
Total shareholders' equity 46,746,304 46,559,869
----------- -----------
Total liabilities and shareholders' equity $70,318,703 $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 NINE MONTHS ENDED
JULY 31, JULY 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Printing $ 23,266,019 $ 22,134,943 $ 71,727,385 $ 68,062,806
Office products and office furniture 7,148,779 7,902,302 22,353,743 22,079,180
------------ ------------ ------------ ------------
Total revenues 30,414,798 30,037,245 94,081,128 90,141,986
COST OF SALES:
Printing 16,286,665 15,673,928 51,149,599 47,979,210
Office products and office furniture 4,860,728 5,448,321 15,050,762 14,819,106
------------ ------------ ------------ ------------
Total cost of sales 21,147,393 21,122,249 66,200,361 62,798,316
------------ ------------ ------------ ------------
Gross profit 9,267,405 8,914,996 27,880,767 27,343,670
Selling, general and administrative expenses 8,244,724 8,292,890 24,471,200 22,883,723
------------ ------------ ------------ ------------
Income from operations 1,022,681 622,106 3,409,567 4,459,947
OTHER INCOME (EXPENSE):
Interest income 14,791 25,334 37,516 116,331
Interest expense (287,648) (274,077) (770,374) (948,570)
Other 14,677 37,364 100,945 104,051
------------ ------------ ------------ ------------
(258,180) (211,379) (631,913) (728,188)
------------ ------------ ------------ ------------
Income before income taxes 764,501 410,727 2,777,654 3,731,759
Income taxes (312,602) (154,628) (1,134,131) (1,484,166)
------------ ------------ ------------ ------------
Net income $ 451,899 $ 256,099 $ 1,643,523 $ 2,247,593
============ ============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.05 $ 0.03 $ 0.17 $ 0.23
============ ============ ============ ============
Diluted $ 0.05 $ 0.03 $ 0.17 $ 0.23
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 9,714,000 9,714,000 9,714,000 9,714,000
============ ============ ============ ============
Diluted 9,714,000 9,716,000 9,714,000 9,715,000
============ ============ ============ ============
Dividends per share $ 0.05 $ 0.05 $ 0.15 $ 0.15
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
-------------------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,643,523 $ 2,247,593
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 3,145,407 2,928,367
Gain on sales of assets (704) (5,680)
Other (19,390) (16,200)
Bad debt expense 534,551 339,621
Changes in assets and liabilities:
Accounts receivable 4,277,437 1,071,579
Inventories 427,000 (1,167,544)
Other current assets (255,691) (349,934)
Accounts payable (826,934) (1,156,571)
Accrued payroll (4,364) 17,084
Taxes accrued and withheld 143,643 191,833
Accrued and prepaid income taxes (884,195) (195,663)
Accrued expenses (90,724) 130,611
----------- -----------
Net cash provided by operations 8,089,559 4,035,096
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,688,172) (3,066,166)
Proceeds from sales of property 167,077 150,388
Business acquisitions, net of cash received (463,477) (1,014,236)
Other assets (164,565) 44,456
----------- -----------
Net cash used in investing activities (2,149,137) (3,885,558)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term debt and leases 618,720 45,615
Principal payments on long-term debt (3,060,641) (3,791,428)
Dividends paid (1,457,088) (1,457,085)
----------- -----------
Net cash used in financing activities (3,899,009) (5,202,898)
----------- -----------
Net increase (decrease) in cash 2,041,413 (5,053,360)
Cash and cash equivalents, beginning of period 2,463,554 9,773,193
----------- -----------
Cash and cash equivalents, end of period $ 4,504,967 $ 4,719,833
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 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 2,000 shares for the three months ended
and 1,000 shares for the nine months ended July 31, 1999.
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>
July 31, October 31,
2000 1999
----------- -----------
<S> <C> <C>
Printing:
Raw materials $ 3,253,092 $ 3,267,880
Work in process 2,347,186 2,357,856
Finished goods 4,186,032 4,205,061
Office products and office furniture 3,934,384 4,241,897
----------- -----------
$13,720,694 $14,072,694
=========== ===========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
----------- -----------
<S> <C> <C>
Unsecured term note payable $ 6,696,429 $ 8,035,714
Installment notes payable to banks 2,865,780 2,444,181
Mortgage note payable to a bank 1,709,646 2,349,650
Capital lease obligations 764,889 1,027,031
----------- -----------
12,036,744 13,856,576
Less current portion 4,135,701 3,923,952
----------- -----------
Long-term debt, net of current portion $ 7,901,043 $ 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 an interest rate
approximating the prime rate. This line of credit expires in April 2002 and
contains certain restrictive financial covenants. There were no borrowings
outstanding under this facility at July 31, 2000.
The company's non-cash activities for the nine months ended July 31, 2000 and
1999 included equipment purchases consisting primarily of vehicles of
approximately $622,000 and $478,000.
7
<PAGE> 9
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
5. SHAREHOLDERS' EQUITY
The Company declared a dividend of five cents per share to be paid on September
25, 2000, to stockholders of record on September 8, 2000.
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
nine months ending July 31:
<TABLE>
<CAPTION>
OFFICE PRODUCTS
2000 QUARTER 3 PRINTING & FURNITURE TOTAL
-------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 25,573,233 $ 7,977,806 $ 33,551,039
Elimination of intersegment revenue (2,307,214) (829,027) (3,136,241)
-------------------------------------------------------
Consolidated revenues 23,266,019 7,148,779 30,414,798
Operating income 743,129 279,552 1,022,681
Depreciation & amortization 1,005,078 72,511 1,077,589
Capital expenditures 741,609 30,135 771,744
Identifiable assets 57,939,115 12,379,588 70,318,703
1999 QUARTER 3
Revenues $ 24,210,944 $ 8,402,453 $ 32,613,397
Elimination of intersegment revenue (2,076,001) (500,151) (2,576,152)
-------------------------------------------------------
Consolidated revenues 22,134,943 7,902,302 30,037,245
Operating income 259,056 363,050 622,106
Depreciation & amortization 946,559 89,070 1,035,629
Capital expenditures 1,236,551 64,520 1,301,071
Identifiable assets 58,816,758 12,854,123 71,670,881
2000 YEAR TO DATE
Revenues $ 78,588,549 $ 25,063,116 $ 103,651,665
Elimination of intersegment revenue (6,861,164) (2,709,373) (9,570,537)
-------------------------------------------------------
Consolidated revenues 71,727,385 22,353,743 94,081,128
Operating income 2,449,777 959,790 3,409,567
Depreciation & amortization 2,933,808 211,599 3,145,407
Capital expenditures 2,209,061 101,200 2,310,261
Identifiable assets 57,939,115 12,379,588 70,318,703
1999 YEAR TO DATE
Revenues $ 74,528,318 $ 23,521,590 $ 98,049,908
Elimination of intersegment revenue (6,465,512) (1,442,410) (7,907,922)
-------------------------------------------------------
Consolidated revenues 68,062,806 22,079,180 90,141,986
Operating income 3,514,522 945,425 4,459,947
Depreciation & amortization 2,666,073 262,294 2,928,367
Capital expenditures 3,430,918 115,149 3,546,067
Identifiable assets 58,816,758 12,854,123 71,670,881
</TABLE>
9
<PAGE> 11
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
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, 2000
and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
2000 1999 2000 1999
----------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Total segment revenues $ 33,551,039 $ 32,613,397 $ 103,651,665 $ 98,049,908
Elimination of intersegment revenue (3,136,241) (2,576,152) (9,570,537) (7,907,922)
----------------------------------- -------------------------------------
Consolidated revenue $ 30,414,798 $ 30,037,245 $ 94,081,128 $ 90,141,986
=================================== =====================================
OPERATING INCOME:
Total segment operating income $ 1,022,681 $ 622,106 $ 3,409,567 $ 4,459,947
Interest income 14,791 25,334 37,516 116,331
Interest expense (287,648) (274,077) (770,374) (948,570)
Other income 14,677 37,364 100,945 104,051
----------------------------------- -------------------------------------
Consolidated income before income taxes $ 764,501 $ 410,727 $ 2,777,654 $ 3,731,759
=================================== =====================================
IDENTIFIABLE ASSETS:
Total segment identifiable assets $ 70,318,703 $ 71,670,881 $ 70,318,703 $ 71,670,881
Elimination of intersegment assets - - - -
----------------------------------- -------------------------------------
Total consolidated assets $ 70,318,703 $ 71,670,881 $ 70,318,703 $ 71,670,881
=================================== =====================================
</TABLE>
10
<PAGE> 12
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a commercial printer, business forms manufacturer and office
products and office furniture supplier in regional markets east of the
Mississippi. The Company has grown through acquisitions and internal growth. As
a result of this growth, the Company has realized economies of scale and
operational efficiencies.
The Company intends to continue its strategy of aggressively increasing its
market share in areas it currently serves and expanding into new markets through
acquisitions. The Company believes the printing and office products industries
are highly fragmented and that it is well positioned to acquire desirable
businesses in existing market areas, contiguous geographical regions, and new
geographical markets. The consolidated financial statements, results of
operations, and cash flows could be materially impacted depending on the timing
and magnitude of acquisitions.
The Company's revenues consist primarily of sales of commercial printing,
business forms, tags, other printed products, office supplies, office furniture,
data products, and office design services. The Company recognizes revenue when
products are shipped or services are rendered to the customer. The Company's
revenues are subject to quarterly fluctuations caused by variations in demand
for its products.
The Company's cost of sales primarily consist of raw materials, including paper,
ink, pre-press and purchased office supplies, furniture and data products, and
manufacturing costs including direct labor, indirect labor, and overhead.
Significant factors affecting cost of sales include the cost of paper in both
printing and office supplies, labor costs and other raw materials.
The Company's operating costs consist of selling, general and administrative
expenses. These costs include salaries and wages for sales, customer service,
accounting, administrative and executive personnel, employee benefits, sales
commissions, rent, utilities, and equipment maintenance.
11
<PAGE> 13
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 NINE MONTHS ENDED
JULY 31, JULY 31,
2000 1999 2000 1999
----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Printing 76.5% 73.7% 76.3% 75.5%
Office products and office furniture 23.5 26.3 23.7 24.5
----------------------------------------------------
Total revenues 100.0 100.0 100.0 100.0
Cost of sales:
Printing 53.5 52.2 54.4 53.2
Office products and office furniture 16.0 18.1 16.0 16.4
----------------------------------------------------
Total cost of sales 69.5 70.3 70.4 69.6
----------------------------------------------------
Gross profit 30.5 29.7 29.6 30.4
Selling, general and administrative expenses 27.1 27.6 26.0 25.4
----------------------------------------------------
Income from operations 3.4 2.1 3.6 5.0
Interest income 0.1 0.1 0.0 0.1
Interest (expense) (1.0) (0.9) (0.8) (1.1)
Other income 0.0 0.1 0.1 0.1
----------------------------------------------------
Income before taxes 2.5 1.4 2.9 4.1
Income tax expense (1.0) (0.5) (1.2) (1.6)
----------------------------------------------------
Net income 1.5% 0.9% 1.7% 2.5%
====================================================
</TABLE>
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
Revenues
Total revenues increased 1.3% in the third quarter of 2000 compared to the same
period in 1999 from $30.0 million to $30.4 million. Printing revenue increased
5.1% in the third quarter of 2000 to $23.3 million from $22.1 million in the
third quarter of 1999. Office products and office furniture revenue decreased
9.5% in the third quarter of 2000 to $7.1 million from $7.9 million in the third
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 decrease in revenues for the office
products and office furniture segment was attributable to lower sales in office
furniture primarily at one division.
12
<PAGE> 14
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 remained constant at $21.1 million in the third quarter of
2000 and 1999. Printing cost of sales increased 3.9% in the third quarter of
2000 to $16.3 million from $15.7 million in the third quarter of 1999, due
primarily to an increase in printing sales. Office products and office furniture
cost of sales decreased 10.8% in the third quarter of 2000 to $4.9 million from
$5.4 million in the third quarter of 1999. The reduction in office products and
office furniture cost of sales is directly attributable to the lower sales
discussed above.
Operating Expenses
In the third quarter of 2000, selling, general and administrative expenses
decreased slightly as a percentage of sales to 27.1% from 27.6% reported in the
third quarter of 1999 primarily due to an increase in revenues. Total selling,
general and administrative expenses remained relatively constant at $8.2 million
and $8.3 million for the three months ended July 31, 2000 and 1999.
Income from Operations and Other Income and Expenses
Income from operations increased 64.4% in the third quarter of 2000 to $1.0
million from $622,000 in the third quarter of 1999. This increase is primarily
the result of the increased sales experienced in the printing division during
the third quarter of 2000.
Income Taxes
The Company's effective income tax rate was 40.9% for the third quarter of 2000,
up from 37.6% in the third quarter of 1999 as a result of adjusting the year to
date effective tax rates to anticipated levels. 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 third quarter of 2000 increased 76.5% to $452,000 from
$256,000 in the third quarter of 1999 due to the improved operating margins
discussed above. Basic and diluted earnings per share for the three months ended
July 31, 2000 and 1999 were $0.05 and $0.03.
NINE MONTHS ENDED JULY 31, 2000 COMPARED TO NINE MONTHS ENDED JULY 31, 1999
Revenues
Total revenues increased 4.4% in the first nine months of 2000 compared to the
same period in 1999 to $94.1 million from $90.1 million. Printing revenue
increased 5.4% in the nine month period ended July 31, 2000 to $71.7 million
from $68.1 million in the same period of 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. Office products and office furniture revenue increased
1.2% from the nine month period ended July 31, 2000 compared to the same period
in 1999. This growth was primarily from the acquisition of Diez, which
contributed
13
<PAGE> 15
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
approximately $1.3 million in revenue to the first nine months of 2000 versus
the same period in 1999. Core office products and office furniture revenue
declined approximately $1.0 million during the same period. This decline
occurred primarily in the third quarter of 2000 as discussed above.
Cost of Sales
Total cost of sales increased 5.4% in the nine months ended July 31, 2000 to
$66.2 million from $62.8 million in the nine months ended July 31, 1999.
Printing cost of sales increased 6.6% in the nine months ended July 31, 2000 to
$51.1 million from $48.0 million in the nine months ended July 31, 1999, due
primarily to the increase in printing sales noted above. Office products and
office furniture cost of sales increased 1.6% in the nine months ended July 31,
2000 to $15.1 million from $14.8 million in the nine months ended July 31, 1999.
The increase in office products and office furniture cost of sales is primarily
attributable to the increase in sales noted above.
Operating Expenses
During the nine months ended July 31, 2000 compared to the same period in 1999,
selling, general and administrative expenses increased as a percentage of sales
to 26.0% from 25.4% primarily due to higher corporate overhead expenses,
expenses related to acquisitions, higher health insurance costs, an increase in
the allowance for doubtful accounts and costs related to an enterprise-wide
software system and related hardware.
Income from Operations and Other Income and Expenses
Income from operations decreased 23.6% in the nine month period ended July 31,
2000 to $3.4 million from $4.5 million in the same period of 1999. This decrease
is primarily the result of higher selling, general and administrative expenses
coupled with a decrease in printing gross profit as a percentage of sales.
Interest income decreased $79,000 as a result of lower investable funds.
Interest expense on a comparative basis decreased $178,000 as a result of a
reduction in debt.
Income Taxes
The Company's effective income tax rate was 40.8% for the nine months ended July
31, 2000, up from 39.8% 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.
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<PAGE> 16
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net Income
Net income for the first nine months of 2000 decreased 26.9% to $1.6 million
from $2.2 million in the same period of 1999 due to the reasons discussed above.
Basic and diluted earnings per share for the nine months ended July 31, 2000 and
1999 were $0.17 and $0.23.
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 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 nine months ended July 31, 2000 was $8.1
million compared to $4.0 million during the same period in 1999. This
improvement in net cash from operations is due primarily to the collection of
accounts receivable.
Net cash used in investing activities for the nine months ended July 31, 2000
was $2.1 million compared to $3.9 million during the same period in 1999. The
decrease in net cash used in investing activities during the first nine months
of 2000 compared to 1999 is primarily the result of lower equipment purchases
and less cash used in the acquisition of businesses.
Net cash used in financing activities for the nine months ended July 31, 2000
was $3.9 million compared to $5.2 million during the same period in 1999. This
change is primarily due to the proceeds from a debt financing of equipment in
the third quarter of 2000.
Working capital on July 31, 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.
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<PAGE> 17
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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.
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<PAGE> 18
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
None
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.
17
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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, 2000 /s/ Marshall T. Reynolds
--------------------------------
Marshall T. Reynolds
Chief Executive Officer
Date: September 13, 2000 /s/ Todd R. Fry
--------------------------------
Todd R. Fry
Chief Financial Officer
18
