UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
| For the quarterly period ended April 30, 2003 | Commission File No. 0-21084 |
Champion Industries, Inc.
| West Virginia | 55-0717455 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
2450-90 1st Avenue
P.O. Box 2968
Huntington, WV 25728
(304) 528-2700
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 ü No .
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No ü.
9,713,913 shares of common stock of the Registrant were outstanding at April 30, 2003.
Champion Industries, Inc.
INDEX
| Page No. | |||||||
Part I. Financial Information |
|||||||
Item 1. Financial Statements |
|||||||
Consolidated Balance Sheets |
3 | ||||||
Consolidated Statements of Operations |
5 | ||||||
Consolidated Statements of Cash Flows |
6 | ||||||
Notes to Consolidated Financial Statements |
7 | ||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 | ||||||
Item 3a. Quantitative and Qualitative Disclosure About Market Risk |
18 | ||||||
Item 4. Controls and Procedures |
18 | ||||||
Part II. Other Information |
|||||||
Item 4. Submission of Matters to a Vote of Security Holders |
19 | ||||||
Item 6. Exhibits and Reports on Form 8-K |
19 | ||||||
Signatures |
20 | ||||||
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| April 30, | October 31, | |||||||||||
| 2003 | 2002 | |||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 4,106,822 | $ | 4,507,139 | ||||||||
Accounts receivable, net of allowance of $1,096,000 and $1,397,000 |
17,378,085 | 18,546,989 | ||||||||||
Inventories |
11,428,791 | 11,427,581 | ||||||||||
Other current assets |
1,111,735 | 1,745,563 | ||||||||||
Deferred income tax assets |
1,027,059 | 1,027,059 | ||||||||||
Total current assets |
35,052,492 | 37,254,331 | ||||||||||
Property and equipment, at cost: |
||||||||||||
Land |
2,028,372 | 1,028,372 | ||||||||||
Buildings and improvements |
7,238,251 | 6,120,122 | ||||||||||
Machinery and equipment |
37,343,173 | 36,362,178 | ||||||||||
Equipment under capital leases |
983,407 | 983,407 | ||||||||||
Furniture and fixtures |
2,880,584 | 2,872,212 | ||||||||||
Vehicles |
3,195,196 | 3,082,258 | ||||||||||
| 53,668,983 | 50,448,549 | |||||||||||
Less accumulated depreciation |
(33,277,172 | ) | (31,442,360 | ) | ||||||||
| 20,391,811 | 19,006,189 | |||||||||||
Cash surrender value of officers’ life insurance |
924,534 | 947,955 | ||||||||||
Goodwill |
1,733,750 | 1,725,941 | ||||||||||
Other assets |
512,244 | 573,087 | ||||||||||
| 3,170,528 | 3,246,983 | |||||||||||
Total assets |
$ | 58,614,831 | $ | 59,507,503 | ||||||||
See notes to consolidated financial statements.
3
Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(Unaudited)
| April 30, | October 31, | ||||||||||
| 2003 | 2002 | ||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|||||||||||
Current liabilities: |
|||||||||||
Accounts payable |
$ | 2,351,336 | $ | 3,258,095 | |||||||
Accrued payroll |
1,363,053 | 2,004,046 | |||||||||
Taxes accrued and withheld |
1,257,955 | 1,416,900 | |||||||||
Accrued income taxes |
334,096 | 873,136 | |||||||||
Accrued expenses |
765,885 | 819,234 | |||||||||
Current portion of long-term debt: |
|||||||||||
Notes payable |
2,430,222 | 2,615,422 | |||||||||
Capital lease obligations |
202,391 | 195,035 | |||||||||
Total current liabilities |
8,704,938 | 11,181,868 | |||||||||
Long-term debt, net of current portion: |
|||||||||||
Notes payable, term |
2,336,126 | 1,445,837 | |||||||||
Capital lease obligations |
255,958 | 359,027 | |||||||||
Notes payable, line of credit |
1,000,000 | — | |||||||||
Other liabilities |
427,038 | 429,842 | |||||||||
Deferred income tax liability |
3,225,119 | 3,225,119 | |||||||||
Total liabilities |
15,949,179 | 16,641,693 | |||||||||
Shareholders’ equity: |
|||||||||||
Common stock, $1 par value, 20,000,000 shares authorized;
9,713,913 shares issued and outstanding |
9,713,913 | 9,713,913 | |||||||||
Additional paid-in capital |
22,242,047 | 22,242,047 | |||||||||
Retained earnings |
10,709,692 | 10,909,850 | |||||||||
Total shareholders’ equity |
42,665,652 | 42,865,810 | |||||||||
Total liabilities and shareholders’ equity |
$ | 58,614,831 | $ | 59,507,503 | |||||||
See notes to consolidated financial statements.
4
Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||
| April 30, | April 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Revenues: |
||||||||||||||||||
Printing |
$ | 23,904,047 | $ | 24,641,820 | $ | 46,510,694 | $ | 47,499,429 | ||||||||||
Office products and office
furniture |
5,425,140 | 6,027,208 | 11,437,434 | 12,960,141 | ||||||||||||||
Total revenues |
29,329,187 | 30,669,028 | 57,948,128 | 60,459,570 | ||||||||||||||
Cost of sales: |
||||||||||||||||||
Printing |
17,276,671 | 17,486,285 | 33,810,597 | 34,013,755 | ||||||||||||||
Office products and office
furniture |
3,560,676 | 4,149,123 | 7,727,942 | 9,109,103 | ||||||||||||||
Total cost of sales |
20,837,347 | 21,635,408 | 41,538,539 | 43,122,858 | ||||||||||||||
Gross profit |
8,491,840 | 9,033,620 | 16,409,589 | 17,336,712 | ||||||||||||||
Selling, general and
administrative expenses |
7,572,601 | 7,660,744 | 15,028,285 | 15,445,030 | ||||||||||||||
Income from operations |
919,239 | 1,372,876 | 1,381,304 | 1,891,682 | ||||||||||||||
Other income (expense): |
||||||||||||||||||
Interest income |
595 | 3,271 | 2,048 | 9,784 | ||||||||||||||
Interest expense |
(53,416 | ) | (118,105 | ) | (105,440 | ) | (230,559 | ) | ||||||||||
Other |
21,264 | 26,463 | 46,787 | 56,583 | ||||||||||||||
| (31,557 | ) | (88,371 | ) | (56,605 | ) | (164,192 | ) | |||||||||||
Income before income taxes |
887,682 | 1,284,505 | 1,324,699 | 1,727,490 | ||||||||||||||
Income taxes |
(370,769 | ) | (533,790 | ) | (553,469 | ) | (719,144 | ) | ||||||||||
Net income |
$ | 516,913 | $ | 750,715 | $ | 771,230 | $ | 1,008,346 | ||||||||||
Earnings per share |
||||||||||||||||||
Basic |
$ | 0.05 | $ | 0.08 | $ | 0.08 | $ | 0.10 | ||||||||||
Diluted |
$ | 0.05 | $ | 0.08 | $ | 0.08 | $ | 0.10 | ||||||||||
Weighted average shares
outstanding: |
||||||||||||||||||
Basic |
9,714,000 | 9,714,000 | 9,714,000 | 9,714,000 | ||||||||||||||
Diluted |
9,750,000 | 9,737,000 | 9,740,000 | 9,731,000 | ||||||||||||||
Dividends per share |
$ | 0.05 | $ | 0.05 | $ | 0.10 | $ | 0.10 | ||||||||||
See notes to consolidated financial statements.
5
| Champion Industries, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| (Unaudited) |
| Six Months Ended | ||||||||||
| April 30, | ||||||||||
| 2003 | 2002 | |||||||||
Cash flows from operating activities: |
||||||||||
Net income |
$ | 771,230 | $ | 1,008,346 | ||||||
Adjustments to reconcile net income to cash
provided by operating activities: |
||||||||||
Depreciation and amortization |
2,026,944 | 2,074,096 | ||||||||
Gain on sale of assets |
(4,450 | ) | (6,341 | ) | ||||||
Increase in deferred compensation |
7,149 | 8,936 | ||||||||
Bad debt expense |
(16,466 | ) | 244,029 | |||||||
Changes in assets and liabilities: |
||||||||||
Accounts receivable |
1,185,370 | 1,235,805 | ||||||||
Inventories |
(1,210 | ) | 252,371 | |||||||
Other current assets |
633,828 | (329,450 | ) | |||||||
Accounts payable |
(906,757 | ) | (1,192,569 | ) | ||||||
Accrued payroll |
(640,993 | ) | (429,312 | ) | ||||||
Taxes accrued and withheld |
(158,945 | ) | 101,833 | |||||||
Income taxes |
(539,040 | ) | 382,709 | |||||||
Accrued expenses |
(53,349 | ) | (365,574 | ) | ||||||
Other liabilities |
(9,953 | ) | (11,121 | ) | ||||||
Net cash provided by operating activities |
2,293,358 | 2,973,758 | ||||||||
Cash flows from investing activities: |
||||||||||
Purchases of property and equipment |
(1,953,099 | ) | (1,979,278 | ) | ||||||
Proceeds from sales of property |
81,448 | 45,764 | ||||||||
Decrease in other assets |
53,034 | 26,072 | ||||||||
Decrease (increase) in cash surrender value life insurance |
23,421 | (58,103 | ) | |||||||
Net cash used in investing activities |
(1,795,196 | ) | (1,965,545 | ) | ||||||
Cash flows from financing activities: |
||||||||||
Borrowings on line of credit |
1,500,000 | 500,000 | ||||||||
Payments on line of credit |
(500,000 | ) | — | |||||||
Proceeds from term debt and leases |
572,550 | — | ||||||||
Principal payments on long-term debt |
(1,499,639 | ) | (1,837,772 | ) | ||||||
Dividends paid |
(971,390 | ) | (971,390 | ) | ||||||
Net cash used in financing activities |
(898,479 | ) | (2,309,162 | ) | ||||||
Net decrease in cash |
(400,317 | ) | (1,300,949 | ) | ||||||
Cash and cash equivalents, beginning of period |
4,507,139 | 5,764,716 | ||||||||
Cash and cash equivalents, end of period |
$ | 4,106,822 | $ | 4,463,767 | ||||||
See notes to consolidated financial statements.
6
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
April 30, 2003
1. Basis of Presentation and Business Operations
The foregoing financial information has been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial reporting. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended October 31, 2002, and related notes thereto contained in Champion Industries, Inc.’s Form 10-K dated January 25, 2003. The accompanying interim financial information is unaudited. The balance sheet information as of October 31, 2002 was derived from our audited financial statements.
Certain prior-year amounts have been reclassified to conform to the current year Financial Statement presentation.
2. Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted average shares of common stock outstanding for the period and excludes any dilutive effects of stock options. Diluted earnings per share is computed by dividing net income by the weighted average shares of common stock outstanding for the period plus the shares that would be outstanding assuming the exercise of dilutive stock options. The dilutive effect of stock options was 36,000 and 26,000 shares for the three and six months ended April 30, 2003 and 23,000 and 17,000 shares for the three and six months ended April 30, 2002.
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.
Inventories consisted of the following:
| April 30, | October 31, | ||||||||
| 2003 | 2002 | ||||||||
Printing: |
|||||||||
Raw materials |
$ | 2,450,301 | $ | 2,421,973 | |||||
Work in process |
1,816,800 | 1,795,796 | |||||||
Finished goods |
3,988,631 | 3,942,518 | |||||||
Office products and office furniture |
3,173,059 | 3,267,294 | |||||||
| $ | 11,428,791 | $ | 11,427,581 | ||||||
7
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (continued)
4. Long-Term Debt
Long-term debt consisted of the following:
| April 30, | October 31, | |||||||
| 2003 | 2002 | |||||||
Unsecured term note payable |
$ | 1,785,877 | $ | 2,678,733 | ||||
Installment notes payable to banks |
2,980,471 | 1,382,526 | ||||||
Capital lease obligations |
458,349 | 554,062 | ||||||
| 5,224,697 | 4,615,321 | |||||||
Less current portion |
2,632,613 | 2,810,457 | ||||||
Long-term debt, net of current portion |
$ | 2,592,084 | $ | 1,804,864 | ||||