UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended JANUARY 31,
2006
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from
_________to_________
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 incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
2450-90
1st
Avenue
P.O.
Box
2968
Huntington,
WV 25728
(Address
of principal executive offices)
(Zip
Code)
(304)
528-2700
(Registrant’s
telephone number,
including
area code)
Indicate
by check
mark whether the Registrant (1) has filed all reports required to be filed
by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required
to file
such reports), and (2) has been subject to such filing requirements for
the past
90 days. Yes ü
No _____.
Indicate
by check
mark whether the registrant is a large accelerated filer, an accelerated
filer,
or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule
12b-2 of the Exchange Act). Yes _____No ü
.
Indicate
the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable date.
|
Class
|
|
Outstanding
at January 31, 2006
|
|
Common
stock, $1.00 par value per share
|
|
9,745,913
shares
|
Champion
Industries, Inc.
INDEX
| |
Page
No.
|
| Part I. Financial
Information |
|
| Item
1. Financial Statements |
|
| Consolidated
Balance Sheets (Unaudited) |
3
|
| Consolidated
Statements of Income (Unaudited) |
5
|
| Consolidated
Statements of Cash Flows (Unaudited) |
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 |
17
|
| Item
4. Controls
and Procedures |
17
|
| Part
II. Other
Information |
|
|
Item
6. Exhibits
|
18
|
| Signatures |
19
|
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
Champion
Industries, Inc. and Subsidiaries
Consolidated
Balance Sheets
|
ASSETS
|
|
January
31,
|
|
|
|
October
31,
|
|
| |
|
2006
(Unaudited)
|
|
|
|
2005
(Audited)
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
4,036,696
|
|
|
|
$
3,661,622
|
|
|
Accounts
receivable, net of allowance of $1,358,000
and $1,410,000
|
|
20,658,112
|
|
|
|
19,300,453
|
|
|
Inventories
|
|
10,709,325
|
|
|
|
11,079,726
|
|
|
Other
current assets
|
|
1,133,544
|
|
|
|
629,381
|
|
|
Deferred
income tax assets
|
|
1,168,526
|
|
|
|
1,168,526
|
|
|
Total
current assets
|
|
37,706,203
|
|
|
|
35,839,708
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
2,023,375
|
|
|
|
2,006,375
|
|
|
Buildings
and improvements
|
|
8,418,486
|
|
|
|
8,368,720
|
|
|
Machinery
and equipment
|
|
44,220,645
|
|
|
|
43,668,900
|
|
|
Equipment
under capital leases
|
|
-
|
|
|
|
426,732
|
|
|
Furniture
and fixtures
|
|
3,474,334
|
|
|
|
3,492,535
|
|
|
Vehicles
|
|
3,470,740
|
|
|
|
3,629,268
|
|
| |
|
61,607,580
|
|
|
|
61,592,530
|
|
|
Less
accumulated depreciation
|
|
(43,684,812
|
)
|
|
|
(42,894,910
|
)
|
| |
|
17,922,768
|
|
|
|
18,697,620
|
|
| |
|
|
|
|
|
|
|
|
Cash
surrender value of officers’ life insurance
|
|
1,117,484
|
|
|
|
1,117,484
|
|
|
Goodwill
|
|
2,060,786
|
|
|
|
2,060,786
|
|
|
Other
intangibles, net of accumulated amortization
|
|
3,607,083
|
|
|
|
3,697,368
|
|
|
Other
assets
|
|
291,422
|
|
|
|
232,204
|
|
| |
|
7,076,775
|
|
|
|
7,107,842
|
|
|
Total
assets
|
|
$
62,705,746
|
|
|
|
$
61,645,170
|
|
See
notes
to consolidated financial statements.
Champion
Industries, Inc. and Subsidiaries
Consolidated
Balance Sheets (continued)
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
January
31,
|
|
October
31,
|
|
| |
2006
(Unaudited)
|
|
2005
(Audited)
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
3,880,690
|
|
|
$
3,584,323
|
|
|
Accrued
payroll
|
|
1,478,890
|
|
|
1,714,078
|
|
|
Taxes
accrued and withheld
|
|
1,338,969
|
|
|
1,106,910
|
|
|
Accrued
income taxes
|
|
896,100
|
|
|
681,763
|
|
|
Accrued
expenses
|
|
936,967
|
|
|
987,228
|
|
|
Current
portion of long-term debt:
|
|
|
|
|
|
|
|
Notes
payable
|
|
1,665,843
|
|
|
1,667,797
|
|
|
Capital
lease obligations
|
|
-
|
|
|
16,483
|
|
|
Total
current liabilities
|
|
10,197,459
|
|
|
9,758,582
|
|
| |
|
|
|
|
|
|
|
Long-term
debt, net of current portion:
|
|
|
|
|
|
|
|
Notes
payable, line of credit
|
|
2,000,000
|
|
|
1,612,000
|
|
|
Notes
payable, term
|
|
4,723,943
|
|
|
5,148,503
|
|
|
Other
liabilities
|
|
388,807
|
|
|
388,930
|
|
|
Deferred
income tax liabilities
|
|
3,984,934
|
|
|
3,984,934
|
|
|
Total
liabilities
|
|
21,295,143
|
|
|
20,892,949
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, $1 par value, 20,000,000 shares authorized;
9,745,913
shares issued and outstanding
|
|
9,745,913
|
|
|
9,745,913
|
|
|
Additional
paid-in capital
|
|
22,297,670
|
|
|
22,297,670
|
|
|
Retained
earnings
|
|
9,367,020
|
|
|
8,708,638
|
|
|
Total
shareholders’ equity
|
|
41,410,603
|
|
|
40,752,221
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
62,705,746
|
|
|
$
61,645,170
|
|
See
notes
to consolidated financial statements.
Champion
Industries, Inc. and Subsidiaries
Consolidated
Statements of Income
(Unaudited)
| |
|
Three
Months Ended January 31,
|
|
| |
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Printing
|
|
$
26,165,649
|
|
|
|
|
|
Office
products and office furniture
|
|
10,126,059
|
|
|
|
|
|
Total
revenues
|
|
36,291,708
|
|
|
|
|
| |
|
|
|
|
|
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
Printing
|
|
18,550,540
|
|
|
|
|
|
Office
products and office furniture
|
|
7,143,748
|
|
|
|
|
|
Total
cost of sales
|
|
25,694,288
|
|
|
|
|
| |
|
|
|
|
|
|
|
Gross
profit
|
|
10,597,420
|
|
|
|
|
| |
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
8,713,667
|
|
|
|
|
| |
|
|
|
|
|
|
|
Hurricane
and relocation costs, net of recoveries
|
|
(257,960 |
) |
|
- |
|
| |
|
|
|
|
|
|
|
Income
from operations
|
|
2,141,713
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Interest
income
|
|
6,742
|
|
|
|
|
|
Interest
expense
|
|
(171,741
|
)
|
|
(137,365
|
)
|
|
Other
|
|
(114
|
) |
|
|
|
| |
|
(165,113
|
)
|
|
(69,626
|
)
|
|
Income
before income taxes
|
|
1,976,600
|
|
|
|
|
|
Income
tax expense
|
|
(830,922
|
)
|
|
(200,341
|
)
|
|
Net
income
|
|
$
1,145,678
|
|
|
|
|
| |
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
0.12
|
|
|
$
0.03
|
|
|
Diluted
|
|
$
0.12
|
|
|
$
0.03
|
|
| |
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
9,746,000
|
|
|
9,734,000
|
|
|
Diluted
|
|
9,831,000
|
|
|
9,802,000
|
|
| |
|
|
|
|
|
|
|
Dividends
per share
|
|
$
0.05
|
|
|
$
0.05
|
|
See
notes
to consolidated financial statements.
Champion
Industries, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(Unaudited)
| |
|
Three
Months Ended January 31,
|
|
| |
|
2006
|
|
2005
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,145,678
|
|
$
|
263,126
|
|
|
Adjustments
to reconcile net income to cash
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,050,141
|
|
|
1,152,111
|
|
|
Loss (gain)
on sale of assets
|
|
|
6,903
|
|
|
(4,099
|
)
|
|
Increase
in deferred compensation
|
|
|
894
|
|
|
1,787
|
|
|
Bad
debt expense
|
|
|
221,845
|
|
|
114,224
|
|
| Hurricane
and relocation costs, net of recoveries |
|
|
(257,960 |
) |
|
- |
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,279,504
|
) |
|
3,238,390
|
|
|
Inventories
|
|
|
370,401
|
|
|
170,716
|
|
|
Other
current assets
|
|
|
(504,163
|
)
|
|
(458,741
|
)
|
|
Accounts
payable
|
|
|
254,330
|
|
|
308,164
|
|
|
Accrued
payroll
|
|
|
(235,191
|
)
|
|
(403,997
|
)
|
|
Taxes
accrued and withheld
|
|
|
232,059
|
|
|
119,167
|
|
|
Income
taxes
|
|
|
214,337
|
|
|
175,341
|
|
|
Accrued
expenses
|
|
|
(50,261
|
) |
|
69,561
|
|
|
Other
liabilities
|
|
|
(1,017
|
)
|
|
(961
|
)
|
|
Net
cash provided by operating activities
|
|
|
1,168,492
|
|
|
4,744,789
|
|
| |
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(234,421
|
)
|
|
(855,535
|
)
|
|
Proceeds
from sales of property
|
|
|
45,513
|
|
|
24,223
|
|
|
Other
assets
|
|
|
(62,218
|
) |
|
106,693
|
|
|
Net
cash used in investing activities
|
|
|
(251,126
|
)
|
|
(724,619
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings
on line of credit
|
|
|
2,808,000
|
|
|
993,000
|
|
|
Payments
on line of credit
|
|
|
(2,420,000
|
)
|
|
(1,493,000
|
)
|
|
Principal
payments on long-term debt
|
|
|
(442,996
|
)
|
|
(438,890
|
)
|
|
Dividends
paid
|
|
|
(487,296
|
)
|
|
(486,695
|
)
|
|
Net
cash used in financing activities
|
|
|
(542,292
|
)
|
|
(1,425,585
|
)
|
|
Net
increase in cash and cash equivalents
|
|
|
375,074
|
|
|
2,594,585
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
3,661,622
|
|
|
1,745,457
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
4,036,696
|
|
$
|
4,340,042
|
|
See
notes
to consolidated financial statements.
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited)
January
31, 2006
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 of America (“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, 2005, and related notes thereto
contained in Champion Industries, Inc.’s Form 10-K dated January 16, 2006. The
accompanying interim financial information is unaudited. The results of
operations for the period are not necessarily indicative of the results to
be
expected for the full year. The balance sheet information as of October 31,
2005
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 85,000 and 68,000
shares
for the three months ended January 31, 2006 and 2005.
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:
| |
|
January
31,
|
|
October
31,
|
|
| |
|
2006
|
|
2005
|
|
|
Printing:
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
2,176,640
|
|
$
|
2,198,882
|
|
|
Work
in process
|
|
|
1,748,990
|
|
|
1,766,862
|
|
|
Finished
goods
|
|
|
3,972,447
|
|
|
4,013,041
|
|
|
Office
products and office furniture
|
|
|
2,811,248
|
|
|
3,100,941
|
|
| |
|
$
|
10,709,325
|
|
$
|
11,079,726
|
|
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited)
(continued)
4.
Long-Term Debt
Long-term
debt consisted of the following:
| |
|
January
31,
|
|
October
31,
|
|
| |
|
2006
|
|
2005
|
|
|
Secured
term note
payable |
|
$ |
2,797,120 |
|
$ |
3,024,861 |
|
|
Installment notes payable to banks
|
|
|
3,592,666
|
|
|
3,791,439
|
|
|
Capital
lease obligations
|
|
|
-
|
|
|
16,483
|
|
| |
|
|
6,389,786
|
|
|
6,832,783
|
|
|
Less
current portion
|
|
|
1,665,843
|
|
|
1,684,280
|
|
|
Long-term
debt, net of current portion
|
|
$
|
4,723,943
|
|
$
|
5,148,503
|
|
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 the prime rate
of
interest. The line of credit expires in July 2008 and contains certain
restrictive financial covenants. The Company had outstanding borrowings under
this facility of $2.0 million and $1.6 million at January 31, 2006 and October
31, 2005.
The
Company has an unsecured revolving line of credit with a bank for borrowings
to
a maximum of $1,000,000 with interest payable monthly at the Wall Street
Journal
prime rate. The line of credit expires in April 2007 and contains certain
financial covenants. There were no borrowings outstanding under this facility
at
January 31, 2006 and October 31, 2005.
There
were no non-cash financing activities for the three months ended January
31,
2006 and 2005.
5.
Shareholders’ Equity
The
Company paid a dividend of five cents per share on
December 30,
2005 to
stockholders of record on
December 9,
2005.
Also, the Company declared a dividend of five cents per share to be paid
on
March 27, 2006 to stockholders of record on March 10, 2006.
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited)
(continued)
6.
Commitments
and Contingencies
As
of
January 31, 2006 the Company had contractual obligations in the form of leases
and debt as follows:
| |
|
Payments
Due by Fiscal Year
|
|
|
Contractual
Obligations
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Residual
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable
operating leases
|
|
$
|
780,948
|
|
$
|
869,883
|
|
$
|
679,224
|
|
$
|
295,340
|
|
$
|
42,000
|
|
$
|
-
|
|
$
|
2,667,395
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
line of credit
|
|
|
-
|
|
|
-
|
|
|
2,000,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,000,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
debt
|
|
|
1,403,369
|
|
|
1,776,988
|
|
|
1,714,825
|
|
|
469,954
|
|
|
1,024,650
|
|
|
-
|
|
|
6,389,786
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$
|
2,184,317
|
|
$
|
2,646,871
|
|
$
|
4,394,049
|
|
$
|
765,294
|
|
$
|
1,066,650
|
|
$
|
-
|
|
$
|
11,057,181
|
|
7.
Accounting
for Stock-Based Compensation
In
December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based
Payment.”
This
statement revises SFAS No. 123, “Accounting
for Stock-Based Compensation,”
and
requires companies to expense the value of employee stock options and similar
awards. The effective date of this standard initially was for interim and
annual
periods beginning after June 15, 2005.
On
April
14, 2005, the United States Securities and Exchange Commission amended
the
effective date of this standard to the beginning of a company’s fiscal year that
begins after June 15, 2005. Therefore, the effective date of this standard
for
the Company was November 1, 2005. Since the Company’s employee stock options
vest immediately in the year granted, the initial adoption of this standard
will
have no effect on the Company’s financial statements. However, the Company will
be required to expense the fair value of the employee stock options when
future
options are granted or
when
existing options are modified or repurchased pursuant to the provisions
of SFAS
No. 123R.
The
Company did not issue any employee stock options for
the three months ended January 31, 2006 and 2005.
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited)
(continued)
8.
Acquisitions
On
September 7, 2004, the Company acquired all the issued and outstanding capital
stock of Syscan Corporation (“Syscan”), a West Virginia corporation, for a cash
price of $3,500,000 and a contingent purchase price, dependent upon satisfaction
of certain conditions, not to exceed the amount of $1,500,000.
The
Williams Land Corporation has the option to put the 3000 Washington Street
building occupied by Syscan to the Company for a price of $1.5 million and
the
Company has the option to purchase the building for $1.5 million at the
conclusion of the five year lease term commencing September 1, 2009. This
option
may be exercised no later than 60 days prior to the end of the lease and
closing
of said purchase cannot exceed 45 days from the end of the
lease.
9.
Accounting for Costs Associated with
Exit or Disposal Activities and Impact of Hurricane
Katrina
During
the
second quarter of 2005, the Company
relocated its Chapman Printing Company Charleston division to a facility
leased
by the Company as a result of the acquisition of Syscan. The Company is
currently evaluating its facility needs in Charleston, West Virginia and
the
future use, if any, of this building.
The
Company moved its Dallas operations to an
existing facility in Baton Rouge, Louisiana in August 2005. The Company is
currently evaluating its options regarding this facility.
On
August 29, 2005, Hurricane Katrina made landfall
and subsequently caused extensive flooding and destruction along the
coastal
areas of the Gulf of Mexico, including New Orleans and other communities
in
Louisiana and Mississippi in which Champion conducts business. Operations
in many of the Company's markets were disrupted by both the evacuation
of large
portions of the population as well as damage and/or lack of access to
the
Company's operating facility in New Orleans.
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited)
(continued)
The
Company has filed insurance claims related to
both actual and contingent losses. The Company received an advance to
claim from
an insurance Company of $300,000 in February 2006. The Company recorded
this
payment as an insurance recovery and related receivable at January 31,
2006.
The
Company has categorized the costs associated with Hurricane Katrina as
follows:
1.)
Personnel costs representing costs associated with payment of personnel
primarily in New Orleans during the time period the city was essentially
shut
down;
2.)
Plant
costs represent all facilities, equipment and inventory charges incurred
as a
result of the hurricane using the most current available
information;
3.)
The
allowance for doubtful accounts charge represents accounts receivable
specifically reserved based on a collectibility analysis performed by the
Company using the most current available information for customers located
in New Orleans area;
4.)
The
relocation costs represent costs of closing the New Orleans production
facility
and associated costs of moving equipment.
The
following table summarizes the cumulative costs incurred as of January 31,
2006
relating to Hurricane Katrina.
|
Personnel
|
|
$
|
88,423
|
|
|
Plant
|
|
|
545,077
|
|
|
Allowance
for doubtful accounts
|
|
|
208,310
|
|
|
Moving
and relocation costs
|
|
|
221,229
|
|
|
|
|
|
|
|
|
Total
pre-tax hurricane expense
|
|
|
1,063,039
|
|
|
|
|
|
|
|
|
Insurance
recoveries
|
|
|
300,000
|
|
|
|
|
|
|
|
|
Cumulative
impact of Hurricane Katrina, net
|
|
$
|
763,039
|
|
The
Company recorded costs of $1,020,999 for the three months ended October
31, 2005
and costs of $42,040 and recoveries of $300,000 for the three months ending
January 31, 2006 relating to Hurricane Katrina.
The
costs
and recovery associated with Hurricane Katrina were reflected in the
consolidated statements of operations in the category “Hurricane and relocation
costs, net of recoveries” and are part of the printing segment.
10.
Industry Segment Information
The
Company operates principally in two industry segments organized on the basis
of
product lines: the production, printing and sale, principally to commercial
customers, of printed materials (including brochures, pamphlets, reports,
tags,
continuous and other forms) and the sale of office products and office furniture
including interior design services.
The
table
below presents information about reported segments for the three months ended
January 31:
| |
|
Office
Products
|
|
|
2006
Quarter 1
|
|
Printing
|
|
&
Furniture
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
29,688,029
|
|
$
|
12,462,284
|
|
$
|
42,150,313
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Elimination
of intersegment revenue
|
|
|
(3,522,380
|
)
|
|
(2,336,225
|
)
|
|
(5,858,605
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Consolidated
revenues
|
|
$
|
26,165,649
|
|
$
|
10,126,059
|
|
$
|
36,291,708
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
1,447,748
|
|
|
693,965
|
|
|
2,141,713
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Depreciation
& amortization
|
|
|
1,015,098
|
|
|
35,043
|
|
|
1,050,141
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
212,243
|
|
|
22,178
|
|
|
234,421
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets
|
|
|
51,323,390
|
|
|
11,382,356
|
|
|
62,705,746
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,774,344
|
|
|
286,442
|
|
|
2,060,786
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
Products
|
|
|
2005
Quarter 1
|
|
Printing
|
|
&
Furniture
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
28,085,977
|
|
$
|
11,528,769
|
|
$
|
39,614,746
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Elimination
of intersegment revenue
|
|
|
(3,649,356
|
)
|
|
(1,525,399
|
)
|
|
(5,174,755
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Consolidated
revenues
|
|
$
|
24,436,621
|
|
$
|
10,003,370
|
|
$
|
34,439,991
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
271,729
|
|
|
261,364
|
|
|
533,093
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Depreciation
& amortization
|
|
|
1,072,454
|
|
|
79,657
|
|
|
1,152,111
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
782,748
|
|
|
72,787
|
|
|
855,535
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets
|
|
|
53,108,233
|
|
|
10,148,254
|
|
|
63,256,487
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,774,344
|
|
|
286,442
|
|
|
2,060,786
|
|
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 months ended January 31, 2006
and
2005, is as follows:
| |
|
Three
Months Ended January 31,
|
|
| |
|
2006
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
Total
segment revenues
|
|
$
|
42,150,313
|
|
$
|
39,614,746
|
|
|
Elimination
of intersegment revenue
|
|
|
(5,858,605
|
)
|
|
(5,174,755
|
)
|
| |
|
|
|
|
|
|
|
|
Consolidated
revenue
|
|
$
|
36,291,708
|
|
$
|
34,439,991
|
|
| |
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
Total
segment operating income
|
|
$
|
2,141,713
|
|
$
|
533,093
|
|
| |
|
|
|
|
|
|
|
|
Interest
income
|
|
|
6,742
|
|
|
5,066
|
|
| |
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(171,741
|
)
|
|
(137,365
|
)
|
| |
|
|
|
|
|
|
|
|
Other
(expense) income
|
|
|
(114
|
) |
|
62,673
|
|
| |
|
|
|
|
|
|
|
|
Consolidated
income before income taxes
|
|
$
|
1,976,600
|
|
$
|
463,467
|
|
| |
|
|
|
|
|
|
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
Total
segment identifiable assets
|
|
$
|
62,705,746
|
|
$
|
63,256,487
|
|
|
Elimination
of intersegment assets
|
|
|
—
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
Total
consolidated assets
|
|
$
|
62,705,746
|
|
$
|
63,256,487
|
|
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.
| |
|
|
|
Three
Months Ended January 31,
|
|
|
|
|
|
|
2006 |
|
2005
|
|
| |
|
|
|
|
($
in thousands)
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Printing
|
|
|
|
|
$
|
26,166
|
|
|
72.1
|
%
|
|
$
|
|
|
|
71.0
|
%
|
|
Office
products and office furniture
|
|
|
|
|
|
10,126
|
|
|
27.9
|
|
|
|
|
|
|
29.0
|
|
|
Total
revenues
|
|
|
|
|
|
36,292
|
|
|
100.0
|
|
|
|
|
|
|
100.00
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing
|
|
|
|
|
|
18,550
|
|
|
51.1
|
|
|
|
|
|
|
51.6
|
|
|
Office
products and office furniture
|
|
|
|
|
|
7,144
|
|
|
19.7
|
|
|
|
|
|
|
20.7
|
|
|
Total
cost of sales
|
|
|
|
|
|
25,694
|
|
|
70.8
|
|
|
|
|
|
|
72.3
|
|
|
Gross
profit
|
|
|
|
|
|
10,598
|
|
|
29.2
|
|
|
|
|
|
|
27.7
|
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
8,714
|
|
|
24.0
|
|
|
|
|
|
|
26.1
|
|
| Hurricane
and relocation costs, net of recoveries |
|
|
|
|
|
(258 |
) |
|
(0.7 |
) |
|
|
- |
|
|
|
|
|
Income
from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
Interest
income
|
|
|
|
|
|
7
|
|
|
0.1
|
|
|
|
|
|
|
0.0
|
|
|
Interest
expense
|
|
|
|
|
|
(172
|
)
|
|
(0.5
|
)
|
|
|
(137
|
)
|
|
(0.4
|
)
|
|
Other
income
|
|
|
|
|
|
-
|
|
|
0.0
|
|
|
|
|
|
|
0.2
|
|
|
Income
before taxes
|
|
|
|
|
|
1,977
|
|
|
5.5
|
|
|
|
|
|
|
1.4
|
|
|
Income
taxes
|
|
|
|
|
|
(831
|
)
|
|
(2.3
|
)
|
|
|
(200
|
)
|
|
(0.6
|
)
|
|
Net
income
|
|
|
|
|
$
|
1,146
|
|
|
3.2
|
%
|
|
$
|
|
|
|
0.8
|
%
|
The
following table is a reconciliation of net income as reported to core
net
income, which is defined as generally accepted accounting principles
(GAAP) net
income adjusted for insurance recoveries, net of expenses associated
with
Hurricane Katrina. The Company believes that events associated with
Hurricane
Katrina require additional disclosure and therefore, the Company has
disclosed
additional non-GAAP financial measures in an effort to make the quarterly
financial statements more useful to investors.
|
|
|
Three
Months Ended January 31,
|
| |
|
|
2006
|
|
|
2005
|
|
|
Net
income
|
|
$
|
1,146,000
|
|
$
|
263,000
|
|
|
Insurance
recoveries, net of expenses
|
|
|
150,000
|
|
|
-
|
|
|
Core
net income
|
|
$
|
996,000
|
|
$
|
263,000
|
|
Champion
Industries, Inc. and Subsidiaries
Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations (continued)
Three
Months Ended January 31, 2006 Compared to Three Months Ended January 31,
2005
Revenues
Total
revenues increased 5.4% in the first quarter of 2006 compared to the same
period
in 2005 from $34.4 million to $36.3 million. Printing revenue increased
7.1% in
the first quarter of 2006 to $26.2 million from $24.4 million in the first
quarter of 2005. Office products and office furniture revenue increased
1.2% in
the first quarter of 2006 to $10.1 million from $10.0 million in the first
quarter of 2005. The increase in printing sales was primarily due to organic
growth since there were no new acquisitions since the fourth quarter of
2004.
Cost
of Sales
Total
cost of sales increased 3.1% in the first quarter of 2006 to $25.7 million
from
$24.9 million in the first quarter of 2005. Printing cost of sales in the
first
quarter of 2006 increased $779,000 over the prior year and decreased as a
percentage of printing sales from 72.7% in 2005 to 70.9% in 2006 primarily
due
to lower material and outside purchase costs as a percentage of sales. The
printing gross margin dollar increase resulted from both increased sales
volume
and lower material and outside purchase costs as percentage of sales. Office
products and office furniture cost of sales decreased slightly in 2006 from
2005
levels and decreased as a percent of sales from 71.6% in 2005 to 70.6% in
2006. The decrease in office products and office furniture cost of sales as
a percent of sales is reflective of increased margins due in part to wholesale
pricing factors at Syscan for office supplies.
Operating
Expenses
In
the
first quarter of 2006, selling, general and administrative expenses decreased
on
a gross dollar basis to $8.7 million from $9.0 million in 2005, a decrease
of
$264,000 or 2.9%. As a percentage of sales, the expenses decreased on a quarter
to quarter basis in 2006 to 24.0% from 26.1% in 2005 of total
sales.
The
decrease in selling, general and administrative expenses is primarily the
result
of the consolidation of Chapman Printing Charleston and Syscan in 2005, the
closing of the Company's facility in Jackson, Mississippi and the consolidation
of the Company's New Orleans plant into the Company's Baton Rouge
facility.
On
August
29, 2005, Hurricane Katrina made landfall and subsequently caused extensive
flooding and destruction along the coastal areas of the Gulf of Mexico,
including New Orleans and other communities in Louisiana and Mississippi
in
which Champion conducts business. Operations in many of the Company’s markets
were disrupted by both the evacuation of large portions of the population
as
well as damage and/or lack of access to the Company’s operating facility in New
Orleans.
The
Company has filed insurance claims related to both actual and contingent
losses. The Company received an advance to claim payment from an
insurance Company of $300,000 in February 2006. The Company recorded this
payment as an insurance recovery and related receivable at January 31, 2006.
The
Company recorded additional charges of approximately $42,000 in the first
quarter of 2006 associated with Hurricane Katrina.
The
Company is currently unable to accurately assess
the short and long term effects of Hurricane Katrina on its business and
on the
macro operating environment in the Gulf States in which the Company
operates.
Income
from Operations and Other Income and Expenses
Income
from operations increased in the first quarter of 2006 to $2.1 million from
$533,000 in the first quarter of 2005. This increase is the result of increased
sales and gross profit and gross profit percent, coupled with a decrease
in
selling, general and administrative expenses (S,G & A) and a decrease in S,G
& A as a percent of sales. Other expense (net), increased approximately
$95,000 from 2005 to 2006 primarily due to decreases in other income and
increases in interest expense resulting from increased interest
rates.
Champion
Industries, Inc. and Subsidiaries
Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations (continued)
Income
Taxes
The
Company’s effective income tax rate was 42.0% for the first quarter
of 2006 and 43.2% for the first quarter of 2005. The decrease in income
taxes as
a percentage of income before taxes is primarily related to improved
absorption
regarding the nondeductibility of certain selling related expenses. 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 quarter
of 2006 was $1,146,000 compared to net income of $263,000 in the
first quarter
of 2005. Basic and diluted earnings per share for the three months ended
January
31, 2006 and 2005 were $0.12 and $0.03. The Company reported core net income
of
$996,000 or $0.10 per share on a basic and diluted basis for the three
months
ended January 31, 2006. Core net income does not include the insurance
recovery,
net of expenses. (See Explanatory Table in "Results of Operations"
section.)
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 profitability 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 three months ended January 31, 2006, was $1.2
million compared to net cash provided by operations of $4.7 million during
the
same period in 2005. This change in net cash from operations is due primarily
to
timing changes in assets and liabilities, including an increase in accounts
receivable in 2006 compared to a decrease in accounts receivable in 2005
and an
increase in net income during the first quarter of 2006 compared to the first
quarter of 2005.
Net
cash
used in investing activities for the three months ended January 31, 2006
was
$251,000 compared to $725,000 during the same period in 2005. The net cash
used
in investing activities during the first three months of 2006 and 2005,
primarily relates to equipment and vehicle purchases.
Net
cash
used in financing activities for the three months ended January 31, 2006
was
$542,000 compared to $1.4 million during the same period in 2005. This change
is
primarily due to net borrowings on the Company’s line of credit of $388,000
compared with net payments on the Company's line of credit of approximately
$500,000 in 2005.
The
Company’s off balance sheet arrangements at January 31, 2006 relate to the
Syscan acquisition and are associated with potential contingent purchase
price
consideration of $1.5 million payable in October 2006 and a put option from
Williams Land Corporation to sell a building to the Company for $1.5 million.
This option may be exercised no later than 60 days prior to the end of the
lease
and closing of said purchase cannot exceed 45 days from the end of the lease.
The lease term concludes effective September 1, 2009.
Working
capital on January 31, 2006 was $27.5 million, an increase of $1.4
million from October 31, 2005. Management believes that working capital and
operating ratios remain at acceptable levels.
Champion
Industries, Inc. and Subsidiaries
Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations (continued)
The
Company expects that the combination of funds available from working capital,
borrowings available under the Company’s credit facilities 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-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 and business conditions,
general
economic and business conditions in the Company’s market areas affected by
Hurricane Katrina, changes in business strategy or development plans and
other
factors referenced in this Form 10-Q , including without limitations under
the captions “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Business.” 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.
ITEM
3a. Quantitative and Qualitative Disclosure About Market
Risk
The
Company does not have any significant exposure relating to market
risk.
ITEM
4. Controls and Procedures
Company
management, including the Chief Executive Officer, Chief Operating Officer
and
Chief Financial Officer, has conducted an evaluation of the effectiveness
of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15c
as of
the end of the period covered by this quarterly report. Based on that
evaluation, the Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer concluded that the disclosure controls and procedures are
effective in ensuring that all material information required to be filed
in this
quarterly report has been made known to them in a timely fashion. There were
no
changes in internal controls over financial reporting during the last fiscal
quarter that have materially affected or are reasonably likely to materially
affect the Company’s internal controls over financial reporting.
PART
II - OTHER INFORMATION
Item
6. Exhibits
|
(31.1)
|
Principal
Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley act of 2002 - Marshall T. Reynolds
|
Exhibit
31.1 Page Exhibit 31.1-p1
|
| (31.2) |
Principal
Financial Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley act of 2002 - Todd R. Fry
|
Exhibit
31.2 Page Exhibit 31.2-p1
|
| (31.3) |
Principal
Operating Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley act of 2002 - Toney K. Adkins
|
Exhibit
31.3 Page Exhibit 31.3-p1
|
| (32) |
Marshall
T. Reynolds, Todd R. Fry and Toney K. Adkins Certification Pursuant
to 18
U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley act of 2002
|
Exhibit
32 Page Exhibit 32-p1
|
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 8,
2006
|
/s/
Marshall T. Reynolds
|
| |
Marshall
T. Reynolds
|
| |
Chief
Executive Officer
|
| |
|
| |
|
|
Date:
March 8,
2006
|
/s/
Toney K. Adkins
|
| |
Toney
K. Adkins
|
| |
President
and Chief Operating Officer
|
| |
|
| |
|
|
Date:
March 8,
2006
|
/s/
Todd R. Fry
|
| |
Todd
R. Fry
|
| |
Senior
Vice President and Chief Financial
Officer
|