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 April
30, 2008
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, a non-accelerated filer, or a smaller reporting company.
See definition of “large accelerated filer”, "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
þ
|
|
|
(Do not check if a smaller reporting
company)
|
|
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 April 30, 2008
|
Common
stock, $1.00 par value per share
|
|
9,987,913
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 Shareholders' Equity (Unaudited)
|
6
|
Consolidated
Statements of Cash Flows (Unaudited)
|
7
|
Notes
to Consolidated Financial Statements
|
8
|
Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
15
|
Item
3a. Quantitative and Qualitative Disclosure About Market
Risk
|
21
|
Item
4T.
Controls
and Procedures
|
21
|
Part
II.
Other
Information
|
|
Item
1A. Risk Factors
|
22
|
Item 4. Submission
of Matters to a Vote of Security Holders
|
22
|
Item
6.
Exhibits
|
22
|
Signatures
|
23
|
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
Champion
Industries, Inc. and Subsidiaries
Consolidated
Balance Sheets
ASSETS
|
|
April
30,
|
|
|
|
October
31,
|
|
|
|
2008
(Unaudited)
|
|
|
|
2007
(Audited)
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
786,937
|
|
|
$
|
5,793,120
|
|
Accounts
receivable, net of allowance of $1,455,000 and $1,511,000
|
|
20,934,387
|
|
|
|
23,239,103
|
|
Inventories
|
|
11,540,859
|
|
|
|
11,504,847
|
|
Income
tax refund
|
|
138,912
|
|
|
|
632,439
|
|
Other current assets
|
|
1,387,960
|
|
|
|
882,535
|
|
Deferred income tax assets
|
|
1,066,611
|
|
|
|
969,664
|
|
Total
current assets
|
|
35,855,666
|
|
|
|
43,021,708
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
Land
|
|
2,120,689
|
|
|
|
2,120,689
|
|
Buildings
and improvements
|
|
12,332,739
|
|
|
|
12,262,229
|
|
Machinery
and equipment
|
|
56,326,813
|
|
|
|
55,763,920
|
|
Furniture
and fixtures
|
|
4,113,300
|
|
|
|
4,088,761
|
|
Vehicles
|
|
3,283,986
|
|
|
|
3,185,555
|
|
|
|
78,177,527
|
|
|
|
77,421,154
|
|
Less
accumulated depreciation
|
|
(50,095,565
|
)
|
|
|
(48,164,640
|
)
|
|
|
28,081,962
|
|
|
|
29,256,514
|
|
|
|
|
|
|
|
|
|
Cash
surrender value of officers’ life insurance
|
|
834,106
|
|
|
|
834,106
|
|
Goodwill
|
|
38,854,364
|
|
|
|
38,853,657
|
|
Deferred financing
costs
|
|
1,663,405
|
|
|
|
1,818,140
|
|
Other
intangibles, net of accumulated amortization
|
|
16,256,712
|
|
|
|
16,779,241
|
|
Trademark
& masthead
|
|
18,515,316
|
|
|
|
18,515,316
|
|
Other assets
|
|
77,490
|
|
|
|
132,909
|
|
|
|
76,201,393
|
|
|
|
76,933,369
|
|
Total
assets
|
$
|
140,139,021
|
|
|
$
|
149,211,591
|
|
See notes
to consolidated financial statements.
Champion
Industries, Inc. and Subsidiaries
Consolidated
Balance Sheets (continued)
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
April
30,
|
|
October
31,
|
|
|
2008
(Unaudited)
|
|
2007
(Audited)
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
$
|
4,748,069
|
|
$
|
5,491,189
|
|
Accrued
payroll
|
|
2,082,397
|
|
|
2,460,287
|
|
Taxes
accrued and withheld
|
|
700,023
|
|
|
1,294,125
|
|
Accrued
expenses
|
|
1,647,645
|
|
|
3,433,971
|
|
Current
portion of long-term debt
|
|
5,121,933
|
|
|
5,033,637
|
|
Total
current liabilities
|
|
14,300,067
|
|
|
17,713,209
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current portion:
|
|
|
|
|
|
|
Notes
payable, line of credit
|
|
10,125,496
|
|
|
15,540,496
|
|
Notes
payable, term
|
|
61,845,255
|
|
|
63,837,402
|
|
Other
liabilities
|
|
932,943
|
|
|
10,950
|
|
Deferred
income tax liabilities
|
|
3,221,400
|
|
|
3,382,447
|
|
Total
liabilities
|
|
90,425,161
|
|
|
100,484,504
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
Common
stock, $1 par value, 20,000,000 shares authorized;
9,987,913
and 9,968,913 shares issued and outstanding
|
|
9,987,913
|
|
|
9,968,913
|
|
Additional
paid-in capital
|
|
22,768,610
|
|
|
22,733,300
|
|
Retained
earnings
|
|
17,511,073
|
|
|
16,036,224
|
|
Other
comprehensive loss
|
|
(553,736
|
)
|
|
(11,350
|
)
|
Total
shareholders’ equity
|
|
49,713,860
|
|
|
48,727,087
|
|
Total
liabilities and shareholders’ equity
|
$
|
140,139,021
|
|
$
|
149,211,591
|
|
See notes
to consolidated financial statements.
Champion
Industries, Inc. and Subsidiaries
Consolidated
Statements of Income
(Unaudited)
|
|
Three
Months Ended
April
30,
|
Six
Months Ended
April
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing
|
|
$
|
26,283,156
|
|
$
|
25,295,295
|
|
$
|
51,463,289
|
|
$
|
51,157,662
|
|
Office products and
office furniture
|
|
|
8,440,397
|
|
|
8,518,582
|
|
|
18,518,254
|
|
|
17,595,548
|
|
Newspaper
|
|
|
4,547,667
|
|
|
-
|
|
|
9,583,449
|
|
|
-
|
|
Total
revenues
|
|
|
39,271,220
|
|
|
33,813,877
|
|
|
79,564,992
|
|
|
68,753,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales & newspaper operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing
|
|
|
18,467,880
|
|
|
17,752,603
|
|
|
36,268,934
|
|
|
35,990,905
|
|
Office products and
office furniture
|
|
|
5,694,004
|
|
|
5,869,953
|
|
|
13,019,447
|
|
|
12,219,956
|
|
Newspaper cost of
sales & operating costs
|
|
|
2,338,883
|
|
|
-
|
|
|
4,609,613
|
|
|
-
|
|
Total
cost of sales & newspaper operating costs
|
|
|
26,500,767
|
|
|
23,622,556
|
|
|
53,897,994
|
|
|
48,210,861
|
|
Gross
profit
|
|
|
12,770,453
|
|
|
10,191,321
|
|
|
25,666,998
|
|
|
20,542,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
9,696,180
|
|
|
7,769,311
|
|
|
19,388,887
|
|
|
15,899,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
3,074,273
|
|
|
2,422,010
|
|
|
6,278,111
|
|
|
4,642,706
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
25,999
|
|
|
12,842
|
|
|
51,235
|
|
|
18,073
|
|
Interest expense
|
|
|
(1,365,777
|
)
|
|
(152,162
|
)
|
|
(3,114,959
|
)
|
|
(286,066
|
)
|
Other
|
|
|
19,700
|
|
|
14,858
|
|
|
32,915
|
|
|
18,880
|
|
|
|
|
(1,320,078
|
)
|
|
(124,462
|
)
|
|
(3,030,809
|
)
|
|
(249,113
|
)
|
Income
before income taxes
|
|
|
1,754,195
|
|
|
2,297,548
|
|
|
3,247,302
|
|
|
4,393,593
|
|
Income tax expense
|
|
|
(359,279
|
)
|
|
(907,806
|
)
|
|
(574,138
|
)
|
|
(1,735,691
|
|
Net
income
|
|
$
|
1,394,916
|
|
$
|
1,389,742
|
|
$
|
2,673,164
|
|
$
|
2,657,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
$
|
0.14
|
|
$
|
0.27
|
|
$
|
0.27
|
|
Diluted
|
|
$
|
0.14
|
|
$
|
0.14
|
|
$
|
0.27
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,988,000
|
|
|
9,962,000
|
|
|
9,985,000
|
|
|
9,950,000
|
|
Diluted
|
|
|
10,041,000
|
|
|
10,133,000
|
|
|
10,043,000
|
|
|
10,121,000
|
|
Dividends
per share
|
|
$
|
0.06
|
|
$
|
0.06
|
|
$
|
0.12
|
|
$
|
0.12
|
|
See notes to consolidated financial statements.
Champion
Industries, Inc. and Subsidiaries
Consolidated
Statements of Shareholders’ Equity
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
Common
Stock
|
|
Paid-In
|
|
Retained
|
|
Comprehensive
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Loss
|
|
Total
|
|
Balance,
October 31,
2007
|
|
9,968,913
|
|
$
|
9,968,913
|
|
$
|
22,733,300
|
|
$
|
16,036,224
|
|
$
|
(11,350
|
)
|
$
|
48
,727,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for
2008
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,673,164
|
|
|
-
|
|
|
|
|
Other
comprehensive loss (net of tax)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
542,386
|
)
|
|
(542,386
|
)
|
Total
comprehesive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,673,164
|
|
|
(
542,386
|
)
|
|
2,130,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends ($0.12
per share)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,198,315
|
)
|
|
-
|
|
|
(1,198,315
|
)
|
Stock options
exercised
|
|
19,000
|
|
|
19,000
|
|
|
35,310
|
|
|
-
|
|
|
-
|
|
|
54,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2008
|
|
9,987,913
|
|
$
|
9,987,913
|
|
$
|
22,768,610
|
|
$
|
17,511,073
|
|
$
|
(553,736
|
|
$
|
49,713,860
|
|
See notes
to consolidated financial statements.
Champion
Industries, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Six
Months Ended April 30,
|
|
|
|
2008
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
2,673,164
|
|
$
|
2,657,902
|
|
Adjustments
to reconcile net income to cash
provided
by operating activities:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
2,679,538
|
|
|
1,853,982
|
|
Deferred financing
costs
|
|
|
154,735
|
|
|
-
|
|
Gain on sale of
assets
|
|
|
(3,877
|
)
|
|
(1,269
|
)
|
Deferred
income taxes
|
|
|
111,163
|
|
|
(195,440
|
)
|
Increase in deferred compensation
|
|
|
-
|
|
|
893
|
|
Bad debt expense
|
|
|
242,448
|
|
|
177,687
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
2,062,268
|
|
|
466,726
|
|
Inventories
|
|
|
(36,012
|
)
|
|
77,541
|
|
Other
current assets
|
|
|
(505,425
|
)
|
|
(476,367
|
)
|
Accounts
payable
|
|
|
(731,770
|
)
|
|
(287,752
|
)
|
Accrued
payroll
|
|
|
(377,890
|
)
|
|
(409,112
|
)
|
Taxes
accrued and withheld
|
|
|
(594,102
|
)
|
|
(49,022
|
)
|
Income
taxes
|
|
|
493,527
|
|
|
(770,813
|
)
|
Accrued
expenses
|
|
|
(170,210
|
)
|
|
37,634
|
|
Other
liabilities
|
|
|
(900
|
)
|
|
(1,230
|
)
|
Net cash provided by operating activities
|
|
|
5,996,657
|
|
|
3,081,360
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(1,035,117
|
)
|
|
(1,934,269
|
)
|
Proceeds
from sales of property
|
|
|
62,538
|
|
|
78,796
|
|
Businesses
acquired
|
|
|
(1,616,823
|
)
|
|
(1,350,725
|
)
|
Change in
other assets
|
|
|
49,418
|
|
|
(60,461
|
)
|
Net cash used in investing activities
|
|
|
(2,539,984
|
)
|
|
(3,266,659
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Borrowings
on line of credit
|
|
|
-
|
|
|
7,877,000
|
|
Payments
on line of credit
|
|
|
(5,415,000
|
)
|
|
(7,664,000
|
)
|
Proceeds
from term debt and leases
|
|
|
767,852
|
|
|
1,675,633
|
|
Principal
payments on long-term debt
|
|
|
(2,671,703
|
)
|
|
(2,030,247
|
)
|
Proceeds
from exercise of stock options
|
|
|
54,310
|
|
|
126,060
|
|
Dividends
paid
|
|
|
(1,198,315
|
)
|
|
(1,193,869
|
)
|
Net cash used in financing activities
|
|
|
(8,462,856
|
)
|
|
(1,209,423
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(5,006,183
|
)
|
|
(1,394,722
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
5,793,120
|
|
|
5,486,577
|
|
Cash
and cash equivalents, end of period
|
|
$
|
786,937
|
|
$
|
4,091,855
|
|
See notes
to consolidated
financial
statements.
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited)
April
30, 2008
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, 2007, and related notes thereto
contained in Champion Industries, Inc.’s Form 10-K dated January 21, 2008. 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, 2007
was derived from our audited financial statements.
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 53,000 and 58,000
shares for the three and six months ended April 30, 2008 and 171,000 and 171,000
shares for the three and six months ended April 30, 2007.
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,
|
|
|
|
2008
|
|
2007
|
|
Printing
and newspaper:
|
|
|
|
|
|
Raw
materials
|
|
$
|
2,872,225
|
|
$
|
2,401,340
|
|
Work in
process
|
|
|
1,630,449
|
|
|
1,906,301
|
|
Finished
goods
|
|
|
4,417,062
|
|
|
4,003,318
|
|
Office
products and office furniture
|
|
|
2,621,123
|
|
|
3,193,888
|
|
|
|
$
|
11,540,859
|
|
$
|
11,504,847
|
|
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,
|
|
|
|
2008
|
|
2007
|
|
Installment
notes payable to banks
|
|
$
|
867,188
|
|
$
|
171,039
|
|
Term
loan facility with a bank
|
|
|
|
|
|
68,700,000
|
|
|
|
|
66,967,188
|
|
|
68,871,039
|
|
Less
current portion
|
|
|
5,121,933
|
|
|
5,033,637
|
|
Long-term
debt, net of current portion
|
|
$
|
|
|
$
|
63,837,402
|
|
The
secured and unsecured credit facilities contain restrictive financial covenants
requiring the Company to maintain certain financial ratios. The Company was in
compliance with these covenants at April 30, 2008. The Company is required to
maintain a minimum of $750,000 of compensating balances with Fifth Third Bank
under the terms of its credit agreement. The Company is permitted to pay
dividends under its credit agreement as long as no default or event of default
exists or shall exist after giving effect to the proposed dividend and the
Company has delivered to the credit agreement's administrative agent prior to
the proposed dividend a pro forma compliance certificate evidencing compliance
with applicable covenants as defined in the credit agreement.
The
Company is required to make certain mandatory payments on its credit facilities
related to (1) net proceeds received from a loss subject to applicable
thresholds, (2) equity proceeds and (3) effective January 31, 2009, the Company
is required to prepay its credit facilities by 75% of excess cash flow for its
most recently completed fiscal year. The excess cash flow for purposes of this
calculation is defined as the difference (if any) between (a) EBITDA for such
period and (b) federal, state and local income taxes paid in cash during such
period plus capital expenditures during such period not financed with
indebtedness plus interest expense paid in cash during such period plus the
aggregate amount of scheduled payments made by the Borrower and its Subsidiaries
during such period in respect of all principal on all indebtedness (whether at
maturity, as a result of mandatory sinking fund redemption, or otherwise), plus
restricted payments paid in cash by the Borrower during such period in
compliance with the credit agreement.
The
Company can borrow a maximum of $30,000,000 under its revolving line of credit
subject to a borrowing base limitation with interest payable monthly at the
prime rate of interest and/or LIBOR plus a margin. The Company had borrowed
$10,125,496 and $15,540,496 under this facility at April 30, 2008 and October
31, 2007. Pursuant to its borrowing base calculation, the Company had
approximately $7.6 million and $8.8 million in additional availability under its
$30.0 million revolving credit line at April 30, 2008 and October 31, 2007. The
line of credit expires in September 2012 and contains certain restrictive
financial covenants, is subject to borrowing base limitations and is
collateralized by substantially all of the assets of the Company.
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 October 2008 and contains
certain financial covenants. There were no borrowings outstanding under this
facility at April 30, 2008 and October 31, 2007.
In
April 2008, the Company entered into a $767,852 five-year term debt agreement
with a bank with interest at the prime rate.
There was
$0 and $132,000 non-cash financing activities for the
six months
ended April 30, 2008 and 2007.
5.
Shareholders’ Equity
The
Company paid a dividend of six cents per share on March 24, 2008 to stockholders
of record on March 7, 2008. Also, the Company declared a dividend of six cents
per share to be paid on June 23, 2008 to stockholders of record on June 6, 2008
.
The
Company issued 19,000 and 40,000 shares for the exercise of stock options during
the first half of 2008 and 2007, for total proceeds from stock options exercised
of approximately $54,000 and $126,000.
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited) (continued)
6.
Commitments and Contingencies
As of
April 30, 2008 the Company had contractual obligations in the form of leases and
debt as follows:
|
|
Payments
Due by Fiscal Year
|
Contractual
Obligations
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
|
Residual
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable
operating leases
|
|
$
|
621,540
|
|
$
|
1,133,242
|
|
$
|
836,415
|
|
$
|
733,745
|
|
$
|
576,703
|
|
$
|
490,244
|
|
$
|
4,391,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
line of credit
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,125,496
|
|
|
-
|
|
|
10,125,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
debt
|
|
|
2,567,346
|
|
|
5,078,981
|
|
|
5,049,194
|
|
|
5,057,218
|
|
|
5,065,674
|
|
|
44,148,775
|
|
|
66,967,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
purchase obligations
|
|
|
558,598
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
558,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,747,484
|
|
$
|
6,212,223
|
|
$
|
5,885,609
|
|
|
5,790,963
|
|
$
|
15,767,873
|
|
$
|
44,639,019
|
|
$
|
82,043,171
|
|
The
Company also entered into a purchase commitment with
a manufacturer for approximately $768,000. As a result
of this commitment, the Company paid the manufacturer a deposit of
approximately $209,000 as of April 30, 2008. The Company had financed this
entire commitment with a bank at April 30, 2008.
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 outstanding employee stock options vested immediately
in the year granted, the initial adoption of this standard had 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 and six months
ended April 30, 2008 and 2007.
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited) (continued)
8.
Income Taxes
The
Company adopted FASB Interpretation No. 48, "
Accounting
for Uncertainty in Income Taxes
" (FIN 48) effective November 1, 2007 with
no effect on the Company's consolidated financial statements. As of the date of
adoption, the Company had approximately $150,000 of unrecognized tax benefits,
all of which would impact the effective tax rate if recognized. The Company was
notified in April 2008 and an examination began in May 2008 by the IRS covering
our fiscal year-end 2005 federal tax return. As of November 1, 2007,
the Company is subject to U.S. Federal income tax examinations for the fiscal
tax years ended October 31, 2004, 2005, 2006 and 2007. State Income Tax returns
are generally subject to a period of examination for a period of three to five
years. We have one state income tax return covering our fiscal years ended 2004
and 2005 currently under examination. Tax interest and penalties are classified
as income taxes in the accompanying statements of income and were insignificant
for all periods presented. The Company is currently unable to assess
whether any significant increase or decrease to the unrecognized tax
benefit will be recorded during the next 12
months.
9.
Acquisitions
On
September 14, 2007, the Company completed, pursuant to an asset purchase
agreement, the acquisition of The Herald-Dispatch daily newspaper in Huntington,
WV. The purchase price was $77.0 million and subject to a working capital
payment of $837,554 plus or minus any change in working capital from the index
working capital base of $1,675,107 at the closing date of September 14,
2007. The working capital payment totaled approximately $1.6 million and
was paid in January 2008.
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. On December 14,
2006, the Company paid the contingent purchase price in the amount of
$1,350,725.
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 ending 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.
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited) (continued)
10.
Industry Segment Information
The
Company operates principally in three 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) the sale of office products and office furniture
including interior design services, and
publishes
The Herald-Dispatch daily newspaper in Huntington, WV with a total daily and
Sunday circulation of approximately 27,000 and 32,000,
respectively
.
The table
below presents information about reported segments for the three and six months
ended April 30:
2008
Quarter 2
|
|
Printing
|
|
Office
Products & Furniture
|
|
Newspaper
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
29,624,176
|
|
$
|
10,513,065
|
|
$
|
4,547,667
|
|
$
|
44,684,908
|
|
Elimination
of intersegment revenue
|
|
|
(3,341,020
|
)
|
|
(2,072,668
|
)
|
|
-
|
|
|
(5,413,688
|
)
|
Consolidated
revenues
|
|
$
|
26,283,156
|
|
$
|
8,440,397
|
|
$
|
4,547,667
|
|
$
|
39,271,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
1,844,897
|
|
|
472,077
|
|
|
757,299
|
|
|
3,074,273
|
|
Depreciation
& amortization
|
|
|
840,732
|
|
|
56,405
|
|
|
455,285
|
|
|
1,352,422
|
|
Capital
expenditures
|
|
|
644,434
|
|
|
10,028
|
|
|
21,022
|
|
|
675,484
|
|
Identifiable
assets
|
|
|
56,219,332
|
|
|
2,550,617
|
|
|
81,369,072
|
|
|
140,139,021
|
|
Goodwill
|
|
|
2,226,837
|
|
|
1,230,485
|
|
|
35,397,042
|
|
|
38,854,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
Quarter 2
|
|
Printing
|
|
Office
Products & Furniture
|
|
Newspaper
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
28,525,389
|
|
$
|
10,594,012
|
|
$
|
-
|
|
$
|
39,119,401
|
|
Elimination
of intersegment revenue
|
|
|
(3,230,094
|
)
|
|
(2,075,430
|
)
|
|
-
|
|
|
(5,305,524
|
)
|
Consolidated
revenues
|
|
$
|
25,295,295
|
|
$
|
8,518,582
|
|
$
|
-
|
|
$
|
33,813,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
1,993,241
|
|
|
428,769
|
|
|
-
|
|
|
2,422,010
|
|
Depreciation
& amortization
|
|
|
845,341
|
|
|
53,244
|
|
|
-
|
|
|
898,585
|
|
Capital
expenditures
|
|
|
889,688
|
|
|
15,127
|
|
|
-
|
|
|
904,815
|
|
Identifiable
assets
|
|
|
54,811,408
|
|
|
9,767,556
|
|
|
-
|
|
|
64,578,964
|
|
Goodwill
|
|
|
2,226,837
|
|
|
1,184,674
|
|
|
-
|
|
|
3,411,511
|
|
Champion
Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited)
(continued)
2008
Year to Date
|
|
Printing
|
|
Office
Products
&
Furniture
|
|
Newspaper
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
58,131,943
|
|
$
|
22,571,197
|
|
$
|
9,583,449
|
|
$
|
90,286,589
|
|
Elimination
of intersegment revenue
|
|
|
(6,668,654
|
)
|
|
(4,052,943
|
)
|
|
-
|
|
|
(10,721,597
|
)
|
Consolidated
revenues
|
|
$
|
51,463,289
|
|
$
|
18,518,254
|
|
$
|
9,583,449
|
|
$
|
79,564,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
3,188,977
|
|
|
971,776
|
|
|
2,117,358
|
|
|
6,278,111
|
|
Depreciation
& amortization
|
|
|
1,759,503
|
|
|
111,292
|
|
|
808,743
|
|
|
2,679,538
|
|
Capital
expenditures
|
|
|
927,075
|
|
|
53,030
|
|
|
55,012
|
|
|
1,035,117
|
|
Identifiable
assets
|
|
|
56,219,332
|
|
|
2,550,617
|
|
|
81,369,072
|
|
|
140,139,021
|
|
Goodwill
|
|
|
2,226,837
|
|
|
1,230,485
|
|
|
35,397,042
|
|
|
38,854,364
|
|
2007
Year to Date
|
|
Printing
|
|
Office
Products
&
Furniture
|
|
Newspaper
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
57,524,913
|
|
$
|
21,823,952
|
|
$
|
-
|
|
$
|
79,348,865
|
|
Elimination
of intersegment revenue
|
|
|
(6,367,251
|
)
|
|
(4,228,404
|
)
|
|
-
|
|
|
(10,595,655
|
)
|
Consolidated
revenues
|
|
$
|
51,157,662
|
|
$
|
17,595,548
|
|
$
|
-
|
|
$
|
68,753,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
3,732,890
|
|
|
909,816
|
|
|
-
|
|
|
4,642,706
|
|
Depreciation
& amortization
|
|
|
1,749,604
|
|
|
104,378
|
|
|
-
|
|
|
1,853,982
|
|
Capital
expenditures
|
|
|
2,021,603
|
|
|
44,430
|
|
|
-
|
|
|
2,066,033
|
|
Identifiable
assets
|
|
|
54,811,408
|
|
|
9,767,556
|
|
|
-
|
|
|
64,578,964
|
|
Goodwill
|
|
|
2,226,837
|
|
|
1,184,674
|
|
|
-
|
|
|
3,411,511
|
|
A
reconciliation of total segment revenues and of total segment operating income
to consolidated income before income taxes, for the three and six months ended
April 30, 2008 and 2007, is as follows:
|
|
Three
months
|
Six
months
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenues
|
|
$
|
44,684,908
|
|
$
|
39,119,401
|
|
$
|
90,286,589
|
|
$
|
79,348,865
|
|
Elimination
of intersegment revenue
|
|
|
(5,413,688
|
)
|
|
(5,305,524
|
)
|
|
(10,721,597
|
)
|
|
(10,595,655
|
)
|
Consolidated
revenue
|
|
$
|
39,271,220
|
|
$
|
33,813,877
|
|
$
|
79,564,992
|
|
$
|
68,753,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment operating income
|
|
$
|
3,074,273
|
|
$
|
2,422,010
|
|
$
|
6,278,111
|
|
$
|
4,642,706
|
|
Interest
income
|
|
|
25,999
|
|
|
12,842
|
|
|
51,235
|
|
|
18,073
|
|
Interest
expense
|
|
|
(1,365,777
|
)
|
|
(152,162
|
)
|
|
(3,114,959
|
)
|
|
(286,066
|
)
|
Other
income
|
|
|
19,700
|
|
|
14,858
|
|
|
32,915
|
|
|
18,880
|
|
Consolidated
income before income taxes
|
|
$
|
1,754,195
|
|
$
|
2,297,548
|
|
$
|
3,247,302
|
|
$
|
4,393,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment identifiable assets
|
|
$
|
140,139,021
|
|
$
|
64,578,964
|
|
$
|
140,139,021
|
|
$
|
64,578,964
|
|
Elimination
of intersegment assets
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Total
consolidated assets
|
|
$
|
140,139,021
|
|
$
|
64,578,964
|
|
$
|
140,139,021
|
|
$
|
64,578,964
|
|
11.
Derivative Instruments and Hedging Activities
The
Company manages exposure to changes in market interest rates. The Company's use
of derivative instruments is limited to highly effective fixed and floating
interest rate swap agreements used to manage well-defined interest rate risk
exposures. The Company monitors its positions and the credit ratings of its
counterparties and does not anticipate non-performance by the
counterparties. Interest rate swap agreements are not entered into for
trading purposes.
At
September 28, 2007, the Company was party to an interest rate swap agreement
which terminates on October 29, 2010. The swap agreement is with a major
financial institution and aggregates $25 million in notional principal
amount. This swap agreement effectively converted $25 million of variable
interest rate debt to fixed rate debt. The swap agreement requires the Company
to make fixed interest payments based on an average effective rate of 4.78% and
receive variable interest payments from its counterparties based on one-month
LIBOR (actual rate of 2.8% at April 30, 2008). The remaining term of this
swap agreement is approximately 30 months. In fiscal 2008, the Company
recorded a net change in the fair value of the fixed interest rate swap
agreement in the amount of $542,000, net of income tax as other comprehensive
loss. The cumulative other comprehensive loss, net of income
tax, recorded by the Company was $554,000 at April 30, 2008. The net
additional interest payments made or received under this swap agreement are
recognized in interest expense.
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 Statements of Income as a percentage of total
revenues.
|
|
Percentage
of Total Revenues
|
|
|
Three
Months Ended
April
30,
|
Six
Months Ended
April
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing
|
|
|
66.9
|
%
|
|
74.8
|
%
|
|
64.7
|
%
|
|
74.4
|
%
|
Office products and
office furniture
|
|
|
21.5
|
|
|
25.2
|
|
|
23.3
|
|
|
25.6
|
|
Newspaper
|
|
|
11.6
|
|
|
–
|
|
|
12.0
|
|
|
–
|
|
Total
revenues
|
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales and newspaper operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing
|
|
|
47.0
|
|
|
52.5
|
|
|
45.6
|
|
|
52.3
|
|
Office products and
office furniture
|
|
|
14.5
|
|
|
17.4
|
|
|
16.3
|
|
|
17.8
|
|
Newspaper cost of sales and operating
costs
|
|
|
6.0
|
|
|
–
|
|
|
5.8
|
|
|
–
|
|
Total cost of sales and newspaper operating
costs
|
|
|
67.5
|
|
|
69.9
|
|
|
67.7
|
|
|
70.1
|
|
Gross profit
|
|
|
32.5
|
|
|
30.1
|
|
|
32.3
|
|
|
29.9
|
|
S Selling,
general and administrative expenses
|
|
|
24.7
|
|
|
22.9
|
|
|
24.4
|
|
|
23.1
|
|
Income
from operations
|
|
|
7.8
|
|
|
7.2
|
|
|
7.9
|
|
|
6.8
|
|
Interest income
|
|
|
0.1
|
|
|
0.0
|
|
|
0.1
|
|
|
0.0
|
|
Interest expense
|
|
|
(3.5
|
)
|
|
(0.5
|
)
|
|
(3.9
|
)
|
|
(0.4
|
)
|
Other
income
|
|
|
0.1
|
|
|
0.1
|
|
|
0.0
|
|
|
0.0
|
|
Income
before taxes
|
|
|
4.5
|
|
|
6.8
|
|
|
4.1
|
|
|
6.4
|
|
Income tax expense
|
|
|
(0.9
|
)
|
|
(2.7
|
)
|
|
(0.7
|
)
|
|
(2.5
|
)
|
Net
income
|
|
|
3.6
|
%
|
|
4.1
|
%
|
|
3.4
|
%
|
|
3.9
|
%
|
Champion
Industries, Inc. and Subsidiaries
Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations (continued)
Three
Months Ended April 30, 2008 Compared to Three Months Ended April 30,
2007
Revenues
Total
revenues increased 16.1% in the second quarter of 2008 compared to the same
period in 2007 from $33.8 million to $39.3 million. Printing revenue
increased 3.9% in the second quarter of 2008 to $26.3 million from $25.3
million in the second quarter of 2007. Office products and office
furniture revenue decreased 0.9% in the second quarter of 2008 to $8.4
million from $8.5 million in the second quarter of 2007. The
increase in printing sales was primarily associated with incremental
commercial printing sales associated with the acquisition of The
Herald-Dispatch coupled with organic sales growth. Office products and office
furniture sales were relatively flat in the second quarter of 2008
when compared to the second quarter of 2007. The company
recorded newspaper revenues associated with the acquisition of The
Herald-Dispatch of approximately $4.5 million consisting of advertising revenue
of approximately $3.5 million and $1.0 million in circulation
revenues. The on-line revenues for the three months ended April 30, 2008
approximated
$395,000
and are recorded as a
component of advertising revenue.
Cost
of Sales
Total
cost of sales increased 12.2% in the second quarter of 2008 to $26.5
million from $23.6 million in the second quarter of 2007. Printing
cost of sales in the second quarter of 2008 increased $715,000 over the prior
year and increased as a percentage of printing sales from 70.2% in 2007 to 70.3%
in 2008. The printing gross margin dollar increase resulted from higher
sales volume partially offset by slightly higher cost of goods sold as
a percentage of printing sales. Office products and office furniture
cost of sales decreased in 2008 from 2007 levels due to decreased sales
which were coupled with lower cost of goods sold as a percentage of office
products and office furniture sales of 68.9% in 2007 to 67.5% in 2008, thus
representing improved gross margin percent in the office products and office
furniture segment. Newspaper cost of sales and operating costs as a
percent of newspaper sales were 51.4% for the three months ended April 30,
2008.
Operating
Expenses
In the
second quarter of 2008, selling, general and administrative expenses increased
on a gross dollar basis to $9.7 million from $7.8 million in 2007, an
increase of $1.9 million or 24.8%. As a percentage of total sales, the
selling, general and administrative expenses increased on a quarter to quarter
basis in 2008 to 24.7% from 22.9% in 2007.
The
increase in selling, general and administrative expenses is primarily the result
of the acquisition of The Herald-Dispatch.
Champion
Industries, Inc. and Subsidiaries
Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations (continued)
Income
from Operations and Other Income and Expenses
Income
from operations increased in the second quarter of 2008 to $3.1
million from $2.4 million in the second quarter of 2007. This increase
is the result of the acquisition of The Herald-Dispatch. Other expense (net),
increased approximately $1.2 million from 2007 to 2008 primarily due to
increases in interest expense, resulting from higher average borrowings
associated with the financing to purchase The Herald-Dispatch.
The
Company is subject to various claims and legal actions, as well as various
governmental audits and examinations. In the second quarter of 2008 the
Company was favorably impacted by certain non-tax related multi-state claims
primarily related to various liabilities, specifically related to the Company's
historical accounting treatment. The after tax impact of such items
approximated $220,000. The Company's fiscal year ended 2005 federal tax return
is currently under examination by the Internal Revenue Service and one state tax
return covering fiscal years ended 2004 and 2005 is currently under
examination.
Income
Taxes
The
Company’s effective income tax rate was 20.5% for the second quarter of 2008 and
39.5% for the second quarter of 2007. The decrease in income taxes as a
percentage of income before taxes is primarily related to amortization expense
deductions recorded as a permanent difference due to the acquisition of The
Herald-Dispatch. 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 2008 was $1,395,000 compared to $1,390,000 in
the second quarter of 2007. Basic and diluted earnings per share for the three
months ended April 30, 2008 and 2007 were $0.14.
Six
Months Ended April 30, 2008 Compared to Six Months Ended April 30,
2007
Revenues
Total
revenues increased 15.7% in the first six months of 2008 compared to the same
period in 2007 to $79.6 million from $68.8 million. Printing revenue
increased 0.6% in the six month period ended April 30, 2008 to $51.5
million from $51.2 million in the same period in 2007. Office products
and office furniture revenue increased 5.2% in the six month period ended April
30, 2008 to $18.5 million from $17.6 million in the same period in
2007. The increase in printing sales was due to incremental printing sales
associated with the acquisition of The Herald-Dispatch. The increase in
office products and office furniture sales was primarily due to higher furniture
sales associated with contract furniture projects. The Company recorded
newspaper revenues associated with the acquisition of The Herald-Dispatch of
approximately $9.6 million consisting of advertising revenues of approximately
$7.5 million and $2.1 million in circulation revenues. The on-line
revenues for the six months ended April 30, 2008 approximated $735,000 and are
recorded as a component of advertising revenue.
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 increased 11.8% in the six months ended April 30, 2008 to $53.9
million from $48.2 million in the six months ended April 30, 2007.
Printing cost of sales increased 0.8% in the six months ended April 30, 2008 to
$36.3 million from $36.0 million in the six months ended April 30,
2007. The increase in printing cost of sales was primarily due to the increase
in printing sales coupled with a slight reduction in gross margin percent.
Office products and office furniture cost of sales increased 6.5% in the six
months ended April 30, 2008 to $13.0 million from $12.2 million in the
six months ended April 30, 2007 and increased as a percent of office products
and office furniture sales from 69.4% in 2007 to 70.3% in 2008. The increase in
office products and office furniture cost of sales is attributable to an
increase in office products and office furniture sales as well as
an increase in office products and office furniture cost of sales as a
percent of office products and office furniture sales, thus representing a
decrease in gross margin percent in the office products and office
furniture segment.
Operating
Expenses
During
the six months ended April 30, 2008 compared to the same period in 2007,
selling, general and administrative expenses increased as a percentage of sales
to 24.4% from 23.1%. Total selling, general and administrative expenses (S,G
& A) increased $3.5 million. The increase in selling, general and
administrative expenses is primarily the result of the acquisition of The
Herald-Dispatch.
Income
from Operations and Other Income and Expenses
Income
from operations increased 35.2% in the six month period ended April 30, 2008 to
$6.3 million from $4.6 million in the same period of 2007. This
increase is the result of the acquisition of The
Herald-Dispatch. Other Expense (net), increased approximately $2.8 million
from 2007 to 2008 primarily due to increases in interest expense, resulting from
higher average borrowings associated with the financing to purchase the
Herald-Dispatch.
The
Company is subject to various claims and legal actions, as well as various
governmental audits and examinations. In the second quarter of 2008 the
Company was favorably impacted by certain non-tax related multi-state claims
primarily related to various liabilities, specifically related to the Company's
historical accounting treatment. The after tax impact of such items
approximated $220,000. The Company's fiscal year ended 2005 federal tax return
is currently under examination by the Internal Revenue Service and one state tax
return covering fiscal years ended 2004 and 2005 is currently under
examination.
Income
Taxes
The
Company’s effective income tax rate was 17.7% for the six months ended April 30,
2008, down from 39.5% in the same period of 2007. The decrease in income taxes
as a percentage of income before taxes is primarily related to amortization
expense deductions recorded as a permanent difference due to the acquisition of
The Herald-Dispatch. 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 2008 increased slightly over 2007
levels due to the reasons discussed above. Basic and diluted earnings per
share for the six months ended April 30, 2008 was $0.27 compared to 2007,
at $0.27 and $0.26, respectively.
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.
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 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.
Our
business is subject to seasonal fluctuations that we expect to continue to be
reflected in our operating results in future periods. On a historical basis The
Herald-Dispatch's first and third calendar quarters of the year tended to be the
weakest because advertising volume is at its lowest levels following the holiday
season and a seasonal slowdown in the summer months. Correspondingly, on a
historical basis the fourth calendar quarter followed by the second calendar
quarter tended to be the strongest quarters. The fourth calendar quarter
includes heavy holiday season advertising. Other factors that affect our
quarterly revenues and operating results may be beyond our control, including
changes in the pricing policies of our competitors, the hiring and retention of
key personnel, wage and cost pressures, distribution costs, changes in newsprint
prices and general economic factors
.
Liquidity
and Capital Resources
Net cash
provided by operations for the six months ended April 30, 2008, was $6.0
million compared to net cash provided by operations of $3.1
million during the same period in 2007. This change in net cash from
operations is due primarily to timing changes in assets and liabilities
primarily related to accounts receivable and higher depreciation and
amortization expense resulting from the acquisition of The
Herald-Dispatch.
Net cash
used in investing activities for the six months ended April 30, 2008 was $2.5
million compared to $3.3 million during the same period in 2007. The net
cash used in investing activities during the first six months of 2008 primarily
related to the payment of the working capital adjustment associated with
the acquisition of The Herald-Dispatch and the purchase of equipment and
vehicles. The net cash used in investing activities during the first six months
of 2007, primarily related to the payment of the contingent purchase price for
the Syscan acquisition, capital expenditures in 2007 for the build out of the
facility occupied by Champion Output Solutions and the purchase of equipment and
vehicles.
Net cash
used in financing activities for the six months ended April 30, 2008 was $8.5
million compared to $1.2 million during the same period in 2007. This
increase is primarily due to payments on the line of credit and scheduled
principal payments on indebtedness.
The
Company’s off balance sheet arrangements at April 30, 2008 relate to the Syscan
acquisition and are associated with 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 April 30, 2008 was $21.6 million, a decrease of $3.8
million from October 31, 2007. Management believes that working capital and
operating ratios remain at acceptable levels.
The
Company entered into purchase commitments for mailing equipment with
a manufacturer for approximately $768,000. As a result of the
commitment, the Company paid the manufacturer a deposit of approximately
$209,000 as of April 30, 2008. The company entered into a term loan
agreement in April of 2008 to finance the purchase of this
equipment.
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
4T. 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 1A. Risk
Factors
There were no material changes in risk factors from disclosures
previously reported in our annual report on Form 10-K for the fiscal year ended
October 31, 2007.
Item
4. Submission of Matters to a Vote of Security Holders
At the
annual meeting of shareholders held March 17, 2008, the following matters were
voted upon:
a)
|
Fixing
the number of directors at seven (7) and election of the following
nominees as directors, with votes “for” and “withheld,” as well as broker
non-votes, as follows:
|
Director
|
Votes
“For”
|
Votes
“Withheld”
|
Broker
Non-votes
|
Louis
J. Akers
|
7,924,628
|
1,271,395
|
-0-
|
Philip
E. Cline
|
7,901,639
|
1,294,384
|
-0-
|
Harley
F. Mooney, Jr.
|
9,136,149
|
59,874
|
-0-
|
A.
Michael Perry
|
9,120,161
|
75,862
|
-0-
|
Marshall
T. Reynolds
|
9,006,253
|
189,770
|
-0-
|
Neal
W. Scaggs
|
9,008,150
|
187,873
|
-0-
|
Glenn
W. Wilcox, Sr.
|
9,121,251
|
74,772
|
-0-
|
Item
6. Exhibits
|
a)
Exhibits:
|
|
|
|
|
|
|
(10)
|
Material
Contract
|
|
$767,852
term promissory note with commercial security agreement and business
loan agreement between Champion Industries, Inc. and First Bank of
Charleston, Inc. dated as of April 22, 2008, filed as Exhibit 10.1, 10.2
and 10.3 to Form 8-K dated April 22, 2008, filed April 25, 2008, is
incorporated herein by reference
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|
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(31.1)
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Principal
Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley act of 2002 - Marshall T. Reynolds
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Exhibit
31.1 Page Exhibit 31.1-p1
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(31.2)
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Principal
Financial Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley act of 2002 - Todd R. Fry
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Exhibit
31.2 Page Exhibit 31.2-p1
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(31.3)
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Principal
Operating Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley act of 2002 - Toney K. Adkins
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Exhibit
31.3 Page Exhibit 31.3-p1
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(32)
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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
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Exhibit
32 Page Exhibit 32-p1
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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:
June 6, 2008
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/s/
Marshall T. Reynolds
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Marshall
T. Reynolds
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Chief
Executive Officer
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Date:
June 6, 2008
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/s/
Toney K. Adkins
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Toney
K. Adkins
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President
and Chief Operating Officer
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Date:
June 6, 2008
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/s/
Todd R. Fry
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Todd
R. Fry
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Senior
Vice President and Chief Financial
Officer
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