-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HoasiS6sfuz47MGxpBm4sxq9QSvm7vUfSyH4T/cisobC2oadAywvsi5Z2r6R+8jz dHNO0UQCqbG2woAtNykh+g== 0000912057-96-020391.txt : 19960917 0000912057-96-020391.hdr.sgml : 19960917 ACCESSION NUMBER: 0000912057-96-020391 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPION INDUSTRIES INC CENTRAL INDEX KEY: 0000019149 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 550717455 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21084 FILM NUMBER: 96630589 BUSINESS ADDRESS: STREET 1: 2450 FIRST AVE STREET 2: P O BOX 2968 CITY: HUNTINGTON STATE: WV ZIP: 25728 BUSINESS PHONE: 3045282791 MAIL ADDRESS: STREET 1: 2450 FIRST AVENUE STREET 2: P O BOX 2968 CITY: HUNTINGTON STATE: WV ZIP: 25728 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1996 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 (I.R.S. Employer incorporation or organization) Identification No.) 2450 First Avenue, P. O. Box 2968 Huntington, West Virginia 25728 (Address of principal executives offices) (Zip Code) (304) 528-2791 (Registrant's telephone number, including area code) ----------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ------ ------- 6,483,926 shares of common stock of the Registrant were outstanding at July 31, 1996. CHAMPION INDUSTRIES, INC. INDEX
Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . 2 Consolidated Income Statements . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . 5 Notes to the Consolidated Financial Statements . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . 8 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 10 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Exhibit 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exhibit 99.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Exhibit 99.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
1 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) ASSETS
JULY OCTOBER 31, 31, 1996 1995 ----------- ----------- Current assets Cash and cash equivalents $ 1,992,336 $ 1,350,806 Accounts receivable, net of allowance of $363,000 and $399,000 9,165,009 7,727,176 Inventories 7,075,583 5,339,592 Other current assets 580,348 162,850 Deferred tax assets 272,657 272,657 ----------- ----------- Total current assets 19,085,933 14,853,081 Property and equipment, at cost: Land 647,340 347,340 Buildings and improvements 3,123,824 2,290,002 Machinery and equipment 12,846,644 10,029,560 Equipment under a capital lease 1,698,990 1,161,590 Furniture and fixtures 1,295,960 992,658 Vehicles 1,000,356 467,774 ----------- ----------- 20,613,114 15,288,924 Less accumulated depreciation (8,444,248) (7,353,794) ----------- ----------- 12,168,866 7,935,130 Cash surrender value of officer's life insurance 430,907 447,407 Goodwill, net of accumulated amortization 2,250,023 1,689,780 Other assets 263,967 94,678 ----------- ----------- 2,944,897 2,231,865 ----------- ----------- Total assets $34,199,696 $25,020,076 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 2 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY
JULY OCTOBER 31, 31, 1996 1995 ----------- ---------- Current liabilities: Notes payable $ 1,131,000 $ -- Accounts payable 1,126,933 692,319 Accrued payroll 1,182,361 1,278,825 Taxes accrued and withheld 263,353 369,765 Accrued income taxes 734,427 649,406 Accrued expenses 522,235 218,219 Current portion of long-term debt: Notes payable 781,563 392,007 Capital lease obligations 430,627 208,092 ----------- ----------- Total current liabilities 6,172,499 3,808,633 Long-term debt, net of current portion: Notes payable 2,601,157 736,198 Capital lease obligations 1,184,490 820,389 Deferred income tax liability 1,490,941 932,633 Deferred gain 340,203 353,703 ----------- ----------- Total liabilities 11,789,290 6,651,556 Commitments and contingencies -- -- Shareholders' equity: Common stock, $1 par value, 10,000,000 shares authorized; 6,483,926 and 6,333,946 shares issued and outstanding 6,483,926 6,333,946 Additional paid-in capital 9,342,075 6,788,474 Retained earnings 6,584,405 5,246,100 ----------- ----------- Total shareholders' equity 22,410,406 18,368,520 ----------- ----------- Total liabilities and shareholders' equity $34,199,696 $25,020,076 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 3 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Income Statements (Unaudited)
Three Months Ended Nine Months Ended July 31, July 31, 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Revenues: Printing $ 9,971,364 $ 7,575,036 $30,699,386 $21,789,919 Office products and office furniture 3,986,020 3,588,580 11,967,586 10,368,571 ----------- ----------- ----------- ----------- Total revenues 13,957,384 11,163,616 42,666,972 32,158,490 Cost of sales: Printing 6,646,570 4,758,015 20,734,624 13,681,815 Office products and office furniture 2,424,267 2,201,775 7,628,119 6,607,729 ----------- ----------- ----------- ----------- Total cost of sales 9,070,837 6,959,790 28,362,743 20,289,544 Selling, general and administrative expenses 3,699,874 3,147,417 10,387,747 8,525,806 ----------- ----------- ----------- ----------- Income from operations 1,186,673 1,056,409 3,916,482 3,343,140 Other income (expense): Interest income 10,514 1,150 13,463 9,923 Interest expense (116,437) (51,950) (260,758) (120,538) Other 113,845 13,989 130,491 80,487 ----------- ----------- ----------- ----------- 7,922 (36,811) (116,804) (30,128) ----------- ----------- ----------- ----------- Income before income taxes 1,194,595 1,019,598 3,799,678 3,313,012 Income taxes (490,000) (418,000) (1,558,000) (1,358,000) ----------- ----------- ----------- ----------- Net income $ 704,595 $ 601,598 $ 2,241,678 $ 1,955,012 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Earnings per share $.11 $.09 $.35 $.31 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average shares outstanding 6,439,724 6,336,539 6,420,856 6,305,853 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 4 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended July 31, 1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $2,241,678 $1,955,012 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, amortization and accretion 1,190,798 817,021 Deferred gain on sale of assets (13,500) (24,000) Changes in assets and liabilities: Accounts receivable (219,792) 85,434 Inventories (85,237) (1,106,209) Other current assets (401,879) (22,732) Accounts payable (407,186) (182,790) Accrued payroll (96,464) (28,943) Taxes accrued and withheld (262,335) (186,213) Accrued income taxes 85,021 (1,510,259) Accrued expenses 72,082 109,860 ---------- ---------- Net cash (used in) provided by operations 2,103,186 (93,819) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (2,042,198) (2,151,558) Business acquisitions, net of cash (648,676) 18,206 Increase in cash surrender value of officer's life insurance 16,500 (16,200) Other assets (43,748) 9,517 ---------- ---------- Net cash (used in) provided by investing activities (2,718,122) (2,140,035) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) of notes payable 1,131,000 150,000 Proceeds from term debt and leases 2,698,523 1,455,068 Principal payments on long term debt (1,671,898) (479,618) Dividends paid (901,160) (708,285) ---------- ---------- Net cash (used in) provided by financing activities 1,256,465 417,165 ---------- ---------- Net (decrease) increase in cash 641,529 (1,816,689) Cash and cash equivalents, beginning of period 1,350,807 3,626,321 ---------- ---------- Cash and cash equivalents, end of period $1,992,336 $1,809,632 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements. 5 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BUSINESS OPERATIONS AND BASIS OF PRESENTATION The foregoing financial information is unaudited and has been prepared from the records of Champion Industries, Inc., ("Champion" or the "Company"). In the opinion of management, the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. These interim financial statements should be read in conjunction with the financial statements for the year ended October 31, 1995 and related notes thereto contained in the Company's Form 10-K dated January 25, 1996. The accompanying unaudited financial statements are presented in accordance with generally accepted accounting principles and instructions to the Securities and Exchange Commission Form 10-Q. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the amounts reported in the financial statements. Actual results could differ from these estimates. The accompanying consolidated financial statements of Champion Industries, Inc. and Subsidiaries (the "Company") include the accounts of The Chapman Printing Company, Inc., Bourque Printing, Inc., Dallas Printing Company, Inc., Carolina Cut Sheets, Inc., U.S. Tag & Ticket Company, Inc., Donihe Graphics, Inc., Stationers, Inc. and Smith & Butterfield Co., Inc. 2. INVENTORIES Inventories are 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:
JULY 31, OCTOBER 31, 1996 1995 ---------- ---------- Printing: Raw materials $1,943,356 $1,457,025 Work in process 1,362,408 1,021,460 Finished goods 777,686 583,067 Office products and office furniture 2,992,133 2,278,040 ---------- ---------- $7,075,583 $5,339,592 ---------- ---------- ---------- ----------
3. EARNINGS PER SHARE Earnings per share were computed based upon 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 Company had 6,439,724, 6,336,539, 6,420,856 and 6,305,853 weighted average shares issued and outstanding for the three and nine months ended July 31, 1996 and 1995, as adjusted for a 25% stock dividend (see Note 4). 6 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED 4. Shareholders Equity The Company paid a 25% stock dividend, accounted for as a 5 for 4 stock split, on January 22, 1996 to stockholders of record on January 2, 1996. 1,266,789 shares were issued in the split of which 2,736 fractional shares were repurchased. The Company declared a dividend of five cents per share to be paid on September 27, 1996, to stockholders of record on September 6, 1996. Dividends paid for the three and nine months ended July 31, 1996 and 1995 totaled $.05, $.04, $.14 and $.11 per share. 5. ACQUISITIONS On November 13, 1995, the Company acquired through merger Donihe Graphics, Inc. ("Donihe"), a web printer located in Kingsport, Tennessee. The Company issued 66,768 shares of common stock valued at $1.5 million and $950,000 in cash in exchange for all the issued and outstanding common stock of Donihe. The Company obtained a loan from a bank of $950,000 to finance the Donihe acquisition. The transaction was accounted for under the purchase method. As of September 30, 1995, Donihe had total assets of $2.7 million and annual sales of $6.5 million. On February 2, 1996, the Company purchased various assets and assumed certain liabilities of E.S. Upton Printing Company, Inc. ("Upton"), for approximately $750,000 in cash. The Company obtained a loan from a bank of $750,000 to finance the Upton acquisition. The transaction was accounted for under the purchase method. As of December 31, 1995, Upton had total assets of approximately $750,000 and annual sales of $2.5 million. On July 1, 1996, the Company acquired through merger Smith & Butterfield Co., Inc. ("S & B"), an office products company located in Evansville, Indiana and Owensboro, Kentucky. The company issued 66,666 shares of common stock valued at $1.2 million in exchange for all of the issued and outstanding shares of common stock of S & B. The transaction was accounted for under the purchase method. As of March 31, 1996, S & B had total assets of $1.5 million and annual sales of $5.0 million. The following summarizes the unaudited consolidated pro forma results of operations for the three and six months ended July 31, 1996, assuming the acquisition had been consummated at the beginning of the periods presented.
1996 1995 Nine Nine Months Months ---------- ------------ Revenues 43,001,000 $42,208,000 Net income 1,961,000 1,843,000 Net income per share .30 .28 Common shares outstanding 6,566,681 6,506,681
7 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.
Percentage of Total Revenues Three Months Ended Nine Months Ended July 31, July 31, 1996 1995 1996 1995 ----- ----- ----- ----- Revenues: Printing 71.4% 67.8% 72.0% 67.8% Office products and office furniture 28.6 32.2 28.0 32.2 ----- ----- ----- ----- Total revenues 100.0 100.0 100.0 100.0 Cost of sales: Printing 47.6 42.6 48.6 42.5 Office products and office furniture 17.4 19.7 17.9 20.6 ----- ----- ----- ----- Total cost of sales 65.0 62.3 66.5 63.1 Selling, general and administrative expenses 26.5 28.2 24.3 26.5 ----- ----- ----- ----- Income from operations 8.5 9.5 9.2 10.4 Interest income 0.1 0.0 0.0 0.0 Interest (expense) (0.8) (0.5) (0.6) (0.4) Other income 0.8 0.1 0.3 0.3 ----- ----- ----- ----- Income before taxes 8.6 9.1 8.9 10.3 Income tax expense (3.5) (3.7) (3.6) (4.2) ----- ----- ----- ----- Net income 5.1% 5.4% 5.3% 6.1% ----- ----- ----- ----- ----- ----- ----- -----
THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THREE MONTHS ENDED JULY 31, 1995 Total revenues increased 25.0% in the third quarter 1996 to $14.0 million from $11.1 million in the third quarter 1995. Printing revenue increased 31.6% in third quarter 1996 to $10.0 million from $7.6 million in 1995. This increase was achieved largely through new acquisitions, which increased printing sales by $2.4 million. Office products and office furniture revenue increased 11.1% to $4.0 million in the third quarter 1996 from $3.6 million from the third quarter 1995. Total cost of sales increased 30.3% in the third quarter 1996 to $9.1 million from $7.0 million in the third quarter 1995. Printing cost of sales increased 39.7% in the third quarter 1996 to $6.6 million from $4.8 million in the third quarter 1995, due primarily to increased sales volume. Office products and office furniture cost of sales increased 10.1% in the third quarter 1996 to $2.4 million from $2.2 million in the third quarter 1995 due primarily to volume increases. Selling, general and administrative expenses decreased slightly as a percentage of total revenues to 26.5% in the third quarter of 1996 from 28.2% in the third quarter 1995. 8 Income from operations increased 12.3% in the third quarter 1996 to $1.2 million from $1.1 million in the third quarter 1995. Interest expense on a comparative basis increased by $64,000, reflecting an increase in debt and prime rate increases. For the third quarter 1996, net income increased 17.1% to $705,000 from $602,000 in the third quarter 1995. NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS ENDED JULY 31, 1995 Total revenues increased 32.7% for the nine months ended July 31, 1996 to $42.7 million from $32.2 million for the nine months ended July 31, 1995. Printing revenue increased 40.9% for the nine months ended July 31, 1996 to $30.7 million from $21.8 million in 1995. This increase was achieved through new acquisitions and pass through of paper price increases to customers. Office products and office furniture revenue increased 15.4% to $12.0 million for the nine months ended July 31, 1996 from $10.4 million in 1995. Total cost of sales increased 39.8% for the nine months ended July 31, 1996 to $28.4 million from $20.3 million for the nine months ended July 31, 1995. Printing cost of sales increased 51.6% for the nine months ended July 31, 1996 to $20.7 million from $13.7 million for the nine months ended July 31, 1995 due primarily to increased sales volume. Office products and office furniture cost of sales increased 15.4% for the nine months ended July 31, 1996 to $7.6 million from $6.6 million in 1995 due primarily to increased sales volume. Selling, general and administrative expenses decreased as a percentage of total revenues to 24.3% for the nine months ended July 31, 1996 from 26.5% for the nine months ended July 31, 1995. Income from operations increased 17.2% for the nine months ended July 31, 1996 to $3.9 million from $3.3 million in 1995. Interest expense on a comparative basis increased by $140,000, reflecting an increase in debt and prime rate increases. For the nine months ended July 31, 1996, net income increased 14.7% to $2.2 million from $2.0 million in 1995. SEASONALITY Historically, the Company has experienced a greater portion of its annual sales and net income in the second and fourth quarters than in the first and third quarters. The second quarter generally reflects increased orders for printing of corporate annual reports and proxy statements. A post-Labor Day increase in demand for printing services and office products coincides with the Company's fourth quarter. ACQUISITIONS See Note 5 on page 7 for acquisition details. LIQUIDITY AND CAPITAL RESOURCES Champion's primary sources of funding for the first half 1996 were net income and borrowings, including capital leases. Funds were used primarily to fund acquisitions, purchase equipment, the funding of a decrease in accounts payable, the payment of accrued payroll and accrued payroll taxes, and the payment of regular cash dividends. Working capital on July 31, 1996 was $12.9 million, an increase of $2.5 million from a year ago. The Company's cash balance was $2.0 million on July 31, 1996, a portion of which was invested in highly liquid instruments with maturities of 90 days or less. The Company has short term credit facilities with banks permitting aggregate borrowings of $2.8 million. On July 31, 1996, $1.1 million had been drawn under these facilities. The Company's 9 president personally guarantees a small portion of these credit facilities. There is no assurance that he will continue to do so. The Company has a leasing facility with a bank permitting aggregate financing of $2.0 million in equipment. On July 31, 1996, nothing had been drawn under this facility. The Company expects that the combination of funds available from working capital, borrowings available under the Company's credit facilities (including leases as required) 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. PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits filed for this part of the report are filed as a separate section following the signature page. 1) Exhibit 11, Statement Re Computation of Per Share Earnings, is filed herewith on page 12. 2) Exhibit 27, Financial Data Schedule, is filed herewith (electronic version only). 3) Exhibit 99.1, Financial Statements of Smith & Butterfield Co., Inc., is filed herewith on page 13. 4) Exhibit 99.2, Pro Forma Unaudited Condensed Consolidated Financial Statements, is filed herewith on page 27. b) The following current reports on Form 8-K were filed during the quarter for which this report is filed: 1) Form 8-K dated July 2, 1996, and filed July 11, 1996, informing of the completion of the Company's merger with Smith & Butterfield Co., Inc., of Evansville, Indiana. 2) Form 8-K dated August 21, 1996, and filed August 23, 1996, informing of the Company's purchase of substantially all of the assets of The Merten Company of Cincinnati, Ohio. 10 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHAMPION INDUSTRIES, INC. Date: September 12, 1996 /s/ Marshall T. Reynolds -------------------------------------- Marshall T. Reynolds President and Chief Executive Officer Date: September 12, 1996 /s/ Joseph C. Worth, III -------------------------------------- Joseph C. Worth, III Vice President and Chief Financial Officer 11 EX-11 2 EXHIBIT 11 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS NINE MONTHS ENDED JULY 31, ENDED JULY 31, 1996 1995 1996 1995 --------- --------- ---------- ---------- PRIMARY: Average shares outstanding 6,413,435 6,311,882 6,395,364 6,283,098 Net effect of dilutive stock options - based on treasury stock method using average market price 26,289 24,657 25,492 22,755 --------- --------- ---------- ---------- Totals 6,439,724 6,336,539 6,420,856 6,305,853 --------- --------- ---------- ---------- --------- --------- ---------- ---------- Net income $704,595 $601,598 $2,241,678 $1,955,012 --------- --------- ---------- ---------- --------- --------- ---------- ---------- Per share amount $0.11 $0.09 $0.35 $0.31 --------- --------- ---------- ---------- --------- --------- ---------- ---------- FULLY DILUTED: Average shares outstanding 6,413,435 6,311,882 6,395,364 6,283,098 Net effect of dilutive stock options - based on treasury stock method using period end market price, if greater than the average market price 26,289 28,744 26,433 24,118 --------- --------- ---------- ---------- Totals 6,439,724 6,340,626 6,421,797 6,307,216 --------- --------- ---------- ---------- --------- --------- ---------- ---------- Net income $704,595 $601,598 $2,241,678 $1,955,012 --------- --------- ---------- ---------- --------- --------- ---------- ---------- Per share amount $0.11 $0.09 $0.35 $0.31 --------- --------- ---------- ---------- --------- --------- ---------- ----------
12 EX-27 3 EXHIBIT 27
5 0000019149 CHAMPION INDUSTRIES 1 9-MOS OCT-31-1996 NOV-1-1995 JUL-31-1996 1992336 0 9528009 363000 7075583 19085933 20613114 8444248 34199696 6172499 0 0 0 6483926 15926480 34199696 42666972 42666972 28362743 28362743 10095793 148000 260758 3799678 1558000 2241678 0 0 0 2241678 .35 .35
EX-99.1 4 EXHIBIT 99.1 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 99.1 FINANCIAL STATEMENTS OF SMITH & BUTTERFIELD, CO., INC. CONTENTS
Page ---- Independent Auditor's Report 2 Financial Statements: Statement of Income (Loss) and Retained Earnings 3 Balance Sheet 4 Statement of Cash Flows 5 Notes to Financial Statements 7
13 INDEPENDENT AUDITOR'S REPORT Board of Directors Smith and Butterfield Co., Inc. P. O. Box 3446 Evansville, Indiana 47733 We have audited the accompanying balance sheet of Smith and Butterfield Co., Inc., as of March 31, 1996, and the related statements of income (loss), retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Smith and Butterfield Co., Inc., as of March 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Harding Shymanski and Company P.C. August 16, 1996 14 SMITH AND BUTTERFIELD CO., INC. STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS Year Ended March 31, 1996 Net sales 5,032,486 100.0 Cost of sales 3,544,504 70.4 --------- ----- GROSS PROFIT 1,487,982 29.6 Operating expenses 1,549,230 30.8 --------- ----- OPERATING INCOME (LOSS) (61,248) (1.2) Other Income (expense) Interest (42,749) (.8) Other - net 6,714 .1 --------- ----- (36,035) (.7) --------- ----- INCOME (LOSS) BEFORE INCOME TAXES (97,283) (1.9) Income taxes (benefit) (4,195) (.1) --------- ----- NET INCOME (LOSS) (93,088) (1.8) ----- ----- Retained earnings at beginning of year 413,414 --------- Retained earnings at end of year 320,326 --------- ---------
See auditor's report and accompanying notes 15 SMITH AND BUTTERFIELD CO., INC. BALANCE SHEET March 31, 1996 ASSETS Current Assets Cash 1,425 Accounts and notes receivable Trade, less allowance for doubtful accounts $4,200 504,800 Shareholder 10,000 Inventories 660,943 Other current assets 53,921 --------- TOTAL CURRENT ASSETS 1,231,089 --------- Other Assets Notes receivable 84,959 Other 89,814 --------- 174,773 --------- Property and Equipment 406,386 Less accumulated depreciation (296,377) --------- 110,009 --------- 1,515,871 --------- ---------
See auditor's report and accompanying notes 16 SMITH AND BUTTERFIELD CO., INC. BALANCE SHEET (CONTINUED) March 31, 1996 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Checks written against future deposits 48,448 Notes payable 321,399 Current maturities of long-term debt 59,129 Accounts payable 269,301 Accrued expenses 39,515 Accrued taxes 95,529 --------- TOTAL CURRENT LIABILITIES 833,321 --------- Long-Term Debt 110,587 --------- Shareholders' Equity Common stock, no par value; authorized 1,000 shares; issued and outstanding 500 shares 200,400 Additional paid-in capital 51,237 Retained earnings 320,326 --------- 571,963 --------- 1,515,871 --------- ---------
See auditor's report and accompanying notes 17 SMITH AND BUTTERFIELD CO., INC. STATEMENT OF CASH FLOWS Year Ended March 31, 1996 Cash Flows from Operating Activities Net income (loss) (93,088) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 22,296 Amortization 10,800 Provision for doubtful accounts 2,526 Changes in assets and liabilities: Decrease (increase) Accounts and notes receivable (83,789) Inventories 177,543 Other current assets (8,290) Increase (decrease) Accounts payable 35,990 Accrued expenses (200) Accrued taxes (2,572) ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 61,216 ------- Cash Flows from Investing Activities Payments for other assets (3,301) Purchase of property and equipment (1,689) ------- NET CASH USED IN INVESTING ACTIVITIES (4,990) -------
See auditor's report and accompanying notes 18 SMITH AND BUTTERFIELD CO., INC. STATEMENT OF CASH FLOWS (CONTINUED) Year Ended March 31, 1996 Cash Flows from Financing Activities Decrease in checks written against future deposits (28,363) Net payments on short-term debt (61,772) Principal payments on long-term borrowings (53,652) Proceeds from long-term borrowings 87,661 ------- NET CASH USED IN FINANCING ACTIVITIES (56,126) ------- Net increase in cash 100 Cash at beginning of year 1,325 ------- Cash at end of year 1,425 ------- ------- Supplemental Disclosures of Cash Flow Information Cash payments for: Interest 42,749 ------- ------- Income tax refunds received 6,267 ------- -------
See auditor's report and accompanying notes 19 SMITH AND BUTTERFIELD CO., INC. NOTES TO FINANCIAL STATEMENTS March 31, 1996 NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS The Company is a wholesaler and retailer of office supplies, equipment, and furniture, selling primarily to customers in the Evansville, Indiana and Owensboro, Kentucky area. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of receivables. The Company attempts to minimize accounts receivable credit risk by reviewing customer credit history before extending credit and by monitoring customers' credit exposure on a continuing basis. The Company establishes an allowance for possible losses on accounts receivable, when necessary, based upon factors surrounding the credit risk of specific customers, historical trends, and other information. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. PROPERTY, EQUIPMENT, AND DEPRECIATION Property and equipment are stated at cost. Provisions for depreciation of property and equipment have been computed on the straight-line and accelerated methods using estimated useful lives. OTHER ASSETS Provisions for amortization of noncompetition agreements have been computed on the straight-line method over ten years. DEFERRED TAXES Deferred taxes are provided on temporary differences between the financial reporting and tax basis of certain assets and liabilities. Those temporary differences relate primarily to accrued expenses and net operating loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. 20 SMITH AND BUTTERFIELD CO., INC. NOTES TO FINANCIAL STATEMENTS March 31, 1996 NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS Due to their short maturities, carrying amounts approximate fair value for cash, accounts and notes receivable, accounts payable, short-term borrowings, and other accrued liabilities. The estimated fair value of long-term debt is based on borrowing rates currently available to the Company for loans with similar terms and maturities. This fair value approximates the carrying amount of long-term debt. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment at March 31, 1996 consisted of the following:
Accumulated Cost Depreciation ------- ------------ Leasehold improvements 191,770 101,607 Furniture and equipment 151,845 138,616 Autos and trucks 62,771 56,154 ------- ------- 406,386 296,377 ------- ------- ------- -------
Depreciation expense for the year ended March 31, 1996 was $22,296. 21 SMITH AND BUTTERFIELD CO., INC. NOTES TO FINANCIAL STATEMENTS March 31, 1996 NOTE 3 - NOTES PAYABLE Notes payable at March 31, 1996 consisted of the following: Note payable to bank, prime plus 1%, secured by accounts receivable, inventories, equipment, and personal guaranty of shareholder, due July, 1996 277,399 Notes payable to bank, prime plus 1%, unsecured, due July, 1996 44,000 ------- 321,399 ------- -------
The Company has an unused letter of credit of $50,000 at March 31, 1996. NOTE 4 - LONG-TERM DEBT Long-term debt at March 31, 1996 consisted of the following:
Current Long-Term ------- --------- Note payable to individual, 12.25%, $1,449 monthly, unsecured, due May, 1999 11,239 30,301 Note payable to bank, prime plus 1%, $1,831 monthly plus interest, unsecured, due November, 1996 12,125 -0- Covenant not-to-compete, $900 monthly, unsecured, due June, 1999 10,800 23,400 Note payable to finance company, 11.7%, $2,766 monthly, secured by equipment, due January, 1999 24,965 56,886 ------ ------- 59,129 110,587 ------ ------- ------ -------
22 SMITH AND BUTTERFIELD CO., INC. NOTES TO FINANCIAL STATEMENTS March 31, 1996 NOTE 4 - LONG-TERM DEBT (CONTINUED) Long-term debt maturities are as follows: 1997 59,129 1998 52,332 1999 54,977 2000 3,278 ------- 169,716 ------- -------
Interest cost for short-term and long-term debt for the year ended March 31, 1996 was $42,749. NOTE 5 - CONTINGENCY It is the policy of the Company to act as a self-insurer for its employee health insurance programs. Losses and claims are accrued as incurred. Amounts charged to income for such losses were $119,563 for the year ended March 31, 1996. NOTE 6 - INCOME TAXES (BENEFIT) The components of the income taxes (benefit) for the year ended March 31, 1996 are as follows: Current: State (4,195) ------ ------
The provision for income taxes (benefit) for the year ended March 31, 1996 differs from the amount obtained by applying the U.S. federal income tax rate to pretax income due to the following: Computed expected tax expense (benefit) (21,326) Increase (decrease) in taxes resulting from: Income taxes at highest rates 7,459 State income taxes (benefit), net of federal expense (3,566) Change in valuation allowance 13,238 ------- (4,195) ------- -------
23 SMITH AND BUTTERFIELD CO., INC. NOTES TO FINANCIAL STATEMENTS March 31, 1996 NOTE 6 - INCOME TAXES (CONTINUED) At March 31, 1996, the Company had approximately $304,000 of net operating loss carryforwards to reduce future federal taxable income. These carryforwards expire in various years through 2010. Net deferred tax assets at March 31, 1996 are comprised of the following: Accrued vacations 4,954 Shareholder accrual 717 Contributions carryover 2,102 Net operating loss carryforward 55,292 ------- 63,065 Valuation allowance for deferred tax assets (61,063) ------- 2,002 ------- -------
NOTE 7 - EMPLOYEE BENEFIT PLAN The Company has a defined benefit pension plan covering substantially all employees. The Company's policy is to make annual contributions to the plan equal to the amount accrued for pension expense. The following table sets forth the plan's funded status and amounts recognized in the Company's balance sheet at March 31, 1996: Actuarial present value of the accumulated benefit obligation, including vested benefits of $1,907,284 1,979,369 --------- ---------
24 SMITH AND BUTTERFIELD CO., INC. NOTES TO FINANCIAL STATEMENTS March 31, 1996 NOTE 7 - EMPLOYEE BENEFIT PLAN (CONTINUED) Actuarial present value of projected benefit obligation, for service rendered to date 1,979,369 Plan assets at fair value 1,960,843 --------- Projected benefit obligation in excess of plan assets (18,526) Unrecognized net loss from past experience different from that assumed and effect of changes in assumptions 108,697 Unrecognized net asset at March 31, 1995 being recognized over 15 years (67,896) --------- Prepaid pension cost included in other assets 22,275 --------- --------- Net pension cost consists of: Service cost--benefits earned during the period 22,576 Interest cost on projected benefit obligation 148,195 Actual return on plan assets (183,808) Net amortization and deferral 19,426 --------- Net periodic pension cost 6,389 --------- ---------
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.5 percent and 3 percent, respectively. The expected long-term rate of return on assets was 8.5 percent. Effective October 31, 1995, the Company froze the accrued benefits of this plan. Annuity contracts were purchased for the accumulated benefits of retired employees subsequent to the year ended March 31, 1996. The Company adopted a 401(k) plan on January 1, 1996 for all employees who have completed one year of service and attained the age of 21. Employees may participate by contributing a percentage of their salary, a portion of which is matched by the Company. The Company's matching contribution is payable at the end of the plan year. 25 SMITH AND BUTTERFIELD CO., INC. NOTES TO FINANCIAL STATEMENTS March 31, 1996 NOTE 8 - LEASES The Company rents its facilities under various operating lease agreements. The total rental expense for year ended March 31, 1996 was $224,617. The Company paid rent to a shareholder of the Company in the amount of $20,393 for the year ended March 31, 1996. In addition, the Company paid rent to a related trust under long-term real estate leases totaling $126,771 for the year ended March 31, 1996. At March 31, 1996, aggregate future minimum rental payments required under the noncancelable operating leases are as follows:
YEARS ENDING MARCH 31, RELATED PARTIES OTHER TOTAL - ---------------------- --------------- ----- ----- 1997 121,140 55,200 176,340 1998 116,640 24,600 141,240 1999 116,640 14,400 131,040 2000 68,040 14,400 82,440 2001 -0- 14,400 14,400 Thereafter -0- 16,800 16,800 ------- ------- ------- 422,460 139,800 562,260 ------- ------- ------- ------- ------- -------
NOTE 9 - SUBSEQUENT EVENTS The Company and its sole shareholder entered into an agreement of merger with Champion Industries, Inc. to be effective May 14, 1996. Under this agreement, the Company will merge with a wholly-owned subsidiary of Champion and the surviving company shall retain the name "Smith and Butterfield Co., Inc." 26 EX-99.2 5 EXHIBIT 99.2 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 99.2 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CHAMPION INDUSTRIES, INC., DONIHE GRAPHICS, INC. AND SMITH & BUTTERFIELD CO., INC. On November 13, 1995, Champion Industries, Inc. ("Champion") acquired all the outstanding common stock of Donihe Graphics, Inc. ("Donihe") in exchange for cash of $950,000 and 66,768 (83,460 post-split) shares of its common stock with a fair market value of $1,500,000. On July 1, 1996, Champion exchanged 66,666 shares of its common stock with a fair market value of $1,200,000 for all the issued and outstanding common stock of Smith & Butterfield Co., Inc. ("S & B"). These transactions were accounted for using the purchase method of accounting. The following pro forma condensed consolidated balance sheet as of April 30, 1996, and the pro forma condensed consolidated income statement for the six months ended April 30, 1996, and for the year ended October 31, 1995, give effect to the acquisition of 100% of the outstanding common shares of Donihe and S & B by Champion. The pro forma information is based on the historical financial statements of Champion as of and for the six months ended April 30, 1996; Donihe for the year ended September 30, 1995; and S & B as of and for the six months ended March 31, 1996 and for the twelve months ended September 30,1995. The pro forma consolidated financial statements have been prepared by Champion management based upon the financial statements of Donihe and S & B. These pro forma consolidated financial statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro forma consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes of Champion and Donihe contained in Champion's Form 10-K dated January 25, 1996, and the audited financial statements and notes of S & B contained elsewhere herein. 27 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
CHAMPION INDUSTRIES, INC. SMITH & AND SUBSIDIARIES BUTTERFIELD PRO FORMA HISTORICAL HISTORICAL CONSOLIDATED APRIL 30, MARCH 31, PRO FORMA APRIL 30, 1996 1996 ADJUSTMENTS 1996 ---------------- ----------- ----------- ----------- Current assets: Cash $ 1,535,341 ($47,023) $ -- $ 1,488,318 Accounts receivable 9,237,433 514,800 -- 9,752,233 Inventories 6,034,149 660,943 -- 6,695,092 Other current assets 320,218 53,921 -- 374,139 Deferred tax asset 272,657 -- -- 272,657 ----------- ---------- ---------- ----------- 17,399,798 1,182,641 -- 18,582,439 ----------- ---------- ---------- ----------- Property and equipment, at cost: Land 647,340 -- -- 647,340 Buildings and improvements 3,033,824 209,193(1)(4) (149,193) 3,093,824 Machinery and equipment 11,932,163 -- -- 11,932,163 Equipment under capital lease 1,698,990 -- -- 1,698,990 Furniture and fixtures 1,207,539 128,535(4) (68,535) 1,267,539 Vehicles 758,698 68,658(4) (38,658) 788,698 ----------- ---------- ---------- ----------- 19,278,554 406,386 (256,386) 19,428,554 Less accumulated depreciation (8,043,955) (296,377)(1)(4)(5) 286,627 (8,053,705) ----------- ---------- ---------- ----------- 11,234,599 110,009 30,241 11,374,849 ----------- ---------- ---------- ----------- Cash surrender value of officers' life insurance 436,307 -- -- 436,307 Excess cost over net assets of acquired business, net of amortization 1,622,884 --(2)(4)(6) 791,981 2,414,865 Other assets 160,011 174,773(3) 34,546 369,330 ----------- ---------- ---------- ----------- 2,219,202 174,773 826,527 3,220,502 ----------- ---------- ---------- ----------- $30,853,599 $1,467,423 $ 856,768 $33,177,790 ----------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
See notes to the pro forma unaudited condensed consolidated financial statements. 28 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY
CHAMPION INDUSTRIES, INC. SMITH & AND SUBSIDIARIES BUTTERFIELD Pro Forma HISTORICAL HISTORICAL Consolidated APRIL 30, MARCH 31, Pro Forma April 30, 1996 1996 Adjustments 1996 ---------------- ----------- ----------- ----------- Current liabilities: Notes payable $ 900,000 $ 321,399 $ -- $ 1,221,399 Term debt, current portion 671,821 59,129 -- 730,950 Capital lease obligation, current 343,884 -- -- 343,884 Accounts payable 919,227 269,301(3) 38,384 1,226,912 Accrued payroll 823,001 -- -- 823,001 Taxes accrued and withheld 269,990 95,529 -- 365,519 Accrued income taxes 897,906 --(7) (5,000) 892,906 Accrued expenses 480,903 39,515(2) 172,470 692,888 ----------- ---------- ---------- ----------- Total current liabilities 5,306,732 784,873 205,854 6,297,459 Term debt, net of current portion 1,908,725 110,587 -- 2,019,312 Capital lease obligation, long-term 976,324 -- -- 976,324 Intercompany -- -- -- -- Deferred income taxes 1,490,941 --(4) 31,000 1,521,941 Deferred gain 344,703 -- -- 344,703 ----------- ---------- ---------- ----------- Total liabilities 10,027,425 895,460 236,854 11,159,739 ----------- ---------- ---------- ----------- Shareholders' equity: Common stock 6,417,260 200,400(4) (133,734) 6,483,926 Additional paid-in capital 8,208,741 --(4) 1,133,334 9,342,075 Retained earnings 6,200,173 371,563(4) (379,686) 6,192,050 ----------- ---------- ---------- ----------- Total shareholders' equity 20,826,174 571,963 619,914 22,018,051 ----------- ---------- ---------- ----------- $30,853,599 $1,467,423 $ 856,768 $33,177,790 ----------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
See notes to the pro forma unaudited condensed consolidated financial statements. 29 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) SIX MONTHS ENDED APRIL 30, 1996
CHAMPION INDUSTRIES, INC. AND SMITH & SUBSIDIARIES BUTTERFIELD PRO FORMA HISTORICAL HISTORICAL CONSOLIDATED APRIL 30, MARCH 31, PRO FORMA APRIL 30, 1996 1996 ADJUSTMENTS 1996 -------------- ------------- ----------- ------------ Revenues: Printing $20,728,022 $0 $0 $20,728,022 Office products and office furniture 7,981,566 2,576,502 0 10,558,068 ----------- --------- --------- ----------- Total revenues 28,709,588 2,576,502 0 31,286,090 ----------- --------- --------- ----------- Cost of sales: Printing 14,088,054 0 0 14,088,054 Office products and office furniture 5,203,852 1,760,389 0 6,964,241 ----------- --------- --------- ----------- Total cost of sales 19,291,906 1,760,389 0 21,052,295 ----------- --------- --------- ----------- Selling, general and (2)(3) administrative expenses 6,687,873 802,351 (5)(6) (21,518) 7,468,706 ----------- --------- --------- ----------- Income from operations 2,729,809 13,762 21,518 2,765,089 ----------- --------- --------- ----------- Other income (expense): Interest (expense) (144,321) (20,313) 0 (164,634) Interest income 2,949 0 0 2,949 Other 16,646 5,794 (1) (34,641) (12,201) ----------- --------- --------- ----------- (124,726) (14,519) (34,641) (173,886) ----------- --------- --------- ----------- Income before income taxes 2,605,083 (757) (13,123) 2,591,203 Income tax expense (1,068,000) 4,195 (7) 5,000 (1,058,805) ----------- --------- --------- ----------- Net income $1,537,083 $3,438 ($8,123) $1,532,398 ----------- --------- --------- ----------- ----------- --------- --------- ----------- Earnings per share $0.24 $0.24 ----- ----- ----- ----- Weighted average shares outstanding 6,436,359 6,503,025 --------- --------- --------- ---------
See notes to the pro forma unaudited condensed consolidated financial statements. 30 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) Year Ended October 31, 1995
HISTORICAL CHAMPION HISTORICAL PRO FORMA INDUSTRIES, DONIHE CONSOLIDATED INC. & GRAPHICS, DONIHE AND SUBSIDIARIES INC. CHAMPION OCTOBER 31, SEPTEMBER 30, PRO FORMA OCTOBER 31, 1995 1995 ADJUSTMENTS 1995 Revenues: Printing $30,269,131 $6,484,150 $ - $36,753,281 Office products and - - 14,532,229 office furniture 14,532,229 ------------------------------------------------------------------------ Total revenues 44,801,360 6,484,150 - 51,285,510 ------------------------------------------------------------------------ Cost of sales: Printing 18,971,767 5,319,795 - 24,245,812 Office products and 9,405,212 office furniture 9,670,370 - (8) 33,436 ------------------------------------------------------------------------ Total cost of sales 28,642,137 5,319,795 33,436 33,651,024 ------------------------------------------------------------------------ Selling, general and (9) administrative expenses 11,162,197 1,355,012 (10) 4,842 12,866,395 Income from operations 4,997,026 (190,657) (38,278) 4,768,091 ------------------------------------------------------------------------ Other income (expense): Interest (expense) (185,255) (39,936)(11) (62,078) (287,267) Interest income 10,705 30,553 - 41,258 Other 113,505 107,793 - 221,298 ------------------------------------------------------------------------ (61,045) 98,410 (62,076) (24,711) ------------------------------------------------------------------------ Income before income taxes 4,935,981 (92,247) (100,354) 4,743,380 Income tax expense (1,995,000) (600)(12) 34,120 (1,961,480) ------------------------------------------------------------------------ Net income $2,940,981 ($92,847) ($66,234) $ 2,781,900 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Earnings per share $0.47 - - $0.43 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Weighted average shares outstanding 6,319,153 - - 6,402,613 ------------------------------------------------------------------------ ------------------------------------------------------------------------ HISTORICAL SMITH & BUTTERFIELD PRO FORMA HISTORICAL CONSOLIDATED SEPTEMBER 30, PRO FORMA OCTOBER 31, 1996 ADJUSTMENTS 1995 Revenues: Printing $ - $ - $36,753,281 Office products and office furniture 5,105,683 - 19,637,912 ------------------------------------------------------- Total revenues 5,105,683 - 56,391,193 ------------------------------------------------------- Cost of sales: Printing - - 24,245,812 Office products and office furniture 3,687,521 - 13,092,733 ------------------------------------------------------- Total cost of sales 3,687,521 - 37,338,545 ------------------------------------------------------- Selling, general and (2)(3) administrative expenses 1,581,692 (5) (43,036) 14,405,051 Income from operations (163,530) 43,036 4,647,597 ------------------------------------------------------- Other income (expense): Interest (expense) (45,531) - (332,798) Interest income - - 41,258 Other 5,598 (1) (34,641) 192,255 ------------------------------------------------------- (39,933) (34,641) (99,285) ------------------------------------------------------- Income before income taxes (203,463) 8,395 4,548,312 Income tax expense (154) (7) (3,000) (1,964,634) ------------------------------------------------------- Net income ($203,617) $5,395 $2,583,678 ------------------------------------------------------- ------------------------------------------------------- Earnings per share $0.40 ------------------------------------------------------- ------------------------------------------------------- Weighted average shares outstanding - - 6,469,819 ------------------------------------------------------- -------------------------------------------------------
See notes to the pro forma unaudited condensed consolidated financial statements. 31 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Certain reclassifications have been made to S & B historical financial statements to conform to Champion classifications. (1) To record effect of abandoning leases on capitalized leasehold improvements.
Accumulated depreciation $ 28,323 Loss on abandonment 34,641 -------- Building & improvements $ 62,964 -------- --------
(2) To record acceleration of lease obligations that were canceled. (3) To record capitalization of organization expenses and amortize these expenses for periods presented over five years. (4) Under purchase accounting, S & B's assets and liabilities are required to be adjusted to their estimated fair values. The estimated fair values have been determined by Champion based upon the most current information. The following are the pro forma adjustments made to reflect S & B's assets and liabilities at their respective fair values.
DESCRIPTION FAIR VALUE S & B HISTORICAL ADJUSTMENT Building & improvements $ 60,000 $146,229 ($ 86,229) Furniture & fixtures 60,000 128,535 (68,535) Vehicles 30,000 68,658 (38,658) Accumulated depreciation 0 (263,160) 263,160 ---------- -------- ---------- $150,000 $ 80,262 $ 69,738 ---------- -------- ---------- ---------- -------- ---------- Common stock $ 66,666 $200,400 ($ 133,734) Additional paid-in capital 1,134,334 0 1,134,334 Retained earnings 0 371,563 (371,563) ---------- -------- ---------- $1,200,000 $571,963 $ 628,037 ---------- -------- ---------- ---------- -------- ----------
32 CHAMPION INDUSTRIES, INC. AND SMITH & BUTTERFIELD COMPANY, INC. NOTES TO THE PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Purchase price allocation: Total purchase price $1,200,000 Allocation of purchase price: Building & improvements (69,738) Accrued other expenses 218,845 Deferred taxes 31,000 Book value of assets acquired (571,963) ---------- Excess cost over net assets of acquired business (goodwill) $ 808,144 ---------- ----------
(5) To record depreciation at the stepped up values and reverse depreciation taken at historical cost. The estimated useful lives are as follows:
Building & improvements 8 years Furniture & fixtures 10 years Vehicles 5 years
(6) To record amortization expense of goodwill based on a useful life of 25 years. (7) To record income taxes at an applicable tax rate of 41%. (8) To record depreciation at the stepped-up values. The estimated useful lives are as follows:
Building & improvements 15 Years Machinery & equipment 10 Years Equipment under capital leases 10 Years Furniture & fixtures 5 Years
(9) To reflect capitalization and amortization of loan origination costs:
Total loan costs $ 2,375 Less current amortizaton 396 ------- $ 1,979 ------- -------
33 CHAMPION INDUSTRIES, INC. AND SMITH & BUTTERFIELD COMPANY, INC. NOTES TO THE PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (10) To reflect capitalization and amortization of organizational costs: Total organization costs $ 22,231 Less current amortization 4,446 ----------- $ 17,785 --------- --------- (11) To record first year's debt, principal reduction of $135,720 plus interest expense of $62,078. (12) To reflect income tax effect of pro forma adjustments at a 34% rate. 34 -----END PRIVACY-ENHANCED MESSAGE-----