<PAGE>
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.
<PAGE>
CHAMPION INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . 2
Consolidated Income Statements . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . 5
Notes to 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
</TABLE>
1
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
JULY OCTOBER
31, 31,
1996 1995
----------- -----------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY OCTOBER
31, 31,
1996 1995
----------- ----------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
1996 1995
---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
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:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
1996 1995
Nine Nine
Months Months
---------- ------------
<S> <C> <C>
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
</TABLE>
7
<PAGE>
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.
<TABLE>
<CAPTION>
Percentage of Total Revenues
Three Months Ended Nine Months Ended
July 31, July 31,
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
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%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
1996 1995 1996 1995
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
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
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000019149
<NAME> CHAMPION INDUSTRIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> JUL-31-1996
<CASH> 1992336
<SECURITIES> 0
<RECEIVABLES> 9528009
<ALLOWANCES> 363000
<INVENTORY> 7075583
<CURRENT-ASSETS> 19085933
<PP&E> 20613114
<DEPRECIATION> 8444248
<TOTAL-ASSETS> 34199696
<CURRENT-LIABILITIES> 6172499
<BONDS> 0
0
0
<COMMON> 6483926
<OTHER-SE> 15926480
<TOTAL-LIABILITY-AND-EQUITY> 34199696
<SALES> 42666972
<TOTAL-REVENUES> 42666972
<CGS> 28362743
<TOTAL-COSTS> 28362743
<OTHER-EXPENSES> 10095793
<LOSS-PROVISION> 148000
<INTEREST-EXPENSE> 260758
<INCOME-PRETAX> 3799678
<INCOME-TAX> 1558000
<INCOME-CONTINUING> 2241678
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2241678
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 99.1
FINANCIAL STATEMENTS OF SMITH & BUTTERFIELD, CO., INC.
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
13
<PAGE>
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
<PAGE>
SMITH AND BUTTERFIELD CO., INC.
STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS
Year Ended March 31, 1996
<TABLE>
<S> <C> <C>
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
---------
---------
</TABLE>
See auditor's report and accompanying notes
15
<PAGE>
SMITH AND BUTTERFIELD CO., INC.
BALANCE SHEET
March 31, 1996
<TABLE>
<S> <C>
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
---------
---------
</TABLE>
See auditor's report and accompanying notes
16
<PAGE>
SMITH AND BUTTERFIELD CO., INC.
BALANCE SHEET (CONTINUED)
March 31, 1996
<TABLE>
<S> <C>
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
---------
---------
</TABLE>
See auditor's report and accompanying notes
17
<PAGE>
SMITH AND BUTTERFIELD CO., INC.
STATEMENT OF CASH FLOWS
Year Ended March 31, 1996
<TABLE>
<S> <C>
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)
-------
</TABLE>
See auditor's report and accompanying notes
18
<PAGE>
SMITH AND BUTTERFIELD CO., INC.
STATEMENT OF CASH FLOWS (CONTINUED)
Year Ended March 31, 1996
<TABLE>
<S> <C>
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
-------
-------
</TABLE>
See auditor's report and accompanying notes
19
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------- ------------
<S> <C> <C>
Leasehold improvements 191,770 101,607
Furniture and equipment 151,845 138,616
Autos and trucks 62,771 56,154
------- -------
406,386 296,377
------- -------
------- -------
</TABLE>
Depreciation expense for the year ended March 31, 1996 was $22,296.
21
<PAGE>
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:
<TABLE>
<S> <C>
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
-------
-------
</TABLE>
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:
<TABLE>
<CAPTION>
Current Long-Term
------- ---------
<S> <C> <C>
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
------ -------
------ -------
</TABLE>
22
<PAGE>
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:
<TABLE>
<S> <C>
1997 59,129
1998 52,332
1999 54,977
2000 3,278
-------
169,716
-------
-------
</TABLE>
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:
<TABLE>
<S> <C>
Current:
State (4,195)
------
------
</TABLE>
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:
<TABLE>
<S> <C>
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)
-------
-------
</TABLE>
23
<PAGE>
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:
<TABLE>
<S> <C>
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
-------
-------
</TABLE>
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:
<TABLE>
<S> <C>
Actuarial present value of the accumulated benefit
obligation, including vested benefits of $1,907,284 1,979,369
---------
---------
</TABLE>
24
<PAGE>
SMITH AND BUTTERFIELD CO., INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
NOTE 7 - EMPLOYEE BENEFIT PLAN (CONTINUED)
<TABLE>
<S> <C>
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
---------
---------
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
YEARS ENDING MARCH 31, RELATED PARTIES OTHER TOTAL
- ---------------------- --------------- ----- -----
<S> <C> <C> <C>
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
------- ------- -------
------- ------- -------
</TABLE>
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
<PAGE>
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
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
CHAMPION
INDUSTRIES, INC. SMITH &
AND SUBSIDIARIES BUTTERFIELD PRO FORMA
HISTORICAL HISTORICAL CONSOLIDATED
APRIL 30, MARCH 31, PRO FORMA APRIL 30,
1996 1996 ADJUSTMENTS 1996
---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
See notes to the pro forma unaudited condensed
consolidated financial statements.
28
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CHAMPION
INDUSTRIES, INC. SMITH &
AND SUBSIDIARIES BUTTERFIELD Pro Forma
HISTORICAL HISTORICAL Consolidated
APRIL 30, MARCH 31, Pro Forma April 30,
1996 1996 Adjustments 1996
---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
See notes to the pro forma unaudited condensed
consolidated financial statements.
29
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
CHAMPION
INDUSTRIES,
INC. AND SMITH &
SUBSIDIARIES BUTTERFIELD PRO FORMA
HISTORICAL HISTORICAL CONSOLIDATED
APRIL 30, MARCH 31, PRO FORMA APRIL 30,
1996 1996 ADJUSTMENTS 1996
-------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
See notes to the pro forma unaudited condensed
consolidated financial statements.
30
<PAGE>
CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
Year Ended October 31, 1995
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
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
------------------------------------------------------------------------
------------------------------------------------------------------------
<CAPTION>
HISTORICAL
SMITH &
BUTTERFIELD PRO FORMA
HISTORICAL CONSOLIDATED
SEPTEMBER 30, PRO FORMA OCTOBER 31,
1996 ADJUSTMENTS 1995
<S> <C> <C> <C>
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
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
See notes to the pro forma unaudited condensed consolidated financial
statements.
31
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
Accumulated depreciation $ 28,323
Loss on abandonment 34,641
--------
Building & improvements $ 62,964
--------
--------
</TABLE>
(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.
<TABLE>
<CAPTION>
DESCRIPTION FAIR VALUE S & B HISTORICAL ADJUSTMENT
<S> <C> <C> <C>
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
---------- -------- ----------
---------- -------- ----------
</TABLE>
32
<PAGE>
CHAMPION INDUSTRIES, INC. AND SMITH & BUTTERFIELD COMPANY, INC.
NOTES TO THE PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
<S> <C>
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
----------
----------
</TABLE>
(5) To record depreciation at the stepped up values and reverse
depreciation taken at historical cost. The estimated useful lives are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Building & improvements 8 years
Furniture & fixtures 10 years
Vehicles 5 years
</TABLE>
(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:
<TABLE>
<CAPTION>
<S> <C>
Building & improvements 15 Years
Machinery & equipment 10 Years
Equipment under capital leases 10 Years
Furniture & fixtures 5 Years
</TABLE>
(9) To reflect capitalization and amortization of loan origination costs:
<TABLE>
<CAPTION>
<S> <C>
Total loan costs $ 2,375
Less current amortizaton 396
-------
$ 1,979
-------
-------
</TABLE>
33
<PAGE>
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
